Item
1. Condensed Consolidated Financial Statements.
Solis
Tek Inc.
Condensed
Consolidated Balance Sheets
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
(Unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
427,580
|
|
|
$
|
275,783
|
|
Accounts Receivable, net of allowance for doubtful accounts of
$398,168 and $359,395
|
|
|
1,221,349
|
|
|
|
628,691
|
|
Inventories
|
|
|
1,550,761
|
|
|
|
2,880,804
|
|
Prepaid expenses
and other current assets
|
|
|
79,309
|
|
|
|
75,109
|
|
Total current assets
|
|
|
3,278,999
|
|
|
|
3,860,387
|
|
|
|
|
|
|
|
|
|
|
Property and equipment, net
|
|
|
172,505
|
|
|
|
204,936
|
|
Other assets
|
|
|
32,072
|
|
|
|
32,071
|
|
TOTAL
ASSETS
|
|
$
|
3,483,576
|
|
|
$
|
4,097,394
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND
SHAREHOLDERS’ EQUITY
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
672,283
|
|
|
$
|
552,057
|
|
Due to related party vendor
|
|
|
124,715
|
|
|
|
1,083,764
|
|
Note payable - related parties
|
|
|
545,000
|
|
|
|
265,000
|
|
Amount due to related parties
|
|
|
150,795
|
|
|
|
134,086
|
|
Capital lease obligations, current portion
|
|
|
14,723
|
|
|
|
13,711
|
|
Loans payable,
current portion
|
|
|
8,102
|
|
|
|
8,262
|
|
Total Current Liabilities
|
|
|
1,515,618
|
|
|
|
2,056,880
|
|
|
|
|
|
|
|
|
|
|
Capital lease obligations, net of current
portion
|
|
|
1,883
|
|
|
|
9,665
|
|
Loans payable, net of current portion
|
|
|
22,021
|
|
|
|
25,958
|
|
Notes payable
related parties, net of current portion
|
|
|
600,000
|
|
|
|
600,000
|
|
Total
liabilities
|
|
|
2,139,522
|
|
|
|
2,692,503
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shareholders’
Equity
|
|
|
|
|
|
|
|
|
Preferred stock, no par value, 20,000,000
shares authorized; no shares issued and outstanding
|
|
|
-
|
|
|
|
-
|
|
Common stock, $0.001 par value, 100,000,000
shares authorized; 37,472,577 and 29,721,998 shares issued and outstanding at June 30, 2017 and December 31, 2016,
respectively
|
|
|
37,472
|
|
|
|
29,722
|
|
Additional paid-in-capital
|
|
|
8,067,943
|
|
|
|
2,795,842
|
|
Accumulated deficit
|
|
|
(6,761,361
|
)
|
|
|
(1,420,673
|
)
|
Total
Shareholders’ Equity
|
|
|
1,344,054
|
|
|
|
1,404,891
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES
AND SHAREHOLDERS’ EQUITY
|
|
$
|
3,483,576
|
|
|
$
|
4,097,394
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Solis
Tek Inc.
Condensed
Consolidated Statements of Operations
|
|
Three months ended June 30,
|
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
|
(Unaudited)
|
|
Sales
|
|
$
|
2,441,289
|
|
|
$
|
2,125,830
|
|
|
$
|
5,343,115
|
|
|
$
|
4,710,498
|
|
Cost of goods sold (1)
|
|
|
1,521,410
|
|
|
|
1,324,165
|
|
|
|
3,302,714
|
|
|
|
2,982,876
|
|
Gross profit
|
|
|
919,879
|
|
|
|
801,665
|
|
|
|
2,040,401
|
|
|
|
1,727,622
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses
|
|
|
2,391,231
|
|
|
|
765,531
|
|
|
|
7,155,886
|
|
|
|
1,519,225
|
|
Research and development
|
|
|
82,500
|
|
|
|
58,000
|
|
|
|
165,270
|
|
|
|
115,000
|
|
Total operating expenses
|
|
|
2,473,731
|
|
|
|
823,531
|
|
|
|
7,321,156
|
|
|
|
1,634,225
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
(1,553,852
|
)
|
|
|
(21,866
|
)
|
|
|
(5,280,755
|
)
|
|
|
93,397
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense, net of interest income
|
|
|
(31,649
|
)
|
|
|
(23,620
|
)
|
|
|
(55,820
|
)
|
|
|
(50,394
|
)
|
Interest income
|
|
|
-
|
|
|
|
4,500
|
|
|
|
-
|
|
|
|
4,500
|
|
Income (loss) before income taxes
|
|
|
(1,585,501
|
)
|
|
|
(40,986
|
)
|
|
|
(5,336,575
|
)
|
|
|
47,503
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision (benefit) for income taxes
|
|
|
3,200
|
|
|
|
(5,829
|
)
|
|
|
4,113
|
|
|
|
37,700
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS)
|
|
$
|
(1,588,701
|
)
|
|
$
|
(35,157
|
)
|
|
$
|
(5,340,688
|
)
|
|
$
|
9,803
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
BASIC AND DILUTED INCOME (LOSS) PER SHARE
|
|
$
|
(0.04
|
)
|
|
$
|
(0.00
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
0.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED - AVERAGE COMMON SHARES OUTSTANDING BASIC AND DILUTED
|
|
|
37,011,893
|
|
|
|
29,596,998
|
|
|
|
36,807,540
|
|
|
|
29,595,789
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) Related party costs included in cost of goods sold
|
|
$
|
1,247,897
|
|
|
$
|
1,003,379
|
|
|
$
|
2,688,893
|
|
|
$
|
2,400,764
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Solis
Tek Inc.
