UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
| [X] | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| | For the Fiscal Year Ended December 31, 2008 |
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| [ ] | Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
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| | For the Transition Period from __________ to ____________ |
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| Commission File Number: 000-1321573 |
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| MIDNIGHT CANDLE COMPANY |
| (Name of small business issuer in its charter) |
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| Nevada | 20-1763307 |
| (State or other jurisdiction of incorporation or organization) | (I.R.S. employer identification number) |
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79013 Bayside Court Indio, CA | 92203 |
| (Address of principal executive offices) | (Zip code) |
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| Issuer’s telephone number: (760) 772-1872 |
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| Securities Registered Pursuant to Section 12(b) of the Act: |
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| Title of each class | Name of each exchange on which registered |
| None | None |
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| Securities Registered Pursuant to Section 12(g) of the Act: |
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| None |
| (Title of class) |
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| (Title of class) |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [X] No [ ]
Indicate by check mark whether the registrant (1) has 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 [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.:
| Large accelerated filer [ ] | Accelerated filer [ ] |
| Non-accelerated filer [ ] (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes [X] No [ ]
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the most recent price at which the common equity was sold: $23,000 as of March 31, 2009.
The number of shares outstanding of each of the issuer's classes of common equity, as of March 31, 2009 was 156,900,000.
DOCUMENTS INCORPORATED BY REFERENCE
If the following documents are incorporated by reference, briefly describe them and identify the part of the Form 10-KSB (e.g., Part I, Part II, etc.) into which the document is incorporated: (1) any annual report to security holders; (2) any proxy or information statement; and (3) any prospectus filed pursuant to Rule 424(b) or (c) of the Securities Act of 1933 ("Securities Act"). The listed documents should be clearly described for identification purposes (e.g., annual report to security holders for fiscal year ended December 24, 1990).
None.
Transitional Small Business Disclosure Format (Check one): Yes [ ] No [X]
MIDNIGHT CANDLE COMPANY
FORM 10-K
For the year ended December 31, 2008
TABLE OF CONTENTS
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FORWARD LOOKING STATEMENTS
This Annual Report contains forward-looking statements about our business, financial condition and prospects that reflect our management’s assumptions and beliefs based on information currently available. We can give no assurance that the expectations indicated by such forward-looking statements will be realized. If any of our assumptions should prove incorrect, or if any of the risks and uncertainties, underlying such expectations should materialize; our actual results may differ materially from those indicated by the forward-looking statements.
The key factors that are not within our control and that may have a direct bearing on operating results include, but are not limited to, acceptance of our services, our ability to expand its customer base, managements’ ability to raise capital in the future, the retention of key employees and changes in the regulation of our industry.
There may be other risks and circumstances that management may be unable to predict. When used in this Report, words such as, "believes," "expects," "intends," "plans," "anticipates," "estimates" and similar expressions are intended to identify and qualify forward-looking statements, although there may be certain forward-looking statements not accompanied by such expressions.
Business Development and Summary
Midnight Candle Company was incorporated in the State of Nevada on September 24, 2004.
Our administrative office is located at 79013 Bayside Court, Indio, California 92203, telephone (760) 772-1872.
MIDC's fiscal year end is December 31.
Business of Issuer
Principal Products and Principal Markets
Our business objective is to market scented candles to consumers and businesses. However, it is the opinion of our management that our target market and likely purchaser of our products will primarily be female. They believe that women, as opposed to men, favor candles for their fragrance and decorative nature. As a result, we offer candles in a variety of sizes, styles, colors and fragrances. We do not manufacture any products. All products are purchased from third-party suppliers or manufacturers. The primary products we stock generally include the following candle types:
| | 1. | Jar Candles - scented candles in decorative glass jars, |
| | 2. | Pillar Candles - tall upright candles and |
| | 3. | Tea Lights - small candles contained in plastic or metallic cups. |
In September of 2007, we purchased additional inventory of candles from Discount Candle Shop and made them available for sale on our website. To date, we have recognized sales of $464, net of allowances, attributable to the candles we purchased since February of 2006. We do not have any agreements to sell our candles on a recurring basis and are unable to predict the stability of, or assure that we will continue to generate, revenues.
