UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of earliest event reported: July 2, 2014 (June 6, 2014)
ENERGIE HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation)
000-28562 | 94-2857548 |
(Commission File Number) | (I.R.S. Employer |
Identification No.) |
4885 Ward Road, Suite 300Wheat Ridge, Colorado 80033
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (720)-963-8055
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions.
[_] Written communications pursuant to Rule 425 under the Securities Act (17 CFR240.14d-2(b))
[_] Soliciting material pursuant to Rule 14a-12 under Exchange Act (17 CFR240.14a-12)
[_] Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR240.14d-2(b))
[_] Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR240.13e-4(c))
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EXPLANATORY NOTE
The purpose of this Amendment No. 1 to our Current Report on Form 8-K (the “Form 8-K”) filed on June 10, 2014, is to submit updated financial information along with the related exhibits. As disclosed in the Form 8-K/A filed on June 12, 2014, the previous Form 8-K was inadvertently and prematurely filed through a miscommunication with the Company’s EDGAR filer.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Current Report contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based upon our current assumptions, expectations and beliefs concerning future developments and their potential effect on our business. In some cases, you can identify forward-looking statements by the following words: “may,” “will,” “could,” “would,” “should,” “expect,” “intend,” “plan,” “anticipate,” “believe,” “approximately,” “estimate,” “predict,” “project,” “potential,” “continue,” “ongoing,” or the negative of these terms or other comparable terminology, although the absence of these words does not necessarily mean that a statement is not forward-looking. This information may involve known and unknown risks, uncertainties and other factors which may cause our actual results, performance or achievements to be materially different from the future results, performance or achievements expressed or implied by any forward-looking statements.
Factors that may cause or contribute actual results to differ from these forward-looking statements include, but are not limited to, for example:
• | adverse economic conditions; |
• | risks related to the construction market; |
• | risks related to the U.S. import market; |
• | the inability to attract and retain qualified senior management and technical personnel; |
• | other risks and uncertainties related to the changing lighting market and our business strategy. |
All forward-looking statements speak only as of the date of this report. We undertake no obligation to update any forward-looking statements or other information contained herein. 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.
Information regarding market and industry statistics contained in this Current Report is included based on information available to us that we believe is accurate. It is generally based on academic and other publications that are not produced for purposes of securities offerings or economic analysis. Forecasts and other forward-looking information obtained from these sources are subject to the same qualifications and the additional uncertainties accompanying any estimates of future market size, revenue and market acceptance of products and services. Except as required by U.S. federal securities laws, we have no obligation to update forward-looking information to reflect actual results or changes in assumptions or other factors that could affect those statements. See the section entitled “Risk Factors ” for a more detailed discussion of risks and uncertainties that may have an impact on our future results.
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Item 1.01. Entry into a Material Definitive Agreement.
Entry into a Share Exchange Agreement
On December 31, 2013, Alas Aviation Corp. (the “Company” or “Alas”) entered into a Share Exchange Agreement (the “Share Exchange”) with OELC, LLC, a Delaware limited liability company (“OELC”) and its wholly owned subsidiary, Énergie, LLC (collectively OELC, LLC and Énergie,, LLC are referred to as, “Énergie”). These interests in OELC are being exchanged for 33,000,000 fully paid non-assessable shares of Alas. Following closing of the Share Exchange Agreement, Alas Aviation will hold 100% of the financial and governance rights of OELC and through its ownership of OELC, 100% of the operating subsidiary, Énergie.
Reorganization into a Holding Company Structure
The Merger
Alas Aviation Corp., in anticipation of the Share Exchange wherein Energie would become a wholly owned subsidiary of Alas Aviation Corp., established another wholly owned subsidiary in Delaware under the name “Energie Holdings, Inc.” On January 27, 2014, pursuant to the Delaware Holding Company formation statute, DGCL Section 251(g), the Company entered into an Agreement and Plan of Merger into a holding company structure (the “Merger Agreement") with Energie Holdings, Inc. ("Energie") and Alas Acquisition Company ("AAC"), both wholly-owned subsidiaries of the Company. The Agreement provided for the merger of Alas Aviation Corp. with and into Energie Holdings, Inc., with Energie Holdings, Inc. being the surviving corporation in that merger. Contemporaneously with the merger of Alas Aviation Corp. with and into Energie Holdings, Inc. pursuant to the Holding Company Formation Statute (and the Merger Agreement), the shareholders of Alas Aviation Corp. became shareholders of Energie Holdings, Inc. on a one share for one share basis pursuant to the Merger Agreement.
As a result of this reorganization into a holding company structure, Energie Holdings, Inc. became the publicly quoted parent holding company with AAC becoming a wholly-owned subsidiary of Energie Holdings, Inc. and Alas Aviation Corp. ceased to exist. Upon consummation of the Merger Agreement, Energie Holding’s common stock was deemed to be registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12g-3(a) promulgated thereunder. For purposes of Rule 12g-3(a), Energie Holdings is the successor issuer to Alas Aviation Corp..
The description of the Agreement and Plan of Merger set forth in this Item 1.01 is qualified in its entirety by reference to the full text of the Agreement and Plan of Merger, a copy of which is attached hereto as Exhibit 10.1 and is incorporated by reference into this Item 1.01.
Effect of the Merger on the Share Exchange
The effect of the merger described above was that OELC, LLC and Energie, LLC had a share exchange agreement with Energie Holdings, Inc. as the successor to Alas Aviation Corp. The merger had the practical effect of changing the name of Alas Aviation Corp. in advance of the consummation of the Share Exchange among other benefits.
The closing of the Share Exchange Agreement was conditioned upon certain, limited customary representations and warranties as well as conditions to close such as the total issued and outstanding shares of the Company being limited to 51,000,000 issued and outstanding post closing as well as completion of a PCAOB financial audit (following execution of the Share Exchange an additional 400,000 shares were issued and the limitation of 51,000,000 shares was waived allowing for the aforementioned issuance). Following the closing of the Share Exchange Agreement, the Company intends to continue OELC and Énergie’s historical businesses and proposed businesses. Our historical business and operations will continue independently through a wholly owned subsidiary.
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Reference is made to Item 2.01 for a description of the Share Exchange Agreement and the Agreement and Plan of Merger (the “Transaction Documents”). The description of the Transaction Documents is qualified in its entirety by reference to the complete text of the Transaction Documents, which are incorporated by reference herein. You are urged to read the entire transaction documents and the other exhibits attached hereto.
All references to us, we, our, Alas, Energie and the Company refer to Energie Holdings, Inc. and its subsidiaries and their respective businesses following the consummation of the transactions under the transaction documents, unless the context otherwise requires.
Item 2.01. Completion of Acquisition or Disposition of Assets.
On the Effective Date, as a result of the Exchange Agreement, the remaining conditions to Closing were met and we acquired 100% of the issued and outstanding equity interests of OELC, LLC and its operating subsidiary, Énergie, LLC in exchange for 33,00,000 shares of our Common Stock.
Pursuant to the terms of the Exchange Agreement, our sole member of the board of directors (the “Board”), Frank Drechsler was replaced with Harold Hansen. In addition, the Board appointed Harold Hansen to serve as Chairman of the Board, Harold Hansen to continue to serve as Chief Executive Officer and President, with Richard Cole Dennard to serve as Chief Financial Officer and Lee Barratt to serve as Secretary. Because of the change in the composition of our board of directors and the issuance of securities pursuant to the Share Exchange, a change-of-control of our Company occurred on the Closing Date.
According to the terms of the Share Exchange Agreement, we now have 51,000,000 shares of Common Stock issued and outstanding (excluding the additional 400,000 shares that were issued following execution of the Share Exchange Agreement). The pre-existing stockholders of the Company and their designees now own approximately 35.29% of the Company’s issued and outstanding Common Stock after the Share Exchange without taking into account the shares issuable under the Company’s anticipated employee stock option plan if such plan is adopted.
As stated, on or about January 27, 2014, through our merger into a holding company structure pursuant to the Delaware Holding Company Statute, Section 251(g), in anticipation of Closing on the Share Exchange, we effected a change in our corporate name from Alas Aviation Corp. to Energie Holdings, Inc. by filing a Certificate of Merger (“Certificate of Merger”) with the Delaware Secretary of State’s Office, whereby our newly established and wholly owned subsidiary (formed, in part, for the purpose of effecting the change in our corporate name) was merged with and into the Company and the Company adopted the name of the subsidiary, Energie Holdings, Inc.. We effected the name change to better reflect the nature of the business operations expected to be acquired as of the date of the filing of the Certificate of Merger.
As discussed in more detail in Item 5.06 of this report, as a result of the consummation of the transactions under the Transaction Documents, (i) Energie Holdings, Inc. is not a shell company as such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, and (ii) we acquired control of OELC, LLC and its subsidiary Energie, LLC, which are engaged in the business of LED lighting. In the Current Report filed on form 8-K we are providing information that would be included in a Form 10 had we been required to file such form. Please note that the information provided below relates to the combined entity after the acquisition of OELC, LLC and Energie LLC. Information in response to this Item 2.01 below is keyed to the item numbers of Form 10.
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Item 1. Description of Business. |
DESCRIPTION OF BUSINESS
Background
Energie Holdings, Inc. is 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 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 group has over 100 years of combined experience in this industry.
The first acquisition of Energie Holdings was Énergie, LLC. The public company management decided to adopt the Énergie, name to capitalize on Énergie, LLC’s 12 years in the lighting industry. Énergie, LLC was founded in 2001 to provide specialized interior lighting solutions to the architecture and interior design markets. The Company is headquartered in Wheat Ridge, Colorado and also maintains a production and assembly facility in Zeeland, Michigan. Énergie, LLC’s business is based upon the company’s partnership with various European suppliers of disruptive highly efficient LED lighting technology. The Company and Energie, LLC are capitalizing on these European lighting companies’ desire to penetrate the 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. The Company and Énergie’s 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 to access innovative European products and the desires of European manufacturers to find a cost effective way to penetrate the North American markets. As these European partners are continually developing new products, Énergie collaborates in the fixture design process and has the right to launch such products in North America. In many cases, Énergie partners will co-fund the upfront costs associated with launching new products however there continue to be needs for additional working capital to accelerate its growth.
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. In addition, 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.
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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.
LED Lighting Industry Trends
LEDs are semiconductor-based devices that generate light. As the cost of LEDs decreases 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.
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 leading consulting company, 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, we believe LED adoption should continue to expand. For example, LED lamps are currently outselling CFL lamps in Japan as the quality of light is far superior to CFLs. In 2011, an analysis of the global lighting market by a leading consulting company predicts that the LED market share for new construction will grow from 7% in 2010 to 70% in 2020. In the same period, LED market share for replacement lamps and retrofits will soar from 5% to 53%. In dollars, the same study estimated that the overall LED lighting market will grow by about 30% per year and reach approximately $84 billion in 2020.
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Legislative Influences Spur Market Adoption of Energy Efficient LED Lighting. Government regulations, such as initiatives by the United States Department of Energy and the Environmental Protection Agency’s Energy Star Certification Program, are driving adoption of more energy efficient lighting solutions. Energy Star sets industry-wide international recommendations for lighting products that outline efficiency and performance criteria, helping manufacturers promote their products and purchasers better understand lighting products. Governments are also adopting or proposing legislation to promote energy efficiency and conservation. Lower energy consumption translates into lower electricity generation, often from coal power plants, and thus can significantly lower carbon emissions. Legislative actions to promote energy efficiency can beneficially impact the LED lighting market in the countries adopting such legislation and other countries, as well. For example, several countries have effectively banned the 40, 60, and100-watt incandescent light bulbs and are expected to progressively apply these restrictions to lower-wattage bulbs. In addition, LED lighting solutions are free of hazardous materials such as mercury, which can be harmful to the environment. Any restrictions on the use of hazardous substances could adversely affect one of the LED lamp’s primary competitors, the CFL market.
Summary of Current Business of the Company
The business plan for Energie Holdings is to acquire and grow complementary LED based lighting fixture companies. Each acquisition will continue to operate under its own brand. Energie Holdings will provide access to LED technology and suppliers, appropriate capital funding and general business practices oversight and where appropriate some support services will be provided to gain greater leverage on cost. Examples could include: accounting, legal, employee benefits and payroll services, and common component bulk purchasing contracts.
The first acquisition for Energie Holdings is Énergie, LLC which is a wholly owned subsidiary. It will continue to operate as a stand-alone business. . Énergie LLC 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 spaces. The subsidiary company targets the $4 billion architectural, specification-grade lighting fixture segment 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
[] 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, Énergie LLC cultivates relationships and builds its 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. The Company maintains a network of over 60 sales agencies across North America to represent its products. Énergie LLC supports its agents with sales and marketing resources to help drive “sell through” of Énergie branded products. All products are assembled to Underwriter’s Laboratory requirements in our factory to control quality and meet lead time requirements of the customers.
Énergie LLC’s business model and product strategy is based upon collaboration with leading European lighting companies. The North American architectural and design community has long recognized that European lighting manufacturers have distinctive, innovative and technologically advanced product offerings. Arguably, 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, unprofitable and many have failed. 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.
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Our Growth Strategy
The objective of Energie Holdings 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 objective is to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting.
Key elements of our share value price 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. Energie Holdings 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. Energie Holdings intends to provide the appropriate capital to develop and launch LED lighting fixtures through our subsidiaries.
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. Energie Holdings 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 specifier and end-user education of the benefits of LED lighting is key. There is a growing need for unique advances in LED engineering and the market is beginning to embrace the technology. Through education, we intend to create a sales force and distribution network that provides the knowledge necessary to drive the commercial market. By introducing new products with longer life and lower cost we believe that the LED market and its acceptance will continue to grow at a rapid rate.
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. 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.
Competition
We currently face competition from both 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.
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In the general illumination market, we compete with traditional lighting companies that include Acuity Brands Lighting, Inc., Cooper Lighting (a division of Cooper Industries, Inc.), Hubbell Lighting, Inc. (a division of Hubbell Incorporated), Juno Lighting Group (a division of Schneider Electric SA), GE Lighting and Royal Philips Lighting (a division of Koninklijke Philips Electronics 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 |
• | Responsiveness to customers |
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.
Employees
As of the date of this Current Report, the Company has three full-time employees, Harold Hansen, Lee Barratt and Veda Ferlazzo Clark, and Richard Cole Dennard working as an independent contractor. Our wholly owned subsidiary has seven additional employees and from time to time employees are engaged on a temporary basis as needed to meet production schedules.
Legal Proceedings
Neither the Company nor its subsidiaries knows of any material, existing or pending legal proceedings against them, nor are any of them involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which the Company’s or Subsidiaries’ directors, officers or any affiliates, or any registered or beneficial shareholder, are an adverse party or have a material interest adverse to its interest.
Item 1A. Risk Factors.
RISK FACTORS
INVESTING IN THE COMPANY’S COMMON STOCK INVOLVES A HIGH DEGREE OF RISK. IF ANY OF THE FOLLOWING RISKS ACTUALLY MATERIALIZES, THE COMPANY’S BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS WOULD SUFFER. IF ANY OF THE FOLLOWING OCCURS, OUR BUSINESS, FINANCIAL CONDITION AND RESULTS OF OPERATIONS COULD SUFFER. IN SUCH CASE, THE TRADING PRICE OF OUR COMMON STOCK COULD ALSO DECLINE. WE OPERATE IN A CONTINUALLY CHANGING BUSINESS ENVIRONMENT. IN THIS ENVIRONMENT, NEW RISKS MAY EMERGE AND ALREADY IDENTIFIED RISKS MAY VARY SIGNIFICANTLY IN TERMS OF IMPACT AND LIKELIHOOD OF OCCURRENCE. MANAGEMENT CANNOT PREDICT SUCH DEVELOPMENTS, NOR CAN IT ASSESS THE IMPACT, IF ANY, ON OUR BUSINESS OF SUCH NEW RISK FACTORS OR OF EVENTS DESCRIBED IN ANY FORWARD-LOOKING STATEMENTS.
An investment in our Common Stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this Current Report filed on Form 8-K before investing in our Common Stock. The Company’s business is subject to numerous risk factors, including but not limited to the following:
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Risks Related to Our Business
Our independent auditors have expressed substantial doubt about our ability to continue as a going concern, which may hinder our ability to obtain future financing.
The report of our independent auditors on our financial statements for the year ended December 31, 2013 included an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern. Our auditors’ doubts are based on our incurring significant net loss and our working capital deficit position. Our ability to continue as a going concern will be determined by our ability to obtain additional funding in the short term to enable us to realize the commercialization of our planned business operations. Our financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The Company was a development stage company that has had no operating history since June 2006, its only revenues are from its subsidiary OELC, LLC.
Until the acquisition of OELC, LLC, the Company had no assets or financial resources other than those it received from advances from shareholders. It will, in all likelihood continue to sustain losses until it is able to reduce its costs of borrowing, increase its revenue and margins, close on an acquisition that is accretive to earnings or additional funding is obtained. This may result in the Company incurring additional net operating losses that will increase continuously until it can secure additional funding or can consummate one of its other anticipated acquisitions. There is no assurance that the Company can identify such a future business opportunity and consummate such a joint venture or business combination.
If we fail to retain our key personnel or if we fail to attract additional qualified personnel, we may not be able to achieve our anticipated level of growth and our business could suffer.
Our future success and ability to implement our business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions of members of our senior management team and key technical personnel, each of whom would be difficult to replace. All of our employees, including our senior management, are free to terminate their employment relationships with us at any time. Competition for highly skilled technical people is extremely intense, and we face challenges identifying, hiring and retaining qualified personnel in many areas of our business. If we fail to retain our senior management and other key personnel or if we fail to attract additional qualified personnel, we may not be able to achieve our strategic objectives and our business could suffer.
Completion of Marketing Concept.
There is no assurance that the Company will be able to implement its marketing concept as planned. Accordingly, the Company may not have sufficient capital to pay the amounts due under the Note(s).
Competition.
There is widespread competition in the lighting industry. Although the Company believes it will enjoy a competitive advantage with the proprietary intellectual property related to its products through its exclusive distribution agreements, other companies may develop competing products. The Company’s competition includes larger, more experienced and stronger capitalized companies than the Company. No assurance can be given that the Company will be able to compete successfully with such competitors in the future. Therefore, investment in the Note, the Warrants and the Common Stock issuable upon exercise or conversion is considered a risky and speculative investment.
General Economic Conditions.
The Company is attempting to exploit a new product at a time of generally recognized national economic slowdown and in particular a slowdown in the building and construction industries. The Company may experience difficulty in selling, even where the Company’s products and services are enthusiastically received.
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Need for Additional Financing.
The Company pursued a strategy of becoming a publicly traded company as part of its acquisition strategy for growth, to the extent that the price of its Common Stock is lower than expected, it may not be in a position to use its equity as consideration for target acquisitions or it may be necessary for the Company to provide the equity holders of potential targets with more equity than it would deem desirable. As a result it may be necessary for the Company to fund these acquisitions with the sale of its equity securities (common or preferred) or with debt. There can be no assurance that the Company’s operations or those of its intended acquisition targets will supply the revenues necessary for such expansion. There can be no assurances given that such financing will be available in the amount required or, if available, that such financing may be obtained on terms satisfactory to the Company.
Our new products may not achieve broad market acceptance, which would prevent us from increasing our revenue and market share.
If we fail to achieve broad market acceptance of new products, there could be an adverse impact on our ability to increase our revenue, gain market share and achieve and sustain profitability. Our ability to achieve broad market acceptance for additional products will be impacted by a number of factors, including:
[] our ability to timely introduce and complete new designs and timely qualify and certify our products;
[] whether the owners of large industrial or commercial facilities will continue to be willing to purchase our products given our current size of operations;
[] our ability to produce LED lighting systems that compete favorably against other solutions on the basis of price, quality, design, reliability and performance;
[] our ability to choose appropriate products from our suppliers that we will be able to modify to comply with local standards and regulatory requirements, as well as potential in-country manufacturing requirements; and
[] our ability to continue to develop and maintain successful relationships with our customers and suppliers.
In addition, our ability to achieve increased market share will depend on our ability to increase sales to commercial, residential and industrial facilities. These potential customers often have in certain cases made substantial investments in other types of lighting systems, which may create challenges for us to achieve their adoption of our LED solutions.
The LED lighting industry is highly competitive and we expect to face increased competition as new and existing competitors introduce competing products, which could negatively impact our results of operations and market share.
Marketing and selling our LED solutions against traditional lighting solutions is highly competitive, and we expect competition to intensify as new and existing competitors enter the LED lighting market. We believe that there are possibly a number of companies developing LED and other products that will compete directly with our LED systems.
Some of our competitors have announced plans to introduce LED products that could compete with our systems. Several of our existing and potential competitors are significantly larger, have greater financial, marketing, distribution, customer support and other resources, are more established than we are, and have significantly better brand recognition. Some of our competitors have more resources to develop or acquire, and more experience in developing or acquiring, new products and technologies and in creating market awareness for these products and technologies. Further, certain competitors may be able to develop new products more quickly than we can and may be able to develop products that are more reliable or which provide more functionality than ours. In addition, some of our competitors have the financial resources to offer competitive products at aggressive or below-market pricing levels, which could cause us to lose sales or market share or require us to lower prices for our LED systems in order to compete effectively. If we have to reduce our prices by more than we anticipated, or if we are unable to offset any future reductions in our average selling prices by increasing our sales volume, reducing our costs and expenses or introducing new products, our gross profit would suffer.
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A drop in the price of electricity derived from the utility grid or from alternative energy sources may harm our business, financial condition and results of operations.
We believe that a decision to purchase an LED system is strongly influenced by the cost of electricity. Decreases in the prices of electricity would make it more difficult for all LED systems to compete. In particular, growth in unconventional natural gas production and an increase in global liquefied natural gas capacity are expected to keep natural gas prices relatively low for the foreseeable future. Persistent low natural gas prices, lower prices of electricity produced from other energy sources, such as nuclear power, or improvements to the utility infrastructure could reduce the retail price of electricity from the utility grid, making the purchase of an LED less economically attractive and lowering sales of our LED lighting systems. In addition, energy conservation technologies and public initiatives to reduce demand for electricity also could cause a fall in the retail price of electricity from the utility grid which could negatively impact our sales.
Energie LLC depends upon a few manufacturers. Our operations could be disrupted if we encounter problems with these manufacturers.
