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EX-31.2 - ExeLED Holdings Inc.eled10q111615ex31_2.htm
EX-32 - ExeLED Holdings Inc.eled10q111615ex32.htm
EX-31.1 - ExeLED Holdings Inc.eled10q111615ex31_1.htm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

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

For the quarterly period ended September 30, 2015

 

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

 

For the transition period from _______________ to _______________.

 

Commission file number: 000-28562

 

ENERGIE HOLDINGS INC.

(Exact name of Registrant as specified in its charter)

 

Delaware

(State or other jurisdiction of

incorporation or organization)

 

94-2857548

(I.R.S. Employer

Identification No.)

 

4885 Ward Road, Suite 300,

Wheat Ridge, CO

(Address of principal executive offices)

 

80033

(Zip Code)

 

Registrant’s telephone number, including area code: (720) 963-8055

 

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

 

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

 

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

 

Large accelerated filer [ ] Accelerated filer [ ]

Non-accelerated filer [ ]

Smaller reporting company [X]
    (Do not check if a smaller reporting company)  

 

 

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

Yes [ ] No [X]

 

As of November 6, 2015, there were 100,107,673 shares of common stock, $0.0001 par value, issued and outstanding.

 

 

ENERGIE HOLDINGS INC.

Table of Contents

 

Part I – FINANCIAL INFORMATION  
Item 1. Financial Statements 2
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 12
Item 3. Quantitative and Qualitative Disclosures about Market Risk 16
Item 4. Controls and Procedures 17
     
Part II – OTHER INFORMATION  
Item 1. Legal Proceedings 18
Item 1A. Risk Factors 18
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 18
Item 3. Defaults upon Senior Securities 18
Item 5. Other Information 18
Item 6. Exhibits 18

 

 CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

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

 

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

 

adverse economic conditions;
risks related to the construction market;
risks related to the U.S. import market;
the inability to attract and retain qualified senior management and technical personnel;
other risks and uncertainties related to the changing lighting market and our business strategy.

 

All forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements or other information contained herein. Stockholders and potential investors should not place undue reliance on these forward-looking statements. Although we believe that our plans, intentions and expectations reflected in or suggested by the forward-looking statements in this report are reasonable, we cannot assure stockholders and potential investors that these plans, intentions or expectations will be achieved. We disclose important factors that could cause our actual results to differ materially from expectations under “Risk Factors” and elsewhere in this current report. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf.

 

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

 

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. Financial Information

 

Item 1. Financial Statements

 

ENERGIE HOLDINGS INC.

Condensed Consolidated Balance Sheets

  

September 30, 2015

(Unaudited)

 

 

December 31, 2014

ASSETS          
           
Current assets:          
   Cash and cash equivalents  $3,427   $43,879 
   Accounts receivable, net   15,250    27,337 
   Inventory, net   233,422    248,662 
   Prepaid expenses and other   50,331    68,291 
Total current assets   302,430    388,169 
           
Noncurrent assets:          
   Other assets   112,705    22,611 
Total noncurrent assets   112,705    22,611 
           
  Total assets  $415,135   $410,780 
           
LIABILITIES AND EQUITY (DEFICIT)          
Current liabilities:          
   Accounts payable  $2,361,152   $2,228,645 
   Accrued liabilities   916,164    572,973 
   Debt, current portion, net of discount   4,529,439    2,373,307 
Total current liabilities   7,806,755    5,174,925 
           
Debt, long-term portion, net of discount   1,934,710    2,893,214 
   Total liabilities   9,741,465    8,068,139 
           
           
Commitments and contingencies (Note 7)   —      —   
           
Equity (Deficit):          
Preferred stock, $.0001 par value; 5,000,000 shares authorized; no shares issued and outstanding at September 30, 2015 or December 31, 2014   —      —   
Common stock, $.0001 par value; 250,000,000 shares authorized; 92,684,779 and 53,816,667 shares issued and outstanding at September 30, 2015 and December 31, 2014   9,068    5,182 
Additional paid-in capital   2,201,718    1,848,172 
Accumulated deficit   (11,537,116)   (9,510,713)
  Total deficit   (9,326,330)   (7,657,359)
           
Total liabilities and equity (deficit)  $415,135   $410,780 

 

See accompanying notes to condensed consolidated financial statements.

 

ENERGIE HOLDINGS INC.