Distribution Methods of the Products and Services
The Internet lends itself well to the distribution of candles and candle-related merchandise due to its ability to provide pictures, information and purchasing capabilities direct to the consumer, at his or her leisure. We have published a website at http://www.midnightcandleco.com, which serves as the sole method through which we market, sell and distribute the products we have for sale. The site, although published and fully functional, is minimalist in nature. We believe that to attract purchasers, we should make aesthetic changes to our website. However, as of December 31, 2007, we had insufficient cash on hand to pay for web development services. We believe that unless we are able to improve the “look and feel” of our Internet presence, we will be unable to attract purchasers.
We expect to use general parcel services as our distribution methods to fulfill customer orders. Such services include, without limitation, United Parcel Service, DHL and Federal Express.
Industry Background and Competition
We operate in the scented candle segment of the giftware industry. Significantly, all of our competitors have longer operating histories, and established manufacturing or supply chain systems, as well greater financial, management, sales, marketing and other resources than we do.
The candle market overall is highly fragmented. Competitors range from multi-national entities to retailers serving a limited geographical region. Premium market candle manufacturers include Colonial Candles, owned by Blyth Industries, Inc., which also owns PartyLite, and A.I. Root and Village Candle. Midnight Candle's retail store competitors include The White Barn Candle Company, which is owned by Limited Brands, Inc., as well as Wicks n' Sticks and Candleman. Other retail competition includes specialty candle stores, as well as gift retailers.
Midnight Candle Company competes generally for the disposable income of consumers with other producers in the giftware industry. The giftware industry is highly competitive with a large number of both large and small participants. The products we sell compete with other scented and unscented candle products and with other gifts within a comparable price range, like boxes of candy, flowers, wine, fine soap and related merchandise. Our competitors distribute their products through independent gift retailers, department stores, mass-market stores and mail order houses. We are a small company with limited capital resources, minimal saleable inventory and negative cash flows. As such, we currently compete unfavorably in the general marketplace. Unless we find a way to increase our revenue generating ability, we will not be able to continue as a going concern.
Sources and availability of raw materials and the names of principal suppliers
We do not procure any raw materials, nor do we produce any of the candles or candle-related products we sell. We have purchased our salable inventory from The Candle Factory and Discount Candle Shop. We have no other suppliers or distributors from which we expect to order additional inventory.
Need for Government Approval of Principal Products
While we believe we are and will be in substantial compliance with the laws and regulations which regulate our business, and that we possess all the licenses required in the conduct of our business, the failure to comply with any of those laws or regulations, or the imposition of new laws or regulations could negatively impact our proposed business.
Effect of Existing or Probable Governmental Regulations
We are not currently subject to direct federal, state or local regulation other than regulations applicable to businesses generally or directly applicable to retailing or electronic commerce. We do not currently provide individual personal information regarding our users to third parties and we currently do not identify registered users by age, nor do we expect to do so in the foreseeable future. The adoption of additional privacy or consumer protection laws could create uncertainty in Web usage and reduce the demand for our products and services or require us to redesign our web site.
Number of total employees and number of full time employees
Midnight Candle Company is currently in the development stage. During the development stage, we plan to rely exclusively on the services of our officers and sole director to set up our business operations. Our two officers are involved in MIDC business on a part-time basis only and are prepared to dedicate additional time, as needed. At this time, there are no other full- or part-time employees. We do not expect to hire any additional employees over the next 12 months.
Reports to Security Holders
| | 1. | We will furnish shareholders with annual financial reports certified by our independent registered public accountants. |
| | 2. | We are a reporting issuer with the Securities and Exchange Commission. We file periodic reports, which are required in accordance with Section 15(d) of the Securities Act of 1933, with the Securities and Exchange Commission to maintain the fully reporting status. |
| | 3. | The public may read and copy any materials we file with the SEC at the SEC's Public Reference Room at 100 F Street, N.E., Washington, D.C. 20002. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. Our SEC filings will be available on the SEC Internet site, located at http://www.sec.gov. |
Our officers and directors work for us on a part-time basis. As a result, we may be unable to develop our business and manage our public reporting requirements.
