ITEM 1.	BUSINESS
History
ExeLED Holdings, Inc. was incorporated in the State of Delaware on October 20, 1986 under the name “Verilink Corporation.” We have also been known as Energie Holdings, Inc. and Alas Aviation Corp. On December 31, 2013, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with OELC, LLC, a Delaware limited liability company, and its wholly-owned subsidiary, Energie LLC (hereinafter referred to as, “Energie”). The Share Exchange Agreement was not effective until July 2, 2014 due to a variety of conditions subsequent that needed to be met, which are described below. Upon effectiveness, we issued 33,000,000 “restricted” shares of our common stock, representing approximately 65% of our then issued and outstanding voting securities, in exchange for all of the issued and outstanding member interests of Energie. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible is recorded.
The closing of the Share Exchange Agreement was conditioned upon certain, limited customary representation and warranties, as well as conditions to close, such as the total shares of Energie Holdings, Inc. issued and outstanding being limited to 51,000,000, and the completion of an audit of Energie’s financial statements. Following the execution of the Share Exchange Agreement, but prior to closing, an additional 400,000 shares were issued and the limitation of 51,000,000 shares was waived, allowing for the issuance.
Thereafter, on January 27, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with two of our then wholly owned subsidiaries, Energie Holdings, Inc. and Alas Acquisition Company. The net effect of the Merger Agreement was to effectuate a name change from Alas Aviation Corp., to Energie Holdings, Inc. in order to provide a better understanding to investors of our entry into the light-emitting diode (“LED”) lighting industry. Our management also changed. On November 30, 2015, we filed a Certificate of Amendment to our Certificate of Incorporation with the State of Delaware to change our name from “Energie Holdings, Inc.” to “ExeLED Holdings, Inc.”
As a result of these transactions we are now a holding company, with Energie acting as our operating subsidiary, engaged in the business of the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Our creative lighting products include both conventional fixtures and advanced solid-state technology that can integrate with digital controls and day-lighting to create energy efficiencies and a better visual environment. Our current business objective is to become a leading provider of advanced LED lighting solutions by acquiring and growing complementary LED based lighting fixture companies. We are focused on acquiring specialized lighting companies for the architecture and interior design markets for both commercial and residential applications, with the intention to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting. These objectives are subject to our obtaining additional financing, of which there can be no assurance.
All references herein to “us,” “we,” “our,” “Holdings,” or the “Company” refer to ExeLED Holdings, Inc. and its subsidiaries, and their respective business following the consummation of the Merger and Share Exchange Agreements, unless the context otherwise requires.
Description of Current Business
Energie was founded in 2001 and is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Our headquarters is located in Wheat Ridge, Colorado, and we also maintain a production and assembly facility in Zeeland, Michigan.
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We have developed an end-to-end production and distribution platform for imported lighting products featuring HID, fluorescent, and LED technologies. Long term contracts with five European manufacturers and one in Taiwan provide us with exclusive North American distribution rights to over 270 total products in 37 categories. After processing any modifications necessary to meet Underwriter’s Laboratories™ (“UL/CUL”) standards, and building code requirements, the products are sold to customers through a network of over 60 independent lighting sales agents. In addition to a highly competitive commission structure, we provide our sales force with promotional materials, product training and technical support.
We intend to capitalize on these European lighting companies’ desire to penetrate North American markets by solving many of the problems these producers encounter when approaching these markets. These obstacles include designs that do not meet UL/CUL standards and building codes, the need to provide appropriate North American oriented marketing and product information and specifications, experience to leverage the lighting industry sales agent network, and market based product supply.
Our business strategy is to enter into exclusive sales agreements with European suppliers that have unique lighting products and to bridge the divide between product desires of North American architects, lighting designers, electrical engineers, and interior designers who wish to access innovative European products and the desires of European manufacturers. As these European partners are continually developing new products, we collaborate in the fixture design process and have the right to launch such products in North America. In many cases, our partners will co-fund the front end costs associated with launching new products. However, we require additional working capital to accelerate our anticipated growth. We estimate that we will need up to $2,000,000 in additional working capital to accomplish our objectives.
We have been, and continue to engage in, the design, development, enhancement, and marketing of advanced commercial grade illumination products that exclusively use LED’s as their light source in the continental United States, Canada and Puerto Rico. Our products include LED hanging and recessed ceiling fixtures, recessed wall fixtures and wall sconces. Our branded products have been installed in a wide variety of settings including commercial office space, financial trading floors, health care facilities, museums, schools, restaurants, retail stores and other public locations. According to a 2014 Freedonia Research report this segment of the industry is estimated at $4 billion of architectural, specification-grade lighting fixtures with innovative, differentiated lighting products that exemplify:
•Energy efficiency focused on the disruptive LED technology;
•High performance with respect to quantity and quality of light through superior optic design; and
•Aesthetic design that appeals to the senses while allowing architects and designers to make strong visual statements by accessing European lighting fixture designers.
In order to secure such projects we cultivate relationships and build our brand through marketing and sales efforts aimed at decision-makers responsible for lighting; primarily architects, lighting designers, electrical engineers, interior designers, space planners and other product designators. We maintain a network of over 60 third-party sales agencies across North America to represent our products. Lighting sales agencies in the commercial lighting market are standalone, commission-based, geographically specific companies that represent many different manufacturers and represent only lighting fixtures and lighting control systems. We support our agents with sales and marketing resources to help drive “sell through” of our branded products. All products are assembled to Underwriter’s Laboratory requirements in our factory to control quality and meet lead time requirements of our customers.
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Our business model and product strategy is based upon collaboration with leading European lighting manufacturing companies, including Rudolpf Zimmermann, Bamberg Gmbh, Bamberg, Germany, Regent Beleuchtungskorper AG, Basel, Switzerland, Trilux GmbH & Co. KG, Arnsberg, Germany, Multiline Licht NV, Lummen, Belgium, Luxiona-Troll, Canovelles, Spain and Tons Lightogy Inc., New Taipei City, Taiwan. Except for the agreement with RZB and Tons Lightogy, which were executed in 2012, each of these other agreements have been in place for over ten (10) years and are renewable for additional 2 year terms. Each of the agreements contain standard warranties, are either FOB manufacturer or CFR destination, and title and risk of loss passes to us upon delivery, when payment becomes due. Each also includes a list of products that are manufactured by each respective manufacturer. Order cancellation is allowed up until 21 days prior to delivery, except for Trilux, which requires a 6 month written notice. Thereafter, no cancellation is allowed. The agreements are exclusive to us throughout North America.
The North American architectural and design community has long recognized that European lighting manufacturers have distinctive, innovative and technologically advanced product offerings. Arguably, we believe European designs and technology are several years ahead of what is available in North America. However, designers have historically encountered difficulties working with European manufacturers. Typical issues include product designs that do not meet UL/CUL standards and North American building codes, poor marketing collateral and product information, incompatible specification data, long lead times to receive product, poor sales support, limited customer service, and high overall cost and complexity due to exchange rates, freight, duties and other factors.
The European manufacturers have long viewed the North American market for architectural, specification-grade lighting as large and attractive. However, apart from a few isolated examples, attempts to penetrate this market by establishing wholly-owned U.S. operations have been costly and unprofitable and, as a result, many have failed. We believe the challenges the European manufacturers encounter include (a) incomplete understanding of the design and product attributes demanded by North American architects and designers; (b) incomplete understanding of UL/CUL and building code requirements; (c) inexperience working with indirect sales channels such as agents and distributors (European sales strategy is based on company employed direct salespeople); and (d) the overall high cost of “green fielding” and supporting U.S. operations.
To address these issues we intend to expand our operations through the acquisition of related businesses that will complement our current business. There are many synergistic operations which have expressed an interest in being acquired by us due to our status as a publicly traded company. We believe this makes economic sense, because we can eliminate duplication of general and administrative expense, provide more centralized information marketing and eliminate overlapping of services offered. We are presently evaluating several such businesses as potential acquisition candidates and have engaged in discussions with other acquisition targets. However, as of the date of this report there are no definitive agreements in place relating to our acquiring any such business and there can be no
assurances that such agreements will be executed on favorable terms or at all in the future.
If we are successful, the acquisition of related, complimentary businesses is expected to increase revenues and profits by providing a broader range of services in vertical markets which are consolidated under one parent, thus reducing overhead costs by streamlining operations and eliminating duplicitous efforts and costs. There are no assurances that we will increase profitability if we are successful in acquiring other synergistic companies.
Management intends to seek out and evaluate related, complimentary businesses for acquisition. The integrity and reputation of any potential acquisition candidate will first be thoroughly reviewed to ensure it meets with management’s standards. Once targeted as a potential acquisition candidate, we will enter into negotiations with the potential candidate and commence due diligence evaluation of each business, including its financial statements, cash flow, debt, location and other material aspects of the candidates’ business. We expect to utilize the issuance of our securities as part of the consideration that we will pay for these proposed acquisitions. If we are successful in our attempts to acquire similar companies utilizing our securities as part or all of the consideration to be paid, our current shareholders will incur dilution. We anticipate that we will need additional capital to make these acquisitions. We have had various discussions with investment banking firms and others potential investors but as of the date of this Report there are no definitive agreements to provide us with this funding and there can be no assurances that we will obtain this funding in the future. Failure to obtain this funding will have a material negative affect on our ability to implement our business plan and our anticipated results of operations. We are continuing to seek out and discuss financing with potential partners and lenders. While no assurances can be provided, we expect that many lighting fixture companies will be interested in consolidating with us to capitalize on the application of the disruptive LED technology.
