U.S. SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

__________________

 

FORM 10-K

__________________

 

(Mark one)

 

[ x ]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF

1934

 

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2016

 

[ ] TRANSITION REPORT UNDER 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   94-285754 8

(State or other jurisdiction of

Incorporation or organization)

  (I.R.S. Employer Identification No.)

 

5310 Ward Road, Suite 106,

Arvada, CO 80002

(Address of principal executive offices)

 

(720) 361-2056

(Issuer’s Telephone Number)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Securities Act. Yes [_] No [X]

 

Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the 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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]

 

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

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [_] No [X]

 

The aggregate market value of the voting and non-voting common stock held by non-affiliates of the registrant, based upon the closing sale price of the Registrant’s common stock on June 30, 2016 was $214,119.

 

As of April 12, 2017, the Registrant had 249,447,433 shares of common stock issued and outstanding.

 

 
 

TABLE OF CONTENTS

 

 

    Page No.
     
PART I    
Item 1. Business 1
Item 1A. Risk Factors 7
Item 1B. Unresolved Staff Comments 7
Item 2 Properties 7
Item 3. Legal Proceedings 8
Item 4. Mine Safety Disclosures 8
     
PART II    
Item 5.

Market for the Registrant’s Common Equity and Related Stockholder Matters

and Issuer Purchases of Equity Securities

 

9

Item 6. Selected Financial Data 10
Item 7.

Management’s Discussion and Analysis of Financial Condition

and Results of Operations

 

11

Item 7A. Quantitative and Qualitative Disclosures About Market Risk 16
Item 8. Financial Statements and Supplementary Data 16
Item 9. Changes in and Disagreements on Accounting and Financial Disclosure 32
Item 9A. Controls and Procedures 32
Item 9B. Other Information 33
     
PART III    
Item 10. Directors, Executive Officers and Corporate Governance 34
Item 11. Executive Compensation 37
Item 12.

Security Ownership of Certain Beneficial Owners and Management

and Related Stockholder Matters

 

38

Item 13. Certain Relationships and Related Transactions, and Director Independence 38
Item 14. Principal Accounting Fees and Services 40
     
PART IV    
Item 15. Exhibits, Financial Statement Schedules 41
     
  Signatures 43

 

 
 

FORWARD LOOKING STATEMENTS

 

This Annual Report on Form 10-K contains forward-looking statements. The statements contained in this Report that are not historical in nature, particularly those that utilize terminology such as “may,” “will,” “should,” “likely,” “expects,” “anticipates,” “estimates,” “believes” or “plans,” or comparable terminology, are forward-looking statements based on current expectations and assumptions, and entail various risks and uncertainties that could cause actual results to differ materially from those expressed in such forward-looking statements.

 

We cannot predict all of the risks and uncertainties.  Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements.  These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

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 this Report.  All subsequent written and oral forward-looking statements concerning other matters addressed in this Report 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 Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

 

 

 
 

PART I

 

ITEM 1. BUSINESS

 

History

 

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, Energie LLC (hereinafter referred to as, “Energie”). The Share Exchange Agreement was not effective until July 2, 2014 due to a variety of conditions subsequent that needed to be met, which are described below. Upon effectiveness, we issued 33,000,000 “restricted” shares of our common stock, representing approximately 65% of our then issued and outstanding voting securities, in exchange for all of the issued and outstanding member interests of Energie. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible is recorded.

 

The closing of the Share Exchange Agreement was conditioned upon certain, limited customary representation and warranties, as well as conditions to close, such as the total shares of Energie Holdings, Inc. issued and outstanding being limited to 51,000,000, and the completion of an audit of Energie’s financial statements. Following the execution of the Share Exchange Agreement, but prior to closing, an additional 400,000 shares were issued and the limitation of 51,000,000 shares was waived, allowing for the issuance.

 

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 light-emitting diode (“LED”) lighting industry. Our management also changed. 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.”

 

As a result of these transactions we are now a holding company, with Energie acting as our operating subsidiary, 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 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. 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 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. These objectives are subject to our obtaining additional financing, of which there can be no assurance.

 

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 Current Business

 

Energie was founded in 2001and is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Our headquarters is located in Arvada, Colorado, and we also maintain a production and assembly facility in Zeeland, Michigan.

 

During the years ended December 31, 2016 and 2015, the success we did have was with unique and LED products in several market segments. In particular we experienced demand in education, commercial office space, large multi-unit luxury residential and health care. Education was especially strong with activity across the spectrum of K-12 as well as public & private universities. We expect this trend to continue throughout 2017.

 

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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 Underwriter’s Laboratories™ (“UL/CUL”) standards, and building code requirements, the products are sold to customers through a network of over 50 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.

 

We intend to capitalize on these European lighting companies’ desire to penetrate North American markets by solving many of the problems these producers encounter when approaching these markets. These obstacles include designs that do not meet UL/CUL standards and building codes, the need to provide appropriate North American oriented marketing and product information and specifications, experience to leverage the lighting industry sales agent network, and market based product supply.

 

Our business strategy is to enter into exclusive sales agreements with European suppliers that have unique lighting products and to bridge the divide between product desires of North American architects, lighting designers, electrical engineers, and interior designers who wish to access innovative European products and the desires of European manufacturers. As these European partners are continually developing new products, we collaborate in the fixture design process and have the right to launch such products in North America. In many cases, our partners will co-fund the frontend costs associated with launching new products. However, we require additional working capital to embark on our growth strategy. We estimate that we will need up to $2,000,000 in additional working capital to accomplish our initial business objectives of developing and launching new products for Energie, but significantly more capital to effectuate the acquisition campaign we have discussed elsewhere herein. See “Part II, Item 7, Management’s Discussion – Liquidity and Capital Resources”.

 

We have been, and continue to engage in, the design, development, enhancement, and marketing of advanced commercial grade illumination products that exclusively use LED’s as their light source in the continental United States, Canada and Puerto Rico. Our products include LED hanging and recessed ceiling fixtures, recessed wall fixtures and wall sconces. Our branded products have been installed in a wide variety of settings including commercial office space, financial trading floors, health care facilities, museums, schools, restaurants, retail stores and other public locations.

 

The latest analysis “2017 Global Lighting Market Outlook” published on November 2, 2016 by LEDinside, a division of TrendForce, finds that the LED lighting market was worth US $29.6 billion in 2016 and is to rise to US $33.1 billion in 2017. Meanwhile, the penetration rate of LED lighting is expected to reach 52%. Thanks to regional lighting development, LED lighting is expected to account for 23% of total lightings in Europe by 2016, which is the highest across the world. The second and third highest regions are to be found in North America and China. However, the Asia-Pacific region is experiencing the fastest growth rate in LED lighting.

 

According to a recent Freedonia Research report the LED Lighting Fixtures segment of the industry is estimated at $4 billion of architectural, specification-grade lighting fixtures with innovative, differentiated lighting products that exemplify:

 

· Energy efficiency focused on the disruptive LED technology;
· High performance with respect to quantity and quality of light through superior optic design; and
· Aesthetic design that appeals to the senses while allowing architects and designers to make strong visual statements by accessing European lighting fixture designers.

 

In order to secure such projects we cultivate relationships and build our brand through marketing and sales efforts aimed at decision-makers responsible for lighting; primarily architects, lighting designers, electrical engineers, interior designers, space planners and other product designators. We maintain a network of over 50 third-party sales agencies across North America to represent our products. Lighting sales agencies in the commercial lighting market are standalone, commission-based, geographically specific companies that represent many different manufacturers and represent only lighting fixtures and lighting control systems. We support our agents with sales and marketing resources to help drive “sell through” of our branded products. All products are assembled to Underwriter’s Laboratory requirements in our factory to control quality and meet lead time requirements of our customers.

 

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Our business model and product strategy is based upon collaboration with leading European lighting manufacturing companies, including Rudolpf Zimmermann, Bamberg Gmbh, Bamberg, Germany, Regent Beleuchtungskorper AG, Basel, Switzerland, Trilux GmbH & Co. KG, Arnsberg, Germany, Multiline Licht NV, Lummen, Belgium, Luxiona-Troll, Canovelles, Spain and Tons Lightogy Inc., New Taipei City, Taiwan. Except for the agreement with RZB and Tons Lightogy, which were executed in 2012, each of these other agreements have been in place for over ten (10) years and are renewable for additional 2 year terms. Each of the agreements contain standard warranties, are either FOB manufacturer or CFR destination, and title and risk of loss passes to us upon delivery, when payment becomes due. Each also includes a list of products that are manufactured by each respective manufacturer. Order cancellation is allowed up until 21 days prior to delivery, except for Trilux, which requires a 6-month written notice. Thereafter, no cancellation is allowed. With the exception of Multiline Licht NV, the agreements are exclusive to us throughout North America.

 

The North American architectural and design community has long recognized that European lighting manufacturers have distinctive, innovative and technologically advanced product offerings. Arguably, we believe European designs and technology are several years ahead of what is available in North America. However, designers have historically encountered difficulties working with European manufacturers. Typical issues include product designs that do not meet UL/CUL standards and North American building codes, poor marketing collateral and product information, incompatible specification data, long lead times to receive product, poor sales support, limited customer service, and high overall cost and complexity due to exchange rates, freight, duties and other factors.

 

The European manufacturers have long viewed the North American market for architectural, specification-grade lighting as large and attractive. However, apart from a few isolated examples, attempts to penetrate this market by establishing wholly-owned U.S. operations have been costly and unprofitable and, as a result, many have failed. We believe the challenges the European manufacturers encounter include (a) incomplete understanding of the design and product attributes demanded by North American architects and designers; (b) incomplete understanding of UL/CUL and building code requirements; (c) inexperience working with indirect sales channels such as agents and distributors (European sales strategy is based on company employed direct salespeople); and (d) the overall high cost of “green fielding” and supporting U.S. operations.

 

To address these issues, we are seeking external financing and intend to expand our operations through the acquisition of related businesses that will complement our current business, should this financing come through.  There are many synergistic operations which have expressed an interest in being acquired by us due to our status as a publicly traded company.  We believe this makes economic sense, because we can eliminate duplication of general and administrative expense, provide more centralized information marketing and eliminate overlapping of services offered.  We are presently evaluating several such businesses as potential acquisition candidates and have engaged in discussions with other acquisition targets.  However, as of the date of this report there are no definitive agreements in place relating to our acquiring any such business and there can be no assurances that such agreements will be executed on favorable terms or at all in the future. If we are unable to obtain the external financing that we are targeting, we will not be able execute this plan and will not have the financial resources to continue operations.

 

Up to this point, our financing efforts have been unsuccessful and we can provide no assurances that they will be in the future. If they are unsuccessful, there will be significant challenges to remain in business. If we are successful in securing external financing and then in executing on our growth strategy, the acquisition of related, complimentary businesses is expected to increase revenues and profits by providing a broader range of services in vertical markets which are consolidated under one parent, thus reducing overhead costs by streamlining operations and eliminating duplicitous efforts and costs.  There are no assurances that we will increase profitability if we are successful in acquiring other synergistic companies.