Condensed
Consolidated Statements of Shareholders’ Equity (Unaudited)
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
29,721,998
|
|
|
$
|
29,722
|
|
|
$
|
2,795,842
|
|
|
$
|
(1,420,673
|
)
|
|
$
|
1,404,891
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net proceeds from the sale of common stock
|
|
|
375,000
|
|
|
|
375
|
|
|
|
299,625
|
|
|
|
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services
|
|
|
1,117,000
|
|
|
|
1,117
|
|
|
|
1,633,933
|
|
|
|
|
|
|
|
1,635,050
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued to employees
|
|
|
5,474,265
|
|
|
|
5,474
|
|
|
|
2,804,526
|
|
|
|
|
|
|
|
2,810,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock purchased by officer
|
|
|
784,314
|
|
|
|
784
|
|
|
|
399,216
|
|
|
|
|
|
|
|
400,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of vested options
|
|
|
|
|
|
|
|
|
|
|
134,801
|
|
|
|
|
|
|
|
134,801
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,340,688
|
)
|
|
|
(5,340,688
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2017
|
|
|
37,472,577
|
|
|
$
|
37,472
|
|
|
$
|
8,067,943
|
|
|
$
|
(6,761,361
|
)
|
|
$
|
1,344,054
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
Solis
Tek, Inc.
Condensed
Consolidated Statements of Cash Flows
|
|
Six months ended June 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
(Unaudited)
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
(5,340,688
|
)
|
|
$
|
9,803
|
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net income (loss) to net cash (used in) provided by operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for bad debt expense
|
|
|
77,808
|
|
|
|
41,114
|
|
Depreciation and amortization
|
|
|
35,631
|
|
|
|
35,102
|
|
Amortization of loan fees
|
|
|
-
|
|
|
|
20,000
|
|
Interest expense on loans payable - related parties
|
|
|
16,709
|
|
|
|
21,036
|
|
Fair value of common stock issued for services
|
|
|
4,445,050
|
|
|
|
61,000
|
|
Fair value of vested stock options
|
|
|
134,801
|
|
|
|
|
|
Common shares purchased by officer at discount
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Changes in Assets and Liabilities
|
|
|
|
|
|
|
|
|
(Increase) Decrease in:
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(670,466
|
)
|
|
|
(238,997
|
)
|
Inventories
|
|
|
1,330,043
|
|
|
|
1,199,286
|
|
Advances to suppliers
|
|
|
-
|
|
|
|
(16,404
|
)
|
Prepaid expenses and other
|
|
|
(4,200
|
)
|
|
|
(15,489
|
)
|
(Decrease) Increase in:
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
|
120,226
|
|
|
|
(189,103
|
)
|
Due to related party vendor
|
|
|
(959,049
|
)
|
|
|
(388,398
|
)
|
Income taxes payable
|
|
|
-
|
|
|
|
37,700
|
|
Net cash (used in) provided by operating activities
|
|
|
(514,137
|
)
|
|
|
576,650
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of property and equipment
|
|
|
(3,200
|
)
|
|
|
(4,433
|
)
|
Net cash used in investing activities
|
|
|
(3,200
|
)
|
|
|
(4,433
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Proceeds from sale of common stock
|
|
|
300,000
|
|
|
|
-
|
|
Proceeds from sale of common stock to officer
|
|
|
100,000
|
|
|
|
|
|
Repayment of line of credit
|
|
|
-
|
|
|
|
(600,000
|
)
|
Payments on capital lease obligations
|
|
|
(6,770
|
)
|
|
|
(6,309
|
)
|
Payments on loans payable
|
|
|
(4,096
|
)
|
|
|
(100,000
|
)
|
Proceeds from notes payable related parties
|
|
|
300,000
|
|
|
|
710,000
|
|
Payments on notes payable related parties
|
|
|
(20,000
|
)
|
|
|
-
|
|
Payments on notes payable
|
|
|
-
|
|
|
|
(361,958
|
)
|
Payments on amounts due to officers
|
|
|
-
|
|
|
|
(3,384
|
)
|
Net cash (used in) provided by financing activities
|
|
|
669,134
|
|
|
|
(361,651
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
151,797
|
|
|
|
210,566
|
|
|
|
|
|
|
|
|
|
|
Cash beginning of period
|
|
|
275,783
|
|
|
|
106,316
|
|
Cash end of period
|
|
$
|
427,580
|
|
|
$
|
316,882
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
10,999
|
|
|
$
|
32,449
|
|
Taxes paid
|
|
$
|
3,200
|
|
|
$
|
7,276
|
|
The
accompanying notes are an integral part of these condensed consolidated financial statements.
SOLIS
TEK INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
NOTE
1 – NATURE OF OPERATIONS AND BASIS OF PRESENTATION
The
accompanying unaudited condensed consolidated financial statements of Solis Tek Inc. and Subsidiaries (the “Company”)
have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial
information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion
of management, all normal recurring adjustments considered necessary for a fair presentation have been included. Interim operating
results are not necessarily indicative of the results that may be expected for the year ending December 31, 2017. These unaudited
condensed consolidated financial statements should be read in conjunction with the Company’s audited financial statements
as of and for the years ended December 31, 2016 and 2015, which are included in the Company’s Annual Report on Form 10-K
filed with SEC on March 31, 2017.
