Notes to Condensed
Consolidated Financial Statements
Note 1 — Description of
Business and Summary of Significant Accounting Policies
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. We have two wholly-owned subsidiaries, Energie LLC (hereinafter referred to as “Energie”),
and OELC, LLC.
All references herein to “us,”
“we,” “our,” “Holdings,” or the “Company” refer to ExeLED Holdings Inc. and its
subsidiaries.
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.
Our 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.
Énergie 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
The accompanying condensed consolidated
balance sheet as of December 31, 2015, has been derived from audited financial statements. The accompanying unaudited interim
condensed consolidated financial statements have been prepared on the same basis as the annual audited financial statements and
in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information
and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements.
In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals)
necessary for a fair presentation of this interim information. All intercompany transactions have been eliminated in consolidation.
Operating results and cash flows for interim periods are not necessarily indicative of results that can be expected for the entire
year. The information included in this report should be read in conjunction with our audited financial statements and notes thereto
included in our Annual Report on Form 10-K for the year ended December 31, 2015.
Significant Accounting Policies
In accordance with
the FASB’s issuance of ASU No. 2015-03,
Interest-Imputation of Interest (Subtopic 835-30), Simplifying the Presentation
of Debt Issuance Costs
(ASU 2015-03) and ASU No. 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), we have changed our
presentation of debt issuance costs. Consistent with the application of ASU 2015-03 and 2015-15, we now present debt issuance
costs as a direct deduction from the carrying amount of that debt rather than as an asset on the condensed consolidated balance
sheet. The impact of this change on the condensed consolidated financial statements for the nine months ended September 30, 2016,
was a decrease of total assets and a decrease of debt and total liabilities of $236,017. The impact of this change on the condensed
consolidated financial statements for the year ended December 31, 2015 was a decrease of total assets and a decrease of debt and
total liabilities of $101,358. The change had no impact on shareholders’ equity (deficit) or net loss in either period.
Going Concern
As shown in the accompanying condensed
consolidated financial statements, we had an equity deficit of $12,421,222 and a working capital deficit of $11,862,601 as of
September 30, 2016, and have reported net losses of $2,575,522 and $2,026,403 for the nine months ended September 30, 2016 and
2015, respectively. 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 condensed 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.
Reclassifications
Certain prior year amounts have been
reclassified to conform with the current year presentation.
Recently Issued Accounting
Pronouncements
In August 2016, the Financial Accounting
Standards Board (“FASB”) issued Accounting Standards Update No. 2016-15,
Statement of Cash Flows (Topic 230): Classification
of Certain Cash Receipts and Cash Payments
(ASU 2016-10). Stakeholders indicated that there is a diversity in practice in
how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses
eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for
annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted.
Adoption of ASU 2016-15 will not have a significant impact on our statement of cash flows.
Note 2 — Accounts receivable
The following is a summary of accounts
receivable:
|
|
September
30, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
Customer
receivables
|
|
$
|
15,664
|
|
|
$
|
21,431
|
|
Less: Allowance
for uncollectible accounts
|
|
|
(14,401
|
)
|
|
|
(12,880
|
)
|
|
|
$
|
1,263
|
|
|
$
|
8,551
|
|
Note 3 — Inventory
The following is a summary of inventory:
|
|
September
30, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
329,345
|
|
|
$
|
348,342
|
|
Less:
reserve
|
|
|
(158,191
|
)
|
|
|
(158,191
|
)
|
|
|
$
|
171,154
|
|
|
$
|
190,15
1
|
|
Note 4 — Debt
Debt is comprised of the
following:
Description
|
|
Note
|
|
September
30,
2016
|
|
December
31,
2015
