Item 1.
Financial Statements
EXELED HOLDINGS INC.
Condensed Consolidated Balance Sheets
|
|
June
30, 2017
(Unaudited)
|
|
|
December
31, 2016
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
7,490
|
|
|
$
|
5,454
|
|
Accounts receivable, net
|
|
|
20,939
|
|
|
|
31
|
|
Inventory
|
|
|
153,915
|
|
|
|
157,178
|
|
Prepaid expenses and other
|
|
|
49,006
|
|
|
|
48,307
|
|
Total current assets
|
|
|
231,350
|
|
|
|
210,970
|
|
|
|
|
|
|
|
|
|
|
Noncurrent assets:
|
|
|
|
|
|
|
|
|
Deposits
|
|
|
6,200
|
|
|
|
6,450
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
237,550
|
|
|
$
|
217,420
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND EQUITY
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
$
|
3,098,169
|
|
|
$
|
2,988,439
|
|
Accrued liabilities
|
|
|
2,281,205
|
|
|
|
1,858,127
|
|
Debt, current portion, net of discount and debt issuance costs
|
|
|
9,684,003
|
|
|
|
8,451,781
|
|
Total current liabilities
|
|
|
15,063,377
|
|
|
|
13,298,347
|
|
|
|
|
|
|
|
|
|
|
Debt, long-term portion
|
|
|
160,000
|
|
|
|
220,000
|
|
Total liabilities
|
|
|
15,223,377
|
|
|
|
13,518,347
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies (Note 5)
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Equity:
|
|
|
|
|
|
|
|
|
Preferred stock, $.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding at June 30, 2017 or December 31, 2016
|
|
|
—
|
|
|
|
—
|
|
Common stock, $.0001 par value; 250,000,000 shares authorized; 249,447,433 shares issued and outstanding at June 30, 2017 and December 31, 2016
|
|
|
24,743
|
|
|
|
24,743
|
|
Additional paid-in capital
|
|
|
2,635,896
|
|
|
|
2,635,896
|
|
Accumulated deficit
|
|
|
(17,646,466
|
)
|
|
|
(15,961,566
|
)
|
Total deficit
|
|
|
(14,985,827
|
)
|
|
|
(13,300,927
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and equity
|
|
$
|
237,550
|
|
|
$
|
217,420
|
|
See accompanying notes to condensed consolidated
financial statements.
EXELED HOLDINGS INC.
Condensed Consolidated Statements of Operations
(Unaudited)
|
|
Three months ended June 30,
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
2017
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
Sales revenue
|
|
$
|
7,279
|
|
|
$
|
206,592
|
|
|
$
|
44,554
|
|
|
$
|
305,147
|
|
Cost of goods sold
|
|
|
(3,075
|
)
|
|
|
(105,953
|
)
|
|
|
(20,394
|
)
|
|
|
(158,007
|
)
|
Gross profit
|
|
|
4,204
|
|
|
|
100,639
|
|
|
|
24,160
|
|
|
|
147,140
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Research and development
|
|
|
75,153
|
|
|
|
70,615
|
|
|
|
143,757
|
|
|
|
143,606
|
|
Sales and marketing
|
|
|
1,263
|
|
|
|
26,596
|
|
|
|
2,262
|
|
|
|
39,311
|
|
General and administrative
|
|
|
201,377
|
|
|
|
256,427
|
|
|
|
379,489
|
|
|
|
607,202
|
|
Total operating expenses
|
|
|
277,793
|
|
|
|
353,638
|
|
|
|
525,508
|
|
|
|
790,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(273,589
|
)
|
|
|
(252,999
|
)
|
|
|
(501,348
|
)
|
|
|
(642,979
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(584,927
|
)
|
|
|
(418,051
|
)
|
|
|
(1,128,339
|
)
|
|
|
(881,500
|
)
|
Other income
|
|
|
(9,467
|
)
|
|
|
(37,894
|
)
|
|
|
(55,213
|
)
|
|
|
(75,051
|
)
|
Other income (expense), net
|
|
|
(594,394
|
)
|
|
|
(455,945
|
)
|
|
|
(1,183,552
|
)
|
|
|
(956,551
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(867,983
|
)
|
|
$
|
(708,944
|
)
|
|
$
|
(1,684,900
|
)
|
|
$
|
(1,599,530
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
(0.00
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
|
249,447,433
|
|
|
|
135,528,338
|
|
|
|
249,447,433
|
|
|
|
126,788,863
|
|
See accompanying notes to condensed consolidated
financial statements
EXELED HOLDINGS INC.
