UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 333-167853
ENERGY EDGE TECHNOLOGIES CORPORATION
(Exact name of registrant as specified in its charter)
| New Jersey | | 52-2439239 |
| (State or other jurisdiction of incorporation or organization) | | (I.R.S. Employer Identification No.) |
| 7545 Brigham Drive | | |
| Sandy Springs, Georgia | | 30350 |
| (Address of principal executive offices) | | (Zip Code) |
(855) 243-5291
(Registrant’s telephone number, including area code)
Indicate by check mark whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Ruble 12b-2 of the Exchange Act.
| Large accelerated filer £ | Accelerated filer £ |
| Non-accelerated filer £ | Smaller reporting company T |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes £ No T
The number of shares of Common Stock, $0.00001 par value, outstanding on May 20, 2014 was 240,473,364.
ENERGY EDGE TECHNOLOGIES CORPORATION AND SUBSIDIARIES
TABLE OF CONTENTS
PART 1, FINANCIAL STATEMENTS
ENERGY EDGE TECHNOLOGIES CORPORATION
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2014 AND DECEMBER 31, 2013
(Unaudited)
| ASSETS | | March 31, 2014 | | December 31, 2013 |
| Current Assets | | | | | | | | |
| Cash and cash equivalents | | $ | 35,236 | | | $ | 45,164 | |
| Prepaid expenses | | | 217,249 | | | | 254,983 | |
| Total Current Assets | | | 252,485 | | | | 300,147 | |
| | | | | | | | | |
| Property and equipment – net | | | 2,900 | | | | 3,329 | |
| Other assets | | | 30,544 | | | | 14,091 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 285,929 | | | $ | 317,567 | |
| | �� | | | | | | | |
| LIABILITIES AND DEFICIT | | | | | | | | |
| Liabilities | | | | | | | | |
| Current Liabilities | | | | | | | | |
| Accounts payable | | $ | 145,590 | | | $ | 172,581 | |
| Accrued expenses and other current liabilities | | | 179,169 | | | | 115,290 | |
| Common stock payable | | | 386,340 | | | | 7,400 | |
| Due to related parties | | | 345,576 | | | | 354,641 | |
| Convertible note payable, net of discount of $45,999 and $77,833, respectively | | | 49,501 | | | | 17,667 | |
| Derivative liabilities | | | 141,948 | | | | 158,278 | |
| Total Current Liabilities | | | 1,248,124 | | | | 825,857 | |
| | | | | | | | | |
| Long-Term Liabilities | | | | | | | | |
| Convertible note payable, net of discounts of $78,292 and $34,375, respectively | | | 11,723 | | | | 7,225 | |
| Derivative liabilities, net of current portion | | | 123,785 | | | | 57,439 | |
| Total Long-Term Liabilities | | | 135,508 | | | | 64,664 | |
| Total Liabilities | | | 1,383,632 | | | | 890,521 | |
| | | | | | | | | |
| Deficit | | | | | | | | |
| Common stock, $.00001 par value, 250,000,000 shares authorized, 173,791,221 and 190,873,829 shares issued and outstanding,respectively | | | 1,734 | | | | 1,910 | |
| Treasury stock, at cost | | | (5,000 | ) | | | (5,000 | ) |
| Additional paid in capital | | | 3,661,649 | | | | 3,983,530 | |
| Subscription receivable | | | (1,000 | ) | | | (1,000 | ) |
| Accumulated deficit | | | (4,659,011 | ) | | | (4,456,314 | ) |
| Total Energy Edge Deficit | | | (1,001,623 | ) | | | (476,874 | ) |
| Non-controlling interests | | | (96,080 | ) | | | (96,080 | ) |
| Total Deficit | | | (1,097,703 | ) | | | (572,954 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND DEFICIT | | $ | 285,929 | | | $ | 317,567 | |
The accompanying notes are an integral part of these consolidated financial statements.
ENERGY EDGE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)
| | | Three months ended
March 31, |
| | | 2014 | | 2013 |
| | | | | |
| REVENUES | | $ | — | | | $ | 2,240 | |
| | | | | | | | | |
| COST OF REVENUES | | | — | | | | 2,521 | |
| | | | | | | | | |
| GROSS PROFIT | | | — | | | | (281 | ) |
| | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | |
| Compensation | | | 58,663 | | | | 17,166 | |
| Consulting services | | | 44,071 | | | | 100,919 | |
| Professional fees | | | 27,950 | | | | 19,534 | |
| Director fees | | | — | | | | 2,000 | |
| General & administrative expenses | | | 31,395 | | | | 119,375 | |
| TOTAL OPERATING EXPENSES | | | 162,079 | | | | 258,994 | |
| | | | | | | | | |
| LOSS FROM OPERATIONS | | | (162,079 | ) | | | (259,275 | ) |
| | | | | | | | | |
| OTHER INCOME (EXPENSE) | | | | | | | | |
| Interest expense | | | (44,352 | ) | | | (950 | ) |
| Change in fair value of derivative liabilities | | | 3,734 | | | | — | |
| TOTAL OTHER EXPENSE | | | (40,618 | ) | | | (950 | ) |
| | | | | | | | | |
| NET LOSS | | | (202,697 | ) | | | (260,225 | ) |
| | | | | | | | | |
| LOSS ATTRIBUTABLE TO NON-CONTROLLING INTERESTS | | | — | | | | 50,408 | |
| | | | | | | | | |
| NET LOSS ATTRIBUTABLE TO ENERGY EDGE TECHNOLOGIES CORPORATION SHAREHOLDERS | | $ | (202,697 | ) | | $ | (209,817 | ) |
| | | | | | | | | |
| NET LOSS PER COMMON SHARE:BASIC AND DILUTED | | $ | (0.00 | ) | | $ | 0.00 | |
| | | | | | | | | |
| WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING:BASIC AND DILUTED | | | 194,861,897 | | | | 94,364,613 | |
The accompanying notes are an integral part of these consolidated financial statements.