We have limited internal manufacturing capabilities, and rely primarily upon the products of third party manufacturers. Our manufacturing facility is focused largely on assembly and modification of existing products manufactured by third parties overseas. Our reliance on those manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability, delivery schedules, manufacturing yields and costs.
The revenues that our manufacturers generate from our orders may represent a relatively small percentage of their overall revenues. As a result, fulfilling our orders may not be considered a priority in the event of constrained ability to fulfill all of their customer obligations in a timely manner. In addition, the facilities in which our products are manufactured are located outside of the United States. We believe that the location of these facilities outside of the United States increases supply risk, including the risk of supply interruptions or reductions in manufacturing quality or controls.
If our manufacturers were unable or unwilling to manufacture our products in required volumes and at high quality levels or renew existing terms under supply agreements, we would have to identify, qualify and select acceptable alternative manufacturers. An alternative contract manufacturer may not be available to us when needed or may not be in a position to satisfy our quality or production requirements on commercially reasonable terms, including price. Further, in most instances the products we purchase from any particular manufacturer are proprietary to that manufacturer and it would not be possible to source the same product from another manufacturer. Any significant interruption in manufacturing would require us to reduce our supply of products to our customers, which in turn would reduce our revenues, harm our relationships with our customers and damage our relationships with our distributors and end customers and cause us to forego potential revenue opportunities.
If we are unable to effectively develop, manage and expand our distribution channels for our products, our operating results may suffer.
If we are unable to effectively penetrate additional business channels or develop alternate channels to ensure our products are reaching the appropriate customer base, our financial results may be adversely impacted. In addition, if we successfully penetrate or develop these channels, we cannot guarantee that customers will accept our products or that we will be able to deliver them in the timeline established by our customers.
We intend to sell a substantial portion of our products to electrical distributors. We will rely on our lighting sales agents to develop and expand their customer base as well as anticipate demand from their customers. If they are not successful, our growth and profitability may be adversely impacted.
The markets in which we operate are highly competitive and have evolving technical requirements.
The markets for our products are highly competitive. In the LED market, we compete with companies that manufacture or sell LED chips and LED components as well as those that sell LED lighting products. Competitors continue to offer new LED products with aggressive pricing and improved performance. Competitive pricing pressures may change and could impact our gross margins.
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We will operate in an industry that is subject to significant fluctuation in supply and demand that affects our LED revenue and profitability.
The LED lighting industry is in the early stages of adoption and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion, evolving standards, short product life-cycles and fluctuations in product supply and demand. The industry has experienced significant fluctuations, often in connection with, or in anticipation of product cycles and declines in general economic conditions. These fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels and increased pricing pressure.
The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance or other aspects of LED lighting or changes in government and/or industry policies, standards or regulations that discourage the use of certain traditional lighting technologies, could impact the demand for our LED products.
The adoption of or changes in government and/or industry policies, standards or regulations relating to the efficiency, performance or other aspects of LED lighting may impact the demand for our LED products. Demand for our LED products may also be impacted by changes in government and/or industry policies, standards or regulations that discourage the use of certain traditional lighting technologies. For example, the Energy Independence and Security Act of 2007 in the United States imposed constraints on the sale of incandescent lights which began in 2012. These constraints may be eliminated or delayed by legislative action, which could have a negative impact on demand for our products.
Depressed general economic conditions, including the strength of the construction market, may adversely affect our operating results and financial condition.
Our business is sensitive to changes in general economic conditions, both inside and outside the United States. An economic downturn may adversely impact our business. Sales of our lighting products depend significantly upon the level of new building and renovation construction, which is affected by commercial and housing market trends, interest rates and the weather. In addition, due to the seasonality of construction and the sales of lighting products, our revenue and income have tended to be significantly lower in the first quarter of each year. We may experience substantial fluctuations in our operating results from period to period as a consequence of these factors. Slow growth in the economy or an economic downturn could adversely affect our ability to meet our working capital requirements and growth objectives, or could otherwise adversely affect our business, financial condition and results of operations. As a result, any general or market-specific economic downturns, particularly those affecting new building construction and renovation, or that cause end-users to reduce or delay their purchases of lighting products, services, or retrofit activities, would have a material adverse effect on our business, cash flows, financial condition and results of operations.
Our operating results may fluctuate due to factors that are difficult to forecast and not within our control.
Our past operating results may not be accurate indicators of future performance, and you should not rely on such results to predict our future performance. Our operating results have fluctuated significantly in the past, and could fluctuate in the future. Factors that may contribute to fluctuations include:
[] changes in aggregate capital spending, cyclicality and other economic conditions, or domestic and international demand in the industries we serve;
[] our ability to effectively manage our working capital;
[] our ability to satisfy consumer demands in a timely and cost-effective manner;
[] pricing and available of labor and materials;
[] our inability to adjust certain fixed costs and expenses for changes in demand;
[] seasonal fluctuations in demand and our revenue; and
[] disruption in component supply from foreign vendors.
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If LED lighting technology fails to gain widespread market acceptance or we are unable to respond effectively as new lighting technologies and market trends emerge, our competitive position and our ability to generate revenue and profits may be harmed.
To be successful, we depend on continued market acceptance of our existing LED technology. Although adoption of LED lighting continues to grow, the use of LED lighting products for general illumination is in its early stages, is still limited and faces significant challenges. Potential customers may be reluctant to adopt LED lighting products as an alternative to traditional lighting technology because of its higher initial cost or perceived risks relating to its novelty, reliability, usefulness, light quality and cost-effectiveness when compared to other established lighting sources available in the market. Changes in economic and market conditions may also affect the marketability of some traditional lighting technologies such as declining energy prices in certain regions or countries may favor existing lighting technologies that are less energy efficient, reducing the rate of adoption for LED lighting products in those areas. Even if LED lighting products continue to achieve performance improvements and cost reductions, limited customer awareness of the benefits of LED lighting products, lack of widely accepted standards governing LED lighting products and customer unwillingness to adopt LED lighting products in favor of entrenched solutions could significantly limit the demand for LED lighting products and adversely impact our results of operations. In addition, we will need to keep pace with rapid changes in LED technology, changing customer requirements, new product introductions by competitors and evolving industry standards, any of which could render our existing products obsolete if we fail to respond in a timely manner. Development of new products incorporating advanced technology is a complex process subject to numerous uncertainties. We have previously experienced, and could in the future, experience delays in the introduction of new products. If effective new sources of light other than LEDs are discovered, our current products and technologies could become less competitive or obsolete. If others develop innovative proprietary lighting technology that is superior to ours, or if we fail to accurately anticipate technology and market trends, respond on a timely basis with our own development of new products and enhancements to existing products, and achieve broad market acceptance of these products and enhancements, our competitive position may be harmed and we may not achieve sufficient growth in our net sales to attain or sustain profitability.
If we are unable to manage any future growth effectively, our profitability and liquidity could be adversely affected.
Our ability to achieve our desired growth depends on our execution in functional areas such as management, sales and marketing, and general administration and operations. To manage any future growth, we must continue to improve our distribution, operational and financial processes and systems and expand, train and manage our employee base. If we are unable to manage our growth effectively, our business and results of operations could be adversely affected.
If we are not able to compete effectively against companies with greater resources, our prospects for future success will be jeopardized.
The lighting industry is highly competitive. In the high performance lighting markets in which we sell our advanced lighting systems, our products compete with lighting products utilizing traditional lighting technology provided by many vendors. Additionally, in the advanced lighting markets in which we have primarily competed to date, competition has largely been fragmented among a number of small manufacturers. However, some of our competitors, particularly those that offer traditional lighting products, are larger, established companies with greater resources to devote to research and development, manufacturing and marketing, as well as greater brand recognition.
Moreover, we expect to encounter competition from an even greater number of companies in the general lighting market. Our competitors are expected to include the large, established companies in the general lighting industry, such as GE, Inc., Osram Sylvania, CREE, Inc. and Royal Philips Electronics. Each of these competitors has undertaken initiatives to develop LED technology. These companies have global marketing capabilities and substantially greater resources to devote to research and development and other aspects of the development, manufacture and marketing of LED lighting products than we possess. The relatively low barriers to entry into the lighting industry and the limited proprietary nature of many lighting products also permit new competitors to enter the industry easily.
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In each of our markets, we also anticipate the possibility that LED manufacturers, including those that currently supply us with LEDs, may seek to compete with us. Our competitors’ lighting technologies and products may be more readily accepted by customers than our products. Moreover, if one or more of our competitors or suppliers were to merge with one another, the change in competitive landscape could adversely affect our competitive position. Additionally, to the extent that competition in our markets intensifies, we may be required to reduce our prices in order to remain competitive. If we do not compete effectively, or if we reduce our prices without making commensurate reductions in our costs, our net sales and profitability and our future prospects for success may be harmed.
We depend on independent sales representatives for a substantial portion of our net sales, and the failure to manage our relationships with these third parties, or the termination of these relationships, could cause our net sales to decline and harm our business.
We rely significantly on indirect sales channels to market and sell our products. Most of our products are sold through third-party independent sales representatives. In addition, these parties provide technical sales support to end-users. Our current agreements within these sales channels are generally non-exclusive, meaning they can sell products of our competitors. We anticipate that any such agreements we enter into in the future will be on similar terms. Furthermore, our agreements are generally short-term, and can be cancelled by these sales channels without significant financial consequence. We cannot control how these sales representatives perform and cannot be certain that we or end-users will be satisfied by their performance. If these sales representatives significantly change their focus away from us, or change their historical pattern of selling products from us, there could be a significant impact on our net sales and profits.
Our products could contain defects or they may be installed or operated incorrectly, which could reduce sales of those products or result in claims against us.
Despite product testing, defects may be found in our existing or future products. This could result in, among other things, a delay in the recognition or loss of net sales, loss of market share or failure to achieve market acceptance. These defects could cause us to incur significant warranty, support and repair costs, divert the attention of our engineering personnel from our product development efforts, and harm our relationship with our customers. The occurrence of these problems could result in the delay or loss of market acceptance of our lighting products and would likely harm our business. Some of our products use line voltages (such as 120 or 277 AC), which involve enhanced risk of electrical shock, injury or death in the event of a short circuit or other malfunction. Defects, integration issues or other performance problems in our lighting products could result in personal injury or financial or other damages to end-users or could damage market acceptance of our products. Our customers and end-users could also seek damages from us for their losses. A product liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.
The cost of compliance with environmental, health and safety laws and regulations could adversely affect our results of operations or financial condition.
We are subject to a broad range of environmental, health, and safety laws and regulations. These laws and regulations impose increasingly stringent environmental, health, and safety protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment, and discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination, and working conditions for our employees. Some environmental laws, such as Superfund, the Clean Water Act, and comparable laws in U.S. states and other jurisdictions world-wide, impose joint and several liability for the cost of environmental remediation, natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct, on those persons who contributed to the release of a hazardous substance into the environment. We may also be affected by future laws or regulations, including those imposed in response to energy, climate change, geopolitical, or similar concerns. These laws may impact the sourcing of raw materials and the manufacture and distribution of our products and place restrictions and other requirements on the products that we can sell in certain geographical locations.
Energie LLC operations rely on international suppliers and are subject to risks associated with operating in international markets.
All of our products originate from foreign suppliers. International business operations are subject to inherent risks, including, among others:
[] difficulty in enforcing agreements through foreign legal systems,
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[] unexpected changes in regulatory requirements, tariffs, and other trade barriers or restrictions,
[] potentially adverse tax consequences,
[] the burdens of compliance with the U.S. Foreign Corrupt Practices Act, similar anti-bribery laws in other countries, and a wide variety of foreign laws,
[] import and export license requirements and restrictions of the United States and each other country in which we operate,
[] exposure to different legal standards and reduced protection for intellectual property rights in some countries,
[] currency fluctuations and restrictions, and
[] political, social, and economic instability, including war and the threat of war, acts of terrorism, pandemics, boycotts, curtailment of trade or other business restrictions.
If we do not anticipate and effectively manage these risks, these factors may have a material adverse impact on our sales, thus lowering our total revenues.
We believe that certification and compliance issues are critical to adoption of our lighting systems, and failure to obtain such certification or compliance would harm our business.
We are required to comply with certain legal requirements governing the materials in our products. Although we are not aware of any efforts to amend any existing legal requirements or implement new legal requirements in a manner with which we cannot comply, our net sales might be adversely affected if such an amendment or implementation were to occur.
Moreover, although not legally required to do so, we strive to obtain certification for substantially all our products. In the United States, we seek certification on substantially all of our products from Underwriters Laboratories (UL®) or Intertek Testing Services (ETL®). Although we believe that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals, we cannot ensure that we will be able to obtain any such certifications for our new products or that, if certification standards are amended, that we will be able to maintain such certifications for our existing products. Moreover, although we are not aware of any effort to amend any existing certification standard or implement a new certification standard in a manner that would render us unable to maintain certification for our existing products or obtain ratification for new products, our net sales might be adversely affected if such an amendment or implementation were to occur.
Failure to effectively estimate employer-sponsored health insurance premiums and incremental costs due to the Affordable Healthcare Act could materially and adversely affect our results of operations, financial position, and cash flows.
In March 2010, the United States federal government enacted comprehensive health care reform legislation, which, among other things, includes guaranteed coverage requirements, eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can be rescinded, and imposes new taxes on health insurers, self-insured companies, and health care benefits. The legislation imposes implementation effective dates that began in 2010 and extend through 2020 with many of the changes requiring additional guidance from federal agencies and regulations. Possible adverse effects could include increased costs, exposure to expanded liability, and requirements for us to revise the ways in which healthcare and other benefits are provided to employees. We continue to monitor the potential impacts the health care reform legislation will have on our financial results.
We may be subject to legal claims against us or claims by us which could have a significant impact on our resulting financial performance.
At any given time, we may be subject to litigation, the disposition of which may have an adverse effect upon our business, financial condition, or results of operation.
Energie LLC has significant exposure to economic risk in Europe because the majority of our supply partners are located in Europe.
Because the majority of our products are manufactured by European suppliers, we are subject to all of the general European economic risks faced by them.
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Countries in Europe may be significantly affected by fiscal and monetary controls implemented by the European Union (“EU”) and European Economic and Monetary Union (“EMU”), which require member countries to comply with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary controls. Decreasing imports or exports, changes in governmental or other regulations on trade, changes in the exchange rate of the Euro, the default or threat of default by one or more EU member countries on its sovereign debt, and/or an economic recession in one or more EU member countries may have a significant adverse effect on the economies of other EU member countries and major trading partners outside Europe.
In recent years, the European financial markets have experienced volatility and adverse trends due to concerns about economic downturns, rising government debt levels and the possible default of government debt in several European countries, including Greece, Ireland, Italy, Portugal and Spain. Several countries, including Greece and Italy, have agreed to multi-year bailout loans from the European Central Bank, International Monetary Fund, and other institutions. A default or debt restructuring by any European country, such as the restructuring of Greece’s outstanding sovereign debt, can adversely impact holders of that country’s debt and sellers of credit default swaps linked to that country’s creditworthiness, which may be located in countries other than those listed above, and can affect exposures to other EU countries and their businesses as well. The manner in which the EU and EMU responded to the global recession and sovereign debt issues raised questions about their ability to react quickly to rising borrowing costs and the potential default by Greece and other countries of their sovereign debt and revealed a lack of cohesion in dealing with the fiscal problems of member states. To address budget deficits and public debt concerns, a number of European countries have imposed strict austerity measures and comprehensive financial and labor market reforms, which could increase political or social instability. Many European countries continue to suffer from high unemployment rates
The costs to meet the Company’s reporting requirements as a public company subject to the Exchange Act of 1934 are substantial and may result in the Company having insufficient funds to operate.
The Company will incur ongoing expenses associated with professional fees for accounting and legal expenses associated with being a public company. Those fees will be higher if the Company’s business volume and activity increases. It will also be time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Certain members of our management have limited or no experience operating a company whose securities are listed on a national securities exchange or with the rules and reporting practices required by the federal securities laws and applicable to a publicly traded company. We will need to recruit, hire, train and retain additional financial reporting, internal control and other personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications required by the Sarbanes-Oxley Act. Those obligations will reduce the Company’s ability to fund operations and may prevent the Company from meeting normal business obligations.
If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.
We are currently not required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and or comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. At present, we have not instituted internal controls and it will take time to implement them. Further, we currently only have one officer and director so as a practical matter, it is not possible to maintain a system of checks and balances. Even when we are able to recruit a new Chief Financial Officer, our management, including our Chief Executive Officer and Chief Financial Officer, will not be able to guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
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Risks Related to our Securities
Limited Operating Experience as a Publicly Traded Company.
The Company’s management has operated as a private company for approximately 12 years however, neither Énergie nor its management has ever operated as a public company. There are additional demands on management as a result of becoming a publicly traded company including but not limited to the additional time and expense associated with preparing and filing reports with the Securities and Exchange Commission and raising necessary working capital with a market established price for its Common Stock. While management believes that the benefits associated with being a publicly traded company outweigh the costs, these additional demands on management’s time and resources could have a negative impact on the Company and its operations.
We incur significant costs as a result of being a public company and our management is required to devote substantial time and financial resources to meet compliance obligations.
As a public company reporting to the Securities and Exchange Commission, we incur significant legal, accounting, investor relations, board compensation and other expenses. We are subject to the reporting requirements of the Securities Exchange Act of 1934, and the Sarbanes-Oxley Act of 2002, including section 404 that requires that we annually evaluate and report on our systems of internal controls. In the future, there may be material weaknesses in our internal controls that would be required to be reported in future Annual Reports on Form 10-K and/or Quarterly Reports on Form 10-Q. A negative reaction by the equity markets to the reporting of a material weakness could cause our stock price to decline.
Limitation of Officer and Director Liability/Indemnification.
The Company’s certificate of incorporation contains a provision, which, in substance, eliminates the personal liability of the officers and directors of the Company and its shareholders for monetary damages for breaches of their fiduciary duties as officers and directors to the fullest extent permitted by Delaware law.
Our Common Stock trades on the OTCQB.
Our Common Stock is currently listed for trading on the OTCQB, which is generally considered to be a less efficient market than markets such as NASDAQ or other national exchanges, and which may cause difficulty in conducting trades and difficulty in obtaining future financing. For companies whose securities are traded on the OTCQB, it is more difficult: (i) to obtain accurate quotations, (ii) to obtain coverage for significant news events because major wire services, such as the Dow Jones News Service, generally do not publish press releases about such companies, and (iii) to obtain needed capital.
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There is a limited public market for our Common Stock.
There is currently a limited public market for the Common Stock. Holders of our Common Stock may, therefore, have difficulty selling their Common Stock, should they decide to do so. In addition, there can be no assurances that such markets will continue or that any shares of Common Stock will be able to be sold without incurring a loss. Any such market price of the Common Stock may not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value, and may not be indicative of the market price for the Common Stock in the future. Further, the market price for the Common Stock may be volatile depending on a number of factors, including business performance, industry dynamics, news announcements or changes in general economic conditions.
As a “thinly-traded” stock, large sales can and have placed negative pressure on our Common Stock price.
Our Common Stock trades over-the-counter on the OTCQB Marketplace under the symbol ELED, which generally lacks the liquidity, research coverage and institutional investors following of a national stock exchange. Our Common Stock is generally considered to be “thinly-traded.” Additionally, we may enter into in the future, financing or acquisition transactions resulting in a large number of newly issued shares that become immediately tradable or tradable simultaneously in the future. These factors, coupled with a limited number of market makers, impairs the liquidity of our stock, not only the number of shares that can be bought and sold, but also possible delays in the timing of transactions, and lower prices for our Common Stock than might otherwise prevail. This could make it difficult or impossible for an investor to sell shares of our Common Stock within a desired timeframe or to obtain a desired price. Any efforts in the future to list our Common Stock on a national stock exchange will require satisfaction of the initial listing standards for such an exchange, and we currently do not, and may not ever, satisfy those listing standards.
In addition, from time to time, certain of our shareholders may be eligible to sell all, or a portion of, their shares of Common Stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144, promulgated under the Securities Act of 1933, or under effective resale prospectuses. Any substantial sale of our Common Stock pursuant to Rule 144 or any resale prospectus may have an adverse effect on the market price of our securities.
The costs to meet the Company’s reporting requirements as a public company subject to the Exchange Act of 1934 are substantial and may result in the Company having insufficient funds to operate.
The Company will incur ongoing expenses associated with professional fees for accounting and legal expenses associated with being a public company. Those fees will be higher if the Company’s business volume and activity increases. It will also be time-consuming, difficult and costly for us to develop and implement the internal controls and reporting procedures required by the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act. Certain members of our management have limited or no experience operating a company whose securities are listed on a national securities exchange or with the rules and reporting practices required by the federal securities laws and applicable to a publicly traded company. We will need to recruit, hire, train and retain additional financial reporting, internal control and other personnel in order to develop and implement appropriate internal controls and reporting procedures. If we are unable to comply with the internal controls requirements of the Sarbanes-Oxley Act, we may not be able to obtain the independent accountant certifications required by the Sarbanes-Oxley Act. Those obligations will reduce the Company’s ability to fund operations and may prevent the Company from meeting normal business obligations.
If we fail to establish and maintain an effective system of internal controls, we may not be able to report our financial results accurately. Any inability to report and file our financial results accurately and timely could harm our business and adversely affect the trading price of our common stock.
We are required to establish and maintain internal controls over financial reporting and disclosure controls and procedures and to comply with other requirements of the Sarbanes-Oxley Act and the rules promulgated by the SEC. At present, we have instituted internal controls, but it may take time to implement them fully. Our management, including our Chief Executive Officer and Chief Financial Officer, cannot guarantee that our internal controls and disclosure controls and procedures will prevent all possible errors. Because of the inherent limitations in all control systems, no system of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the possibility that judgments in decision-making can be faulty and subject to simple error or mistake. Furthermore, controls can be circumvented by individual acts of some persons, by collusion of two or more persons, or by management override of the controls.
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The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and may not be detected.
The Company’s Common Stock may be subject to penny stock regulations which may make it difficult for investors to sell their stock.
The Securities and Exchange Commission has adopted rules that regulate broker-dealer practices in connection with transactions in “penny stocks”. Penny stocks generally are 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). The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Commission, which specifies information about penny stocks and the nature and significance of risks of the penny stock market. The broker-dealer also must provide the customer with bid and offer quotations for the penny stock, the compensation of the broker-dealer and salesperson in the transaction, and monthly account statements indicating 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 agreement to the transaction. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If the Company’s common stock becomes subject to the penny stock rules, holders of the Company’s shares may have difficulty selling those shares.
