Form 10-K/A for LIBERATED ENERGY, INC.
12-Feb-2016
Annual Report
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
FORWARD-LOOKING STATEMENTS
This annual report on Form 10-K contains forward-looking statements within the meaning of the federal securities laws. These forwarding-looking statements include without limitation statements regarding our expectations and beliefs about the market and industry, our goals, plans, and expectations regarding our results, our intentions and strategies regarding future operations and transactions, our beliefs regarding the future success of our business, our expectations and beliefs regarding competition, competitors, the basis of competition and our ability to compete, our beliefs and expectations regarding our ability to hire and retain personnel, our ability to expand into new geographic markets and music genres, our ability to acquire other operators and venues, our beliefs regarding period to period results of operations, our expectations regarding revenues, our expectations regarding future growth and financial performance, our beliefs and expectations regarding the adequacy of our facilities, and our beliefs and expectations regarding our financial position, ability to finance operations and growth and the amount of financing necessary to support operations. These statements are subject to risks and uncertainties that could cause actual results and events to differ materially. See "Item 1A. Risk Factors" for a discussion of certain risks. We undertake no obligation to update forward-looking statements to reflect events or circumstances occurring after the date of this annual report on Form 10-K.
As used in this annual report on Form 10-K, unless the context otherwise requires, the terms "we," "us," "the Company," and "Liberated" refer to Liberated Energy, a Nevada Corporation.
ORGANIZTION AND BASIS OF PRESENTATION
The following discussion and analysis is based on the audited financial statements for the years ended September 30, 2015 and 2014 of Liberated Energy, Inc., a Nevada corporation ("Liberated" the "Company," "our," or "we"). All significant inter-company amounts have been eliminated. In the opinion of management, the audited financial statements presented herein reflect all adjustments (consisting only of normal recurring adjustments) necessary for fair presentation. Interim results are not necessary indicative of results to be expected for the entire year.
We prepare our financial statements in accordance with generally accepted accounting principles (GAAP), which require that management make estimates and assumptions that affect reported amounts. Actual results could differ from these estimates.
Certain of the statements contained below are forward-looking statements (rather than historical facts) that are subject to risks and uncertainties that could cause actual results to differ materially from such forward-looking statements.
CRITICAL ACCOUNTING POLICIES & ESTIMATES
The preparation of financial statements and related disclosures in conformity with accounting principles generally accepted in the United States of America requires management to make judgments, assumptions and estimates that affect the amounts reported in our consolidated financial statements and accompanying notes. We base our estimates and judgments on historical experience and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change, and the best estimates and judgments routinely require adjustment. The amounts of assets and liabilities reported in our balance sheet, and the amounts of revenues and expenses reported for each of our fiscal periods, are affected by estimates and assumptions which are used for, but not limited to, the accounting for allowance for doubtful accounts, goodwill and intangible asset impairments, restructurings, inventory and income taxes. Actual results could differ from these estimates. The following critical accounting policies are significantly affected by judgments, assumptions and estimates used in the preparation of our consolidated financial statements.
- 6 -
Table of Contents
Use of Estimates
It is important to note that when preparing the financial statements in conformity with U.S. generally accepted accounting principles, management is required to make certain estimates and assumptions that affect the amounts reported and disclosed in the financial statements and related notes. Actual results could differ if those estimates and assumptions approve to be incorrect.
On an ongoing basis, we evaluate our estimates, including those related to estimated customer life, used to determine the appropriate amortization period for deferred revenue and deferred costs associated with licensing fees, the useful lives of property and equipment and our estimates of the value of common stock for the purpose of determining stock-based compensation. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable, the results of which form the basis for making judgments about the carrying values of assets and liabilities.
Revenue Recognition Policies
The Company recognizes revenues in accordance with the Securities and Exchange Commission Staff Accounting Bulletin (SAB) number 104, "Revenue Recognition." SAB 104 clarifies application of U. S. generally accepted accounting principles to revenue transactions. As of the year ended September 30, 2014, there was no deferred revenue. The Company derives its primary revenue from the sources described below, which includes sale of alternative energy devices.
Off- Balance Sheet Arrangements
We did not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of 90 days or less to be cash equivalents to the extent the funds are not being held for investment purposes.
Results of Operations
Year Ended September 30, 2015 Compared to Year Ended September 30, 2014
Revenue
Our revenues were $62,132 for the year ended September 30, 2015 compared to zero for September 30, 2014.
Direct Costs
Direct costs or cost of goods was $19,333 for the year ended September 30, 2015 compared to zero for September 30, 2014.
General and Administrative Expenses and Other
General and administrative costs for the year ended September 30, 2015 was $439,043 compared to $268,527 for the year ended September 30, 2014. Higher cost was attributable to high consulting fees in 2015 compared to 2014.
- 7 -
Table of Contents
Other Income (Expense)
Other income and expense was $138,271 for the year ended September 30, 2015 compared to $38,291 for the year ended September30, 2014.The higher amount in 2015 is directly attributed to debt settlement of $35,502 and impairment of assets totaling $41,743 plus interest expense of $61,026
Net Loss
The Company incurred a net loss of $534,515 for the year ended September 30, 2015 compared to a net loss of $306,291 for the year ended September 30, 2014. Higher general and administrative expense plus increased other expenses attributed to the higher loss in 2015 over 2014.