ENERGY EDGE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ DEFICIT
FOR THE THREE MONTHS ENDED MARCH 31, 2014
(Unaudited)
| | | Common Stock | | Additional
Paid in | | Subscription
| | Treasury | | Non-Controlling
| | Accumulated | | Total
Stockholders’ |
| | | Shares | | | Amount | | | Capital | | | Receivable | | | Stock | | | Interests | | | Deficit | | | Deficit | |
| Balance, December 31, 2013 | | | 190,873,829 | | | $ | 1,910 | | | $ | 3,983,530 | | | $ | (1,000 | ) | | $ | (5,000 | ) | | $ | (96,080 | ) | | $ | (4,456,314 | ) | | $ | (572,954 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Issuance of shares for services | | | 3,000,000 | | | | 30 | | | | 29,970 | | | | — | | | | — | | | | — | | | | — | | | | 30,000 | |
| Issuance of shares for cancellation of debts | | | 1,400,000 | | | | 14 | | | | 21,544 | | | | — | | | | — | | | | — | | | | — | | | | 21,558 | |
| Shares retired | | | (32,800,000 | ) | | | (328 | ) | | | (378,840 | ) | | | — | | | | — | | | | — | | | | — | | | | (379,168 | ) |
| Issuance of shares for conversion of debt | | | 11,317,392 | | | | 113 | | | | 5,445 | | | | — | | | | — | | | | — | | | | — | | | | 5,558 | |
| Net loss | | | — | | | | — | | | | — | | | | — | | | | — | | | | | | | | (202,697 | ) | | | (202,697 | ) |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Balance March 31, 2014 | | | 173,791,221 | | | $ | 1,739 | | | $ | 3,661,649 | | | $ | (1,000 | ) | | $ | (5,000 | ) | | $ | (96,080 | ) | | $ | (4,659,011 | ) | | | (1,086,812 | ) |
The accompanying notes are an integral part of these consolidated financial statements.
ENERGY EDGE TECHNOLOGIES CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2014 AND 2013
(Unaudited)
| | | Three months ended March 31, |
| | | 2014 | | 2013 |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | |
| Net loss | | $ | (202,697 | ) | | $ | (260,225 | ) |
| Adjustments to reconcile net loss to net cash used in operating activities: | | | | | | | | |
| Shares issued for services | | | 30,000 | | | | 81,000 | |
| Change in fair value of derivative liability | | | (3,734 | ) | | | — | |
| Depreciation and amortization | | | 44,893 | | | | 429 | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Prepaid expenses | | | 37,734 | | | | 5,209 | |
| Accounts payable | | | (5,438 | ) | | | (61,402 | ) |
| Accrued expenses and other current liabilities | | | 54,814 | | | | (28,593 | ) |
| Cash flows used in operating activities | | | (44,428 | ) | | | (263,582 | ) |
| | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | |
| Cash paid for lease deposit | | | (8,000 | ) | | | (3,566 | ) |
| Cash flows used in investing activities | | | (8,000 | ) | | | (3,566 | ) |
| | | | | | | | | |
| CASH FLOWS FROM FINANCING ACTIVITIES | | | | | | | | |
| Repayment of related party advances | | | — | | | | (15,781 | ) |
| Proceeds from issuance of debt | | | 42,500 | | | | — | |
| Proceeds from the sale of common stock | | | — | | | | 289,113 | |
| Cash flows provided by financing activities | | | 42,500 | | | | 273,332 | |
| | | | | | | | | |
| Net increase (decrease) in cash and cash equivalents | | | (9,928 | ) | | | 6,184 | |
| Cash and cash equivalents, beginning of the period | | | 45,164 | | | | 18,553 | |
| Cash and cash equivalents, end of the period | | $ | 35,236 | | | $ | 24,737 | |
| | | | | | | | | |
| SUPPLEMENTAL CASH FLOW INFORMATION: | | | | | | | | |
| Interest paid | | $ | — | | | $ | 950 | |
| Income taxes paid | | $ | — | | | $ | — | |
| | | | | | | | | |
| SUPPLEMENTAL DISCLOSURES OF NON-CASH INVESTING AND FINANCING ACTIVITIES: | | | | | | | | |
| Issuance of common stock in payment of accounts payable | | $ | 21,558 | | | $ | 116,134 | |
| Retirement of common stock | | $ | 379,168 | | | $ | — | |
| Conversion of debt to common stock | | $ | 5,558 | | | $ | — | |
| Acquisition of non-controlling interest | | $ | — | | | $ | 91,466 | |
The accompanying notes are an integral part of these consolidated financial statements.