Condensed Consolidated Statements of Operations

(Unaudited)

 

   Three months ended September 30,  Nine months ended September 30,
   2015  2014  2015  2014
Sales revenue  $117,002   $248,549   $421,636   $587,920 
Cost of goods sold   (66,767)   (135,509)   (212,759)   (313,532)
   Gross profit   50,235    113,040    208,877    274,388 
                     
Operating expenses:                    
   Research and development   64,715    69,841    192,087    184,608 
   Sales and marketing   28,882    55,521    98,784    126,667 
   General and administrative   275,301    601,379    1,060,021    1,526,374 
Total operating expenses   368,898    726,741    1,350,892    1,837,649 
                     
Loss from operations   (318,663)   (613,701)   (1,142,015)   (1,563,261)
                     
Other income (expense):                    
   Interest expense   (365,861)   (104,429)   (856,817)   (284,406)
   Other   (10,041)   42,437    (27,571)   126,735 
Other income (expense), net   (375,902)   (61,992)   (884,388)   (157,671)
                     
Net loss  $(694,565)  $(675,693)  $(2,026,403)  $(1,720,932)
                     

Net loss per common share (Note 9):  

Basic and diluted

  $(0.01)  $(0.01)  $(0.03)  $(0.04)
                     

Weighted average common shares outstanding:  

Basic and diluted

   89,992,553    51,587,729    64,985,322    38,755,604 

  

 

See accompanying notes to condensed consolidated financial statements


 

ENERGIE HOLDINGS INC.

Condensed Consolidated Statements of Cash Flows

(Unaudited)

 

   Nine months ended September 30,
   2015  2014
Operating Activities:          
  Net loss  $(2,026,403)  $(1,720,932)
  Adjustments to reconcile net loss to net cash used in          
    operating activities:          
    Depreciation and amortization   —      166,662 
    Amortization of debt issuance costs   60,254    —   
    Amortization of debt discount   72,310    —   
    Common stock issued for services   40,400    —   
    Expense converted to debt   —      284,406 
Changes in operating assets and liabilities (net of Share Exchange):          
  Accounts receivable   12,087    (5,969)
  Inventory   15,240    (21,477)
  Prepaid expenses and other   17,310    1,053 
  Accounts payable   785,683    1,087,974 
  Accrued liabilities   400,156    (387)
Net cash used in operating activities   (622,963)   (165,716)
           
Investing Activities:          
  Intangible assets   —      (25,097)
  Property and equipment   —      —   
Net cash used in investing activities   —      (25,097)
           
Financing Activities:          
  Proceeds from debt   1,287,112    307,777 
  Payments of debt   (704,601)   —   
  Member activity   —      (136,534)
Net cash provided by financing activities   582,511    171,243 
           
Net change in cash   (40,452)   (19,570)
           
Cash, beginning of period   43,879    37,874 
           
Cash, end of period
  $3,427   $18,304 
           
Supplemental cash flow disclosure:           
Cash paid for:          
  Interest  $279,060   $—   
           
Debt converted to common stock  $95,395   $—   
Accounts payable converted to debt   653,176    —   
Accrued liabilities converted to debt   53,053    —   
Debt issuance costs   149,698    —   

  

See accompanying notes to condensed consolidated financial statements.

 

 

ENERGIE HOLDINGS INC.

Notes to Condensed Consolidated Financial Statements

 

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

 

Formation of the Company

 

On December 31, 2013, Energie Holdings, Inc. (“we,” “us,” “our,” the “Company” or “Holdings”) 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 were met or waived. Upon effectiveness, Holdings issued 33,000,000 “restricted” shares of its common stock, representing approximately 65% of the then issued and outstanding voting securities, in exchange for all of the issued and outstanding member interests of Energie. This transaction is considered to be a capital transaction, rather than a business combination, equivalent to the issuance of ownership interests by Energie for the net assets of Holdings, accompanied by a recapitalization (the “Share Exchange”). 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, Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”) with two of its then wholly owned subsidiaries, Energie Holdings and Alas Acquisition Company (“Alas”). The Merger Agreement effectively merged Alas with and into Holdings, with Holdings being the surviving corporation. 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 the Company’s entry into the LED lighting industry. The Company’s management also changed.

 

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.

 

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

 

Basis of Presentation

 

As a result of the Share Exchange, Energie is considered to be the “accounting acquirer” and, accordingly, is treated as the predecessor company. The condensed consolidated financial statements include the results of operations and financial position of Energie for all periods, and the results of operations and financial position of Holdings as of and for the three and nine months ended September 30, 2015 and as of December 31, 2014.