Financial Condition
Cash, Cash Flows and Working Capital
The Company had a cash balance of $16,921 and a working capital deficit of $266,699 at September 30. 2015 as compared to a net cash balance of $162,354 and a working capital deficit of $303,861 at September 30, 2014. The decrease in working capital is primarily attributable loss in 2015 greater than the loss in 2014.
Operations used $441,895 of cash during 2015 as compared to $236,763 used during 2014. The change in operating cash flows during 2014 was principally attributable to increased losses in 2015 over 2014.
There was no investing activity during the years ended September 30, 2015 or in 2014.
Financing activities provided cash flows of $296,462 during 2015 as compared to $354,433 during 2014. Cash flows provided by financing activities during the 2015 period related to debt financing of $246,462 and sale of common stock of $50,000. Cash provided in financing activities in 2014 is attributed to borrowings on debt of $387,750 warrant conversion of $7,000 offset by loan repayment to a related party of $40,317.
Liquidity and Capital Resources
Our principal requirements for capital are to fund our day-to-day operations and to satisfy our contractual obligations, primarily for the repayment of debt.
We believe that we will be required to either improve profitability and operating cash flow or to borrow additional funds or otherwise secure additional financing, or both, to support our operations going forward. Except as described below regarding our line of credit, we do not presently have any commitments to provide financing, if needed, to support our operations.
Warrants
The Company issued an warrants to purchase 5,825,000 shares of common stock on February 21, 2013 and March 11, 2013. During the year ended September 30, 2014 34,000 warrants were converted to common stock. The balance of the warrants 5,791,000 expired as of March 11, 2015.
Convertible Notes
On September 4, 2013, the Company issued a Convertible Note (the "Note") to JMJ Financial ("JMJ") providing JMJ with the ability to invest up to $350,000 which contains a 10% original issue discount (the "JMJ Note"). The transaction closed on September 4, 2013. JMJ provided $50,000 to the Company on the Effective Date. The net proceeds the Company received from this offering were $45,000. . On December 10, 2013, JMJ provided $25,000 to the Company; the net proceeds the Company received from this offering were $22,500. On April 18, 2014, JMJ
- 8 -
Table of Contents
provided $40,000 to the Company; the net proceeds the Company received from this offering were $36,000. On June 23, 2014, JMJ provided $40,000 to the Company; the net proceeds the Company received from this offering were $36,000. As of September 30, 2015 the outstanding balance due was $22,835.
On November 27, 2013, the Company issued a Convertible Note (the "Note") to LG CAPITAL FUNDING, LLC ("LG Capital") providing LG Capital with the ability to invest $25,000 which contains $4,000 in financing cost (the LG Capital "Note"). The transaction closed on November 27, 2013. LG Capital provided $25,000 to the Company on the effective Date. The net proceeds the Company received from this offering were $21,000. As of September 30, 2015 the balance due on the note was zero.
On December 2, 2013, the Company issued a Convertible Note (the "Note") to GEL Properties, LLC ("GEL") providing GEL with the ability to invest $35,000 which contains $5,250 in financing cost (the GEL "Note"). The transaction closed on December 2, 2014. GEL provided $35,000 to the Company on the effective Date. The net proceeds the Company received from this offering were $29,750. As of September 30, 2015 the balance of the note was zero.
On March 14, 2014, the Company issued a Convertible Note (the "Note") to LG CAPITAL FUNDING, LLC ("LG Capital") providing LG Capital with the ability to invest $30,000 which contains $4,500 in financing costs (the LG Capital "Note"). The transaction closed on March 14, 2014. LG Capital provided $30,000 to the Company on the effective Date. The net proceeds the Company received from this offering were $25,500. As of September 30, 2015 the balance of the note was zero.
On March 17, 2014, the Company issued a Convertible Note (the "Note") to UNION CAPITAL, LLC ("Union Capital") providing Union Capital with the ability to invest $30,000 which contains $4,500 in financing costs. The transaction closed on March 17, 2014. Union Capital provided $30,000 to the Company on the Effective Date. The net proceeds the Company received from this offering were $25,500. As of September 30, 2015 the balance of the note was zero.
On March 19, 2014, the Company issued a Convertible Note (the "Note") to GEL Properties, LLC ("GEL") providing GEL with the ability to invest $35,000 which contains $5,250 in financing cost (the GEL "Note"). The transaction closed on March 19, 2014. GEL provided $35,000 to the Company on the effective Date. The net proceeds the Company received from this offering were $29,750. As of September 30, 2015 the balance of the note was zero.
On June 02, 2014, the Company issued a Convertible Note (the "Note") to LG CAPITAL FUNDING, LLC ("LG Capital") providing LG Capital with the ability to invest $25,000 which contains $4,000 in financing fees (the LG Capital "Note"). The transaction closed on June 02, 2014. LG Capital provided $25,000 to the Company on the effective Date. The net proceeds the Company received from this offering were $21,000. As of September 30, 2015 the balance of the note was zero.
