UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2018

 

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-28562

 

EXELED HOLDINGS INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

94-2857548

(I.R.S. Employer

Identification No.)

 

5310 Ward Road, Suite 106,

Arvada, CO

(Address of principal executive offices)

 

80002

(Zip Code)

 

(720) 361-2056

Registrant’s telephone number, including area code

 

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [ X] No [ ]

 

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

 

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

 

  Large accelerated filer  [ ] Accelerated filer  [ ]
  Non-accelerated filer  [ ] Smaller reporting company  [X]
  Emerging growth company  [X]  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

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

Yes [ ] No [X]

 

As of November 14, 2018, there were 249,447,433 shares of common stock, $0.0001 par value, issued and outstanding.

 
 

 

EXELED HOLDINGS INC.

Table of Contents

 

Part I – FINANCIAL INFORMATION

 

Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 11
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 16
     
Part II – OTHER INFORMATION
     
Item 1. Legal Proceedings 17
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 4. Mine Safety Disclosures 18
Item 5. Other Information 18
Item 6. Exhibits 18

 

 
 

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.

 

Factors that may cause or contribute actual results to differ from these forward-looking statements include, but are not limited to, for example:

 

• adverse economic conditions;

• risks related to the construction market;

• risks related to the U.S. import market;

• the inability to attract and retain qualified senior management and technical personnel;

• other risks and uncertainties related to the changing lighting market and our business strategy.

 

All forward-looking statements speak only as of the date of this Report. We undertake no obligation to update any forward-looking statements or other information contained herein, except as may be required under applicable securities laws. Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved.

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors. Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements. In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of the Quarterly Report on Form 10-Q. All subsequent written and oral forward-looking statements concerning other matters addressed in this Quarterly Report on Form 10-Q and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Quarterly Report on Form 10-Q.

 

 
 

 

PART I. Financial Information

 

Item 1. Financial Statements

 

EXELED HOLDINGS INC.

Condensed Consolidated Balance Sheets

 

    June 30, 2018
(Unaudited) 		  December 31, 2017
ASSETS                
                 
Current assets:                
   Cash and cash equivalents   $ 10,201     $ —    
   Accounts receivable, net     3,649       —    
   Inventory     63,640       69,498  
   Prepaid expenses and other     58,592       54,163  
Total current assets     136,082       123,661  
                 
Noncurrent assets:                
   Deposits and other     31,271       14,627  
                 
  Total assets   $ 167,353     $ 138,288  
                 
LIABILITIES AND EQUITY                
Current liabilities:                
   Cash overdraft   $ —       $ 11,118  
   Accounts payable     3,027,399       2,893,614  
   Accrued liabilities     3,465,526       2,628,335  
   Debt, current portion, net of discount and debt issuance costs     13,433,228       11,249,083  
Total current liabilities     19,926,153       16,782,150  
                 
Debt, long-term portion     607,058       676,058  
   Total liabilities     20,533,211       17,458,208  
                 
                 
Commitments and contingencies (Note 4)     —         —    
                 
Equity:                
Preferred stock, $0.0001 par value; 5,000,000 shares
authorized; no shares issued and outstanding at
June 30, 2018 or December 31, 2017 		    —         —    
Common stock, $0.0001 par value; 250,000,000 shares
authorized; 249,447,433 shares issued and outstanding at
June 30, 2018 and December 31, 2017 		    24,743       24,743  
Additional paid-in capital     2,635,896       2,635,896  
Accumulated deficit     (23,026,497 )     (19,980,559 )
  Total deficit     (20,365,858 )     (17,319,920 )
                 
Total liabilities and equity   $ 167,353     $ 138,288  
                 

 

See accompanying notes to condensed consolidated financial statements.