 

The accompanying condensed consolidated balance sheet as of December 31, 2014, has been derived from audited financial statements. The accompanying unaudited interim condensed consolidated financial statements have been prepared on the same basis as the annual audited financial statements and in accordance with accounting principles generally accepted in the United States (“GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial statements. In the opinion of management, such unaudited information includes all adjustments (consisting only of normal recurring accruals) necessary for a fair presentation of this interim information. All intercompany transactions have been eliminated in consolidation. Operating results and cash flows for interim periods are not necessarily indicative of results that can be expected for the entire year. The information included in this report should be read in conjunction with our audited financial statements and notes thereto included in our Annual Report on Form 10-K for the period ended December 31, 2014.

  

 

Going Concern

 

As shown in the accompanying financial statements, we had an equity deficit of $9,326,330 and a working capital deficit of $7,504,325 as of September 30, 2015, and have reported net losses of $2,026,403 and $1,720,932 for the nine months ended September 30, 2015 and 2014, respectively.  These factors raise substantial doubt regarding our ability to continue as a going concern. 

 

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

 

Reclassifications

 

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

 

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 July 2015, the FASB issued ASU No. 2015-12 (ASU 2015-12), Plan Accounting: Defined Benefit Pension Plans (Topic 960), Defined Contribution Pension Plans (Topic 962), Health and Welfare Benefit Plans (Topic 965): (Part I) Fully Benefit-Responsive Investment Contracts, (Part II) Plan Investment Disclosures, (Part III) Measurement Date Practical Expedient (consensuses of the FASB Emerging Issues Task Force). ASU 2015-12 (1) requires a pension plan to use contract value as the only measure for fully benefit-responsive investment contracts, (2) simplifies and increases the effectiveness of the investment disclosure requirements for employee benefit plans, and (3) provides benefit plans with a measurement-date practical expedient similar to the practical expedient provided to employers in ASU 2015-04, Practical Expedient for the Measurement Date of an Employer’s Defined Benefit Obligation and Plan Assets. We do not expect the impact of the adoption of ASU 2015-12 to be material to our consolidated financial statements.

 

In August 2015, the FASB issued ASU No. 2015-13 (ASU 2015-13), Derivatives and Hedging (Topic 815): Application of the Normal Purchases and Normal Sales Scope Exception to Certain Electricity Contracts within Nodal Energy Markets (a consensus of the FASB Emerging Issues Task Force). ASU 2015-13 clarifies guidance regarding the normal purchases and normal sales scope exception under ASC Topic 815, Derivatives and Hedging, for certain electricity contracts. Guidance was amended to specify that certain electricity contracts that use locational marginal pricing by an independent system operator do not fail the physical delivery criterion relating to the normal purchases and normal sales scope exception. We do not expect the impact of the adoption of ASU 2015-13 to be material to our consolidated financial statements.

 

In August 2015, the FASB issued ASU No. 2015-14 (ASU 2015-14), Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date. ASU 2015-14 defers by one year the effective date of ASU 2014-09, Revenue from Contracts with Customers. We do not expect the impact of the adoption of ASU 2015-14 to be material to our consolidated financial statements.

 

 

In August 2015, the FASB issued ASU No. 2015-15 (ASU 2015-15), Interest—Imputation of Interest (Subtopic 835-30): Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements—Amendments to SEC Paragraphs Pursuant to Staff Announcement at June 18, 2015 EITF Meeting (SEC Update). ASU 2015-15 amends subtopic 835-30 to include the SEC Staff Announcement at the 18 June 2015 EITF meeting regarding the presentation and subsequent measurement of debt issuance costs associated with line-of-credit arrangements. We do not expect the impact of the adoption of ASU 2015-15 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.

 

Note 2 — Recapitalization

 

On July 2, 2014, we completed the Share Exchange Agreement with Energie. The impact to equity of the Share Exchange includes a) the issuance of 33,000,000 shares of Holdings’ common stock valued at $0.05 per share, the closing price of Holdings’ common stock on December 31, 2013, the date of the Share Exchange Agreement, for total consideration effectively transferred of $1,650,000; and b) removing Holdings’ accumulated deficit and adjusting equity for the recapitalization.