 

Management intends to seek out and evaluate related, complimentary businesses for acquisition.  The integrity and reputation of any potential acquisition candidate will first be thoroughly reviewed to ensure it meets with management’s standards.  Once targeted as a potential acquisition candidate, we will enter into negotiations with the potential candidate and commence due diligence evaluation of each business, including its financial statements, cash flow, debt, location and other material aspects of the candidates’ business.  We expect to utilize the issuance of our securities as part of the consideration that we will pay for these proposed acquisitions.  If we are successful in our attempts to acquire similar companies utilizing our securities as part or all of the consideration to be paid, our current shareholders will incur dilution.   We anticipate that we will need additional capital to make these acquisitions. We have had various discussions with investment banking firms and others potential investors but as of the date of this Report there are no definitive agreements to provide us with this funding and there can be no assurances that we will obtain this funding in the future. Failure to obtain this funding will have a material negative affect on our ability to implement our business plan and our anticipated results of operations. We are continuing to seek out and discuss financing with potential partners and lenders. While no assurances can be provided, we expect that many lighting fixture companies will be interested in consolidating with us to capitalize on the application of the disruptive LED technology.

 

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Our 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 lighting companies for the architecture and interior design markets for both commercial and residential applications. Our creative 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. Our intent is to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting. There are no assurances we will be successful.

 

Key elements of our business growth strategy include:

 

· LED Technology Leadership: As LED technology increases in the speed at which it is advancing, lighting fixture designs will have to adapt to that rate of change. Our Advisory Team intends to provide access to the best resources to apply LED technology for our subsidiaries. We also intend to provide buying contracts with LED component manufacturers to control cost while staying at the leading edge of the technology.

 

· Access to Investment Capital: The change from conventional lighting technology to LED technology is expensive. The capital needed to understand and apply LED technology is more than most conventional lighting manufactures have or are willing to risk. We intend to provide the appropriate capital to develop and launch LED lighting fixtures through our subsidiaries. As of the date of this Report we do not have sufficient capital to meet this objective and there are no assurances we will obtain this capital in the future.

 

· Best Practices Management Services: The business processes and staffing required to move to solid state lighting are different than those needed for conventional lighting technology. Our Advisory Team intends to provide assistance to our subsidiary teams to help them capitalize on these changes aggressively and cost effectively.

 

· Market Appropriate Education. We believe that educating architects, designers, specifiers and end-users of the benefits of LED lighting is key to growing our market share by shifting their preference from more traditional lighting to LED lighting. There continue to be unique advances in LED engineering and, while no assurances can be provided, we believe the market is rapidly embracing the technology. We also believe our employees have the knowledge and ability to educate both our customer base and, if successful, the personnel in the companies we acquire. We expect that this will drive sales by driving the commercial market towards LED lighting.

 

· Sales and Distribution Network: We maintain a network of over 60 third-party sales agencies across North America to represent our products. These agreements provide for exclusive rights to sell our lighting fixtures for a commission in specific counties as described in each agreement. If and when we successfully consummate acquisitions, each company that we acquire will have their own third-party sales agencies and distribution network. We are targeting acquisitions that will diversify our product portfolio. By carrying a broader selection of LED lighting products, we anticipate that we will be able to not just expand our existing network of sales agencies, but to also become more of a preferred provider of products to select sales agencies.

 

· Expanding our LED Product Portfolio . As our goal is to serve our customers and create a quality experience in both product and service, we will continue to expand these categories and add necessary fixtures and light sources to increase our offering as an LED solution provider.

 

· Developing and Protecting Our Intellectual Property . Securing and defending intellectual property by using the UL Listing process related to the design, manufacture and application of advanced lighting technology is expected to be a key element of our existing and future business. The strength of our intellectual property portfolio is intended to allow us to compete on the basis of our technology, which we believe will give us an advantage over many of our larger competitors.

 

· Capitalizing on Opportunities in Our Target Markets . We believe there is a growing need for unique, advanced lighting solutions across our target markets. Our acquisition strategy is to expand into new production application market segments by focusing on companies with complementary products. Because we have access to the advanced products from our International partners, we expect to continue to introduce innovative advanced lighting products as we believe there exists significant opportunities to grow market share. By introducing new products and expanding sales of existing products we believe that we can significantly improve operational efficiency by reducing our cost of materials, components and manufacturing. Expanding our products and increasing our sales will also allow us to gain additional leverage from sales representatives within our distribution network.

 

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The LED Lighting Industry

 

The global lighting industry generally is divided between three major market segments: commercial, industrial and residential. Within these three market segments exist two broad product categories: fixtures and light bulbs (referred to as lamps in the lighting industry). The fixtures category includes all apparatuses, luminaires and power/heat-control systems, while lamps consist of the devices that emit light. Conventional lamps typically include incandescent, fluorescent and high-intensity discharge (HID) products. For commercial applications, we believe that the more expensive and long lasting fluorescent and HID lamps and fixtures have had the largest market share. For industrial applications, metal halide and fluorescent have been the primary light source. For residential applications within the general illumination market, inexpensive incandescent bulbs and, to a lesser extent, compact fluorescent (CFL) lamps have been the common choice.

 

With rapid advancements in the performance, efficiency and cost of energy-efficient lighting, including LED-based solutions, conventional light sources, such as incandescent lamps, are beginning to be replaced by advanced technologies with lower operating costs over their useful lives. LED’s are semiconductor-based devices that generate light. The energy-efficient nature of LED technology makes it an environmentally friendly light source, and the compact size of LEDs has created new possibilities in lighting fixture and lamp design. Product selection is influenced by a number of factors, including overall cost, energy efficiency, product life, lumen output and other product features, as well as regulatory and environmental factors. We believe our unique advanced lighting solutions are well positioned to increasingly displace conventional lighting in each of our targeted markets.

 

In North America, lighting manufacturers typically sell products through manufacturer’s representatives, electrical supply representatives, or an internal sales force to electrical wholesale distributors. The distributors then market products to electrical contractors and other end-users. Representatives also have direct contact with lighting designers, electrical engineers, architects and general contractors that influence buying decisions. The manufacturer’s representatives often provide value-added services, such as product promotion or design and implementation assistance. The ability of smaller companies to compete against larger, more-established rivals is heavily rooted in their capacity to leverage their unique product portfolios and customer service to garner maximum productivity from each representative.

 

Historically, large global competitors focused almost exclusively on the general illumination market, because of their advantage in purchasing power, manufacturing volume and distribution efficiency, while smaller industry participants generally competed in niche markets primarily by offering specialized products and superior customer service to their regions. However, the evolution of advanced lighting solutions has enabled smaller companies to penetrate and compete in the larger general illumination market. One of these notable advanced lighting solutions is LED lighting.

 

Industry Trends

 

As the cost of LED’s decrease and their performance improves we expect that they will continue to compete more effectively in the general illumination market versus traditional lighting. High-brightness LEDs are the core, light-producing components within an LED lighting system. We believe the LED lighting industry is experiencing the following trends :

 

· Technological Innovations Expand LED Functionality . Since the introduction of the first visible LED in the 1960s, the technology has offered an increasingly wide variety of colored lighting, beginning with red and expanding to green, yellow and orange. Initial rudimentary applications included traffic lights, automotive brake lights and indicator lights. In the mid-1990s, LEDs became capable of emitting blue light. With the advent of blue LEDs, combined with phosphor technology, LEDs made another technological leap by emitting white light. This breakthrough enabled LEDs to compete with traditional lighting solutions for applications in commercial, industrial and residential markets. In an effort to lower energy consumption, lighting companies are focusing on increasing “lumens per watt.” Lumens per watt (often referred to as “efficacy”) is an industry standard that measures the amount of light emitted per watt of electrical power used, meaning the more lumens per watt, the more energy-efficient the product. Traditional incandescent lighting sources can produce between 10 and 35 lumens per watt, while fluorescent and HID light sources can produce output exceeding 100 lumens per watt. Today’s LEDs are currently performing well over 100 lumens per watt at the LED level, making them comparable to, and often better than, fluorescent and HID light sources.

 

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· High Energy Costs Drive LED Adoption. As a result of high energy prices and the expectation that prices will continue to rise, businesses and consumers are increasingly adopting new technologies to reduce energy consumption. LED lighting technology is inherently more energy efficient and can result in more than 80% power savings over incandescent solutions. According to The Department of Energy, 22% of all energy consumption in the United States is from lighting applications. This combined rate represents approximately 35% of all energy consumption in commercial buildings as compared to approximately 15% for residential users and 5% for industrial companies. Despite safety issues and concerns, compact fluorescent (CFL) lamps are used for lighting energy conservation. However, recent technological advancements to LED lighting have made it more commercially viable in terms of brightness, efficiency, lamp life, safety and color-rendering (CRI). In addition, competitive pressures, declining LED costs and greater manufacturing efficiencies are driving down LED lamp prices. As a result of these gains and, while there can be no assurances, we believe LED adoption should continue to expand. In support of our belief, in the 2014 report issued by Freedonia, LED fixtures are expected to account for over half of all lighting fixture sales in 2018. Higher value fixtures will account for a dramatically greater share of fixture sales as more fixtures designed specifically for LEDs, advanced fluorescent lamps, and other longer lived, highly efficient light sources are introduced. For instance, sales of LED lighting fixtures are expected to nearly triple through 2018 to account for over half of total fixture sales, up from seven percent in 2008. In many cases, LED fixtures will replace existing fixtures designed for use with less efficient light sources as lamp stocks dwindle following phase out programs. Incandescent, halogen, and fluorescent fixtures will all register declining sales going forward. However, high intensity discharge (HID) fixtures, which are based on an older but relatively energy efficient technology, are expected to grow through 2018.

 

· Legislative Influences Spur Market Adoption of Energy Efficient LED Lighting. LED Lighting has encouraged regulatory agencies to increase the demand for more energy efficiency. Federal law, under the Energy Efficiency Improvement Act of 2015, mandates that commercial buildings use less electricity. After HVAC, lighting consumes the second most electricity in buildings, so it provides a great opportunity to decrease electricity usage. Also, lighting can be more easily retrofitted than HVAC so existing buildings are also a major opportunity.

 

Competition

 

We currently face competition from traditional lighting companies that provide general lighting products, including incandescent, fluorescent, high intensity discharge (HID), metal halide (MH) and other traditional light sources. We also have competitors from specialized lighting companies that are engaged in providing LED lighting fixture products. In general, we intend to compete with both groups on the basis of design, innovation, and quality of light, maintenance costs, safety issues, energy consumption, price, product quality and brightness.

 

In the general illumination market, we compete with traditional lighting companies that include Acuity Brands Lighting, Inc., Eaton’s Cooper Lighting Business (a division of Eaton Corporation), Hubbell Lighting, Inc. (a division of Hubbell Incorporated), Juno Lighting Group (a division of Schneider Electric SA), GE Lighting and Philips Lighting (a division of Koninklijke Philips N.V.). Our LED products should tend to be alternatives to conventional lighting sources for applications within the commercial and residential markets. In these markets, we compete on the basis of unique designs, performance, energy savings, lamp life, and durability.