Our operations depend on the efforts of Helen Cary, our President and director, and Patrick Deparini, our Secretary and Treasurer. Both Mrs. Cary and Mr. Deparini are involved in other business opportunities and may face a conflict in selecting between MIDC and their other business interests. We have not formulated a policy for the resolution of such conflicts. If we lose either or both Mrs. Cary and Mr. Deparini to other pursuits without a sufficient warning we may, consequently, go out of business.
Investors may lose their entire investment if we are unable to continue as a going concern.
Midnight Candle Company was formed in September 2004. We have no demonstrable operations record, on which you can evaluate our business and prospects. Our prospects must be considered in light of the risks, uncertainties, expenses and difficulties frequently encountered by companies in their early stages of development. These risks include, without limitation, competition, the absence of ongoing revenue streams, inexperienced management and lack of brand recognition. Midnight Candle Company cannot guarantee that we will be successful in executing our proposed golf merchandising business. If we fail to implement and create a base of operations for our proposed business, we may be forced to cease operations, in which case investors may lose their entire investment.
We may not be able to attain profitability without additional funding, which may be unavailable.
We have limited capital resources. To date, we have not generated positive cash inflows from our operations. Unless we begin to generate sufficient revenues from our proposed business objective of selling a variety of golf merchandise to finance operations as a going concern, we may experience liquidity and solvency problems. Such liquidity and solvency problems may force us to go out of business if additional financing is not available. We have no intention of liquidating. In the event our cash resources are insufficient to continue operations, we intend to raise addition capital through offerings and sales of equity or debt securities. In the event we are unable to raise sufficient funds, we will be forced to go out of business and will be forced to liquidate. A possibility of such outcome presents a risk of complete loss of investment in our common stock.
Because of competitive pressures from competitors with more resources, Midnight Candle Company may fail to implement its business model profitably.
Midnight Candle Company operates in the candle business, which is a highly competitive market segment with relatively low barriers to entry. Our competitors include larger and more established companies. To the best of our management's knowledge, some of our competitors include Colonial Candles, owned by Blyth Industries, Inc. and A.I. Root and Village Candle. Generally, our actual and potential competitors have longer operating histories, significantly greater financial and marketing resources, as well as greater name recognition. Therefore, many of these competitors may be able to devote greater resources than MIDC to sales and marketing efforts, expanding their chain of distribution and hiring and retaining key employees. There can be no assurance that our current or potential competitors will not develop or offer comparable or superior products to those expected to be offered by us. Increased competition could result in lower than expected operating margins or loss of market share, any of which would materially and adversely affect our business, results of operation and financial condition.
Control by Current Management May Impede the Ability of Minority Shareholders to Exercise Control over Midnight Candle Company
Currently, the president and CEO directly owns or controls 150,000,000 shares of common stock in Midnight Candle Company, which is 96% of the common stock outstanding. As a result, the president and CEO of MIDC could exercise control over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership limits the power to exercise control by the minority shareholders.
Failure by us to respond to changes in consumer preferences could result in lack of sales revenues and may force us out of business.
Any change in the preferences of consumers that we fail to anticipate could reduce the demand for the candle-related products we provide. Decisions about our focus and the specific products we plan to carry in inventory often are made in advance of distribution, and thus, consumers acquiring them. Failure to anticipate and respond to changes in consumer preferences and demands could lead to, among other things, customer dissatisfaction, failure to attract demand for our products, excess or obsolete inventories and lower profit margins.
We may be unable to obtain sufficient quantities of quality merchandise on acceptable commercial terms because we do not have long-term distribution and manufacturing agreements.
