Description of Business and Summary of Significant Accounting Policies

12 Months Ended

Dec. 31, 2017

Accounting Policies [Abstract]

Description of Business and Summary of Significant Accounting Policies

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

Formation of the Company

ExeLED Holdings, Inc. was incorporated in the State of Delaware on October 20, 1986 under the name “Verilink Corporation.” We have also been known as Energie Holdings, Inc. and Alas Aviation Corp. On December 31, 2013, we entered into a Share Exchange Agreement (the “Share Exchange Agreement”) with OELC, LLC, a Delaware limited liability company, and its wholly-owned subsidiary, Energie LLC (hereinafter referred to as, “Energie”). The Share Exchange Agreement was not effective until July 2, 2014 due to a variety of conditions subsequent that needed to be met, which are described below. Upon effectiveness, we issued 33,000,000 “restricted” shares of our common stock, representing approximately 65% of our then issued and outstanding voting securities, in exchange for all of the issued and outstanding member interests of Energie. The accounting is identical to that resulting from a reverse acquisition, except that no goodwill or other intangible is recorded.

Thereafter, on January 27, 2014, we entered into an Agreement and Plan of Merger (the “Merger Agreement”) with two of our then wholly owned subsidiaries, Energie Holdings, Inc. and Alas Acquisition Company. The net effect of the Merger Agreement was to effectuate a name change from Alas Aviation Corp., to Energie Holdings, Inc. in order to provide a better understanding to investors of our entry into the LED lighting industry. Our management also changed.

All references herein to “us,” “we,” “our,” “Holdings,” or the “Company” refer to ExeLED Holdings, Inc. and its subsidiary, and their respective business following the consummation of the Merger and Share Exchange Agreements, unless the context otherwise requires.

Description of Business

We are focused on acquiring and growing specialized LED lighting companies for the architecture and interior design markets for both commercial and residential applications. The lighting products include both conventional fixtures and advanced solid-state technology that can integrate with digital controls and day-lighting to create energy efficiencies and a better visual environment. Our objective is to grow, innovate, and fully capture the rapidly growing lighting market opportunities associated with solid state lighting.

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

Basis of Presentation

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

Going Concern

As shown in the accompanying financial statements, we had an equity deficit of $17,319,920 and a working capital deficit of $16,658,489 as of December 31, 2017, and have reported net losses of $4,018,993 and 3,455,227, respectively, for the years ended December 31, 2017 and 2016.  These factors raise substantial doubt regarding our ability to continue as a going concern. 

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

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

Reclassifications

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

Summary of Significant Accounting Policies

Cash and cash equivalents

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

Accounts receivable

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

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

Inventory

Inventory is stated at the lower of cost or net realizable value, using the first-in, first-out method (“FIFO”) to determine cost. We monitor inventory cost compared to selling price in order to determine if a lower of cost or net realizable value mark-down is necessary. Inventory consists only of raw materials.

Intangible assets

Our intangible assets consist of the following:

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

Trademarks – Energie is a registered trademark.

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

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

Property and equipment

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

Impairment of long-lived assets

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

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

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

Warranty reserve

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

Convertible debt

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

Revenue recognition

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

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

· Delivery – when custody is transferred to our customers either upon shipment to or receipt at our customers’ locations, with no right of return or further obligations, such as installation;

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

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

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

Shipping and handling

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

Research and development costs

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

Income taxes

We recognize deferred income tax assets and liabilities for the expected future tax consequences of temporary differences between the income tax and financial reporting carrying amount of our assets and liabilities. We monitor our deferred tax assets and evaluate the need for a valuation allowance based on the estimate of the amount of such deferred tax assets that we believe do not meet the more-likely-than-not recognition criteria. We also evaluate whether we have any uncertain tax positions and would record a reserve if we believe it is more-likely-than-not our position would not prevail with the applicable tax authorities. Our assessment of tax positions as of December 31, 2017 and 2016, determined that there were no material uncertain tax positions.

Concentration of credit risk

Financial instruments that potentially subject us to concentrations of credit risk consist of accounts receivable and the amount due, if any, from our factoring counterparty. For the year ended December 31, 2017 three customers represented more than 52% of our total revenues. As of December 31, 2017, our accounts receivable balance was not material to the overall consolidated financial statements.

Fair value of financial instruments

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

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

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

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

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

In August 2016, the FASB issued ASU No. 2016-15 (ASU 2016-15), Statement of Cash Flows (Topic 230).  ASU 2016-15 addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice as stakeholders have indicated that there is a diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. This ASU is effective for annual reporting periods beginning after December 15, 2017, and interim periods within those fiscal years.  Early adoption is permitted.  Adoption of this ASU will not have a significant impact on our statement of cash flows.

In February 2016, the FASB issued ASU No. 2016-02 (ASU 2016-02), Leases (Topic 842). This guidance will require lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability.  For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Classification will be based on criteria that are largely similar to those applied in current lease accounting, but without explicit bright lines.  Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. This ASU is effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. As of January 1, 2018, we do not have any material leases, so adoption of this ASU will not have a significant impact on our consolidated results of operations, cash flows and financial position.

In November 2015, the FASB issued ASU No. 2015-17 (ASU 2015-17), Income Taxes (Topic 740). This guidance simplifies the presentation of deferred tax assets and liabilities on the balance sheet.  Previous GAAP required an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts on the balance sheet.  The amendment requires that deferred tax liabilities and assets be classified as noncurrent in a classified balance sheet.  This ASU is effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.  Adoption of this ASU is not currently expected to have a significant impact on our consolidated results of operations, cash flows and financial position.

In May 2016, the FASB issued ASU No. 2016-12 (ASU 2016-12), Revenue from Contracts with Customers (Topic 606).  The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2016-12 provides clarification on assessing collectability, presentation of sales taxes, noncash consideration, and completed contracts and contract modifications.

In May 2016, the FASB issued ASU No. 2016-11 (ASU 2016-11), Revenue Recognition (Topic 605) and Derivatives and Hedging (Topic 815).  This ASU clarifies guidance on assessing whether an entity is a principal or an agent in a revenue transaction. This conclusion impacts whether an entity reports revenue on a gross or net basis.

In April 2016, the FASB issued ASU No. 2016-10 (ASU 2016-10), Revenue from Contracts with Customers (Topic 606). This guidance clarifies identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas.

We have reviewed our contracts with customers, identified the rights of the parties, evaluated the payment terms, assessed the commercial substance of the contracts, and estimated the probability of collectability. We have also considered the goods and services we deliver compared to the contractual performance obligations. Our agreements predominantly have a fixed price for the goods or services to be delivered, we do not provide financing, and we settle in cash. Each separate performance obligation within our contracts with customers is priced individually, and we recognize revenue as each good or service is delivered, meaning when the performance obligation is satisfied. Based on this assessment, adoption of the three ASUs immediately above will not have a significant impact on our consolidated results of operations, cash flows or financial position.

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