History
and Organization
Solis
Tek Inc. (the “Company”) was originally incorporated under the laws of the State of Nevada on March 2, 2007 as Cinjet,
Inc. (“Cinjet”). Effective September 1, 2015, Cinjet changed its corporate name to Solis Tek Inc. On June 23, 2015,
the Company entered into an Agreement of Merger and Plan of Reorganization (the “Agreement”) with Solis Tek Inc.,
a California corporation (“STI”), and CJA Acquisition Corp., a California corporation and a wholly owned subsidiary
of the Company (“Merger Sub”), providing for the merger of Merger Sub with and into STI (the “Merger”),
with STI surviving the Merger as a wholly-owned subsidiary of the Company. The Merger was accounted for as a recapitalization
of the Company with STI being deemed the accounting acquirer.
Overview
of Business
Solis
Tek Inc. is focused on the research, design, development and manufacturing of advanced, energy efficient indoor horticulture lighting
and ancillary equipment. Our vision is to apply the latest advances in high efficiency lighting and controls technology as well
as effective manufacturing techniques to deliver highly differentiated products with clear benefits at competitive prices to the
greenhouse and indoor horticulture markets.
The
Solis Tek, Inc. launched an organic solutions and nutrient line in 2016 through its newly formed subsidiary Zelda Horticulture,
Inc., (f.k.a. GrowPro Solutions, Inc.). Zelda’s in-house Research and Development department formulates unique plant nutrient
additives designed to create healthier plants which yield greater plant aroma, volume, and oil production and intensity in the
growing cycle. The end users of the new nutrient additive products are the same existing Solis Tek lighting clients, hence, the
company will leverage its existing sales and distribution channels to gain maximum efficiencies with this new subsidiary division.
Zelda’s nutrient products are trademark protected, formulated and produced in our own facility in Carson, CA.
Basis
of Consolidation
The
consolidated financial statements include the accounts of the Company and three of its wholly owned subsidiaries; Solis Tek Inc.,
a California corporation, Solis Tek East Corporation (“STE”), an entity incorporated under the laws of the State of
New Jersey; and Zelda Horticulture, Inc, (“Zelda”) (f.k.a. GrowPro Solutions, Inc)., an entity incorporated under the
laws of the State of California. Intercompany transactions and balances have been eliminated in consolidation.
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Income
(Loss) Per Share Calculations
Basic
earnings (loss) per share are computed by dividing income (loss) available to common shareholders by the weighted-average number
of common shares available. Shares of restricted stock subject to vesting are included in basic weighted average common shares
outstanding from the time they vest. Diluted earnings (loss) per share is computed similar to basic earnings (loss) per share
except that the denominator is increased to include the number of additional common shares that would have been outstanding if
the potential common shares had been issued and if the additional common shares were dilutive. Weighted average number of shares
outstanding has been retroactively restated for the equivalent number of shares received by the accounting acquirer as a result
of the reverse merger as if these shares had been outstanding as of the beginning of the earliest period presented. Options to
acquire 3,000,000 shares of common stock have been excluded from the calculation of weighted average common shares outstanding
at June 30, 2017 as their effect would have been anti-dilutive.
SOLIS
TEK INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the U.S requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the financial statement date, and reported amounts of revenue and expenses during the reporting period.
Significant estimates are used in valuing our allowances for doubtful accounts and inventory valuations, among others. Actual
results could differ from these estimates.
Revenue
Recognition
The
Company recognizes revenue upon shipment of the Company’s products to its customers, provided that evidence of an arrangement
exists, title and risk of loss have passed to the customer, fees are fixed or determinable, and collection of the related receivable
is reasonably assured. Title to the Company’s products primarily is transferred to the customer once the product is shipped
from the Company’s warehouses. Products are not shipped until there is a written agreement with the customer with a specified
payment arrangement. Any discounts that are offered are done as a reduction of the invoiced amount at the time of billing. Payments
received before all of the relevant criteria for revenue recognition are satisfied are recorded as customer deposits.
The
Company does not offer a general right of return on any of its sales and considers all sales as final. The Company generally provides
a three-year warranty on its ballasts. However, the Company does not maintain a warranty reserve as the Company is able to chargeback
its vendors for all warranty claims. As of June 30, 2017 and December 31, 2016, the Company recorded a reserve for returned product
in the amount of $45,410 and $45,410, respectively, which is included in the allowance for doubtful accounts as of those
dates.
Concentration
Risks
The
Company’s products require specific components that currently are available from a limited number of sources. The Company
purchases its key products and components from single vendors. During the three and six months ended June 30, 2017 and 2016, its
ballasts, lamps and reflectors, which comprised the vast majority of the Company’s purchases during those periods, were
each only purchased from one separate vendor. The ballast vendor is a related party (see Note 4).
The
Company performs a regular review of customer activity and associated credit risks and does not require collateral or other arrangements.
There were no customers that accounted for more than 10% of the Company’s revenue for the three and six months ended June
30, 2017 and 2016. Shipments to customers outside the United States comprised 6% and 2.0% for the three months ended June 30,
2017 and 2016, respectively. Shipments to customers outside the United States comprised 4% and 4% for the six months ended June
30, 2017 and 2016, respectively.
As
of June 30, 2017, one customer accounted for 11% of the Company’s trade accounts receivable balance and as of December 31,
2016, a different customer accounted for 13% of the Company’s trade accounts receivable balance.
SOLIS
TEK INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
NOTE
2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recently
Issued Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts
with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition
guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. ASU 2014-09
will require that companies recognize revenue based on the value of transferred goods or services as they occur in the contract.
