Evolucia Inc. - FORM 10-Q - November 14, 2013

Attached files

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EX-32.2 - EXHIBIT 32.2 - Evolucia Inc.	ex322.htm
EX-31.1 - EXHIBIT 31.1 - Evolucia Inc.	ex311.htm
EX-31.2 - EXHIBIT 31.2 - Evolucia Inc.	ex312.htm
EX-32.1 - EXHIBIT 32.1 - Evolucia Inc.	ex321.htm
EXCEL - IDEA: XBRL DOCUMENT - Evolucia Inc.	Financial_Report.xls

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

x	QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2013

o	TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT

For the transition period from ______________to _______________.

Commission File Number 000-53590

EVOLUCIA INC.

(Exact name of small business issuer as specified in its charter)

Nevada		98-0550703
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

7040 Professional Parkway East

Sarasota, FL 34240

(Address of principal executive offices)

941-751-6800

(Issuer’s telephone number)

(Former name, former address and former fiscal year if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o	Accelerated filer o	Smaller reporting company x
Non-accelerated filer o (Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

The number of shares of the Registrant’s Common Stock outstanding as of November 14, 2013 was 1,253,755,212.

FORM 10-Q

INDEX



PART I: FINANCIAL INFORMATION			3

ITEM 1. FINANCIAL STATEMENTS			3

CONSOLIDATED BALANCE SHEETS			3

CONSOLIDATED STATEMENTS OF OPERATIONS			4

CONSOLIDATED STATEMENTS OF CASH FLOWS			5

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS			6

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS			13

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK			19

ITEM 4. CONTROLS AND PROCEDURES			19

PART II. OTHER INFORMATION			19

ITEM 1. LEGAL PROCEEDINGS			19

ITEM 1A. RISK FACTORS			20

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS			20

ITEM 3 DEFAULTS UPON SENIOR SECURITIES			20

ITEM 4. MINE SAFETY DISCLOSURES			21

ITEM 5. OTHER INFORMATION			21

ITEM 6. EXHIBITS			22

SIGNATURES			24

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Part I Financial Information

Item 1. Financial Statements

The Company’s unaudited financial statements for the nine months ended September 30, 2013 and for comparable periods in the prior year are included below. The financial statements should be read in conjunction with the notes to financial statements that follow.

Evolucia, Inc.

Consolidated Balance Sheets


	September 30,			December 31,
	2013			2012
	(Unaudited)
ASSETS

Current assets:
Cash and cash equivalents	$	44,334		$	1,642,464
Accounts receivable, net		334,268			112,982
Inventory		2,714,817			1,280,072
Prepaid expenses and other current assets		301,274			59,598
Total current assets		3,394,693			3,095,116

Property and equipment, at cost, net of
accumulated depreciation		165,332			113,584


Other assets		29,794			190,607

	$	3,589,819		$	3,399,307

LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

Current liabilities:
Accounts payable and accruals	$	2,439,953		$	1,404,752
Lines of credit - affiliates		2,754,931			83,067
Deferred revenue		1,000,000			1,000,000
Liability for over commitment of common shares		300,000			-
Derivative financial instruments - warrants		2,671,113			-
Debentures payable		1,011,485			292,642
Total current liabilities		10,177,482			2,780,461

Debentures payable - net of debt discount		64,622			-
Debentures payable		440,239			2,821,326
		504,861			2,821,326
Stockholders' equity (deficit):
Common stock, $0.001 par value,
1,500,000,000 shares authorized,
1,242,579,212 and 1,197,771,827 shares issued and outstanding		1,242,579			1,197,771
Additional paid-in capital		90,970,662			87,054,357
Accumulated (deficit)		(99,271,290	)		(90,420,133	)
		(7,058,049	)		(2,168,005	)
Less: Treasury stock, at cost, 313,400 shares		(34,475	)		(34,475	)
		(7,092,524	)		(2,202,480	)
	$	3,589,819		$	3,399,307

See the accompanying notes to the consolidated financial statements.

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Evolucia, Inc.

Consolidated Statements of Operations

For the Three Months and Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	Three Months						Nine Months
	2013			2012			2013			2012

Sales	$	725,278		$	1,154,932		$	1,588,875		$	2,458,430

Cost of sales and services		563,542			1,175,200			1,284,777			2,290,879
Gross profit		161,736			(20,268	)		304,098			167,551

Operating expenses:
Selling, general and administrative expenses		3,055,479			1,473,101			6,531,084			3,365,371
		3,055,479			1,473,101			6,531,084			3,365,371

Loss from operations		(2,893,743	)		(1,493,369	)		(6,226,986	)		(3,197,820	)

Other (Income) expense:
Other (income) expense		(18,529	)		-			-			-
Change in the fair value of derivative instruments, net		(303,009	)		-			(39,215	)		-
Interest, debt conversion expense and amortization of debt discount		860,588			81,844			2,663,386			443,042
		539,050			81,844			2,624,171			443,042

Loss before income taxes		(3,432,793	)		(1,575,213	)		(8,851,157	)		(3,640,862	)
Income taxes		-			-			-			-
Net loss	$	(3,432,793	)	$	(1,575,213	)	$	(8,851,157	)	$	(3,640,862	)

Per share information basic and diluted:
Loss per share	$	(0.00	)	$	(0.00	)	$	(0.01	)	$	(0.00	)
Weighted average shares outstanding		1,237,422,713			1,193,275,153			1,216,154,683			1,017,217,560

See the accompanying notes to the consolidated financial statements.

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Evolucia, Inc.

Statements of Cash Flows

For the Nine Months Ended September 30, 2013 and 2012

(Unaudited)

	2013			2012
Cash flows from operating activities:
Net cash (used in) operating activities	$	(4,856,080	)	$	(2,019,975	)

Cash flows from investing activities:
Acquisition of property and equipment		(188,864	)		(6,655	)
Net cash (used in) investing activities		(188,864	)		(6,655	)

Cash flows from financing activities:
Common shares issued or subscribed for cash		-			2,500,000
Proceeds from notes payable and convertible debentures		3,446,814			2,000,000
Repayments of notes payable		-			(109,134	)
Net cash provided by financing activities		3,446,814			4,390,866

Increase (decrease) in cash and cash equivalents		(1,598,130	)		2,364,236
Cash and cash equivalents, beginning		1,642,464			235,878
Cash and cash equivalents, ending	$	44,334		$	2,600,114

Cash paid for income taxes	$	-		$	-
Cash paid for interest	$	72,828		$	53,934

See the accompanying notes to the consolidated financial statements.

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EVOLUCIA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2013

NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization, Nature, and Continuance of Operations

Evolucia, Inc. (“the “Company”) (formerly Sunovia Energy Technologies, Inc.) is a Nevada corporation engaged in the business of providing energy-efficient and sustainable energy solutions primarily through the design, manufacture and sale of light emitting diode (LED) lighting solutions for outdoor and area lighting. The Company designs, manufactures and sells environmentally responsible, energy-efficient lighting products based on the latest and most efficient LED technologies and its own patented Aimed Optics™ technology, which improves efficiency and energy savings by aiming light where it is needed most, providing for safe and more effective outdoor and area lighting while eliminating wasted light. In the past, the Company also engaged in research and development in solar energy and infrared technologies; however, the Company is no longer engaged in those activities.

Basis of presentation

The accompanying unaudited consolidated financial statements include the accounts of the Company and its subsidiaries. All material inter-company accounts, transactions and profits have been eliminated. In the opinion of management, these consolidated financial statements reflect all adjustments (consisting of normal recurring adjustments) that are necessary for a fair presentation of the results for and as of the periods shown. The accompanying consolidated financial statements have been prepared in conformity with United States generally accepted accounting principles. However, certain information or footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant to the rules and regulations of the Securities and Exchange Commission. The results of operations for such periods are not necessarily indicative of the results expected for 2013 or for any future period. These financial statements should be read in conjunction with the financial statements and related notes included in our Annual Report on Form 10-K for the year ended December 31, 2012, filed with the Securities and Exchange Commission.