Condensed Consolidated Statements of Cash Flows
(Unaudited)
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
2016
|
|
Operating Activities:
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,684,900
|
)
|
|
$
|
(1,599,530
|
)
|
Adjustments to reconcile net loss to net cash used in operating
|
|
|
|
|
|
|
|
|
activities:
|
|
|
|
|
|
|
|
|
Amortization of debt issuance costs and debt discount
|
|
|
301,615
|
|
|
|
196,612
|
|
Loss on conversion of debt
|
|
|
—
|
|
|
|
56,101
|
|
Changes in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(20,908
|
)
|
|
|
(12,246
|
)
|
Inventory
|
|
|
3,263
|
|
|
|
12,778
|
|
Prepaid expenses and other
|
|
|
(699
|
)
|
|
|
1,293
|
|
Other assets
|
|
|
250
|
|
|
|
650
|
|
Accounts payable
|
|
|
109,730
|
|
|
|
524,183
|
|
Accrued liabilities
|
|
|
423,078
|
|
|
|
314,121
|
|
Net cash used in operating activities
|
|
|
(868,571
|
)
|
|
|
(506,038
|
)
|
|
|
|
|
|
|
|
|
|
Financing Activities:
|
|
|
|
|
|
|
|
|
Proceeds from debt
|
|
|
1,173,757
|
|
|
|
815,116
|
|
Payments of debt
|
|
|
(303,150
|
)
|
|
|
(236,271
|
)
|
Net cash provided by financing activities
|
|
|
870,607
|
|
|
|
578,845
|
|
|
|
|
|
|
|
|
|
|
Net change in cash
|
|
|
2,036
|
|
|
|
72,807
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
5,454
|
|
|
|
17,987
|
|
|
|
|
|
|
|
|
|
|
Cash, end of period
|
|
$
|
7,490
|
|
|
$
|
90,794
|
|
|
|
|
|
|
|
|
|
|
Cash paid for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
432,032
|
|
|
$
|
267,698
|
|
Taxes
|
|
|
—
|
|
|
|
—
|
|
Non-cash transactions:
|
|
|
|
|
|
|
|
|
Debt converted to common stock
|
|
$
|
—
|
|
|
$
|
36,800
|
|
Accrued liabilities converted to common stock
|
|
|
—
|
|
|
|
2,029
|
|
Debt issuance costs
|
|
|
435,500
|
|
|
|
177,973
|
|
See accompanying notes to condensed consolidated
financial statements.
EXELED
HOLDINGS INC.
Notes
to Condensed Consolidated Financial Statements
For
the Three and Six Month Periods Ended June 30, 2017 and 2016
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. 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, Énergie LLC (hereinafter referred to as, “Énergie”). 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 Énergie.
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. 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 Arvada, Colorado, and we also maintain a production and assembly
facility in Zeeland, Michigan.
Basis
of Presentation
The
accompanying condensed consolidated balance sheet as of June 30, 2017, 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, 2016.
Going
Concern
As
shown in the accompanying condensed consolidated financial statements, we had an equity deficit of $14,985,827 and a working capital
deficit of $14,832,027 as of June 30, 2017, and have reported net losses of $1,684,900 and $1,599,530 for the six months ended
June 30, 2017 and 2016, 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 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.
Recently
Issued Accounting Pronouncements
In
May 2017, the FASB issued ASU No. 2017-09,
Scope of Modification Accounting (Topic 718)
(ASU 2017-09). ASU 2017-09 clarifies
the accounting for when the terms of a share-based award are modified. ASU 2017-09 is effective for annual reporting periods beginning
after December 15, 2017, and for interim periods within those years, with early adoption permitted. We do not expect this ASU
to have a significant impact on our consolidated financial statements and related disclosures.
The
Financial Accounting Standards Board and other entities have issued other new or modifications to, or interpretations of, existing
accounting guidance during 2017. Management has carefully considered the new pronouncements that altered generally accepted accounting
principles and does not believe that any other new or modified principles will have a material impact on the Company’s reported
financial position or operations in the near term.