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Our objective is to become a leading provider of advanced LED lighting solutions by acquiring and growing complementary LED based lighting fixture companies. We are focused on acquiring specialized lighting companies for the architecture and interior design markets for both commercial and residential applications. Our creative lighting products will include both conventional fixtures and advanced solid-state technology that can integrate with digital controls and day-lighting to create energy efficiencies and a better visual environment. Our intent is to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting. There are no assurances we will be successful.
Key elements of our business growth strategy include:
•LED Technology Leadership: As LED technology increases in the speed at which it is advancing, lighting fixture designs will have to adapt to that rate of change. Our Advisory Team intends to provide access to the best resources to apply LED technology for our subsidiaries. We also intend to provide buying contracts with LED component manufacturers to control cost while staying at the leading edge of the technology.
•Access to Investment Capital: The change from conventional lighting technology to LED technology is expensive. The capital needed to understand and apply LED technology is more than most conventional lighting manufactures have or are willing to risk. We intend to provide the appropriate capital to develop and launch LED lighting fixtures through our subsidiaries. As of the date of this Report we do not have sufficient capital to meet this objective and there are no assurances we will obtain this capital in the future.
•Best Practices Management Services: The business processes and staffing required to move to solid state lighting are different than those needed for conventional lighting technology. Our Advisory Team intends to provide assistance to our subsidiary teams to help them capitalize on these changes aggressively and cost effectively.
•Market Appropriate Education. We believe that educating architects, designers, specifiers and end-users of the benefits of LED lighting is key to growing our market share by shifting their preference from more traditional lighting to LED lighting. There continue to be unique advances in LED engineering and, while no assurances can be provided, we believe the market is rapidly embracing the technology. We also believe our employees have the knowledge and ability to educate both our customer base and, if successful, thep ersonnel in the companies we acquire. We expect that this will drive sales by driving the commercial market towards LED lighting.
•Sales and Distribution Network: We maintain a network of over 60 third-party sales agencies across North America to represent our products. These agreements provide for exclusive rights to sell our lighting fixtures for a commission in specific counties as described in each agreement. If and when we successfully consummate acquisitions, each company that we acquire will have their own third-party sales agencies and distribution network. We are targeting acquisitions that will diversify our product portfolio. By carrying a broader selection of LED lighting products we anticipate that we will be able to not just expand our existing network of sales agencies, but to also become more of a preferred provider of products to select sales agencies.
•Expanding our LED Product Portfolio. As our goal is to serve our customers and create a quality experience in both product and service, we will continue to expand these categories and add necessary fixtures and light sources to increase our offering as an LED solution provider.
•Developing and Protecting Our Intellectual Property. Securing and defending intellectual property by using the UL Listing process related to the design, manufacture and application of advanced lighting technology is expected to be a key element of our existing and future business. The strength of our intellectual property portfolio is intended to allow us to compete on the basis of our technology, which we believe will give us an advantage over many of our larger competitors.
•Capitalizing on Opportunities in Our Target Markets. We believe there is a growing need for unique, advanced lighting solutions across our target markets. Our acquisition strategy is to expand into new production application market segments by focusing on companies with complementary products. Because we have access to the advanced products from our International partners, we expect to continue to introduce innovative advanced lighting products as we believe there exists significant opportunities to grow market share. By introducing new products and expanding sales of existing products we believe that we can significantly improve operational efficiency by reducing our cost of materials, components and manufacturing. Expanding our products and increasing our sales will also allow us to gain additional leverage from sales representatives within our distribution network.
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The LED Lighting Industry
The global lighting industry generally is divided between three major market segments: commercial, industrial and residential. Within these three market segments exist two broad product categories: fixtures and light bulbs (referred to as lamps in the lighting industry). The fixtures category includes all apparatuses, luminaires and power/heat-control systems, while lamps consist of the devices that emit light. Conventional lamps typically include incandescent, fluorescent and high-intensity discharge (HID) products. For commercial applications, we believe that the more expensive and long lasting fluorescent and HID lamps and fixtures have had the largest market share. For industrial applications, metal halide and fluorescent have been the primary light source. For residential applications within the general illumination market, inexpensive incandescent bulbs and, to a lesser extent, compact fluorescent (CFL) lamps have been the common choice.
With rapid advancements in the performance, efficiency and cost of energy-efficient lighting, including LED-based solutions, conventional light sources, such as incandescent lamps, are beginning to be replaced by advanced technologies with lower operating costs over their useful lives. LED’s are semiconductor-based devices that generate light. The energy-efficient nature of LED technology makes it an environmentally friendly light source, and the compact size of LEDs has created new possibilities in lighting fixture and lamp design. Product selection is influenced by a number of factors, including overall cost, energy efficiency, product life, lumen output and other product features, as well as regulatory and environmental factors. We believe our unique advanced lighting solutions are well positioned to increasingly displace conventional lighting in each of our targeted markets.
In North America, lighting manufacturers typically sell products through manufacturer’s representatives, electrical supply representatives, or an internal sales force to electrical wholesale distributors. The distributors then market products to electrical contractors and other end-users. Representatives also have direct contact with lighting designers, electrical engineers, architects and general contractors that influence buying decisions. The manufacturer’s representatives often provide value-added services, such as product promotion or design and implementation assistance. The ability of smaller companies to compete against larger, more-established rivals is heavily rooted in their capacity to leverage their unique product portfolios and customer service to garner maximum productivity from each representative.
Historically, large global competitors focused almost exclusively on the general illumination market, because of their advantage in purchasing power, manufacturing volume and distribution efficiency, while smaller industry participants generally competed in niche markets primarily by offering specialized products and superior customer service to their regions. However, the evolution of advanced lighting solutions has enabled smaller companies to penetrate and compete in the larger general illumination market. One of these notable advanced lighting solutions is LED lighting.
Industry Trends
As the cost of LED’s decrease and their performance improves we expect that they will continue to compete more effectively in the general illumination market versus traditional lighting. High-brightness LEDs are the core, light-producing components within an LED lighting system. We believe the LED lighting industry is experiencing the following trends:
•Technological Innovations Expand LED Functionality. Since the introduction of the first visible LED in the 1960s, the technology has offered an increasingly wide variety of colored lighting, beginning with red and expanding to green, yellow and orange. Initial rudimentary applications included traffic lights, automotive brake lights and indicator lights. In the mid-1990s, LEDs became capable of emitting blue light. With the advent of blue LEDs, combined with phosphor technology, LEDs made another technological leap by emitting white light. This breakthrough enabled LEDs to compete with traditional lighting solutions for applications in commercial, industrial and residential markets. In an effort to lower energy consumption, lighting companies are focusing on increasing “lumens per watt.” Lumens per watt (often referred to as “efficacy”) is an industry standard that measures the amount of light emitted per watt of electrical power used, meaning the more lumens per watt, the more energy-efficient the product. Traditional incandescent lighting sources can produce between 10 and 35 lumens per watt, while fluorescent and HID light sources can produce output exceeding 100 lumens per watt. Today’s LEDs are currently performing well over 100 lumens per watt at the LED level, making them comparable to, and often better than, fluorescent and HID light sources.
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•High Energy Costs Drive LED Adoption. As a result of high energy prices and the expectation that prices will continue to rise, businesses and consumers are increasingly adopting new technologies to reduce energy consumption. LED lighting technology is inherently more energy efficient and can result in more than 80% power savings over incandescent solutions. According to The Department of Energy, 22% of all energy consumption in the United States is from lighting applications. This combined rate represents approximately 35% of all energy consumption in commercial buildings as compared to approximately 15% for residential users and 5% for industrial companies. Despite safety issues and concerns, compact fluorescent (CFL) lamps are used for lighting energy conservation. However, recent technological advancements to LED lighting have made it more commercially viable in terms of brightness, efficiency, lamp life, safety and color-rendering (CRI). In addition, competitive pressures, declining LED costs and greater manufacturing efficiencies are driving down LED lamp prices. As a result of these gains and, while there can be no assurances, we believe LED adoption should continue to expand. In support of our belief, in the 2014 report issued by Freedonia, LED fixtures are expected to account for over half of all lighting fixture sales in 2018. Higher value fixtures will account for a dramatically greater share of fixture sales as more fixtures designed specifically for LEDs, advanced fluorescent lamps, and other longer lived, highly efficient light sources are introduced. For instance, sales of LED lighting fixtures are expected to nearly triple through 2018 to account for over half of total fixture sales, up from seven percent in 2008. In many cases, LED fixtures will replace existing fixtures designed for use with less efficient light sources as lamp stocks dwindle following phase out programs. Incandescent, halogen, and fluorescent fixtures will all register declining sales going forward. However, high intensity discharge (HID) fixtures, which are based on an older but relatively energy efficient technology, are expected to grow through 2018.
•Legislative Influences Spur Market Adoption of Energy Efficient LED Lighting. LED Lighting has encouraged regulatory agencies to increase the demand for more energy efficiency. Federal law, under the Energy Efficiency Improvement Act of 2015, mandates that commercial buildings use less electricity. After HVAC, lighting consumes the second most electricity in buildings, so it provides a great opportunity to decrease electricity usage. Also, lighting can be more easily retrofitted than HVAC so existing buildings are also a major opportunity.