Continuance of Operations

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Although we have incurred losses from operations and have a significant accumulated deficit at September 30, 2013, we believe we have adequate resources, such as cash on-hand, our credit facilities, and the proceeds and anticipated proceeds from private placements during 2013 to meet our operating commitments through September 2014, although there can be no assurance of this.. In the event these resources and operating cash flows are not sufficient to fully fund our operating commitments or our growth, we would look to secure additional debt or equity financing. There can be no guarantee that we will be successful securing funding. In the event we are unable to fund our operations by positive operating cash flows or additional funding, we may be forced to reduce our expenses and slow down our operations. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and revenue and expenses during the reporting period. Actual results could differ from those estimates. The Company’s significant estimates include the valuation of stock based charges, the valuation of derivative instruments, the allowance for doubtful accounts and the inventory reserve.

Share-Based Payments

ASC 718, Stock Compensation requires that all stock-based compensation be recognized as an expense in the financial statements and that such cost be measured at the grant date fair value of the award.

We record the grant date fair value of stock-based compensation awards as an expense over the vesting period of the related stock options. In order to determine the fair value of the stock options on the date of grant, we use the Black-Scholes option-pricing model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. Although the risk-free interest rates and dividend yield are less subjective assumptions, typically based on factual data derived from public sources, the expected stock-price volatility, forfeiture rate and option life assumptions require a greater level of judgment which make them critical accounting estimates.

We use an expected stock price volatility assumption that is based on historical volatilities of our common stock and we estimate the forfeiture rate and option life based on historical data related to prior option grants.

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Fair value measurements

Assets and liabilities that are recorded at fair value on a recurring basis are measured in accordance with ASC 820-10-05, Fair Value Measurements. The guidance defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date, not adjusted for transaction costs. The guidance also establishes a fair value hierarchy that prioritizes the inputs to the valuation techniques used to measure fair value into three broad levels giving the highest priority to quoted prices in active markets for identical asset or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3) as described below:

Level 1 Inputs – Unadjusted quoted prices in active markets for identical assets or liabilities that are accessible by the Company.

Level 2 Inputs – Quoted prices in markets that are not active or financial instruments for which all significant inputs are observable, either directly or indirectly.

Level 3 Inputs – Unobservable inputs for the asset or liability including significant assumptions of the Company and other market participants.

The 2013 warrants issued in the private placement are classified within Level 3 of the fair value hierarchy as they are valued using unobservable inputs including significant assumptions of the Company and other market participants. Significant unobservable inputs used in the fair value measurement of the 2013 warrants included the probability that the warrant holders will exercise their put option and require the Company to redeem the warrant for cash and an estimate of the put price if the warrant holder exercises their put option. Generally an increase (decrease) in the probability of the put option being exercised or the estimated put price would result in a higher (lower) fair value measurement. Changes in the fair value of derivative warrants are reported in the accompanying consolidated statements of operations.

The reconciliation of our derivative liabilities measured at fair value on a recurring basis using significant unobservable inputs (Level 3) as of September 30, 2013 is as follows:


Beginning balance, March 31, 2013	$	--
Derivative warrant issuances from 2013 private placement		3,090,325
Total (gains) or losses included in earnings (1)		(419,212)
Ending balance, September 30, 2013	$	2,671,113

(1)

Day one derivative loss	$	379,997
Change in fair value during the period		(419,212)
Change in fair value of derivatives, net	$	(39,215)

Inventory

Inventory consists principally of electronic components used in the assembly of LED lights. Inventory is stated at the lower of cost or market on a first in first out basis.

Loss Per Share

Loss per share is computed using the basic and diluted calculations on the statement of operations. Basic loss per share is calculated by dividing net loss available to common stockholders by the weighted average number of shares of common stock outstanding for the period. Weighted average number of shares has been adjusted for stock splits and reverse stock splits. Diluted income per share is calculated by dividing net income by the weighted average number of shares of common stock outstanding for the period, adjusted for the dilutive effect of common stock equivalents, using the treasury stock method. During periods in which a loss is incurred common stock equivalents are not considered in the computation as their effect would be anti-dilutive. The total number of share equivalents not included in the calculation at September 30, 2013, consisted of approximately 506,074,266 options and warrants of which approximately 370,599,000 are vested.

Reclassifications

Certain amounts for the period ended September 30, 2012, have been reclassified in the comparative financial statements to be comparable to the presentation for the period ended September 30, 2013. These reclassifications had no effect on net loss as previously reported.

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NOTE B - STOCKHOLDERS' EQUITY

Common Stock

During the period ended September 30, 2013, the Company issued 44,808,385 shares of its common stock for services. These shares were valued at the trading price of the Company’s common stock on the date the issuances were agreed to or $902,938.

During the period ended September 30, 2013, certain employees agreed to defer a portion of their salaries aggregating $450,000 for a period of one year. At September 30, 2013, an aggregate of $132,916 had been deferred and is included in accounts payable and accruals. As consideration for deferring their salaries these employees are to receive an amount equal to the deferral in common shares of the Company of which 50% was awarded on the date of the election to defer salaries and 50% will be awarded on the date the deferred salaries are repaid. At September 30, 2013, $279,375 had been charged to operations related to these shares and recorded as additional paid in capital.

At September 30, 2013, the Company’s outstanding common shares and its commitments to issue common shares exceeded its authorized capital by approximately 175,000,000 shares. The fair value of the shares of $300,000 has been reclassified to at liability at September 30, 2013.

NOTE C – CONCENTRATIONS AND CONTINGENCIES

Manufacturing, development and investment agreement

On July 12, 2012, the Company entered into a manufacturing, development and investment agreement with Leader Electronics, Inc. (“LEI”).

Pursuant to the agreement - LEI will (i) collaborate in the next generation design of the Products, (ii) design and implement LEI power supplies into the Products as provided in the Specifications, (iii) invest One Million Dollars (US $1,000,000) into the Company, (iv) lease for the Company’s use equipment representing a value of Two Million Dollars (US $2,000,000) which will include manufacturing, test and product equipment and tooling mentioned below to be more specifically identified by the parties, (v) manufacture the Products (A) at a 10% discount to the market rate against non-cancellable purchase orders from the Company for one year following the initial purchase orders and thereafter at a 5% discount to the market rate until a full Eight Million Dollars ($8,000,000) in discounts have been earned by the Company and (B) provide working capital to manufacturing all Products with net payment terms of 45 days, (vi) LEI will acquire all needed tooling, and (vii) serve as an exclusive distributor for the Asia Territory.

In addition, the Company will (i) appoint LEI as the exclusive manufacturer for the Products sold in the Asia Territory, (ii) appoint LEI as an exclusive distributor for the Asia Territory and (iii) provide non-cancellable and irrevocable stand-by Letter of Credit for beneficiary of LEI prior to the shipment of Product or provide payment for the Product prior to shipment.

LEI will purchase Twelve Million Five Hundred (12,500,000) shares of common stock (the “Shares”) of the Company for an aggregate purchase price of One Million Dollars (US $1,000,000) within two (2) business days of the Effective Date. In the event the Company does not place orders for the Products within five (5) years from the Effective Date (the “Order Date”), then LEI shall be entitled to sell to the Company the lesser of (i) Shares it has not resold as of the Order Date or (ii) the portion of Shares representing the amount of Products that the Company has not ordered. For example, in the event the Company has placed orders for 80% of the Products, then LEI will be entitled to sell back to the Company as of the Order Date the lesser of the number of Shares that have not been resold by LEI or 20% of the Shares. The per share price will be $0.08. LEI invested the $1,000,000 on July 20, 2012 and this investment has been classified as a liability in the Company’s financial statements because of the contingency related to the share repurchase agreement.

Other Litigation

The Company is defending a lawsuit brought by a supplier of a component part of its LED lighting fixtures. The suit alleges that the Company owes a re-stocking fee in excess of $100,000 for the return of certain parts. The Company believes it has substantial defenses to this suit and intends to vigorously defend it. The lawsuit is in the early stages of pleadings, and the outcome is uncertain. No significant legal fees have been incurred in this case to date.

On October 28, 2012, the Company completely vacated its operations from its former headquarters at 106 Cattlemen Road, Sarasota, FL, 34232 due to the presence of mold. The former landlord has threatened to commence litigation as a result of the claimed breach of the lease. The Company intends to vigorously defend against any litigation that may be commenced.

Concentrations

During the nine months ended September 30, 2013 and 2012, the Company sold LED lighting products aggregating approximately 46% of revenue to one customer and 35% of revenue to two customers, respectively, which sales individually represented in excess of 10% of the Company’s net revenues.