Note 2 — Accounts receivable
The
following is a summary of accounts receivable:
|
|
June 30,
2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Customer receivables
|
|
$
|
35,340
|
|
|
$
|
14,432
|
|
Less: Allowance for uncollectible accounts
|
|
|
(14,401
|
)
|
|
|
(14,401
|
)
|
|
|
$
|
20,939
|
|
|
$
|
31
|
|
Note
3 — Inventory
The
following is a summary of inventory:
|
|
June 30,
2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Raw materials
|
|
$
|
329,349
|
|
|
$
|
332,612
|
|
Less: reserve
|
|
|
(175,434
|
)
|
|
|
(175,434
|
)
|
|
|
$
|
153,915
|
|
|
$
|
157,178
|
|
Note
4 — Debt
Debt
is comprised of the following:
Description
|
|
Note
|
|
|
June
30,
2017
|
|
|
December
31,
2016
|
|
Line of credit
|
|
|
A
|
|
|
$
|
47,000
|
|
|
$
|
47,000
|
|
Note payable to distribution partner
|
|
|
B
|
|
|
|
550,000
|
|
|
|
550,000
|
|
Investor debt
|
|
|
C
|
|
|
|
371,507
|
|
|
|
371,507
|
|
Related party debt
|
|
|
D
|
|
|
|
8,026,479
|
|
|
|
6,719,979
|
|
Other notes payable
|
|
|
E
|
|
|
|
981,137
|
|
|
|
981,137
|
|
Cash draw notes
|
|
|
F
|
|
|
|
223,383
|
|
|
|
211,076
|
|
Convertible promissory notes
|
|
|
G
|
|
|
|
58,937
|
|
|
|
71,637
|
|
Total
|
|
|
|
|
|
|
10,258,443
|
|
|
|
8,952,336
|
|
Less: unamortized discount and debt issuance costs
|
|
|
|
|
|
|
(414,440
|
)
|
|
|
(280,555
|
)
|
Debt, net of unamortized discount and debt issuance costs
|
|
|
|
|
|
|
9,844,003
|
|
|
|
8,671,781
|
|
Less: current portion
|
|
|
|
|
|
|
(9,684,003
|
)
|
|
|
(8,451,781
|
)
|
Debt, long-term portion
|
|
|
|
|
|
$
|
160,000
|
|
|
$
|
220,000
|
|
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. Énergie 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. On April 4,
2016, the parties to this action entered into a settlement agreement 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 (the “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. On May 10, 2017, the bank agreed to stay further execution on the judgment so long as the defendants pay the balance of
the judgment in monthly payments of $5,000 per month on the fifteenth of each month, commencing on May 15, 2017. Under this agreement,
interest will continue to accrue at the judgment interest rate.
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.
C
–
Investor Debt –
Notes payable to lenders having an ownership interest in Holdings at June 30, 2017 and
December 31, 2016. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:
June
30,
2017
|
|
|
December 31,
2016
|
|
|
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
|
|
|
|
113,720
|
|
|
|
various
|
|
$
|
371,507
|
|
|
$
|
371,507
|
|
|
|
|
|
D
–
Related Parties Debt –
The following summarizes notes payable to related parties:
|
|
|
June
30,
2017
|
|
|
December 31,
2016
|
|
|
Interest Rate
|
|
D1
|
|
|
$
|
4,635,865
|
|
|
$
|
4,635,865
|
|
|
|
various
|
|
D3
|
|
|
|
34,888
|
|
|
|
34,888
|
|
|
|
12%
|
|
D4
|
|
|
|
365,550
|
|
|
|
365,550
|
|
|
|
various
|
|
D5
|
|
|
|
668,176
|
|
|
|
668,176
|
|
|
|
18%
|
|
D6
|
|
|
|
2,322,000
|
|
|
|
1,024,500
|
|
|
|
6%
|
|
Total
|
|
|
$
|
8,026,479
|
|
|
$
|
6,719,979
|
|
|
|
|
|
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 is an owner of the common stock of Holdings, is the lessor of our
manufacturing facility, and the provider of our payroll services. We also owe Symbiote $389,340 in accounts payable.
D3
– Note payable to our Chief Executive Officer (“CEO”), entered into in December 2014, with monthly principal
and interest originally payable through December 2016. We are still continuing to accrue interest on this note payable. We also
owe our CEO $738,641 in accrued compensation and expenses incurred on behalf of the Company.