We intend to rely primarily on product manufacturers and third-party distributors to supply the products we plan to offer. Our business would be seriously harmed if we were unable to develop and maintain relationships with suppliers and distributors that allow us to obtain sufficient quantities of quality merchandise on acceptable terms. Additionally, we may be unable to establish alternative sources of supply for our products to ensure delivery of merchandise in a timely and efficient manner or on terms acceptable to us. If we cannot obtain and stock our products at acceptable prices and on a timely basis, we may lose sales and our potential customers may take their purchases elsewhere. Further, an increase in supply costs could cause our operating losses to increase beyond current expectations.
Our revenue and gross margin could suffer if we fail to manage our inventory properly.
Our business depends on our ability to anticipate our needs for our products and suppliers’ ability to deliver sufficient quantities of products at reasonable prices on a timely basis. Given that we are in the development stage, we may be unable to accurately anticipate demand and manage inventory levels that could seriously harm us. If predicted demand is substantially greater than consumer purchases, there will be excess inventory. In order to secure inventory, we may make advance payments to suppliers, or we may enter into non-cancelable commitments with vendors. If we fail to anticipate customer demand properly, a temporary oversupply could result in excess or obsolete inventory, which could adversely affect our gross margin.
Our internal controls may be inadequate, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public.
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. As defined in Exchange Act Rule 13a-15(f), internal control over financial reporting is a process designed by, or under the supervision of, the principal executive and principal financial officer and effected by the board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles 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 the assets of the Company; (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 receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have a material effect on the financial statements. Our internal controls may be inadequate or ineffective, which could cause our financial reporting to be unreliable and lead to misinformation being disseminated to the public. Investors relying upon this misinformation may make an uninformed investment decision.
The costs and expenses of SEC reporting and compliance may inhibit our operations.
After the effectiveness of this registration statement, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended. The costs of complying with such requirements may be substantial. In the event we are unable to establish a base of operations that generates sufficient cash flows or cannot obtain additional equity or debt financing, the costs of maintaining our status as a reporting entity may inhibit out ability to continue our operations.
Because our common stock is deemed a low-priced “Penny” stock, an investment in our common stock should be considered high risk and subject to marketability restrictions.
Since our common stock is a penny stock, as defined in Rule 3a51-1 under the Securities Exchange Act, it will be more difficult for investors to liquidate their investment even if and when a market develops for the common stock. Until the trading price of the common stock rises above $5.00 per share, if ever, trading in the common stock is subject to the penny stock rules of the Securities Exchange Act specified in rules 15g-1 through 15g-10. Those rules require broker-dealers, before effecting transactions in any penny stock, to:
| | 1. | Deliver to the customer, and obtain a written receipt for, a disclosure document; |
| | 2. | Disclose certain price information about the stock; |
| | 3. | Disclose the amount of compensation received by the broker-dealer or any associated person of the broker-dealer; |
| | 4. | Send monthly statements to customers with market and price information about the penny stock; and |
| | 5. | In some circumstances, approve the purchaser’s account under certain standards and deliver written statements to the customer with information specified in the rules. |
Consequently, the penny stock rules may restrict the ability or willingness of broker-dealers to sell the common stock and may affect the ability of holders to sell their common stock in the secondary market and the price at which such holders can sell any such securities. These additional procedures could also limit our ability to raise additional capital in the future.
FINRA sales practice requirements may also limit a stockholder's ability to buy and sell our stock.
In addition to the “penny stock” rules described above, the Financial Industry Regulatory Authority (FINRA) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer's financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability! to buy and sell our stock and have an adverse effect on the market for our shares.
None.
We use office space at 79013 Bayside Court, Indio, CA 92203. Ms. Helen C. Cary, the sole director and an officer, is providing the office space at no charge to us. We believe that this arrangement is suitable given that our current operations are primarily administrative. We also believe that we will not need to lease additional administrative offices for at least the next 12 months. There are currently no proposed programs for the renovation, improvement or development of the facilities we currently use.
Our management does not currently have policies regarding the acquisition or sale of real estate assets primarily for possible capital gain or primarily for income. We do not presently hold any investments or interests in real estate, investments in real estate mortgages or securities of or interests in persons primarily engaged in real estate activities.