Competition
We currently face competition from traditional lighting companies that provide general lighting products, including incandescent, fluorescent, high intensity discharge (HID), metal halide (MH) and other traditional light sources. We also have competitors from specialized lighting companies that are engaged in providing LED lighting fixture products. In general, we intend to compete with both groups on the basis of design, innovation, and quality of light, maintenance costs, safety issues, energy consumption, price, product quality and brightness.
In the general illumination market, we compete with traditional lighting companies that include Acuity Brands Lighting, Inc., Eaton’s Cooper Lighting Business (a division of Eaton Corporation), Hubbell Lighting, Inc. (a division of Hubbell Incorporated), Juno Lighting Group (a division of Schneider Electric SA), GE Lighting and Philips Lighting (a division of Koninklijke Philips N.V.). Our LED products should tend to be alternatives to conventional lighting sources for applications within the commercial and residential markets. In these markets, we compete on the basis of unique designs, performance, energy savings, lamp life, and durability.
We believe that we will compete favorably in our markets, based on the following factors:
•Breadth and diversity of high-quality LED product offerings;
•Our expansive distribution network and developed relationships;
•Innovative products at competitive price points;
•UL/CUL, DLC and Energy Star certifications;
•Ability to offer multiple levels of products;
•Value-engineered products producing a fast ROI; and
•Responsiveness to customers
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We expect our markets to remain competitive and to reflect rapid technological evolution and continuously evolving customer and regulatory requirements. Our ability to remain competitive depends in part upon our success in developing new and advanced LED lighting solutions and introducing these products at competitive prices on a timely basis.
Intellectual Property
UL/CUL Listings
We have over 20 UL files, which include UL Listings for over 14,000 products for sale in the United States and Canada. UL is an independent safety testing laboratory. A UL Listing means that UL has tested representative samples of the product and determined that it meets UL’s requirements. These requirements are based primarily on UL’s published and nationally recognized standards for safety in the US and Canada. UL’s testing certifies the design, construction and assembly of the certified products. UL Listings do not expire as long as the product certified is not materially changed. Ownership of a UL Listing may also be transferred between companies. Most commercial customers in the lighting industry will only buy UL listed products.
Trademarks
We have one registered trademark, “Energie.”
Employees
As of the date of this report we have six (6) full-time employees including our management, consisting of Harold Hansen, our President and Chief Executive Officer, Justin Kerns, our Chief Operating Officer as well as one additional employee, a bookkeeper, in our Colorado location and one person in production management and a product/production engineer, who work out of our Michigan location. Richard Cole Dennard, our current Chief Financial Officer, works with us as an independent contractor. We also retain additional part and full time employees on a temporary basis as needed to meet production schedules. Depending upon our backlog, we usually employ between 2 and 14 people on a temporary basis. None of our employees are members of any union. We believe our relationship with our employees is good.
As we continue to expand, we expect to add additional employees in the areas of production, engineering, sales and acquisitions if and when we have the financial resources to do so.
Government Regulation
We are not subject to any extraordinary governmental regulations.
ITEM 1A.
ITEM 1A.	RISK FACTORS
We are a smaller reporting company and not required to include this disclosure in our Annual Report on Form 10-K.
ITEM 1B.
ITEM 1B.	UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2.	PROPERTIES
Headquarters - Our principal place of business is located at 4885 Ward Road, Suite 300, Wheat Ridge, Colorado 80033. This space consists of approximately 6,000 square feet of executive offices and a conference room. This location is leased pursuant to a seven year term at approximately $4,415 base rent with approximately $2,330 in monthly shared expenses. This facility houses our sales, marketing, customer service, product development and accounting activities and is also used to train agents and provide educational seminars for architects, designers and specifiers within a classroom environment and fixture showroom.
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Our manufacturing, production, assembly and fulfillment is handled from a 23,000 square foot facility located at 200 E. Garfield Avenue in Zeeland, Michigan. This facility is leased from Symbiote Inc. which became one of our shareholders following the Closing under the Share Exchange Agreement. This facility holds inventory and assembles finished goods to fulfill customer orders. Production engineering, production management and production services are all accomplished from this facility. This facility is under a lease with approximately 3 years remaining at approximately $6,000 base rent with approximately $2,000 in monthly shared expenses.
ITEM 3.
ITEM 3.	LEGAL PROCEEDINGS
In July 2015, Energie LLC and Harold Hansen, our CEO (collectively, “the defendants”), were served with a summons and complaint wherein Vectra Bank Colorado, National Association brought an action to collect monies due pursuant to a promissory note in the current principal balance of $47,000, plus interest, costs, and attorneys’ fees. The action was brought in the District Court for the City and County of Denver, Colorado (the “Court”). As of April 4, 2016, the parties to this action have entered into a settlement whereby the defendants agreed to pay to Vectra Bank the sum of $59,177 on or before April 30, 2016. In the event of a default on this settlement agreement, Vectra Bank may request entry of a judgment against both defendants jointly and severally for any amounts unpaid pursuant to the settlement agreement.
ITEM 4.
ITEM 4.	MINE SAFETY DISCLOSURES
Not Applicable.
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PART II
ITEM 5.
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Trading of our common stock commenced on the OTCBB in July 2008, under the trading symbol “ALAS.” In January 2014, our trading symbol became “ELED,” which currently trades on the OTCQB.
The table below sets forth reported high and low bid prices for the periods indicated. The bid prices shown reflect quotations between dealers, without adjustment for markups, markdowns or commissions, and may not represent actual transactions in our common stock.
As of April 13, 2016 the closing bid price of our common stock was $0.0034.
Trading volume in our common stock has been very limited since we commenced trading. As a result, the trading price of our common stock is subject to significant fluctuations.
The Securities Enforcement and Penny Stock Reform Act of 1990
The Securities and Exchange Commission (“SEC”) has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).
As of the date of this Report, our common stock is defined as a “penny stock” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It is anticipated that our common stock will remain a penny stock for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the Commission, which:
•contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
•contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended;
•contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask price;
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•contains a toll-free telephone number for inquiries on disciplinary actions;
•defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
•contains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation;
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:
•the bid and offer quotations for the penny stock;
•the compensation of the broker-dealer and its salesperson in the transaction;
•the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
•monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.
Holders
We had 264 holders of record of our common stock as of the date of this Report, not including those persons who hold their shares in “street name.”
Stock Transfer Agent
The stock transfer agent for our securities is Pacific Stock Transfer, Inc. Their address is 6725 Via Austi Pkwy, Suite 300, Las Vegas, NV 89119. Their phone numbers are (702) 361-3033 and (800) 785-PSTC.
Dividends
We have not paid any dividends since our incorporation and do not anticipate the payment of dividends in the foreseeable future. At present, our policy is to retain earnings, if any, to develop and market our products. The payment of dividends in the future will depend upon, among other factors, our earnings, capital requirements, and operating financial conditions.
Reports
We are subject to certain reporting requirements and furnish annual financial reports to our stockholders, certified by our independent accountants, and furnish unaudited quarterly financial reports in our quarterly reports filed electronically with the SEC. All reports and information filed by us can be found at the SEC website, www.sec.gov and on our website, www.exeledholdings.com.
ITEM 6.
ITEM 6.	SELECTED FINANCIAL DATA
Not required for a smaller reporting company.
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ITEM 7.
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included in Item 8. We caution readers regarding certain forward looking statements in the following discussion and elsewhere in this Annual Report on Form 10-K and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission (the “SEC”). Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results, or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic, and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.
Overview
ExeLED Holdings is focused on growing and acquiring specialized LED lighting companies for the architecture and interior design markets for both commercial and residential interiors. The lighting products will include both conventional fixtures and advanced solid-state technology that can integrate with digital controls and day-lighting to create energy efficiencies and a better visual environment. Our objective is to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting. The management team and advisory board is comprised of experienced executives in the lighting industry with recent specific focus on the LED lighting industry. The team has over 300 years of combined experience in this industry.
Energie is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Energie commenced business in 2001.
General Trends and Outlook
In 2015, our focus was on securing funding in order to implement our business plan to grow through acquisition. Accordingly, working capital was at a premium for us, which limited our ability to maximize our revenue-generating activities with Energie. In 2014, we committed resources to completing the Share Exchange Agreement and Merger Agreement in order to become a publicly traded company. These efforts also took significant working capital, and the lack of available funds again limited the profitability of Energie.
Going Concern
As shown in the accompanying consolidated financial statements, we had an equity deficit of $10,048,952 and a working capital deficit of $8,569,652 as of December 31, 2015, and have reported net losses of $2,995,626 and $3,713,292, respectively, for the years ended December 31, 2015 and 2014. These factors raise substantial doubt regarding our ability to continue as a going concern.
Our ability to continue as a going concern is dependent on our ability to further implement our business plan, attract additional capital and, ultimately, upon our ability to develop future profitable operations. We intend to fund our business development, acquisition endeavors and operations through equity and debt financing arrangements. However, there can be no assurance that these arrangements will be sufficient to fund our ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Additionally, current economic conditions in the United States and globally create significant challenges attaining sufficient funding.