  2  

 


EXELED HOLDINGS INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

    Three months ended June 30,   Six months ended June 30,
    2018   2017   2018   2017
                 
Sales revenue   $ 18,301     $ 7,279     $ 23,401     $ 44,554  
Cost of goods sold     (6,083 )     (3,075 )     (10,209 )     (20,394 )
   Gross profit     12,218       4,204       13,192       24,160  
                                 
Operating expenses:                                
   Research and development     85,362       75,153       166,384       143,757  
   Sales and marketing     3,137       1,263       3,784       2,262  
   General and administrative     175,740       201,377       358,224       379,489  
Total operating expenses     264,239       277,793       528,392       525,508  
                                 
Loss from operations     (252,021 )     (273,589 )     (515,200 )     (501,348 )
                                 
Other income (expense):                                
   Interest expense     (1,055,367 )     (584,927 )     (1,758,296 )     (1,128,339 )
   Other expense     (561,746 )     (9,467 )     (772,442 )     (55,213 )
Other income (expense), net     (1,617,113 )     (594,394 )     (2,530,738 )     (1,183,552 )
Provision for taxes on income     —       —       —       —  
Net loss   $ (1,869,134 )   $ (867,983 )   $ (3,045,938 )   $ (1,684,900 )
                                 
Net loss per common share:                                
  Basic and diluted   $ (0.01 )   $ (0.00 )   $ (0.01 )   $ (0.01 )
                                 
Weighted average common shares outstanding:                                
  Basic and diluted     249,447,433       249,447,433       249,447,433       249,447,433  
                                 
                                 

 

See accompanying notes to condensed consolidated financial statements

  3  

 


EXELED HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

    Six months ended June 30,
    2018   2017
Operating Activities:                
  Net loss   $ (3,045,938 )   $ (1,684,900 )
  Adjustments to reconcile net loss to net cash used in operating                
     activities:                
    Amortization of debt issuance costs and debt discount     522,485       301,615  
Changes in operating assets and liabilities:                
  Accounts receivable     (3,649 )     (20,908 )
  Inventory     5,858       3,263  
  Prepaid expenses and other     (4,429 )     (699 )
  Other assets     (16,644 )     250  
  Accounts payable     133,785       109,730  
  Accrued liabilities     469,698       423,078  
Net cash used in operating activities     (1,938,834 )     (868,571 )
                 
Investing Activities:                
Net cash from investing activities     —         —    
                 
Financing Activities:                
  Proceeds from debt     2,947,521       1,173,757  
  Payments of debt     (987,368 )     (303,150 )
Net cash provided by financing activities     1,960,153       870,607  
                 
Net change in cash (overdraft)     21,319       2,036  
                 
Cash (overdraft), beginning of period     (11,118 )     5,454  
                 
Cash, end of period   $ 10,201     $ 7,490  
                 
Cash paid for:                
  Interest   $ 942,480     $ 432,032  
  Taxes     —         —    
Non-cash transactions:                
  Debt issuance costs   $ 721,000     $ 435,500  
Debt reclassified as accrued liabilities   $ 367,493     $ —    

 

See accompanying notes to condensed consolidated financial statements.

  4  

 

EXELED HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

For the Three and Six Months Periods Ended June 30, 2018 and 2017

 

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. We issued 33,000,000 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.

 

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, 2018, has been derived from our 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, 2017.

 

  5  

 

Significant Accounting Policy Updates

 

Revenue Recognition

 

During the first quarter of 2018, we adopted the following accounting principles related to revenue recognition: (a) FASB ASU 2016-12 “ Revenue from Contracts with Customers (Topic 606) ;” (b) FASB ASU 2016-11 “ Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815) ;” and (c) FASB ASU 2016-10 “ Revenue from Contracts with Customers (Topic 606) .” Due to the nature of our contracts with customers, adopting the new accounting principles did not have a significant impact on our prior period results of operations, cash flows or financial position.

 

Our revenues arise from contracts with customers and consists of operations segment product sales.  The majority of our revenue is derived from distinct performance obligations, such as the delivery of a specific product.

 

We may also enter into contracts with customers that identify a single, or few, distinct performance obligations, but that also have non-distinct, underlying performance obligations.  These contracts are typically fulfilled within one to three months.  Only an insignificant portion of our revenue would be assessed for allocation between distinct (contractual) performance obligations and non-distinct deliverables between reporting periods and, accordingly, we do not record a contract asset for completed, non-distinct performance obligations prior to invoicing the customer.

 

We recognize revenue when the following criteria are met:

 

Identify the contracts with the customer –  our customary practice is to obtain written evidence, typically in the form of a contract or purchase order.

 

Identify the performance obligations in the contract –   we have rights to payment 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.

 

Determine the transaction price –   prices are typically fixed and no price protections or variables are offered.

 

Allocate the transaction price to the performance obligations –  our contracts disclose exact products and therefor allocate the transaction price by individual product.