 

We believe that we will compete favorably in our markets, based on the following factors:

 

· Breadth and diversity of high-quality LED product offerings;
· Our expansive distribution network and developed relationships;
· Innovative products at competitive price points;
· UL/CUL, DLC and Energy Star certifications;
· Ability to offer multiple levels of products;
· Value-engineered products producing a fast ROI; and
· Responsiveness to customers

 

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We expect our markets to remain competitive and to reflect rapid technological evolution and continuously evolving customer and regulatory requirements. Our ability to remain competitive depends in part upon our success in developing new and advanced LED lighting solutions and introducing these products at competitive prices on a timely basis.

 

Intellectual Property

 

UL/CUL Listings

 

We have over 20 UL files, which include UL Listings for over 14,000 products for sale in the United States and Canada. UL is an independent safety testing laboratory. A UL Listing means that UL has tested representative samples of the product and determined that it meets UL’s requirements. These requirements are based primarily on UL’s published and nationally recognized standards for safety in the US and Canada. UL’s testing certifies the design, construction and assembly of the certified products. UL Listings do not expire as long as the product certified is not materially changed. Ownership of a UL Listing may also be transferred between companies. Most commercial customers in the lighting industry will only buy UL listed products.

 

Trademarks

 

We have one registered trademark, “Energie.”

 

Employees

 

As of the date of this report we have five (5) full-time employees including our management, consisting of Harold Hansen, our President and Chief Executive Officer, Justin Kerns, our Chief Operating Officer as well as one additional employee, a bookkeeper, in our Colorado location and one person in production management and a product/production engineer, who work out of our Michigan location. Richard Cole Dennard, our current Chief Financial Officer, works with us as an independent contractor. We also retain additional part and full time employees on a temporary basis as needed to meet production schedules. Depending upon our backlog, we usually employ between 2 and 14 people on a temporary basis. None of our employees are members of any union. We believe our relationship with our employees is good.

 

If we are able to obtain the necessary capital to implement our business plan and expand our operations, we expect to add additional employees in the areas of production, engineering, sales and acquisitions.

 

Government Regulation

 

We are not subject to any extraordinary governmental regulations.

 

ITEM 1A. RISK FACTORS

 

We are a smaller reporting company and not required to include this disclosure in our Annual Report on Form 10-K.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

Not applicable.

 

ITEM 2. PROPERTIES

 

Headquarters – Our principal place of business is located at 5310 Ward Road, Suite 106, Arvada, Colorado 80002. This space consists of approximately 1,550 square feet of executive offices and a conference room. This location is leased pursuant to a month-to-month term at approximately $1,500 base rent. This facility houses our sales, marketing, customer service, product development and accounting activities and is also used to train agents and provide educational seminars for architects, designers and specifiers within a classroom environment and fixture showroom.

 

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Our manufacturing, production, assembly and fulfillment is handled from a 23,000-square foot facility located at 200 E. Garfield Avenue in Zeeland, Michigan. This facility is leased from Symbiote Inc. which became one of our shareholders following the Closing under the Share Exchange Agreement. This facility holds inventory and assembles finished goods to fulfill customer orders. Production engineering, production management and production services are all accomplished from this facility. This facility is under a lease with approximately one year remaining at approximately $6,000 base rent with approximately $2,000 in monthly shared expenses.

 

ITEM 3. 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.

 

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.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not Applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

Market Information

 

Trading of our common stock commenced on the OTCBB in July 2008, under the trading symbol “ALAS.” In January 2014, our trading symbol became “ELED,” which currently trades on the OTCQB.

 

The table below sets forth reported high and low bid prices for the periods indicated.  The bid prices shown reflect quotations between dealers, without adjustme nt for markups, markdowns or commissions, and may not represent actual transactions in our common stock.

     
Quarter Ended High Low
March 31, 2015 $ 0.025 $ 0.01
June 30, 2015 $ 0.011 $ 0.006
September 30, 2015 $ 0.011 $ 0.003
December 31, 2015 $ 0.009 $ 0.002
     
March 31, 2016 $ 0.005 $ 0.002
June 30, 2016 $ 0.007 $ 0.001
September 30, 2016 $ 0.002 $ 0.001
December 31, 2016 $ 0.0015 $ 0.0008

 

As of April 11, 2017 the closing bid price of our common stock was $0.02.

 

Trading volume in our common stock has been very limited since we commenced trading.  As a result, the trading price of our common stock is subject to significant fluctuations.

 

The Securities Enforcement and Penny Stock Reform Act of 1990

 

The Securities and Exchange Commission (“SEC”) has also adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the Nasdaq system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system).

 

As of the date of this Report, our common stock is defined as a “penny stock” under the Securities Exchange Act of 1934, as amended (the “Exchange Act”). It is anticipated that our common stock will remain a penny stock for the foreseeable future. The classification of penny stock makes it more difficult for a broker-dealer to sell the stock into a secondary market, which makes it more difficult for a purchaser to liquidate his/her investment. Any broker-dealer engaged by the purchaser for the purpose of selling his or her shares in us will be subject to Rules 15g-1 through 15g-10 of the Exchange Act. Rather than creating a need to comply with those rules, some broker-dealers will refuse to attempt to sell penny stock.

 

The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, to deliver a standardized risk disclosure document prepared by the SEC, which:

 

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· contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading;
· contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of the Securities Act of 1934, as amended;
· contains a brief, clear, narrative description of a dealer market, including “bid” and “ask” prices for penny stocks and the significance of the spread between the bid and ask price;
· contains a toll-free telephone number for inquiries on disciplinary actions;
· defines significant terms in the disclosure document or in the conduct of trading penny stocks; and
· convtains such other information and is in such form (including language, type, size and format) as the Securities and Exchange Commission shall require by rule or regulation;

 

The broker-dealer also must provide, prior to effecting any transaction in a penny stock, to the customer:

 

  • the bid and offer quotations for the penny stock;
  • the compensation of the broker-dealer and its salesperson in the transaction;
  • the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and
  • monthly account statements showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitability statement. These disclosure requirements will have the effect of reducing the trading activity in the secondary market for our stock because it will be subject to these penny stock rules. Therefore, stockholders may have difficulty selling their securities.

 

Holders

 

We had approximately 264 holders of record of our common stock as of the date of this Report, not including those persons who hold their shares in “street name.”

 

Stock Transfer Agent

 

The stock transfer agent for our securities is Pacific Stock Transfer, Inc. Their address is 6725 Via Austi Pkwy, Suite 300, Las Vegas, NV 89119. Their phone numbers are (702) 361-3033 and (800) 785-PSTC.

 

Dividends

 

We have not paid any dividends since our incorporation and do not anticipate the payment of dividends in the foreseeable future. At present, our policy is to retain earnings, if any, to develop and market our products. The payment of dividends in the future will depend upon, among other factors, our earnings, capital requirements, and operating financial conditions.

 

Reports

 

We are subject to certain reporting requirements and furnish annual financial reports to our stockholders, certified by our independent accountants, and furnish unaudited quarterly financial reports in our quarterly reports filed electronically with the SEC. All reports and information filed by us can be found at the SEC website, www.sec.gov and on our website, www.exeledholdings.com.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not required for a smaller reporting company.

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ITEM 7. 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 in Item 8. We caution readers regarding certain forward looking statements in the following discussion and elsewhere in this Annual Report on Form 10-K and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission (the “SEC”). 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.

 

Overview

 

We are focused on growing and acquiring specialized LED lighting companies for the architecture and interior design markets for both commercial and residential interiors. 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. Our objective is to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting. The management team and advisory board is comprised of experienced executives in the lighting industry with recent specific focus on the LED lighting industry. The team has over 300 years of combined experience in this industry.

 

We are engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Energie commenced business in 2001.

 

General Trends and Outlook

 

In 2016 and in 2015, our focus was on securing funding in order to implement our business plan to grow through acquisition. Accordingly, working capital was at a premium for us, which limited our ability to maximize our revenue-generating activities with Energie.

 

Going Concern

 

As shown in the accompanying consolidated financial statements, we had an equity deficit of $13,300,927 and a working capital deficit of $13,087,377 as of December 31, 2016, and have reported net losses of $3,455,227 and $2,995,626, respectively, for the years ended December 31, 2016 and 2015.  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.

 

Results Of Operations

 

The following selected comparative financial information for the years ended December 31, 2016 and 2015 have been derived from and should be read in conjunction with our consolidated financial statements for the years ended December 31, 2016 and 2015 included in this report.

 

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Comparison of Results of Operations for the Years Ended December 31, 2016 and 2015

 

    Year ended December 31,    
    2015   2016   Change   %
Sales revenue   $ 543,036     $ 439,278     $ (103,758 )     (19 )%
Cost of revenue     (328,971 )     (216,949 )     112,022       (34 )%
  Gross profit     214,065       222,329       8,264       4 %
                                 
Total operating expenses     1,834,549       1,515,792       (318,757 )     (17 )%
                                 
Interest expense     (1,273,255 )     (1,872,684 )     (599,429 )     47 %
Other income (expense)     (101,887 )     (289,080 )     (187,193 )     184 %
Net loss   $ 2,995,626     $ 3,455,227     $ (459,601 )     15 %

 

Sales revenue decreased by $103,758 during the year ended December 31, 2016, compared to 2015 due to an overall lack of funding necessary for development and product launch costs. Cost of revenue decreased proportionally more than the decrease in revenues due to an overall effort to keep all costs as low as possible.

 

Operating expenses

 

    Year ended December 31,    
    2015   2016   Change   %
Research and development   $ 255,745     $ 249,687     $ (6,067 )     (2 )%
Sales and marketing     109,594       68,130       (41,464 )     (38 )%
General and administrative     1,469,201       1,197,975       (271,226 )     (18 )%
    $ 1,834,549       1,515,792     $ (318,757 )     (17 )%

 

The decrease in operating expenses was driven by overall decreases in costs as we tried to control spending due to a lack of operating capital.

 

During the year ended December 31, 2016, interest expense increased by approximately $600,000. This increase is due to additional debt of approximately $2,100,000.

 

Other income (expense) consists primarily of other expenses related to conversion of debt.

 

Liquidity and Capital Resources

 

Capital Resources

 

We have not generated positive cash flows from operations in any year since our inception. Accordingly, our sources of liquidity may include potential debt and/or equity offerings. We believe that our principal difficulty in our inability to successfully generate positive cash flows has been the lack of available working capital to operate and expand our business. We believe 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 expense. While we are in discussions with various potential financing groups, other than as disclosed below, we have no other commitments from any investor or investment-banking firm to provide us with the necessary funding and there can be no assurances we will obtain such funding in the future. Failure to obtain this additional financing will have a material negative impact on our ability to generate profits in the future and continue operations.

 

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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.