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Results Of Operations
The following selected comparative financial information for the years ended December 31, 2015 and 2014 have been derived from and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2015 and 2014 included in this report.
Comparison of Results of Operations for the Years Ended December 31, 2015 and 2014
Sales revenue decreased by $213,349 during the year ended December 31, 2015 compared to 2014 due to an overall lack of funding necessary for development and product launch costs. Cost of revenue decreased proportionally to the decrease in revenues.
Operating expenses
The decrease in operating expenses was driven by the lack of impairment costs in 2015 as well as decreases in costs as we tried to control spending due to a limitation of funding. We also incurred fewer professional fees during the year ended December 31, 2015 compared to 2014 as the fees related to the Merger and Share Exchange were all incurred prior to 2015.
During the year ended December 31, 2015, interest expense increased by $512,406. This increase is due to additional debt of approximately $1,585,000.
Other income (expense) consists primarily of other expenses related to conversion of debt.
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Liquidity and Capital Resources
Capital Resources
We have not generated positive cash flows from operations. Accordingly, our sources of liquidity may include potential debt and/or equity offerings. We believe that our principal difficulty in our inability to successfully generate positive cash flows has been the lack of available working capital to operate and expand our business. We believe we need a minimum of approximately $2,000,000 in additional working capital to be utilized for a) development and launching of new products; b) funding the business development efforts to identify, qualify and acquire other LED lighting companies; and c) the balance for working capital, and general and administrative expense. While we are in discussions with various potential financing groups, other than as disclosed below, we have no other commitments from any investor or investment-banking firm to provide us with the necessary funding and there can be no assurances we will obtain such funding in the future. Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future.
To fund our acquisition plan and fund working capital for our continuing operations we are continuing to seek out and discuss financing with potential partners or lenders. While no assurances can be provided, we expect that we will be able to obtain financing to implement our plans.
In the second half of 2014, we entered into four Securities Purchase Agreements with KBM Worldwide, Inc., (“KBM”) wherein we agreed to issue 8% convertible promissory notes in the aggregate principal amount of $182,500. The notes could be converted into shares of our common stock at any time beginning 180 days from the date of the notes at a price equal to 61% of the average closing bid price of our common stock during the 10 trading days immediately preceding the date of conversion. In the event we failed to pay the notes when they became due, the balance due under the notes incur interest at the rate of 22% per annum. The notes contained additional terms and conditions normally included in instruments of this kind, including a right of first refusal wherein we granted KBM the right to match the terms of any future financing in which we engage on the same terms and contemplated in such future financing. During the year ended December 31, 2015, KBM converted $60,395 of principal and $2,120 of accrued interest into 18,620,609 shares of common stock. During the third quarter of 2015, KBM sold the outstanding principal and interest remaining on the notes to LG Capital Funding LLC.
In December 2014, we entered into a Securities Purchase Agreement, Convertible Note and other ancillary documents with LG Capital Funding LLC, (“LG”) wherein we agreed to issue an 8% convertible promissory note in the principal amount of $35,000. The note was convertible into shares of our common stock at a price equal to 65% of the lowest closing bid price of our common stock during the 15 trading days immediately preceding the date of conversion. The note contained additional terms and conditions normally included in instruments of this kind. During the year ended December 31, 2015, LG converted all $35,000 of principal and $1,792 of accrued interest into 16,147,503 shares of common stock. In addition, in August 2015, LG purchased from KBM all of our outstanding convertible notes and accrued interest payable to KBM. The outstanding amount due to KBM was restructured into two new convertible notes under a Securities Purchase Agreement, Convertible Notes and other ancillary documents. Under these agreements, we agreed to issue 8% convertible promissory notes in the principal amount of $188,684. These notes are convertible into shares of our common stock at a price ranging from 58% - 65% of the lowest closing bid price of our common stock during the 15 trading days immediately preceding the date of conversion. The notes contain additional terms and conditions normally included in instruments of this kind. During the year ended December 31, 2015, LG converted $34,247 of principal and $600 of accrued interest into 21,179,939 shares of common stock.
On July 16, 2014 we entered into an Investment Agreement and Registration Rights Agreement with Dutchess Opportunity Fund, II, LP (“Dutchess”). Pursuant to the Investment Agreement, Dutchess committed to purchase, subject to certain restrictions and conditions, up to $5 million of our common stock upon issuance by us of a put to Dutchess at a price equal to ninety-four percent (94%) of the lowest daily VWAP (volume weighted average price) of our common stock during the five (5) consecutive Trading Days beginning on the Put Notice Date and ending on and including the date that is four (4) Trading Days after such Put Notice Date. The Put Amount shall be equal to up to either 1) two hundred percent (200%) of the average daily volume (U.S. market only) of the common stock for the three (3) Trading Days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date or 2) one hundred thousand dollars ($100,000). The obligation of Dutchess to purchase our shares is contingent upon our filing of a registration statement registering the shares of our common stock with the US Securities and Exchange Commission and such registration statement being declared effective, as well as our common stock continuing to be listed for trading, among other things. We filed such a registration statement with the SEC on October 6, 2014 and it became effective on November 7, 2014.
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Working Capital
Working capital is the amount by which current assets exceed current liabilities. At December 31, 2015, we had current assets, primarily cash, accounts receivable and inventory, of $269,448 and current liabilities of $8,839,100, resulting in negative working capital of $8,569,652. The increase in negative working capital is due to the increase in debt of approximately $1,585,000 and a resulting increase in accrued liabilities of approximately $500,000 associated with an increase in interest expense.
Cash Flows
At December 31, 2015 we had cash and cash equivalents of $17,987.
Our cash flows from operating, investing and financing activities were as follows:
Net cash used in operating activities increased in 2015 by $425,734 compared to 2014. We relied heavily on increased debt, accounts payable, and accrued liabilities to keep our operations running. We anticipate that overhead costs in current operations will increase in the future if we are successful in raising the capital described herein as a result of our anticipated increased marketing and operating activities.
There were no cash flows from investing activities during the year ended December 31, 2015. In 2014, all cash flows used in investing activities were used to acquire long-lived assets.
During 2015, we relied on additional borrowings under both new and existing debt agreements. In 2015, net cash flows provided by financing activities were composed of $1,421,326 of additional borrowings and $534,157 of debt pay down. In 2014, we borrowed $758,719 of additional debt and paid down $232,361 of debt.
We believe that our principal difficulty in our inability to successfully generate profits has been the lack of available capital to operate and expand our business. We believe we need a minimum of approximately $2,000,000 in additional working capital to be utilized for development and launching of new products for Energie, as well as funding the business development efforts to identify, qualify and acquire other LED lighting companies, with the balance for working capital and general and administrative expense. As of the date of this report, other than as disclosed below, we have no other commitment from any investor or investment-banking firm to provide us with the necessary funding and there can be no assurances we will obtain such funding in the future. Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future.
Inflation
Although our operations are influenced by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the year ended December 31, 2015.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2015 and 2014.
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Critical Accounting Policies and Estimates
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. The original effective date for ASU 2014-09 would have required adoption beginning in the first quarter of 2018. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the standard may be adopted in either the first quarter of 2018 or 2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We are currently evaluating the impact of these standards on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02 (ASU 2015-02), Consolidation (Topic 810) - Amendments to the Consolidation Analysis. ASU 2015-02 focuses on the consolidation evaluation for reporting organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should consolidate certain legal entities. We do not expect the impact of the adoption of ASU 2015-02 to be material to our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03 (ASU 2015-03), Interest-Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This ASU will be effective for our financial statements beginning with the quarter ending March 31, 2016. In August 2015, the FASB issued ASU No. 2015-15 (ASU 2015-15), Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update). ASU 2015-15 amends subtopic 835-30 to include the SEC Staff Announcement at the June, 18 2015 EITF meeting regarding the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. We are currently evaluating the impact of these standards on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11 (ASU 2015-11), Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 more closely aligns the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). As such, an entity should measure inventory that is within the scope of this ASU at the lower of cost and net realizable value. We do not expect the impact of the adoption of ASU 2015-11 to be material to our consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16 (ASU 2015-16), Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to “recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.” Further, the acquirer must record, in the financial statements for the same period, “the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.” We do not expect the impact of the adoption of ASU 2015-16 to be material to our consolidated financial statements.
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In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). The guidance in this new standard eliminated the current requirement to present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets and deferred tax liabilities as noncurrent. Public companies are required to apply the guidance beginning with the quarter ending March 31, 2017. We do not believe this ASU will have a material impact on our financial statements.
Other recent accounting pronouncements issued by the FASB and the SEC did not, or management believes will not, have a material impact on our present or future consolidated financial statements.
ITEM 7A.
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for a smaller reporting company.
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ITEM 8.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of ExeLED Holdings, Inc.:
We have audited the accompanying consolidated balance sheets of ExeLED Holdings, Inc. (formerly Energie Holdings, Inc) (“the Company”) as of December 31, 2015 and 2014 and the related statement of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ExeLED Holdings, Inc., as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States of America.
The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over financial reporting. Accordingly, we express no such opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/B F Borgers CPA PC
B F Borgers CPA PC
Lakewood, CO
April 14, 2016
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EXELED HOLDINGS, INC.
Consolidated Balance Sheets
See accompanying notes to consolidated financial statements.
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EXELED HOLDINGS, INC.