The ASU also will require additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. ASU 2014-09 is effective for interim and annual periods beginning after December 15, 2017. Early
adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods therein. Entities
will be able to transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption.
The Company is in the process of evaluating the impact of ASU 2014-09 on the Company’s financial statements and disclosures.
In
February 2016, the FASB issued Accounting Standards Update (ASU) No. 2016-02, Leases. ASU 2016-02 requires a lessee to record
a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months.
ASU 2016-02 is effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted.
A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered
into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients
available. The Company is in the process of evaluating the impact of ASU 2016-02 on the Company’s financial statements and
disclosures.
Other
recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified
Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact
on the Company’s present or future consolidated financial statements.
NOTE
3 - PROPERTY AND EQUIPMENT
Property
and equipment consists of the following at June 30, 2017 and December 31, 2016:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Machinery
and equipment
|
|
$
|
234,706
|
|
|
$
|
231,506
|
|
Computer
equipment
|
|
|
12,448
|
|
|
|
12,448
|
|
Furniture
and fixtures
|
|
|
97,451
|
|
|
|
97,451
|
|
Leasehold
improvements
|
|
|
7,000
|
|
|
|
7,000
|
|
|
|
|
351,605
|
|
|
|
348,405
|
|
Less:
accumulated depreciation and amortization
|
|
|
(179,100
|
)
|
|
|
(143,469
|
)
|
Property
and equipment, net
|
|
$
|
172,505
|
|
|
$
|
204,936
|
|
Depreciation
and amortization expense for the six months ended June 30, 2017 and 2016 was $35,631 and $35,102, respectively.
Property
and equipment include assets acquired under capital leases of $64,632 and $64,632 at June 30, 2017 and December 31, 2016, respectively.
SOLIS
TEK INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2017 AND 2016
NOTE
4 - RELATED PARTY TRANSACTIONS
Supplier
A
family member of an officer/shareholder owns a minority interest in a company in China, which is the sole supplier of ballasts
to the Company. Purchases from the related party for the three months ended June 30, 2017 and 2016 totaled approximately $708,000
and $602,000, respectively. Purchases from the related party for the six months ended June 30, 2017 and 2016 totaled approximately
$1,596,000 and $1,504,000, respectively. At June 30, 2017 and December 31, 2016, the Company owed the related
party $124,715 and $1,083,764, respectively.
Amounts
Due to Related Parties
As
of June 30, 2017 and December 31, 2016, the Company owed related parties $150,795 and $134,086, respectively. Included in the
balances were short-term loans from the two officers/shareholders to the Company totaling $3,297 as of June 30, 2017 and December
31, 2016, respectively. The balances are payable on demand, noninterest bearing and are unsecured. The balances also included
interest owed on the notes payable to related parties, which totaled to $105,179 and $68,470 at June 30, 2017 and December 31,
2016, respectively. Also included is $42,319 and $62,319 of unpaid compensation, which was owed to the officers/shareholders at
June 30, 2017 and December 31, 2016, respectively.
NOTE
5 – NOTES PAYABLE TO RELATED PARTIES
Notes
payable to related parties consists of the following at June 30, 2017 and December 31, 2016:
|
|
June
30, 2017
|
|
|
December
31, 2016
|
|
|
|
|
|
|
|
|
Notes
payable to officers/shareholders (a)
|
|
$
|
195,000
|
|
|
$
|
195,000
|
|
Notes
payable to officers/shareholders (b)
|
|
|
600,000
|
|
|
|
600,000
|
|
Notes
payable to related parties (c)
|
|
|
300,000
|
|
|
|
-
|
|
Notes
payable to related parties (d)
|
|
|
50,000
|
|
|
|
70,000
|
|
|
|
|
1,145,000
|
|
|
|
865,000
|
|
Less:
current portion
|
|
|
(545,000
|
)
|
|
|
(265,000
|
)
|
Non-current
portion
|
|
$
|
600,000
|
|
|
$
|
600,000
|
|
|
a.
|
On
July 1, 2012, the Company entered into unsecured notes payable agreements with two of its officers/shareholders. The maximum
borrowings allowed under each individual note are $200,000. Through December 31, 2013, each note bore interest at 20% per
annum. Beginning on January 1, 2014, the interest rate on the notes was reduced to 8% per annum. The notes are due 30 days
after demand. Amounts owed on the combined note balances were $195,000 at June 30, 2017 and December 31, 2016, respectively.
|
|
|
|
|
b.
|
In
May 2016, the Company entered into two separate notes payable agreements with the aforementioned two officers/shareholders.
Under each of the agreements, the Company borrowed $300,000 from each of the officers/shareholders. The notes accrue interest
at 8% per annum, are unsecured and are due on or before May 31, 2018. A total of $600,000 was outstanding on the combined
notes at June 30, 2017, and December 31, 2016.
|
|
|
|
|
c.
|
In
February 2017, the Company executed two separate promissory notes and borrowed $300,000 from the relatives of one of the directors
of the Company. The notes are unsecured, payable on demand and carry an interest of 14% per annum. A total of $300,000 was
outstanding on the combined notes at June 30, 2017.
|
|
|
|
|
d.
|
The
Company entered into note agreements with the parents of one of the Company’s officer/shareholders. The loans accrue
interest at 10% per annum, are unsecured and were due on or before December 31, 2016. A total of $50,000 and $70,000 was due
on the loans as of June 30, 2017 and December 31, 2016, respectively. These loans were extended with the mutual consent.
|
SOLIS
TEK INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016
NOTE
5 – NOTES PAYABLE TO RELATED PARTIES (CONTINUED)
Interest
expense on the notes to related parties for the three months ended June 30, 2017 and 2016 was $30,487 and $17,147, respectively.