 

In August 2015, LG Capital Funding LLC, (“LG”) purchased from another debtholder all of our outstanding convertible notes and accrued interest payable outstanding on those convertible notes. The outstanding amount due on those convertible notes was restructured into two new convertible notes under a Securities Purchase Agreement, Convertible Notes and other ancillary documents. Under these agreements, we agreed to issue 8% convertible promissory notes in the principal amount of $188,684. These notes are convertible into shares of our common stock at a price ranging from 58% - 65% of the lowest closing bid price of our common stock during the 15 trading days immediately preceding the date of conversion. The notes contain additional terms and conditions normally included in instruments of this kind. During the year ended December 31, 2015, LG converted $34,247 of principal and $600 of accrued interest into 21,179,939 shares of common stock. During the year ended December 31, 2016, LG converted $82,800 of principal and $5,661 of accrued interest into 135,532,715 shares of common stock. Subsequent to December 31, 2016, we paid off the remaining $12,700 of principal on one of the notes leaving one note outstanding as of the date of this report.

 

Working Capital

 

Working capital is the amount by which current assets exceed current liabilities. At December 31, 2016, we had current assets, primarily cash, prepaid expenses and inventory, of $210,970, and current liabilities of $13,298,347, resulting in negative working capital of $13,087,377.   The increase in negative working capital is due to the increase in debt of approximately $2,100,000 and a resulting increase in accrued liabilities of approximately $780,000 associated with an increase in interest expense.

 

Cash Flows

 

At December 31, 2016, we had cash and cash equivalents of $5,454.

 

Our cash flows from operating, investing and financing activities were as follows:

 

    Year ended December 31,
    2016   2015
Net cash used in operating activities   $ (1,260,777 )   $ (913,061 )
Net cash provided by financing activities     1,248,244       887,169  

 

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Net cash used in operating activities increased in 2016 by $347,716 compared to 2015.  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 2016, we relied on additional borrowings under both new and existing debt agreements. In 2016, net cash flows provided by financing activities were composed of $1,723,411 of additional borrowings and $475,167 of debt pay down. In 2015, we borrowed $1,421,326 of additional debt and paid down $534,157 of debt.

 

We believe that our principal difficulty in our inability to successfully generate profits has been the lack of available capital to operate and expand our business.  We believe we need a minimum of approximately $2,000,000 in additional working capital to be utilized for development and launching of new products for Energie. In addition, we believe we need approximately $10,000,000 to pay off a significant portion of our debt and to begin funding the business development efforts to identify, qualify and acquire other LED lighting companies, with the balance for working capital and general and administrative expense.  As of the date of this report, other than as disclosed 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 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 year ended December 31, 2016.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements as of December 31, 2016 and 2015.

 

Critical Accounting Policies and Estimates

 

The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States.  The preparation of these financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.  

 

We define critical accounting policies as those that are reflective of significant judgments and uncertainties and which may potentially result in materially different results under different assumptions and conditions.  In applying these critical accounting policies, our management uses its judgment to determine the appropriate assumptions to be used in making certain estimates.  These estimates are subject to an inherent degree of uncertainty.

 

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Purchase Accounting for Acquisitions

 

Acquisition of a business requires companies to record assets acquired and liabilities assumed at their respective fair market values at the date of acquisition.  Any amount of the purchase price paid that is in excess of the estimated fair value of the net assets acquired is recorded as goodwill.  We determine fair value using widely accepted valuation techniques, primarily discounted cash flows and market multiple analyses.  These types of analyses require us to make assumptions and estimates regarding industry and economic factors, the profitability of future business strategies, discount rates and cash flow.  If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

 

Impairment of Long-lived Assets

 

We periodically evaluate whether the carrying value of long-lived assets has been impaired when circumstances indicate the carrying value of those assets may not be recoverable.  The carrying amount is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset.  If the carrying value is not recoverable, the impairment loss is measured as the excess of the asset’s carrying value over its fair value.

 

Our impairment analyses require management to apply judgment in estimating future cash flows as well as asset fair values, including forecasting useful lives of the assets, assessing the probability of different outcomes, and selecting the discount rate that reflects the risk inherent in future cash flows. If the carrying value is not recoverable, we assess the fair value of long-lived assets using commonly accepted techniques, and may use more than one method, including, but not limited to, recent third party comparable sales and discounted cash flow models.  If actual results are not consistent with our assumptions and estimates, or our assumptions and estimates change due to new information, we may be exposed to an impairment charge in the future.

 

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Contingent Liabilities

 

We accrue a loss for contingencies if it is probable that an asset has been impaired or a liability has been incurred, and when the amount of loss can be reasonably estimable. When no accrual is made because one or both of these conditions does not exist, we disclose the contingency if there is at least a reasonable possibility that a loss may be incurred. We estimate contingent liabilities based on the best information we have available at the time. If we have a range of possible outcomes, we accrue the low end of the range.

 

Debt with Equity-linked Features

 

We issue debt that may have separate conversion features or no equity-linked attributes.

 

When we issue debt with a conversion feature, we must first assess whether the conversion feature meets the requirements to be treated as a derivative.  If the conversion feature within convertible debt meets the requirements to be treated as a derivative, we estimate the fair value of the convertible debt derivative using Black-Scholes upon the date of issuance, using the stock price on the date of issuance, the risk free interest rate associated with the life of the debt, and the estimated volatility of our stock.  If the conversion feature is not treated as a derivative, we assess whether it is a beneficial conversion feature (“BCF”).  A BCF exists if the conversion price of the convertible debt instrument is less than the stock price on the commitment date.  This typically occurs when the conversion price is less than the fair value of the stock on the date the instrument was issued.  The value of a BCF is equal to the intrinsic value of the feature, the difference between the conversion price and the common stock into which it is convertible.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required for a smaller reporting company.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

Report of Independent Registered Public Accounting Firm 17
Consolidated Balance Sheets 18
Consolidated Statements of Operations 19
Consolidated Statements of Equity 20
Consolidated Statements of Cash Flows 21
Notes to Consolidated Financial Statements 22

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REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

  

To the Board of Directors and Stockholders of ExeLED Holdings, Inc.:

 

We have audited the accompanying consolidated balance sheets of ExeLED Holdings, Inc. (“the Company”) as of December 31, 2016 and 2015 and the related statement of operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the Company's management.  Our responsibility is to express an opinion on these financial statements based on our audit. 

 

We conducted our audit in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation.  We believe that our audit provides a reasonable basis for our opinion. 

 

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of ExeLED Holdings, Inc., as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with generally accepted accounting principles in the United States of America.

 

The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.  Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the Company's internal control over financial reporting.  Accordingly, we express no such opinion.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a significant accumulated deficit. In addition, the Company continues to experience negative cash flows from operations. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

 

B F Borgers CPA PC
Lakewood, CO
April 17, 2017

 

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EXELED HOLDINGS, INC.

Consolidated Balance Sheets

 

    December 31,
    2016   2015
ASSETS        
         
Current assets:                
   Cash and cash equivalents   $ 5,454     $ 17,987  
   Receivables, net     31       8,551  
   Inventory, net     157,178       190,151  
   Prepaid expenses and other     48,307       52,759  
Total current assets     210,970       269,448  
                 
Noncurrent assets:                
   Deposits     6,450       12,345  
                 
  Total assets   $ 217,420     $ 281,793  
                 
LIABILITIES AND EQUITY                
Current liabilities:                
   Accounts payable   $ 2,988,439     $ 2,505,397  
   Accrued liabilities     1,858,127       1,076,040  
   Debt, current portion, net of discount and debt issuance costs     8,451,781       5,156,305  
Total current liabilities     13,298,347       8,737,742  
                 
Debt, long-term portion     220,000       1,593,003  
  Total liabilities     13,518,347       10,330,745  
                 
Commitments and contingencies (Note 6)     —         —    
                 
Equity:                
Common stock, $.0001 par value; 250,000,000 shares
authorized; 249,447,433 and 113,914,718 shares issued and outstanding at December 31, 2016 and 2015
    24,743       11,191  
Additional paid-in capital     2,635,896       2,446,196  
Accumulated deficit     (15,961,566 )     (12,506,339 )
  Total deficit     (13,300,927 )     (10,048,952 )
                 
Total liabilities and equity   $ 217,420     $ 281,793  

 

See accompanying notes to consolidated financial statements.

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EXELED HOLDINGS, INC.

Consolidated Statements of Operations

 

    Year ended December 31,
    2016   2015
         
Revenue   $ 439,278     $ 543,036  
Cost of revenue     216,949       328,971  
   Gross profit     222,329       214,065  
                 
Operating expenses:                
   Research and development     249,687       255,754  
   Sales and marketing     68,130       109,594  
   General and administrative     1,197,975       1,469,201  
Total operating expenses     1,515,792       1,834,549  
                 
Loss from operations     (1,293,463 )     (1,620,484 )
                 
Other income (expense):                
   Interest expense     (1,872,684 )     (1,273,255 )
   Loss on conversion of debt     (114,793 )     (211,304 )
   Gain of forgiveness of debt     —         155,717  
   Other     (174,287 )     (46,300 )
Other income (expense), net     (2,161,764 )     (1,375,142 )
                 
Net loss   $ (3,455,227 )   $ (2,995,626 )
                 
Net loss per common share                
  Basic and diluted   $ (0.02 )   $ (0.04 )
                 
Weighted average common shares outstanding:                
  Basic and diluted     176,839,038       74,761,927  

 

See accompanying notes to consolidated financial statements

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EXELED HOLDINGS, INC.

Consolidated Statements of Equity

 

  Common Stock      
 

 

Number of

Shares

 

 

Amount

Additional

Paid-in

Capital

 

Retained

Deficit

 

 

Total

December 31, 2014 53,816,667 $ 5,182 $ 1,848,172 $ (9,510,713) $ (7,657,359)
           
Common stock issued for services 4,150,000 415 40,435 -- 40,850
           
Conversion of debt 55,948,051              5,594         339,864                   --         345,458
           
Debt discount -- -- 217,725 -- 217,725
           
Consolidated net loss --                    --                   --     (2,995,626)    (2,995,626)
           
December 31, 2015 113,914,718 $ 11,191 $ 2,446,196 $ (12,506,339) $ (10,048,952)
           
Conversion of debt 135,532,715 13,552 189,700 -- 203,252
           
Consolidated net loss -- -- -- (3,455,227) (3,455,227)
           
December 31, 2016 249,447,433 $ 24,743 $ 2,635,896 $ (15,961,566) $ (13,300,927)

 

 

See accompanying notes to consolidated financial statements

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EXELED HOLDINGS, INC.

Consolidated Statements of Cash Flows

 

  Year ended December 31,
    2016   2015
Operating Activities:                
  Net loss   $ (3,455,227 )   $ (2,995,626 )
  Adjustments to reconcile net loss to net cash used in                
    operating activities:                
    Amortization of debt issuance costs     316,026       102,257  
    Amortization of debt discount     72,310       145,415  
    Common stock issued for services     —         40,850  
    Loss on conversion of debt     114,791       211,304  
Changes in operating assets and liabilities:                
  Accounts receivable     8,520       18,786  
  Inventory     32,973       58,511  
  Prepaid expenses     10,347       14,882  
  Accounts payable     851,735       929,928  
  Accrued liabilities     787,748       560,632  
Net cash used in operating activities     (1,260,777 )     (913,061 )
Financing Activities:                
  Proceeds from debt     1,723,411       1,421,326  
  Payments of debt     (475,167 )     (534,157 )
Net cash provided by financing activities     1,248,244       887,169  
                 
Net change in cash     (12,533 )     (25,892 )
                 
Cash, beginning of period     17,987       43,879  
                 
Cash, end of period   $ 5,454     $ 17,987  
                 
Cash paid for:                
  Interest   $ 692,661     $ 414,743  
  Income taxes     —         —    
                 
Non-cash transactions:                
Debt converted to common stock   $ 82,800     $ 134,154  
Accounts payable converted to debt     368,693       653,176  
Accrued liabilities converted to debt     5,661       53,053  
Debt issuance costs     495,223       192,699  

 

See accompanying notes to consolidated financial statements.