Item 2. Financial Information.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Except for the historical information contained herein, the matters discussed in this management’s discussion and analysis of financial condition and results of operations (“MD&A”), may include forward-looking statements that involve certain risks and uncertainties. Actual results may differ from those anticipated by us as a result of various factors, both foreseen and unforeseen, including, but not limited to economic, competitive, governmental and technological factors that could affect our ability to achieve our goals.
This MD&A is provided as a supplement to the consolidated financial statements and notes thereto included elsewhere in this Form 8-K (this “Report”) in order to enhance your understanding of our results of operations and financial condition and should be read in conjunction with, and is qualified in its entirety by, the consolidated financial statements and related notes thereto included elsewhere in this Report. Historical results of operations, percentage margin fluctuations and any trends that may be inferred from the discussion below are not necessarily indicative of the operating results for any future period. Our MD&A is organized as follows:
• | Company Overview. This section provides a more detailed description of our Company, operating segments, products and services offered. | |
• | Critical Accounting Policies and Estimates. This section discusses those accounting policies that are considered important to the evaluation and reporting of our financial condition and results of operations, and whose application requires us to exercise subjective or complex judgments in making estimates and assumptions. In addition, all of our significant accounting policies, including our critical accounting policies, are summarized in Note 2, “Summary of Significant Accounting Policies,” of our notes to consolidated financial statements included elsewhere in this Report. | |
• | Overview of Results of Operations. These sections provide our analysis and outlook for the significant line items on our consolidated statements of income, as well as other information that we deem meaningful to understand our results of operations. | |
• | Liquidity and Capital Resources. This section provides an analysis of our liquidity and cash flows. | |
• | New Accounting Pronouncements. This section provides a summary of the most recent authoritative accounting standards and guidance that have either been recently adopted by us or may be adopted in the future. |
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Company Overview
Energie Holdings, Inc. is 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 group has over 300 years of combined experience in this industry.
Critical Accounting Policies
Our significant accounting policies are more fully described in Note 1 to our financial statements. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses, and the related disclosures of contingent assets and liabilities. Actual results could differ from those estimates under different assumptions or conditions.
Overview of Results of Operations
The following selected comparative financial information for the three months ended March 31, 2014 and 2013, and the year ended December 31, 2013 and 2012 have been derived from and should be read in conjunction with OELC, LLC’s financial statements for the three months ended March 31, 2014 and 2013, and the fiscal years ended December 31, 2013 and 2012 included in this Report.
Results of Operations for the Three-Month Period Ended March 31, 2014 and 2013
Three months ended March 31, | |||||
2014 | 2013 | Change | % | ||
Sales revenue | $ 164,609 | $ 779,772 | $ (615,163) | (79)% | |
Cost of revenue | (70,102) | (427,422) | 357,320 | (84)% | |
Gross profit | 94,507 | 352,350 | (257,843) | (73)% | |
Total operating expenses | 298,234 | 399,664 | (101,430) | (25)% | |
Interest expense | (87,570) | (55,141) | (32,429) | 59% | |
Other income (expense) | 26,524 | 2,064 | 24,460 | 1,185% | |
Net loss | $ (264,773) | $ (100,391) | $ (164,382) | 164% | |
Gross profit
Sales revenue decreased because we had an unusually large order in the first quarter of 2013 and a slower than usual first quarter in 2014, as we did not have the working capital to maintain sales levels. Cost of revenue decreased proportionally to the decrease in revenues.
Operating expenses
This decrease is primarily due to lower commission expense, which corresponds to the decrease in revenue over the same periods.
Interest expense
This increase is due to additional debt.
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Other income (expense)
Other income includes amounts spent on behalf of Energie Holdings, Inc. to fund costs associated with the Share Exchange Agreement, which increased in 2014 over the first quarter of 2013. Other income is offset by the expense associated with factoring our accounts receivable, which had decreased activity in 2014 over 2013, as we move towards collecting our receivables rather than factoring them.
Results of Operations for the Year Ended December 31, 2013 and 2012
Year ended December 31, | |||||
2013 | 2012 | Change | % | ||
Sales revenue | $ 1,733,373 | $ 2,020,126 | $ (286,753) | (14)% | |
Cost of revenue | (758,739) | (894,572) | 135,833 | (15)% | |
Gross profit | 974,634 | 1,125,554 | (150,920) | (13)% | |
Total operating expenses | 1,621,696 | 1,589,346 | 32,350 | 2% | |
Interest expense | (421,787) | (381,314) | (40,473) | 11% | |
Other income (expense) | 114,251 | (63,113) | 177,364 | (281)% | |
Net loss | $ 954,598 | $ 908,219 | $ 46,379 | 5% | |
Gross profit
Sales revenue decrease is due to a few factors, including the existence of a large order in 2012 that did not have a counterpart in 2013, the overall softness in the commercial construction industry, and the accelerated shift to LED fixtures that the company was not able to keep up with due to an overall lack of funding necessary for development and product launch costs. Cost of revenue decreased proportionally to the decrease in revenues.
Operating expenses
This increase was driven by having more sales in 2013 by third party sales representatives and distributors, which led to higher commission expense of approximately $85,000, which was partially offset by decreases in most other categories, as we tried to control spending due to a limitation of funding.
Interest expense
This increase is due to additional debt.
Other income (expense)
Other income includes amounts spent on behalf of Energie Holdings, Inc. to fund costs associated with the Share Exchange Agreement, which increased in 2013 over 2012. Other income is offset by the expense associated with factoring our accounts receivable, which had decreased activity in 2013 over 2012, as we move towards collecting our receivables rather than factoring them.
Liquidity and Capital Resources
Cash and cash equivalents decreased to $37,874 at December 31, 2013 from $59,171 at December 31, 2012. Net accounts receivable increased to $714,508 at December 31, 2013 from $296,612 at December 31, 2012. This increase is due to an increase in accounts receivable from Energie Holdings, Inc., partially offset by a decrease in trade receivables, which corresponds to a decrease in revenue over the same periods.
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During the year ended December 31, 2013 and the three month period ended March 31, 2014, OELC, LLC and Energie, LLC’s primary source of cash was loans from related parties.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of December 31, 2013 and 2012.
Inflation
We do not believe that inflation has had a material effect on our Company’s results of operations.
Recently Issued Accounting Pronouncements
There are no recently issued accounting pronouncements that are expected to have a material impact on the financial statements or notes thereto.
Going Concern and Managements Plan
The Company’s financial statements for the year ended December 31, 2013 and 2012 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported a net loss of $954,598 for the year ended December 31, 2013 and a net loss of $908,219 for the year ended December 31, 2012. The Company also had members’ deficit of $2,331,823 at December 31, 2013 and negative working capital of $3,486,489 at December 31, 2013.
The future success of the Company is dependent on its ability to attract additional capital, or to find an acquisition to add value to its present shareholders and ultimately, upon its ability to develop future profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations for the next annual period.
Item 3. Property
Headquarters - Neither the Company nor its subsidiary Énergie, LLC own the property from which they operate their business. The Company’s headquarters are located at 4885 Ward Road, Suite 300, Wheat Ridge, Colorado 80033 and are used by the Company for administration and accounting support. The Company’s headquarters is approximately 6,000 square feet and is under a seven year lease at approximately $4,415 base rent with approximately $2,330 in monthly shared expenses. This facility houses sales, marketing, customer service, product development and accounting activities for the Énergie, LLC. The facility is also used to train agents and provide educational seminars for architects, designers and specifiers within a classroom environment and fixture showroom.
Manufacturing - Énergie LLC’s 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 a shareholder of the Company following the Closing under the 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 approximately 23,000 square feet and is under a lease with approximately 4 years remaining at approximately $6,000 base rent with approximately $2,000 in monthly shared expenses
Item 4. Security Ownership of Certain Beneficial Owners and Management.
Immediately after the Closing, 51,400,000 shares of Common Stock are expected to be issued and outstanding after taking into effect the shares of Common Stock to be issued into and released from escrow. Unless otherwise indicated in the table, the persons and entities named in the table have sole voting and investment power with respect to the shares set forth opposite the stockholder’s name, subject to community property laws, where applicable. Beneficial ownership is determined in accordance with the rules of the SEC.
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Beneficial Owner | No. of Securities | Percentage Ownership | ||||||
Directors and Officers(6)(7) | ||||||||
Harold Hansen (1) |
11.696,631 |
22.93 | % | |||||
Richard Cole Dennard (2) | - | * | ||||||
Lee Barratt (3) | - | * | ||||||
Veda Ferlazzo Clark (4) | - | * | ||||||
5% Beneficial Owners | ||||||||
Symbiote Inc.(5) | 6,930,940 | 13.59 | % | |||||
Total Officers and Directors |
18,627,571 |
36.52 | % | |||||
Total Outstanding | 51,400,000 |
*Represents less than 1%
(1) Harold (Hal) Hansen is the President, Chief Executive Officer and Director of the Company
(2) Richard Cole Dennard is the Chief Financial Officer
(3) Lee Barratt is the Corporate Secretary of the Company
(4) Veda Ferlazzo Clark is the Chief Development Officer of the Company
(5) Symbiote Inc. is a share holder, landlord in Zeeland , Michigan and provider of human resource services
(6) Justin Kerns is the Chief Operating Officer of our Énergie, LLC subsidiary but is not an officer or director of the Company. He holds 2,459,337 shares of the Company’s Common Stock or 4.82% of the issued and outstanding shares of the Company’s Common Stock. Similarly Joseph Durzo is an Executive Vice President of our Énergie, LLC subsidiary but is not an officer or director of the Company, he holds 2,071,980 shares of the Company’s Common Stock or 4.06% of the issued and outstanding shares of the Company’s Common Stock. As stated, the table above excludes the holdings of these individuals because they are not officers or directors of the Company, if their shares were to be included, the total number of shares held would be 19,815,08045.04% of the issued and outstanding shares of Common Stock.
(7) This table excludes the shares issuable upon the exercise of any stock options that the Company may grant if it adopts an employee stock option plan. Currently the Company has not adopted such a plan but it intends to do so and in its employment agreements it has committed to grant options to purchase shares of its Common Stock once such a plan is adopted...
Changes in Control |
Reference is made to Item 2.01 and Item 5.01 for a description of the change in control of the Company as a result of the transactions disclosed herein.
Item 5. Directors and Executive Officers
The following table sets forth certain information regarding the Company’s directors, Key Contractors and executive officers following the Share Exchange.
Name | Age | Position |
Harold Hansen | 66 | President, Chief Executive Officer and Director |
Richard Cole Dennard | 35 | Chief Financial Officer |
Lee Barratt | 65 | Corporate Secretary |
Veda Ferlazzo Clark | 60 | Chief Development Officer |
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Harold (Hal) Hansen: President, Chief Executive Officer and Director: (66) Mr. Hansen is also the founder, CEO and Managing Member of Énergie, LLC. He has held senior executive-level positions in general management, marketing, product development, sales management, and in product, market, and corporate development for major U. S. companies. Mr. Hansen has had additional 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.
Richard Cole Dennard: Chief Financial Officer: (35) Mr. Dennard acts as our Chief Financial Officer and has been working 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 5 years, Mr. Dennard has been a partner for a regional consulting firm, NOW CFO.
Lee Barratt: Corporate Secretary (65) Mr. Barratt has a varied background in public finance and business operations. His fifteen-year career in this area has been with several state and school organizations of varying size and capital assets. In these organizations he acted as the Chief Financial Officer or as the Director of Business and Finance providing the organization and oversight to make them a success. One of these companies was Énergie, LLC, where he learned the basic business requirements and the product development process in the lighting industry. This background will be useful in his new role with Energie Holdings in providing oversight and the establishment of administrative operations. Mr. Barratt additionally brings a great deal of large organization experience from his career in the US Navy. During his 26-year career in the Navy he served on multiple ship and shore establishment both as an enlisted man and an officer. His background in the construction, maintenance, and repair of all manner of ships included the planning, preparations and completion of all work. This included the forecasting of all manpower and materials needs as well as other financial requirement. Mr. Barratt holds Bachelor and Masters degrees in Economics from the University of Colorado at Denver.
Veda Ferlazzo Clark: Chief Development Officer (60) Ms. Clark is an experienced leader combining general management, operating experience, board governance, and consulting background within a broad range of industries including technology products, software, LED lighting, and manufacturing. She has a consistent record of aligning strategy and operations to meet revenue and profit targets, customer needs, and market opportunities. Ms. Clark is adept at driving new technology and innovation, developing a culture of accountability and continuous improvement, and leading sustainability and energy efficiency mandates, both in terms of products and operations. She is a collaborative, analytical leader known for setting clear strategic direction, actionable operating plans, and key performance indicators that drive productivity and employee engagement at all levels. Her successful experience as President and Chief Executive Officer, Board Director and ESOP Trustee of LITECONTROL CORP., as well as CEO of other technology companies will be critical to our success in acquisitions and growth of our target companies. Ms. Clark is a Six Sigma Black Belt. She was selected to join the executive program of the NEW ENGLAND CLEAN ENERGY COUNCIL’S Leading Clean Energy Ventures. She holds a Master of Business Administration from Boston University.
Energie Holdings Inc. - Business Advisory Group:
The Business Advisory Group is made up of selected professionals who will provide strategic and operational guidance to the Energie Holdings Inc. 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.
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Philip Mercorella (70) 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 a 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 (46) 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 (60) 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, 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 manufacturers applying his expertise to product development and marketing. He has been published extensively on both technical subjects as well as design projects which 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.
Énergie, LLC - Executive Team
In addition to the management of Energie Holdings, Inc., each of our subsidiaries will function as an autonomous unit with its own management team and employees. The members of the Company’s management will also be members of our subsidiaries’ management. As we pursue our business strategy of growth through strategic acquisitions, not all employees who are employed by the Company or a particular subsidiary will provide services to the other operating units. Below are listed the members of the Énergie, LLC executive management team:
Harold (Hal) Hansen (66): Co-Founder, Chief Executive Officer. Mr. Hansen is the founder, CEO and Managing Member of Énergie, LLC. He is also the founder, CEO and Managing Member of Énergie, LLC. Mr. Hansen has held senior executive-level positions in general management, marketing, product development, sales management, and in product, market, and corporate development for major U. S. companies. He has had additional experience in international business projects in Canada, Mexico, Western Europe, and in the People's Republic of China. Mr. Hansen 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.
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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, Mr. Hansen designed and implemented programs that established and advanced new or expanded entries for international lighting into the US market.
Justin Kerns (39): Co-Founder and Chief Operating Officer. Mr. Kerns co-founded Énergie, LLC in 2001 and has recently returned to the company. From 2001-2011 he spearheaded product development and operational activities of the business helping to transition it from a startup into a mature and successful enterprise. As part of that process, he drove technical design and compliance both internally and with Énergie,’s international partners and domestic sales partners. With his return as COO he will lead all engineering, product development, operations and manufacturing activities. Prior to founding Énergie, he attended University of Colorado Boulder and obtained a BS in Architectural Engineering with emphasis in Illumination. He then worked in the lighting industry as a lighting designer with ABS Consultants, Marketing Program Manager for Peerless Lighting and then consulted with numerous lighting manufacturers on product strategy with Business Development International. For the past few years he was Director of Engineering at a computer data center power startup, Zonit Structured Solutions.
Joe Durzo Ph.D. (68): Executive Vice President: Mr. Durzo is responsible for marketing at Énergie. He has been one of the owners of Énergie since it was founded in 2002. As a principle at Durzo Development Group LLC, he worked with clients on customer experience, marketing, sales, and sales support. For nine years prior to joining Énergie, Joe was Senior Vice President and Chief Learning Officer at Archstone-Smith, one of the nation’s leading owners and operators of apartments. In that role, Joe and his organization partnered with the operations leadership team to create, implement and enhance the brand and customer service culture. He and his team developed customer experience measurement systems, improved customer-centered operating processes and implemented company-wide initiatives ranging from new software systems to customer service programs. Joe also pioneered the development of the leadership development programs and was instrumental in the development of both leasing and service team learning programs. Joe has more than 25 years of experience helping organizations develop programs and implement strategic initiatives focused on customer-centered change in multi-family, health insurance, manufacturing, and financial services organizations. Joe received his Ph.D. from Syracuse University with a special focus on change management.
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 the Company’s 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 the Company’s shareholders; in each case directors serve until their earlier resignation or their successors are duly elected and qualified.
Involvement in Certain Legal Proceedings
There have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees material to the evaluation of the ability and integrity of any director or executive officer of the Company during the past ten years.
To the best of our knowledge, none of our directors, officers or affiliates, and no owner of record or beneficial owner of more than five percent (5%) of our securities, or any associate of any such director, officer or security holder is a party adverse to us or has a material interest adverse to us in reference to pending litigation. To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past ten years that resulted in a judgment, decree or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Transactions with Related Persons,” none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC.
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Transactions with Related Persons
The following includes a summary of transactions since the beginning of our 2011 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 $220,000 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.
Notes Payable to Related Parties
The following summarizes the terms and balances of the related party notes:
December 31, 2013 | December 31, 2012 | Interest Rate | |
D1 | $ 2,413,752 | $ 1,242,913 | 6% |
D2 | 306,946 | 289,753 | 12% |
D3 | 173,367 | 124,587 | -- |
D4 | 103,500 | -- | 24% |
D3 | 81,697 | 50,000 | 24% |
D3 | 20,000 | 20,000 | 24% |
D3 | 10,000 | 10,000 | 24% |
D5 | 1,627 | 1,627 | -- |
Total | $ 3,110,889 | $ 1,738,880 |
D1 -- Holds the largest ownership percentage in the Company, and we also incur approximately $150,000 annually for rent expense with them. According to the note agreement, 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. The note was considered to be in default as of December 31, 2013; therefore, the note holder has the right to exercise the conversion option, but has not yet elected to do so.
The Company evaluated the agreement for derivatives and determined that it does not qualify for derivative treatment for financial reporting purposes, because the agreement relates to the Company’s own equity and, the debt and the equity are not closely related. The Company also determined this does not qualify as a beneficial conversion feature. Accordingly, the balance is reported at the carrying amount.
D2 -- Holds ownership interest in the Company and is also an executive vice president.
D3 -- All represent holders of ownership interest, without any other involvement in the Company.
D4 -- The spouse of the Company’s CEO.
D5 -- Holds ownership interest in the Company and is also a vice president.
Although Énergie,, LLC is past due on its required payments under the forgoing loans, the lenders have not made demand for repayment of the principal and interest due. If demand for payment is made by one or multiple vendors, the Company would experience a liquidity issue as it does not currently have the funds available to pay off these debts. We intend to enter into extension/forbearance agreements with each of the lenders; however, 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 Énergie,, or the Company.
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Notes Payable to European Distribution Partner:
Énergie, LLC is the borrower under a promissory note due to one of its European distribution partners. Under the terms of the note approximately $647,885 was advanced to Énergie in 2007. The note bears interest at 5% per annum payable annually. Although the Company is past due on required payments, the loan holder has not made any demand for repayment of the principal and interest due. If demand for payment is made, the Company would experience a liquidity issue as it does not currently have the funds available to pay off these debts. We intend to enter into extension/forbearance agreements with each of the lenders; however, 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 Énergie,, or the Company.
June 6, 2014 Change in Control
On June 6, 2014, in connection with the terms and conditions of the Share Exchange Agreement and the Closing thereunder, an aggregate of 33,000,000 shares were released from escrow and distributed to the members of Énergie, LLC in exchange for the membership interest they held in Énergie, LLC (the “Share Exchange”). The existing shareholders did not receive any consideration under the Share Exchange Agreement. The issuance of shares and release from escrow will be accounted for as a contribution to capital. The number of shares to be issued was determined based on negotiations with the existing shareholders of the Company, OELC, LLC and their respective members of management. The Company and its shareholders negotiated an estimated value of OELC, LLC and its subsidiary, an estimated value of the Company, and the mutually desired capitalization of the Company resulting from the execution and performance under the Share Exchange Agreement. With respect to the determination of the amount of shares to be issued, the values of the Company, OELC, LLC and their subsidiaries were derived from a variety of factors including but not limited to: (i) the relationships and resources that each brought to bear, (ii) their operating histories and revenues, (iii) their respective abilities to raise capital needed to pursue their consolidation strategy, and (iv) the Company’s utility as a public company platform. Under these circumstances and based on these factors, the parties agreed upon the number of shares to be issued.
After the Closing of the Share Exchange, the existing stockholders of the Company prior to the Share Exchange own shares of Common Stock equal to approximately 35.29% of the issued and outstanding Common Stock. Except as set forth in our discussion above, none of our directors, director nominees or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the SEC. The Share Exchange Agreement was filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (“SEC”) on December 31, 2013 and is incorporated herein by reference.
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Item 6. Executive Compensation.
Summary Compensation Table — Fiscal Year Ended December 31, 2012 and December 31, 2013
The following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our executive officers and directors, in addition to any of our three most highly compensated officers with annual compensation exceeding $100,000. None of the Company’s officers and directors received any compensation during the fiscal years ended December 31, 2013 and December 31, 2012. We do not currently have an established policy to provide compensation to members of our Board of Directors for their services in that capacity, although we may choose to adopt a policy in the future.
Salary | Bonus | Option Awards | All Other Compensation | Total | ||||||||||||||||||||
Name and Principal Position | Year | ($) | ($) | ($) | ($) | ($) | ||||||||||||||||||
Frank Drechsler Former President, CEO, Treasurer, CFO, Secretary and Director |
2013 2012 |
- - |
- - |
- - |
- - |
- - |
||||||||||||||||||
Arnold Leonora Former President and CEO |
2013 2012 |
- - |
- - |
- - |
- - |
- - |
||||||||||||||||||
Warrick Morgan Former Chief Financial Officer |
2013 2012 |
- - |
- - |
- - |
- - |
- - |
||||||||||||||||||
Arancha Gonzales Former Treasurer |
2013 2012 |
- - |
- - |
- - |
- - |
- - |
||||||||||||||||||
Harold (Hal)Hansen Current President, Chief Executive Officer and Director |
2013 2012 |
83,654 84,404 |
- - |
- - |
58,326 - |
- 141,980 84,404 |
||||||||||||||||||
Richard Cole Dennard | 2012 | - | - | - | - | - | ||||||||||||||||||
Cheif Financial Officer | 2013 | - | - | - | - | - | ||||||||||||||||||
Lee Barratt Current Secretary |
2013 2012 |
- - |
- - |
- - |
- - |
- - |
||||||||||||||||||
All Officers and Directors as a Group |
2012 2013 |
- - |
- - |
- - |
- - |
- - |
Employment Agreements
Prior to the Closing of the Share Exchange, in anticipation of Closing, we entered into employment agreements with Harold Hansen our President and Chief Executive Officer and Lee Barratt our Secretary.