Consolidated Statements of Operations
See accompanying notes to consolidated financial statements.
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EXELED HOLDINGS, INC.
Consolidated Statements of Equity
See accompanying notes to consolidated financial statements
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EXELED HOLDINGS, INC.
Consolidated Statements of Cash Flows
See accompanying notes to consolidated financial statements.
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EXELED HOLDINGS, INC.
Notes to Consolidated Financial Statements
Note 1 - Description of Business and Summary of Significant Accounting Policies
Formation of the Company
ExeLED Holdings, Inc. was incorporated in the State of Delaware on October 20, 1986 under the name “Verilink Corporation.” We have also been known as Energie Holdings, Inc. and Alas Aviation Corp. On December 31, 2013, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with OELC, LLC, a Delaware limited liability company, and its wholly-owned subsidiary, Energie LLC (hereinafter referred to as, “Energie”). The Share Exchange Agreement was not effective until July 2, 2014 due to a variety of conditions subsequent that needed to be met, which are described below. Upon effectiveness, we issued 33,000,000 “restricted” shares of our common stock, representing approximately 65% of our then issued and outstanding voting securities, in exchange for all of the issued and outstanding member interests of Energie. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible is recorded.
Thereafter, on January 27, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with two of our then wholly owned subsidiaries, Energie Holdings, Inc. and Alas Acquisition Company. The net effect of the Merger Agreement was to effectuate a name change from Alas Aviation Corp., to Energie Holdings, Inc. in order to provide a better understanding to investors of our entry into the LED lighting industry. Our management also changed.
All references herein to “us,” “we,” “our,” “Holdings,” or the “Company” refer to ExeLED Holdings, Inc. and its subsidiaries, and their respective business following the consummation of the Merger and Share Exchange Agreements, unless the context otherwise requires.
Description of Business
We are focused on acquiring and growing specialized LED lighting companies for the architecture and interior design markets for both commercial and residential applications. The lighting products include both conventional fixtures and advanced solid-state technology that can integrate with digital controls and day-lighting to create energy efficiencies and a better visual environment. Our objective is to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting.
Energie was founded in 2001 and is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Our headquarters is located in Wheat Ridge, Colorado, and we also maintain a production and assembly facility in Zeeland, Michigan.
Basis of Presentation
As a result of the Share Exchange, Energie is considered to be the “accounting acquirer” and, accordingly, is treated as the predecessor company. The consolidated financial statements include the results of operations and financial position of Energie for all periods, and the results of operations and financial position of Holdings as of and for the year ended December 31, 2015 and for the six months ended December 31, 2014.
Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.
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Going Concern
As shown in the accompanying financial statements, we had an equity deficit of $10,048,952 and a working capital deficit of $8,569,652 as of December 31, 2015, and have reported net losses of $2,995,626 and $3,713,292, respectively, for the years ended December 31, 2015 and 2014. These factors raise substantial doubt regarding our ability to continue as a going concern.
Our ability to continue as a going concern is dependent on our ability to further implement our business plan, attract additional capital and, ultimately, upon our ability to develop future profitable operations. We intend to fund our business development, acquisition endeavors and operations through equity and debt financing arrangements. However, there can be no assurance that these arrangements will be sufficient to fund our ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Additionally, current economic conditions in the United States and globally create significant challenges attaining sufficient funding.
Some of our debt agreements are due on demand. If demand for payment is made by one or multiple vendors, we would experience a liquidity issue as we do not currently have the funds available to pay off these debts. While we have entered into extensions with several of our lenders, there can be no assurances that any of the lenders will be cooperative or that if they are willing to provide extensions or forbearances, that the terms under which they may be willing to provide them will be favorable to us.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current year presentation.
Summary of Significant Accounting Policies
Cash and cash equivalents
Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase.
Accounts receivable
We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and is charged to Other income (expense) in the consolidated statements of operations. We calculate this allowance based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and our relationships with, and the economic status of, our customers.
At our discretion, we may sell our accounts receivable with recourse in order to accelerate the receipt of cash. Upon the sale of selected accounts receivable, title transfers to the counterparty to the factoring agreement, we receive 85% of the face amount sold, and we remove the account receivable from our balance. We pay a commission and, if the balance is not collected by the counterparty within 30 days, a factoring fee. We are responsible for repaying the factoring counterparty for any amounts they are unable to collect. The factoring counterparty retains a reserve in the event the amount they ultimately collect is less than the amount paid to us. Depending on the volume of activity and uncollected accounts, therefore, we may have a receivable from or a liability to the factoring counterparty.
Inventory
Inventory is stated at the lower of cost or market, using the first-in, first-out method (“FIFO”) to determine cost. We monitor inventory cost compared to selling price in order to determine if a lower of cost or market reserve is necessary. We also estimate and maintain an inventory reserve, as needed, for such matters as obsolete inventory, shrink and scrap.
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Intangible assets
Our intangible assets consist of the following:
UL Listings - Energie has over 20 United LaboratoriesTM (“UL”) files, which include UL Listings for over 14,000 products for sale in the United States and Canada. UL is an independent safety testing laboratory. A UL Listing means that UL has tested representative samples of the product and determined that it meets UL’s requirements. These requirements are based primarily on UL’s published and nationally recognized standards for safety. UL’s testing certifies the design, construction and assembly of the certified products. UL Listings do not expire as long as the product certified is not materially changed. Ownership of a UL Listing may also be transferred between companies. Most customers in the lighting industry will only buy UL listed products.
Trademarks - Energie is a registered trademark.
Marketing and design - These consist of engineering and marketing materials covering the majority of our product offerings.
Intangible assets are recorded at the cost to acquire the intangible, net of amortization over their estimated useful lives on a straight-line basis. We determine the useful lives of our intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term strategy for using the asset, any laws or other local regulations that could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.
Property and equipment
Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of our assets, which are reviewed periodically.
Impairment of long-lived assets
When facts and circumstances indicate that the carrying value of long-lived assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of revenues and the resulting gross profit and cash flows. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized, if any, is the amount by which the carrying amount of the asset (or asset group) exceeds the fair value. We may use a variety of methods to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumptions we believe hypothetical marketplace participants would use.
We have the option to perform a qualitative assessment of long-lived assets prior to completing the impairment test described above. We must assess whether it is more likely than not that the fair value of the long-lived assets is less than their carrying amount. If we conclude that this is the case, we must perform the test described above. Otherwise, we do not need to perform any further assessment.
As a result of applying the above procedures, we fully impaired our long-lived assets during the year ended December 31, 2014.
Warranty reserve
We provide limited product warranty for one year on our products and, accordingly, accrue an estimate of the related warranty expense at the time of sale, included in Accrued liabilities on the consolidated balance sheets.
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Convertible debt
We first evaluate our convertible debt to determine whether the conversion feature is an embedded derivative that requires bifurcation and derivative treatment. Based on our analysis, we determined derivative treatment was not required. We then evaluate whether the conversion feature is a beneficial conversion feature. Our convertible debt is treated as a liability and permits settlement in cash. Accordingly, in order to determine the value of the conversion feature, we compared the estimated fair value of the convertible debt to the fair value of debt that did not have the conversion feature. Based on this analysis, we concluded that the value of the conversion feature was immaterial.
Equity
As a result of the Share Exchange, Energie is considered to be the “accounting acquirer” and, accordingly, is treated as the predecessor company. Accordingly, the equity presented prior to the effective date of the Share Exchange is that of Energie, LLC. Subsequent to the effective date of the Share Exchange, July 2, 2014, the equity presented represents the equity of Holdings.
Revenue recognition
We recognize revenue when the four revenue recognition criteria are met, as follows:
•Persuasive evidence of an arrangement exists - our customary practice is to obtain written evidence, typically in the form of a sales contract or purchase order;
•Delivery - when custody is transferred to our customers either upon shipment to or receipt at our customers’ locations, with no right of return or further obligations, such as installation;
•The price is fixed or determinable - prices are typically fixed at the time the order is placed and no price protections or variables are offered; and
•Collectability is reasonably assured - we typically work with businesses with which we have a long standing relationship, as well as monitoring and evaluating customers’ ability to pay.
Refunds and returns, which are minimal, are recorded as a reduction of revenue. Payments received by customers prior to our satisfying the above criteria are recorded as unearned income in the consolidated balance sheets.
Shipping and handling
Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of revenues. Shipping and handling for inventory and materials purchased by us is included as a component of inventory on the consolidated balance sheets, and in cost of revenues in the consolidated statements of operations when the product is sold.
Research and development costs
Internal costs related to research and development efforts on existing or potential products are expensed as incurred. External costs incurred for intangible assets, such as UL listing costs and attorney fees for patents, are capitalized.
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Income taxes
We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of our assets and liabilities. We monitor our deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that we believe do not meet the more-likely-than-not recognition criteria. We also evaluate whether we have any uncertain tax positions and would record a reserve if we believe it is more-likely-than-not our position would not prevail with the applicable tax authorities. Our assessment of tax positions as of December 31, 2015 and 2014, determined that there were no material uncertain tax positions.
Prior to the Share Exchange, we were a limited liability company (“LLC”), which is treated as a partnership for income tax purposes, where all tax obligations flow through to the owners of the LLC during the period in which income taxes were incurred.