NOTE D – STOCK OPTIONS

On May 1, 2008, the Company adopted the 2008 Incentive Stock Plan and April 25, 2013, the Company adopted the 2013 Incentive Stock Plan. (“the “Plans”) designed to retain directors, employees, executives and consultants and reward them for making major contributions to the success of the Company. The following is a summary of the Plans and does not purport to be a complete description of all of its provisions.

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The Plans are administered by the board of directors. The plans did not have any individual caps other than the limitation of granting incentive stock options to employees and the exercise of more than $100,000 in fair market value of stock per year. The plans permit the grant of restricted stock and non-statutory options to participants where appropriate. The maximum number of shares issuable under the Plans is 125,000,000 and 50,000,000. The Plans shall terminate ten years from the date adopted. The board of directors may, as permitted by law, modify the terms of any grants under the Plans, and also amend, suspend, or extend the Plan itself. In addition, options may be issued outside of the plan by the Company.

During the period ended September 30, 2013, the Company granted stock options for 137,250,000 shares to affiliates or employees of the Company. The options have exercise prices of $.025 to $.03 per share and vest immediately for 125,250,000 options, over a 2 year period for 11,000,000 options and over a 4 year period for 1,000,000 options. The options have a term of 5 years.

The options are valued using the Black-Scholes option pricing model with the following assumptions.

Term 5 years, Volatility 120% to 130%, Discount rate 1% and dividend yield 0%

The options had a fair value of $3,279,809 which is being amortized over the term of certain lines of credit of 1 year for 113,250,000 options and over the vesting periods of 2 and 4 years for 11,000,000 and 1,000,000 options, respectively. The value of 12,000,000 options was charged to operations during the period as they vested immediately.

During the nine months ended September 30, 2013, an aggregate of $3,079,000 was charged to operations related to options granted during the current year and prior years. Of this amount $2,112,000 was charged to interest expense and $967,000 was charged to selling, general and administrative expense.

At September 30, 2013, there was an aggregate of approximately $2,550,000 of unrecognized charges related to stock options which vest in future periods.

A summary of stock options outstanding, including options granted outside of the Plan is as follows:

	Shares
Options outstanding at
beginning of year		206,876, 660
Options granted		137,250,000
Outstanding at September 30, 2013		344,126,660
Exercisable at September 30, 2013		239,793,327

NOTE E – CONVERTIBLE DEBENTURES

During April 2013 the holders of $300,000 of the outstanding balance of 9% Convertible Secured Promissory Notes issued in 2011 agreed to roll-over their principal and accrued interest of $80,237 into the Private Placement Memorandum described below in Note G. The holders of the remaining $152,500 extended the due date of their notes to April 2014. The interest rate was increased to 11% for the extended notes.

NOTE F – NOTES PAYABLE

Notes Payable

From December 2009 through July 2010 the Company borrowed an aggregate of $828,968 from certain shareholders. The borrowings are evidenced by notes which bear interest at 10% per annum and are due between 12 months and 24 months from the date of issuance. Through December 31, 2012, $265,415 was repaid bring the balance due to $563,553. Subsequent to December 31, 2012, an additional $64,585 was retired bringing the balance to $498,968.

During March 2012 the holders of the outstanding notes agreed to extend the due date on these notes to July 1, 2013, and during April 2013 holders of an aggregate of $498,968 agreed to extend the due date to April 2014. In conjunction with the 2013 extensions the interest rate was increased to 11%.

On May 6, 2013, the Company entered into a settlement agreement and general release with its former Chief Executive Officer. The agreement calls for the Company to deliver a Promissory Note in the amount of $328,849. The Note bears interest at 9.0% per annum and is due on April 14, 2014.

Additionally, also on April 14, the Company and its former Chief Executive Officer entered into a second Promissory Note in the amount of $30,688. The Note bears interest at 9.0% per annum and is due on April 14, 2014. In the event the Company raises capital in the amount of $3 million or more the note shall become immediately due and payable.

On September 23, 2013, the Company issued a $60,000, 15% Callable Promissory Note to ILED Inventory Fund I, LLC., and unrelated entity. The Company received proceeds of $54,000. The proceeds of the Note must be used for the purchase of inventory or inventory control systems of the Company. The Note is secured by the specific inventory and inventory control systems of the Company to which the proceeds were applied. The Note matures on September 22, 2015. Interest is paid monthly, starting on October 31, 2013.

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Lines of Credit

A private investor, shareholder and director of the Company has made available to the Company a working capital and purchase order line of credit (Line of Credit) of $2.0 million, which is due during January 2014, and which may be increased at the investor’s discretion. The Line of Credit may be drawn to purchase components for orders (Purchase Orders) of the Company’s products approved by the investor and that are used to fulfill specific customer orders. For advances made for the purpose of funding Purchase Orders, the line is secured to the extent of the specific customer accounts receivables that are related to the Purchase Order upon which the advance was made. Advances made against Purchase Orders bear interest at an annual rate of 12.5% and the principal amount of the draws, plus accrued interest, must be repaid back to the Line of Credit within three business days of receipt of payment from the customer. Because interest is added back to the Line of Credit, the available balance increases by that amount. The lender has deposited the $2,000,000 in a bank account and the Company has recorded the entire Line of Credit as a liability. On February 22, 2013, effective as of December 31, 2012, the investor made the entire Line of Credit available without restriction to the Company to use for both Working Capital purposes and for Purchase Orders. For that portion of the Line of Credit that is used for Working Capital purposes, the Line of Credit is unsecured, and bears interest at an annual rate of 14.0%. At September 30, 2013, $1,646,281 was drawn on the bank account for working capital. The balance of the line was $2,011,177 and interest accrued aggregated $158,136.

A private investor, shareholder and director of the Company made available to the Company a purchase order line of credit (Line of Credit) of $750,000, which may be increased at the investor’s discretion and, with the exception of $100,000 which is due in January 2014, is due on demand. The Line of Credit may be drawn to purchase components for orders (Purchase Orders) of the Company’s products approved by the investor. The Line of Credit bears interest at an annual rate of 12.5% and draws must be repaid within three business days of receipt of payment from the customer. The Line of Credit is secured to the extent of the specific customer accounts receivables that are related to the Purchase Order upon which the advance was made. The balance of the line was $743,754 and interest accrued aggregated $32,795.

NOTE G – NOTES PAYABLE - PRIVATE PLACEMENT (PPM)

On November 27, 2012, the Company initiated the sale of up to $5,000,000 in 14% Callable Promissory Notes (Notes) in a confidential private placement memorandum (PPM) offering made pursuant to Regulation D to accredited investors only. The Notes are secured by the assets of the company, subject to the security interests of previously issued debt instruments.

The Notes are offered in units of $50,000 each (a “Unit”). The PPM is subject to a minimum sale of 40 Units ($2,000,000) and a maximum of 100 Units. The Notes mature in 36 months. Interest accrues for the first 12 months and is payable monthly starting in month 13. Principal plus accrued interest is paid in month 36. Each Unit receives a Common Stock Purchase Warrant (the “2013 Warrants”) to purchase 2,395,542 shares of common stock at an exercise price of $0.025. Through September 30, 2013, the Company sold 55.5 units of its current PPM for aggregate proceeds of $2,774,950. The Notes are secured by the assets of the Company subject to previous security interests. The Company closed on the sale of those units between April 2013 and September 2013.

The 2013 Warrants are exercisable for a period of five years from the date of issuance at an exercise price of $0.025 per share on a cash basis only, subject to the Company increasing its authorized shares of common stock or implementing a reverse stock split of the outstanding shares of the Company's common stock to provide for the issuance of all shares of common stock upon exercise of all 2013 Warrants issued. In the event the Company closes a Capital Transaction (as defined below) and the Company does not have sufficient authorized shares in order for the Warrant holder to exercise the Warrants, the Warrant holder may, by notice to the Company (a "Put Notice"), elect to sell to the Company, at the Repurchase Price (as defined below) all or such number of the Warrants held by the holder then outstanding as is specified in the Put Notice. Capital Transaction means any of the following: (i) any sale or other disposition of all or substantially all of the assets of the Company or any of its subsidiaries in any single transaction or series of related transactions; (ii) any transfer or other disposition in any single transaction or series of related transactions of the Company’s common stock representing in excess of 80% of the issued and outstanding shares of common stock or all of its subsidiary’s common stock; (iii) the closing of the Company’s underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of shares of common stock in which not less than $30,000,000 of gross proceeds are received by the Company for the account of the Company; (iv) the liquidation or dissolution of the Company or any of its material subsidiaries; or (v) a merger or consolidation of the Company or any of its material subsidiaries in which the Company or such material subsidiary, as applicable, is not the surviving entity. The Repurchase Price per share means the difference of (i) the quotient of the purchase price paid in connection with the Capital Transaction divided by the number of shares outstanding as of the date of the Capital Transaction plus the number of shares of common stock issuable upon exercise of all Warrants subject to a Put Notice plus all other shares of common stock issuable upon conversion or exercise of other derivative securities as of the date of the Capital Transaction less the (ii) the Purchase Price.

