Notes to Condensed Consolidated Financial
Statements
Note 1 — Description of Business and Summary of Significant
Accounting Policies
ExeLED Holdings Inc. was incorporated in the State of Delaware
on October 20, 1986 under the name “Verilink Corporation.” We have also been known as Energie Holdings, Inc. and Alas
Aviation Corp. We have two wholly-owned subsidiaries, Energie LLC (hereinafter referred to as “Energie”), and OELC,
LLC.
All references herein to “us,” “we,” “our,”
“Holdings,” or the “Company” refer to ExeLED Holdings Inc. and its subsidiaries.
Description of Business
We are focused on acquiring and growing specialized LED lighting
companies for the architecture and interior design markets for both commercial and residential applications. Our lighting products
include both conventional fixtures and advanced solid-state technology that can integrate with digital controls and day-lighting
to create energy efficiencies and a better visual environment. Our objective is to grow, innovate, and fully capture the rapidly
growing lighting market opportunities associated with solid state lighting.
Énergie was founded in 2001 and is engaged in the import
and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Our headquarters
is located in Wheat Ridge, Colorado, and we also maintain a production and assembly facility in Zeeland, Michigan.
Basis of Presentation
The accompanying condensed consolidated balance sheet as of December
31, 2015, has been derived from audited financial statements. The accompanying unaudited interim condensed consolidated financial
statements have been prepared on the same basis as the annual audited financial statements and in accordance with accounting principles
generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of
the Securities and Exchange Commission (“SEC”) for interim financial statements. In the opinion of management, such
unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation
of this interim information. All intercompany transactions have been eliminated in consolidation. Operating results and cash flows
for interim periods are not necessarily indicative of results that can be expected for the entire year. The information included
in this report should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report
on Form 10-K for the year ended December 31, 2015.
Significant Accounting Policies
In accordance with the FASB’s issuance
of ASU No. 2015-03,
Interest-Imputation of Interest (Subtopic 835-30), Simplifying the Presentation of Debt Issuance Costs
(ASU 2015-03) and ASU No. 2015-15,
Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent
Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to
Staff Announcement at June 18, 2015 EITF Meeting (SEC Update)
(ASU 2015-15), we have changed our presentation of debt issuance
costs. Consistent with the application of ASU 2015-03 and 2015-15, we now present debt issuance costs as a direct deduction from
the carrying amount of that debt rather than as an asset on the condensed consolidated balance sheet. The impact of this change
on the condensed consolidated financial statements for the six months ended June 30, 2016, was a decrease of total assets and
a decrease of debt and total liabilities of $155,029. The impact of this change on the condensed consolidated financial statements
for the year ended December 31, 2015 was a decrease of total assets and a decrease of debt and total liabilities of $101,358.
The change had no impact on shareholders’ equity (deficit) or net loss in either period.
Going Concern
As shown in the accompanying condensed consolidated financial statements,
we had an equity deficit of $11,553,552 and a working capital deficit of $10,649,341 as of June 30, 2016, and have reported net
losses of $1,599,530 and $1,331,838 for the six months ended June 30, 2016 and 2015, respectively. These factors raise substantial
doubt regarding our ability to continue as a going concern.
Our ability to continue as a going concern
is dependent on our ability to further implement our business plan, attract additional capital and, ultimately, upon our ability
to develop future profitable operations. We intend to fund our business development, acquisition endeavors and operations through
equity and debt financing arrangements. However, there can be no assurance that these arrangements will be sufficient to fund
our ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted
at this time. These matters raise substantial doubt about our ability to continue as a going concern. The condensed consolidated
financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Additionally,
current economic conditions in the United States and globally create significant challenges attaining sufficient funding.
Reclassifications
Certain prior year amounts have been reclassified to conform with
the current year presentation.
Recently Issued Accounting Pronouncements
In April 2016, the FASB issued ASU No. 2016-10,
Revenue from
Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing
(ASU 2016-10). ASU 2016-10 amends
the new revenue recognition standard that it issued jointly with the IASB in 2014. The amendments do not change the core principles
of the standard, but clarify the accounting for licenses of intellectual property, as well as the identification of distinct performance
obligations in a contract. We are currently evaluating the impact of ASU 2016-10 on our financial statements.