Concentration of credit risk
Financial instruments that potentially subject us to concentrations of credit risk consist of accounts receivable and the amount due, if any, from our factoring counterparty. For the year ended December 31, 2015 two customers represented more than 36% of our total revenues, and as of December 31, 2015, one customer represented more than 51% of our gross accounts receivable balance.
Fair value of financial instruments
Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and long-term debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of our long-term debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us.
Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:
Level 1 - Quoted prices in active markets for identical assets or liabilities.
Level 2 - Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level 3 - Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.
Reportable segments
We have identified our operating segments, our chief operating decision maker (“CODM”), and the discrete financial information reviewed by the CODM. After evaluating this information, we have determined that we have one reportable segment.
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Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09), which amends the existing accounting standards for revenue recognition. ASU 2014-09 is based on principles that govern the recognition of revenue at an amount an entity expects to be entitled when products are transferred to customers. The original effective date for ASU 2014-09 would have required adoption beginning in the first quarter of 2018. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606) - Deferral of the Effective Date, which defers the effective date of ASU 2014-09 for one year and permits early adoption as early as the original effective date of ASU 2014-09. Accordingly, the standard may be adopted in either the first quarter of 2018 or 2019. The new revenue standard may be applied retrospectively to each prior period presented or retrospectively with the cumulative effect recognized as of the date of adoption. We are currently evaluating the impact of these standards on our consolidated financial statements.
In February 2015, the FASB issued ASU No. 2015-02 (ASU 2015-02), Consolidation (Topic 810) - Amendments to the Consolidation Analysis. ASU 2015-02 focuses on the consolidation evaluation for reporting organizations (public and private companies and not-for-profit organizations) that are required to evaluate whether they should consolidate certain legal entities. We do not expect the impact of the adoption of ASU 2015-02 to be material to our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03 (ASU 2015-03), Interest-Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs. This ASU requires that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This ASU will be effective for our financial statements beginning with the quarter ending March 31, 2016. In August 2015, the FASB issued ASU No. 2015-15 (ASU 2015-15), Interest-Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements-Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update). ASU 2015-15 amends subtopic 835-30 to include the SEC Staff Announcement at the June, 18 2015 EITF meeting regarding the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. We are currently evaluating the impact of these standards on our consolidated financial statements.
In July 2015, the FASB issued ASU No. 2015-11 (ASU 2015-11), Inventory (Topic 330): Simplifying the Measurement of Inventory. ASU 2015-11 more closely aligns the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). As such, an entity should measure inventory that is within the scope of this ASU at the lower of cost and net realizable value. We do not expect the impact of the adoption of ASU 2015-11 to be material to our consolidated financial statements.
In September 2015, the FASB issued ASU No. 2015-16 (ASU 2015-16), Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments. ASU 2015-16 requires an acquirer to “recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.” Further, the acquirer must record, in the financial statements for the same period, “the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.” We do not expect the impact of the adoption of ASU 2015-16 to be material to our consolidated financial statements.
In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). The guidance in this new standard eliminated the current requirement to present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets and deferred tax liabilities as noncurrent. Public companies are required to apply the guidance beginning with the quarter ending March 31, 2017. We do not believe this ASU will have a material impact on our financial statements.
Other recent accounting pronouncements issued by the FASB and the SEC did not, or management believes will not, have a material impact on our present or future consolidated financial statements.
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Note 2 - Recapitalization
On July 2, 2014, we completed the Share Exchange Agreement with Energie. The impact to equity of the Share Exchange includes a) the issuance of 33,000,000 shares of Holdings’ common stock at $0.05 per share, the closing price of Holdings’ stock on December 31, 2013, the date of the Share Exchange Agreement, for total consideration effectively transferred of $1,650,000; and b) removing Holdings’ accumulated deficit and adjusting equity for the recapitalization.
The accompanying consolidated statements of operations include the results of the Share Exchange Agreement from the share exchange date of July 2, 2014. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2013, are as follows:
The assets and liabilities of Holdings on the effective date of the Share Exchange Agreement were as follows:
Note 3 - Receivables
Receivables consist of the following:
Note 4 - Inventory
Inventory consists of the following:
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Note 5 - Intangible Assets
Amortization expense for the years ended December 31, 2015 and 2014 was $0 and $179,431, respectively. We recorded impairment expense of $972,895 during the year ended December 31, 2014.
For the year ended December 31, 2014, we determined that the carrying value of our intangible assets was greater than their estimated fair value and recorded an impairment loss of $972,895. Fair value was estimated using discounted, estimated future cash flows, which were projected based on recent, actual results. The estimated future cash flows did not include the benefit of additional capital or acquisitions, as there can be no assurance that they will occur.
Note 6 - Property and Equipment
Depreciation expense for the years ended December 31, 2015 and 2014 was $0 and $19,166, respectively. We recorded impairment expense of $4,505 during the year ended December 31, 2014.
For the year ended December 31, 2014, we determined the carrying value of our property and equipment was greater than their estimated fair value and recorded an impairment loss of $4,505. Fair value was estimated using discounted, estimated future cash flows, which were projected based on recent, actual results. The estimated future cash flows did not include the benefit of additional capital or acquisitions, as there can be no assurance that they will occur.
Note 7 - Debt
Debt consists of the following:
A - Line of Credit - We utilized this entire bank line of credit for working capital purposes. The outstanding obligation is due on demand, has a stated initial interest rate of 10.5% that is subject to adjustment, and is guaranteed by our majority shareholder/CEO. Energie and our CEO (collectively, “the defentants”) were served with a summons and complaint, wherein the bank brought an action to collect the amount due, including interest, costs and attorney’s fees. As of April 4, 2016, the parties to this action have entered into a settlement whereby the defendants agreed to pay to the bank the sum of $59,177 on or before April 30, 2016. In the event of a default on this settlement agreement, the bank may request entry of a judgment against both defendants jointly and severally for any amounts unpaid pursuant to the settlement agreement.
B - Note Payable to Distribution Partner - Note payable to a significant European distribution partner, entered into in October 2014, bearing interest at 5% payable quarterly, with principal payable monthly through September 2019. The 2014 note payable aggregated the 2007 promissory note, accrued interest and accounts payable.
C - Investor Debt - Notes payable to lenders having an ownership interest in Holdings at December 31, 2015 and 2014. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:
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D - Related Party Debt - The following summarizes notes payable to related parties.
D1 - Notes payable to Symbiote, Inc. (“Symbiote”), entered into from December 2014 to December 2015, with monthly principal and interest payable through November 2017. The 2014 notes aggregated the previous notes payable, accrued interest and accounts payable. Neither the 2014 nor the 2015 notes are convertible. The previous note agreement gave Symbiote, at its option at any time after default, the right to convert any remaining balance of the notes to equity at a rate equal to the proportion of the remaining balance of the note divided by $4,000,000 enterprise value. Symbiote holds a large ownership percentage in Holdings, is the lessor of our manufacturing facility, and the provider of our payroll services.
We evaluated the agreements for derivatives and determined that they do not qualify for derivative treatment for financial reporting purposes, because the agreements relate to our own equity, and the debt and the equity are not closely related. We also determined this does not qualify as a beneficial conversion feature.
D2 - Notes payable to an executive vice president, entered into from December 2014 through December 2015, with monthly principal and interest payable through November 2017. The 2014 note aggregated previous notes payable, accrued interest and accounts payable.
D3 - Note payable to our chief executive officer (“CEO”), entered into in December 2014, with monthly principal and interest payable through December 2016.
D4 - Notes payable to the spouse of our CEO, entered into from September 2013 to October 2015, with principal and interest payments due upon a specific event or upon demand.
D5 - Notes payable to the consulting firm that employs our Chief Financial Officer, entered into in June 2015. These notes aggregated the previous accounts payable and accrued interest due to the consulting firm. If we have not paid $300,000 by December 31, 2015, then beginning January 1, 2016, the notes are convertible into shares of our common stock at a conversion rate of 75% of the volume weighted average market price of our stock over the 20 days preceding the notification of conversion. We determined that this conversion feature does not meet the requirements to be treated as a derivative; however, we did determine it was a beneficial conversion feature. Accordingly, we recorded a debt discount of $217,725, which is being amortized through interest expense over the life of the notes.
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E - Other Notes Payable - Represents the outstanding principal balance on three separate notes bearing interest at approximately 12% annually. In the event we receive proceeds as the beneficiary of a life insurance policy covering our majority shareholder/CEO, repayment of principal and interest is due on these notes prior to using the proceeds for any other purpose.
F - Cash draw agreements - Under these agreements, the lender advances us the principal balance and then automatically withdraws a stated amount each business day. Accordingly, there is no stated interest rate. The total remaining daily payments due under these arrangements was $284,220 as of December 31, 2015. The maturity dates of the agreements range from March to May 2016.
G - Convertible promissory notes - Represents the outstanding principal balance on two separate convertible promissory notes payable to an entity with interest of 8% annually, due in August 2016. During the third quarter of 2015, the current holder of the notes purchased all of our similar outstanding convertible notes from another entity and consolidated those notes into two new notes. At the option of the holder, the notes may be settled in cash or converted into shares of our common stock at any time beginning 180 days from the date of the notes at a price equal to 61% of the average closing bid price of our common stock during the 10 trading days immediately preceding the date of conversion. In the event we fail to pay the notes when they become due, the balance due under the notes incurs interest at the rate of 22% per annum. The notes contain additional terms and conditions normally included in instruments of this kind, including a right of first refusal wherein we have granted the holders the right to match the terms of any future financing in which we engage on the same terms and contemplated in such future financing. We estimate that the fair value of the conversion feature is minimal, so no value has been assigned to the beneficial conversion feature. During the year ended December 31, 2015, $129,642 of principal and $4,512 of accrued interest was converted into 55,948,051 shares of common stock. We also recorded a loss on conversion of debt of $211,304 related to these transactions.