Due to the put provision, certain price ratchet provisions which may require net cash settlement and the lack of sufficient authorized shares, the 2013 Warrants did not meet the criteria for equity classification under ASC 815 because they did not meet the definition for financial instruments indexed to a company’s own stock. Accordingly, they required derivative liability accounting and measurement at fair value at inception and each subsequent reporting period.

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A summary of the allocation of proceeds related to the private placement is provided below. Current accounting concepts generally provide that the allocation is made, first to the instruments that are required to be recorded at fair value; that is, the 2013 Warrants, and the remainder to the Notes. For the April 22, 2013 issuance, the fair value of the 2013 Warrants exceeded the proceeds which resulted in a day-one derivative loss. The discount from the face amount of the Notes represented by the value initially assigned to the 2013 warrant liabilities is amortized over the period to the due date of each Note, using the effective interest method.

	April 22, 2013 Issuance			May 22, 2013 Issuance
Derivative Warrants	$	2,379,997		$	137,003
14% Callable Promissory Notes		--			12,947
Day-one derivative loss		(379,997	)		--
Total allocated gross proceeds	$	2,000,000		$	149,950

	August 9, 2013 Issuance
Derivative Warrants	$	573,325
14% Callable Promissory Notes		51,675
Day-one derivative loss		--
Total allocated gross proceeds	$	625,000

Derivative Warrants

Due to the put features embedded in the 2013 Warrants, the Company concluded that the 2013 Warrants did not meet the conditions set forth in current accounting standards for equity classification. Accordingly, the Warrants are subject to the classification and measurement standards for derivative financial instruments and require liability classification at fair value. The 2013 Warrants were valued using a Binomial Lattice (“Lattice”) valuation technique which included certain assumptions such the closing price of the underlying common stock, risk-free interest rates, volatility, expected dividend yield, expected life, the probability that the investors will require redemption of the 2013 Warrant due to the put provisions and the put price the Company would be required to pay upon exercise of the put. As mentioned above, the option to put the 2013 Warrants back to the Company for cash is only available if the Company does not have sufficient authorized shares for the investors to exercise all their warrants and the Company enters into a capital transaction during the term of the 2013 Warrant. Management believes there is a minimal probability of this occurring and have assigned a probability of 5% that the Warrant holders will have the ability to exercise their put option. The put provisions associated with the 2013 Warrants were valued using a probability-weighting of put values based on management’s estimate of expected purchase prices.

Significant inputs and results arising from the Lattice model are as follows for the 2013 Warrants classified in liabilities:

	April 22,2013			May 22,2013			April 22,2013			May 22, 2013
	Warrants at Inception			Warrants at Inception			Warrants at September 30, 2013			Warrants at September 30, 2013
Quoted market price on valuation date	$	0.0215		$	0.0198		$	0.0215		$	0.0215
Contractual exercise price	$	.02500		$	.02500		$	.02500		$	.02500
Expected term to maturity	5 Years			5 Years			4.81 Years			4.90 Years
Dividend yield		0	%		0	%		0	%		0	%
Market volatility:
Range of volatilities		107% - 135	%		90% - 132	%		84% - 131	%		84% - 130	%
Equivalent volatility		119	%		115	%		111	%		111	%
Risk free interest:
Range of risk free interest rates		0.09% - 0.70	%		0.08% - 0.91	%		0.10% - 1.41	%		0.10% - 1.41	%
Equivalent risk free interest rates		0.30	%		0.35	%		0.53	%		0.53	%
Probability of put occurring		5	%		5	%		5	%		5	%
Estimated value of put per share	$	0.120		$	0.119		$	0.116		$	0.116

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	August 9, 2013			August 9, 2013
	Warrants at Inception			Warrants at September 30, 2013
Quoted market price on valuation date	$	0.0215		$	0.0215
Contractual exercise price	$	.02500		$	.02500
Expected term to maturity	5 Years			4.86 Years
Dividend yield		0	%		0	%
Market volatility:
Range of volatilities		75% - 129	%		62% - 128	%
Equivalent volatility		102	%		102	%
Risk free interest:
Range of risk free interest rates		0.07% - 1.36	%		0.04% - 1.39	%
Equivalent risk free interest rates		0.49	%		0.49	%
Probability of put occurring		5	%		5	%
Estimated value of put per share	$	0.125		$	0.125

Equivalent amounts are an output from the Lattice model which reflects the net results of multiple modeling iterations that the Lattice model applies to underlying assumptions. For the risk-free rates of return, the Company used the published yields on zero-coupon Treasury Securities with maturities consistent with the remaining term of the warrants and volatility is based upon the Company’s expected stock price volatility over the remaining term. Option-based techniques (such as Lattice models) are highly volatile and sensitive to changes in the assumptions underlying the valuation of the derivative financial instruments. The principal assumptions that have, in the Company’s view, the most significant effects are the Company’s trading market prices, volatilities, the probability the investors will have the ability to exercise their put option and the put value if the option is exercised. Because derivative financial instruments are initially and subsequently carried at fair value, our (income) loss will reflect the volatility in these estimate and assumption changes.

The following table reflects the changes in fair value of the 2013 Warrants:

	Warrant Derivative
Beginning balance, March 31, 2013	$	--
Warrant issuance on April 22,2013, indexed to 114,039,162 shares of common stock		2,379,997
Warrant issuance on May 22, 2013, indexed to 7,184,230 shares of common stock		137,003
Warrant issuance August 9, 2013 indexed to 31,142,046 shares of common stock		573,325
Fair value adjustments		(419,212	)
Ending balance, September 30, 2013	$	2,671,113

NOTE H – COMMITMENTS

On March 20, 2013, the Company entered into a joint venture with Sunovia Energy Technologies Europe Sp. z o.o. (SETE), a Polish corporation which is unaffiliated with the Company. The agreement called for the payment of $11 million to Evolucia by August 31, 2013, which has not been received, in exchange for the manufacture and distribution rights to the European markets. Under the joint venture agreement, a new entity called Evolucia Europe Sp. z o.o. will be created, with Evolucia Inc. holding a 51% ownership share and SETE holding the remaining 49% ownership. The joint venture agreement provides exclusive manufacturing rights to Evolucia Europe for the European markets. There is no assurance that the joint venture will be completed. The $11 million payment has not been made and the Company is presently negotiating a resolution with SETE.

Effective July 1, 2013, the Company entered into a lease for office, manufacturing and warehouse facilities. The lease is for a period of 6 years and calls for lease payments aggregating approximately $3,300,000 plus sales tax.

NOTE I – SUBSEQUENT EVENTS

On October 18, 2013, the Company issued a $100,000, 8% Secured Convertible Promissory Note (Note) to an Investor. The Note matures on October 18, 2014. The holder may elect to convert, at $0.01, the principal of the Note to 10,000,000 shares of Common Stock. Additionally, the holder may elect to convert all or part of the accrued interest at the same rate.

On October 18, 2013, the Company’s Executive Vice President and Chief Financial Officer (Executive) resigned. At that time, the Executive was owed $27,104 in unpaid wages pursuant to a compensation deferral program initiated in May and September, 2013, as well as $10,969 in unused Paid Time Off, for a total balance of $37,073. The Executive was granted 1,450,321 shares of common stock as part of the compensation deferral program. On October 29, 2013, the Company and the Executive entered into an Agreement whereby the Executive will receive the total balance owed over a period of 20 weeks. The Executive will also receive $940 every fourth week during the 20 week period. The Executive also received an additional 625,000 vested stock options pursuant to the Non-Statutory Stock Option Agreement. The Executive previously held 7,500,000 vested options. The expiration date of the Stock Options was extended to October 18, 2015, and the exercise price of the total 8,125,000 shares underlying the options was reduced to $0.02.