D4
– Notes payable to the spouse of our CEO, entered into from September 2013 to March 2017, 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 from June 2015 to December
2015. These notes aggregated the previous accounts payable and accrued interest due to the consulting firm at the time the notes
were made. As of 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 was amortized through interest expense over the
life of the notes. We also owe NOW CFO $496,384 in accounts payable.
D6
– Notes payable to the principal shareholders of Symbiote, entered into from April to June 2017, with principal and
interest payments due upon a specific event or upon demand.
E
–
Other Notes Payable –
Represents the outstanding principal balance on six separate notes bearing interest
at between 6% and 24% 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 one of 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
of principal and interest due under these arrangements was $285,191 as of June 30, 2017. The maturity dates of the agreements
range from August to October 2017.
G
–
Convertible promissory notes –
Represents the outstanding principal balance related to a convertible
promissory note entered into during October 2014. During February 2017, the Company and LG Capital Funding, LLC (“LG”)
entered into an agreement to settle all principal and interest related to an outstanding note with a face amount of $58,937 for
$75,000, with payment being due in March 2017. The Company did not make the payment, and LG has brought an action against the
Company in the Southern District of New York to collect damages for the breach, including consequential damages. We are disputing
this matter and are vigorously defending ourselves against the matter.
Debt
issuance costs of $414,440 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 current legal proceedings of merit are currently pending or threatened
against the Company, other than those described in Note 4 (G).
Note
6 — 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 three and six months ended June 30, 2017 and 2016.
Note
7 — Subsequent Events
There
are no events subsequent to June 30, 2017 and up to the date of this filing that would require disclosure.
Item
2. 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 herein.
We caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in
any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. 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 except as may be required under applicable
securities laws.
Overview
ExeLED
Holdings Inc. (“we,” “us,” “our”) 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 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.” We have two wholly-owned
subsidiaries, Énergie LLC (hereinafter referred to as “Énergie”), and OELC, LLC. 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.
We
are a holding company 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 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
LED 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. 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. These objectives are subject
to our obtaining additional financing, of which there can be no assurance.
Our
management team and advisory board is comprised of experienced executives in the lighting industry with recent specific focus
on the LED lighting industry. The group has over 300 years of combined experience in this industry.
Our
principal place of business is located at 5310 Ward Road, Suite 106, Arvada, Colorado, 80002. Our telephone number is (720) 361-2056.
We also maintain a production and assembly facility in Zeeland, Michigan. Our website is
www.exeledholdings.com
.
Énergie
acts as our operating subsidiary. 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. 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. 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 UL 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.
Our
condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates
the realization of assets and liquidation of liabilities in the normal course of business. The condensed consolidated financial
statements do not include any adjustment that might result from the outcome of this uncertainty.
Results
of Operations
Comparison
of results of operations for the three months ended June 30, 2017 and 2016
|
|
Three months ended June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
Sales revenue
|
|
$
|
7,279
|
|
|
$
|
206,592
|
|
|
$
|
(199,313
|
)
|
|
|
(96
|
)%
|
Cost of revenue
|
|
|
(3,075
|
)
|
|
|
(105,953
|
)
|
|
|
102,878
|
|
|
|
(97
|
)%
|
Gross profit
|
|
|
4,204
|
|
|
|
100,639
|
|
|
|
(96,435
|
)
|
|
|
(96
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
277,793
|
|
|
|
353,638
|
|
|
|
(75,845
|
)
|
|
|
(21
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(584,927
|
)
|
|
|
(418,051
|
)
|
|
|
(166,876
|
)
|
|
|
40
|
%
|
Other
|
|
|
(9,467
|
)
|
|
|
(37,894
|
)
|
|
|
28,427
|
|
|
|
(75
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(867,983
|
)
|
|
$
|
(708,944
|
)
|
|
$
|
(159,039
|
)
|
|
|
22
|
%
|
Sales
Revenue, Cost of Revenue and Gross Profit
Sales
revenue decreased during the three months ended June 30, 2017 compared to the same period in 2016 due to an overall lack of funding
necessary for development and product launch costs. While we are continuing to seek out and discuss external financing, no assurances
can be made that we will be successful in our efforts. Cost of revenue decreased proportionally to the decrease in revenues.