On July 14, 2014, the Company issued two Convertible Notes (the "Notes") to LG CAPITAL FUNDING, LLC ("LG Capital") providing LG Capital with the ability to invest up to $53,000 in aggregate. The transaction closed on July 14, 2014. LG Capital provided $26,500 on effective day, containing $4,000 in financing cost. The net proceeds the Company received from this offering were $22,500. As of September 30, 2015 the balance due on the note was zero.
On July 17, 2014, the Company issued two Convertible Notes (the "Notes") to UNION CAPITAL, LLC ("Union Capital") providing Union Capital with the ability to invest up to $50,000. The transaction closed on July 17, 2014. Union Capital provided $25,000 to the Company on effective day, containing $4,000 in legal fees. The net proceeds the Company received from this offering were $21,000. As of September 30, 2015 the balance due on the note was zero.
On October 8, 2014, JSJ provided $60,000 to the Company; the net proceeds the Company received from this offering were $55,000. The note is convertible at 50% of the lowest trading price of the Company's stock for the 20 days prior to conversion and provides for 12% interest and matures on April 8, 2015. As of September 30, 2015 the balance due on the note was $9,795.
- 9 -
Table of Contents
On December 10, 2014, the Company issued a Convertible Note to KMB Capital for $64,000. The note bears an interest rate of 8% and matures on September 12, 2015. The note is convertible to common stock at a discount of 39% of the lowest three trading price during the 10 days prior to conversion. As of September 30, 2015 the note was paid in full.
On March 12, 2015, the Company issued a Convertible Note to VIS VIRES Group Inc for $33,000 with an interest rate of 8% per annum. The notes mature on December 16, 2015. The note is convertible by the holder at a discount of 39% of the three lowest trading prices during the 10 days prior to conversion. As of June 30, 2015 the outstanding principal balance was $33,000. As of September 30, 2015 the balance due on the note was zero.
On April 20, 2015, the Company issued a Convertible Note (the "Note") to LG CAPITAL FUNDING, LLC ("LG Capital") for a principle amount of $31,500 with an interest rate of 8% per annum. The note matures on April 28, 2016. The note is convertible by the holder at a discount of 52% of the lowest trading price of the Company's stock for the 18 days prior to the conversion. AS of September 30, 2015 the outstanding balance due was $31,500.
On April 28, 2015, the Company issued a Convertible Note (the "Note") to LG CAPITAL FUNDING, LLC ("LG Capital") for a principle amount of $22,000 with an interest rate of 8% per annum. The note matures on April 28, 2016. The note is convertible by the holder at a discount of 55% of the lowest trading price of the Company's stock for the 18 days prior to the conversion. As of September 30, 2015 the outstanding balance of the note was zero.
On April 28, 2015, the Company issued a Convertible Note to Service Trading Company, LLC for $22,000. The note bears an interest rate of 8% and matures on April 28, 2016. The note is convertible by the holder at a discount of 52% of the lowest trading price during the 18 days previous to the conversion. As of September 30, 2015 the outstanding principal balances was $22,000.
On May 21, 2015 the Company issued a Convertible settlement note to GEL Properties for $50,000. The note was issued to settle claims by GEL pertaining to fees and interest they claimed as still due. The note Matures on May 21, 2016 bearing interest at 8% and is convertible to common stock of the company at a discount of 65% to the lowest closing bid price for the five days prior to conversion. As of September 30, 2015 the balance due on the note was $50,000.
On July 13, 2015, the Company issued a Convertible Note to LG CAPITAL FUNDING, LLC ("LG Capital"), to replace the $50,000 convertible note issued to Eastmore Capital The note matures on July 13, 2016. The note is convertible by the holder at a discount of 55% of the lowest trading price of the Company's stock for the 15 days prior to the conversion.
On July 13, 2015, the Company issued a Convertible Note to LG CAPITAL FUNDING, LLC ("LG Capital"), for a principle amount of $41,400 with an interest rate of 8% per annum. The note matures on July 13, 2016. The note is convertible by the holder at a discount of 55% of the lowest trading price of the Company's stock for the 15 days prior to the conversion.
On August 11, 2015, the Company issued a Convertible Note to LG CAPITAL FUNDING, LLC ("LG Capital") for a principle amount of $27,500 with an interest rate of 8% per annum. The note matures on August 11, 2016. The note is convertible by the holder at a discount of 55% of the lowest trading price of the Company's stock for the 15 days prior to the conversion.
On September 8, 2015, the Company issued a Convertible Note to LG CAPITAL FUNDING, LLC ("LG Capital") for a principle amount of $27,000 with an interest rate of 8% per annum. The note matures on September 8, 2016, 2016. The note is convertible by the holder at a discount of 55% of the lowest trading price of the Company's stock for the 15 days prior to the conversion.
As of September 30, 2015 the outstanding aggregate balance of all notes due to LG Capital Funding, LLC is $159,115.
AI