No Director, officer, significant employee, or consultant of Midnight Candle Company has been convicted in a criminal proceeding, exclusive of traffic violations.
No Director, officer, significant employee, or consultant of Midnight Candle Company has been permanently or temporarily enjoined, barred, suspended, or otherwise limited from involvement in any type of business, securities or banking activities.
No Director, officer, significant employee, or consultant of Midnight Candle Company has been convicted of violating a federal or state securities or commodities law.
Midnight Candle Company is not a party to any pending legal proceedings.
No director, officer, significant employee or consultant of Midnight Candle Company has had any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS MARKET INFORMATION FOR COMMON STOCK
Market information
Our common equity is currently listed on the OTC Bulletin Board under the symbol "MIDC." As of December 31, 2008, no public market in our common stock had developed and there can be no assurance that a meaningful trading market will subsequently develop. We make no representation about the value of our common stock.
Holders
As of December 31, 2008, Midnight Candle Company has 156,900,000 shares of $0.001 par value common stock issued and outstanding held by 24 shareholders of record. Midnight Candle Company's Transfer Agent is: Holladay Stock Transfer, Inc., 2939 N. 67th Place, Suite C, Scottsdale, AZ 85251, and phone: (480) 481-3940, fax: (480) 481-3941.
Dividends
Midnight Candle Company has never declared or paid any cash dividends on its common stock. For the foreseeable future, Midnight Candle Company intends to retain any earnings to finance the development and expansion of its business, and it does not anticipate paying any cash dividends on its common stock. Any future determination to pay dividends will be at the discretion of the Board of Directors and will be dependent upon then existing conditions, including Midnight Candle Company’s financial condition and results of operations, capital requirements, contractual restrictions, business prospects and other factors that the board of directors considers relevant.
Recent Sales of Unregistered Securities
Sales conducted under an exemption from registration provided under Section 4(2).
In November 2004, Midnight Candle Company issued 5,000,000 shares of its Common Stock as founders' shares to Helen C. Cary, an officer and the sole director of MIDC, at par ($0.001 per share) for cash of $5,000.
We believe that the transaction delineated above is exempt from the registration provisions of Section 5 of the Securities Act as such exemption is provided under Section 4(2) because:
| | 1. | This issuance did not involve underwriters, underwriting discounts or commissions; |
| | 2. | Restrictive legends are placed on all certificates issued; |
| | 3. | The distribution did not involve general solicitation or advertising; and |
| | 4. | The distribution was made only to insiders, accredited investors or investors who were sophisticated enough to evaluate the risks of the investment. All sophisticated investors were given access to all information about our business and the opportunity to ask questions and receive answers about our business from our management prior to making any investment decision. |
Recent Private Placement
In June 2005, we completed an offering of our common stock to a group of private investors. We issued 230,000 shares of $0.001 par value common stock for cash at $0.10 per share. The offering (a) involved no general solicitation, (b) involved less than thirty-five non-accredited purchasers, and (c) relied on a detailed disclosure document to communicate to the investors all material facts about Midnight Candle Company, including an audited balance sheet and reviewed statements of income, changes in stockholders’ equity and cash flows. Thus, we believe that the offering was exempt from registration under Regulation D, Rule 505 of the Securities Act of 1933, as amended.
Forward-Looking Statements
The statements contained in all parts of this document that are not historical facts are, or may be deemed to be, "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. Such forward-looking statements include, but are not limited to, those relating to the following: the Company's ability to secure necessary financing; plans for opening one or more restaurant units (including the scope, timing, impact and effects thereof); expected growth; future operating expenses; future margins; fluctuations in interest rates; ability to continue to grow and implement growth, and regarding future growth, cash needs, operations, business plans and financial results and any other statements that are not historical facts.