Mr. Hansen’s employment agreement is for a term of three years and provides for an increase in annual salary from $83,654 in 2013 to $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 the Company 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.
Mr. Barratt’s employment agreement is at will and provides for an annual salary of $90,000.00 per year with increases and bonuses upon favorable annual review. Mr. Barratt is subject to 18 month non-compete / non-solicitation provisions following termination of his employment with the Company.
We have entered into an independent contractor agreement with NOW CFO, a Denver Colorado based financial consulting firm, to provide our Chief Financial Officer, Richard Cole Dennard. We plan to enter into employment agreements (collectively, the “Employment Agreements”) with the following executive officers (the “Executives”) of the Company: (1) Joe Durzo; (2) Justin Kerns; (3) Veda Ferlazzo Clark. The terms of the Employment Agreements will be decided by our President and Chief Executive Officer.
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Equity Compensation Plans
We expect our Board to approve an equity incentive plan (the “Incentive Plan”) and for the board of directors to seek stockholder approval of the Incentive Plan. Stockholder approval of the Incentive Plan will enable the Company to satisfy stock exchange listing requirements, and to make 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 the other six highest paid executive officers of the Company required to be reported under the proxy disclosure rules. The amount and nature of the proposed awards under the Incentive Plan have not yet been determined. We believe that the Incentive Plan will be an important factor in attracting, retaining and motivating employees, consultants, agents, and directors of the Company and its affiliates. We believe that the Company needs 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.
Grants of Plan-Based Awards in the Fiscal Years Ended December 31, 2013 and 2012
There were no option grants issued in the fiscal years ended December 31, 2013 and 2012.
Outstanding Equity Awards at December 31, 2013 and 2012
There were no option exercises or options outstanding at December 31, 2013 and 2012 fiscal year end.
Option Exercises and Stock Vested in the Fiscal Years Ended December 31, 2013 and 2012
There were no option exercises or stock vested the fiscal years ended December 31, 2013 and 2012.
Pension Benefits at December 31, 2013 and 2012.
There were no pension benefit plans in effect at December 31, 2013 and 2012.
Nonqualified defined contribution and other nonqualified deferred compensation plans
There were no nonqualified defined contribution or other nonqualified deferred compensation plans in effect at December 31, 2013 and 2012.
Item 7. Certain Relationships and Related Transactions, and Director Independence.
CORPORATE GOVERNANCE
Director Independence
The Company is not a listed 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 would not be considered independent upon his appointment as a director of the Company.
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The following summarizes the terms and balances of the related party notes:
December 31, 2013 | December 31, 2012 | Interest Rate | |
D1 | $ 2,413,752 | $ 1,242,913 | 6% |
D2 | 306,946 | 289,753 | 12% |
D3 | 173,367 | 124,587 | -- |
D4 | 103,500 | -- | 24% |
D3 | 81,697 | 50,000 | 24% |
D3 | 20,000 | 20,000 | 24% |
D3 | 10,000 | 10,000 | 24% |
D5 | 1,627 | 1,627 | -- |
Total | $ 3,110,889 | $ 1,738,880 |
D1 -- Holds the largest ownership percentage in the Company, and we also incur approximately $150,000 annually for rent expense with them. According to the note agreement, 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. The note was considered to be in default as of December 31, 2013; therefore, the note holder has the right to exercise the conversion option, but has not yet elected to do so.
The Company evaluated the agreement for derivatives and determined that it does not qualify for derivative treatment for financial reporting purposes, because the agreement relates to the Company’s own equity and, the debt and the equity are not closely related. The Company also determined this does not qualify as a beneficial conversion feature. Accordingly, the balance is reported at the carrying amount.
D2 -- Holds ownership interest in the Company and is also an executive vice president.
D3 -- All represent holders of ownership interest, without any other involvement in the Company.
D4 -- The spouse of the Company’s CEO.
D5 -- Holds ownership interest in the Company and is also a vice president.
Board Meetings and Stockholder Communications.
Our board of directors conducted all of its business and approved all corporate action during the fiscal year ended December 31, 2013 by the unanimous written consent of its sole member, in the absence of formal board meetings. Holders of the Company’s securities can send communications to the board via mail or telephone to the Secretary at the Company’s principal executive offices. The Company’s sole director was replaced by Harold Hansen as its sole director. The Company has not yet established a policy with respect to board members’ attendance at the annual meetings. A stockholder who wishes to communicate with our board of directors may do so by directing a written request addressed to our Chief Executive Officer at the address appearing on the first page of this current report filed on Form 8-K.
Board Committees
We presently do not have an audit committee, compensation committee or nominating committee or committees performing similar functions, as our management believe that until this point it has been premature at the early stage of our management and business development to form an audit, compensation or nominating committee. 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.
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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 and experience in the context of the needs of our Company and our board.
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.
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors recognizes that the leadership structure and combination or President and Chairman roles is driven by the needs of the Company at any point in time. As a result, no policy exists requiring combination or separation of leadership roles and our governing documents do not mandate a particular structure. This has allowed our Board of Directors the flexibility to establish the most appropriate structure for the Company at any given time.
Our Board of Directors is responsible for overseeing the overall risk management process at the Company. Risk management is considered a strategic activity within the Company and responsibility for managing risk rests with executive management while the Board of Directors participates in the oversight of the process. The oversight responsibility of our Board of Directors is enabled by management reporting processes that are designed to provide visibility to the Board of Directors about the identification, assessment, and management of critical risks. These areas of focus include strategic, operational, financial and reporting, succession and compensation, compliance, and other risks.
Stockholder and Interested Party Communications
Our Board of Directors does not currently provide a process for stockholders or other interested parties to send communications to our Board of Directors because our management believes that until this point it has been premature to develop such processes given the limited liquidity of our Common Stock. However, our new management is in the process of establishing a process for stockholder and interested party communications in the future.
Code of Conduct and Ethics
Although we have not adopted one at this point, we intend to adopt a code of ethics that will apply to our executive officers, directors and employees, its subsidiaries and its controlled affiliates. We intend to post our code of ethics on our Web site at www.energieholdings.com and to disclose any amendments to or any waivers from a provision of its code of ethics in a current report on Form 8-K.
Item 8. Legal Proceedings.
During the normal course of business, we may subject to litigation, none of which we believe will have a material adverse effect on our business.
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Item 9. Market Price of and Dividends on our Common Equity and Related Stockholder Matters.
The Company’s common stock is listed on the Over the Counter Bulletin Board (OTC.BB) under the symbol "ELED." The following table sets forth, for the fiscal quarters indicated, the high and low closing bid prices per share of the Company’s common stock, as derived from quotations provided by OTC Markets, LLC. Such quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual transactions.
Fiscal 2013 — Year Ended | March 31 | June 30 | September 30 | December 31 | |
Market Price: | |||||
High | $ 0.25 | $ 0.25 | $ 0.17 | $ 0.05 | |
Low | $ 0.25 | $ 0.25 | $ 0.17 | $ 0.01 | |
Holders of Our Common Stock
As of December 31, 2013, we had 214 shareholders of our common stock.
Stock Option Grants
To date, we have not granted any stock options.
Registration Rights
We have not granted registration rights to the selling shareholders or to any other persons.
Dividends
We have never declared or paid any cash dividends on our common stock. We currently intend to retain future earnings, if any, to increase our working capital and do not anticipate paying any cash dividends in the foreseeable future.
There are no restrictions in our certificate of incorporation or bylaws that prevent us from declaring dividends. The Delaware General Corporation Law, however, prohibits us from declaring dividends where, after giving effect to the distribution of the dividend: (1) we would not be able to pay our debts as they become due in the usual course of business; and (2) or our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of stockholders who have preferential rights superior to those receiving the distribution.
Item 10. Recent Sales of Unregistered Securities.
Reference is made to the disclosure set forth below under “Item 3.02” of this current report, which disclosure is incorporated herein by reference.
Item 11. Description of Registrant’s Securities
General
Our authorized capital stock consists of 60,000,000 shares of Common Stock, par value $0.01 per share (“Common Stock”) and 1,000,000 shares of preferred stock, par value $0.01 per share (“Preferred Stock”).
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Common Stock
We issued an additional 6,000,000 shares of common stock in connection with the consummation of the Share Exchange. Prior to the issuance of 6,000,000 shares into escrow, 25,939,542 shares had previously been issued into escrow and were continuing to be held pending closing of the acquisition of OELC, LLC with an additional 1,060,458 being provided by one of our existing shareholders to equal a total of 33,000,000 shares provided to the members of OELC, LLC .
Holders of Common Stock have exclusive voting rights for the election of our directors and all other matters requiring stockholder action, except with respect to amendments to our amended and restated certificate of incorporation that alter or change the powers, preferences, rights or other terms of any outstanding Preferred Stock if the holders of such affected series of Preferred Stock are entitled to vote on such an amendment. Holders of Common Stock are entitled to one vote per share on matters to be voted on by stockholders. Our stockholders may act by written consent.
Our stockholders have no conversion, preemptive or other subscription rights and there are no sinking fund or redemption provisions applicable to the Common Stock. Our stockholders are entitled to receive such dividends, if any, as may be declared from time to time by our board of directors in its discretion out of funds legally available therefor.
There is no cumulative voting with respect to the election of directors, with the result that the holders of more than 50% of the shares voted for the election of directors can elect all of the directors.
Preferred Stock
Our certificate of incorporation authorizes the issuance of 1,000,000 shares of blank check preferred stock with such designation, rights and preferences as may be determined from time to time by our board of directors. No shares of Preferred Stock are being issued or registered in connection with the Share Exchange.
Accordingly, our board of directors is authorized, subject to any limitations prescribed by law, without stockholder approval, to issue from time to time up to an aggregate of 1,000,000 shares of Preferred Stock, in one or more series, each such series to have such voting powers, full or limited, or no voting powers, and such designations, preferences, privileges and relative, participating, optional or other special rights and qualifications, limitations or restrictions as shall be determined by our board of directors. The rights for the holders of Common Stock will be subject to, and may be adversely affected by, the rights of holders of any preferred stock that may be issued in the future. Issuance of Preferred Stock, while providing desirable flexibility in connection with possible acquisitions and other corporate purposes, could have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, a majority of our outstanding voting stock.
Section 203 of the Delaware Corporation Law
The Company is subject to the provisions of Section 203 of the DGCL. The provisions of Section 203 of the DGCL could make a takeover of the Company difficult. This section prevents certain Delaware corporations, under certain circumstances, from engaging in a “business combination” with:
[] | a stockholder who owns 15% or more of the Company’s outstanding voting stock (otherwise known as an interested stockholder) |
[] | an affiliate of an interested stockholder; or |
[] | an associate of an interested stockholder, for six years following the date that the stockholder became an interested stockholder |
This provision could prohibit or delay mergers or other change in control attempts, and thus may discourage attempts to acquire the Company.
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Effect of Certain Provisions of the Company’s Certificate of Incorporation and Bylaws
Certain provisions of our certificate of incorporation and bylaws may have the effect of making it more difficult for a third party to acquire, or of discouraging a third party from attempting to acquire, control of the Company. Such provisions could limit the price that certain investors might be willing to pay in the future for shares of our common stock. Our certificate of incorporation establishes a three-class staggered board of directors, with only one class being elected each year. The authorization of undesignated preferred stock makes it possible for the Board of Directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to change control. These and other provisions may have the effect of deferring hostile takeovers or delaying changes in control or management. The amendment of any of these provisions would require approval by holders of at least a majority of our outstanding common stock.
Limitation of Liability
Our certificate of incorporation and by-laws limit the liability of its directors and officers for any liability arising from an action to which such persons were party by reason of the fact that they were serving the Company or another enterprise at its request to the fullest extent permitted by Section 145 of the DGCL.
The Eighth Article of our certificate of incorporation provides:
A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation stall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article EIGHTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
Our bylaws further provide that:
[T]he Corporation shall indemnify and hold harmless any person who was or is a party or is threatened to be made a party of any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and whether formal or informal (a "Proceeding"), by reason of the fact that he is or was a Director or Officer of the Corporation, or, while a Director or Officer, is or was serving at the request of the Corporation as an officer, director, partner, joint venturer, trustee, employee, or agent of another foreign or domestic Corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against the obligation to pay a judgment, settlement, penalty, fine or reasonable expenses (including attorney's fees) actually and reasonably incurred by him in connection with such Proceeding, if he had no reasonable cause to believe his conduct was unlawful.
Pursuant to our amended and restated bylaws, our directors and officers shall, to the fullest extent not prohibited by law, also have the right to receive from us an advancement of expenses incurred in defending any proceeding in advance of its final disposition. To the extent required under the DGCL, an advancement of expenses incurred by a director or officer in his or her capacity as a director or officer shall be made only upon delivery to the Company of an undertaking, by or on behalf of such director or officer, to repay all amounts so advanced if it shall ultimately be determined by final judicial decision from which there is no further right to appeal that such director or officer is not entitled to be indemnified for such expenses.
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Transfer Agent and Warrant Agent
Our independent stock transfer agent is Pacific Stock Transfer, located in 4045 South Spencer Street, Suite 403, Las Vegas, NV 89119. Their phone number is (702) 361-3033
Item 12. Indemnification of Directors and Officers
Our certificate of incorporation and bylaws provide that no officer or director of the Company will be personally liable to the Company or our stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to the company or our stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, or (iii) for any transaction from which the director derived an improper personal benefit.
In, addition, the employment agreements for each executive officer contains an indemnification provision wherein the Company promises to defend, indemnify, and hold the employee harmless to the fullest extent permitted by law against any and all liabilities incurred by the employee in connection with our executive officer’s good faith performance of such individual’s employment. Further, we have executed separate indemnification agreements with each of our officers, our advisory board members and certain employees wherein we promises to defend, indemnify, advance the expenses of defense and hold the individual harmless to the fullest extent permitted by law against any and all liabilities incurred by the individual in connection with the good faith performance of services for the Company by such individual.
We have been advised that it is the position of the SEC that insofar as the foregoing provisions may be invoked to disclaim liability for damages arising under the Securities Act of 1933, as amended, that such provisions are against public policy as expressed in the Securities Act and are therefore unenforceable.
Item 13. Financial Statements and Supplementary Data
Information concerning our financial information set forth under Item 9.01 of this Current Report on Form 8-K is incorporated herein by reference.
Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures.
(a) On May 15, 2014, Energie Holdings, Inc. (fka Alas Aviation Corp., the “Registrant” or the “Company”) notified Jonathon P. Reuben, CPA An Accountancy Corporation (“Reuben”) that it was dismissed as the Registrant’s independent registered public accounting firm. The decision to dismiss Reuben as the Company’s independent registered public accounting firm was approved and ratified by the Company’s Board of Directors effective as of May 15, 2014. Except as noted in the paragraph immediately below, the reports of Reuben on the Company’s financial statements at December 31 2013 and for the six months then ended and for the period from inception (February 13, 2009) through December 31, 2013 did not contain an adverse opinion or disclaimer of opinion, and such reports were not qualified or modified as to uncertainty, audit scope, or accounting principle.
The reports of Reuben on the Company’s financial statements as of December 31, 2013 and for the six months then ended and for the period from inception (February 13, 2009) through December 31, 2013 contained explanatory paragraphs which noted that there was substantial doubt as to the Company’s ability to continue as a going concern as the Company has negative working capital that raised doubt about its ability to continue as a going concern.
As of December 31 2013 and for the six months then ended and for the period from inception (February 13, 2009) through December 31, 2013 and from December 31, 2013 through May 15, 2014, the Company has not had any disagreements with Reuben on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to Reuben’s satisfaction, would have caused them to make reference thereto in the reports on the Company’s financial statements for such periods.
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As of December 31 2013 and for the six months then ended and for the period from inception (February 13, 2009) through December 31, 2013 and from December 31, 2013 through May 15, 2014, there were no reportable events, as defined in Item 304(a)(1)(v) of Regulation S-K.
The Company provided Reuben with a copy of this disclosure set forth under this Item 4.01 and was requested to furnish a letter addressed to the Securities & Exchange Commission stating whether or not it agrees with the above statements.
A copy of the letter from Reuben is attached hereto as Exhibit 16.1
New independent registered public accounting firm
On May 13, 2014 (the “ Engagement Date”), the Company engaged BF Borgers CPA PC (“ BFB”) as its independent registered public accounting firm for the Company’s fiscal year ended December 31, 2014. The decision to engage BFB as the Company’s independent registered public accounting firm was approved by the Company’s Board of Directors.
During the two most recent fiscal years and through the Engagement Date, the Company has not consulted with BFB regarding either:
1. | the application of accounting principles to any specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s financial statements, and neither a written report was provided to the Company nor oral advice was provided that BFB concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; |
or
any matter that was either the subject of a disagreement (as defined in paragraph (a)(1)(iv) of Item 304 of Regulation S-K and the related instructions thereto) or a reportable event (as described in paragraph (a)(1)(v) of Item 304 of Regulation S-K).
Item 3.02. Unregistered Sales of Equity Securities |
On the Closing Date, as a result of the Share Exchange Agreement, we acquired 100% of the issued and outstanding equity interests of OELC, LLC in exchange for 33,000,000 shares of our Common Stock.
The Common Stock issued to the OELC, LLC members and/or their designees was issued in reliance upon exemptions from registration pursuant to (i) Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder, and/or (ii) Regulation S of the Securities Act. The issuance was not a public offering based upon the following factors: (i) the issuance of the securities was an isolated private transaction; (ii) a limited number of securities were issued to a limited number of offerees; (iii) there was no public solicitation; (iv) the investment intent of the offerees; and (v) the restriction on transferability of the securities issued.
There have been no other sales of unregistered securities within the last three (3) years which would be required to be disclosed pursuant to Item 701 of Regulation S-K, except for the following:
In October, 2012 IACE Investments Two, Inc. and the Company agreed to cancel all but 450,000 shares of common stock out of 75,000,000 shares held by IACE; and on June 21, 2013, this agreement was memorialized and executed and 74,550,000 shares were returned to the Company’s transfer agent for cancelation. The Company issued 300,000 and 400,000 shares of restricted common stock in connection with a legal services agreement on June 26, 2013 and January 7, 2014 respectively, in transactions that were exempt from registration requirements of the securities Act of 1933, as amended (the “Securities Act”).
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The Company issued an additional 26,239,542 shares into escrow with Davisson & Associates, PA for distribution for delivery upon closing of the previous share exchange involving with Corporacion Ygnus, SA, which was terminated. Under agreement with the Company, the shares were retained in escrow along with an additional 6,000,000 shares that were issued into escrow for Closing of the Share Exchange with OELC, LLC and its members. Those shares were retained in escrow and held for distribution to OELC, LLC members upon closing of the Share Exchange Agreement, the issuance of these shares is exempt from registration under Section 4(2) of the Securities Act. In addition, to facilitate the acquisition of OELC, LLC, 1,060,458 shares were contributed by one of our existing shareholders to equal a total of 33,000,000
Item 5.01. Changes in Control of Registrant. |
On the Closing Date, we consummated the transactions contemplated by the Share Exchange Agreement, pursuant to which we issued shares of Common Stock to the OELC, LLC members representing 64.71% of our issued and outstanding shares of Common Stock on a fully diluted basis. The Common Stock issued to the OELC, LLC members and/or their designees was issued in reliance upon exemptions from registration pursuant to (i) Section 4(2) under the Securities Act of 1933, as amended (the “Securities Act”) and Rule 506 promulgated thereunder, and/or (ii) Regulation S of the Securities Act. We intend to comply with the conditions of Category 3 of 903(b) of Regulation S and an appropriate legend will be affixed to the stock certificate issued in accordance with Regulation S. The legend shall state that the shares represented by the stock certificate shall only be sold pursuant to a registration under the Securities Act or pursuant to an available exemption from registration and the holders of the stock certificate shall not to engage in hedging transactions with regard to the securities unless in compliance with the Securities Act. We will refuse to register any transfer of the shares not made in accordance with Regulation S.
Other than the transactions and agreements disclosed in this Current Report on Form 8-K, we know of no arrangements which may result in a change in control. No officer, director, promoter, or affiliate has, or proposes to have, any direct or indirect material interest in any asset proposed to be acquired by the Company through security holdings, contracts, options, or otherwise.
Item 5.02. Departure of Directors or Certain Officers; Election of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers
In connection with the Share Exchange Agreement, our board of directors, which prior to the Share Exchange consisted of a sole member, Frank Drechsler, will remain at the same number. Concurrently with and effective upon the Closing Date, the board appointed Harold Hansen as President and Chief Executive Officer and as a director (filling a vacancy that existed on the board of directors), Richard Cole Dennard as Chief Financial Officer and Lee Barratt as Secretary. On the Closing Date Frank Drechsler resigned from all officer positions held with the Company and after appointing the forgoing officers and Harold Hansen as a director, resigned as a director.
The following table sets forth certain information regarding the Company’s directors and executive officers following the Share Exchange.
Name | Position |
Harold (Hal) Hansen | President Chief executive Officer and Director |
Richard Cole Dennard | Chief Financial Officer |
Lee Barratt | Secretary |
Reference is made to Item 2.01 above for certain information regarding the executive officers and directors.
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Item 5.06. Change in Shell Company Status.
On January 27, 2014, pursuant to the Delaware Holding Company Formation Statute, DGCL Section 251(g), the Company entered into an Agreement and Plan of Merger into a holding company structure (the “Agreement") with Energie Holdings, Inc. ("Energie") and Alas Acquisition Company ("AAC"), both wholly-owned subsidiaries of the Company. The Agreement provided for the merger of Alas Aviation Corp. with and into Energie, with Energie being the surviving corporation in that merger. Contemporaneously with the merger of Alas Aviation Corp. with and into Energie pursuant to the Holding Company Formation Statute (and the Agreement), the shareholders of Alas became shareholders of Energie on a one share for one share basis pursuant to the merger agreement.