On October 28, 2013, a Director of the Company provided $400,000 to the Company. Terms are presently being negotiated.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

The following information should be read in conjunction with the consolidated financial statements and the notes thereto contained elsewhere in this report. Statements made in this Item 2, "Management's Discussion and Analysis or Plan of Operation," and elsewhere in this 10-Q that do not consist of historical facts, are "forward-looking statements." Statements accompanied or qualified by, or containing words such as "may," "will," "should," "believes," "expects," "intends," "plans," "projects," "estimates," "predicts," "potential," "outlook," "forecast," "anticipates," "presume," and "assume" constitute forward-looking statements, and as such, are not a guarantee of future performance. The statements involve factors, risks and uncertainties, the impact or occurrence of which can cause actual results to differ materially from the expected results described in such statements. Risks and uncertainties can include, among others, fluctuations in general business cycles and changing economic conditions; changing product demand and industry capacity; increased competition and pricing pressures; advances in technology that can reduce the demand for the Company's products, as well as other factors, many or all of which may be beyond the Company's control. Consequently, investors should not place undue reliance upon forward-looking statements as predictive of future results. The Company disclaims any obligation to update the forward-looking statements in this report.

You should read the following information in conjunction with our financial statements and related notes contained elsewhere in this report. You should consider the risks and difficulties frequently encountered by early-stage companies, particularly those engaged in new and rapidly evolving markets and technologies. Our limited operating history provides only a limited historical basis to assess the impact that critical accounting policies may have on our business and our financial performance.

We encourage you to review our periodic reports filed with the SEC and included in the SEC’s Edgar database, including the annual report on Form 10-K filed for the year ended December 31, 2012. The Company is focusing solely on building its LED lighting business at this time, while attempting to preserve the value of both its patented solar substrate technology and its shared solar technology for possible commercialization in the future.

Evolucia Inc. (“Evolucia”, the “Company”, “we”, “our”, “us”) is an LED lighting company that markets LED lighting products. The Company’s sole focus is on the design, engineering, development, patent protection, manufacturing, marketing, sales and support of LED (light emitting diode) lighting fixtures, controls and components. LEDs are semiconductor devices that emit light when electric currents are passed through them. LED’s have many advantages over traditional light sources including longer lifetime, lower energy consumption, smaller size and greater design flexibility. The Company’s LED light sources are designed to enhance lighting performance, reduce energy consumption, eliminate the use of hazardous materials and lower maintenance costs.

LED Lighting

LED lights are the most energy-efficient lighting source on the market today. Through our patented Aimed LED Lighting™ technology, we have demonstrated that less overall light is needed if the light is correctly focused on the target area. Our LED lighting product’s are currently focused on (i) the roadway / walkway lighting market (“cobra head,” “shoebox”, “post-top” and “bell-top” products) (ii) the area lighting market (utility lights, wall packs, canopy lights and parking garage lights) and (iii), commercial indoor market (“high-bay”, “troffer”, and “flat panel” products). A report issued in January 2011 by Navigant Consulting, Inc. prepared for the Building Technologies Program of the Office of Energy Efficiency and Renewable Energy (EERE) of the Department of Energy estimates that there are 56.2 million roadway lights in the United States, including 26.5 million street lights and 26.1 million highway lights. The same report estimates approximately 36.4 million parking garage lights and 15.8 million parking lot light fixtures installed in the United States. It is estimated that fewer than 5% of the parking light totals and fewer than 1% of the roadway and highway lights utilized LED technology. We believe these markets, which are primary markets for the Company’s products, have the potential for significant growth in LED replacements of existing technologies in the years ahead. We believe traditional lighting companies have been somewhat slow to develop LED technologies; however, the large lighting companies have acquired the technology either through acquisition or OEM and licensing arrangements with smaller LED lighting companies. There are currently over 200 competitors in the outdoor LED lighting market. Our Aimed Optics™ technology potentially provides a competitive advantage in this market, as it uses less energy to put more light on the ground, although high product costs have hampered sales of the cobrahead and shoebox products in certain markets.

We believe we have proven that our proprietary Evolucia Aimed Optics™ LED lighting system is the most efficient method to deliver light to a target area. By mounting LEDs at numerous complementary angles within a single LED fixture, we believe we have achieved performance metrics that are superior to competing products in crucial aspects of LED lighting: energy conservation and photometry (light delivered to a target area). Our proprietary lighting system has received an award for the Best Outdoor Street Light, in its class, from the United States Department of Energy (DOE), one of the most highly regarded recognitions within the lighting industry.

In addition to superior efficiency, we believe our products are beating the competition in the performance metric of Fitted Target Efficacy (FTE) which is a standard the U.S. Department of Energy (DOE) has proposed for ENERGY STAR™ to evaluate how effectively a luminaire delivers light to the target area that it was designed to illuminate. We believe our patent pending Evolucia Aimed Optics™ technology consistently outperforms our competitors, which is supported by our receipt of the 2010 Next Generation Luminaries™ Solid State Lighting Design Award for our outdoor street and area cobra-head product, selected by judging representatives from the lighting industry, International Association of Lighting Designers, the Illuminating Engineering Society and the Department of Energy from more than 350 applicants. This award serves as a recommendation to the lighting specifier community. In addition, our cobra head and shoebox fixtures have been certified by the Design Lights Consortium (DLC). We expect that the certification from the DLC will open up additional opportunities for us, as customers and suppliers receive incentives from state and utility energy programs for purchasing products that are certified by the DLC.

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Evolucia’s Aimed Optics™ LED technology consistently outperforms LED “light bar” technology on FTE tests, as shown in the chart below:

Company	Roadway Type	FTE Required*	Actual FTE
AEL	Type II	37	29
Beta LED	Type II	37	40
General Electric	Type II	37	42
Evolucia	Type II	37	56

*DOE evaluated hundreds of High Intensity Discharge (HID) fixtures to establish ENERGY STAR™ minimum FTE requirements. Minimum FTEs for LED luminaries were established to achieve at least 20% energy savings compared to top performing HID products.

The three most significant challenges facing the Company in the LED lighting market are (a) developing a recognizable brand name, (b) expanding our distribution network, and (c) driving down the cost of manufacturing and selling our products. Each of these issues is a priority for the Company at this time and going forward. In addition, as the LED lighting market continues to expand, the distribution efficiencies of the lighting market are likely to drive industry consolidation and product portfolio expansion as fixture companies compete for business across product lines.

Results of Operations for the Three Months ended September 30, 2013 Compared to the Three Months ended September 30, 2012

For the three months ended September 30, 2013, the Company had a net loss of ($3,432,793), as compared to a net loss ($1,575,213) for the three months ended September 30, 2012, or an increase of $1,857,580. The significant factors contributing to this increase are discussed in more detail below.

Revenues

Revenues for the three months ended September 30, 2013 were $725,278, as compared to $1,154,932 for the three-month period ending September 30, 2012, which represented a decrease of $429,654 or approximately 37%. Revenues for the three-month period ending September 30, 2012 include a “one-off” sale to a single customer for $678,688.

Gross Profit

The Company had a gross profit (loss) of $161,736, and a gross profit margin of 22.3% for the three months ended September 30, 2013, as compared to a gross (loss) of ($20,268) or a gross profit margin of (1.8%) for the three months ended September 30, 2012. The gross profit (loss) increased as a result of a changing product mix to newer product versions, which are more profitable than legacy products.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased to $6,531,084 for the nine month period ending September 30, 2013 from $3,365,371 for the nine month period ended September 30, 2012, an increase of $3,165,713, or 94%. The major components are discussed below.

Compensation and Benefits

Compensation and benefit expenses were $2,268,268 for the nine months ended September 30, 2013, compared to $1,267,002 for the nine months ended September 30, 2012, an increase of $1,001,266 or approximately 79%. This is the result of a net decrease of $101,209 in non-cash expenses associated with stock options awarded to employees offset by an increase of $1,102,475 associated with an increase in the number of employees, 20 (39 vs. 19), and the experience level of the overall employee base as the Company begins to scale-up operations to support additional revenues.