|
Line
of credit
|
|
|
A
|
|
|
$
|
47,000
|
|
|
$
|
47,000
|
|
Note
payable to distribution partner
|
|
|
B
|
|
|
|
550,000
|
|
|
|
550,000
|
|
Investor
debt
|
|
|
C
|
|
|
|
371,507
|
|
|
|
267,787
|
|
Related
party debt
|
|
|
D
|
|
|
|
6,773,443
|
|
|
|
5,632,543
|
|
Other
notes payable
|
|
|
E
|
|
|
|
84,230
|
|
|
|
66,786
|
|
Cash
draw notes
|
|
|
F
|
|
|
|
164,054
|
|
|
|
204,423
|
|
Convertible
promissory notes
|
|
|
G
|
|
|
|
71,637
|
|
|
|
154,437
|
|
Total
|
|
|
|
|
|
|
8,061,871
|
|
|
|
6,922,976
|
|
Less: unamortized
discount and debt issuance costs
|
|
|
|
|
|
|
(236,017
|
)
|
|
|
(173,668
|
)
|
Debt,
net of unamortized discount and debt issuance costs
|
|
|
|
|
|
|
7,825,854
|
|
|
|
6,749,308
|
|
Less: current
portion
|
|
|
|
|
|
|
(7,255,538
|
)
|
|
|
(5,156,305
|
)
|
Debt,
long-term portion
|
|
|
|
|
|
$
|
570,316
|
|
|
$
|
1,593,003
|
|
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 “defendants”) 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. 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. This payment
was not made and the bank requested and received a judgment against both defendants jointly and severally for $61,502 plus interest
of 5.25% per annum plus 9.90% per annum on the default margin. Energie is currently making payments to resolve this obligation.
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 September 30, 2016 and December 31, 2015.
These loans are not collateralized. The following summarizes the terms and balances of the investor debt:
September
30, 2016
|
December
31, 2015
|
Interest
Rate
|
$ 87,787
|
$ 87,787
|
24%
|
50,000
|
50,000
|
24%
|
50,000
|
50,000
|
24%
|
25,000
|
25,000
|
8%
|
25,000
|
25,000
|
8%
|
20,000
|
20,000
|
2%
|
113,720
|
10,000
|
various
|
$ 371,507
|
$ 267,787
|
|
D
–
Related Party
Debt –
The following summarizes notes payable to related parties:
|
September
30,
2016
|
December
31, 2015
|
Interest
Rate
|
D1
|
$ 4,635,865
|
$ 4,120,465
|
various
|
D2
|
528,214
|
528,214
|
various
|
D3
|
34,888
|
34,888
|
12%
|
D4
|
316,800
|
280,800
|
various
|
D5
|
668,176
|
668,176
|
18%
|
D6
|
589,500
|
--
|
6%
|
Total
|
$ 6,773,443
|
$ 5,632,543
|
|
D1
– Notes
payable to Symbiote, Inc. (“Symbiote”), entered into from December 2014 to June 2016, with monthly principal and interest
payable through November 2017. Symbiote holds a large ownership percentage in Holdings, is the lessor of our manufacturing facility,
and provides our payroll services.
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.
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 April 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. 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 did 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 was amortized through interest expense.
D6
– Notes
payable to the principal shareholders of Symbiote, entered into from April to September 2016, with principal and interest payments
due upon a specific event or upon demand.
E
–
Other
Notes Payable –
Represents the outstanding principal balance on four separate notes bearing interest at 6 - 18% 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 $205,563 as of September 30, 2016. The maturity dates of the agreements range from October to December 2016.
G
–
Convertible promissory
notes –
Represents the outstanding principal balance on two separate convertible promissory with interest of 8% annually,
that were 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. As we failed to pay the notes when they became due, the balance due under the notes is now incurring 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 nine months ended September
30, 2016, $82,800 of principal and $5,661 of accrued interest was converted into 135,532,715 shares of common stock. We also recorded
a loss on conversion of debt of $114,793 related to these transactions.
Debt issuance costs of $236,017 are
being amortized over the life of the respective notes.
Note 5 — Commitments
and Contingencies
To the best of the Company’s
knowledge and belief, no legal proceedings of merit are currently pending or threatened against the Company, other than those
described in Note 4.
Note 6 — Subsequent Events
There are no events subsequent to
September 30, 2016 and up to the date of this filing that would require disclosure.
Note 7 — 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.
There are no dilutive instruments
outstanding during the nine months ended September 30, 2016 and 2015.