As a result of this reorganization into a holding company structure, Energie became the publicly quoted parent holding company with Alas Acquisition Corp. becoming a wholly-owned subsidiary of Energie Holdings Inc... Upon consummation of the Agreement, Energie’s Common Stock was deemed to be registered under Section 12(b) of the Securities Exchange Act of 1934, as amended, pursuant to Rule 12g-3(a) promulgated thereunder. For purposes of Rule 12g-3(a), Energie is the successor issuer to Alas Aviation Corp.
The description of the Agreement and Plan of Merger set forth in this Item 1.01 is qualified in its entirety by reference to the full text of the Agreement and Plan of Merger, a copy of which is attached hereto as Exhibit 10.1 and is incorporated by reference into this Item 1.01. As the result of the completion of the transactions effectuated pursuant to the merger agreement, we are not a shell company. The information set forth above in Items 1.01 and 2.01 of this Current Report on Form 8-K is incorporated herein by reference in its entirety. |
Item 9.01 Financial Statements and Exhibits
(a) Financial Statements of Business Acquired.
The Audited Consolidated Financial Statements of Energie, LLC (wholly owned by OELC, LLC) as of and for the years ended December 31, 2013 and 2012 and unaudited financial statements of Energie, LLC (wholly owned by OELC, LLC) as of and for the three months ended March 31, 2014 and 2013 are filed as Exhibit 99.1 to this current report and are incorporated herein by reference.
(b) Pro Forma Financial Information.
The unaudited pro forma condensed consolidated financial information as of and for the three months ended March 31, 2014 concerning the acquisition of the business operation the Company, OELC, LLC and its subsidiaries as filed as Exhibit 99.3 to this current report and are incorporated herein by reference.
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(d) Exhibits.
The exhibits listed in the following Exhibit Index are filed as part of this current report.
Exhibit No. | Description |
2.1 | Share Exchange Agreement** |
2.2 | Agreement and Plan of Merger*** |
3.1 | Certificate of Incorporation of Energie Holdings, Inc.* |
3.2 | Bylaws of Energie Holdings, Inc.* |
99.1 | Consolidated Financial Statements of OELC, LLC for the Fiscal Year Ended December 31, 2013 and 2012* |
99.2 | Consolidated Financial Statements of OELC, LLC for the Three Months Ended March 31, 2013 and 2012* |
99.3 | Pro Forma Financial Statements* |
99.4 | Consent of Independent Registered Public Accounting Firm |
*Attached as an exhibit hereto
** Files as an exhibit to the Company's Current Report on Form 8-K, as filed with the SEC on December 31, 2013 and incorporated by reference.
*** Files as an exhibit to the Company's Current Report on Form 8-K/8, as filed with the SEC on January 29, 2014 and incorporated by reference
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: July 2, 2014
ENERGIE HOLDINGS, INC. | ||
By: | /s/ Harold Hansen | |
Harold Hansen President (Principal Executive Officer) |
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Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
ENERGIE HOLDINGS, INC.,
a Delaware Corporation
I, the undersigned, being the original Incorporator herein named, for the purpose of forming a corporation under the Delaware General Corporation Law do herein state:
FIRST
The name of the Corporation is Energie Holdings, Inc. (the “Corporation”).
SECOND
The address of the registered office of the Corporation in the State of Delaware is: 16192 Coastal Highway Lewes, Delaware 19958, and the name of the registered agent to the Corporation in the State of Delaware at such address is Harvard Business Services, Inc., County of Sussex.
THIRD
The purpose of the Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of Delaware.
FOURTH
A. The total number of shares of all classes of stock which the Corporation shall have authority to issue is sixty-one million 61,000,000, consisting of:
(1) one million 1,000,000 shares of Preferred Stock, par value one cent ($.01) per share(the "Preferred Stock"); and
(2) sixty million 60,000,000 shares of Common Stock, par value one cent ($.01) per share (the "Common Stock").
B. The Board of Directors is authorized, subject to any limitations prescribed by law, to provide for the issuance of the shares of Preferred Stock in series, and by filing a certificate pursuant to the applicable law of the State of Delaware, to establish from time to time the number of shares to be included in each such series, and to fix the designation, powers, preferences, and rights of the shares of each such series and any qualifications, limitations or restrictions thereof. The number of authorized shares of Preferred Stock may be increased or decreased (but not below the number of shares thereof then outstanding) by the affirmative vote of the holders of a majority of the Common Stock, without a vote of the holders of the Preferred Stock, or of any series thereof, unless a vote of any such holders is required pursuant to the certificate or certificates establishing the series of Preferred Stock.
FIFTH
A. The business and affairs of the Corporation shall be managed by or under the direction of the Board of Directors. In addition to the powers and authority expressly conferred upon them by Statute or by Certificate of Incorporation or the By-Laws of the Corporation, the directors are hereby empowered to exercise all such powers and do all such acts and things as may be exercised or done by the Corporation.
B. In all elections of directors each stockholder shall be entitled to as many votes as shall equal the number of shares held by him multiplied by the number of directors to be elected, and he may cast all of such votes for a single director or may distribute them among the number to be voted for, or any two or more of them, as he may see fit, which right, when exercised, shall be termed "cumulative voting."
C. For so long as the board of directors consists of greater than two directors, the directors shall be divided into three classes, designated Class 1, Class II and Class III. Each class shall consist, as nearly as may be possible, of one-third (1/3) of the total number of directors constituting the entire Board of Directors. At the first annual meeting following the effectiveness of this certificate of incorporation, the initial classes shall be elected as follows: Class I directors shall be elected for a one-year term, Class II director for a two-year term and Class III directors for a three-year term. At each succeeding annual meeting of stockholders, successors to the class of directors whose term expires at the annual meeting shall be elected for three-year terms. If the number of directors is changed, any increase or decrease shall elected for three-year terms. If the number of directors is changed, any increase or decrease shall be apportioned among the classes so as to maintain the number of directors in each class as nearly equal as possible, and any additional director of any class elected to fill a vacancy resulting from an increase in such class shall hold office for a term that shall coincide with the remaining term of that class, but in no case will a decrease in the number of directors shorten the term of any incumbent director. A director shall hold office until the annual meeting for the year in which his or her term expires and until his or her successor shall be elected and shall qualify, subject, however, to prior death, resignation, retirement, disqualification or removal from office. Except as otherwise required by law, any vacancy on the Board of Directors that results from an increase in the number of directors and any other vacancy occurring in the Board of Directors shall be filled by a majority of the directors then in office, even if less than a quorum, or by a sole remaining director. Any director elected to fill a vacancy not resulting from an increase in the number of directors shall have the same remaining term as that of his or her predecessor.
D. In addition to any other considerations which the Board of Directors may lawfully take into account, in determining whether to take or to refrain from taking corporate action on any matter, including proposing any matter to the stockholders of tie Corporation, the Board of Directors may take into account the long-term as well as the short-term interests of the Corporation and its stockholders (including the possibility that these interests may be best served by the continued independence of the Corporation), customers, employees and other constituencies of the Corporation and its subsidiaries, including the effect upon communities in which the Corporation and its subsidiaries do business. In so evaluating any such determination, the Board of Directors shall be deemed to be performing their duties and acting in good faith and in the best interests of the Corporation within the meaning of Section 145 of the General Corporation Law of the State of Delaware, or any successor provision.
E. (1) At any meeting of the stockholders, only such business shall be conducted as shall have been properly brought before such meeting. To be properly brought before an annual meeting, business to be brought before such meeting must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors, (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors or (iii) otherwise properly brought before the meeting by a stockholder. For business to be properly brought before an annual meeting by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be received not less than sixty days nor more than ninety days prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary, notice by the stockholder to be timely must be so received not earlier than the ninetieth day prior to such annual meeting and not later than the close of business on the later of (i) the sixtieth day prior to such annual meeting or (ii) the tenth day following the date on which notice of the date of the annual meeting was mailed or public disclosure thereof was made, whichever first occurs. Each such notice shall set forth as to each matter the stockholder proposed to bring before the annual meeting: (a) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the meeting, (b) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business, (c) the class, series and number of shares of the Corporation which arc beneficially owned by the stockholder and (d) any material interest of the stockholder in such business. To be properly brought before a special meeting, business must be (i) specified in the notice of meeting (or any supplement thereto) given by or at the direction of the Board of Directors or (ii) otherwise properly brought before the meeting by or at the direction of the Board of Directors.
(2) No business shall be conducted at any meeting of the stockholders except in accordance with the procedures set forth in this Section E. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that business was not properly brought before the meeting and in accordance with the provisions of this Section E, and if he or she should so determine, any such business not properly brought before the meeting shall not be transacted. Nothing herein shall be deemed to affect any rights of stockholders to request inclusion of proposals in the Corporation's proxy statement pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as amended, or any successor provision.
F. (1) Subject to the rights of holders of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation, dissolution or winding-up, nominations for the election of directors may be made by the Board of Directors or a committee or person appointed by the Board of Directors or by any stockholder entitled to vote in the election of directors generally. However, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at an annual meeting only pursuant to the Corporation's notice of such meeting or if written notice of such stockholder's intent to make such nomination or nominations has been received by the Secretary of the Corporation not less than sixty nor more than ninety days prior to the first anniversary of the preceding year's annual meeting, then pursuant to such notice by the stockholder; provided, however, that in the event that the date of the annual meeting is advanced by more than thirty days or delayed by more than sixty days from such anniversary, notice by the stockholder to be timely must be so received not earlier than the ninetieth day prior to such annual meeting and not later than the closing of business on the later of (i) the sixtieth day prior to such annual meeting or (ii) the tenth day following the day on which notice of the date of the annual meeting was mailed or public disclosure thereof was made by the Corporation, whichever first occurs. Each such notice shall set forth: (a) the name and address of the stockholder who intends to make the nomination and of the person or persons to be nominated; (b) a representation that the stockholder is a holder of record of stock of the Corporation entitled to vote at such meeting and intends to appear in person or by proxy at the meeting to nominate the person or persons specified in the notice; (c) a description of all arrangements or understandings between the stockholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination or nominations; (d) the class and number of shares of the Corporation which are beneficially owned by such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominees as of the date of such stockholder's notice; (e) such other information regarding each nominee proposed by such stockholder as would be required to be included in a proxy statement filed pursuant to the proxy rules of the Securities and Exchange Commission; and (f) the consent of each nominee to serve as a director of the Corporation if so elected.
(2) In addition, in the event a special meeting of stockholders is called for the purpose of electing one or more directors, any stockholder entitled to vote in the election of directors generally may nominate one or more persons for election as directors at a special meeting only pursuant to the Corporation's notice of meeting or if written notice of such stockholder's intent to make such nomination or nominations, setting forth the information and complying with the form described in the immediately preceding paragraph, has been received by the Secretary of the Corporation not earlier than the ninetieth day prior to such special meeting and not later than the close of business on the later of (i) the sixtieth day prior to such special meeting or (ii) the tenth day following the day on which notice of the date of the special meeting was mailed or public disclosure thereof was made by the Corporation, whichever first occurs.
(3) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section F. The presiding officer of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by this Section F, and if he or she should so determine, the defective nomination shall be disregarded.
G. The directors of the Corporation need not be elected by written ballot unless the By-Laws so provide.
H. Any action required or permitted to be taken by the stockholders of the Corporation must be effected at a duly called annual or special meeting of stockholders of the Corporation and may not be affected by any consent in writing by such stockholders.
I. Special meetings of stockholders of the Corporation may be called only (1) by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption) or (2) by the President or (3) by the Chairman of the Board, or (4) by the holders of not less than twenty percent (20%) of all of the shares entitled to case votes at the meeting.
SIXTH
A. The number of directors shall be (i) fixed at not less than one and not greater than nine, (ii) initially fixed at one and (iii) thereafter be fixed from time to time exclusively by the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board for adoption).
B. Subject to the rights of the holders of any series of Preferred Stock then outstanding, newly created directorships resulting from any increase in the authorized number of directors or any vacancies in the Board of Directors resulting from death, resignation, retirement, disqualification or other cause (other than removal from office by a vote of the stockholders) may be filled only by a majority vote of the directors then in office though less than quorum, the directors so chosen shall hold office until the next annual meeting of stockholders. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director.
C. Subject to the rights of the holders of any series of Preferred Stock then outstanding, any directors, or the entire Board of Directors, may be removed from office at any time, with cause, but only by the affirmative vote of the holders of at least a majority of the voting power of all of the then outstanding shares of capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class. Vacancies in the Board of Directors resulting from such removal may be filled by (1) the stockholders at a special meeting of the stockholders, as provided in Article Sixth, Section A above, by the vote of the holders of a majority of the Shares entitled to vote at such meeting, or (2) by a majority of the directors then in office, though less than a quorum. Directors so chosen shall hold office until the next annual meeting of stockholders.
SEVENTH
The Board of Directors is expressly empowered to adopt, amend or repeal By-laws of the Corporation. Any adoption, amendment or repeal of Bylaws of the Corporation by the Board of Directors shall require the approval of a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any resolution providing for adoption, amendment or repeal is presented to the Board). The stockholders shall also have power to adopt, amend or repeal the By-laws of the Corporation. In addition to any vote of the holders of any class or series of stock of this Corporation required by law or by this Certificate of Incorporation the affirmative vote of the holders of at least sixty-six and two-third percent (66-2/3%) of the voting power of all the then outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to adopt, amend or repeal any provisions of the By-laws of the Corporation.
EIGHTH
A director of this Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit.
If the Delaware General Corporation Law is hereafter amended to authorize the further elimination or limitation of the liability of a director, then the liability of a director of the Corporation stall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article EIGHTH by the stockholders of the Corporation shall not adversely affect any right or protection of a director of the Corporation existing at the time of such repeal or modification.
NINTH
The Corporation reserves the right to amend or repeal any provision contained in this Certificate of Incorporation in the manner prescribed by the laws of the State of Delaware and all rights conferred upon stockholders are granted subject to this reservation; provided, however, that, notwithstanding any other provision of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any vote of the holders of any class or series of the stock of this Corporation required by the law or by this Certificate of Incorporation, the affirmative vote of the holders of at least 66-2/3% of the voting power of all of the then-outstanding shares of the capital stock of the Corporation entitled to vote generally in the election of directors, voting together as a single class, shall be required to amend or repeal this Article NINTH, clauses B, C, D, E, F and H of Article FIFTH, Article SIXTH, Article SEVENTH or Article EIGHTH.
IN WITNESS WHEREOF, this Certificate has been signed by its duly authorized incorporator, Peder K. Davisson, Esq., 4124 Quebec Avenue North, Suite 306, Minneapolis, MN 55427, this 23rd day of January, 2014.
By: | /s/ Peder K. Davisson | ||
Pedar K. Davisson, Esq., Incorporator |
Exhibit 3.2
BYLAWS
OF
ENERGIE HOLDINGS, INC.
ARTICLE I. OFFICES
Section 1.01. Registered Office and Agent. The Corporation shall have and continuously maintain a registered office and registered agent in accordance with the Delaware General Corporation Law.
Section 1.02 Other Offices. The Corporation may have offices at such place or places within or without the State of Delaware as the Board of Directors may from time to time appoint or the business of the Corporation may require or make desirable.
ARTICLE II. SHAREHOLDERS MEETINGS
Section 2.01. Place of Meetings. All meetings of the Shareholders shall be held at such place as may be fixed from time to time by the Board of Directors.
Section 2.02. Annual Meetings. An annual meeting of the Shareholders shall be held on the last business day of the fifth month following the close of each fiscal year or at such other time and stated prior thereto and following the close of the fiscal year as shall be determined by the Board of Directors for the purpose of electing Directors and transacting such other business as may properly be brought before the meeting.
Section 2.03. Special Meetings. Special meetings of the shareholders, for any purpose or purposes, unless otherwise prescribed by statute or the Certificate of Incorporation, may be called by the Chairman of the Board or the President; and shall be called by the Chairman of the Board, the President, or the Secretary: (i) when so directed by the Board of Directors, (ii) at the request in writing of any two or more Directors, or (iii) at the written request of shareholders owning at least twenty-five percent of the capital stock of the Corporation issued, outstanding, and entitled to vote. Such request shall state the purpose or purposes of the proposed meeting.
Section 2.04. Notice of Meetings. Except as otherwise required by statute or the Certificate of Incorporation, written notice of each meeting of the shareholders, whether annual or special, shall be served either personally or by mail, upon each shareholder of record entitled to vote at such meeting, not less than 10 nor more than 60 days before such meeting. If mailed, such notice shall be directed to a shareholder at his post office address last shown on the records of the Corporation. Notice of any special meeting of shareholders shall state the purpose or purposes for which the meeting is called. Notice of any meeting of shareholders shall not be required to be given to any shareholder who, in person or by his attorney thereunto authorized, either before or after such meeting, shall waive such notice by means of a signed writing. Attendance of a shareholder at a meeting, either in person or by proxy, shall of itself constitute waiver of notice and waiver of any and all objections to the place of the meeting, the time of the meeting, and the manner in which it has been called or convened, except when a shareholder attends a meeting solely for the purpose of stating, at the beginning of the meeting, any such objection or objections to the transaction of business. Notice of any adjourned meeting need not be given otherwise than by announcement at the meeting at which the adjournment is taken.
Section 2.05. Quorum. The holders of a majority of the stock issued, outstanding, and entitled to vote, present in person or represented by proxy, shall constitute a quorum at all meetings of the shareholders for the transaction of business, except as otherwise provided by law, by the Certificate of Incorporation, or by these Bylaws. If, however, such majority shall not be present or represented at any meeting of the shareholders, the shareholders entitled to vote thereat, present in person or by proxy, shall have power to adjourn the meeting from time to time, without notice other than announcement at the meeting, until the requisite amount of voting stock shall be present. At such adjourned meeting at which a quorum shall be present in person or by proxy, any business may be transacted that might have been transacted at the meeting as originally called.
Section 2.06. Voting. At every meeting of the shareholders, including meetings of shareholders for the election of Directors, any shareholder having the right to vote shall be entitled to vote in person or by proxy, but no proxy shall be voted after eleven months from its date, unless said proxy provides for a longer period. Each shareholder shall have one vote for each share of stock having voting power, registered in his name on the books of the Corporation. If a quorum exists, action on a matter (other than the election of Directors) by the Shareholders is approved if the votes cast favoring the action exceed the votes cast opposing the action, unless a greater number of affirmative votes. Unless otherwise provided in the Certificate of Incorporation, these Bylaws, or the Delaware Business Corporation requires a greater number of affirmative votes. Unless otherwise provided in the Certificate of Incorporation, Directors are elected by a plurality of the votes cast by the shares entitled to vote in the election at a meeting at which a quorum is present.
Section 2.07. Conduct of Meetings. The Chairman of the Board of Directors, or in his absence the President, or in their absence a person appointed by the Board of Directors, shall preside at meetings of the shareholders. The Secretary of the Corporation, or in the Secretary's absence, any person appointed by the presiding Officer shall act as Secretary for meetings of the shareholders. Meetings shall be governed by the most recent edition of Roberts Rules of Order, or in accordance with procedures prescribed by the Board, except to the extent that these Bylaws are inconsistent therewith.
Section 2.08. Written Consents. Any action required or permitted to be taken at a meeting of the shareholders of the Corporation may be taken without a meeting if written consent, setting forth the action so taken, shall be signed by persons who would be entitled to vote at a meeting, those shares having voting power, to cast not less than the minimum number (or numbers, in the case of voting by classes) of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote were present and voted. The rights set forth herein shall be governed by and subject to the provisions of the Delaware General Corporation Law and the Certificate of Incorporation.
ARTICLE III. BOARD OF DIRECTORS
Section 3.01. Authority. Except as may be otherwise provided by any legal agreements among shareholders, the property and business of the Corporation shall be managed by its Board of Directors. In addition to the powers and authority expressly conferred by these Bylaws, the Board of Directors may exercise all powers of the Corporation and do all such lawful acts and things as are not by law, by any legal agreement among shareholders, by the Certificate of Incorporation, or by these Bylaws directed or required to be exercised or done by the shareholders.
Section 3.02. Number and Term. The Board of Directors shall consist of a set number of members to be fixed by a resolution of the Board of Directors from time to time. Each Director (whether elected at an annual meeting of shareholders or otherwise) shall hold office until the annual meeting of shareholders held next after this election, and until a successor shall be elected and qualified, or until his earlier death, resignation, incapacity to serve, or removal. Directors need not be shareholders.
Section 3.03. Vacancies. A vacancy on the Board of Directors shall exist upon the death, resignation, removal, or incapacity to serve of any Director; upon the increase in the number of authorized Directors; and upon the failure of the shareholders to elect the full number of Directors authorized. The remaining Directors shall continue to act, and such vacancies may be filled by prior action of the Directors, at any meeting held during the existence of such vacancy. Any Director appointed by the Board of Directors to fill a vacancy, shall serve as a Director until the next annual meeting of the shareholders.
Section 3.04. Place of Meetings. The Board of Directors may hold its meetings at such place or places within or without the State of Delaware as it may from time to time determine.
Section 3.05. Compensation of Directors. Directors may be allowed such compensation for attendance at regular or special meetings of the Board of Directors and of any special or standing committees thereof as may from time to time determined by resolution of the Board of Directors.
Section 3.06. Resignation. Any Director may resign by giving written notice to the Board of Directors. The resignation shall be effective on receipt, unless the notice specifies a later time for the effective date of such resignation, in which event the resignation shall be effective upon the election and qualification of a successor. If the resignation is effective at a future time, a successor may be elected before that time to take office when the resignation becomes effective.
Section 3.07. Removal. The Shareholders may declare the position of a Director vacant, and may remove such Director for cause at a special meeting of the Shareholders called for such purpose, on the occurrence of any of the following events: the Director has been declared of unsound mind by a final order of court; the Director has been convicted of a felony; the Director has failed to attend any meeting of the Board for at least a year and a half; or the Director has been presented with one or more written charges, has been given at least ten days' notice of a hearing at which he may have legal counsel present, and has been given opportunity for such a hearing at a meeting of the Shareholders. The Shareholders may also declare the position of a Director vacant, and may remove such Director without cause, by a vote of two-thirds of the votes cast by the shares entitled to vote at a meeting at which a quorum is present.