Interest expense on the notes to related parties for the six months ended June 30, 2017 and 2016 was $54,109 and $21,037, respectively.
Accrued interest included in Amounts due to related parties at June 30, 2017 and December 31, 2016 was $93,299 and $68,471, respectively.
NOTE
6 – LOANS PAYABLE
Loans
payable consist of the following at June 30, 2017 and December 31, 2016:
|
|
June
30, 2017
|
|
|
December
31,2016
|
|
|
|
|
|
|
|
|
Automobile
loans
|
|
|
30,123
|
|
|
|
34,220
|
|
Less:
current portion
|
|
|
(8,102
|
)
|
|
|
(8,262
|
)
|
Non-current
portion
|
|
$
|
22,021
|
|
|
$
|
25,958
|
|
In
2015, the Company entered into two loan agreements to purchase automobiles. The combined principal amount of the loans was $44,093
and they mature by November 2021. The loans require a combined monthly payment of principal and interest of $747. A total of $30,123
and $34,220 was owed on the loans as of June 30, 2017 and December 31, 2016, respectively.
NOTE
7 – SHAREHOLDERS’ EQUITY
Agreement
with Chief Executive Officer
On
January 6, 2017, the company extended an offer to Dennis G. Forchic to become CEO. Mr. Forchic accepted the offer and contracts
were executed on March 27, 2017. As part of the Employment Agreement, the Company issued a total of 5,411,765 shares valued at
$2,760,000, the purchase of an additional 784,314 shares valued at $400,000 for a consideration of $100,000. The fair value of
the shares on the date of grant over consideration received was $3,060,000, which was recorded as stock compensation expense.
In
addition Mr. Forchic was granted an option to purchase 3,000,000 shares at $0.60 per share, with 33.3% of these shares vesting
on the one year anniversary of the date of grant and the remainder vesting in equal installments at the end of each month over
the next three years. The options were valued at $835,767 using a Black Scholes options pricing model and will be amortized as
an expense over the vesting period. The amount amortized as stock based compensation during the three and six months ended June
30, 2017 were $69,647 and $134,801, respectively. The fair value of the options of $835,767 was based on a probability effected
Black-Scholes option pricing model with a stock price of $0.51, volatility of 198.3% and risk-free rates of 0.83% - 1.03%. As
of June 30, 2017, there was $700,966 of unvested stock compensation that will be amortized over the next two and a half years.
During the six months ended June 30, 2017, $134,801 of this cost was amortized.
Other
issuances
During
2017, the Company entered into various consulting agreements
with a third parties (“Consultants”) pursuant to which these Consultants will provide services
including but not limited to business development, sales promotion, introduction to new business opportunities, strategic analysis,
and, sales and marketing activities. In accordance with these agreements, the Company agreed to issue an aggregate of 1,117,000
shares to the Consultants for the services rendered. The Company accounted for the aggregate fair value of the shares of common
stock issued to Consultants in accordance with current accounting guidelines, and determined the aggregate fair value of these
shares to be $1,635,050 based on the trading prices per share of the Company’s stock at every issuance date. As there were
no performance commitment and shares issued were nonrefundable, the Company recognized the full amount of the fair value of the
common stock issued as stock compensation expense on its statement of Operations for the period ended June 30, 2017.
In
November 2015, the Company entered into a four year employment agreement with one of its employees in which the employee was granted
500,000 shares of the Company's common stock. The shares vest equally in six month periods over the four years. The
fair value of the shares on the date of grant was $400,000, which is being amortized ratably over the four year service period.
The amount amortized as stock based compensation in each of the six month periods ended June 30, 2017 and 2016 was $50,000.
SOLIS
TEK INC. AND SUBSIDIARIES
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
FOR
THE THREE MONTHS ENDED JUNE 30, 2017 AND 2016
NOTE
7 – SHAREHOLDERS’ EQUITY (CONTINUED)
Shares
issued for cash
During
the six months ended June 30, 2017, the Company issued 375,000
shares for a total of $300,000 in a Private Placement Offerings per Reg. D.
NOTE
– 8 TECHNOLOGY LICENSE AGREEMENT
The
Company entered into a Technology License Agreement with a third party vendor for consulting services. Under the agreement, the
Company will pay the vendor a minimum consulting amount of $100,000 per year, plus a royalty of 7% of all net sales of the vendor’s
products above $1,428,571 per calendar year. For each of the three months ended June, 2017 and 2016, $25,000 was recorded as research
and development expense under the agreement on the consolidated Statements of Operations related to the minimum annual fee. For
each of six months ended June 30, 2017 and 2017, $50,000 was recorded as research and development expense under the agreement
on the consolidated Statement of Operations related to minimum annual fee. A total of $21,034 of royalty fees were owed under
the amended agreement for the six months ended June 30, 2017 and were recorded in cost of goods sold on the consolidated Statements
of Operations. No royalty fees were owed under the agreement for the six months ended June 30, 2016. A total of $186,587 and $165,553
was owed under the amended agreement at June 30, 2017 and December 31, 2016, respectively.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This
Form 10-Q contains forward-looking statements that are subject to a number of risks and uncertainties, many of which are beyond
our control, which may include statements about our:
|
●
|
business
strategy;
|
|
|
|
|
●
|
financial
strategy;
|
|
|
|
|
●
|
future
operating results; and
|
|
|
|
|
●
|
Plans,
objectives, expectations and intentions contained in this report that are not historical.