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EXELED HOLDINGS, INC.

Notes to Consolidated Financial Statements

 

Note 1 – Description of Business and Summary of Significant Accounting Policies

 

Formation of the Company

 

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, Energie LLC (hereinafter referred to as, “Energie”). The Share Exchange Agreement was not effective until July 2, 2014 due to a variety of conditions subsequent that needed to be met, which are described below. Upon effectiveness, we issued 33,000,000 “restricted” shares of our common stock, representing approximately 65% of our then issued and outstanding voting securities, in exchange for all of the issued and outstanding member interests of Energie. 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. The 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.

 

Energie was founded in 2001 and is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. Our headquarters is located in Arvada, Colorado, and we also maintain a production and assembly facility in Zeeland, Michigan.

 

Basis of Presentation

 

Our financial statements are prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of our financial statements requires us to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Although these estimates are based on our knowledge of current events and actions we may undertake in the future, actual results may ultimately differ from these estimates and assumptions. Furthermore, when testing assets for impairment in future periods, if management uses different assumptions or if different conditions occur, impairment charges may result.

 

Going Concern

 

As shown in the accompanying financial statements, we had an equity deficit of $13,300,927 and a working capital deficit of $13,087,377 as of December 31, 2016, and have reported net losses of $3,455,227 and $2,995,626, respectively, for the years ended December 31, 2016 and 2015.  These factors raise substantial doubt regarding our ability to continue as a going concern. 

 

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Our ability to continue as a going concern is dependent on our ability to further implement our business plan, attract additional capital and, ultimately, upon our ability to develop future profitable operations. We intend to fund our business development, acquisition endeavors and operations through equity and debt financing arrangements. However, there can be no assurance that these arrangements will be sufficient to fund our ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. These matters raise substantial doubt about our ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern. Additionally, current economic conditions in the United States and globally create significant challenges attaining sufficient funding.

 

Some of our debt agreements are due on demand. If demand for payment is made by one or multiple vendors, we would experience a liquidity issue as we do not currently have the funds available to pay off these debts. While we have entered into extensions with several of our lenders, there can be no assurances that any of the lenders will be cooperative or that if they are willing to provide extensions or forbearances, that the terms under which they may be willing to provide them will be favorable to us.

 

Reclassifications

 

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

 

Summary of Significant Accounting Policies

 

Cash and cash equivalents

 

Cash and cash equivalents include cash on hand, deposits with banks, and investments that are highly liquid and have maturities of three months or less at the date of purchase.

 

Accounts receivable

 

We record accounts receivable at net realizable value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the accounts receivable balances and is charged to Other income (expense) in the consolidated statements of operations. We calculate this allowance based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and our relationships with, and the economic status of, our customers.

 

At our discretion, we may sell our accounts receivable with recourse in order to accelerate the receipt of cash. Upon the sale of selected accounts receivable, title transfers to the counterparty to the factoring agreement, we receive 85% of the face amount sold, and we remove the account receivable from our balance. We pay a commission and, if the balance is not collected by the counterparty within 30 days, a factoring fee. We are responsible for repaying the factoring counterparty for any amounts they are unable to collect. The factoring counterparty retains a reserve in the event the amount they ultimately collect is less than the amount paid to us. Depending on the volume of activity and uncollected accounts, therefore, we may have a receivable from or a liability to the factoring counterparty.

 

Inventory

 

Inventory is stated at the lower of cost or market, using the first-in, first-out method (“FIFO”) to determine cost. We monitor inventory cost compared to selling price in order to determine if a lower of cost or market reserve is necessary. We also estimate and maintain an inventory reserve, as needed, for such matters as obsolete inventory, shrink and scrap.

 

Intangible assets

 

Our intangible assets consist of the following:

 

UL Listings – Energie has over 20 United Laboratories TM (“UL”) files, which include UL Listings for over 14,000 products for sale in the United States and Canada. UL is an independent safety testing laboratory. A UL Listing means that UL has tested representative samples of the product and determined that it meets UL’s requirements. These requirements are based primarily on UL’s published and nationally recognized standards for safety. UL’s testing certifies the design, construction and assembly of the certified products. UL Listings do not expire as long as the product certified is not materially changed. Ownership of a UL Listing may also be transferred between companies. Most customers in the lighting industry will only buy UL listed products.

 

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Trademarks – Energie is a registered trademark.

 

Marketing and design – These consist of engineering and marketing materials covering the majority of our product offerings.

 

Intangible assets are recorded at the cost to acquire the intangible, net of amortization over their estimated useful lives on a straight-line basis. We determine the useful lives of our intangible assets after considering the specific facts and circumstances related to each intangible asset. Factors we consider when determining useful lives include the contractual term of any agreement related to the asset, the historical performance of the asset, our long-term strategy for using the asset, any laws or other local regulations that could impact the useful life of the asset, and other economic factors, including competition and specific market conditions.

 

Property and equipment

 

Property and equipment are stated at cost. Depreciation is recorded using the straight-line method over the estimated useful lives of our assets, which are reviewed periodically.

 

Impairment of long-lived assets

 

When facts and circumstances indicate that the carrying value of long-lived assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of revenues and the resulting gross profit and cash flows. These estimated future cash flows are consistent with those we use in our internal planning. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized, if any, is the amount by which the carrying amount of the asset (or asset group) exceeds the fair value. We may use a variety of methods to determine the fair value of these assets, including discounted cash flow models, which are consistent with the assumptions we believe hypothetical marketplace participants would use.

 

We have the option to perform a qualitative assessment of long-lived assets prior to completing the impairment test described above. We must assess whether it is more likely than not that the fair value of the long-lived assets is less than their carrying amount. If we conclude that this is the case, we must perform the test described above. Otherwise, we do not need to perform any further assessment.

 

As a result of applying the above procedures, we fully impaired all long-lived assets during the year ended December 31, 2014. Since that time, we have not acquired any long-lived assets.

 

Warranty reserve

 

We provide limited product warranty for one year on our products and, accordingly, accrue an estimate of the related warranty expense at the time of sale, included in Accrued liabilities on the consolidated balance sheets.

 

Convertible debt

 

We first evaluate our convertible debt to determine whether the conversion feature is an embedded derivative that requires bifurcation and derivative treatment. Based on our analysis, we determined derivative treatment was not required. We then evaluate whether the conversion feature is a beneficial conversion feature. Our convertible debt is treated as a liability and permits settlement in cash. Accordingly, in order to determine the value of the conversion feature, we compared the estimated fair value of the convertible debt to the fair value of debt that did not have the conversion feature. Based on this analysis, we concluded that the value of the conversion feature was immaterial.

 

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Revenue recognition

 

We recognize revenue when the four revenue recognition criteria are met, as follows:

 

· Persuasive evidence of an arrangement exists – our customary practice is to obtain written evidence, typically in the form of a sales contract or purchase order;

· Delivery – 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, such as installation;

· The price is fixed or determinable – prices are typically fixed at the time the order is placed and no price protections or variables are offered; and

· Collectability is reasonably assured – we typically work with businesses with which we have a long standing relationship, as well as monitoring and evaluating customers’ ability to pay.

 

 

Refunds and returns, which are minimal, are recorded as a reduction of revenue. Payments received by customers prior to our satisfying the above criteria are recorded as unearned income in the consolidated balance sheets.

 

Shipping and handling

 

Payments by customers to us for shipping and handling costs are included in revenue on the consolidated statements of operations, while our expense is included in cost of revenues. Shipping and handling for inventory and materials purchased by us is included as a component of inventory on the consolidated balance sheets, and in cost of revenues in the consolidated statements of operations when the product is sold.

 

Research and development costs

 

Internal costs related to research and development efforts on existing or potential products are expensed as incurred. External costs incurred for intangible assets, such as UL listing costs and attorney fees for patents, are capitalized.

 

Income taxes

 

We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of our assets and liabilities. We monitor our deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that we believe do not meet the more-likely-than-not recognition criteria. We also evaluate whether we have any uncertain tax positions and would record a reserve if we believe it is more-likely-than-not our position would not prevail with the applicable tax authorities. Our assessment of tax positions as of December 31, 2016 and 2015, determined that there were no material uncertain tax positions.

 

Concentration of credit risk

 

Financial instruments that potentially subject us to concentrations of credit risk consist of accounts receivable and the amount due, if any, from our factoring counterparty. For the year ended December 31, 2016 one customer represented more than 20% of our total revenues. As of December 31, 2016, our accounts receivable balance was not material to the overall consolidated financial statements.

 

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Fair value of financial instruments

 

Our financial instruments include cash and cash equivalents, accounts receivable, accounts payable, accrued liabilities, and long-term debt. The carrying value of these financial instruments is considered to be representative of their fair value due to the short maturity of these instruments. The carrying amount of our long-term debt approximates fair value, because the interest rates on these instruments approximate the interest rate on debt with similar terms available to us.

 

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability, in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value must maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy is based on three levels of inputs, of which the first two are considered observable and the last unobservable, as follows:

 

Level 1 – Quoted prices in active markets for identical assets or liabilities.

 

Level 2 – Inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3 – Unobservable inputs that are supported by little or no market activity and that are significant to the measurement of the fair value of the assets or liabilities.

 

Reportable segments

 

We have identified our operating segments, our chief operating decision maker (“CODM”), and the discrete financial information reviewed by the CODM. After evaluating this information, we have determined that we have one reportable segment.

 

Recently Issued Accounting Pronouncements

 

In July 2015, the FASB issued ASU No. 2015-11 (ASU 2015-11),  Inventory (Topic 330): Simplifying the Measurement of Inventory.  ASU 2015-11 more closely aligns the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). As such, an entity should measure inventory that is within the scope of this ASU at the lower of cost and net realizable value. We do not expect the impact of the adoption of ASU 2015-11 to be material to our consolidated financial statements.

 

In September 2015, the FASB issued ASU No. 2015-16 (ASU 2015-16),  Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments . ASU 2015-16 requires an acquirer to “recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amounts are determined.” Further, the acquirer must record, in the financial statements for the same period, “the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date.” We do not expect the impact of the adoption of ASU 2015-16 to be material to our consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17 (ASU 2015-17) , Balance Sheet Classification of Deferred Taxes (Topic 740) . The guidance in this new standard eliminated the current requirement to present deferred tax assets and deferred tax liabilities as current and noncurrent in a classified balance sheet and now requires entities to classify all deferred tax assets and deferred tax liabilities as noncurrent. Public companies are required to apply the guidance beginning with the quarter ending March 31, 2017. We do not expect the impact of the adoption of ASU 2015-17 to be material to our consolidated financial statements.