Section 3.08. Time of Meetings. Each newly elected Board of Directors shall meet (i) at the place and time which shall have been determined, in accordance with the provisions of these Bylaws, for the holding of the regular meeting of the Board of Directors scheduled to be held full following the annual meeting of the shareholders at which the newly elected Board of Directors shaft have been elected, or (ii) if no place and time shall have been fixed for the holding of such meeting of the Board of Directors, then immediately following the close of such annual meeting of shareholders and at the place thereof, or (iii) at such time and place as shall be fixed by the written consent of all the Directors of such newly elected Board of Directors. In any event no notice of such meeting to the newly elected Directors shall be necessary in order legally to constitute the meeting.
Section 3.09. Notice of Meetings. Regular meetings of the Board of Directors may be held at such time and place within or without the State of Delaware as shall from time to time be determined by the Board of Directors by resolution, and such resolution shall constitute notice thereof. No further notice shall be required in order legally to constitute such regular meeting
Section 3.10. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President on not less than two days' notice by mail, telegram, cablegram, or personal delivery to each Director and shall be called by the Chairman of the Board, the President, or the Secretary in like manner and on like notice on the written request of any two or more Directors delivered to such Officer of the Corporation. Any such special meeting shall be held at such time and place within or without the State of Delaware as shall be stated in the notice of meeting.
Section 3.11. Notice - Purpose of Meeting. No notice of any special meeting of the Board of Directors need state the purposes thereof, and such notice shall be sufficient if it states the time and place of such meeting and the person or persons calling such meeting, provided it is received not less than two days prior to such meeting.
Section 3.12. Quorum. At all meetings of the Board of Directors, the presence of a majority of the authorized number of Directors shall be necessary and sufficient to constitute a quorum for the transaction of business. The act of a majority of the Directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law, by the Certificate of Incorporation or by these Bylaws. In the absence of a quorum, a majority of the Directors present at any meeting may adjourn the meeting from time to time until a quorum be had. Notice of my adjourned meeting need only be given by announcement at the meeting at which the adjournment is taken.
Section 3.13. Telephonic Participation. Directors may participate in meetings of the Board of Directors through use of conference telephone or similar communications equipment, provided all Directors participating in the meeting can bear one another, Such participation shall constitute personal presence at the meeting, and consequently shall be counted toward the required quorum and in any vote.
Section 3.14. Conduct of Meetings. The Chairman of the Board, or in his absence the President, and in their absence the Vice President, if any, named by the Board of Directors, shall preside at meetings of the Board of Directors. The Secretary of the Corporation, or in the Secretary's absence any person appointed by the presiding Officer, shall art as Secretary for meetings of the Board of Directors. Meetings shall be governed by the most recent edition of Robert's Rules of Order, or in accordance with procedures prescribed by the Board, except to the extent that these Bylaws are inconsistent therewith.
Section 3.15. Action by Written Consent. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if, prior to such action, a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the Board or committee.
ARTICLE IV. COMMITTEES
Section 4.01. Executive Committee. The Board of Directors may by resolution adopted by a majority of the entire Board, designate an Executive Committee of three or more Directors. Each member of the Executive Committee shall hold office until the first meeting of the Board of Directors after the annual meeting of the shareholders next following his election and until his successor member of the Executive Committee is elected, or until his death, resignation, removal, or until he shall cease to be a Director.
Section 4.02. Executive Committee-Powers. During the intervals between the meetings of the Board of Directors, the Executive Committee may exercise all the powers of the Board of Directors in the management of the business affairs of the Corporation, including all powers specifically granted to the Board of Directors by these Bylaws or by the Certificate of Incorporation, and may authorize the seal of the Corporation to be affixed to all papers which may require it; provided, however, that the Executive Committee shall not have the power to amend or repeal any resolution of the Board of Directors that by its terms shall not be subject to amendment or repeal by the Executive Committee, and the Executive Committee shall not have the authority of the Board of Directors in reference to (1) amending the Certificate of Incorporation; (2) adopting or approving a plan of merger or consolidation; (3) adopting, amending, or repealing the Bylaws of the Corporation; (4) the filling of vacancies on the Board of Directors or on any Committees; (5) approving or proposing to Shareholders action that the Delaware General Corporation Law requires to be approved by Shareholders; (6) the sale, lease, exchange or other disposition of all or substantially all the property and assets of the Corporation or a revocation of any such dissolution.
Section 4.03. Executive Committee-Meetings. The Executive Committee shall meet from time to time on call of the Chairman of the Board, the President, or of any two or more members of the Executive Committee. Meetings of the Executive Committee may be held at such place or places, within or without the State of Delaware, as the Executive Committee shall determine or as may be specified or fixed in the respective notices of such meetings. The executive Committee may fix its own rules of procedure, including provision for notice of its meetings, shall keep a record of its proceedings, and shall report these proceedings to the Board of Directors at the meeting thereof held next after such meeting of the Executive Committee. All such proceedings shall be subject to revision or alteration by the Board of Directors except to the extent that action shall have been taken pursuant to or in reliance upon such proceedings prior to any such revision or alteration. The Executive Committee shall act by majority vote of its members.
Section 4.04. Executive Committee-Alternate Members. The Board of Directors, by resolution adopted in accordance with Section 4.01, may designate one or more Directors as alternate members of any such committee, who may act in the place and stead of any absent member or members at any meeting of such committee.
Section 4.05. Other Committees. The Board of Directors, by resolution adopted by a majority of the entire Board, may designate one or more additional committees, each committee to consist of three or more of the Directors of the Corporation, which shall have such name or names and shall have and may exercise such powers of the Board of Directors in the management of the business and affairs of the Corporation, except the powers denied to the Executive Committee, as may be determined from time to time by the Board of Directors.
Section 4.06. Removal of Committee Members. The Board of Directors shall have power at any time to remove any or all of the members of any committee, with or without cause, and to fill vacancies in and to dissolve any such committee.
ARTICLE V. OFFICERS
Section 5.01. Election of Officers. The Board of Directors, at its first meeting after each annual meeting of shareholders, shall elect a President and may elect such other of the following Officers: a Chairman of the Board, on or more Vice Presidents (one of whom may be designated Executive Vice President), a Secretary, and a Treasurer. The Board of Directors at any time and from time to time may appoint such other Officers as it shall deem necessary, including one or more Assistant Vice Presidents, one or more Assistant Treasurers, and one or more Assistant Secretaries, who shall hold their offices for such terms as shall be determined by the Board of Directors, and shall exercise such powers and perform such duties as shall be determined from time to time by the Board of Directors or the Chairman of the Board.
Section 5.02. Compensation. The salaries of the Officers of the Corporation shall be fixed by the Board of Directors, except that the Board of Directors may delegate to any Officer or Officers the power to fix the compensation of any Officer appointed in accordance with the second sentence of Section 5.01 of these Bylaws.
Section 5.03. Term. Removal. Resignation. Each Officer of the Corporation shall hold office until his successor is chosen or until his earlier resignation, death, removal, or termination of his office. Any Officer may be removed with or without cause by a majority vote of the Board of Directors whenever in its judgment the best interests of the Corporation will be served thereby. Any Officer may resign by giving written notice to the Board of Directors. The resignation shall be effective upon receipt, or at such time as may be specified in such notice.
Section 5.04. Chairman of the Board. The Chairman of the Board, when one is elected, may be declared by the Board to be the Chief Executive Officer of the Corporation and if so, shall have general and active management of the business of the Corporation and shall see that all orders and resolutions of the Board of Directors are carried into effect. He shall be ex officio a member of all standing committees, unless otherwise provided in the resolution appointing the same. The Chairman of the Board shall call meetings of the shareholders, the Board of Directors, and the Executive Committee to order and shall act as chairman of such meetings.
Section 5.05. President. When no Chairman of the Board has been elected, or if a Chairman has been elected and not declared to be the Chief Executive Officer, or in the event of the death or disability of the Chairman of the Board or at his request, the President shall have all of the powers and perform the duties of the Chairman of the Board. The President shall also have such powers and perform such duties as are specifically imposed upon him by law and as may be assigned to him by the Board of Directors or the Chairman of the Board. The President shall be ex officio a member of all standing committees, unless otherwise provided in the resolution appointing such committees. In the absence of a Chairman of the Board serving as Chief Executive Officer, the President shall call meetings of the shareholders, the Board of Directors, and the Executive Committee to order and shall act as chairman of such meetings. If no other Officers are elected, the President shall also have all of the powers and perform the duties of Secretary and Treasurer.
Section 5.06. Vice Presidents. The Vice Presidents shall perform such duties as are generally performed by vice presidents. The Vice Presidents shall perform such other duties and exercise such other powers as the Board of Directors, the Chairman of the Board, or the President shall request or delegate. The Assistant Vice Presidents shall have such powers, and shall perform such duties, as may be prescribed from time to time by the Board of Directors, the Chairman of the Board, or the President.
Section 5.07. Secretary. The Secretary shall attend all meetings of the Board of Directors, all meetings of the shareholders, and record all votes and the minutes of all proceedings in books to be kept for that purpose, and shall perform like duties for the standing committees when required. He shall give, or cause to be given, any notice required to be given of any meetings of
the shareholders and of the Board of Directors, the Chairman of the Board, or the President, under whose supervision he shall be. The Assistant Secretary or Assistant Secretaries shall, in the absence or disability of the Secretary, or at the Secretary's request, perform the duties and exercise the powers and authority herein granted to the Secretary.
Section 5.08. Treasurer. The Treasurer shall have charge and be responsible for all funds, securities, receipts, and disbursements of the Corporation, and shall deposit or cause to be deposited, in the name of the Corporation, all monies or other valuable effects in such banks, trust companies, or other depositories as shall from time to time be selected by the Board of Directors; he shall render to the Chairman of the Board, the President, and to the Board of Directors, whenever requested, an account of the financial condition of the Corporation, and in general, he shall perform all the duties incident to the office of a treasurer of a Corporation, and such other duties as may be assigned to him by the Board of Directors, the Chairman of the Board, or the President.
Section 5.09. Vacancy in Office. In case of the absence of any Officer of the Corporation, or for any other reason that the Board of Directors may deem sufficient, the Board of Directors may delegate, for the time being, any or all of the powers or duties of such Officer to any Officer or to any Director.
ARTICLE VI. CAPITAL STOCK
Section 6.01. Share Certificates. The interest of each shareholder shall be evidenced by a certificate or certificates representing shares of stock of the Corporation which shall be in such form as the Board of Directors may from time to time adopt. The certificates shall be consecutively numbered, and the issuance of shares shall be duly recorded in the books of the Corporation as they are issued. Each certificate shall indicate the holder's name, the number of shares, the class of shares and series, if any, represented thereby, a statement that the Corporation is organized under the laws of the State of Delaware, and the par value of each share or a statement that the shares are without par value. Each certificate shall be signed by (i) the Chairman of the Board, the President, or a Vice President and (ii) the Treasurer, Assistant Treasurer, Secretary or Assistant Secretary, if such officer or officers have been elected or appointed by the Corporation, and shall be sealed with the seal of the Corporation; provided, however, that if such certificate is signed by a transfer agent, or by a transfer clerk acting on behalf of the Corporation, and a registrar, the signature of any Officer of the Corporation, whether because of death, resignation, or otherwise, prior to the delivery of such share certificate by the Corporation, such certificate may nevertheless be delivered as though the person who signed whose facsimile signatures shall have been used thereon had not ceased to be such Officer or Officers.
Section 6.02. Shareholder Records. The Corporation shall keep a record of the shareholders of the Corporation which readily indicates in alphabetical order or by alphabetical index, and by classes of stock, the names of the shareholders entitled to vote, the addresses of such shareholders, and the number of shares held by such shareholder. Said records shall be presented at all meetings of the shareholders.
Section 6.03. Stock Transfer Books. Transfers of stock shall be made on the books of the Corporation only by the person named in the certificate, or by attorney lawfully constituted in writing, and upon surrender of the certificate therefore, or in the case of a certificate alleged to have been lost, stolen or destroyed, upon compliance with the provisions of Section 6.07 of these Bylaws.
Section 6.04. Determination of Shareholders.
(a) For the purpose of determining shareholders entitled to notice of or to vote at any meetings of shareholders or any adjournment thereof, or entitled to receive payment of any dividend, or in order to make a determination of shareholders for any other proper purpose, the Board of Directors may provide that stock transfer books shall be closed for a stated period not to exceed fifty days. If the stock transfer books shall be closed for the purpose of determining shareholders entitled to notice or to vote at a meeting of shareholders, such books shall be closed for at least ten days immediately preceding such meeting.
(b) In lieu of closing stock transfer books, the Board of Directors may fix in advance a date as the record date for any such determination of shareholders, such date to be not more than fifty days and, in case of a meeting of shareholders, not less than ten days, prior to the date on which the particular action requiring such determination of shareholders is to be taken.
Section 6.05. Shareholder Rights. The Corporation shall be entitled to treat the holder of any share of stock of the Corporation as the person entitled to vote such share and to receive any dividend or other distribution with respect to such share, and for all other purposes and accordingly shall not be bound to recognize any equitable or other claim to or interest in such share on the part of any other person, whether or not it shall have express or other notice thereof, except as otherwise provided by law.
Section 6.06. Transfer Agent. The Board of Directors may appoint one or more transfer agents and one or more registrars and may require each stock certificate to bear the signature or signatures of a transfer agent or a registrar or both.
Section 6.07. Replacement Certificates. Any person claiming a certificate of stock to be lost, stolen, or destroyed shall make an affidavit or affirmation of the fact in such manner as the Board of Directors may require and shall, if the Directors so require, give the Corporation a bond of indemnity. Such bond shall be in form and amount satisfactory to the Board of Directors, and shall be with one or more sureties, whereupon an appropriate new certificate may be issued in lieu of the one alleged to have been lost, stolen or destroyed.
ARTICLE VII. MISCELLANEOUS
Section 7.01. Inspection of Books. The Board of Directors shall have power to determine which accounts and books of the Corporation, if any, shall be open to the inspection of the shareholders, except with respect to such accounts, books, and records as may by law be specifically open to inspection by the shareholders, and shall have power to fix reasonable rules and regulations not in conflict with the applicable law, if any, for the inspection of records, accounts, and books which by law or by determination of the Board of Directors shall be open to inspection, and the shareholders' rights to this respect are and shall be restricted and limited accordingly.
Section 7.02. Fiscal Year. The fiscal year of the Corporation shall be fixed from time to time by resolution of the Board of Directors.
Section 7.03. Seal. The corporate seal shall be in such form as the Board of Directors may from time to time determine. In the event it is inconvenient to use such seal at any time, the signature of the Corporation followed by the word "SEAL" or "CORPORATE SEAL" enclosed in parenthesis or scroll, shall be deemed to be the seal of the Corporation.
Section 7.04. Annual Statements. Not later than four months after the close of each fiscal year, and in any case prior to the next annual meeting of shareholders, the Corporation shall prepare:
(1) balance sheet showing in reasonable detail the financial condition of the Corporation as of the close of its fiscal year, and
(2) a profit and loss statement showing the results of its operation during its fiscal year.
Upon written request, the Corporation promptly shall mail to any shareholder of record a copy of the most recent such balance sheet and profit and loss statement.
Section 7.05. Appointment of Agents. The Chairman of the Board, the President, or any Vice President shall be authorized and empowered in the name of and as the act and deed of the Corporation to name and appoint general and special agents, representatives, and attorneys to represent the Corporation in the United States or in any foreign country or countries; to name and appoint attorneys and proxies to vote any shares of stock in any other Corporation at any time owned or held of record by the Corporation; to prescribe, limit, and define the powers and duties of such agents, representatives, attorneys, and proxies; and to make substitution, revocation, or cancellation in whole or in part of any power or authority conferred on any such agent, representative, attorney, or proxy. All powers of attorney or other instruments under which such agents, representatives, attorneys, or proxies shall be so named and appointed shall be signed and executed by the Chairman of the Board, the President, or a Vice President, and the corporate seal shall be affixed thereto. Any substitution, revocation, or cancellation shall be signed in like manner, provided always that any agent, representative, attorney, or proxy, when so authorized by the instrument appointing him, may substitute or delegate his powers in whole or in part and revoke and cancel such substitutions or delegations. No special authorization by the Board of Directors shall be necessary in connection with the foregoing, but this Bylaw shall be deemed to constitute full and complete authority to the Officers above designated to do all the acts and things as they deem necessary or incidental thereto or in connection therewith.
Section 7.06. Indemnification.
(a) Under the circumstances prescribed in this Section 7.06, and subject to the limitations of the Certificate of Incorporation, the Corporation shall indemnify and hold harmless any person who was or is a party or is threatened to be made a party of any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, and whether formal or informal (a "Proceeding"), by reason of the fact that he is or was a Director or Officer of the Corporation, or, while a Director or Officer, is or was serving at the request of the Corporation as an officer, director, partner, joint venturer, trustee, employee, or agent of another foreign or domestic Corporation, partnership, joint venture, trust, employee benefit plan or other enterprise, against the obligation to pay a judgment, settlement, penalty, fine or reasonable expenses (including attorney's fees) actually and reasonably incurred by him in connection with such Proceeding, if he had no reasonable cause to believe his conduct was unlawful. Notwithstanding the above, the indemnification permitted hereunder in connection with a Proceeding by or in the right of the Corporation is limited to reasonable expenses (including attorney's fees) incurred in connection with the Proceeding.
(b) The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contender or its equivalent shall not, of itself, create a presumption that the person did not meet the standard of conduct set forth in Section 7.06(a).
(c) Notwithstanding the foregoing, the Corporation shall not indemnify any Director or Officer in connection with any Proceeding (i) by or in the right of the Corporation in which said person was adjudged liable to the Corporation, or (ii) in which he was adjudged liable on the basis that personal benefit was improperly received by him.
(d) To the extent that a Director or Officer has been successful, on the merits or otherwise, in the defense of any Proceeding to which he was a party because he is or was a Director or Officer, or in the defense of any claim, issue or matter therein, the Corporation shall indemnify him against expenses (including attorney's fees) actually and reasonably incurred by him in connection therewith.
(e) Except as provided in paragraph (d) of this Section 7.06 and except as may be ordered by a court, the Corporation shall not indemnify any Director or Officer unless authorized hereunder and a determination has been made that indemnification of the Director or Officer is proper in the circumstances because he has met the applicable standard of conduct set forth in Section 7.06(a). Such determination shall be made in accordance with the Delaware General Corporation Law, as amended.
(f) Reasonable expenses (including attorney's fees) incurred by a Director or Officer who is a party to a Proceeding shall be paid by the Corporation in advance of the final disposition of such Proceeding if (i) the Director or Officer furnishes the Corporation a written affirmation of his good faith belief that he has met the standard of conduct set forth in Section 7.06(a), and (ii) the Director or Officer furnishes the Corporation a written undertaking to repay any advances if it is ultimately determined that he is not entitled to indemnification.
(g) The indemnification provided by this Section 7.06 shall not be deemed exclusive of any other right to which the persons indemnified hereunder shall be entitled and shall inure to the benefit of the heirs, executors, or administrators of such persons.
(h) The Corporation may purchase and maintain insurance on behalf of any person who is or was a Director or Officer of the Corporation, or is or was serving at the request of the Corporation as a director, officer, partner, joint venturer, trustee, employee benefit plan or other enterprise, against any liability asserted against him and incurred by him in any such capacity, or arising out of his status as such, whether or not the Corporation would have the power to indemnify him against such liability under the provisions of this Section 7.06.
(i) If any expenses or other amounts are paid by way of indemnification, otherwise than by court order or by an insurance carrier pursuant to insurance maintained by the Corporation, the Corporation shall, not later than the next annual meeting of the shareholders, unless such meeting is held within three months from the date of such payment, and, in any event, within fifteen months from the date of such payment, send by first class mail to its shareholders of record at the time entitled to vote for the election of Directors, a statement specifying the persons paid, the amounts paid, and the nature and status at the time of such payment of the litigation or threatened litigation.
Section 7.07. Reimbursement from Officers. Any payments made to an Officer of the Corporation such as salary, commission, bonus, interest, rent, or entertainment expense incurred by him, which shall be disallowed in whole or in part as a deductible expense by the Internal Revenue Service, shall be reimbursed by such Officer to the Corporation to the full extent of such disallowance. In lieu of payment by the Officer, subject to the determination of the Board of Directors, proportionate amounts may be withheld from his future compensation payments until the amount owed to the Corporation has been recovered.
Section 7.08. Reimbursement of Personal Expenses. Each Officer and Director of the Corporation shall be required from time to time to bear personally incidental expenses related to his responsibilities as an officer and director which expenses unless specifically authorized shall not be subject to reimbursement by the Company.
ARTICLE VIII. AMENDMENTS
Section 8.01. Amendment. The Bylaws of the Corporation may be altered or amended and new Bylaws may be adopted by the shareholders at any annual or special meeting of the shareholders or by the Board of Directors at any regular or special meeting of the Board of Directors; provided, however, that, if such action is to be taken at a meeting of the shareholders, notice of the general nature of the proposed change in the Bylaws shall have been given in the notice of the meeting.
Exhibit 99.1
Energie, LLC
Financial Statements
For the Twelve Months Ended December 31, 2013 and 2012
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Energie, LLC Index to Financial Statements |
For the Years Ended December 31, 2013 and 2012 |
Report of Independent Public Accounting Firm……………...…………………………….…………..2
Financial Statements:
Balance Sheets..…………………………………………………………......………………………...……...3
Statements of Operations..…………………………..……………………..……………………….……….4
Statements of Changes in Members’ Deficit..…………………………..……………………..…………..5
Statements of Cash Flows......…………………………………………………..………………...…………6
Notes to Financial Statements…...……………………………………………..…………………………...7
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of Energie, LLC:
We have audited the accompanying balance sheets of Energie, LLC (“the Company”) as of December 31, 2013 and 2012 and the related statement of operations, changes in members’ 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 statement referred to above present fairly, in all material respects, the financial position of Energie, LLC, as of December 31, 2013 and 2012, and the results of its operations and its cash flows for the year 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 4 to the financial statements, the Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ B F Borgers CPA PC
B F Borgers CPA PC
Denver, CO
July 2, 2014
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Energie, LLC Balance Sheet |
Years Ended December 31, 2013 and 2012 |
December 31, 2013 | December 31, 2012 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 37,874 | $ | 59,171 | ||||
Accounts receivable, net | 714,508 | 296,612 | ||||||
Inventory | 414,308 | 426,407 | ||||||
Prepaid expenses | 15,922 | 48,967 | ||||||
Total Current Assets | 1,182,612 | 831,157 | ||||||
Noncurrent Assets | ||||||||
Intangible assets, net | 1,119,550 | 1,378,566 | ||||||
Property and equipment, net | 23,421 | 34,207 | ||||||
Deposits | 11,695 | 11,695 | ||||||
Total Noncurrent Assets | 1,154,666 | 1,424,468 | ||||||
Total Assets | $ | 2,337,278 | $ | 2,255,625 | ||||
Liabilities and Members' Deficit | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 595,202 | $ | 628,850 | ||||
Commissions payable | 91,967 | 104,876 | ||||||
Unearned income | — | 54,802 | ||||||
Debt | 3,981,932 | 2,734,656 | ||||||
Total Current Liabilities | 4,669,101 | 3,523,184 | ||||||
Members' Deficit | ||||||||
Members' deficit | (2,331,823 | ) | (1,267,559 | ) | ||||
Total Liabilities and Members' Deficit | $ | 2,337,278 | $ | 2,255,625 |
The accompanying notes are an integral part of these financial statements.