|
All
statements, other than statements of historical fact included in this report, regarding our strategy, intellectual property, future
operations, financial position, estimated revenues and losses, projected costs, prospects, plans and objectives of management
are forward-looking statements. When used in this report, the words “could,” “believe,” “anticipate,”
“intend,” “estimate,” “expect,” “project” and similar expressions are intended
to identify forward-looking statements, although not all forward-looking statements contain such identifying words. All forward-looking
statements speak only as of the date of this report. You 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 we
make in this report are reasonable, we can give no assurance that these plans, intentions or expectations will be achieved. These
statements may be found under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”
as well as in this report generally. Actual events or results may differ materially from those discussed in forward-looking statements
as a result of various factors. In light of these risks and uncertainties, there can be no assurance that the forward-looking
statements contained in this filing will in fact occur.
Organizational
History
Solis
Tek Inc. (the “Company”) was originally incorporated under the laws of the State of Nevada on March 2, 2007 as Cinjet,
Inc. (“Cinjet”). Effective September 1, 2015, Cinjet changed its corporate name to Solis Tek Inc. On June 23, 2015,
the Company entered into an Agreement of Merger and Plan of Reorganization (the “Agreement”) with Solis Tek Inc.,
a California corporation (“STI”), and CJA Acquisition Corp., a California corporation and a wholly owned subsidiary
of the Company (“Merger Sub”), providing for the merger of Merger Sub with and into STI (the “Merger”),
with STI surviving the Merger as a wholly-owned subsidiary of the Company. The Merger Agreement was approved by the Company’s
Board of Directors and the sole Director of the Company, effective June 23, 2015. The Merger closed on June 23, 2015.
At
the effective time of the Merger, each share of STI common stock issued and outstanding was converted automatically into the right
to receive. 166 shares of the common stock of the Company, with an aggregate of 26,187,000 shares of the Company’s common
stock issued to the former shareholders of STI.
Upon
the closing of the Merger, STI paid a total of $22,500 to four shareholders of the Company for the cancellation of a total of
61,297,002 shares of the Company’s common stock. Also at the closing of the Merger, STI paid $198,100 to the Company to
settle and pay liabilities of $405,932, which represented all of the then current liabilities of the Company. After the closing,
a total of 29,551,998 shares of the Company were outstanding.
Upon
completion of the Merger, the former stockholders of STI owned approximately 89% of the outstanding shares of the Company’s
common stock and the holders of the outstanding shares of the Company’s common stock prior to the Merger owned the balance.
As the former owners and management of STI have voting and operating control of the Company after the Merger, the transaction
has been accounted for as a recapitalization with the STI deemed the acquiring companies for accounting purposes, and the Company
deemed the legal acquirer. Due to the change in control, the consolidated financial statements reflect the historical results
of STI prior to the Merger, and that of the combined company following the Merger. Common stock and the corresponding capital
amounts of the Company pre-Merger have been retroactively restated as capital stock shares reflecting the exchange ratio in the
Merger. No step-up in basis or intangible assets or goodwill will be recorded in this transaction and the cash paid by the Company
of $248,980 (including $28,380 of transaction costs) has been reflected as a cost of the transaction.
Overview
of Business
The
Company is focused on the research, design, development and manufacturing of advanced, energy efficient indoor horticulture lighting
and ancillary equipment. Our vision is to apply the latest advances in high efficiency lighting and controls technology as well
as effective manufacturing techniques to deliver highly differentiated products with clear benefits at competitive prices to the
greenhouse and indoor horticulture markets.
The
Company, through its two wholly owned subsidiaries, Solis Tek Inc. a California corporation and Solis Tek East,
Corporation, an entity incorporated under the laws of the State of New Jersey, are in the operations of designing, developing
and sourcing a line of Solis Tek Digital Ballasts intended for use in high intensity lighting systems used for horticulture. An
electrical ballast is a device intended to limit the amount of current in an electric circuit. A familiar and widely used example
is the inductive ballast used in fluorescent lamps, to limit the current through the tube, which would otherwise rise to destructive
levels due to the tube’s negative resistance characteristic. Since the commencement of operations, our product line has
evolved from digital ballasts to a line of lighting products including a line of specialty ballasts ranging from 400 watts to
1,000 watts with various features, a line of specialty metal halide digital lamps, a line of reflectors, high intensity lighting
accessories.
The
Company, through its third wholly owned subsidiary, Zelda Horticulture, Inc. a California corporation, introduced
an organic solutions and nutrient line which was launched in 2016. Zelda’s in-house Research and Development department
formulates unique plant nutrient additives designed to create healthier plants which yield greater plant aroma, volume, and oil
production and intensity in the growing cycle. The end users of the new nutrient additive products are the same existing Solis
Tek Inc. lighting clients, hence, the company will leverage its existing sales and distribution channels to gain maximum efficiencies
with this new subsidiary division. Zelda’s nutrient products are trademark protected, created with 100% organic compounds,
contain proprietary ingredients, formulated and produced in our own facility in Carson, CA, and have been thoroughly vetted by
our customers and tested by outside independent third-party labs, consultants and growers. The nutrient additive products are
typically used by our customers as a part of their daily plant nutrient feed program, creating a much tighter transaction interval
relationship with our client base than the lighting division realizes due to those product lifecycles.