 

Recognize revenue when (or as) the performance obligation is satisfied –   payment terms are typically zero to fifteen days within delivery of the good.

 

Customer deposits are contract liabilities with customers that represent our obligation to either transfer goods or services in the future, or refund the amount received. Customer deposits are recognized as revenue as we perform under the contract.

 

Going Concern

 

As shown in the accompanying condensed consolidated financial statements, we had an equity deficit of $20,365,858 and a working capital deficit of $19,790,071 as of June 30, 2018, and have reported net losses of $3,045,938 and $1,684,900 for the six months ended June 30, 2018 and 2017, 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.

 

  6  

 

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.

 

Prepaid Expenses and Other

 

We have created a joint venture with Kasper Consulting called Kas-Exe Parking Solutions LLC (“Kas-Exe”). The purpose of the joint venture is to capitalize on attractive business opportunities that present themselves. As of June 30, 2018, we have paid Kasper Consulting $43,148 in order to help launch Kas-Exe. At this point, the joint venture is no longer seen as viable and we are in the process of being refunded the amounts paid to Kasper Consulting. The amount is included as Prepaid expenses and other in accompanying condensed consolidated financial statements.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform with the current year presentation.

 

Recently Issued Accounting Pronouncements

 

The Financial Accounting Standards Board and other entities have issued other new or modifications to, or interpretations of, existing accounting guidance during 2018. 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, net

 

The following is a summary of accounts receivable:

    June 30, 2018   December 31, 2017
         
Customer receivables   $ 39,470     $ 35,821  
Less:  Allowance for uncollectible accounts     (35,821 )     (35,821 )
    $ 3,649     $ —    

 

Note 3 — Debt, net

 

Debt is comprised of the following:

 

Description   Note   June 30,
2018 		  December 31,
2017
Line of credit     A     $ 6,531     $ 31,588  
Note payable to distribution partner     B       550,000       550,000  
Investor debt     C       371,507       371,507  
Related party debt     D       12,205,037       10,038,037  
Other notes payable     E       1,012,937       1,021,937  
Cash draw notes     F       886,293       338,083  
Convertible promissory notes     G       58,937       58,937  
   Total             15,091,242       12,410,089  
Less:  unamortized discount and debt issuance costs             (683,463 )     (484,948 )
Debt, net of unamortized discount and debt issuance costs             14,407,779       11,925,141  
Less:  current portion             (13,800,721 )     (11,249,083 )
Debt, long-term portion           $ 607,058     $ 676,058  

 

  7  

 

A – L i ne of Cr e d i t – 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. On April 4, 2016, the parties to this action entered into a settlement agreement whereby the defendants agreed to pay to Vectra 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. 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 continues to accrue at the judgment interest rate. The current principal balance is $6,531.

 

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, 2018 and December 31, 2017. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

 

     
June 30,
2018 		  December 31, 2017   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       85
  20,000       20,000       2%
  113,720       113,720       various
$ 371,507     $ 371,507        

 

D – Re l a t ed Par t ies Debt – The following summarizes notes payable to related parties:

 

    June 30,
2018 		  December 31, 2017   Interest Rate
  D1     $ 4,635,865     $ 4,635,865       various  
  D2       34,888       34,888       12 %
  D3       366,550       362,550       various  
  D4       1,205,234       1,205,234       18 %
  D5       5,962,500       3,799,500       6 %
  Total     $ 12,205,037     $ 10,038,037          

 

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 the Company, is the lessor of our manufacturing facility, and the provider of our payroll services. We also owe Symbiote $1,463,235 in accounts payable and accrued interest.

 

D2 – 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 Hal $902,465 in accrued compensation, accrued interest, and expenses incurred on behalf of the Company.

 

D3 – Notes payable to the spouse of our CEO, entered into from September 2013 to January 2018, with principal and interest payments due upon a specific event or upon demand. We also owe her $229,567 in accrued interest.

 

  8  

 

D4  – Notes payable to the consulting firm that employs our Chief Financial Officer, entered into from June 2015 to December 2017. These notes aggregated previous accounts payable and accrued interest due to the consulting firm at the time the notes were made. These notes mature at various dates through December 2019. We also owe this firm $401,992 in accrued interest.