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Energie, LLC Statement of Operations |
Years Ended December 31, 2013 and 2012 |
For the Year Ended | For the Year Ended | |||||||
December 31, 2013 | December 31, 2012 | |||||||
Sales revenue | $ | 1,733,373 | $ | 2,020,126 | ||||
Cost of goods sold | (758,739 | ) | (894,572 | ) | ||||
Gross Profit | 974,634 | 1,125,554 | ||||||
Operating Expenses | ||||||||
Commissions | 372,954 | 288,408 | ||||||
Compensation | 600,786 | 623,345 | ||||||
Depreciation and amortization | 238,053 | 216,894 | ||||||
General and administrative | 161,567 | 171,568 | ||||||
Professional fees | 22,746 | 37,055 | ||||||
Rent | 217,088 | 211,688 | ||||||
Travel | 8,502 | 40,388 | ||||||
Total Operating Expenses | 1,621,696 | 1,589,346 | ||||||
Loss from Operations | (647,062 | ) | (463,792 | ) | ||||
Other income (expense) | ||||||||
Interest expense | (421,787 | ) | (381,314 | ) | ||||
Other | 114,251 | (63,113 | ) | |||||
Other income (expense), net | (307,536 | ) | (444,427 | ) | ||||
Net loss and comprehensive loss | $ | (954,598 | ) | $ | (908,219 | ) | ||
The accompanying notes are an integral part of these financial statements.
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Energie, LLC Statement of Changes in Members’ Deficit |
Years Ended December 31, 2013 and 2012 |
Members' Deficit | ||||
Balance at January 1, 2012 | $ | (328,975 | ) | |
Net Loss for the year ended December 31, 2012 | (908,219 | ) | ||
Contributions | 110,197 | |||
Other | (140,562 | ) | ||
Balance at December 31, 2012 | (1,267,559 | ) | ||
Net Loss for the year ended December 31, 2013 | (954,598 | ) | ||
Other | (109,666 | ) | ||
Balance at December 31, 2013 | $ | (2,331,823 | ) | |
The accompanying notes are an integral part of these financial statements.
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Energie, LLC Statement of Cash Flows |
Years Ended December 31, 2013 and 2012 |
For the Year Ended | For the Year Ended | |||||||
December 31, 2013 | December 31, 2012 | |||||||
Cash flow from operating activities | ||||||||
Net loss | $ | (954,598 | ) | $ | (908,219 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 238,053 | 216,894 | ||||||
Unpaid interest | 421,787 | 381,314 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (417,896 | ) | (129,288 | ) | ||||
Inventory | 12,099 | 100,699 | ||||||
Prepaid expenses | 33,045 | 43,284 | ||||||
Accounts payable | (33,648 | ) | 185,722 | |||||
Unearned income | (54,802 | ) | 36,510 | |||||
Commissions payable | (12,909 | ) | (21,473 | ) | ||||
Net cash used in operating activities | (768,869 | ) | (94,557 | ) | ||||
Cash flow (used for)/provided by investing activities | — | (21,208 | ) | |||||
Cash flow used for financing activities | ||||||||
Proceeds from payments of notes payable, net of repayments | 825,489 | 165,153 | ||||||
Member activity | (77,917 | ) | (30,365 | ) | ||||
Net cash provided by financing activities | 747,572 | 134,788 | ||||||
Net (decrease)/increase in cash | (21,297 | ) | 19,023 | |||||
Cash at beginning of the year | 59,171 | 40,148 | ||||||
Cash at end of the year | $ | 37,874 | $ | 59,171 | ||||
Supplemental Disclosures: | ||||||||
Interest paid | $ | — | $ | — | ||||
Income taxes paid | $ | — | $ | — |
The accompanying notes are an integral
part of these financial statements.
Energie LLC
Notes to Financial Statements
1. Organization and Nature of Operations
Organization and Operations – Energie, LLC (“Energie” or “the Company”) was established on November 29, 2001 as a limited liability company in the state of Delaware and is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. The Company is headquartered in Wheat Ridge, Colorado and also maintains a production and assembly facility in Zeeland, Michigan.
Energie has organically 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 Energie 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, the sales force is provided with promotional materials, product training, and technical support by the Company.
2. Summary of Significant Accounting Policies
Basis of Preparation - The financial statements are presented in United States dollars, and are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) under the historical cost convention except as otherwise noted. The preparation of financial statements in conformity with GAAP requires the use of certain critical accounting estimates. It also requires management to exercise its judgment in the process of applying the Company’s accounting policies. The areas involving a higher degree of judgment or complexity, or areas where assumptions and estimates are significant to the financial statements are disclosed in Note 3 – Critical Accounting Estimates and Judgments.
Going Concern and Managements’ Plan - The Company's financial statements for the year ended December 31, 2013 and 2012 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported net losses of $954,598 and $908,219 for the years ended December 31, 2013 and 2012. The Company also has a members’ deficit of $2,331,823 at December 31, 2013 and negative working capital of $3,486,489 at December 31, 2013.
The future success of the Company is dependent on its ability to attract additional capital, or to find an acquisition to add value to its present shareholders and ultimately, upon its ability to develop future profitable operations. There can be no assurance that the Company will be successful in obtaining such financing, or that it will attain positive cash flow from operations for the next annual period.
Although the Company is past due on its required payments under the forgoing loans, the lenders have not made demand for repayment of the principal and interest due. If demand for payment is made by one or multiple vendors, the Company would experience a liquidity issue as it does not currently have the funds available to pay off these debts. We intend to enter into extension/forbearance agreements with each of the lenders; however, 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 the Company.
Future Accounting Policy Change – The following accounting standard has been issued but is not yet adopted by the Company due to a future effective date: In March 2013, the FASB issued guidance on a parent’s accounting for the cumulative translation adjustment upon de-recognition of a subsidiary or group of assets within a foreign entity. This new guidance requires that the parent release any related cumulative translation adjustment into net income only if the sale or transfer results in the complete or substantially complete liquidation of the foreign entity in which the subsidiary or group of assets had resided. The new guidance will be effective for us beginning July 1, 2014. The Company does not anticipate material impacts on the financial statements upon adoption.
Cash and Cash Equivalents - In the statement of cash flows, cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. In the balance sheet, any bank overdrafts are shown within borrowings in current liabilities.
Accounts Receivable - Accounts receivable represent normal trade obligations from customers that are subject to normal trade collection terms, without discounts or rebates. If collection is expected in one year or less they are classified as current assets. If not, they are presented as non-current assets. Accounts receivable are recognized initially at fair value and subsequently measured at amortized cost using the effective interest method, less provision for impairment. Notwithstanding these collections, the Company periodically evaluates the collectability of accounts receivable and considers the need to establish an allowance for doubtful debts based upon historical collection experience and specifically identifiable information about its customers. As of December 31, 2013 and 2012, the Company determined that no such allowance was necessary.
Accounts Receivable Factoring - The Company factors certain receivables under its own discretion. In accordance with ASC 860-10-40 the Company properly accounts for factoring under the sale of receivables method. Factored receivables at December 31, 2013 and 2012 have been properly accounted for under this method.
Inventory – The Company values inventories, consisting of purchased goods for resale, at the lower of cost or market. Cost is determined using the weighted average method. The Company reduces inventories for the diminution of value, if any, resulting from product obsolescence, damage or other issues affecting marketability, equal to the difference between the cost of the inventory and its estimated market value. These markdowns are estimates, which could vary significantly from actual requirements if future economic conditions, customer demand or competition differ from expectations.
Warranty Reserve – The Company Warranties items for one year after purchase. The Company components and modifications are minimal and the Company rarely runs into warranty claims. However, this occasionally does occur and when it does the amount of warranty expense can be substantial. As a result, a warranty reserve of $18,600 has been booked and is maintained on the books for both 2012 and 2013.
Prepaid Expenses – Prepayments made for services are deferred as an asset and recognized as expense as the services are performed.
Intangible Assets - Purchased intangible assets are recorded at cost, where cost is the amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition. The cost of such an intangible asset is measured at fair value unless the exchange transaction lacks commercial substance or the fair value of neither the asset received nor the asset given up is reliably measurable. If the fair value of either the asset received or the asset given up can be measured reliably, then the fair value of the asset given up is used to measure cost unless the fair value of the asset received is more clearly evident (See Note 8 – Intangible Assets).
Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated amortization and accumulated impairment losses. Amortization is recognized on a straight-line basis over their estimated useful lives. The estimated useful life and amortization method are reviewed at the end of each reporting period, with the effect of any changes in estimate being accounted for on a prospective basis. Intangible assets which have indefinite lives are not amortized, and are stated at cost less accumulated impairment losses.
Property and Equipment - Property and equipment is stated at historical cost less depreciation. Historical cost includes expenditure that is directly attributable to the acquisition of the items. Subsequent costs are included in the asset’s carrying amount or recognized as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Company, and the cost of the item can be measured reliably. Subsequent to recognition, property and equipment is measured at cost less accumulated depreciation and impairment losses.
Deposits – Consist of security deposits for leased office space.
Accounts Payable – Accounts payable are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Accounts payable are classified as current liabilities if payment is due within one year or less (or in the normal operating cycle of the business if longer). If not, they are presented as non-current liabilities.
Unearned Income – Cash collected from customers prior to delivery of products is deferred as a liability until such time the sale transaction meets the revenue recognition criteria described below.
Notes Payable - Borrowings are recognized initially at fair value, net of transaction costs incurred. Borrowings are subsequently carried at amortized cost; any difference between the proceeds (net of transaction costs) and the redemption value is recognized in the income statement over the period of the borrowings using the effective interest method.
Commissions Payable – Commissions payable consist of commissions owed to third party sales agents and distributors in accordance with executed sales representative agreements. Commissions are based on a percentage of sales generated by the representative on behalf of the Company. The percentage is scalable depending on the relation to the “list price,” so a lower, or no, commission is received depending on the discount.
Sales Revenue and Cost of Goods Sold – The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when persuasive evidence of an arrangement exists, the product has been shipped or the services have been rendered to the customer, the sales price is fixed or determinable, and collection is reasonably assured. The Company records revenue on a gross basis. Gross basis reporting reflects revenue at the gross sales price received by the Company from the buyer of the products, and cost of goods sold represents the Company’s cost to acquire the products from the manufacturers for resale. The Company takes title to the products to be resold on the date the product is shipped to the Company from the manufacturer.
Operating Expenses - Expenses necessary to generate revenue are expensed in the period incurred. Commission expense is recognized at the time revenue is earned on product sales, and is based upon a defined fee for each product sold.
Interest Expense - Interest expense is recognized using the effective interest method on any notes payable.
Impairment of Non-Financial Assets - Assets that have an indefinite useful life are not subject to amortization and are tested annually for impairment. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognized for the amount by which the asset’s carrying amount exceeds its recoverable amount. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows.
Income Taxes – Because the Company was established as a limited liability company, it is treated as a partnership for Federal income tax purposes where all such tax obligations flow through to the owners of the Company during the period in which income taxes were incurred.
Fair Value of Financial Instruments - The carrying amount of our financial instruments, which principally include cash, accounts receivable, accounts payable and debt, approximates fair value due to the relatively short maturity of such instruments.
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 standard describes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable, that may be used to measure fair value 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 fair value of the assets or liabilities.
3. Critical Accounting Estimates and Judgments
Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. The Company makes estimates and assumptions concerning the future. The resulting accounting estimates will, by definition, seldom equal the related actual results. The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year include:
Accounts Receivable - Allowance for Doubtful Accounts - The Company’s allowance for doubtful accounts is estimated based on historical experience, receivable aging, current economic trends and specific identification of certain receivables that are at risk of not being paid. In light of the recent volatility in the global economies, the Company’s estimates and judgments with respect to the collectability of its receivables have become subject to greater uncertainty than in more stable periods.
Inventory - Allowance for Obsolescence - The Company’s allowance for inventory obsolescence is estimated based on historical experience, product aging, current economic trends and specific identification of certain components of inventory that are at risk of not being sold. In light of the recent volatility in the global economies, the Company’s estimates and judgments with respect to the sale of its inventory have become subject to greater uncertainty than in more stable periods.
Intangible Assets: Valuation and Amortization - The Company is required to estimate the fair value of its acquired intangible assets, and review them for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. In making this assessment, judgment is involved in the determination of the potential impacts of both internal and external factors affecting the recoverability of the asset through future revenue. Significant estimates and assumptions are required to determine the expected useful lives for amortizing and determining the recoverability of intangible assets. Estimates are also necessary in assessing whether there is an impairment of their value requiring a write-down of their carrying amount. In order to ensure that its assets are carried at no more than their recoverable amount, the Company evaluates at each reporting date certain indicators that would result, if applicable, in the calculation of an impairment test. The recoverable amount of an asset or group of assets may require the Company to use estimates and mainly to assess the future cash flows expected to arise from the asset or group of assets and a suitable discount rate in order to calculate present value. Any negative change in relation to the operating performance or the expected future cash flows of individual assets or group of assets will change the expected recoverable amount of these assets or group of assets and therefore may require a write-down of their carrying amount.
Contingent Liabilities - The Company is required to make judgments about contingent liabilities including the probability of pending and potential future litigation outcomes that, by their nature, are dependent on future events that are inherently uncertain. In making its determination of possible scenarios, management considers the evaluation of outside counsel knowledgeable about each matter, as well as known outcomes in case law.
4. Financial Risk Management Objectives and Policies
The Company has a system of controls in place to create an acceptable balance between the cost of risks occurring and the cost of managing the risk. Management continually monitors the Company's risk management process to ensure that an appropriate balance between risk and control is achieved. Risk management policies and systems are reviewed regularly to reflect changes in market conditions and the Company's activities. The Company reviews and agrees policies and procedures for the management of these risks.
The Company is exposed to financial risks arising from its operations and the use of financial instruments. The key financial risks include market risk, credit risk, and liquidity risk. The following section provides details regarding the Company's exposure to these risks and the objectives, policies and processes for the management of these risks.
Market Risk - Market risk is the risk that changes in market prices, such as foreign exchange rates, interest rates and equity prices, will affect the Company's income or the value of its holdings of financial instruments. Management believes the Company is not exposed to significant market risk at December 31, 2013 or December 31, 2012.
Credit Risk - Credit risk is the risk of loss that may arise on outstanding financial instruments should a counterparty default on its obligations. Credit risk arising from the inability of a customer to meet the terms of the Company's financial instrument contracts is generally limited to the amounts, if any, by which the customer's obligations exceed the obligations of the Company. The Company's exposure to credit risk arises primarily from its cash & cash equivalents and its accounts receivable for which the Company minimizes credit risk by dealing with reputable counterparties with high credit ratings and no history of default.
Liquidity Risk - Liquidity risk is the risk that the Company will encounter difficulty in meeting financial obligations due to shortage of funds. The Company's exposure to liquidity risk arises primarily from mismatches of the maturities of financial assets and liabilities. The Company's liquidity risk management policy is to monitor its net operating cash flows and maintain an adequate level of cash and cash equivalents through regular review of its working capital requirements. The Company monitors and maintains a level of cash considered adequate by management to finance the Company's operations and mitigate the effects of the fluctuations in cash flows.
Capital Management - The primary objective of the Company's capital management is to ensure that it maintains a strong credit rating and healthy capital ratios in order to support its business and maximize shareholder value. The Company manages its capital structure and makes adjustments to it, in light of changes in economic conditions. To maintain or adjust the capital structure, the Company may adjust the distributions to members. The Company has complied with all externally imposed capital requirements as at December 31, 2013 and December 31, 2012, and no changes were made to the Company’s capital management objectives, policies or processes during the period then ended.
5. Accounts receivable
The following is a summary of accounts receivable, net:
December 31, | |||||
2013 | 2012 | ||||
Accounts receivable, unfactored | $ | 634,896 | $ | 25,476 | |
Accounts receivable, factored | 79,612 | 271,136 | |||
$ | 714,508 | $ | 296,612 |
Losses from factoring of receivables for the years ended December 31, 2013 and 2012 were $54,206 and $61,220, respectively. These amounts are included in the accompanying statement of operations within “Other income (expense)”.
6. Inventory
The following is a summary of inventory:
December 31, | |||||
2013 | 2012 | ||||
Raw materials | $ | 418,796 | $ | 430,895 | |
Less: reserve | (4,488) | (4,488) | |||
$ | 414,308 | $ | 426,407 |
7. Prepaid expenses
The following is a summary of prepaid expenses:
December 31, | |||||
2013 | 2012 | ||||
Deposits | $ | 10,022 | $ | 23,580 | |
Other | 5,900 | 25,387 | |||
$ | 15,922 | $ | 48,967 |
8. Intangible Assets
The following is a summary of intangible assets:
December 31, | |||||
2013 | 2012 | ||||
Intellectual property | $ | 1,639,840 | $ | 1,639,840 | |
Marketing and design | 723,795 | 723,795 | |||
2,363,635 | 2,363,635 | ||||
Less: accumulated amortization | (1,244,085) | (985,069) | |||
$ | 1,119,550 | $ | 1,378,566 |
The weighted average remaining life of intangible assets recorded by the Company was 4.3 years and 5.3 years, respectively, at December 31, 2013, and 2012. Amortization expense for the years ended December 31, 2013 and 2012, was $227,267 and $198,522, respectively.
9. Property and equipment
The following is a summary of property and equipment:
December 31, |
Estimated useful life | |||||
2013 | 2012 | (Years) | ||||
Computers and software | $ | 210,849 | $ | 210,849 | 5.0 | |
Office furniture and fixtures | 70,245 | 70,245 | 7.0 | |||
Leasehold improvements | 57,025 | 57,025 | 5.0 | |||
Tooling and equipment | 23,633 | 23,130 | 5.0 | |||
361,752 | 361,249 | |||||
Less: accumulated depreciation | (338,331) | (327,042) | ||||
$ | 23,421 | $ | 34,207 |
Depreciation expense for the years ended December 31, 2013 and 2012 was $10,786 and $18,372, respectively.
10. Debt
Debt is comprised of the following:
December 31, | |||||
Description | Note | 2013 | 2012 | ||
Line of credit | A | $ 47,000 | $ 47,000 | ||
Accounts receivable factoring | B | 52,530 | 215,330 | ||
Note payable to distribution partner | C | 550,347 | 555,347 | ||
Related party debt | D | 3,110,889 | 1,738,880 | ||
Other notes payable | E | 221,167 | 115,352 | ||
Note payable to office lessor | F | - | 46,557 | ||
Inventory financing payable | G | - | 16,190 | ||
$3,981,932 | $ 2,734,656 |
A – Line of Credit – The Company utilized this 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 the Company’s majority shareholder.
B – Accounts Receivable Factoring – Pursuant to factoring and security agreement, the Company submits accounts receivable for sale to a factoring firm at an amount equal to their face value, less a 1.5% commission and an initial factoring fee based on the prime interest rate plus 3%. The factor advances a percent of the account balance to the Company, and the remaining amount will be withheld in a non-interest bearing reserve account. Accounts purchased by the factor are with full recourse with the Company within 120 days from the invoices date. The factoring transaction is treated as a loan, with the receivables used as collateral. The Company has granted the factoring firm a security interest in, and a blanket lien upon the Company’s assets.
C – Note Payable to Distribution Partner – Represents the outstanding principal balance plus 5% annual interest due on a 2007 promissory note with 5% annual interest, between the Company and a significant European distribution partner. Although the Company is past due on required payments, the loan holder has not made any demand for repayment of the principal and interest due.
D –Related Parties Debt – Amounts due to lenders having an interest in the membership rights of Energie, LLC. These loans are not collateralized. All have been renegotiated to have a maturity of December 31, 2014. The following summarizes the terms and balances of the related party notes:
December 31, 2013 | December 31, 2012 | Interest Rate | |
D1 | $ 2,413,752 | $ 1,242,913 | 6% |
D2 | 306,946 | 289,753 | 12% |
D3 | 173,367 | 124,587 | -- |
D4 | 103,500 | -- | 24% |
D3 | 81,697 | 50,000 | 24% |
D3 | 20,000 | 20,000 | 24% |
D3 | 10,000 | 10,000 | 24% |
D5 | 1,627 | 1,627 | -- |
Total | $ 3,110,889 | $ 1,738,880 |
D1 -- Holds the largest ownership percentage in the Company, and we also incur approximately $150,000 annually for rent expense with them. According to the note agreement, 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. The note was considered to be in default as of December 31, 2013; therefore, the note holder has the right to exercise the conversion option, but has not yet elected to do so.
The Company evaluated the agreement for derivatives and determined that it does not qualify for derivative treatment for financial reporting purposes, because the agreement relates to the Company’s own equity and, the debt and the equity are not closely related. The Company also determined this does not qualify as a beneficial conversion feature. Accordingly, the balance is reported at the carrying amount.
D2 -- Holds ownership interest in the Company and is also an executive vice president.
D3 -- All represent holders of ownership interest, without any other involvement in the Company.
D4 -- The spouse of the Company’s CEO.
D5 -- Holds ownership interest in the Company and is also a vice president.
11. Commitments and Contingencies
The Company is subject to legal claims that may arise in the normal course of business. However, management is unaware of any pending or threatened claims that would require adjustment or disclosure to the accompanying financial statements.