When used in this document, the words "anticipate," "estimate," "expect," "may," "plans," "project," and similar expressions are intended to be among the statements that identify forward-looking statements. Midnight Candle’s results may differ significantly from the results discussed in the forward-looking statements. Such statements involve risks and uncertainties, including, but not limited to, those relating to costs, delays and difficulties related to the Company’s dependence on its ability to attract and retain skilled managers and other personnel; the uncertainty of the Company's ability to manage and continue its growth and implement its business strategy; its vulnerability to general economic conditions; accuracy of accounting and other estimates; the Company's future financial and operating results, cash needs and demand for services; and the Company's ability to maintain and comply with permits and licenses; as well as other risk factors described in this Annual Report. Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual outcomes may vary materially from those projected.
Management’s Discussion and Analysis
We were incorporated in the State of Nevada on September 24, 2004. During the year ended December 31, 2008, we did not generate any revenues, nor did we incur any cost of goods sold and shipping charges. During the year ended December 31, 2007, we realized $49 from sales of our candle merchandise. From the date of our inception to December 31, 2008, we generated an aggregate of $464 in revenues from sales of our candles. After accounting for cost of sales in the amount of $273 and shipping costs of $95, we realized a gross profit of $96 from the period from our inception through December 31, 2008. We do not have any long-term agreements to supply our candles to any one customer. As a result, we are unable to predict the stability of, and ability to continue to generate, ongoing revenues.
In the year ended December 31, 2008, we incurred operating expenses in our continued pursuit of our candle business in the amount of $10,620, consisting of $8,889 in professional fees and general and administrative expenses in the amount of $1,731. Professional fees are primarily related to accounting, legal and other similar professional fees incurred as a cost of being a public reporting entity. General and administrative expenses primarily encompass the cost of general office expenses, such as postage, supplies and printing. During the comparable year ago period ended December 31, 2007, total operating expenses were $6,928, of which $6,121 are attributable to professional fees and $807 to general and administrative expenses. Aggregate operating expenses from our inception through December 31, 2008 were $47,407, of which $32,225 is attributable to professional fees and $15,182 in general and administrative expenses related to the execution of our business plan. No development related expenses have been or will be paid to our affiliates. We expect to continue to incur general and administrative expenses for the foreseeable future, although we cannot estimate the extent of these costs.
As a result of our lack of revenues and incurring ongoing expenses related to the implementation of our business and maintaining our public report status, we have experienced net losses in all periods since our inception. Our net loss for the year ended December 31, 2008 was $10,620, compared to $6,879 in the year ended December 31, 2007. After accounting for interest income of $1, our net loss since the date of our inception on September 24, 2004 through December 31, 2008 was $47,310. We have no recurring or guaranteed source of revenues and cannot predict when, if ever, we will become profitable. We anticipate incurring ongoing operating losses and cannot predict when, if at all, we may expect these losses to plateau or narrow. There is significant uncertainty projecting future profitability due to our minimal operating history and lack of guaranteed ongoing revenue streams.
Our management believes that our cash on hand as of December 31, 2008 in the amount of $272 is not sufficient to maintain our current minimal level of operations for the next approximately 12 months. We currently owe $1,110 in accounts payable to vendors and service providers and we have notes payable aggregating $18,532 (of which $15,000 is due to a related party) as of December 31, 2008. Our liabilities greatly exceed our current assets of $832 by nearly 24-to-1. As such, we are in a precarious financial position and may be unable to maintain our operations through the fiscal year ended December 31, 2009, assuming our state of operations remain relatively stable, of which there can be no guarantee. Generating sales in the next 12 months is imperative for us to support our operations and to continue as a going concern. We believe that we will be required to generate a minimum of approximately $12,000 in revenues over the next 12 months in order for us to support ongoing operations. We cannot guarantee that we will generate such sales. We believe that to generate the minimum required amount of revenues to continue as a going concern, we must further our efforts to establish our brand name.
However, as we have minimal existing inventory, in the amount of $438, and inadequate capital to purchase additional inventory for sale, we do not expect to generate sufficient revenues to meet our expenses over the next 12 months, we believe we will need to raise additional capital by issuing capital stock or debt instruments in exchange for cash in order to continue as a going concern. Since our incorporation, we have raised a total of $28,500 through private sales of our common equity. We also obtained $3,532 in loans from a third party, non-related entity to cover daily operating expenditures. Additionally, our president and sole director, Ms. Cary, has loaned us an aggregate of $15,000 through December 31, 2008 to sustain our minimal operations and meet financial obligations. We cannot assure you that any financing can be obtained or, if obtained, that it will be on reasonable terms. In the event we are unable to obtain further funding, we will be unable to conduct further operations and, consequently, go out of business. Without realization of additional capital, it would be unlikely for us to continue as a going concern.