 

D5  – Notes payable to the principal shareholders of Symbiote, entered into from April 2016 to June 2018, with principal and interest payments due upon a specific event or upon demand. We also owe them $201,218 in accrued interest.

 

E – O t h er No t es Pay a b l e – 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. During November 2017, one of these noteholders requested a summary judgment for a note that is in default as principal and interest payments were not made in accordance with the note. The note had consolidated past due rent amounts and interest to one of our former landlords. In January 2018, a summary judgment in the amount of $475,832, which represents the total principal and interest outstanding on the note as of October 31, 2017 was granted by the court.

 

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 $1,189,437 as of June 30, 2018. The maturity dates of the agreements range from July to October 2018.

 

G – Convertible promissory notes – Represents the outstanding principal balance related to a convertible promissory note entered into during October 2014. In May 2017, LG Capital Funding LLC (“LG”), filed a complaint against us in the U.S. District Court for the Southern District of New York, Civil Action No. 17-cv-4006-(RJS), alleging that we owed LG the principal balance of $75,000 plus interest, costs and attorneys’ fees, arising out of two convertible notes issued to LG. LG amended its complaint in July 2017 and we filed our answer a week later denying any liability and affirmatively stating that LG had been repaid many times over. LG then immediately filed a pre-discovery motion for summary judgment. We submitted our opposition to the motion on September 25, 2017. LG filed reply papers in further support on October 5, 2017. LG asserts that no factual issues exist and that summary judgment is therefore appropriate. Our opposition asserts that summary judgment, as to both liability and damages, is woefully premature and unwarranted given the many factual issues that exist regarding, among other things, LG’s failure to disclose material facts, potential short selling and fraudulent concealment, usury, and fraud on the market. The motion remains pending before the Court.

 

Our defense in this matter is based in part on a separate action filed by the Securities and Exchange Commission against unrelated defendants in the U.S. District Court for the Southern District of Florida alleging that the defendant there, which follows the same business model as LG, has violated federal securities laws by not registering as a dealer. We understand that LG also was not and is not registered as a dealer even though it too should be given it too trades securities for its own account as part of its business. The SEC asserts that all gains reaped by defendants in the attached complaint should be disgorged due to the ill-gotten gains received. LG has, admittedly, likewise received substantial profits trading our stock for its own account.

 

  9  

 

As a result, we have filed an amended answer, alleging that LG is entitled to no recovery, and that it should disgorge to us all gains unlawfully received from selling our shares of common stock.

 

Debt issuance costs of $683,463 are being amortized over the life of the respective notes.

 

Note 4 — 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 the paragraph below as well as in Note 3 (E) and 3 (G).

 

During November 2017, Autumnwood Investments, LLC requested a summary judgment for a note that was in default as principal and interest payments were not made in accordance with the note. The note had consolidated past due rent amounts and interest due to Autumwood. In January 2018, a summary judgment in the amount of $475,832, which represents the total principal and interest outstanding on the note as of October 31, 2017, was granted by the court. The principal balance of the note has been reclassified from debt to accrued liabilities. The interest that had accrued on the note was already included in accrued liabilities. 

Note 5 — 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 six months ended June 30, 2018 and 2017.

 

Note 6 — Subsequent Events

 

There are no events subsequent to June 30, 2018 and up to the date of this filing that require disclosure.

  10  

 

 

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, 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.

 

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Results of Operations

 

Comparison of results of operations for the three months ended June 30, 2018 and 2017

 

    Three months ended June 30,        
    2018   2017   Change   %
Sales revenue   $ 18,301     $ 7,279     $ 11,022       151 %
Cost of revenue     (6,083 )     (3,075 )     3,008       98 %
  Gross profit     12,218       4,204       8,014       191 %
                                 
Total operating expenses     264,239       277,793       (13,554 )     (5 )%
                                 
Interest expense     (1,055,367 )     (584,927 )     (470,440 )     80 %
Other     (561,746 )     (9,467 )     (552,279 )     5834 %
                                 
Net loss   $ (1,869,134 )   $ (867,983 )   $ (1,001,151 )     115 %

 

Sales Revenue, Cost of Revenue and Gross Profit

 

Sales revenue increased during the three months ended June 30, 2018 compared to the same period in 2017 due to a large order we received in the second quarter. However, current sales are not sufficient to cover our operating 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 also increased as a result of the large order in the second quarter.