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General and Administrative

General and administrative expenses are the expenses of operating the business on a daily basis that are not related directly to cost of goods or Compensation & Benefits and includes such categories as travel and entertainment, legal and professional fees, selling and marketing, and occupancy and office expenses. For the nine months ended September 30, 2013 the Company incurred aggregate expense of $4,262,816 in this area, compared to $2,098,369 for the nine months ended September 30, 2012, an increase of $2,164,447 or 103%. The majority of this increase is related to increases in travel and entertainment, $303,843, consultants, $789,690, occupancy and office, $211,239, and the write-off of advances made to another entity, $396,225.

Other Income and Expenses

Other income and expense reflects interest expense (net of interest income) as discussed below:

Total interest expense for the three months ended September 30, 2013 was $860,588 compared to $81,844 for the three months ended September 30, 2012, an increase of $778,744. $704,000 of this increase is related to the issuance of warrants during the period.

Gain (Loss) from Change in Fair Value of Derivative Liabilities – Warrants

We account for our outstanding Common Stock warrants that were issued in connection with our debentures, at fair value. For the three months ended September 30, 2013, the liability related to these instruments fluctuated, resulting in a gain of $303,009.

Results of Operations for the Nine Months ended September 30, 2013 Compared to the Nine Months ended September 30, 2012

For the nine months ended September 30, 2013, the Company had a net loss of ($8,851,157), as compared to a net loss ($3,640,862) for the nine months ended September 30, 2012, or an increase of $5,210,295. The significant factors contributing to this increase are discussed in more detail below.

Revenues

Revenues for the nine months ended September 30, 2013 were $1,588,875, as compared to $2,458,430 for the nine month period ending September 30, 2012, which represented a decrease of $869,555 or approximately 35%. Revenues for the nine-month period ending September 30, 2012 include a “one-off” sale to a single customer for $678,688. The decrease was the result of sales to fewer customers.

Gross Profit

The Company had a gross profit of $304,098, and a gross profit margin of 19.1% for the nine months ended September 30, 2013, as compared to a gross profit of $167,551 or a gross profit margin of 6.8% for the nine months ended September 30, 2012. The gross profit (loss) increased as a result of a changing product mix to newer product versions, which are more profitable than legacy products..

Selling, General and Administrative Expenses

Compensation and Benefits

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General and Administrative

General and administrative expenses are the expenses of operating the business on a daily basis that are not related directly to cost of goods or Compensation & Benefits and includes such categories as travel and entertainment, legal and professional fees, selling and marketing, and occupancy and office expenses. For the nine months ended September 30, 2013 the Company incurred aggregate expense of $4,262,816 in this area, compared to $2,098,369 for the nine months ended September 30, 2012, an increase of $2,164,447 or 103%. The majority of this increase is related to increases in travel and entertainment, $303,843, consultants, $789,690, occupancy and office, $211,239, sales and marketing, and the write-off of advances made to another entity, $396,225.

Other Income and Expenses

Other income and expense reflects interest expense (net of interest income) as discussed below:

Total interest expense for the nine months ended September 30, 2013 was $2,663,386 compared to $443,042 for the nine months ended September 30, 2012, an increase of $2,220,344. $1,408,000 of this increase is attributable to the expense associated with the issuance of warrants during the period. The remaining amount, $812,344, is due to an increase in total company borrowings.

Gain (Loss) from Change in Fair Value of Derivative Liabilities – Warrants

We account for our outstanding Common Stock warrants that were issued in connection with our debentures, at fair value. For the nine months ended September 30, 2013, the liability related to these instruments fluctuated, resulting in a gain of $39,215.

Liquidity and Capital Resources

The Company’s cash flow from operations is insufficient to meet its current obligations. In 2012 and through the third quarter of 2013, the Company relied upon additional investment through sales of common stock, lines of credit, and debentures in order to fund its operations.

Cash Flows and Working Capital

To date, we have financed our operations primarily through the sale of equity and debt. As of September 30, 2013, we had $44,334 in cash and cash equivalents. We had receivables, net of allowances, of $334,268, prepaid expenses and deposits on future purchases of $301,274, and inventory of $2,714,817. Our current liabilities as of that date were $10,177,482.

Our sales cycle can be several months or longer, with some costs incurred up front, making our business working capital intensive. It can take up to 90 days to fulfill an order, followed by a period of time in which to collect our receivables.

The Company currently outsources much its manufacturing; consequently, we do not have significant capital equipment expenditures, although tooling costs can reduce our product cost when justified by the level of sales.

	For the Nine Month Period Ended
		September 30, 2013		September 30, 2012
Cash flows used in Operations		$	(4,856,080)	$	(2,019,975)

Investing Activities		$	(188,864)	$	(6,655)

Financing Activities		$	3,446,814	$	4,390,866

Cash at end of period		$	44,334	$	2,600,114

Operating Activities

Net cash used in operating activities for the nine months ended September 30, 2013 totaled ($4,856,080) as compared to ($2,019,975) for the nine months ended September 30, 2012. During the period ended September 30, 2013, the cash used in operating activities consisted principally of the net loss from operations.

Investing Activities

Net cash used in investing for the nine months ended September 30, 2013 was ($188,864) as compared to ($6,655) for the nine months ended September 30, 2012. This represents capital expenditures primarily associated with the purchase of the Company’s new trade show booth and other equipment.

Financing Activities

Our net cash provided by financing activities for the nine months ended September 30, 2013 was $3,446,814, which primarily consisted of proceeds from a line of credit and the issuance of debentures. Our net cash provided by financing activities for the nine months ended September 30, 2012 was $4,390,866,which primarily consisted of proceeds from a line of credit and common shares issued for cash.

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Off-Balance Sheet Arrangements

We do not currently have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to our stockholders.

Our company has not entered into any transaction, agreement or other contractual arrangement with an entity unconsolidated with us under which we have

o	an obligation under a guarantee contract, although we do have obligations under certain sales arrangements including purchase obligations to vendors
o	a retained or contingent interest in assets transferred to the unconsolidated entity or similar arrangement that serves as credit, liquidity or market risk support to such entity for such assets,
o	any obligation, including a contingent obligation, under a contract that would be accounted for as a derivative instrument, or
o	any obligation, including a contingent obligation, arising out of a variable interest in an unconsolidated entity that is held by us and material to us where such entity provides financing, liquidity, market risk or credit risk support to, or engages in leasing, hedging or research and development services with us.

Plan of Operation

The Company is continuing to focus its operations on generating sales of LED products through our recently hired team of dedicated sales business development managers, regional sales managers, and our network of manufacturers’ representatives, as well as reducing the cost of producing its LED products in order to make them more price-competitive in the market. In addition, the Company is completing the development of its next generation lighting products and has implemented targeted marketing of its product lines to the global marketplace. We are leveraging several key relationships with energy service companies and original equipment manufacturers to increase sales and to take advantage of price concessions associated with larger orders.

The Company had leased office space/warehouse facilities in Sarasota, Florida under an operating lease. The lease term is for a period of 66 months and commenced on April 14, 2010. The base rent over the term is approximately $497,346. The company is responsible for all taxes, insurance and utility expenses associated with the leased property.

On October 28, 2012, the Company completely vacated its operations from its former headquarters at 106 Cattlemen Road, Sarasota, FL, 34232 due to the presence of mold..

The Company was responsible for an aggregate of approximately $280,000 in future rent payments at the time it vacated the above leased property. The Company is negotiating a settlement with the landlord but it cannot be assured that a settlement will be reached and the Company may be liable for the balance of unpaid rent due. No accrual for this contingency has been recorded at September 30, 2013, as the Company vacated the premises because of an environmental issue related to the leased property.

On June 12, 2013, the Company entered into a lease for office, manufacturing and warehouse facilities, which became effective on July 1, 2013. The lease is for a period of 6 years and calls for lease payments aggregating approximately $3,300,000 plus sales tax.

As of November 14, 2013, the Company had 42 full-time employees and two active independent contractors.

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Effect of Changes in Prices

Prices of equivalent incandescent lighting are lower than the price of the Company’s, and its competitors’, LED lighting products. Subsidies and cost-savings achieved over the life of our LED products have supported sales; however, in order to remain competitive, it will be necessary for us to reduce the cost of our products. We have reduced the cost of our products and the sales prices of those products in a meaningful way over the current fiscal year and are continuing to focus efforts in this area.