In May 2016, the FASB issued ASU No. 2016-11,
Revenue Recognition
(Topic 605) and Derivatives and Hedging (Topic 815): Rescission of SEC Guidance Because of Accounting Standards Updates 2014-09
and 2014-16 Pursuant to Staff Announcements at the March 3, 2016 EITF Meeting
(ASU 2016-11). ASU 2016-11 rescinds 1) certain
SEC Observer comments that are codified in FASB ASC
Revenue Recognition (Topic 605)
, and FASB ASC Topic 932,
Extractive
Activities—Oil and Gas (Topic 932)
, effective on adoption of FASB ASC
Revenue from Contracts with Customers (Topic
606)
and 2) SEC Staff Announcement, "Determining the Nature of a Host Contract Related to a Hybrid Instrument Issued
in the Form of a Share Under Topic 815," which is codified in FASB ASC
Derivatives and Hedging (Topic 815)
. The rescinded
guidance is effective on adoption of FASB ASU No. 2014-16,
Determining Whether the Host Contract in a Hybrid Financial Instrument
Issued in the Form of a Share Is More Akin to Debt or Equity
. We are currently evaluating the impact of ASU 2016-11 on
our financial statements.
In May 2016, the FASB issued ASU No. 2016-12,
Revenue from Contracts
with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients
(ASU 2016-12). ASU 2016-12 addresses issues
such as collectability, contract modifications, completed contracts at transition, and noncash considerations as they relate to
the new revenue recognition standard. We are currently evaluating the impact of ASU 2016-12 on our financial statements.
In June 2016, the FASB issued ASU No. 2016-13,
Financial Instruments
(Topic 326): Measurement of Credit Losses on Financial Instruments
(ASU 2016-13). ASU 2016-13 requires the immediate recognition
of estimated credit losses that are expected to occur over the life of many financial assets. We are currently evaluating the
impact of ASU 2016-13 on our financial statements.
Note 2 — Accounts receivable
The following is a summary of accounts receivable:
|
|
June
30, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
Customer
receivables
|
|
$
|
36,726
|
|
|
$
|
21,431
|
|
Less: Allowance
for uncollectible accounts
|
|
|
(15,929
|
)
|
|
|
(12,880
|
)
|
|
|
$
|
20,797
|
|
|
$
|
8,551
|
|
Note 3 — Inventory
The following is a summary of inventory:
|
|
June
30, 2016
|
|
December
31, 2015
|
|
|
|
|
|
|
|
|
|
Raw
materials
|
|
$
|
335,564
|
|
|
$
|
348,342
|
|
Less:
reserve
|
|
|
(158,191
|
)
|
|
|
(158,191
|
)
|
|
|
$
|
177,373
|
|
|
$
|
190,151
|
|
Note 4 — Debt
Debt is comprised of the following:
Description
|
|
Note
|
|
June 30,
|
|
December 31,
|
2016
|
2015
|
Line of credit
|
|
|
A
|
|
|
$
|
47,000
|
|
|
$
|
47,000
|
|
Note payable to distribution partner
|
|
|
B
|
|
|
|
550,000
|
|
|
|
550,000
|
|
Investor debt
|
|
|
C
|
|
|
|
371,507
|
|
|
|
267,787
|
|
Related party debt
|
|
|
D
|
|
|
|
6,296,443
|
|
|
|
5,632,543
|
|
Other notes payable
|
|
|
E
|
|
|
|
84,952
|
|
|
|
66,786
|
|
Cash draw notes
|
|
|
F
|
|
|
|
175,455
|
|
|
|
204,423
|
|
Convertible promissory notes
|
|
|
G
|
|
|
|
117,637
|
|
|
|
154,437
|
|
Total
|
|
|
|
|
|
|
7,642,994
|
|
|
|
6,922,976
|
|
Less: unamortized discount and debt issuance costs
|
|
|
|
|
|
|
(155,029
|
)
|
|
|
(173,668
|
)
|
Debt, net of unamortized discount and debt issuance costs
|
|
|
|
|
|
|
7,487,965
|
|
|
|
6,749,308
|
|
Less: current portion
|
|
|
|
|
|
|
(6,572,059
|
)
|
|
|
(5,156,305
|
)
|
Debt, long-term portion
|
|
|
|
|
|
$
|
915,906
|
|
|
$
|
1,593,003
|
|
A – Line of Credit
– We utilized
this entire bank line of credit for working capital purposes. The outstanding obligation is due on demand, has a stated
initial interest rate of 10.5% that is subject to adjustment, and is guaranteed by our majority shareholder/CEO. Energie and
our CEO (collectively, “the defendants”) were served with a summons and complaint, wherein the bank brought an
action to collect the amount due, including interest, costs and attorney’s fees. The parties to this action have
entered into a settlement whereby the defendants agreed to pay to the bank the sum of $59,177 on or before April 30, 2016.