 

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In February 2016, the FASB issued ASU No. 2016-02,  Leases (Topic 842)  (ASU 2016-02). ASU 2016-02 requires that lessees will be required to recognize assets and liabilities on the balance sheet for the rights and obligations created by all leases with terms of more than 12 months. ASU 2016-02 also will require disclosures designed to give financial statement users information on the amount, timing, and uncertainty of cash flows arising from leases. These disclosures include qualitative and quantitative information. For public companies, the standard will take effect for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018 with earlier application permitted. We are currently evaluating the impact of ASU 2016-02 on our financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09,  Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting  (ASU 2016-09) which simplifies several aspects of accounting for share-based payment transactions including income tax consequences, classification of awards as either equity or liabilities, classification on the statement of cash flows and accounting for forfeitures. ASU 2016-09 is effective for financial statements issued for fiscal years beginning after December 15, 2016. We are currently evaluating the impact of ASU 2016-09 on our financial statements.

 

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 August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2016-15,  Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments  (ASU 2016-15). Stakeholders indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice. ASU 2016-15 is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. We do not expect the impact of the adoption of ASU 2016-15 to have a significant impact on our statement of cash flows.

 

Other recent accounting pronouncements issued by the FASB and the SEC did not, or management believes will not, have a material impact on our present or future consolidated financial statements.

 

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Note 2 – Receivables

 

Receivables consist of the following:

 

  December 31,
    2016   2015
Customer receivables   $ 14,432     $ 21,431  
Less:  Allowance for uncollectible accounts     (14,401 )     (12,880 )
    $ 31     $ 8,55 1  

 

Note 3 – Inventory

 

Inventory consists of the following:

 

  December 31,
    2016   2015
Raw materials   $ 332,612     $ 348,342  
Less: Reserve     (175,434 )     (158,191 )
    $ 157,178     $ 190,15 1  

 

Note 4 – Debt

 

Debt consists of the following:

 

    December 31,
Description Note 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 6,719,979 5,632,543
Other notes payable E 981,137 66,786
Cash draw agreements F 211,076 204,423
Convertible promissory notes G 71,637 154,437
  Total   8,952,336 6,922,976
Less:  unamortized discount and debt issuance costs   (280,555) (173,668)
Debt, net of unamortized discount and debt issuance costs   8,671,781 6,479,308
Less:  current portion   (8,451,781) (5,156,305)
Debt, long-term portion   $ 220,000 $ 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. 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.

 

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 December 31, 2016 and 2015. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

 

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December 31,  
2016 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
$ 351,507 $ 267,787  

 

 

D – Related Party Debt – The following summarizes notes payable to related parties.

 

  December 31,  
  2016 2015 Interest Rate
D1 $ 4,635,865 $ 4,120,465 various
D2 -- 528,214 various
D3 34,888 34,888 12%
D4 356,550 280,800 various
D5 668,176 668,176 18%
D6 1,024,500 -- 6%
Total $ 6,719,979 $ 5,632,543  

 

D1 – Notes payable to Symbiote, Inc. (“Symbiote”), entered into from December 2014 to June 2016, with monthly principal and interest payable through November 2017. Symbiote is an owner of the common stock of Holdings, is the lessor of our manufacturing facility, and the provider of our payroll services. We also owe Symbiote $315,815 in accounts payable.

 

D2 – Notes payable to a former executive vice president, entered into from December 2014 through December 2015, with monthly principal and interest payable through November 2017. As of December 31, 2016, this individual is no longer employed by Holdings and is no longer considered a related party.

 

D3 – Note payable to our chief executive officer (“CEO”), entered into in December 2014, with monthly principal and interest payable through December 2016. We also owe Hal $700,391 in accrued compensation and expenses incurred on behalf of the Company.

 

D4 – Notes payable to the spouse of our CEO, entered into from September 2013 to November 2016, with principal and interest payments due upon a specific event or upon demand.

 

D5  – Notes payable to the consulting firm that employs our Chief Financial Officer, entered into from June 2015 to December 2015. These notes aggregated the previous accounts payable and accrued interest due to the consulting firm at the time the notes were made. As of January 1, 2016, the notes are convertible into shares of our common stock at a conversion rate of 75% of the volume weighted average market price of our stock over the 20 days preceding the notification of conversion. We determined that this conversion feature does not meet the requirements to be treated as a derivative; however, we did determine it was a beneficial conversion feature. Accordingly, we recorded a debt discount of $217,725, which was amortized through interest expense over the life of the notes. We also owe NOW CFO $436,786 in accounts payable.

 

D6  – Notes payable to the principal shareholders of Symbiote, entered into from April to December 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 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.

 

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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 $285,131 as of December 31, 2016. The maturity dates of the agreements range from February to May 2017.

 

G Convertible promissory notes – Represents the outstanding principal balance on two separate convertible promissory notes payable to an entity with interest of 8% annually, that were due in August 2016. During the third quarter of 2015, the current holder of the notes purchased all of our similar outstanding convertible notes from another entity and consolidated those notes into two new notes. At the option of the holder, the notes may be settled in cash or converted into shares of our common stock at any time beginning 180 days from the date of the notes at a price equal to 61% of the average closing bid price of our common stock during the 10 trading days immediately preceding the date of conversion. 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 year ended December 31, 2016, $82,800 of principal and $5,661 of accrued interest was converted into 135,532,715 shares of common stock. We also recorded a loss on conversion of debt of $114,791 related to these transactions. Subsequent to December 31, 2016, we paid off the remaining $12,700 of principal on one of the notes leaving one note outstanding as of the date of this report.

 

Debt issuance costs of $280,555 are being amortized over the life of their respective notes.

 

The future maturities of debt are as follows:

 

Year ending December 31,  
2017 $ 8,451,781
2018 120,000
2019 100,000
  $ 8,671,781

 

Note 5 – Equity

 

We have authorized 5,000,000 shares of preferred stock at $0.0001 par value, with no shares issued and outstanding as of December 31, 2016. Upon issuing preferred stock, if any, the terms of each tranche of issuance may be determined by our board of directors, including dividends and voting rights.

 

In July 2014, we entered into an agreement with Dutchess Opportunity Fund, II, LP (“Dutchess”), under which Dutchess has agreed to purchase from us 5,000,000 shares of our common stock, up to $5 million, during a 36 month period commencing on the date a Registration Statement on Form S-1 was declared effective, October 29, 2014. We will sell these shares to Dutchess at a price equal to 94% of the lowest daily volume weighted-average price of our common stock during the five consecutive trading days beginning on the day we make notice to Dutchess and ending on and including the date that is four trading days after such notice. We have the right to withdraw all or any portion of any put before the closing, subject to certain limitations. As part of the agreement with Dutchess, we transferred 2,000,000 shares of our common stock for no proceeds. We will receive proceeds when we make notice to Dutchess to sell these shares. The market price of the 2,000,000 shares was $40,000, based on the trading price on the date of transfer. If we do not make notice to Dutchess, these shares will be returned to us at the end of the 36 month contractual period. As of December 31, 2016, we had not made notice to Dutchess to sell any of these shares. Accordingly, the net impact to our stockholders equity is zero.

 

Note 6 – Commitments and Contingencies

 

Future minimum rental payments required under all leases that have remaining non-cancelable lease terms in excess of one year as of December 31, 2016, are as follows:

 

2017 $ 82,145
2018 28,890
  $ 111,035

 

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Note 7 – Income Taxes

 

The components of the provision for income taxes are as follows:

 

  Year ended December 31,
    2016   2015
Current tax provision                
  Federal   $ (1,100,820 )   $ (941,497 )
  State     (143,630 )     (122,690 )
      (1,244,450 )     (1,064,187 )
Deferred tax provision                
  Federal     1,100,820       941,497  
  State     143,630       122,690  
      1,244,450       1,064,187  
    $ —       $ —    

 

The components of net deferred tax assets and liabilities are as follows:

 

  Year ended December 31,
    2016   2015
Current deferred tax asset (liability):                
  Inventory reserve   $ 67,430     $ 60,794  
  Warranty reserve     7,148       7,148  
  Net operating loss carryforward     3,185,120       1,940,670  
  Valuation allowance     (3,259,698 )     (2,008,612 )
      —         —    
Long-term deferred tax asset (liability)                
  Long-lived assets     112,895       124,515  
  Valuation allowance     (112,895 )     (124,515 )
      —         —    
Net deferred tax asset (liability)   $ —       $ —    

 

A reconciliation of our income tax provision and the amounts computed by applying statutory rates to income before income taxes is as follows:

 

  Year ended December 31,
    2016   2015
Income tax benefit at statutory rate   $ (1,169,297 )   $ (1,018,511 )
State income tax, net of Federal benefit     (105,092 )     (91,540 )
Amortization of debt discount     27,793       55,884  
Other     7,130       6,765  
Valuation allowance     1,239,466       1,047,402  
    $ —       $ —    

 

Note 8 – 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. Since Energie, the “predecessor company,” was an LLC, it did not have common shares outstanding prior to the Share Exchange on July 2, 2014. Accordingly, we have prepared the calculation of Net Loss Per Share using the weighted-average number of common shares of Holdings that were outstanding during the years ended December 31, 2016 and 2015.

 

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The following table presents a reconciliation of the denominators used in the computation of net loss per share – basic and diluted:

 

  Year ended December 31,
    2016   2015
Net loss available for stockholders   $ (3,455,227 )   $ (2,995,626 )
Weighted average outstanding shares of
common stock
    176,839,038       74,761,927  
Dilutive effect of securities     —         —    
Common stock and equivalents     176,839,038       74,761,927  
                 
Net loss per share – Basic and diluted   $ (0.02 )   $ (0.04 )

 

There are no dilutive instruments outstanding during the years ended December 31, 2016 and 2015.

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None

 

ITEM 9A. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) that are designed to ensure that information required to be disclosed in our reports filed under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

 

We carried out an evaluation under the supervision and with the participation of management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of December 31, 2016, the end of the period covered by this Report.  Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses discussed below.

 

Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive officer and principal financial officer and effected by the Board, management, and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:

 

· pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
· provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures of are being made only in accordance with authorizations of our management and directors; and
· provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of our assets that could have a material effect on the financial statements.

 

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Because of our inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

The material weaknesses in internal control over financial reporting were as follows: (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; (c) we have not implemented adequate system-based and manual controls; and (d) we do not have an audit committee.

 

Our management assessed the effectiveness of internal control over financial reporting as of December 31, 2016.  In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013).  Based on management’s assessment, management concluded that the above material weaknesses have not been remediated and, accordingly, our internal control over financial reporting is not effective as of December 31, 2016.

 

Remediation Plan

 

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 over financial reporting will be effective in the near future.

 

Changes in Internal Control over Financial Reporting

 

There were no significant changes to our internal control over financial reporting that occurred during the quarter ended December 31, 2016, that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.

 

This Annual Report on Form 10-K does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management’s report in this Annual Report on Form 10-K.

 

ITEM 9B. OTHER INFORMATION

 

None.