Debt issuance costs of $101,358 are being amortized over the life of the respective notes.
The future maturities of debt are as follows:
Note 8 - Equity
We have authorized 5,000,000 shares of preferred stock at $0.0001 par value, with no shares issued and outstanding as of December 31, 2015. Upon issuing preferred stock, if any, the terms of each tranche of issuance may be determined by our board of directors, including dividends and voting rights.
In July 2014, we entered into an agreement with Dutchess Opportunity Fund, II, LP (“Dutchess”), under which Dutchess has agreed to purchase from us 5,000,000 shares of our common stock, up to $5 million, during a 36 month period commencing on the date a Registration Statement on Form S-1 was declared effective, October 29, 2014. We will sell these shares to Dutchess at a price equal to 94% of the lowest daily volume weighted-average price of our common stock during the five consecutive trading days beginning on the day we make notice to Dutchess and ending on and including the date that is four trading days after such notice. We have the right to withdraw all or any portion of any put before the closing, subject to certain limitations. As part of the agreement with Dutchess, we transferred 2,000,000 shares of our common stock for no proceeds. We will receive proceeds when we make notice to Dutchess to sell these shares. The market price of the 2,000,000 shares was $40,000, based on the trading price on the date of transfer. If we do not make notice to Dutchess, these shares will be returned to us at the end of the 36 month contractual period. As of December 31, 2015, we had not made notice to Dutchess to sell any of these shares. Accordingly, the net impact to our stockholders equity is zero.
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Note 9 - Commitments and Contingencies
Current management discovered that the Company’s former management recorded various obligations to itself and to third parties for expenditures not deemed benefitting the Company or authorized by the Company’s sole director, as required. The amount of these unauthorized expenditures totaled $91,172, including $60,000 in management fees. These expenditures were reversed and are not part of the accompanying financial statements. While current management believes that none of the $91,172 is an obligation of ours, it is not known what representations were made to these vendors or whether we could, in fact, be eventually responsible to pay some or all of the indicated amount.
Future minimum rental payments required under all leases that have remaining non-cancelable lease terms in excess of one year as of December 31, 2015, are as follows:
Note 10 - Income Taxes
The components of the provision for income taxes are as follows:
The components of net deferred tax assets and liabilities are as follows:
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A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:
Note 11 - Net Loss Per Share
Basic net loss per share is computed by dividing net income by the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly to basic net loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised. In a net loss position, however, potential securities are excluded, because they are considered anti-dilutive. Since Energie, the “predecessor company,” was an LLC, it did not have common shares outstanding prior to the Share Exchange on July 2, 2014. Accordingly, we have prepared the calculation of Net Loss Per Share using the weighted-average number of common shares of Holdings that were outstanding during the years ended December 31, 2015 and 2014.
The following table presents a reconciliation of the denominators used in the computation of net loss per share - basic and diluted:
There are no dilutive instruments outstanding during the years ended December 31, 2015 and 2014.
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ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
ITEM 9A.
ITEM 9A.	CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Based on an evaluation under the supervision and with the participation of our management, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”) were not effective as of December 31, 2015, because of the material weaknesses described below.
Inherent Limitations over Internal Controls
Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles (“GAAP”). Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect that our internal controls will prevent or detect all errors and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of internal controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. Also, any evaluation of the effectiveness of controls in future periods are subject to the risk that those internal controls may become inadequate because of changes in business conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Management conducted an assessment of our internal control over financial reporting based on the criteria set forth in Intern Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework). Based on their assessment, management has concluded that its internal control over financial reporting was not effective as of December 31, 2015.
The material weaknesses in internal control over financial reporting were as follows: (a) we have limited entity-level controls, because of the time constraints for our management team; (b) we have a lack of segregation of duties due to limited personnel; (c) we have not implemented adequate system-based and manual controls; and (d) we do not have an audit committee.
Remediation Plan
We have engaged consultants to evaluate our processes and procedures, and to implement, document and test additional internal controls. We can provide no assurance, however, that our internal controls over financial reporting will be effective in the near future.
Changes in Internal Control over Financial Reporting
There were no significant changes to our internal control over financial reporting that occurred during the quarter ended December 31, 2015, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.
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This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm
regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.
ITEM 9B.
ITEM 9B.	OTHER INFORMATION
None.
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PART III
ITEM 10.
ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Following is a list of our officers and directors:
Our directors serve as directors until our next Annual Meeting of Stockholders and the election and qualification of the director’s respective successor or until the director’s earlier death, removal or resignation.
There are no family relationships between any of our former or current officers and directors.
Following is biographical information of our current management:
Harold (Hal) Hansen: President, Chief Executive Officer and Director. Mr. Hansen was appointed to his positions in April 2014. Since September 2011, he has also been the founder, CEO and Managing Member of Énergie. He has held senior executive-level positions in general management, marketing, sales management, and in product, market, and corporate development for major U. S. companies. Mr. Hansen has experience in international business projects in Canada, Mexico, Western Europe, and in the People's Republic of China. He has a broad background in the development and implementation of strategic and tactical marketing and business plans as well as in the development and delivery of the education, training, and communication programs needed to implement the plans. As a business consultant since 1983, he helped companies (ranging from divisions of large multi-national manufacturers and service organizations to start-ups) increase their sales volume and profitability. Along with a consulting engagement with Peerless Lighting, he has developed international lighting importing projects for Zumtobel/Staff and ERCO before becoming the temporary Vice President of Marketing and Sales for Focal Point Lighting. During these projects he designed and implemented programs that established and implemented new or expanded entries of international lighting into the US market. Mr. Hansen devotes substantially all of his time to our affairs. Mr. Hansen’s experience as Energie’s founder qualifies him to serve on our board of directors.
Richard Cole Dennard: Chief Financial Officer. Mr. Dennard acts as our Chief Financial Officer on a contract basis since July 2014. He has worked with Énergie, LLC since early 2012. He is a seasoned accounting and finance professional with a diverse background in a variety of industries, including companies in the manufacturing, distribution, energy services, insurance and professional services industries. Mr. Dennard worked in the assurance practice at Deloitte & Touche LLP for seven years. For the last 6 years, Mr. Dennard has been a partner for a regional consulting firm. He devotes only such time as necessary to our business, which does not exceed 20% of his business activities.
Thomas H. Rockers: Corporate Secretary. Mr. Rockers was appointed as our Corporate Secretary in March 2015. Prior to his appointment, from 2003 through July 2012, when he retired, Mr. Rockers was the Chief Executive Officer of St. Anthony’s Medical Center, in St. Louis, MO, where he increased net revenues from $300 million, to $500 million. Mr. Rockers was also CEO of the Alliance in Denver, CO from 1998 to 2002, where he grew that company from $5 million to $40 million. Mr. Rockers received a Master of Health Care Administration from the University of Minnesota in 1972 and a Bachelor of Science degree from South Dakota State University in 1969. He devotes only such time as necessary to our business affairs, which is not expected to exceed 20% of his time.
Business Advisory Group:
Our Business Advisory Group is made up of selected professionals who will provide strategic and operational guidance to our executive team as well as the executives and managers of our subsidiaries. They are not employees, but will be contracted to perform specific projects as needed.
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Philip Mercorella (71) Mr. Mercorella has extensive experience in public and private companies as well as with private equity firms. He served for 22 years with Herman Miller Inc., and is now retired from that company. His positions ranged from Executive Vice- President, Herman Miller, Inc. (Parent Company) to being an Officer and Chief Executive of several subsidiaries. Mr. Mercorella’s private equity/operating partner involvements include Goldner, Hawn, Johnson & Morrison, Minneapolis, MN; Parallel Investment Partners, Dallas, TX; Genuity Capital Partners, Toronto, Canada; and Nicollet Capital Investors, Minneapolis, MN. He is currently serving as Chairman of the Board of Directors and operating partner with Flower Group Inc. (One Floral), Ontario, Canada. He holds degrees from St. Francis College, BBA Management and Pennsylvania State University, MBA Marketing. He has also been a faculty member at Penn State.
Andrew Hurry (47) Mr. Hurry is a senior banker with over 20 years of strategic advisory and transactional experience. His strengths include applying a unique combination of a pragmatic scientific, engineering and finance background to complex situations across environmental, telecom, healthcare and other industries. Mr. Hurry is currently a FINRA Registered Representative with the Denver based investment bank The Yale Group. Prior to joining The Yale Group, Mr. Hurry was a principal at Grayson & Associates, a merchant banking firm focusing on medical related technology investments. Before Grayson, he was a Senior Project Manager in Europe for global environmental consulting firms with his role focusing on business development, environmental due diligence and natural resource development. Mr. Hurry holds an MBA from the University of London, England, an M.Sc. from University College London and a B.Sc. from the University of Glasgow, Scotland.