 

Operating expenses

 

    Three months ended June 30,        
    2018   2017   Change   %
Research and development   $ 85,362     $ 75,153     $ 10,209       14 %
Sales and marketing     3,137       1,263       1,874       148 %
General and administrative     175,740       201,377       (25,637 )     (13 )%
    $ 264,239     $ 277,793     $ (13,554 )     (5 )%
                                 

 

Overall, operating costs stayed fairly consistent during the three months ended June 30, 2018 compared to the same period in 2017 as we have reduced costs as much as possible and continue to operate on a reduced budget.

 

Other

 

During the three months ended June 30, 2018, interest expense increased from $584,927 incurred during the three months ended June 30, 2017, to $1,055,367, an increase of $470,440, due to additional debt of approximately $5,300,000 over some point in 2017.

 

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 $1,869,134 during the three month period ended June 30, 2018 (approximately $0.01 per share), compared to a net loss of $867,983 during the three month period ended June 30, 2017.

 

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Comparison of results of operations for the six months ended June 30, 2018 and 2017

 

    Six months ended June 30,        
    2018   2017   Change   %
Sales revenue   $ 23,401     $ 44,554     $ (21,153 )     (47 )%
Cost of revenue     (10,209 )     (20,394 )     (10,185 )     (50 )%
  Gross profit     13,192       24,160       (10,968 )     (45 )%
                                 
Total operating expenses     528,392       525,508       2,884       1 %
                                 
Interest expense     (1,758,296 )     (1,128,339 )     (629,957 )     56 %
Other income (expense)     (772,442 )     (55,213 )     (717,229 )     1299 %
                                 
Net loss   $ (3,045,938 )   $ (1,684,900 )   $ (1,361,038 )     81 %
                                 

 

Sales Revenue, Cost of Revenue and Gross Profit

 

Sales revenue during the six months ended June 30, 2018 was $23,401, compared to revenue of $44,554 generated during the six months ended June 30, 2017, a decrease of $21,153. This decrease was attributable to our lack of available capital in which to generate sales in 2018. Cost of revenue and gross profit each decreased proportionately to the decrease in sales revenue for the six months ended June 30, 2018.

 

Operating expenses

 

    Six months ended June 30,        
    2018   2017   Change   %
Research and development   $ 166,384     $ 143,757     $ 22,627       16 %
Sales and marketing     3,784       2,262       1,522       67 %
General and administrative     358,224       379,489       (21,265 )     (6 )%
    $ 528,392     $ 525,508     $ 2,884       1 %
                                 

 

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, 2018, interest expense increased due to additional debt of approximately $5,300,000 over the same period in 2017.

 

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 $3,045,938 during the six month period ended June 30, 2018 (approximately $0.01 per share), compared to a net loss of $1,684,900 during the six month period ended June 30, 2017.

 

We have created a joint venture with Kasper Consulting called Kas-Exe Parking Solutions LLC (“Kas-Exe”). The purpose of the joint venture is to capitalize on attractive business opportunities that present themselves. As of June 30, 2018, we have paid Kasper Consulting $43,148 in order to help launch Kas-Exe. At this point, the joint venture no longer seen as viable and we are in the process of being refunded the amounts paid to Kasper Consulting. The amount is included as Prepaid expenses and other in the accompanying condensed consolidated financial statements. 

 

  13  

 

Liquidity and Capital Resources

 

At June 30, 2018, we had $10,201 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 implement our business plan and generate positive cash flows has been and continues to be the lack of available working capital to operate and expand our business. 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 and may require relief from bankruptcy court.

 

Working Capital

 

Working capital is the amount by which current assets exceed current liabilities. We had negative working capital of $19,790,071 and $16,658,489, respectively, as of June 30, 2018 and December 31, 2017. The increase in negative working capital is due to the increase in debt of approximately $2,500,000 and a resulting increase in accrued liabilities of approximately $470,000 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 June 30,
    2018   2017
Net cash used in operating activities   $ (1,938,834 )   $ (868,571 )
Net cash from investing activities     —         —    
Net cash provided by financing activities     1,960,153       870,607  

 

Net cash used in operating activities increased in 2018 by $1,070,263 compared to 2017.  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 2018, we relied on additional borrowings under both new and existing debt agreements. In 2018, net cash flows provided by financing activities were composed of $2,947,521 of additional borrowings and $987,368 of debt pay down. In 2017, we borrowed $1,173,757 of additional debt and paid down $303,150 of debt.