Future minimum rental payments required under all leases that have remaining non-cancelable lease terms in excess of one year as of December 31, 2013 are as follows (in thousands):
2014 | $ 170,392 |
2015 | 165,860 |
2016 | 168,153 |
2017 | 150,956 |
2018 | 28,567 |
Thereafter | -- |
$ 683,929 |
12. Subsequent Events
On January 27, 2013, Energie Holdings, Inc. (“Holdings”), a publicly traded company, announced they had entered into a Share Exchange Agreement (the “Agreement”), whereby upon closing, Holdings would acquire a 100% interest in the Company in exchange for 33 million shares of Holdings’ common stock.
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Exhibit 99.2
Energie, LLC
Unaudited Condensed Financial Statements
As of March 31, 2014 and December 31, 2013
and for the three month periods ended
March 31, 2014 and 2013
Energie LLC
Condensed Balance Sheets
March 31, 2014 (Unaudited) | December 31, 2013 | |||||||
Assets | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | 10,416 | $ | 37,874 | ||||
Accounts receivable, net | 1,040,723 | 714,508 | ||||||
Inventory | 404,346 | 414,308 | ||||||
Prepaid expenses | 8,917 | 15,922 | ||||||
Total Current Assets | 1,464,402 | 1,182,612 | ||||||
Noncurrent Assets | ||||||||
Intangible assets, net | 1,100,408 | 1,119,550 | ||||||
Property and equipment, net | 6,237 | 23,421 | ||||||
Deposits | 11,695 | 11,695 | ||||||
Total Noncurrent Assets | 1,118,340 | 1,154,666 | ||||||
Total Assets | $ | 2,582,742 | $ | 2,337,278 | ||||
Liabilities and Members' Deficit | ||||||||
Current Liabilities: | ||||||||
Accounts payable | $ | 847,307 | $ | 595,202 | ||||
Commissions payable | 92,740 | 91,967 | ||||||
Unearned income | 9,444 | — | ||||||
Debt | 4,316,496 | 3,981,932 | ||||||
Total Current Liabilities | 5,265,987 | 4,669,101 | ||||||
Members' Deficit | ||||||||
Members' deficit | (2,683,245 | ) | (2,331,823 | ) | ||||
Total Liabilities and Members' Deficit | $ | 2,582,742 | $ | 2,337,278 |
The accompanying notes are an integral part of these condensed financial statements.
Energie LLC
Condensed Statements of Operations
(Unaudited)
Three months ended | Three months ended | |||||||
March 31, 2014 | March 31, 2013 | |||||||
Sales revenue | $ | 164,609 | $ | 779,772 | ||||
Cost of goods sold | (70,102 | ) | (427,422 | ) | ||||
Gross Profit | 94,507 | 352,350 | ||||||
Operating Expenses | ||||||||
Commissions | 26,673 | 163,953 | ||||||
Compensation | 125,283 | 109,951 | ||||||
Depreciation and amortization | 42,254 | 16,111 | ||||||
General and administrative | 38,352 | 64,239 | ||||||
Professional fees | 5,799 | 1,750 | ||||||
Rent | 53,666 | 32,453 | ||||||
Travel | 6,207 | 11,207 | ||||||
Total Operating Expenses | 298,234 | 399,664 | ||||||
Loss from Operations | (203,727 | ) | (47,314 | ) | ||||
Other income (expense) | ||||||||
Interest expense | (87,570 | ) | (55,141 | ) | ||||
Other income | 26,524 | 2,064 | ||||||
Other income (expense), net | (61,046 | ) | (53,077 | ) | ||||
Net loss and comprehensive loss | $ | (264,773 | ) | $ | (100,391 | ) |
The accompanying notes are an integral part of these condensed financial statements.
Energie LLC
Condensed Statements of Cash Flows
(Unaudited)
Three months ended | Three months ended | |||||||
March 31, 2014 | March 31, 2013 | |||||||
Cash flow from operating activities | ||||||||
Net loss | $ | (264,773 | ) | $ | (100,391 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||
Depreciation and amortization | 42,254 | 16,111 | ||||||
Unpaid interest | 87,570 | 55,141 | ||||||
Change in operating assets and liabilities: | ||||||||
Accounts receivable | (326,215 | ) | (188,120 | ) | ||||
Inventory | 9,962 | (102,203 | ) | |||||
Prepaid expenses | 7,005 | 28,025 | ||||||
Accounts payable | 252,105 | 2,936 | ||||||
Unearned income | 9,444 | (13,504 | ) | |||||
Commissions payable | 773 | (499,142 | ) | |||||
Net cash used in operating activities | (181,875 | ) | (801,147 | ) | ||||
Cash flow used for investing activities | (5,928 | ) | — | |||||
Cash flow used for financing activities | ||||||||
Proceeds from payments of notes payable, net of repayments | 246,994 | 656,003 | ||||||
Member activity | (86,649 | ) | 149,366 | |||||
Net cash provided by financing activities | 160,345 | 805,369 | ||||||
Net (decrease)/increase in cash | (27,458 | ) | 4,222 | |||||
Cash at beginning of the year | 37,874 | 59,171 | ||||||
Cash at end of the year | $ | 10,416 | $ | 63,393 | ||||
Supplemental Disclosures: | ||||||||
Interest paid | $ | — | $ | — | ||||
Income taxes paid | $ | — | $ | — |
The accompanying notes are an integral part of these condensed financial statements.
Energie LLC
Notes to Condensed Financial Statements
(Unaudited)
1. Organization and Basis of Presentation
Organization and Operations – Energie, LLC (“Energie” or “the Company”) was established on November 29, 2001 as a limited liability company in the state of Delaware and is engaged in the import and sale of specialized interior lighting solutions to the architecture and interior design markets in North America. The Company is headquartered in Wheat Ridge, Colorado and also maintains a production and assembly facility in Zeeland, Michigan.
Energie has organically 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 Energie 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, the sales force is provided with promotional materials, product training, and technical support by the Company.
Basis of Preparation - The accompanying unaudited interim condensed 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 Exhibit 99.1 of this Form 8-K.
Going Concern and Managements’ Plans – The condensed financial statements as of and for the three months ended March 31, 2014 and 2013 have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the normal course of business. The Company reported net losses of $264,773 and $100,391, respectively, for the three months ended March 31, 2014 and 2013. The Company also has a members’ deficit of $2,683,245 at March 31, 2014 and negative working capital of $3,801,585 at March 31, 2014.
The future success of the Company is dependent on its ability to attract additional capital and, ultimately, upon its ability to develop future profitable operations. There can be no assurance that the Company will be successful in obtaining financing, or that it will attain positive cash flows.
Although the Company is past due on its required payments under the forgoing loans, the lenders have not made demand for repayment of the principal and interest due. If demand for payment is made by one or multiple vendors, the Company would experience a liquidity issue as it does not currently have the funds available to pay off these debts. We intend to enter into extension/forbearance agreements with each of the lenders; however, 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 the Company.
2. Accounts receivable
The following is a summary of accounts receivable:
March 31, | December 31, | ||||
2014 | 2013 | ||||
Accounts receivable, unfactored | $ | 935,904 | $ | 634,896 | |
Accounts receivable, factored | 104,819 | 79,612 | |||
$ | 1,040,723 | $ | 714,508 |
Losses from factoring of receivables for the quarters ended March 31, 2014 and 2013, were $4,746 and $14,805, respectively. These amounts are included in the accompanying statement of operations within “Other income (expense)”.
3. Inventory
The following is a summary of inventory:
March 31, | December 31, | ||||
2014 | 2013 | ||||
Raw materials | $ | 408,834 | $ | 418,796 | |
Less: reserve | (4,488) | (4,488) | |||
$ | 404,346 | $ | 414,308 |
4. Debt
Debt is comprised of the following:
December 31, | |||||
Description | Note |
March 31, 2014 |
December 31, 2013 | ||
Line of credit | A | $ 47,000 | $ 47,000 | ||
Accounts receivable factoring | B | 75,807 | 52,530 | ||
Note payable to distribution partner | C | 633,342 | 550,347 | ||
Related party debt | D | 3,301,859 | 3,110,889 | ||
Other notes payable | E | 245,444 | 221,167 | ||
$ 4,316,496 | $3,981,932 |
A – Line of Credit – The Company utilized this 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 the Company’s majority shareholder.
B – Accounts Receivable Factoring – Pursuant to factoring and security agreement, the Company submits accounts receivable for sale to a factoring firm at an amount equal to their face value, less a 1.5% commission and an initial factoring fee based on the prime interest rate plus 3%. The factor advances a percent of the account balance to the Company, and the remaining amount will be withheld in a non-interest bearing reserve account. Accounts purchased by the factor are with full recourse with the Company within 120 days from the invoices date. The factoring transaction is treated as a loan, with the receivables used as collateral. The Company has granted the factoring firm a security interest in, and a blanket lien upon the Company’s assets.
C – Note Payable to Distribution Partner – Represents the outstanding principal balance plus 5% annual interest due on a 2007 promissory note with 5% annual interest, between the Company and a significant European distribution partner. Although the Company is past due on required payments, the loan holder has not made any demand for repayment of the principal and interest due.
D –Related Parties Debt – Amounts due to lenders having an interest in the membership rights of Energie, LLC. These loans are not collateralized. All have been renegotiated to have a maturity of December 31, 2014. The following summarizes the terms and balances of the related party notes:
March 31, 2014 | December 31, 2013 | Interest Rate | |
D1 | $ 2,547,459 | $ 2,413,752 | 6% |
D2 | 355,210 | 306,946 | 12% |
D3 | 176,367 | 173,367 | -- |
D4 | 116,383 | 103,500 | 24% |
D3 | 84,697 | 81,697 | 24% |
D3 | 23,161 | 20,000 | 24% |
D3 | 10,000 | 10,000 | 24% |
D5 | 1,627 | 1,627 | -- |
Total | $ 3,314,903 | $ 3,110,889 |
D1 -- Holds the largest ownership percentage in the Company, and we also incur approximately $150,000 annually for rent expense with them. According to the note agreement, 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. The note was considered to be in default as of March 31, 2014; therefore, the note holder has the right to exercise the conversion option, but has not yet elected to do so.
The Company evaluated the agreement for derivatives and determined that it does not qualify for derivative treatment for financial reporting purposes, because the agreement relates to the Company’s own equity and, the debt and the equity are not closely related. The Company also determined this does not qualify as a beneficial conversion feature. Accordingly, the balance is reported at the carrying amount.
D2 -- Holds ownership interest in the Company and is also an executive vice president.
D3 -- All represent holders of ownership interest, without any other involvement in the Company.
D4 -- The spouse of the Company’s CEO.
D5 -- Holds ownership interest in the Company and is also a vice president.
E – Other Notes Payable – Represents the outstanding principal balance plus interest due on three separate promissory notes with interest rates ranging from 8% to 24% annually. Although the Company is past due on its required payments, the loan holders have not made demand for repayment of the principal and interest due. In the event the Company receives proceeds as the beneficiary of a life insurance policy covering its majority shareholder, repayment of principal and interest is due on these notes prior to using the proceeds for any other purpose.
All of the Company’s debt is reflected as a current liability due to either having a maturity date in 2014, or because it is past due.
5. Subsequent Events
No events occurred subsequent to March 31, 2014, that would require adjustment to the accompanying financial statements or footnotes.
Exhibit 99.3
ENERGIE HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL STATEMENTS
As used in this report, we, us, our, Energie Holdings or Company refer to Energie Holdings, Inc. The unaudited pro forma condensed combined financial statements present the impact on our financial position and results of operations from our acquisition of 100% of the membership interest in Energie LLC. We paid a purchase price of 33,000,000 shares of Energie Holdings common stock.
The pro forma financial statements as of March 31, 2014, for the three months ended March 31, 2014, and for the year ended December 31, 2013, have been prepared based on certain pro forma adjustments to our historical financial statements set forth in our Annual Report on Form 10-K for the year ended December 31, 2013, and our Quarterly Report on Form 10-Q for the three-month period ended March 31, 2014, as filed with the Securities and Exchange Commission, and are qualified in their entirety by reference to such historical financial statements and related notes contained in those reports. The historic financial statements for Energie LLC were derived from audited financial statements for the year ended December 31, 2013. The unaudited pro forma condensed combined financial statements should be read in conjunction with the accompanying notes and with the historical consolidated financial statements and related notes thereto.
The unaudited pro forma condensed combined balance sheet has been prepared as if the transaction had occurred as of March 31, 2014. The unaudited pro forma condensed combined statements of operations have been prepared as if this transaction had occurred on January 1, 2013.
These unaudited pro forma condensed combined financial statements are presented for illustrative purposes only. Such information is not necessarily indicative of the operating results or financial position that would have occurred had the acquisition been completed at the dates indicated or what would be any future periods. The consideration given and the purchase price allocation in these pro formas is based on preliminary estimated fair values. We have not completed our determination of the fair value of the consideration given or the net assets acquired. Accordingly, the fair value of consideration given and the allocation of purchase price is preliminary and subject to adjustments. Upon completion of our valuation analysis, the fair value of the consideration given and the allocation of purchase price may change significantly. Such changes may include, but not be limited to, the fair value of intangible assets and goodwill, and potential impairment charges.
ENERGIE HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 2014
Energie Holdings | Energie LLC (a) | Pro Forma Adjustments | Energie Holdings Pro Forma | |||||||||||||
Assets | ||||||||||||||||
Current assets: | ||||||||||||||||
Cash and cash equivalents | $ | — | $ | 10,416 | $ | 27,458 | (b) | $ | 37,874 | |||||||
Accounts receivable, net | — | 1,040,723 | (326,215) | (b) | 466,324 | |||||||||||
(248,184) | (c) | |||||||||||||||
Inventory | — | 404,346 | 9,962 | (b) | 414,308 | |||||||||||
Prepaid expenses | — | 8,917 | 7,005 | (b) | 15,922 | |||||||||||
Total current assets | — | 1,464,402 | (529,974 | ) | 934,428 | |||||||||||
Goodwill and intangible assets | — | 1,100,408 | 4,000,965 | (b) | 5,101,373 | |||||||||||
Property and equipment, net | — | 6,237 | 17,184 | (b) | 23,421 | |||||||||||
Other | — | 11,695 | — | 11,695 | ||||||||||||
Total assets | $ | — | $ | 2,582,742 | 3,488,175 | $ | 6,070,917 | |||||||||
Liabilities and Equity | ||||||||||||||||
Current liabilities: | ||||||||||||||||
Accounts payable | $ | 248,184 | $ | 847,307 | (252,105) | (b) | $ | 595,202 | ||||||||
(248,184) | (c) | |||||||||||||||
Other | — | 102,184 | (10,217) | 91,967 | ||||||||||||
Notes payable | — | 4,316,496 | (334,564) | (b) | 3,981,932 | |||||||||||
Total current liabilities | 248,184 | 5,265,987 | (845,070) | 4,669,101 | ||||||||||||
Equity: | ||||||||||||||||
Energie Holdings, Inc. | (248,184 | ) | — | 1,650,000 | (b) | 1,401,816 | ||||||||||
Energie LLC | — | (2,683,245 | ) | 2,683,245 | (b) | — | ||||||||||
Total equity | (248,184 | ) | (2,683,245 | ) | 4,333,245 | 1,401,816 | ||||||||||
Total liabilities and equity | $ | — | $ | 2,582,742 | $ | 3,488,175 | $ | 6,070,917 | ||||||||
See accompanying notes to unaudited pro forma condensed combined financial statements.
ENERGIE HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Three months ended March 31, 2014
Energie Holdings | Energie LLC (a) | Pro Forma Adjustments | Energie Holdings Pro Forma | |||||||||||||
Revenue | $ | — | $ | 164,609 | $ | — | $ | 164,609 | ||||||||
Cost of revenue | — | (70,102 | ) | — | (70,102 | ) | ||||||||||
Gross profit | — | 94,507 | — | 94,507 | ||||||||||||
Operating expenses: | ||||||||||||||||
Commissions | — | 26,673 | — | 26,673 | ||||||||||||
Compensation | — | 125,283 | — | 125,283 | ||||||||||||
Depreciation and amortization | — | 42,254 | (25,070) | (d) | 17,184 | |||||||||||
General and administrative | — | 38,352 | — | 38,352 | ||||||||||||
Professional fees | 173,425 | 5,799 | (173,425) | (c) | 5,799 | |||||||||||
Rent | — | 53,666 | — | 53,666 | ||||||||||||
Travel | — | 6,207 | — | 6,207 | ||||||||||||
Total operating expenses | 173,425 | 298,234 | (198,495) | 273,164 | ||||||||||||
Loss from operations | (173,425 | ) | (203,727 | ) | 198,495 | (178,657 | ) | |||||||||
Interest expense | — | (87,570 | ) | — | (87,570 | ) | ||||||||||
Other income (expense) | — | 26,524 | (173,425) | (c) | (146,901 | ) | ||||||||||
Net loss | $ | (173,425 | ) | $ | (264,773 | ) | $ | 25,070 | $ | (413,128 | ) | |||||
Net loss per share Basic and diluted | $ | (0.01 | ) | $ | (0.01 | ) | ||||||||||
Shares outstanding Basic and diluted | 19,429,347 | 51,400,000 | ||||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial statements.
ENERGIE HOLDINGS, INC.
UNAUDITED PRO FORMA CONDENSED COMBINED STATEMENT OF OPERATIONS
Year ended December 31, 2013
Energie Holdings | Energie LLC (a) | Pro Forma Adjustments | Energie Holdings Pro Forma | |||||||||||||
Revenue | $ | — | $ | 1,733,373 | $ | — | $ | 1,733,373 | ||||||||
Cost of revenue | — | (758,739 | ) | — | (758,739 | ) | ||||||||||
Gross profit | — | 974,634 | — | 974,634 | ||||||||||||
Operating expenses: | ||||||||||||||||
Commissions | — | 372,954 | — | 372,954 | ||||||||||||
Compensation | — | 600,786 | — | 600,786 | ||||||||||||
Depreciation and amortization | — | 238,053 | (227,267) | (d) | 10,786 | |||||||||||
Impairment | — | — | 5,101,373 | (d) | 5,101,373 | |||||||||||
General and administrative | — | 161,567 | — | 161,567 | ||||||||||||
Professional fees | 184,299 | 22,746 | (184,299) | (c) | 22,746 | |||||||||||
Rent | — | 217,088 | — | 217,088 | ||||||||||||
Travel | — | 8,502 | — | 8,502 | ||||||||||||
Total operating expenses | 184,299 | 1,621,696 | 4,689,807 | 6,495,802 | ||||||||||||
Loss from operations | (184,299 | ) | (647,062 | ) | (4,689,807) | (5,521,168 | ) | |||||||||
Interest expense | — | (421,787 | ) | — | (421,787 | ) | ||||||||||
Other income (expense) | — | 114,251 | (184,299) | (c) | (70,048 | ) | ||||||||||
Net loss | $ | (184,299 | ) | $ | (954,598 | ) | $ | (4,874,106) | $ | (6,013,003 | ) | |||||
Net loss per share Basic and diluted | $ | (0.00 | ) | $ | (0.12 | ) | ||||||||||
Shares outstanding Basic and diluted | 39,638,991 | 51,000,000 | ||||||||||||||
See accompanying notes to unaudited pro forma condensed combined financial statements.
Note 1. Basis of Presentation
The historical financial information is derived from our historical financial statements and the historical financial statements of Energie LLC. The pro forma adjustments have been prepared as if we acquired Energie LLC on March 31, 2014, for the balance sheet, and on January 1, 2013, for the statements of operations.
The pro forma combined financial statements reflect the following the acquisition of 100% of the member interest in Energie LLC in exchange for 33,000,000 shares of Energie Holdings, Inc. common stock.
Note 2. Pro Forma Adjustments and Assumptions
(a) Reflects 100% of the assets, liabilities, income and expenses of Energie LLC.
(b) The total purchase price of $1,650,000 is based on the issuance of 33,000,000 shares of Energie Holdings, Inc. at the closing price of the Company’s stock on December 31, 2013, of $0.05 per common share. The following reflects the allocation of the consideration as of December 31, 2013, subject to adjustments arising from final determination of the fair value of the consideration transferred and the allocation of purchase price to the acquired assets and liabilities:
Consideration: | |
Energie Holdings common stock | $ 1,650,000 |
Allocation of purchase price: | |
Cash | $ 37,874 |
Accounts receivable | 714,508 |
Inventory | 414,308 |
Prepaid expenses | 15,922 |
Goodwill and intangible assets | 5,101,373 |
Property and equipment | 23,421 |
Deposits | 11,695 |
Accounts payable | (522,202) |
Commissions payable | (91,967) |
Debt | (3,981,932) |
$ 1,650,000 |
The acquisition of Energie LLC was accounted for under the purchase method of accounting. The consideration transferred and the purchase price allocation in these pro formas is based on preliminary estimated fair values.
We have not completed our determination of the fair value of the consideration transferred or the net assets acquired. Accordingly, the fair value of consideration given and the allocation of purchase price is preliminary and subject to adjustments. Upon completion of our valuation analysis, the fair value of the consideration given and the allocation of purchase price may change significantly. Such changes may include, but not be limited to, the fair value of intangible assets and goodwill, and potential impairment charges.
(c) Reflects elimination of intercompany transactions.
(d) We performed a preliminary impairment assessment of Goodwill and intangible assets, and estimate that they are fully impaired. This adjustment reflects the impairment of Goodwill and intangible assets, and elimination of the historic amortization expense.
Note 3. Net Loss Per Share
The following table illustrates our calculation of pro forma net loss per share:
Year ended December 31, 2013 |
Three months ended March 31, 2014 | |
Pro forma net loss | $ (6,013,003) | $ (413,128) |
Weighted-average shares outstanding: | ||
Previously reported | 39,638,991 | 19,429,347 |
Incremental shares | 11,361,009 | 31,970,653 |
Pro forma shares | 51,000,000 | 51,400,000 |
Net loss per share Basic and diluted |
$ (0.12) |
$ (0.01) |
Incremental shares are less than the amount issued for the transaction, because shares held in escrow for the transaction were included in the previously reported weighted-average shares outstanding.
EXHIBIT 99.4
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in this Registration Statement on Form 8-K/A of our report dated July 1, 2014, relating to the financial statements of Energie, LLC, as of December 31, 2012 and 2013 and to all references to our firm included in this Registration Statement.
Certified Public Accountants
Denver, Colorado
July 2, 2014