Exhibit 99.2
Energie, LLC
Unaudited Condensed FinancialStatements
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. OrganizationandBasis of Presentation
OrganizationandOperations–Energie,LLC(“Energie”or“theCompany”)wasestablishedonNovember29, 2001asalimitedliabilitycompanyinthestateofDelawareandisengagedintheimportandsaleofspecializedinteriorlightingsolutionstothearchitectureandinteriordesignmarketsinNorthAmerica.TheCompanyis headquarteredin Wheat Ridge, Colorado and alsomaintains a productionand assemblyfacilityinZeeland,Michigan.
Energiehasorganicallydevelopedanend-to-endproductionanddistributionplatformforimportedlighting productsfeaturingHID,fluorescent,andLEDtechnologies.LongtermcontractswithfiveEuropeanmanufacturers andoneinTaiwan provideEnergiewith exclusiveNorth American distributionrightsto over270total productsin37categories.After processinganymodifications necessarytomeet UL standardsandbuilding coderequirements,the products are soldto customersthrough a network of over 60independentlighting sales agents.In additionto a 15% commission structure, the salesforceis providedwith promotionalmaterials, producttraining,andtechnicalsupportbythe Company.
BasisofPreparation-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 iscomprised ofthefollowing:
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–LineofCredit–TheCompanyutilizedthisbanklineofcreditforworkingcapitalpurposes.The outstandingobligationisdueon demand,hasastatedinitialinterestrateof10.5%thatissubjectto adjustment, andis guaranteed bythe Company’smajorityshareholder.
B–AccountsReceivableFactoring–Pursuanttofactoringandsecurityagreement,theCompanysubmits accountsreceivableforsaletoafactoringfirmatanamountequaltotheirfacevalue,less a1.5%commissionandaninitialfactoringfee basedonthe primeinterestrate plus 3%.Thefactor advances apercent ofthe account balancetotheCompany,andtheremainingamountwillbewithheldinanon-interest bearingreserveaccount. Accountspurchased bythefactor arewithfullrecoursewiththe Companywithin 120 daysfromtheinvoices date. Thefactoringtransactionistreated as aloan,withthereceivables used as collateral. The Companyhas grantedthefactoringfirmasecurityinterestin, and a blanketlien upontheCompany’sassets.
C–NotePayabletoDistributionPartner–Representstheoutstandingprincipalbalanceplus5%annualinterest dueona2007promissorynotewith5%annualinterest,betweentheCompany andasignificantEuropeandistribution partner. Althoughthe Companyis past due onrequired payments,theloan holder has notmade any demandfor repaymentofthe principalandinterestdue.
D–RelatedParties Debt–Amountsduetolendershavinganinterestinthemembershiprightsof 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–OtherNotesPayable–Representstheoutstandingprincipalbalanceplusinterestdueonthreeseparate promissorynoteswithinterestratesrangingfrom8%to24%annually. AlthoughtheCompanyispastdueonitsrequiredpayments,theloanholdershavenotmadedemandforrepaymentoftheprincipalandinterestdue.Intheeventthe Companyreceives proceeds asthe beneficiaryof alifeinsurance policycoveringitsmajority shareholder,repayment ofprincipalandinterestisdueonthesenotespriortousingtheproceedsforanyother purpose.
AlloftheCompany’sdebtisreflectedasacurrentliabilityduetoeitherhavingamaturitydatein2014,or becauseit ispastdue.
5. Subsequent Events
No events occurred subsequent to March 31, 2014, that would require adjustment to the accompanying financial statements or footnotes.