Critical Accounting Policies and Estimates

Critical accounting estimates are those that management deems to be most important to the portrayal of our financial condition and results of operations, and that require management’s most difficult, subjective or complex judgments, due to the need to make estimates about the effects of matters that are inherently uncertain. We have identified our critical accounting estimates which are discussed below.

Use of Estimates

Accounts Receivable

Accounts receivable are stated at the amount management expects to collect from outstanding balances. Management provides for probable uncollectible amounts through a charge to bad debt expense and a credit to an allowance for uncollectible accounts based on its assessment of the current status of individual accounts. Accounts receivable balances that remain outstanding after management has used reasonable collection efforts are written off through a charge to the allowance for uncollectible accounts and a credit to accounts receivable.

Accounting for Derivative Instruments

Derivatives are required to be recorded on the balance sheet at fair value. These derivatives, including embedded derivatives in the Company’s structured borrowings, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

Research and Development

Research and Development ("R&D") expenses are charged to expense when incurred. The Company has consulting arrangements which are typically based upon a fee paid monthly or quarterly. Samples are purchased that are used in testing, and are expensed when purchased. R&D costs also include salaries and related personnel expenses, direct materials, laboratory supplies, equipment expenses and administrative expenses that are allocated to R&D based upon personnel costs.

Revenue Recognition

The Company recognizes revenue when the following conditions have been met: there is persuasive evidence an arrangement exists which includes a fixed price; there is reasonable assurance of collection; the services or products have been provided and delivered to the customer; no additional performance is required and title and risk of loss has passed to the customer. Products may be placed on consignment to a limited number of resellers. Revenue for these consignment transactions will also be recognized as noted above.

Continuance of Operations

Our consolidated financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Although we have incurred losses from operations and have a significant accumulated deficit at September 30, 2013, we believe we have adequate resources, such as cash on-hand, our credit facilities, and the proceeds and anticipated proceeds from private placements during 2013 to meet our operating commitments through September 2014, although there can be no assurance of this. In the event these resources and operating cash flows are not sufficient to fully fund our operating commitments or our growth, we would look to secure additional debt or equity financing. There can be no guarantee that we will be successful securing funding. In the event we are unable to fund our operations by positive operating cash flows or additional funding, we may be forced to reduce our expenses and slow down our operations. Our consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern.

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Share-Based Payments

Compensation cost relating to share-based payment transactions are recognized in the financial statements. The cost is measured at the grant date, based on the calculated fair value of the award, and is recognized as an expense over the employee’s requisite service period (generally the vesting period of the equity award).

Recent Accounting Pronouncements

The Company does not believe that any recently issued accounting pronouncements will have a material impact on its financial statements.

ITEM 3. QUANTITATIVE AND QUALITIATIVE DISCLOSURES ABOUT MARKET RISK

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

ITEM 4. CONTROLS AND PROCEDURES.

Management Report on Disclosure Controls

Under the supervision and with the participation of management, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) or 15d-15(e) under the Exchange Act) as of the end of the period covered by this by this Report. Based upon that evaluation, the Chief Executive Officer and Principal Financial Officer concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were not effective due to the following:

1. A lack of segregation of duties

2. The need for an updated accounting system

3. We did not maintain effective control over supporting schedules for certain balance sheet accounts which resulted in the recording of adjusting journal entries to the financial statements at the period end.

Remediation of Material Weaknesses in Internal Control over Financial Reporting

We have not established adequate financial reporting monitoring activities to mitigate the risk of management override, specifically because there are few employees and only two officers with management functions there is lack of segregation of duties. We intend to continue to evaluate potentially engaging additional management personnel to alleviate this weakness. In addition we are in the process of engaging additional accounting support to assist in the preparation of our accounting records.

Changes in Internal Control over Financial Reporting

During the quarter ended September 30, 2013, there were no changes in the Company's internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.

PART II: OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. Litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. None of our directors, officers or affiliates is involved in a proceeding adverse to our business or has a material interest adverse to our business.

We are currently not aware of any such legal proceedings or claims that we believe will have, individually or in the aggregate, a material adverse effect on our business, financial condition or operating results, other than as described below:

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Litigation with Supplier

The Company is defending a lawsuit brought by a supplier of a component part of the Evolucia LED light fixtures. The suit alleges that the Company owes a re-stocking fee for the return of certain inventory. The plaintiff has alleged damages in excess of $100,000. The Company believes it has substantial defenses to this lawsuit and intends to vigorously defend it. The lawsuit is in the early stages of pleadings, and the outcome of this case is uncertain at this time. The Company has incurred no significant legal fees to date in this case.

None of our directors, officers or affiliates are involved in a proceeding adverse to our business or have a material interest adverse to our business.

ITEM 1A. RISK FACTORS

As a smaller reporting company, as defined in Rule 12b-2 of the Exchange Act, we are not required to provide the information required by this Item.

ITEM 2 - UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On February 22, 2013 a private investor, shareholder, and director of the Company received a warrant for 107,000,000 shares at a purchase price per share of $0.025 pursuant to the investor making the entire Line of Credit available without restriction to the Company for use as working capital. The Warrant has a term of 5 years.

On February 27, 2013, a private investor, shareholder, and director of the Company received a warrant for 6,250,000 shares at a purchase price per share of $0.025 pursuant to the investor increasing the purchase order Line of Credit to $500,000. The Warrant has a term of 5 years

On March 4, 2013, the Company granted a stock option on 1,000,000 shares to an employee of the Company. This option has an exercise price of $.025 per share and vests ratably over a four year period. The option has a term of 5 years.

On April 22, May 22, July 19, July 26, July 29, August 9, August 23, September 12, September 25, and September 27, 2013, the Company entered into Securities Purchase Agreements and Security Agreements with several accredited investors (the “2013 PPM Investors”, or the “2013 PPM”) providing for the sale by the Company to the 2013 PPM Investors of secured 14% Callable Promissory Notes in the aggregate amount of $2,774,950 (the "2013 Notes"). In addition to the 2013 Notes, the 2013 Investors also received common stock purchase warrants (the “2013 Warrants”) to acquire an aggregate of 152,368,438 shares of common stock of the Company. In addition, historical investors holding secured notes in the principal amount of $300,000 have elected to convert the principal and interest owed in connection with their secured notes into the 2013 PPM and related 2013 Warrants resulting in the issuance of additional 2013 Notes in the principal amount of $380,237 and 2013 Warrants to purchase 18,217,482 shares of common stock.

The 2013 Warrants are exercisable for five years at an exercise price of $0.025. The Warrants are exercisable for a period of five years from the date of issuance at an exercise price of $0.025 per share on a cash basis only, subject to the Company increasing its authorized shares of common stock or implementing a reverse stock split of the outstanding shares of the Company's common stock to provide for the issuance of all shares of common stock upon exercise of all 2013 Warrants issued. In the event the Company closes a Capital Transaction (as defined below), the Warrant holder may, by notice to the Company (a "Put Notice"), elect to sell to the Company, at the Repurchase Price (as defined below) all or such number of the Warrants held by the holder then outstanding as is specified in the Put Notice. Capital Transaction means any of the following: (i) any sale or other disposition of all or substantially all of the assets of the Company or any of its subsidiaries in any single transaction or series of related transactions; (ii) any transfer or other disposition in any single transaction or series of related transactions of the Company’s common stock representing in excess of 80% of the issued and outstanding shares of common stock or all of its subsidiary’s common stock; (iii) the closing of the Company’s underwritten public offering pursuant to an effective registration statement under the Securities Act covering the offer and sale of shares of common stock in which not less than $30,000,000 of gross proceeds are received by the Company for the account of the Company; (iv) the liquidation or dissolution of the Company or any of its material subsidiaries; or (v) a merger or consolidation of the Company or any of its material subsidiaries in which the Company or such material subsidiary, as applicable, is not the surviving entity. The Repurchase Price per share means the difference of (i) the quotient of the purchase price paid in connection with the Capital Transaction divided by the number of shares outstanding as of the date of the Capital Transaction plus the number of shares of common stock issuable upon exercise of all Warrants subject to a Put Notice plus all other shares of common stock issuable upon conversion or exercise of other derivative securities as of the date of the Capital Transaction less the (ii) the Purchase Price.