The bank requested a judgment against both defendants jointly and severally for $59,177 pursuant to the settlement
agreement. The defendants are currently engaged in settlement discussions with the plaintiff in this matter and while no
assurance can be provided, we believe our settlement efforts will be successful.
B
–
Note payable to distribution partner
– Note payable to a significant European distribution partner, entered into in October 2014, bearing interest at 5%
payable quarterly, with principal payable monthly through September 2019. The 2014 note payable aggregated the 2007 promissory
note, accrued interest and accounts payable.
C
–
Investor Debt –
Notes payable
to lenders having an ownership interest in Holdings at June 30, 2016 and December 31, 2015. These loans are not collateralized.
The following summarizes the terms and balances of the investor debt:
|
|
|
|
June
30,
2016
|
|
|
|
December
31, 2015
|
|
|
|
Interest
Rate
|
|
$
|
87,787
|
|
|
$
|
87,787
|
|
|
|
24
|
%
|
|
50,000
|
|
|
|
50,000
|
|
|
|
24
|
%
|
|
50,000
|
|
|
|
50,000
|
|
|
|
24
|
%
|
|
25,000
|
|
|
|
25,000
|
|
|
|
8
|
%
|
|
25,000
|
|
|
|
25,000
|
|
|
|
8
|
%
|
|
20,000
|
|
|
|
20,000
|
|
|
|
2
|
%
|
|
113,720
|
|
|
|
10,000
|
|
|
|
various
|
|
$
|
371,507
|
|
|
$
|
267,787
|
|
|
|
|
|
D
–
Related Parties Debt –
The following
summarizes notes payable to related parties:
|
|
June
30,
2016
|
|
December
31, 2015
|
|
Interest
Rate
|
|
D1
|
|
|
$
|
4,635,865
|
|
|
$
|
4,120,465
|
|
|
|
various
|
|
|
D2
|
|
|
|
528,214
|
|
|
|
528,214
|
|
|
|
various
|
|
|
D3
|
|
|
|
34,888
|
|
|
|
34,888
|
|
|
|
12
|
%
|
|
D4
|
|
|
|
316,800
|
|
|
|
280,800
|
|
|
|
various
|
|
|
D5
|
|
|
|
668,176
|
|
|
|
668,176
|
|
|
|
18
|
%
|
|
D6
|
|
|
|
112,500
|
|
|
|
—
|
|
|
|
6
|
%
|
|
Total
|
|
|
$
|
6,296,443
|
|
|
$
|
5,632,543
|
|
|
|
|
|
D1
– Notes payable to Symbiote, Inc.
(“Symbiote”), entered into from December 2014 to June 2016, with monthly principal and interest payable through November
2017. The 2014 notes aggregated the previous notes payable, accrued interest and accounts payable. Symbiote holds a large ownership
percentage in Holdings, is the lessor of our manufacturing facility, and provides our payroll services.
D2
– Notes payable to an executive vice
president, entered into from December 2014 through December 2015, with monthly principal and interest payable through November
2017. The 2014 note aggregated previous notes payable, accrued interest and accounts payable.
D3
– Note payable to our chief executive
officer (“CEO”), entered into in December 2014, with monthly principal and interest payable through December 2016.
D4
– Notes payable to the spouse of our
CEO, entered into from September 2013 to October 2015, with principal and interest payments due upon a specific event or upon
demand.
D5
– Notes payable to the consulting
firm that employs our Chief Financial Officer, entered into in June 2015. These notes aggregated the previous accounts payable
and accrued interest due to the consulting firm. Beginning January 1, 2016, the notes are convertible into shares of our common
stock at a conversion rate of 75% of the volume weighted average market price of our stock over the 20 days preceding the notification
of conversion. We determined that this conversion feature did not meet the requirements to be treated as a derivative; however,
we did determine it was a beneficial conversion feature. Accordingly, we recorded a debt discount of $217,725, which was amortized
through interest expense.
D6
– Notes payable to the principal shareholders
of Symbiote, entered into in April 2016, with principal and interest payments due upon a specific event or upon demand.
