Ohio company to buy local electrical contractor

Deal may go nowhere if publicly traded acquirer can't raise capital quickly

Email | Print By Geert De Lombaerde

An Ohio manufacturer of energy-efficient lighting systems has signed a letter of intent to buy Madison-based Stones River Cos. for an undisclosed amount.

The principals of the companies say the deal, which is expected to close by the end of the year, will unite Energy Focus' technology with Stones River's customer network to create a lighting services company able to fully take advantage of the government stimulus dollars working their way into the economy.

Executives at Stones River, which was founded in 1990, were out of the office today and unavailable for comment on the deal. Founder and president Jami Hall in 2005 said her company's revenues would top $14 million that year. These days, she's focused on stimulus spending.

"We've seen our public sector pipeline grow dramatically with the stimulus as well as with the government's renewed emphasis on saving both energy and improving the environment," said Hall in a statement announcing the Energy Focus transaction earlier this week. "As a part of Energy Focus Inc., SRC has the potential of taking our lighting energy services business to the next level."

But that will happen only if Energy Focus can close the deal. The publicly traded company (Ticker: EFOI) lost $5.4 million on revenue of $6.6 million in the first half of this year as the recession took its toll on commercial real estate spending. It is burning through its cash reserves, which stood at $3.1 million at the end of September, down from $10.6 million on Dec. 31.

Compounding the company's funding crunch, Silicon Valley Bank has told executives it will not renew their $2 million credit line that comes due this month. To that end, the company is working on a stock rights offering that will raise $3.5 million. But if that two-phase plan doesn't succeed in coming weeks, the alternatives aren't pretty.

"If we fail to raise capital by November, 2009, we may need to forego our purchase of Stones River Companies, significantly curtail operations, cease operations, or seek federal bankruptcy protection," the company wrote in its prospectus.