 

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PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Following is a list of our officers and directors:

 

Name Age Position
Harold Hansen 68 President, Chief Executive Officer and Director
Richard Cole Dennard 38 Chief Financial Officer
Thomas H. Rockers 69 Corporate Secretary

 

Our directors serve as directors until our next Annual Meeting of Stockholders and the election and qualification of the director’s respective successor or until the director’s earlier death, removal or resignation.

 

There are no family relationships between any of our former or current officers and directors.

 

Following is biographical information of our current management:

 

Harold (Hal) Hansen : President, Chief Executive Officer and Director. Mr. Hansen was appointed to his positions in April 2014. Since September 2011, he has also been the founder, CEO and Managing Member of Énergie. He has held senior executive-level positions in general management, marketing, sales management, and in product, market, and corporate development for major U. S. companies. Mr. Hansen has experience in international business projects in Canada, Mexico, Western Europe, and in the People's Republic of China. He has a broad background in the development and implementation of strategic and tactical marketing and business plans as well as in the development and delivery of the education, training, and communication programs needed to implement the plans. As a business consultant since 1983, he helped companies (ranging from divisions of large multi-national manufacturers and service organizations to start-ups) increase their sales volume and profitability. Along with a consulting engagement with Peerless Lighting, he has developed international lighting importing projects for Zumtobel/Staff and ERCO before becoming the temporary Vice President of Marketing and Sales for Focal Point Lighting. During these projects, he designed and implemented programs that established and implemented new or expanded entries of international lighting into the US market. Mr. Hansen devotes substantially all of his time to our affairs. Mr. Hansen’s experience as Energie’s founder qualifies him to serve on our board of directors.

 

Richard Cole Dennard : Chief Financial Officer. Mr. Dennard acts as our Chief Financial Officer on a contract basis since July 2014. He has worked with Énergie, LLC since early 2012. He is a seasoned accounting and finance professional with a diverse background in a variety of industries, including companies in the manufacturing, distribution, energy services, insurance and professional services industries. Mr. Dennard worked in the assurance practice at Deloitte & Touche LLP for seven years. For the last 7 years, Mr. Dennard has been a partner for a regional consulting firm. He devotes only such time as necessary to our business, which does not exceed 20% of his business activities.

 

Thomas H. Rockers : Corporate Secretary. Mr. Rockers was appointed as our Corporate Secretary in March 2015. Prior to his appointment, from 2003 through July 2012, when he retired, Mr. Rockers was the Chief Executive Officer of St. Anthony’s Medical Center, in St. Louis, MO, where he increased net revenues from $300 million, to $500 million. Mr. Rockers was also CEO of the Alliance in Denver, CO from 1998 to 2002, where he grew that company from $5 million to $40 million. Mr. Rockers received a Master of Health Care Administration from the University of Minnesota in 1972 and a Bachelor of Science degree from South Dakota State University in 1969. He devotes only such time as necessary to our business affairs, which is not expected to exceed 20% of his time.

 

Business Advisory Group:

 

Our Business Advisory Group is made up of selected professionals who will provide strategic and operational guidance to our executive team as well as the executives and managers of our subsidiaries. They are not employees, but will be contracted to perform specific projects as needed. We expect to utilize the expertise of this group in the event that we are able to secure external financing as discussed in “Part II, Item 7, Management’s Discussion and Analysis – Liquidity and Capital Resources”.

 

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Philip Mercorella (72) Mr. Mercorella has extensive experience in public and private companies as well as with private equity firms. He served for 22 years with Herman Miller Inc., and is now retired from that company. His positions ranged from Executive Vice- President, Herman Miller, Inc. (Parent Company) to being an Officer and Chief Executive of several subsidiaries. Mr. Mercorella’s private equity/operating partner involvements include Goldner, Hawn, Johnson & Morrison, Minneapolis, MN; Parallel Investment Partners, Dallas, TX; Genuity Capital Partners, Toronto, Canada; and Nicollet Capital Investors, Minneapolis, MN. He is currently serving as Chairman of the Board of Directors and operating partner with Flower Group Inc. (One Floral), Ontario, Canada. He holds degrees from St. Francis College, BBA Management and Pennsylvania State University, MBA Marketing. He has also been a faculty member at Penn State.

 

Andrew Hurry (48) Mr. Hurry is a senior banker with over 20 years of strategic advisory and transactional experience. His strengths include applying a unique combination of a pragmatic scientific, engineering and finance background to complex situations across environmental, telecom, healthcare and other industries. Mr. Hurry is currently a FINRA Registered Representative with the Denver based investment bank The Yale Group. Prior to joining The Yale Group, Mr. Hurry was a principal at Grayson & Associates, a merchant banking firm focusing on medical related technology investments. Before Grayson, he was a Senior Project Manager in Europe for global environmental consulting firms with his role focusing on business development, environmental due diligence and natural resource development. Mr. Hurry holds an MBA from the University of London, England, an M.Sc. from University College London and a B.Sc. from the University of Glasgow, Scotland.

 

Mitchell Kohn (62) Mr. Kohn is president of Mitchell B. Kohn Lighting Design, with Chicago area offices in Highland Park, Illinois, specializing in lighting design for corporate, commercial, institutional, and high-end residential environments. With over 30 years of experience, he has successfully completed over 500 projects throughout the world. In addition to consulting to corporations and architectural and design firms world-wide, Mr. Kohn is a frequent lecturer on various lighting subjects with courses registered with both the AIA and IIDA. He has been a consultant to several domestic and international lighting manufacturing companies, applying his expertise to product development and marketing. He has been published extensively on both technical subjects, as well as design projects, that have included discussions on glare control, energy saving techniques, task lighting, sustainability, and visual performance. He has been named a Fellow of both the International Association of Lighting Designers (IALD), and the Illuminating Engineering Society (IES), for which he served as Chairman of their Office Lighting Committee, responsible for developing and maintaining ANSI lighting standards for 15 years. He has served on the Board of Directors of the IALD, the IALD Education Trust, the National Council on Qualifications for the Lighting Professions (NCQLP), and Lightfair International. For his architectural lighting designs, Mr. Kohn has also been the recipient of the International Illumination Design Award of Distinction, and the IES Award of Excellence, their highest design award recognition, a General Electric Edison Award, an IALD Design Citation, and a U.S. Patent for developments in the field of task lighting. He also served as writer and editor of Lighting Focus, a quarterly lighting supplement to Interiors Magazine and Architecture Magazine.

 

There are no agreements or understandings for any of our executive officers or directors to resign at the request of another person and no officer or director is acting on behalf of nor will any of them act at the direction of any other person. The offices of President, Chief Executive Officer, Treasurer, Chief Financial Officer and Secretary are appointed by our Board of Directors, with other officer’s positions being filled by appointment from our President and Chief Executive Officer. Directors are elected by our shareholders. Vacancies on the Board of Directors may be filled by majority vote from the remaining members of the Board of Directors or by a majority vote of our shareholders; in each case directors serve until their earlier resignation or their successors are duly elected and qualified.

 

Director Independence

 

We are not an issuer whose securities are listed on a national securities exchange, or an inter-dealer quotation system, which has requirements that a majority of the board of directors be independent. Under NASDAQ Rule 5605(a)(2)(A), a director is not considered to be independent if he or she also is an executive officer or employee of the corporation. Under such definition, Harold Hansen, our sole director, would not be considered independent.

 

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Board Committees

 

We presently do not have an audit committee, compensation committee or nominating committee, or committees performing similar functions, as our management believes that until this point it has been premature at the early stage of our management and business development to form committees. However, our new management plans to form an audit, compensation and nominating committee in the near future; the implementation of which is likely to be in connection with our next contemplated acquisition. We envision that the audit committee will be primarily responsible for reviewing the services performed by our independent auditors and evaluating our accounting policies and system of internal controls. We envision that the compensation committee will be primarily responsible for reviewing and approving our salary and benefits policies (including stock options) and other compensation of our executive officers. The nominating committee would be primarily responsible for nominating directors and setting policies and procedures for the nomination of directors. The nominating committee would also be responsible for overseeing the creation and implementation of our corporate governance policies and procedures. Until these committees are established, these decisions will continue to be made by our board. Although our board has not established any minimum qualifications for director candidates, when considering potential director candidates, our board considers the candidate’s character, judgment, skills.

 

We do not have a charter governing the nominating process. Our sole director will initially perform the functions of a nominating committee, but is not independent because he is also an officer. There has not been any defined policy or procedure requirements for stockholders to submit recommendations or nominations for directors. Our Board does not believe that a defined policy with regard to the consideration of candidates recommended by stockholders is necessary at this time because, given the early stages of our development, a specific nominating policy would be premature and of little assistance until our business operations are at a more advanced level.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Exchange Act requires our officers and directors and persons owning more than ten percent of the common stock, to file initial reports of ownership and changes in ownership with the SEC. Additionally, Item 405 of Regulation S-K under the Exchange Act requires us to identify in our Form 10-K and proxy statement those individuals for whom one of the above referenced reports was not filed on a timely basis during the most recent year or prior years. To our knowledge, based solely upon our review of the copies of such reports furnished to us, during the fiscal year ended December 31, 2016, all Section 16(a) filing requirements applicable to our officers, directors and greater than 10% beneficial owners were complied with.

 

Code of Ethics

 

Our board of directors has not adopted a code of ethics but plans to do so in the near future.

 

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ITEM 11. EXECUTIVE COMPENSATION

 

The following table provides certain information regarding compensation awarded to, earned by or paid to persons serving as our Chief Executive Officer during the years ended December 31, 2016 and 2015. We had no other highly compensated officers or employees who had total compensation exceeding $100,000 for the year ended December 31, 2016 and 2015 (each a “named executive officer”).

 

Summary Compensation Table

 

          Salary     Bonus     Option Awards     All Other Compensation     Total  
Name and Principal Position   Year     ($)     ($)     ($)     ($)     ($)  
                                                 

Harold (Hal) Hansen   (1)

President, Chief Executive Officer and Director

   

2015

2016

     

150,000

150,000

     

75,000

75,000

     

-

-

     

-

-

     

 

225,000

225,000

 
                                                   

(1) This compensation has been accrued and remains unpaid as of the date of this Report.

 

Employment Agreements

 

Prior to the closing of the Share Exchange and in anticipation of closing, we entered into an employment agreement with Harold Hansen, our President and Chief Executive Officer.

 

Mr. Hansen’s current employment agreement became effective April 1, 2014 and is for a term of three years. The agreement provides for an annual salary of $150,000 per year with increases each year if trailing twelve-month sales meet or exceed certain levels. Mr. Hansen is subject to 18 month non-compete / non-solicitation provisions following termination of his employment with us. In addition, he is eligible to receive a three-year severance package equal to his current compensation at the time of termination in the event of a termination without cause, as defined therein.

 

We have entered into an independent contractor agreement with NOW CFO, a Denver, Colorado-based financial consulting firm, to provide our Treasurer and Chief Financial Officer, Richard Cole Dennard. The charges for these services are payable to NOW CFO, the firm that employs Mr. Dennard.  We do not pay Mr. Dennard directly and are not directly involved with his compensation as this is agreed to between NOW CFO and Mr. Dennard.  For the year ended December 31, 2016 and 2015, respectively, we incurred $379,695 and $217,053 for services provided by NOW CFO, which include Mr. Dennard’s services as well as several other accounting positions.  We paid a total of $7,500 and $0 to NOW CFO during the years ended December 31, 2016 and 2015, respectively. See “Part III, Item 13. Certain Relationships and Related Party Transactions and Director Independence” for amounts owed to NOW CFO as of December 31, 2016 and 2015.