 

The accompanying condensed consolidated statements of operations include the results of the Share Exchange Agreement from the share exchange date of July 2, 2014. The pro forma effects of the acquisition on the results of operations as if the transaction had been completed on January 1, 2014, are as follows:

 

  

Nine months ended

September 30, 2014

Pro forma results:     
Total net revenues  $587,920 
Net loss   (1,994,849)
Net loss per common share: 
  Basic and diluted  $(0.04)

 

The assets and liabilities of Holdings on the effective date of the Share Exchange Agreement were as follows:

 

Accounts payable  $363,676 
Preferred stock  $—   
Common stock   194,604 
Additional paid-in capital   91,046,859 
Accumulated deficit   (91,605,139)
  Total stockholders’ deficit  $(363,676)

 

Note 3 — Accounts receivable

 

The following is a summary of accounts receivable:

   September 30, 2015 

 

December 31, 2014

           
Customer receivables  $28,130   $41,234 
Less:  Allowance for uncollectible accounts   (12,880)   (13,897)
   $15,250   $27,337 

 

 

Note 4 — Inventory

 

The following is a summary of inventory:

   September 30, 2015 

 

December 31, 2014

           
Raw materials  $347,103   $420,424 
Less: reserve   (113,681)   (171,762)
   $233,422   $248,662 

 

Note 5 — Other assets

 

The following is a summary of other assets:

   September 30, 2015 

 

December 31, 2014

           
Debt issuance costs  $100,360   $10,916 
Deposits   12,345    11,695 
   $112,705   $22,611 

 

Note 6 — Debt

 

Debt is comprised of the following:

 

Description  Note 

September 30,

2015

 

December 31,

2014

Line of credit   A   $47,000   $47,000 
Note payable to distribution partner   B    550,000    580,000 
Investor debt   C    267,787    267,787 
Related party debt   D    5,340,709    3,840,749 
Other notes payable   E    68,952    57,692 
Cash draw notes   F    146,432    255,793 
Convertible promissory notes   G    188,684    217,500 
   Total        6,609,564    5,266,521 
Less:  unamortized discount        (145,415)   —   
Debt, net of unamortized discount        6,464,149    5,266,521 
Less:  current portion, net of unamortized discount        (4,529,439)   (2,373,307)
Debt, long-term portion       $1,934,710   $2,893,214 

 

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 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. We have filed a response to the complaint and are engaged in settlement discussions with the bank. Accordingly, the amounts due are classified as current liabilities in the accompanying condensed, consolidated balance sheets.

 

B Note payable to distribution partner – Note payable to a significant European distribution partner, entered into in October 2014, bearing interest at 5% payable quarterly, with principal payable monthly through September 2019. The 2014 note payable aggregated the 2007 promissory note, accrued interest and accounts payable.

 

 

C Investor Debt – Notes payable to lenders having an ownership interest in Holdings at September 30, 2015 and December 31, 2014. These loans are not collateralized. The following summarizes the terms and balances of the investor debt:

 

September 30, 2015

    December 31, 2014    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%
 10,000    10,000    24%
$267,787   $267,787      

 

D Related Parties Debt – The following summarizes notes payable to related parties:

 

  

September 30, 2015

  December 31, 2014  Interest Rate
 D1   $3,850,465   $3,152,231    6%
 D2    527,380    497,130    12%
 D3    34,888    34,888    12%
 D4    274,800    156,500    24%
      D5    653,176    —      18%
 Total   $5,340,709   $3,840,749      

 

D1 – Notes payable to Symbiote, Inc. (“Symbiote”), entered into from December 2014 through August 2015, with monthly principal and interest payable through November 2017. The 2014 notes aggregated previous notes payable, accrued interest and accounts payable. Neither the 2014 nor the 2015 notes are convertible. The previous note agreement gave Symbiote, at its option at any time after default, the right 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. Symbiote holds a large ownership percentage in Holdings, is the lessor of our manufacturing facility, and the provider of our payroll services.

 

We evaluated the agreements for derivatives and determined that they do not qualify for derivative treatment for financial reporting purposes, because the agreements relate 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.

 

D2 – Notes payable to an executive vice president, entered into from December 2014 through July 2015, with monthly principal and interest payable through November 2017. The 2014 note aggregated previous notes payable, accrued interest and accounts payable.

 

D3 – Note payable to our Chief Executive Officer (“CEO”), entered into in December 2014, with monthly principal and interest payable through November 2015.

 

D4 – Notes payable to the spouse of our CEO, due upon demand.