E
–
Other Notes Payable –
Represents
the outstanding principal balance on four separate notes bearing interest at 6 - 18% annually. In the event we receive proceeds
as the beneficiary of a life insurance policy covering our majority shareholder/CEO, repayment of principal and interest is due
on these notes prior to using the proceeds for any other purpose.
F – Cash draw agreements
– Under these
agreements, the lender advances us the principal balance and then automatically withdraws a stated amount each business day. Accordingly,
there is no stated interest rate. The total remaining daily payments due under these arrangements was $219,897 as of June 30,
2016. The maturity dates of the agreements range from July to September 2016.
G
–
Convertible promissory notes –
Represents
the outstanding principal balance on two separate convertible promissory notes payable to an entity with interest of 8% annually,
due in August 2016. During the third quarter of 2015, the current holder of the notes purchased all of our similar outstanding
convertible notes from another entity and consolidated those notes into two new notes. At the option of the holder, the notes
may be settled in cash or converted into shares of our common stock at any time beginning 180 days from the date of the notes
at a price equal to 61% of the average closing bid price of our common stock during the 10 trading days immediately preceding
the date of conversion. In the event we fail to pay the notes when they become due, the balance due under the notes incurs interest
at the rate of 22% per annum. The notes contain additional terms and conditions normally included in instruments of this kind,
including a right of first refusal wherein we have granted the holders the right to match the terms of any future financing in
which we engage on the same terms and contemplated in such future financing. We estimate that the fair value of the conversion
feature is minimal, so no value has been assigned to the beneficial conversion feature. During the six months ended June 30, 2016,
$36,800 of principal and $2,029 of accrued interest was converted into 44,059,044 shares of common stock. We also recorded a loss
on conversion of debt of $56,101 related to these transactions.
Debt issuance costs of $155,029 are being amortized over the life
of the respective notes.
Note 5 — Commitments and Contingencies
Current management discovered that the Company’s former management
recorded various obligations to itself and to third parties for expenditures not deemed benefitting the Company or authorized
by the Company’s sole director, as required. The amount of these unauthorized expenditures totaled $91,172, including $60,000
in management fees. These expenditures were reversed and are not part of the accompanying financial statements. While
current management believes that none of the $91,172 is an obligation of ours, it is not known what representations were
made to these vendors or whether we could, in fact, be eventually responsible to pay some or all of the indicated amount.
Note 6 — Subsequent Events
On July 1, 2016, a convertible debt holder converted $4,200 of
principal and $291 of accrued interest into 6,452,428 shares of our common stock.
On July 13, 2016, a convertible debt holder converted $3,500 of
principal and $252 of accrued interest into 6,468,310 shares of our common stock.
On July 18, 2016, a convertible debt holder converted $3,750 of
principal and $274 of accrued interest into 6,937,413 shares of our common stock.
On July 25, 2016, a convertible debt holder converted $3,750 of
principal and $279 of accrued interest into 6,947,327 shares of our common stock.
On July 29, 2016, a convertible debt holder converted $3,500 of
principal and $264 of accrued interest into 6,489,465 shares of our common stock.
On August 9, 2016, a convertible debt holder converted $5,000 of
principal and $389 of accrued interest into 8,446,771 shares of our common stock.
Note 7 — Net Loss Per Share
Basic net loss per share is computed by dividing net income by
the weighted-average number of common shares outstanding during the reporting period. Diluted net loss per share is computed similarly
to basic net loss per share, except that it includes the potential dilution that could occur if dilutive securities are exercised.
In a net loss position, however, potential securities are excluded, because they are considered anti-dilutive.
The following table presents a reconciliation of the denominators
used in the computation of net loss per share – basic and diluted:
|
|
Three
months ended June 30,
|
|
Six
months ended June 30,
|
|
|
2016
|
|
2015
|
|
2016
|
|
2015
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(708,944
|
)
|
|
$
|
(719,553
|
)
|
|
$
|
(1,599,530
|
)
|
|
$
|
(1,331,838
|
)
|
Weighted average
outstanding shares of
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
common
stock
|
|
|
135,528,338
|
|
|
|
60,281,130
|
|
|
|
126,788,863
|
|
|
|
57,436,497
|
|
Dilutive
effect of stock options and warrants
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Common
stock and equivalents
|
|
|
135,528,338
|
|
|
|
60,281,130
|
|
|
|
126,788,863
|
|
|
|
57,436,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share – Basic and diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
$
|
(0.02
|
)
|
There are no dilutive instruments outstanding during the six months
ended June 30, 2016 and 2015.