ENERGY EDGE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS
Energy Edge Technologies Corporation (the “Company” or “EEDG”) was incorporated in New Jersey in January 2004. Energy Edge Technologies Corporation is comprised of two subsidiaries: Energy Edge Solutions (“EES”) and The Gourmet Chicken Company, Inc. (“TGCC”).
The Company acquired a 51% interest in EES in 2012. EES provides energy engineering and services specializing in the development and implementation of advanced turnkey projects to reduce energy losses and increase the efficiency of new and existing buildings. The Company is comprised of professional and industrial engineers, Leadership in Energy and Environmental Design (“LEED”) Accredited Professionals, and Green Building Coalition Certifying Agents. EES is a Clean Energy Pay for Performance Partner and a Smart Start Building Trade Ally. EES’ custom designed projects are developed using proprietary methods and maximize energy savings by treating an entire facility based on its unique features and electricity and gas usage.
EES applies a whole facility approach to energy cost reduction by applying different technologies and engineering approaches to treat most of the various electrical and gas consuming loads across facility such as lighting, HVAC, refrigeration, and production equipment. The energy projects developed and implemented by EES are ideal for virtually any type of facility and have successfully resulted in tremendous savings in manufacturing plants, hospitals, entertainment venues, office buildings, restaurants, warehouses, etc.
EES’ revenues come primarily from engineering survey work and turnkey energy projects where EES takes responsibility for equipment procurement, installation labor, utility rebates, tax incentives, pre and post survey work, waste removal, certifications, and ongoing measurement and verification of results.
During 2012, the Company acquired sixty-five percent (65%) of the capital stock of The Dry Fried Wing Company. On March 31, 2013, the Company acquired the remaining thirty-five percent (35%) of such stock. On April 5, 2013, the Company officially changed the name of The Dry Fried Wing Company to The Gourmet Chicken Company, Inc.
TGCC is a newly formed combined fast casual restaurant company in the chicken wing segment and restaurant management company. TGCC is primarily engaged in the business of managing, licensing, operating, developing and franchising a system of distinctive quick-service and fast casual restaurants in the chicken wing segment.
TGCC revenues will primarily be derived from management fees, royalty fees, licensing fees and franchise fees. TGCC will also sell food, sauces, mixes and other supplies to its franchisees/licensees.
NOTE 2 – BASIS OF PRESENTATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accompanying unaudited interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s Annual Report filed with the SEC on Form 10-K for the year ended December 31, 2013. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the necessary of the financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which substantially duplicate the disclosure contained in the audited financial statements for fiscal 2013 as reported in the Form 10-K have been omitted.
Reclassifications
Certain accounts and financial statement captions in the prior periods have been reclassified to conform to the current period financial statements.
Recent Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting pronouncements to have a significant impact on the Company’s results of operations, financial position, or cash flows.
NOTE 3 –GOING CONCERN
The Company has limited working capital and has suffered significant losses from operations. These factors create substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
ENERGY EDGE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
The ability of Energy Edge Technologies Corporation to continue as a going concern is dependent on the Company generating cash from the sale of its common stock, obtaining debt financing, attaining future profitable operations, acquiring or merging with a profitable company, and/or developing successful business operations in other industries through investment in related party ventures. Management’s plans include selling its equity securities and obtaining debt financing to fund its capital requirements; however, there can be no assurance the Company will be successful in these efforts.
NOTE 4 –PREPAID EXPENSES
Prepaid expenses consisted of the following at March 31, 2014 and December 31, 2013:
| | | March 31, 2014 | | December 31, 2013 |
| Prepaid project expenses | | $ | 29,950 | | | $ | 29,950 | |
| Prepaid consulting expense | | | 187,299 | | | | 225,033 | |
| Total prepaid expenses | | $ | 217,249 | | | $ | 254,983 | |
Prepaid Project Expenses
Prepaid project expenses consist of monies expended for project equipment for a project temporarily put on hold.
Prepaid Consulting
The Company has retained a number of consultants. These consultants are paid in cash and/or issuance of Company stock. Consultants were issued 3,000,000 shares of stock valued at $30,000 for the three months ended March 31, 2014. The consulting fees are being amortized over the terms of the contracts.
NOTE 5 – RELATED PARTY TRANSACTIONS
Related party payables and loans totaling $345,576 and $354,641 at March 31, 2014 and December 31, 2013, respectively, are owed to various related parties of the Company for reimbursement of expenses incurred on behalf of the Company.