 

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Equity Compensation Plan

 

We have adopted the Energie Holdings, Inc. 2014 Stock Option Plan and have reserved 5,100,000 shares of issuance thereunder (the “Plan”). The Plan includes awards that qualify as performance-based compensation that is exempt from the deduction limitation set forth under Section 162(m) of the Internal Revenue Code of 1986, as amended (the “Code”). Subject to certain exceptions, Section 162(m) generally limits the corporate income tax deductions to $1,000,000 annually for compensation paid to each of the Chief Executive Officer and our other six highest paid executive officers required to be reported under the proxy disclosure rules.

 

As of the date of this report no shares or options to purchase any shares have been granted. We believe that the Plan will be an important factor in attracting, retaining and motivating our employees, consultants, agents, and directors. We believe that we need the flexibility both to have an ongoing reserve of common stock available for future equity-based awards, and to make future awards in a variety of forms. 

 

Outstanding Equity Awards at Fiscal Year-End

 

None.

 

Director Compensation

 

We did not pay any compensation to directors for service on the board of directors during the year ended December 31, 2016.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth certain information regarding the ownership of common stock as of the date of this Report, by (i) each person known to us to own more than 5% of our outstanding common stock as of the date of this Report, (ii) each of our directors, (iii) each of our executive officers, and (iv) all of our directors and executive officers as a group. Unless otherwise indicated, all shares are owned directly and the indicated person has sole voting and investment power.

 

Title of Class  

Name and Address

Of Beneficial Owner

 

Amount and Nature

Of Beneficial Ownership

 

Percent

Of Class

             
Common  

Harold Hanson (1)

5310 Ward Road

Suite 106

Arvada, CO 80002

  11,696,631   4.69%
             
Common  

All Officers and Directors

as a Group (1 person)

   11,696,631   4.69%
             

——————— 

(1) Officer and/or director of our Company.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE

 

Related Party Transactions

 

The following includes a summary of transactions since the beginning of our 2015 fiscal year, or any currently proposed transaction, in which we were or are to be a participant and the amount involved exceeded or exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years, and in which any related person had or will have a direct or indirect material interest (other than compensation described under “Executive Compensation”). We believe the terms obtained or consideration that we paid or received, as applicable, in connection with the transactions described below were comparable to terms available or the amounts that would be paid or received, as applicable, in arm’s-length transactions.

 

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Notes Payable to Related Parties

 

The following summarizes the terms and balances of the related party notes:

 

  December 31, 2016 December 31, 2015 Interest Rate
D1 $ 4,635,865 $             4,120,465 various
D2 --                   528,214 various
D3 34,888                     34,888 12%
D4 356,550                   280,800 various
D5 668,176 668,176 18%
D6 1,024,500 -- 6%
Total $ 6,719,979 $ 5,632,543  

 

 

D1 – Symbiote, Inc. is one of our shareholders. We also incur approximately $150,000 annually for rent expense with them. According to one of the note agreements with them, the note holder may, at its option at any time after default, proceed to convert any remaining balance of the notes to equity at a rate equal to the proportion of the remaining balance of the note divided by $4,000,000 enterprise value. This note was considered to be in default as of December 31, 2016; therefore, the note holder has the right to exercise the conversion option, but has not yet elected to do so. We evaluated this agreement for derivatives and determined that it does not qualify for derivative treatment for financial reporting purposes, because the agreement relates to our own equity and, the debt and the equity are not closely related. We also determined this does not qualify as a beneficial conversion feature. Accordingly, the balance is reported at the carrying amount. In addition, we entered into several additional notes with Symbiote between February 2015 and June 2016 which are included in this amount. We also owe Symbiote $315,815 in accounts payable.

 

D2 – Joe Durzo is a shareholder and former employee. He is no longer considered a related party.

 

D3 – Harold (Hal) Hansen is our chief executive officer (“CEO”). We also owe Hal $700,391 in accrued compensation and expense incurred on behalf of the company.

 

D4 – Julianne Larsen is the spouse of our CEO. This debt is held by a trust for which Ms. Larsen is the trustee.

 

D5 – NOW CFO is the consulting firm that employs our Chief Financial Officer (“CFO”). We also owe NOW CFO $436,786 in accounts payable.

 

D6 – Travis and Sandra Randolph are the principal shareholders of Symbiote, Inc.

 

There are no other related party transactions that are required to be disclosed pursuant to Regulation S-K promulgated under the Securities Act of 1933, as amended.

 

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

Fees Paid to Independent Registered Public Accounting Firms

 

The following table presents fees for professional audit services rendered by B F Borgers CPA PC, our independent accountant, during our fiscal years ended December 31, 2016 and 2015:

 

    December 31, 2016   December 31, 2015
Audit fees   $ 34,119     $ 32,900  
Audit related fees     —         —    
Tax fees     —         —    
All other fees     —         —    
Total   $ 34,119     $ 32,900  

 

Audit Fees : Consists of amounts billed for professional services rendered for the audit of our annual financial statements included in our Annual Reports on Forms 10-K for our fiscal years ended December 31, 2016 and 2015 and reviews of our interim financial statements included in our Quarterly Reports on Form 10-Q.

 

Tax Fees: Consists of amounts billed for professional services rendered for tax return preparation, tax planning and tax advice.

 

All Other Fees : Consists of amounts billed for services other than those noted above.

 

We do not have an audit committee and as a result our entire board of directors performs the duties of an audit committee. Our board of directors evaluates the scope and cost of the engagement of an auditor before the auditor renders audit and non-audit services.

 

 

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PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

The following exhibits are included herewith:

 

Exhibit No.   Description
     
21.1  

List of Subsidiaries

 

31.1   Certification of Principal Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
31.2   Certification of Principal Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
     
32.1  

Certification of Principal Executive Officer and Principal Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

 

101.INS   XBRL Instance Document*
     
101.SCH   XBRL Taxonomy Extension Schema*
     
101.CAL   XBRL Taxonomy Extension Calculation Linkbase*
     
101.DEF   XBRL Taxonomy Extension Definition Linkbase*
     
101.LAB   XBRL Taxonomy Extension Label Linkbase*
     
101.PRE   XBRL Taxonomy Extension Presentation Linkbase*
     
(*)  Filed Herewith    
     

The following exhibits have previously been filed with the Securities and Exchange Commission by the Registrant on the dates indicated.

 

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Exhibit

Number

  Description  
       
2.1 Stock Purchase Agreement by and between the Registrant and The Kennedy Company, dated as of February 5, 2004 (incorporated by reference to Exhibit 2.1 to our Current Report on Form 8-K dated as of February 20, 2004)  
       
2.2 Agreement and Plan of Merger by and between the Registrant, SRI Acquisition Corp. and Larscom Incorporated, dated as of April 28, 2004 (incorporated by reference to Annex A to the Joint Proxy Statement/Prospectus, dated June 24, 2004, forming a part of Verilink’s Registration Statement on Form S-4 (File No. 333-116472)  
       
3.1 Certificate of Incorporation of Energie Holdings, Inc. (incorporated by reference to Current Reports on Form 8-K dated as of June 10, 2014 and July 2, 2014)  
       
3.2 Bylaws of Energie Holdings, Inc. (incorporated by reference to Current Reports on Form 8-K dated as of June 10, 2014 and July 2, 2014)  
       
3.3 Certificate of Amendment to Certificate of Incorporation of Energie Holdings, Inc. filed September 18, 2014  
       
3.4 Articles of Amendment of ExeLED Holdings Inc. filed December 4, 2015  
       
10.38   Share Exchange Agreement dated December 31, 2013 between Alas Aviation Corp. and OELC LLC, and Shareholders of OELC LLC (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated as of December 31, 2013)
       
10.39   Agreement and Plan of Merger dated January 27, 2014 between Alas Aviation Corp., Alas Acquisition Company and Energie Holdings, Inc. (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K and Form 8-K/A dated as of January 27, 2014)
       
10.40   Investment Agreement dated July 16, 2014 between Energie Holdings, Inc. and Dutchess Opportunity Fund, II, LP (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K dated as of July 16, 2014)
       
10.41   Registration Rights Agreement dated July 16, 2014 between Energie Holdings, Inc. and Dutchess Opportunity Fund, II, LP (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K dated as of July 16, 2014)

 

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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 thereunder duly authorized.

 

Dated:  April 17, 2017

EXELED HOLDINGS INC.

 

By: __ /s/ Harold Hansen ________       

Harold Hansen, Principal Executive Officer

   
 

By: __ /s/ Richard Cole Dennard __      

Richard Cole Dennard, Principal Financial and Accounting Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on April 17, 2017.

 

__ /s/ Harold Hansen ________

Harold Hansen,

Chief Executive Officer and Director

(principal executive officer)

 

__ /s/ Richard Cole Dennard __

Richard Cole Dennard, Chief Financial Officer (principal financial and accounting officer)

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Exhibit 21.1

 

LIST OF SUBSIDIARIES

 

Set forth below is a list of each of the subsidiaries of ExeLED Holdings Inc.

 

Name of entity   Jurisdiction  
Energie LLC   Delaware  
       

 

 

 

 

 

 

 

 

Exhibit 31.1

 

CERTIFICATION

 

I, Harold Hansen, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of ExeLED Holdings Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over the financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  /s/ Harold Hansen
  Chief Executive Officer
  (Principal Executive Officer)

 

Date: April 17, 2017

 

 

 

 

Exhibit 31.2

 

CERTIFICATION

 

I, Richard Cole Dennard, certify that:

 

1. I have reviewed this Annual Report on Form 10-K of ExeLED Holdings Inc.;

 

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rule 13a-15 (f) and 15 (d)-15(f)) for the registrant and have:

 

a) designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

b) designed such internal control over financing reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

c) evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

d) disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect the registrant’s internal control over the financial reporting; and

 

5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

a) all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

b) any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

  /s/ Richard Cole Dennard
  Chief Financial Officer
  (Principal Financial Officer)

 

Date: April 17, 2017

 

 

Exhibit 32.1

 

Certification

Pursuant to Section 906 of the Sarbanes-Oxley Act Of 2002

(Subsections (A) And (B) Of Section 1350, Chapter 63 of Title 18, United States Code)

 

Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (subsections (a) and (b) of section 1350, chapter 63 of title 18, United States Code), each of the undersigned officers of ExeLED Holdings Inc. (the “Company”), does hereby certify, that:

 

The Annual Report on Form 10-K for the fiscal year ended December 31, 2016 (the “Form 10-K”) of the Company fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, and the information contained in the Form 10-K fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

  /s/ Harold Hansen
 Dated: April 17, 2017 Chief Executive Officer
   (Principal Executive Officer)
   
   
   
  /s/ Richard Cole Dennard
 Dated: April 17, 2017

Chief Financial Officer

(Principal Financial Officer)