 

D5 – Notes payable to the consulting firm that employs our Chief Financial Officer, entered into in June 2015. These notes aggregate the previous accounts payable and accrued interest due to the consulting firm. If we have not paid $300,000 by December 31, 2015, then beginning January 1, 2016, the notes are convertible into shares of our common stock at a conversion rate of 75% of the volume weighted average market price of our stock over the 20 days preceding the notification of conversion. We determined that this conversion feature 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 is being amortized through interest expense over the life of the notes.

 

 

E Other Notes Payable – Represents the outstanding principal balance on three separate notes bearing interest at approximately 12% annually. In the event we receive proceeds as the beneficiary of a life insurance policy covering our majority shareholder/CEO, repayment of principal and interest is due on these notes prior to using the proceeds for any other purpose.

 

F – Cash draw agreements – Under these agreements, the lender advances us the principal balance and then automatically withdraws a stated amount each business day. Accordingly, there is no stated interest rate. The total remaining daily payments due under these arrangements was $194,170 as of September 30, 2015. The maturity dates of the agreements range from October 2015 to February 2016.

 

G Convertible promissory notes – Represents the outstanding principal balance on two separate convertible promissory notes payable to an entity with interest of 8% annually, due in August 2016. During the third quarter of 2015, the current holder of the notes purchased all of our similar outstanding convertible notes from another entity and consolidated those notes into two new notes. At the option of the holder, the notes may be settled in cash or converted into shares of our common stock at any time beginning 180 days from the date of the notes at a price equal to 61% of the average closing bid price of our common stock during the 10 trading days immediately preceding the date of conversion. In the event we fail to pay the notes when they become due, the balance due under the notes incurs interest at the rate of 22% per annum. The notes contain additional terms and conditions normally included in instruments of this kind, including a right of first refusal wherein we have granted the holders the right to match the terms of any future financing in which we engage on the same terms and contemplated in such future financing. We estimate that the fair value of the conversion feature is minimal, so no value has been assigned to the beneficial conversion feature. During the nine months ended September 30, 2015, $95,395 of principal and $3,912 of interest was converted into 34,768,112 shares of common stock.

 

Debt issuance costs of $100,360 are included in Other assets as of September 30, 2015, and are being amortized over the life of the respective notes.

 

Note 7 — Contingencies

 

Current management discovered that the Company’s former management recorded various obligations to itself and to third parties for expenditures not deemed benefitting the Company or authorized by the Company’s sole director, as required. The amount of these unauthorized expenditures totaled $91,172, including $60,000 in management fees. These expenditures were reversed and are not part of the accompanying financial statements.  While current management believes that none of the $91,172 is an obligation of ours, it is not known what representations were made to these parties or whether we could, in fact, be eventually responsible to pay some or all of the indicated amount.

 

Note 8 — Subsequent Events

 

On October 1, 2015, one of the convertible debt holders converted $2,771 in exchange for 1,365,014 shares of our common stock.

 

On October 15, 2015, one of the convertible debt holders converted $7,086 in exchange for 3,054,275 shares of our common stock.

 

On November 2, 2015, one of the convertible debt holders converted $6,097 in exchange for 3,003,605 shares of our common stock.

 

Note 9 — 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. 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 three and nine months ended September 30, 2015.

 

 

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

 

   Three months ended September 30,  Nine months ended September 30,
   2015  2014  2015  2014
             
Net loss  $(694,565)  $(675,693)  $(2,026,403)  $(1,720,932)
Weighted average outstanding shares of                    
common stock   89,992,553    51,587,729    64,985,322    38,755,604 
Dilutive effect of stock options and warrants   —      —      —      —   
Common stock and equivalents   89,992,553    51,587,729    64,985,322    38,755,604 
                     
Net loss per share – Basic and diluted  $(0.01)  $(0.01)  $(0.03)  $(0.04)

 

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included herein. In connection with, and because we desire to take advantage of, the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995, we caution readers regarding certain forward looking statements in the following discussion and elsewhere in this report and in any other statement made by, or on our behalf, whether or not in future filings with the Securities and Exchange Commission. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward looking statements are necessarily based upon estimates and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward looking statements made by, or on our behalf. We disclaim any obligation to update forward looking statements.