Related party loans are unsecured, non-interest bearing and have no specific terms of repayment.
NOTE 6 – CONVERTIBLE NOTES PAYABLE AND DERIVATIVE LIABILITIES
On May 13, 2013, the Company issued a convertible promissory note to a third party, with a principal amount of $50,000. This note is due and payable in full on May 14, 2015, and bears interest at 6% per annum. At any time prior to the payment in full of the entire balance of the note, the creditor has the option of converting all or any portion of the unpaid balance of the note into shares of common stock at a conversion price equal to seventy percent of the lowest closing bid price of the common stock for any of the five trading days prior to and including the conversion date.
The Company evaluated the terms of the note and concluded that since the conversion price was not fixed, and the number of shares of the Company’s common stock that are issuable upon the conversion of the convertible promissory note is indeterminable until such time as the Creditor elects to convert to common stock, the Company concluded that the embedded conversion option created a derivative liability. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $53,348 as of May 13, 2013.
During the three months ended March 31, 2014, the Creditor elected to convert $5,335 of the outstanding balance into 2,530,612 shares of the Company’s common stock. As of December 31, 2013, the Creditor elected to convert $8,400 of the outstanding balance into 6,369,314 shares of the Company’s common stock.
On March 31, 2014, the Company re-measured the derivative liability using the input attributes below and determined the derivative liability value to be $47,650. Change in fair value of derivative of $9,789 was recorded as of March 31, 2014 and included in the statement of operations in order to adjust the derivative liability to the re-measured value.
ENERGY EDGE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | May 13, 2013 | | December 31, 2013 | | March 31, 2014 |
| Stock price | | $ | 0.0099 | | | $ | 0.0077 | | | $ | 0.0037 | |
| Exercise price | | $ | 0.009044 | | | $ | 0.005530 | | | $ | 0.002786 | |
| Shares issuable upon conversion | | | 5,528,527 | | | | 7,522,604 | | | | 13,016,870 | |
| Expected dividend yield | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
| Expected life (years) | | | 2.00 | | | | 1.37 | | | | 1.12 | |
| Risk-free interest rate | | | 0.24 | % | | | 0.38 | % | | | 0.44 | % |
| Expected volatility | | | 313.50 | % | | | 441.00 | % | | | 473.00 | % |
A debt discount of $50,000 related to the embedded conversion option was recorded at date of note issuance, and is being expensed over the life of the loan. For the three months ended March 31, 2014, amortization of $6,250 has been recorded, resulting in a remaining unamortized discount of $28,125 at March 31, 2014.
On September 30, 2013, the Company issued a convertible promissory note to a third party, with a principal amount of $53,000. This note is due and payable in full on June 24, 2014, and bears interest at 8% per annum. At any time beginning on the date that is 180 days after the note date and until the maturity date, the creditor has the option of converting all or any portion of the unpaid balance of the note into shares of common stock at a conversion price equal to fifty eight percent of the average of the three lowest closing bid price of the common stock for any of the ten trading days prior to the conversion date.
The Company evaluated the terms of the note and concluded that since the conversion price was not fixed, and the number of shares of the Company’s common stock that are issuable upon the conversion of the convertible promissory note is indeterminable until such time as the Creditor elects to convert to common stock, the Company concluded that the embedded conversion option created a derivative liability. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $88,930 as of September 30, 2013.
On March 31, 2014, the Company re-measured the derivative liability using the input attributes below and determined the derivative liability value to be $74,351. Change in fair value of derivative of $11,465 was recorded as of March 31, 2014 and included in the statement of operations in order to adjust the derivative liability to the re-measured value.
| | | September 30, 2013 | | December 31, 2013 | | March 31, 2014 |
| Stock price | | $ | 0.0124 | | | $ | 0.0077 | | | $ | 0.0037 | |
| Exercise price | | $ | 0.007057 | | | $ | 0.004331 | | | $ | 0.002165 | |
| Shares issuable upon conversion | | | 7,510,628 | | | | 12,237,754 | | | | 24,478,787 | |
| Expected dividend yield | | | 0.00 | % | | | 0.00 | % | | | 0.00 | % |
| Expected life (years) | | | 0.75 | | | | 0.50 | | | | 0.25 | |
| Risk-free interest rate | | | 0.07 | % | | | 0.10 | % | | | 0.05 | % |
| Expected volatility | | | 434.42 | % | | | 441.00 | % | | | 473.00 | % |
A debt discount of $53,000 related to the embedded conversion option was recorded at date of note issuance, and is being expensed over the life of the loan. For the three months ended March 31, 2014, amortization of $17,667 has been recorded, resulting in a remaining unamortized discount of $17,667 at March 31, 2014.