Critical
Accounting Policies
The
Securities and Exchange Commission (“SEC”) defines “critical accounting policies” as those that require
application of management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates
about the effect of matters that are inherently uncertain and may change in subsequent periods. Not all of the accounting policies
require management to make difficult, subjective or complex judgments or estimates. However, the following policies could be deemed
to be critical within the SEC definition.
Allowance
for Doubtful Accounts
The
allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts. The Company
regularly reviews the allowance by considering factors such as historical experience, the age of the accounts receivable balances,
credit quality, economic conditions that may affect a customer’s ability to pay and expected default frequency rates. Trade
receivables are written off at the point when they are considered uncollectible.
Inventories
The
Company provides inventory reserves based on excess and obsolete inventories determined primarily by future demand forecasts.
The write down amount is measured as the difference between the cost of the inventory and market based upon assumptions about
future demand and charged to the provision for inventory, which is a component of cost of sales. At the point of the loss recognition,
a new, lower cost basis for that inventory is established, and subsequent changes in facts and circumstances do not result in
the restoration or increase in that newly established cost basis.
Recent
Accounting Pronouncements
See
Note 2 of the condensed financial statements for management’s discussion of recent accounting pronouncements.
Results
of Operations
Results
of Operations for the three months ended June 30, 2017 compared to the three months ended June 30, 2016.
Revenue
and Cost of Goods Sold
Revenue
for the three months ended June 30, 2017 and 2016 was $2,441,289 and $2,125,830, respectively, an increase of $315,459 or 15%.
The increase was primarily due to more market penetration within our hydroponic customers and commercial facilities during the
second quarter of 2017, as compared to the second quarter of 2016.
Cost
of sales for the three months ended June 30, 2017 and 2016, was $1,521,410 and $1,324,165, respectively. Gross profit for the
three months ended June 30, 2017 and 2016, was $919,879 and $801,665, respectively. The increase in gross profit of $118,214,
or 15% was primarily due to increase in revenue. As a percentage of revenue, gross profit for the three months ended June 30,
2017 remained unchanged at 37.7% compared to the three months ended June 30, 2016.
Selling,
General and Administrative Expenses
Selling,
general and administrative (“SG&A”) expenses for the three months ended June 30, 2017 and 2016 was $2,391,231
and $765,531, respectively, an increase of $1,625,700 or 212%. The increase in SG&A expenses was due to
increase in payroll, marketing, travel, trade shows, outbound freight, and sales commission to support the increase in revenues
and stock compensation costs and increase in bad debt expenses. For the three months ended June 30, 2017 stock compensation
expense was $1,191,697 compared to $25,000 for the three months ended June 30, 2016.
Research
and Development Expenses
Research
and development (“R&D”) expenses for the three months ended June 30, 2017 and 2016 was $82,500 and $58,000, respectively,
an increase of $24,500 or 42%. The increase in R&D expenses was primarily due to fair value of common stock ($25,000) issued
to an employee. The R&D expense was incurred for the improvement in existing products and development of new products.
Net
Income (Loss)
Net
loss for the three months ended June 30, 2017 was $1,588,701 compared to net loss of $35,157 for the three months ended
June 30, 2016. The increase in net loss for the three months ended June 30, 2017 was due to noncash stock compensation costs,
and increased selling, general and administrative costs compared to the three months ended June 30, 2016. Noncash stock compensation
costs for three months ended June 30, 2017 was $1,216,697 compared to $25,000 for the three months ended June 30, 2016.
Results
of Operations for the six months ended June 30, 2017 compared to the three months ended June 30, 2016.
Revenue
and Cost of Goods Sold
Revenue
for the six months ended June 30, 2017 and 2016 was $5,343,115 and $4,710,498, respectively, an increase of $632,617 or 13%. The
increase was primarily due to more market penetration within our hydroponic customers and commercial facilities.
Cost
of sales for the six months ended June 30, 2017 and 2016, was $3,302,714 and $2,982,876, respectively. Gross profit for the six
months ended June 30, 2017 and 2016, was $2,040,401 and $1,727,622, respectively. The increase in gross profit of $312,779 or
18% was primarily due to increase in revenue. As a percentage of revenue, gross profit for the six months ended June 30, 2017
was 38.2% compared to 36.7% for the six months ended June 30, 2016. The increase in gross profit percentage was due to higher
revenue and product mix.
Selling,
General and Administrative Expenses
Selling,
general and administrative (“SG&A”) expenses for the six months ended June 30, 2017 and 2016 was $7,155,886
and $1,519,225, respectively, an increase of $5,636,661 or 371%. The increase in SG&A expenses was due to
increase in payroll, marketing, travel, trade shows, outbound freight, and sales commission to support the increase in revenues
and stock compensation costs and increase in bad debt expenses For the six months ended June 30, 2017 stock compensation expense
was $4,829,851 compared to $61,000 for the three months ended June 30, 2016.
Research
and Development Expenses
Research
and development (“R&D”) expenses for the six months ended June 30, 2017 and 2016 was $165,270 and $115,000, respectively,
an increase of $50,270 or 44%. The increase in R&D expenses was primarily due to fair value of common stock ($50,000) issued
to an employee. The R&D expense was incurred for the improvement in existing products and development of new products.