Operating
expenses
|
|
Three months ended Jun 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
Research and development
|
|
$
|
75,153
|
|
|
$
|
70,615
|
|
|
$
|
4,538
|
|
|
|
6
|
%
|
Sales and marketing
|
|
|
1,263
|
|
|
|
26,596
|
|
|
|
(25,333
|
)
|
|
|
(95
|
)%
|
General and administrative
|
|
|
201,377
|
|
|
|
256,427
|
|
|
|
(55,050
|
)
|
|
|
(21
|
)%
|
|
|
$
|
277,793
|
|
|
$
|
353,638
|
|
|
$
|
(75,845
|
)
|
|
|
(21
|
)%
|
The
decrease in operating expenses was driven by our controlling spending due to a lack of operating capital.
Other
During
the three months ended June 30, 2017, interest expense increased due to additional debt of approximately $2,350,000 compared to
June 30, 2016.
Other
income (expense) consists primarily of other fees expenses related to seeking and securing debt and other external financing.
As
a result, we incurred a net loss of $867,983 during the three month period ended June 30, 2017 (approximately $0.00 per share),
compared to a net loss of $708,944 during the three month period ended June 30, 2016.
Comparison
of results of operations for the six months ended June 30, 2017 and 2016
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
Sales revenue
|
|
$
|
44,554
|
|
|
$
|
305,147
|
|
|
$
|
(260,593
|
)
|
|
|
(85
|
)%
|
Cost of revenue
|
|
|
(20,394
|
)
|
|
|
(158,007
|
)
|
|
|
137,613
|
|
|
|
(87
|
)%
|
Gross profit
|
|
|
24,160
|
|
|
|
147,140
|
|
|
|
(122,980
|
)
|
|
|
(84
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
525,508
|
|
|
|
790,119
|
|
|
|
(264,611
|
)
|
|
|
(33
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(1,128,339
|
)
|
|
|
(881,500
|
)
|
|
|
(246,839
|
)
|
|
|
28
|
%
|
Other income (expense)
|
|
|
(55,213
|
)
|
|
|
(75,051
|
)
|
|
|
19,838
|
|
|
|
(26
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(1,684,900
|
)
|
|
$
|
(1,599,530
|
)
|
|
$
|
(85,370
|
)
|
|
|
5
|
%
|
Sales
Revenue, Cost of Revenue and Gross Profit
Sales
revenue during the six months ended June 30, 2017 was $44,554, compared to revenue of $305,147 generated during the six months
ended June 30, 2016, a decrease of $260,593. This decrease was attributable to our lack of available capital in which to generate
sales in 2017. During the six months ended June 30, 2016, we were successful selling custom LED products in several market segments
such as education, commercial office space, large multi-unit luxury residential developments and health care locations. Cost of
revenue and gross profit each decreased for the six months ended June 30, 2017 compared to 2016 due to an increase in inventory
costs.
Operating
expenses
|
|
Six months ended June 30,
|
|
|
|
|
|
|
|
|
|
2017
|
|
|
2016
|
|
|
Change
|
|
|
%
|
|
Research and development
|
|
$
|
143,757
|
|
|
$
|
143,606
|
|
|
$
|
151
|
|
|
|
0
|
%
|
Sales and marketing
|
|
|
2,262
|
|
|
|
39,311
|
|
|
|
(37,049
|
)
|
|
|
(94
|
)%
|
General and administrative
|
|
|
379,489
|
|
|
|
607,202
|
|
|
|
(227,713
|
)
|
|
|
(38
|
)%
|
|
|
$
|
525,508
|
|
|
$
|
790,119
|
|
|
$
|
(264,611
|
)
|
|
|
(33
|
)%
|
The
decrease in operating expenses was driven by our controlling spending due to a limitation of funding.
Other
During
the six months ended June 30, 2017, interest expense increased due to additional debt of approximately $2,350,000 over the same
period in 2016.
Other
income (expense) consists primarily of other expenses related to costs associated with debt and conversions of debt.
As
a result, we incurred a net loss of $1,684,900 during the six month period ended June 30, 2017 (approximately $0.01 per share),
compared to a net loss of $1,599,530 during the six month period ended June 30, 2016.
Liquidity
and Capital Resources
At
June 30, 2017, we had $7,490 in cash and cash equivalents.
We
have not generated positive cash flows from operations in any year since our inception. 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 development and launching of new products
for Énergie. In addition, we believe we need approximately $10,000,000 to pay off a significant portion of our debt and
to begin 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. 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 and continue operations.