On December 31, 2013, the Company issued a convertible promissory note to a third party, with a principal amount of $42,500. This note is due and payable in full on October 3, 2014, and bears interest at 8% per annum. At any time beginning on the date that is 180 days after the note date and until the maturity date, the creditor has the option of converting all or any portion of the unpaid balance of the note into shares of common stock at a conversion price equal to fifty eight percent of the average of the three lowest closing bid price of the common stock for any of the ten trading days prior to the conversion date.
The Company evaluated the term of the note and concluded that since the conversion price was not fixed, and the number of share of the Company’s common stock that are issuable upon the conversion of the convertible promissory note is indeterminable until such time as the Creditor elects to convert to common stock, the Company concluded that the embedded conversion option created a derivative liability. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $72,462 as of December 31, 2013.
On March 31, 2014, the Company re-measured the derivative liability using the input attributes below and determined the derivative liability value to be $67,597. Change in fair value of derivative of $4,865 was recorded as of March 31, 2014 and included in the statement of operations in order to adjust the derivative liability to the re-measured value.
ENERGY EDGE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | December 31, 2013 | | March 31, 2014 |
| Stock price | | $ | 0.0077 | | | $ | 0.0037 | |
| Exercise price | | $ | 0.004331 | | | $ | 0.002165 | |
| Shares issuable upon conversion | | | 9,813,293 | | | | 24,478,787 | |
| Expected dividend yield | | | 0.00 | % | | | 0.00 | % |
| Expected life (years) | | | 0.76 | | | | 0.25 | |
| Risk-free interest rate | | | 0.10 | % | | | 0.05 | % |
| Expected volatility | | | 441.00 | % | | | 473.00 | % |
A debt discount of $42,500 related to the embedded conversion option was recorded at date of note issuance, and is being expensed over the life of the loan. For the three months ended March 31, 2014, amortization of $14,167 has been recorded, resulting in a remaining unamortized discount of $28,333 at March 31, 2014.
On March 24, 2014, the Company issued a convertible promissory note to a third party, with a principal amount of $53,750. This note is due and payable in full on June 5, 2015, and bears interest at 6% per annum. At any time prior to the payment in full of the entire balance of the note, the creditor has the option of converting all or any portion of the unpaid balance of the note into shares of common stock at a conversion price equal to seventy percent of the lowest closing bid price of the common stock of the last five trading days prior to and including the conversion date.
The Company evaluated the terms of the note and concluded that since the conversion price was not fixed, and the number of shares of the Company’s common stock that are issuable upon the conversion of the convertible promissory note is indeterminable until such time as the Creditor elects to convert to common stock, the Company concluded that the embedded conversion option created a derivative liability. The Company measured the derivative liability using the input attributes disclosed below and recorded a derivative liability of $97,425 as of March 24, 2014.
On March 31, 2014, the Company re-measured the derivative liability using the input attributes below and determined the derivative liability value to be $76,135. Change in fair value of the derivative of $21,290 was recorded as of March 31, 2014 and included in the statement of operations in order to adjust the derivative liability to the re-measured value.
| | | March 24, 2014 | | March 31, 2014 |
| Stock price | | $ | 0.0046 | | | $ | 0.0037 | |
| Exercise price | | $ | 0.002520 | | | $ | 0.002590 | |
| Shares issuable upon conversion | | | 21,329,365 | | | | 20,752,896 | |
| Expected dividend yield | | | 0.00 | % | | | 0.00 | % |
| Expected life (years) | | | 1.2 | | | | 1.18 | |
| Risk-free interest rate | | | .44 | % | | | 0.44 | % |
| Expected volatility | | | 473 | .% | | | 473.00 | % |
A debt discount of $53,750 related to the embedded conversion option was recorded at date of note issuance, and is being expensed over the life of the loan. For the three months ended March 31, 2014, amortization of $3,583 has been recorded, resulting in a remaining unamortized discount of $50,167 at March 31, 2014.
NOTE 7– BUSINESS SEGMENTS
The Company is made up of three entities in which Energy Edge Technologies Corporation is the parent entity. The Gourmet Chicken Company is a wholly owned subsidiary of the Company. Fifty-one percent of the outstanding stock of Energy Edge Solutions, Inc. is owned by the Company. Energy Edge Solutions, Inc. had no operating activity during the current quarter.