 

  14  

 

We believe that our principal difficulty in our inability to successfully generate revenues and corresponding profits has been the lack of available capital to implement our business plan.  We believe that Energie will 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 expenses. In addition, we believe we need more than $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 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 and to stay in business 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, 2018.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements as of June 30, 2018 and December 31, 2017.

 

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, 2017 in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

  15  

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.

 

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, 2018.   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, 2018, 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.

 

  16  

 

PART II. Other Information

 

Item 1. 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”). On April 4, 2016, the parties to this action entered into a settlement agreement whereby the Defendants agreed to pay to Vectra 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. 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 continues to accrue at the judgment interest rate. The current principal balance is $31,588.

 

In May 2017, LG Capital Funding LLC (“LG”), filed a complaint against us in the U.S. District Court for the Southern District of New York, Civil Action No. 17-cv-4006-(RJS), alleging that we owed LG the principal balance of $75,000 plus interest, costs and attorneys’ fees, arising out of two convertible notes issued to LG. LG amended its complaint in July 2017 and we filed our answer a week later denying any liability and affirmatively stating that LG had been repaid many times over. LG then immediately filed a pre-discovery motion for summary judgment. We submitted our opposition to the motion on September 25, 2017. LG filed reply papers in further support on October 5, 2017. LG asserts that no factual issues exist and that summary judgment is therefore appropriate. Our opposition asserts that summary judgment, as to both liability and damages, is woefully premature and unwarranted given the many factual issues that exist regarding, among other things, LG’s failure to disclose material facts, potential short selling and fraudulent concealment, usury, and fraud on the market. The motion remains pending before the Court.

 

Our defense in this matter is based in part on a separate action filed by the Securities and Exchange Commission against unrelated defendants in the U.S. District Court for the Southern District of Florida alleging that the defendant there, which follows the same business model as LG, has violated federal securities laws by not registering as a dealer. We understand that LG also was not and is not registered as a dealer even though it too should be given it too trades securities for its own account as part of its business. The SEC asserts that all gains reaped by defendants in the attached complaint should be disgorged due to the ill-gotten gains received. LG has, admittedly, likewise received substantial profits trading our stock for its own account.

 

As a result, we have filed an amended answer, alleging that LG is entitled to no recovery, and that it should disgorge to us all gains unlawfully received from selling our shares of common stock.

 

During November 2017, Autumnwood Investments, LLC (a former landlord of ours) requested a summary judgment for a note that is in default as principal and interest payments were not made in accordance with the note. The note had consolidated past due rent amounts and interest due to Autumwood. In January 2018, a summary judgment in the amount of $475,832, which represents the total principal and interest outstanding on the note as of October 31, 2017 was granted by the court.

 

As a result of our lack of available capital we are unable to pay many of our bills and outstanding promissory notes when they become due. While we have not been threatened specifically with litigation, it is impractical to believe or assume that our creditors will not pursue actions against us to collect balances due. Many of these obligations and agreements contain provisions requiring us to pay costs of collection and attorneys’ fees over and above the principal amounts due, which may increase these outstanding balances.

 

  17  

 

Item 1A. Risk Factors

 

As a smaller reporting company, as that term is defined in Item 10(f)(1) of Regulation S-K, we are not required to provide information required by this Item.

 

Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures  

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

31.1   Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
     
31.2   Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer
     
32   Certifications of the Chief Executive and Financial Officers pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS   XBRL Instance Document*
101.SCH   XBRL Schema Document*
101.CAL   XBRL Calculation Linkbase Document*
101.DEF   XBRL Definition Linkbase Document*
101.LAB   XBRL Label Linkbase Document*
101.PRE   XBRL Presentation Linkbase Document*
     

______________________

* Pursuant to Rule 406T of Regulation S-T, these interactive data files are not deemed filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act or Section 18 of the Securities Exchange Act and otherwise not subject to liability.

 

 

 

  18  

 

 

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, thereunto duly authorized.

 

 

       
Date: November 15, 2018   By: /s/ Harold Hansen
      Harold Hansen
     

Chief Executive Officer

(Principal Executive Officer)

       
    By:   /s/ Richard Cole Dennard
      Richard Cole Dennard
     

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

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