On October 18, 2013, the Company issued a $100,000, 8% Secured Convertible Promissory Note (Note) to a private investor and shareholder. The Note matures on October 18, 2014. The holder may elect to convert, at $0.01, the Principal of the Note to 10,000,000 shares of Common Stock. Additionally, the holder may elect to convert all or part of the accrued interest at the same rate.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None

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ITEM 4. MINE SAFETY DISCLOSURE

Not applicable.

ITEM 5. OTHER INFORMATION

Subsequent Events

On October 28, 2013, a Director of the Company provided $400,000 to the Company. Terms are presently being negotiated.

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ITEM 6. EXHIBITS

Exhibit No.		Description of Exhibit

3.1		Certificate of Change (1)

3.2		Agreement and Plan of Merger between Acadia Resources, Inc. and Sunovia Solar, Inc.(2)

3.3		Certificate of Merger between Sun Energy Solar, Inc. and Sunovia Solar, Inc. (2)

3.4		Certificate of Merger between Acadia Resources, Inc. and Sunovia Energy Technologies, Inc. (2)

3.5		Articles of Incorporation (3)

3.6		ByLaws (3)

3.7		Articles of Merger Pursuant to NRS 92.A.200 (18)

4.1		Form of Subscription Agreement (4)

4.2		Nonstatutory Stock Option Agreement between Evolucia Inc. and Charles B. Rockwood (19)

4.3		Common Stock Purchase Warrant issued to Thomas Siegfried (20)

4.4		Common Stock Purchase Warrant issued to Burton "Skip" Sack (20)

4.5		Common Stock Purchase Warrant issued to Burton "Skip" Sack (20)

4.6		Form of Subscription Agreement by and between Evolucia Inc. and Accredited Investors (23)

4.7		Form of 14% Callable Promissory Note (23)

4.8		Form of Warrant (23)

4.9		Form of Security Agreement (23)

10.1		Cancellation of Royalty Agreement (5)

10.2		Agreement between the Registrant and Carl Smith dated February 2, 2011(5)

10.3		Agreement between Sun Energy Solar, Inc. (predecessor in interest to Sunovia Solar, Inc.) and EPIR Technologies, Inc. dated November 1, 2007 (2)

10.4		Amended and Restated Research, Development and Supply Agreement, dated January 24, 2008, between EPIR Technologies, Inc. and the Registrant (6)

10.5		Stock Purchase Agreement between EPIR Technologies, Inc. and the Registrant dated January 24, 2008 (6)

10.6		Sunovia Energy Technologies, Inc. 2008 Incentive Stock Plan dated May 1, 2008 (7)

10.7		Common Stock Purchase Warrant between the Registrant and EPIR Technologies, Inc. dated April 15, 2009 (8)

10.8		Amendment No. 1 to the Amended and Restated Research, Development, and Supply Agreement dated April 15, 2009 (8)

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10.9		Form of Secured Convertible Debenture dated September 15, 2009 (9)

10.10		Form of Security Agreement dated September 15, 2009(9)

10.11		Form of Subsidiary Guarantee dated September 15, 2009 (9)

10.12		Form of Securities Purchase Agreement dated September 15, 2009(9)

10.13		Form of Promissory Note December, 2009 and January, 2010 (10)

10.14		Form of Promissory Note February, 2010 (10)

10.15		Form of Subscription Agreement dated August 24, 2010 ($.02 per share) (11)

10.16		Executive Employment Agreement between Arthur Buckland and the Registrant effective September 7, 2010 (12)

10.17		Settlement Agreement between the Registrant and EPIR Technologies, Inc. (13)

10.18		Form of 9% Convertible Promissory Note (14)

10.19		Form of 10% Promissory Note (15)

10.20		Form of 10% Convertible Secured Promissory Note Due July 1, 2013(15)

10.21		Consulting Agreement with VM5 Ventures, LLC (15)

10.22		Employment Agreement by and between the Company and Mel Interiano dated June 4, 2012 (16)

10.23		Termination and Settlement Agreement by and between the Company and VM5 Ventures LLC dated June 4, 2012 (16)

10.24		Manufacturing, Development and Investment Agreement, dated July 16, 2012, by and between Sunovia Energy Technologies, Inc. and Leader Electronics, Inc. (17)

10.25		Sales Representation Agreement, dated July 16, 2012, by and between Evolucia, Inc. and Leader r Electronics, Inc. (17)

10.26		Securities Purchase Agreement, dated July 16, 2012, by and between Sunovia Energy Technologies, Inc. and Jiangsu Leader Electronics, Inc. (17)

10.27		Executive Employment Agreement by and between Evolucia Inc. and Charles B. Rockwood dated September 13, 2012 (19)

10.28		Master Agreement by and between Evolucia Inc. and Sunovia Energy Technologies Europe Sp. z o.o., a Polish Corporation, dated March 19, 2013 (21)

10.29		Settlement Agreement and General Release by and between Evolucia Inc., on one hand, and Arthur Buckland, individually, and as custodian for Marc Buckland and Eunice Buckland on the other hand (24)

10.30		Evolucia, Inc. 2013 Incentive Stock Plan (22)

31.1		Certification of Chief Executive Officer pursuant to Rule 13a-14(a)/15d-14(a) of the Securities Exchange Act of 1934

31.2		Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934

32.1		Certification of Chief Executive Officer Pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S. C. Section 1350

32.2		Certification of Chief Financial Officer Pursuant to Securities Exchange Act Rule 13a-14(b) and 18 U.S. C. Section 1350

EX-101.INS		XBRL INSTANCE DOCUMENT

EX-101.SCH		XBRL TAXONOMY EXTENSION SCHEMA DOCUMENT

EX-101-DEF		XBRL TAXONOMY EXTENSION DEFINITION LINKBASE

EX-101.CAL		XBRL TAXONOMY EXTENSION CALCULATION LINKBASE

EX-101.LAB		XBRL TAXONOMY EXTENSION LABELS LINKBASE

EX-101.PRE		XBRL TAXONOMY EXTENSION PRESENTATION LINKBASE

(1)	Incorporated by reference to the Current Report on Form 80K filed with the Securities and Exchange Commission on December 14, 2007

(2)	Incorporated by reference to the Quarterly Report on Form 10QSB filed with the Securities and Exchange Commission on December 21, 2007

(3)	Incorporated by reference to the Registration Statement on Form SB-2 filed with the Securities and Exchange Commission on January 1, 2007

(4)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 16, 2008.

(5)	Incorporated by reference to the Annual Report on Form 10-K for the Transition Period ended December 31, 2010 filed with the Securities and Exchange Commission on April 20, 2011.

(6)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on January 30, 2008.

(7)	Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on December 15, 2008

(8)	Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on March 16, 2009

(9)	Incorporated by reference to the Annual Report on Form 10-K filed with the Securities and Exchange Commission on November 13, 2009

(10)	Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on March 22, 2010.

(11)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 24, 2010.

(12)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission in August 27, 2010.

(13)	Incorporated by reference to the Quarterly Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2011.

(14)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 10, 2011.

(15)	Incorporated by reference to the Annual Report on Form 10-K for the Transition Period ended December 31, 2011 filed with the Securities and Exchange Commission on March 30, 2012.

(16)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on June 8, 2012

(17)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on July 19, 2012.

(18)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on August 16, 2012.

(19)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on September 17, 2012.

(20)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on February 28, 2013.

(21)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on March 26, 2013

(22)	Incorporated by reference to the Current Report on Form S-8 Registration Statement filed with the Securities and Exchange Commission on April 25, 2013.

(23)	Incorporated by reference to the Current Report on Form 8-K filed with the Securities and Exchange Commission on April 26, 2013.

(24)	Incorporated by reference to the Current Report on Form 10-Q filed with the Securities and Exchange Commission on May 15, 2013.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

EVOLUCIA INC.

Signature	Title	Date


/s/ Mel Interiano	Chief Executive Officer and Director	November 14, 2013
Mel Interiano	(Principal Executive Officer)

/s/ Mel Interiano	Principal Financial Officer	November 14, 2013
Mel Interiano	(Principal Financial and Accounting Officer)

Evolucia Inc. - FORM 10-Q - November 14, 2013

Attached files

Evolucia Inc. Reports