The balance sheet as of March 31, 2014 and December 31, 2013 and the income statement information for the three months ended March 31, 2014 and 2013 of each entity is presented in US Dollars as follows:
ENERGY EDGE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
| | | March 31, 2014 | | December 31, 2013 |
| | | EEDG | | TGWC | | EES | | Total | | EEDG | | TGCC | | EES | | Total |
| Current Assets | | $ | 252,485 | | | $ | — | | | $ | — | | | $ | 252,485 | | | $ | 300,147 | | | $ | — | | | $ | — | | | $ | 300,147 | |
| Fixed Assets | | | 2,901 | | | | — | | | | — | | | | 2,900 | | | | 3,329 | | | | — | | | | — | | | | 3,329 | |
| Other Assets | | | 26,350 | | | | 4,194 | | | | — | | | | 30,544 | | | | 9,897 | | | | 4,194 | | | | — | | | | 14,091 | |
| Total Assets | | $ | 281,735 | | | $ | 4,194 | | | $ | — | | | $ | 285,929 | | | $ | 313,373 | | | $ | 4,194 | | | $ | — | | | $ | 317,567 | |
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| Current Liabilities | | $ | ,246,410 | | | $ | 1,600 | | | $ | 114 | | | $ | 1,248,124 | | | $ | 824,143 | | | $ | 1,600 | | | $ | 114 | | | $ | 825,857 | |
| Long Term Liabilities | | | 135,508 | | | | — | | | | — | | | | 135,508 | | | | 64,664 | | | | — | | | | — | | | | 64,664 | |
| Intercompany | | | (383,167 | ) | | | 383,072 | | | | 95 | | | | — | | | | (379,770 | ) | | | 379,675 | | | | 95 | | | | — | |
| Stockholders’ Deficit | | | (717,016 | ) | | | (380,478 | ) | | | (209 | ) | | | (1,097,703 | ) | | | (195,667 | ) | | | (377,078 | ) | | | (209 | ) | | | (572,954 | ) |
| Total Liabilities and Stockholder's Deficit | | $ | 281,735 | | | $ | 4,194 | | | $ | — | | | $ | 285,929 | | | $ | 313,370 | | | $ | 4,197 | | | $ | — | | | $ | 317,567 | |
| | | For the Three Months Ended March 31, 2014 | | For the Three Months Ended March 31, 2013 |
| | | EEDG | | TGWC | | EES | | Total | | EEDG | | TGCC | | EES | | Total |
| Revenues | | $ | — | | | $ | — | | | $ | — | | | $ | — | | | $ | 2,040 | | | $ | 200 | | | $ | — | | | $ | 2,240 | |
| Costs of Revenues | | | — | | | | — | | | | — | | | | — | | | | (2,471 | ) | | | (50 | ) | | | — | | | | (2,521 | ) |
| Gross Profit (Loss) | | | | | | | — | | | | — | | | | — | | | | (431 | ) | | | 150 | | | | — | | | | (281 | ) |
| Operating Expenses | | | (158,682 | ) | | | (3,397 | ) | | | — | | | | (162,079 | ) | | | (114,821 | ) | | | (144,173 | ) | | | — | | | | (258,994 | ) |
| Other Expenses | | | (40,618 | ) | | | — | | | | — | | | | (40,618 | ) | | | (950 | ) | | | | | | | — | | | | (950 | ) |
| Net Loss before Non-controlling Interest | | | (199,300 | ) | | | (3,397 | ) | | | — | | | | (202,697 | ) | | | (116,202 | ) | | | (144,023 | ) | | | — | | | | (260,225 | ) |
| Non-controlling interest | | | — | | | | — | | | | — | | | | — | | | | 50,408 | | | | | | | | — | | | | 50,408 | |
| Net Loss | | $ | (199,300 | ) | | $ | (3,397 | ) | | $ | — | | | $ | (202,697 | ) | | $ | 65,794 | ) | | $ | (144,023 | ) | | $ | — | | | $ | (209,817 | ) |
ENERGY EDGE TECHNOLOGIES CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 8 – CAPITAL STOCK
During the three months ended March 31, 2014, the Company:
| - | issued 3,000,000 shares of common stock for services. These shares have a fair value of $30,000; |
| - | issued 1,400,000 shares of common stock for settlement of payables of $21,558; |
| - | issued 11,317,392 shares of common stock for the conversion of debt of $5,558; and |
| - | retired 32,800,888 shares of common stock previously issued to officers for compensation. The Company remains liable for these shares. As a result, the value of these shares is currently recorded as a stock payable. |
NOTE 9 –SUBSEQUENT EVENTS
On February 21, 2014, the Company entered into a 3-year real estate facility lease agreement for The Gourmet Chicken Company restaurant in College Park, GA. The lease commences on April 1, 2014 and expires on April 1, 2017 with options to extend the lease for an additional 3-years.
The Company retired 44,735,294 shares of common stock previously issued to officers for compensation that were originally valued at $516,245.
Holders of Company debt elected to convert $58,452 of outstanding notes payable to 112,417,437 shares of common stock.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
In this report, unless the context indicates otherwise, the terms “Energy Edge,” “Company,” “we,” “us,” and “our” refer to Energy Edge Technologies Corporation, a New Jersey corporation, and its wholly-owned subsidiaries.
Note regarding forward-looking statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, or the “Securities Act,” and Section 21E of the Securities Exchange Act of 1934 or the “Exchange Act.” These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or anticipated results.
In some cases, you can identify forward looking statements by terms such as “may,” “intend,” “might,” “will,” “should,” “could,” “would,” “expect,” “believe,” “anticipate,” “estimate,” “predict,” “potential,” or the negative of these terms. These terms and similar expressions are intended to identify forward-looking statements. The forward-looking statements in this report are based upon management’s current expectations and belief, which management believes are reasonable. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor or combination of factors, or factors we are aware of, may cause actual results to differ materially from those contained in any forward looking statements. You are cautioned not to place undue reliance on any forward-looking statements. These statements represent our estimates and assumptions only as of the date of this report. Except to the extent required by federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.