Mitchell Kohn (61) Mr. Kohn is president of Mitchell B. Kohn Lighting Design, with Chicago area offices in Highland Park, Illinois, specializing in lighting design for corporate, commercial, institutional, and high-end residential environments. With over 30 years of experience, he has successfully completed over 500 projects throughout the world. In addition to consulting to corporations and architectural and design firms world-wide, Mr. Kohn is a frequent lecturer on various lighting subjects with courses registered with both the AIA and IIDA. He has been a consultant to several domestic and international lighting manufacturing companies, applying his expertise to product development and marketing. He has been published extensively on both technical subjects, as well as design projects, that have included discussions on glare control, energy saving techniques, task lighting, sustainability, and visual performance. He has been named a Fellow of both the International Association of Lighting Designers (IALD), and the Illuminating Engineering Society (IES), for which he served as Chairman of their Office Lighting Committee, responsible for developing and maintaining ANSI lighting standards for 15 years. He has served on the Board of Directors of the IALD, the IALD Education Trust, the National Council on Qualifications for the Lighting Professions (NCQLP), and Lightfair International. For his architectural lighting designs, Mr. Kohn has also been the recipient of the International Illumination Design Award of Distinction, and the IES Award of Excellence, their highest design award recognition, a General Electric Edison Award, an IALD Design Citation, and a U.S. Patent for developments in the field of task lighting. He also served as writer and editor of Lighting Focus, a quarterly lighting supplement to Interiors Magazine and Architecture Magazine.
There are no agreements or understandings for any of our executive officers or directors to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person. The offices of President, Chief Executive Officer, Treasurer, Chief Financial Officer and Secretary are appointed by our Board of Directors, with other officer’s positions being filled by appointment from our President and Chief Executive Officer. Directors are elected by our shareholders. Vacancies on the Board of Directors may be filled by majority vote from the remaining members of the Board of Directors or by a majority vote of our shareholders; in each case directors serve until their earlier resignation or their successors are duly elected and qualified.
Director Independence
We are not an issuer whose securities are listed on a national securities exchange, or an inter-dealer quotation system, which has requirements that a majority of the board of directors be independent. Under NASDAQ Rule 5605(a)(2)(A), a director is not considered to be independent if he or she also is an executive officer or employee of the corporation. Under such definition, Harold Hansen, our sole director, would not be considered independent.
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Board Committees
We presently do not have an audit committee, compensation committee or nominating committee, or committees performing similar functions, as our management believes that until this point it has been premature at the early stage of our management and business development to form committees. However, our new management plans to form an audit, compensation and nominating committee in the near future; the implementation of which is likely to be in connection with our next contemplated acquisition. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors and evaluating our accounting policies and system of internal controls. We envision that the compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other compensation of our executive officers. The nominating committee would be primarily responsible for nominating directors and setting policies and procedures for the nomination of directors. The nominating committee would also be responsible for overseeing the creation and implementation of our corporate governance policies and procedures. Until these committees are established, these decisions will continue to be made by our board. Although our board has not established any minimum qualifications for director candidates, when considering potential director candidates, our board considers the candidate’s character, judgment, skills.
We do not have a charter governing the nominating process. Our sole director will initially perform the functions of a nominating committee, but is not independent because he is also an officer. There has not been any defined policy or procedure requirements for stockholders to submit recommendations or nominations for directors. Our Board does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time because, given the early stages of our development, a specific nominating policy would be premature and of little assistance until our business operations are at a more advanced level.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires our officers and directors and persons owning more than ten percent of the common stock, to file initial reports of ownership and changes in ownership with the SEC. Additionally, Item 405 of Regulation S-K under the Exchange Act requires us to identify in our Form 10-K and proxy statement those individuals for whom one of the above referenced reports was not filed on a timely basis during the most recent year or prior years. To our knowledge, based solely upon our review of the copies of such reports furnished to us, during the fiscal year ended December 31, 2015, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with, except that, a Form 3 was filed late for Thomas Rockers.
Code of Ethics
Our board of directors has not adopted a code of ethics but plans to do so in the near future.
ITEM 11.
ITEM 11.	EXECUTIVE COMPENSATION
The following table provides certain information regarding compensation awarded to, earned by or paid to persons serving as our Chief Executive Officer during the years ended December 31, 2015 and 2014. We had no other highly compensated officers or employees who had total compensation exceeding $100,000 for the year ended December 31, 2015 and 2014 (each a “named executive officer”).
Summary Compensation Table
(1)This compensation has been accrued and remains unpaid as of the date of this Report.
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Employment Agreements
Prior to the closing of the Share Exchange and in anticipation of closing, we entered into employment agreements with Harold Hansen, our President and Chief Executive Officer, and Lee Barratt, our former Corporate Secretary.
Mr. Hansen’s current employment agreement became effective April 1, 2014 and is for a term of three years. The agreement provides for an annual salary of $150,000 per year with increases each year if trailing twelve month sales meet or exceed certain levels. Mr. Hansen is subject to 18 month non-compete / non-solicitation provisions following termination of his employment with us. In addition, he is eligible to receive a three year severance package equal to his current compensation at the time of termination in the event of a termination without cause, as defined therein.
We have entered into an independent contractor agreement with NOW CFO, a Denver, Colorado-based financial consulting firm, to provide our Treasurer and Chief Financial Officer, Richard Cole Dennard.
Equity Compensation Plan
We have adopted the Energie Holdings, Inc. 2014 Stock Option Plan and have reserved 5,100,000 shares of issuance thereunder (the “Plan”). The Plan includes awards that qualify as performance-based compensation that is exempt from the deduction limitation set forth under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain exceptions, Section 162(m) generally limits the corporate income tax deductions to $1,000,000 annually for compensation paid to each of the Chief Executive Officer and our other six highest paid executive officers required to be reported under the proxy disclosure rules.
As of the date of this report no shares or options to purchase any shares have been granted. We believe that the Plan will be an important factor in attracting, retaining and motivating our employees, consultants, agents, and directors. We believe that we need the flexibility both to have an ongoing reserve of common stock available for future equity-based awards, and to make future awards in a variety of forms.
Outstanding Equity Awards at Fiscal Year-End
None.
Director Compensation
We did not pay any compensation to directors for service on the board of directors during the year ended December 31, 2015.
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ITEM 12.
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following table sets forth certain information regarding the ownership of common stock as of the date of this Report, by (i) each person known to us to own more than 5% of our outstanding common stock as of the date of this Report, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power.
-------
(1)Officer and/or director of our Company.
ITEM 13.
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
Related Party Transactions
The following includes a summary of transactions since the beginning of our 2014 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.
Notes Payable to Related Parties
The following summarizes the terms and balances of the related party notes:
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D1 - Symbiote, Inc. is one of our principal shareholders. We also incur approximately $150,000 annually for rent expense with them. According to the note agreement, the note holder may, at its option at any time after default, proceed to convert any remaining balance of the notes to equity at a rate equal to the proportion of the remaining balance of the note divided by $4,000,000 enterprise value. The note was considered to be in default as of December 31, 2013; therefore, the note holder has the right to exercise the conversion option, but has not yet elected to do so. We evaluated the agreement for derivatives and determined that it does not qualify for derivative treatment for financial reporting purposes, because the agreement relates to our own equity and, the debt and the equity are not closely related. We also determined this does not qualify as a beneficial conversion feature. Accordingly, the balance is reported at the carrying amount.
D2 - Joe Durzo is a shareholder and employee.
D3 - Harold (Hal) Hansen is our chief executive officer (“CEO”).
D4 - Julianne Larsen is the spouse of our CEO. This debt is held by a trust for which Ms. Larsen is the trustee.
D5 - NOW CFO is the consulting firm that employs our Chief Financial Officer (“CFO”).
There are no other related party transactions that are required to be disclosed pursuant to Regulation S-K promulgated under the Securities Act of 1933, as amended.
ITEM 14.
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES
Fees Paid to Independent Registered Public Accounting Firms
The following table presents fees for professional audit services rendered by B F Borgers CPA PC, our independent accountant, during our fiscal years ended December 31, 2015 and 2014:
Audit Fees: Consists of amounts billed for professional services rendered for the audit of our annual financial statements included in our Annual Reports on Forms 10-K for our fiscal years ended December 31, 2015and 2014 and reviews of our interim financial statements included in our Quarterly Reports on Form 10-Q.
Tax Fees: Consists of amounts billed for professional services rendered for tax return preparation, tax planning and tax advice.
All Other Fees: Consists of amounts billed for services other than those noted above.
We do not have an audit committee and as a result our entire board of directors performs the duties of an audit committee. Our board of directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.
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PART IV
ITEM 15.
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES
The following exhibits are included herewith:
The following exhibits have previously been filed with the Securities and Exchange Commission by the Registrant on the dates indicated.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunder duly authorized.
Dated: April 14, 2016 EXELED HOLDINGS, INC.
By: /s/ Harold Hansen________
Harold Hansen, Principal Executive Officer
By: /s/ Richard Cole Dennard__
Richard Cole Dennard, Principal Financial and Accounting Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 14, 2016.
/s/ Harold Hansen
Harold Hansen,
Chief Executive Officer and Director
(principal executive officer)
/s/ Richard Cole Dennard
Richard Cole Dennard,
Chief Financial Officer
(principal financial and accounting officer)
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