 

Overview

 

On December 31, 2013, Energie Holdings, Inc. (“we”, “us”, “our”, the “Company” or “Holdings”) 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 were met or waived. Upon effectiveness, Holdings issued 33,000,000 “restricted” shares of its common stock, representing approximately 65% of the then issued and outstanding voting securities, in exchange for all of the issued and outstanding member interests of Energie. This transaction is considered to be a capital transaction, rather than a business combination, equivalent to the issuance of ownership interests by Energie for the net assets of Holdings, accompanied by a recapitalization (the “Share Exchange”). 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, Holdings entered into an Agreement and Plan of Merger (the “Merger Agreement”) with two of its then wholly owned subsidiaries, Energie Holdings and Alas Acquisition Company (“Alas”). The Merger Agreement effectively merged Alas with and into Holdings, with Holdings being the surviving corporation. 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 the Company’s entry into the LED lighting industry. The Company’s management also changed. On February 13, 2014, our trading symbol changed to “ELED” to reflect the change in our name and plan of operations.

 

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. Our management team and advisory board is comprised of experienced executives in the lighting industry with recent specific focus on the LED lighting industry. This group has over 300 years of combined experience in this industry.

 

Énergie was founded in 2001 and is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. We have developed an end-to-end production and distribution platform for imported lighting products featuring HID, fluorescent, and LED technologies. Long term contracts with five European manufacturers and one in Taiwan provide us with exclusive North American distribution rights to over 270 total products in 37 categories. After processing any modifications necessary to meet UL standards and building code requirements, the products are sold to customers through a network of over 60 independent lighting sales agents. In addition to a 15% commission structure, we provide our sales force with promotional materials, product training, and technical support.

 

Our principal place of business is located at 4885 Ward Road, Suite 300, Wheat Ridge, Colorado, telephone (720) 963-8055. We also maintain a production and assembly facility in Zeeland, Michigan. Our website is www.energieholdings.com.

 

 

As a result of the Share Exchange, Energie is considered to be the “accounting acquirer” and, accordingly, is treated as the predecessor company. The condensed consolidated financial statements include the results of operations and financial position of Energie for all periods, and the results of operations and financial position of Holdings as of and for the three and nine months ended September 30, 2015 and as of December 31, 2014.

 

Our independent accountants have expressed a "going concern" opinion. Our condensed consolidated financial statements have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.  The condensed consolidated financial statements do not include any adjustment that might result from the outcome of this uncertainty.

 

Results of Operations

 

Comparison of results of operations for the three months ended September 30, 2015 and 2014

 

   Three months ended September 30,      
   2015  2014  Change  %
Sales revenue  $117,002   $248,549   $(131,547)   (53)%
Cost of revenue   (66,767)   (135,509)   68,742    (51)%
  Gross profit   50,235    113,040    (62,805)   (56)%
                     
Total operating expenses   368,898    726,741    (357,843)   (49)%
                     
Interest expense   (365,861)   (104,429)   (261,432)   250%
Other income (expense)   (10,041)   42,437    (52,478)   (124)%
                     
Net loss  $(694,565)  $(675,693)  $(18,872)   3%

 

Sales Revenue, Cost of Revenue and Gross Profit

 

Sales revenue, cost of revenue and gross profit each decreased for the three months ended September 30, 2015, as compared to the same period in 2014, as a result of the lack of availability of working capital in 2015, which made it difficult for us to fund revenue generating activities.

 

Operating expenses

 

   Three months ended September 30,      
   2015  2014  Change  %
Research and development  $64,715   $69,841   $(5,126)   (7)%
Sales and marketing   28,882    55,521    (26,639)   (48)%
General and administrative   275,301    601,379    (326,078)   (54)%
   $368,898   $726,741   $(357,843)   (49)%

 

Operating expenses for the three months ended September 30, 2015, as compared to the same period in 2014, decreased primarily due to: a) expense relating to the Merger and Share Exchange that occurred in 2014, which were not incurred during 2015; and b) the absence of depreciation and amortization of property, plant and equipment and intangible assets, as those assets were fully impaired in the fourth quarter of 2014.

 

Other

 

Increased interest expense resulted from our increase of debt to approximately $6,500,000, an increase of approximately $1,900,000 over 2014 levels. We have been using debt financing to provide supplemental cash to fund our operations.

 

 

Other income consists of miscellaneous income, offset by the expense associated with factoring our accounts receivable, which had decreased activity in 2015 over 2014, as we move towards collecting our receivables rather than factoring them.