You should be aware that our actual results could differ materially from those contained in the forward-looking statements due to a number of factors, including:
| · | new competitors are likely to emerge and new technologies may further increase competition; |
| · | our operating costs may increase beyond our current expectations and we may be unable to fully implement our current business plan; |
| · | our ability to obtain future financing or funds when needed; |
| · | our ability to successfully obtain and maintain our diverse customer base; |
| · | our ability to protect our intellectual property through patents, trademarks, copyrights and confidentiality agreements; |
| · | our ability to attract and retain a qualified employee base; |
| · | our ability to respond to new developments in technology and new applications of existing technology before our competitors; |
| · | acquisitions, business combinations, strategic partnerships, divestures, and other significant transactions may involve additional uncertainties; and |
| · | our ability to maintain and execute a successful business strategy. |
Other risks and uncertainties include such factors, among others, as market acceptance and market demand for our products and services, pricing, the changing regulatory environment, the effect of our accounting policies, potential seasonality, industry trends, adequacy of our financial resources to execute our business plan, our ability to attract, retain and motivate key technical, marketing and management personnel, and other risks described from time to time in periodic and current reports we file with the United States Securities and Exchange Commission, or the “SEC.” You should consider carefully the statements under “Item 1A. Risk Factors” and other sections of this report, which address additional factors that could cause our actual results to differ from those set forth in the forward-looking statements and could materially and adversely affect our business, operating results and financial condition. All subsequent written and oral forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements.
Critical Accounting Policies and Estimates
Our financial statements and related public financial information are based on the application of accounting principles generally accepted in the United States (“US GAAP”). US GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenues and expenses amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.
We believe the following is among the most critical accounting policies that impact our consolidated financial statements. We suggest that our significant accounting policies, as described in our consolidated financial statements in the Summary of Significant Accounting Policies, be read in conjunction with this Management’s Discussion and Analysis of Financial Condition and Results of Operations.
We recognize revenue in accordance with Staff Accounting Bulletin (“SAB”) No. 104. All of the following criteria must exist in order for us to recognize revenue:
1. Persuasive evidence of an arrangement exists;
2. Delivery has occurred;
3. The seller’s price to the buyer is fixed or determinable; and
4. Collectability is reasonably assured.
The majority of the Company’s revenue results from sales contracts with direct customers and revenues are generated upon the shipment of goods and/or delivery of services. The Company’s pricing structure is fixed and there are no rebate or discount programs. Management conducts credit background checks for new customers as a means to reduce the subjectivity of assuring collectability. Based on these factors, the Company believes that it can apply the provisions of SAB 104 with minimal subjectivity.
Recent Accounting Pronouncements
The Company does not expect that the adoption of any recent accounting pronouncements will have any material impact on its financial statements.
Results of Operations – Three Months Ended March 31, 2014 as Compared to Three Months Ended March 31, 2013
The following table summarizes the results of our operations during the three-month period ended March 31, 2014 and 2013, and provides information regarding the dollar and percentage increase (or decrease) from the respective periods.
| | | Three Months ended March 31, 2014 | |
| | | 2014 | | | 2013 | | | Increase
(decrease) | | | % Change | |
| Revenues | | $ | — | | | $ | 2,240 | | | $ | (2,240 | ) | | (100 | )% |
| Cost of revenues | | | — | | | | (2,521 | ) | | | (2521 | ) | | (100 | )% |
| Gross profit (loss) | | | — | | | | (281 | ) | | | (281 | ) | | (100 | )% |
| General & Administrative & Professional Fees | | | 59,345 | | | | 140,909 | | | | (81,564 | ) | | (58 | )% |
| Wages & Consulting Fees | | | 102,734 | | | | 118,085 | | | | (15,351 | ) | | (13 | )% |
| Income (Loss) from operations | | | (162,734 | ) | | | (259,275 | ) | | | (96,541 | ) | | -37 | % |
| Other expense | | | (40,618 | ) | | | (950 | ) | | | 39,668 | | | 4,176 | % |
| Provision for taxation | | | — | | | | — | | | | — | | | — | |
| Net loss | | $ | (202,697 | ) | | $ | (260,225 | ) | | $ | (57,528 | ) | | (22 | )% |
Revenues
Revenues decreased from $2,240 in the three months ended March 31, 2013 to $0 in the same period in 2014, representing a 100% decrease. The Company did not generate any revenue during the three months ended March 31, 2014. The decrease in revenue was mainly due to potential projects from the current sales pipeline not closing in the first quarter.
Cost of revenues
Cost of sales decreased from $2,521 in the three months ended March 31, 2013 to $0 in the same period in 2014, representing a 100% decrease. The decrease was mainly attributable to the absence of projects sold in the first quarter of 2014. The gross profit percent decreased from (13%) in the three months ended March 31, 2013 to (0)% in the same period in 2014.