Our management does not anticipate the need to hire additional full- or part- time employees over the next 12 months, as the services provided by our current officers and directors appear sufficient at this time. Our officers and directors work for us on a part-time basis, and are prepared to devote additional time, as necessary. We do not expect to hire any additional employees over the next 12 months.
No development related expenses have been or will be paid to our affiliates.
Our management does not expect to incur research and development costs.
We do not have any off-balance sheet arrangements.
We currently do not own any significant plant or equipment that we would seek to sell in the near future.
We have not paid for expenses on behalf of our directors. Additionally, we believe that this fact shall not materially change.
We currently do not have any material contracts and or affiliations with third parties.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements.
The following documents (pages F-1 to F-12) form part of the report on the Financial Statements
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
INDEX TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 AND 2007
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BAGELL, JOSEPHS, LEVINE & COMPANY, L.L.C.
Certified Public Accountants
406 Lippincott Drive
Suite J
Marlton, New Jersey 08053
(856) 355-5900 Fax (856) 396-0022
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholder
Midnight Candle Company
Indio, California
We have audited the accompanying balance sheets of Midnight Candle Company, a development stage company (the “Company”) as of December 31, 2008 and 2007, and the related statements of operations, changes in stockholder’s deficit, and cash flows for each of the years in the two-year period ended December 31, 2008 and the cumulative totals since the Company’s inception, September 24, 2004. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audit included consideration of internal controls over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Midnight Candle Company as of December 31, 2008 and 2007, and the results of its operations, and cash flows for each of the years in the two-year period ended December 31, 2008 and 2007 and cumulative totals since the Company’s inception, September 24, 2004, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 7 to the financial statements, the Company has just begun operations, and is currently developing their business. They have incurred losses since inception and will be looking to raise capital over the next year to assist in funding their operations. These factors raise substantial doubt about its ability to continue as a going concern. Management’s operating and financing plans in regards to these matters are also discussed in Note 7. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
/s/ Bagell Josephs Levine & Company, L.L.C.
Bagell Josephs Levine & Company, L.L.C.
Marlton, New Jersey
March 30, 2009
F1
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
DECEMBER 31, 2008 AND 2007
| ASSETS | | | | | | |
| | | | | | | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Current Assets: | | | | | | |
| Cash and cash equivalents | | $ | 272 | | | $ | 1,250 | |
| Accounts receivable | | | 122 | | | | 122 | |
| Inventory | | | 438 | | | | 438 | |
| | | | | | | | | |
| Total Current Assets | | | 832 | | | | 1,810 | |
| | | | | | | | | |
| TOTAL ASSETS | | $ | 832 | | | $ | 1,810 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ (DEFICIT) | | | | | | | | |
| | | | | | | | | |
| LIABILITY | | | | | | | | |
| Current Liabilities: | | | | | | | | |
| Accounts payable | | $ | 1,110 | | | $ | - | |
| Notes payable | | | 3,532 | | | | - | |
| Notes payable – related party | | | 15,000 | | | | 10,000 | |
| | | | | | | | | |
| Total Current Liabilities | | | 19,642 | | | | 10,000 | |
| | | | | | | | | |
| Total Liabilities | | | 19,642 | | | | 10,000 | |
| | | | | | | | | |
| STOCKHOLDERS’ (DEFICIT) | | | | | | | | |
| Common stock, $0.001 par value, 200,000,000 shares | | | | | | | | |
| authorized, 156,900,000 shares issued and outstanding | | | 156,900 | | | | 156,900 | |
| Additional paid-in capital | | | (128,400 | ) | | | (128,400 | ) |
| (Deficit) accumulated during development stage | | | (47,310 | ) | | | (36,690 | ) |
| | | | | | | | | |
| Total Stockholders’ (Deficit) | | | (18,810 | ) | | | (8,190 | ) |
| | | | | | | | | |
| TOTAL LIABILITIES AND STOCKHOLDERS’ (DEFICIT) | | $ | 832 | | | $ | 1,810 | |
The accompanying notes are an integral part of these financial statements.