Net
Income (Loss)
Net
loss for the six months ended June 30, 2017 was $5,340,688 compared to net profit of $9,803 for the six months ended June
30, 2016. The net loss for the six months ended June 30, 2017 was due to noncash stock compensation costs, and increased selling,
general, and administrative costs compared to the six months ended June 30, 2016. Noncash stock compensation costs for six months
ended June 30, 2017 was $4,879,851 compared to $61,000 for the six months ended June 30, 2016.
Liquidity
and Capital Resources
Liquidity
is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise
operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts
receivable and accounts payable and capital expenditures.
Cash
flows (used in) provided by operating activities
During
the six months ended June 30, 2017, the Company used $514,137 in operating activities, compared to cash provided by operating
activities of $576,650 during the six months ended June 30, 2016. During the six months ended June 30, 2017, cash was primarily
used in increase in accounts receivable to support higher revenue, reduction in related party vendor for inventory purchases
and was offset in part with reduction in inventory and increase in accounts payable and accrued expenses.
Cash
flows used in investing activities
During
the six months ended June 30, 2017, the Company used $3,200 in the property and equipment for purchase of certain molds.
Cash
flows provided by financing activities
During
the six months ended June 30, 2017, the Company generated $669,134 from financing activities compared to cash used in financing
activities of $361,651for the six months ended June 30, 2016. For the six months ended June 30, 2017, the Company raised a $400,000
through an issuance of common stock, and proceeds from notes payable to related parties of $300,000 and part of the proceeds were
used to pay notes payable-related party of $20,000 and payments on loans payable and capital lease obligation.
We
estimate the Company currently has sufficient cash and liquidity to meet its anticipated working capital for the next twelve months.
Historically,
we have financed our operations primarily through private sales of common stock, a line of credit and loans from a third party
financial institution related parties, and operations. We anticipate that our primary capital source will be positive cash flow
from operations. If our sales goals do not materialize as planned, we believe that the Company can reduce its operating costs
and achieve positive cash flow from operations. However, we may not generate sufficient revenues from product sales in the future
to achieve profitable operations. If we are not able to achieve profitable operations at some point in the future, we may have
insufficient working capital to maintain our operations as we presently intend to conduct them or to fund our expansion, marketing,
and product development plans. There can be no assurance that we will be able to obtain such financing on acceptable terms, or
at all.
During
the six months ended June 30, 2017, the Company has raised a
total of $300,000 through an issuance of 375,000 shares under Private Placement Offering per Reg. D.
Non-GAAP
Measure – Adjusted EBITDA
In
addition to our GAAP results, we present Adjusted EBITDA as a supplemental measure of our performance. However, Adjusted EBITDA
is not a recognized measurement under GAAP and should not be considered as an alternative to net income, income from operations
or any other performance measure derived in accordance with GAAP or as an alternative to cash flow from operating activities as
a measure of liquidity. We define Adjusted EBITDA as net income (loss), plus interest expense, provision for income taxes, depreciation
and amortization, and stock-based compensation. Non-GAAP adjustments to our results prepared in accordance with GAAP are itemized
below. You are encouraged to evaluate these adjustments and the reasons we consider them appropriate for supplemental analysis.
In evaluating Adjusted EBITDA, you should be aware that in the future we may incur expenses that are the same as or similar to
some of the adjustments in this presentation. Our presentation of Adjusted EBITDA should not be construed as an inference that
our future results will be unaffected by unusual or non-recurring items.
Set
forth below is a reconciliation of Adjusted EBITDA to net income (loss) for the three and six months ended June 30, 2017 and 2016.
|
|
Three
months ended
|
|
|
Six
months ended
|
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
June
30, 2017
|
|
|
June
30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
(1,588,701
|
)
|
|
$
|
(35,157
|
)
|
|
$
|
5,340,688
|
|
|
$
|
9,803
|
|
Add
(subtract) :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
31,649
|
|
|
|
23,620
|
|
|
|
55,820
|
|
|
|
50,394
|
|
Provision
for income taxes
|
|
|
3,200
|
|
|
|
(5,829
|
)
|
|
|
4,113
|
|
|
|
37,700
|
|
Depreciation
and amortization
|
|
|
17,886
|
|
|
|
17,587
|
|
|
|
35,631
|
|
|
|
35,102
|
|
Stock-based
compensation
|
|
|
1,216,697
|
|
|
|
25,000
|
|
|
|
4,879,851
|
|
|
|
61,000
|
|
Adjusted
EBITDA
|
|
$
|
(319,269
|
)
|
|
$
|
25,221
|
|
|
$
|
(365,273
|
)
|
|
$
|
193,999
|
|
We
present Adjusted EBITDA because we believe it assists investors and analysts in comparing our performance across reporting periods
on a consistent basis by excluding items that we do not believe are indicative of our core operating performance. Adjusted EBITDA
has limitations as an analytical tool, which includes, among others, the following:
|
●
|
Adjusted
EBITDA does not reflect our cash expenditures, or future requirements, for capital expenditures or contractual commitments;
|
|
|
|
|
●
|
Adjusted
EBITDA does not reflect changes in, or cash requirements for, our working capital needs;
|
|
|
|
|
●
|
Adjusted
EBITDA does not reflect interest expense, or the cash requirements necessary to service interest or principal payments, on
our debts; and
|
|
|
|
|
●
|
although
depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced
in the future, and Adjusted EBITDA does not reflect any cash requirements for such replacements
|
Off-Balance
Sheet Arrangements
We
do not have any off balance sheet arrangements that are reasonably likely to have a current or future effect on our financial
condition, revenues, and results of operations, liquidity or capital expenditures.