Wages and consulting fees
Wages and consulting fees were $118,085 in the three months ended March 31, 2013 as compared to $102,734 in the three months ended March 31, 2014. The decrease was due to the amortization of pre-paid consulting fees for fiscal 2013 were higher.
General and administrative and professional fees
General and administrative and professional fees decreased from $140,909 in the three months ended March 31, 2013 to $59,345 for the same period in 2014, representing a decrease of $81,564 or 58%.The decrease was mainly attributable to reduced operating and professional fees for the 2014 periods.
Net loss
Net loss for the three months ended March 31, 2013 was $260,225 as compared to a net loss of $202,697 in the same period of 2014. The decrease in net loss was mainly attributable to reduced professional fees and operating expenses in 2014.
Liquidity and Capital Resources
For the three months ended March 31, 2014, we used $44,428 in cash for operating activities compared to the use of $263,582 for the three months ended March 31, 2013. This decrease in operating cash requirements occurred for a number of reasons. The Company had a decrease of $37,734 in prepaid expenses, an increase of $5,438 in accounts payable, and an increase of $54,814 in accrued expenses and other current liabilities, all of which impacted cash used by operating activities.
Investing activities used cash of $8,000 related to cash paid for a lease deposit.
Financing activities generated $42,500 from the proceeds of a promissory note. On March 24, 2014, the Company issued a convertible promissory note to a third party, with a principal amount of $53,750, net of deferred financing costs of $11,250. This note is due and payable in full on June 5, 2015. Loan costs associated with securing the loan were capitalized and will be amortized over the loan period.
Cash and cash equivalents were $35,236 as of March 31, 2014 compared to $45,164 as of December 31, 2013.
We have no material commitments for capital expenditures and know of no trends, demands, commitments, or events that will result in our liquidity changing in a material way for the foreseeable future.
Off Balance Sheet Arrangements
We do not have any off balance sheet arrangements
Inflation
Inflation has not had a material impact on our business and we do not expect inflation to have an impact on our business in the near future.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This item is not applicable as we are currently considered a smaller reporting company.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of our disclosure controls and procedures pursuant to Rule 13a-15(b) of the Securities Exchange Act of 1934 (“Exchange Act”) as of the end of the period covered by this report. Based on that evaluation, our principal executive and principal financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Exchange Act is (i) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to our management, including our principal executive and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
Internal Control over Financial Reporting
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) for the Company. Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting may not prevent nor detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.
Our internal controls framework is based on the criteria set forth in the Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and includes those policies and procedures that: (i) Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; (ii) Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Based on such criteria, our management, with the participation of our principal executive and principal financial officer, evaluated the effectiveness of the Company’s internal control over financial reporting as of March 31, 2014, and concluded that, as of March 31, 2014, our internal control over financial reporting was not effective.
Management’s assessment report was not subject to attestation by the Company’s independent registered public accounting firm and as such, no attestation was performed pursuant to SEC Final Rule Release Nos. 33-8934; 34-58028.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting that occurred in three months ended March 31, 2014 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II--OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our interest. The Company is involved in a possible legal action regarding certain accounts payable in the amount of $13,500 in dispute.
ITEM 1A. RISK FACTORS
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Following are the Company’s equity transactions during the three months ended March 31, 2014:
On January 2, 2014, the Company issued 5,000,000 shares of common stock valued at $1,000 for the conversion of debt.
On January 6, 2014, the Company issued 3,000,000 shares of common stock valued at $30,000 for prepaid legal services.
On January 6, 2014, the Company retired 2,800,000 shares of common stock previously issued to its officers for compensation.
On January 23, 2014, the Company issued 1,400,000 shares of common stock at $.01 per share in cancellation of debt in the amount of $21,558.
On February 26, 2014, the Company issued 4,000,000 shares of common stock valued at $2,004 for the conversion of debt.
On March 13, 2014, the Company issued 2,317,392 shares of common stock valued at $2,554 for the conversion of debt.
On March 31, 2014, the Company retired 30,000,000 shares of common stock previously issued to its officers for compensation.
On April 24, 2014, the Company issued 112,417,437 shares of common stock value at $58,452 for the conversion of debt.
On May 1, 2014, the Company retired 44,735,294 shares of common stock previously issued to its officers for compensation.
Issuer Purchases of Equity Securities
We did not repurchase any of our securities during the quarter ended March 31, 2014.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS.
Exhibit
Number | Description |
| 31.1 | | Certification of Chief Executive Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 31.2 | | Certification of Chief Financial Officer filed pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
| 32.1 | | Certification of Chief Executive Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
| 32.2 | | Certification of Chief Financial Officer furnished pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
RESTAURANT BRAND BUILDERS, INC.
(Registrant)
By: /s/ James Boyd
James Boyd
Chief Executive Officer, President, and Director
Date:May 20, 2014