To
fund our acquisition plan and fund working capital for our continuing operations we will require and are continuing to seek out
and discuss financing with potential partners or lenders. These efforts have been unsuccessful thus far and there are no assurances
that they will be successful in the future. Failure to obtain the financing necessary will have a significant negative impact
on our Company and our ability to remain in business. We have identified multiple potential funding sources and have diligently
pursued receiving financing from these sources for varying lengths of time. Management believes that these efforts will be coming
to a conclusion in the near future and will either result in significant funding for us or in no funding at all. There are no
assurances that these pursuits will be successful and, if none of them are successful, we will not have the financial resources
to continue operations.
In
August 2015, we entered into two new convertible notes with LG Capital Funding LLC, (“LG”) under a Securities Purchase
Agreement, Convertible Notes and other ancillary documents. Under these agreements, we agreed to issue 8% convertible promissory
notes. We completely paid off all but one of these notes. During February 2017, the Company and LG entered into an agreement to
settle all principal and interest related to the remaining outstanding note with a face amount of $58,937 for $75,000, with payment
being due in March 2017. The Company did not make the payment, and LG has brought an action against the Company in the Southern
District of New York to collect damages for the breach, including consequential damages. We are disputing this matter and are
vigorously defending ourselves against the matter.
Working
Capital
Working
capital is the amount by which current assets exceed current liabilities. We had negative working capital of $14,832,027 and $13,087,377,
respectively, as of June 30, 2017 and December 31, 2016. The increase in negative working capital is due to the increase in debt
of approximately $1,175,000 and a resulting increase in accrued liabilities of approximately $425,000 from interest expense. We
also currently have insufficient cash flow to meet our debt obligations. This raises substantial doubt about our ability to continue
as a going concern.
Cash
Flows
Our
cash flows from operating, investing and financing activities were as follows:
|
|
Six months ended Jun 30,
|
|
|
|
2017
|
|
|
2016
|
|
Net cash used in operating activities
|
|
$
|
(868,571
|
)
|
|
$
|
(506,038
|
)
|
Net cash provided by financing activities
|
|
|
870,607
|
|
|
|
578,845
|
|
Net
cash used in operating activities increased in 2017 by $362,533 compared to 2016. 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.
During
2017, we relied on additional borrowings under both new and existing debt agreements. In 2017, net cash flows provided by financing
activities were composed of $1,173,757 of additional borrowings and $303,150 of debt pay down. In 2016, we borrowed $815,116 of
additional debt and paid down $236,271 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 Énergie. In addition, we believe we need approximately $10,000,000
to pay off a significant portion of our debt and to begin 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 elsewhere, 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 six month period ended June 30, 2017.
Off-Balance
Sheet Arrangements
We
had no off-balance sheet arrangements as of June 30, 2017 and December 31, 2016.
Critical
Accounting Estimates
Our
condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation
of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of
assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the
condensed consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable
under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain
accounting policies that require significant management estimates and are deemed critical to our results of operations or financial
position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2016 in the Critical Accounting Policies
section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Item
4.
Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
As
required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as
of June 30, 2017. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer
and Chief Financial Officer.
Based
on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of June 30,
2017, because (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; and (c) we have not implemented adequate system-based and manual controls.
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 will be effective in the near future.
Our
Board of Directors has assigned a priority to the short-term and long-term improvement of our internal control over financial
reporting. We are reviewing various potential solutions to remedy the processes that would eliminate the issues that may arise
due to the absence of separation of duties within the financial reporting functions. Additionally, the Board of Directors will
work with management to continuously review controls and procedures to identified deficiencies and implement remediation within
our internal controls over financial reporting and our disclosure controls and procedures.
We
believe that our financial statements presented in this quarterly report on Form 10-Q fairly present, in all material respects,
our financial position, results of operations, and cash flows for all periods presented herein.
Inherent
Limitations
– Our management, including our Chief Executive Officer and Chief Financial Officer, does not expect
that our disclosure controls and procedures will prevent all error and all fraud. A control system, no matter how well conceived
and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. The design
of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no
assurance that any design will succeed in achieving its stated goals under all potential future conditions. 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 controls can provide absolute
assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that breakdown can occur because of simple error or
mistake. In particular, many of our current processes rely upon manual reviews and processes to ensure that neither human error
nor system weakness has resulted in erroneous reporting of financial data.
Changes
in Internal Control over Financial Reporting
There
have been no changes in our internal control over financial reporting during the last quarterly period covered by this report
that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.