 

Comparison of results of operations for the nine months ended September 30, 2015 and 2014

 

   Nine months ended September 30,      
   2015  2014  Change  %
Sales revenue  $421,636   $587,920   $(166,284)   (28)%
Cost of revenue   (212,759)   (313,532)   100,773    (32)%
  Gross profit   208,877    274,388    (65,511)   (24)%
                     
Total operating expenses   1,350,892    1,837,649    (486,757)   (26)%
                     
Interest expense   (856,817)   (284,406)   (572,411)   201%
Other income (expense)   (27,571)   126,735    (154,306)   (122)%
                     
Net loss  $(2,026,403)  $(1,720,932)  $(305,471)   18%

 

Sales Revenue, Cost of Revenue and Gross Profit

 

Sales revenue, cost of revenue and gross profit each decreased for the nine months ended September 30, 2015, as compared to the same period in 2014, as a result of the lack of availability of working capital in 2015, which made it difficult for us to fund revenue generating activities.

 

Operating expenses

 

   Nine months ended September 30,      
   2015  2014  Change  %
Research and development  $192,087   $184,608   $7,479    4%
Sales and marketing   98,784    126,667    (27,883)   (22)%
General and administrative   1,060,021    1,526,374    (466,353)   (31)%
   $1,350,892   $1,837,649   $(486,757)   (26)%
                     

 

Operating expenses for the nine months ended September 30, 2015, as compared to the same period in 2014, decreased primarily due to: a) expense relating to the Merger and Share Exchange that occurred in 2014, which were not incurred during 2015; and b) the absence of depreciation and amortization of property, plant and equipment and intangible assets as those assets were fully impaired in the fourth quarter of 2014.

 

Other

 

Interest expense results from our debt of approximately $6,500,000, an increase of approximately $1,900,000 over 2014 levels. We have been using debt financing to provide supplemental cash to fund our operations.

 

Other income consists of miscellaneous income, offset by the expense associated with factoring our accounts receivable, which had decreased activity in 2015 over 2014, as we move towards collecting our receivables rather than factoring them. In addition, prior to the recapitalization in 2014 we recognized management fee income, whereas in 2015 this is eliminated as an intercompany transaction.

 

Liquidity and Capital Resources

 

At September 30, 2015, we had $3,427 in cash.

 

 

We have not generated positive cash flows from operations. Accordingly, our sources of liquidity may include potential debt and/or equity offerings. We believe that our principal difficulty in our inability to successfully generate positive cash flows has been the lack of available working capital to operate and expand our business. We believe we need a minimum of approximately $2,000,000 in additional working capital to be utilized for 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.

 

To fund our acquisition plan and fund working capital for our continuing operations we are continuing to seek out and discuss financing with potential partners or lenders. While no assurances can be provided, we expect that we will be able to obtain financing to implement our plans.

 

On July 16, 2014 we entered into an Investment Agreement and Registration Rights Agreement with Dutchess Opportunity Fund, II, LP (“Dutchess”). Pursuant to the Investment Agreement, Dutchess committed to purchase, subject to certain restrictions and conditions, up to $5 million of our Common Stock upon issuance by us of a put to Dutchess at a price equal to ninety-four percent (94%) of the lowest daily VWAP (volume weighted average price) of our Common Stock during the five (5) consecutive Trading Days beginning on the Put Notice Date and ending on and including the date that is four (4) Trading Days after such Put Notice Date. The Put Amount shall be equal to up to either 1) two hundred percent (200%) of the average daily volume (U.S. market only) of the Common Stock for the three (3) Trading Days prior to the applicable Put Notice Date, multiplied by the average of the three (3) daily closing prices immediately preceding the Put Date or 2) one hundred thousand dollars ($100,000). The obligation of Dutchess to purchase our shares is contingent upon our filing of a registration statement registering the shares of our Common Stock with the US Securities and Exchange Commission and such registration statement being declared effective, as well as our Common Stock continuing to be listed for trading, among other things. We filed such a registration statement with the SEC on October 6, 2014 and it became effective on November 7, 2014.

 

Also, in the second half of 2014, we entered into four Securities Purchase Agreements with KBM Worldwide, Inc., (“KBM”) wherein we agreed to issue 8% convertible promissory notes in the aggregate principal amount of $182,500. The notes could be 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 failed to pay the notes when they became due, the balance due under the notes incur interest at the rate of 22% per annum. The notes contained additional terms and conditions normally included in instruments of this kind, including a right of first refusal wherein we granted KBM the right to match the terms of any future financing in which we engage on the same terms and contemplated in such future financing. During the nine months ended September 30, 2015, KBM converted $60,395 of principal and $2,120 into 18,620,609 shares of Common Stock. During the third quarter of 2015, KBM sold the outstanding principal and interest remaining on the notes to LG Capital Funding LLC.

 

In December 2014, we entered into a Securities Purchase Agreement, Convertible Note and other ancillary documents with LG Capital Funding LLC, (“LG”) wherein we agreed to issue an 8% convertible promissory note in the principal amount of $35,000. The note was convertible into shares of our Common Stock at a price equal to 65% of the lowest closing bid price of our Common Stock during the 15 trading days immediately preceding the date of conversion. The note contained additional terms and conditions normally included in instruments of this kind. During the nine months ended September 30, 2015, LG converted all $35,000 of principal and $1,792 of accrued interest into 16,147,503 shares of Common Stock. In addition, in August 2015, LG purchased from KBM all of our outstanding convertible notes and accrued interest payable to KBM. The outstanding amount due to KBM 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 nine months ended September 30, 2015, no principal or accrued interest was converted into shares of our common stock in connection with these notes.

 

 

Working Capital

 

Working capital is the amount by which current assets exceed current liabilities. We had negative working capital of $7,504,325 and $4,786,756, respectively, as of September 30, 2015 and December 31, 2014. The increase in negative working capital is due to the increase in debt of approximately $1,200,000 and a resulting increase in accrued liabilities of approximately $350,000 associated with an increase in interest expense. We also currently have insufficient cash flow to meet our debt obligations. This raises substantial doubt about our ability to continue as a going concern.

 

Cash Flows

 

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

 

   Nine months ended September 30,
   2015  2014
Net cash used in operating activities  $(622,963)  $(165,716)
Net cash used in investing activities   —      (25,097)
Net cash provided by financing activities   582,511    171,243 

 

Net cash from operating activities was driven by our net loss, offset by an increase in accounts payable and unpaid interest expense. 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.

 

There was no net cash used in investing activities during the nine month period ended September 30, 2015.  

 

Net cash from financing activities related to additional borrowings under existing debt agreements.

 

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 nine month period ended September 30, 2015.

 

Off-Balance Sheet Arrangements

 

We had no off-balance sheet arrangements as of September 30, 2015 and December 31, 2014.

 

Critical Accounting Estimates

 

Our condensed consolidated financial statements and accompanying notes have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires management to make estimates, judgments and assumptions that affect reported amounts of assets, liabilities, revenues and expenses. We continually evaluate the accounting policies and estimates used to prepare the condensed consolidated financial statements. The estimates are based on historical experience and assumptions believed to be reasonable under current facts and circumstances. Actual amounts and results could differ from these estimates made by management. Certain accounting policies that require significant management estimates and are deemed critical to our results of operations or financial position are discussed in our Annual Report on Form 10-K for the year ended December 31, 2014 in the Critical Accounting Policies section of Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Item 3. Quantitative and Qualitative Disclosures about Market Risk

 

Not applicable

 

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

As required by Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we have carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as of September 30, 2015.   This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer.

 

Based on this evaluation, our CEO and CFO have concluded that our disclosure controls and procedures were not effective as of September 30, 2015, because (a) we have limited entity-level controls, because of the time constraints for our management team; (b) we have a lack of segregation of duties due to limited personnel; and (c) we have not implemented adequate system-based and manual controls.  We have engaged consultants to evaluate our processes and procedures, and to implement, document and test additional internal controls. We can provide no assurance, however, that our internal controls will be effective in the near future.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal control over financial reporting during the last quarterly period covered by this report that have materially affected, or are reasonably likely to affect, our internal control over financial reporting.

 

 

PART II. Other Information

 

Item 1. Legal Proceedings

 

In July 2015, Energie LLC and Harold Hansen, our CEO, 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, Civil Action No. 2015CV32352. We have filed a response to the complaint wherein we have requested a stay of the proceeding in reliance upon a binding arbitration clause that was in the relevant promissory note. As of the date of this Report we are awaiting a ruling by the court to our motion for the stay. We are also engaged in settlement discussions with the plaintiff in this matter and while no assurances can be provided, we believe our settlement efforts will be successful.

 

Item 1A. Risk Factors

 

As a smaller reporting company, we are not required to provide the information required by this Item.

 

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

 

During the three months ended September 30, 2015, two of our lenders converted $65,363 of principal and interest on convertible promissory notes into 28,712,374 of our common shares.

 

Item 3. Defaults upon Senior Securities

 

None.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

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

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

  

       
Date:  November 13, 2015   By: /s/ Harold Hansen
      Harold Hansen
      Principal Executive Officer
       
    By:   /s/ Richard Cole Dennard
      Richard Cole Dennard
      Principal Accounting Officer