F2
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
AND FOR THE PERIOD SEPTEMBER 24, 2004 (INCEPTION) THROUGH DECEMBER 31, 2008
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
| | | | | | | | | Cumulative Totals | |
| | | | | | | | | September 24, 2004 (Inception) | |
| | | 2008 | | | 2007 | | | through December 31, 2008 | |
| | | | | | | | | | |
| OPERATING REVENUES | | | | | | | | | |
| Sales, net of allowance | | $ | - | | | $ | 49 | | | $ | 464 | |
| | | | | | | | | | | | | |
| Cost of sales | | | - | | | | - | | | | 273 | |
| Freight in | | | - | | | | - | | | | 95 | |
| | | | | | | | | | | | | |
| GROSS PROFIT | | | - | | | | 49 | | | | 96 | |
| | | | | | | | | | | | | |
| OPERATING EXPENSES | | | | | | | | | | | | |
| Professional fees | | | 8,889 | | | | 6,121 | | | | 32,225 | |
| General and administrative expenses | | | 1,731 | | | | 807 | | | | 15,182 | |
| Total Operating Expenses | | | 10,620 | | | | 6,928 | | | | 47,407 | |
| | | | | | | | | | | | | |
| LOSS BEFORE OTHER INCOME | | | (10,620 | ) | | | (6,879 | ) | | | (47,311 | ) |
| | | | | | | | | | | | | |
| OTHER (INCOME) | | | | | | | | | | | | |
| Interest (income) | | | - | | | | - | | | | (1 | ) |
| Total Other (Income) | | | - | | | | - | | | | (1 | ) |
| | | | | | | | | | | | | |
| (LOSS) BEFORE PROVISION FOR INCOME TAXES | | | (10,620 | ) | | | (6,879 | ) | | | (47,310 | ) |
| Provision for income taxes | | | - | | | | - | | | | - | |
| | | | | | | | | | | | | |
| NET (LOSS) APPLICABLE TO COMMON SHARES | | $ | (10,620 | ) | | $ | (6,879 | ) | | $ | (47,310 | ) |
| | | | | | | | | | | | | |
| WEIGHTED AVERAGE COMMON SHARES | | | | | | | | | | | | |
| OUTSTANDING | | | 156,900,000 | | | | 156,900,000 | | | | | |
| | | | | | | | | | | | | |
| LOSS PER BASIC COMMON SHARES OUTSTANDING | | $ | (0.00 | ) | | $ | (0.00 | ) | | | | |
The accompanying notes are an integral part of these financial statements.
F3
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
FOR THE PERIOD SEPTEMBER 24, 2004 (INCEPTION)
THROUGH DECEMBER 31, 2008
| | | | | | | | | | | | (Deficit) | | | | |
| | | | | | | | | | | | Accumulated | | | | |
| | | | | | Additional | | | During the | | | | |
| | | Common Stock | | | Paid-in | | | Development | | | | |
| Description | | Shares | | | Amount | | | Capital | | | Stage | | | Total | |
| | | | | | | | | | | | | | | | |
| Balance, September 24, 2004 | | | - | | | $ | - | | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | | | | | | | | | |
| Issuances of shares for cash | | | 150,000,000 | | | | 150,000 | | | | (145,000 | ) | | | - | | | | 5,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the period September 24, 2004 | | | | | | | | | | | | | | | | | | | | |
| (inception) through December 31, 2004 | | | - | | | | - | | | | - | | | | (5,113 | ) | | | (5,113 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2004 | | | 150,000,000 | | | | 150,000 | | | | (145,000 | ) | | | (5,113 | ) | | | (113 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Issuances of shares for cash | | | 6,900,000 | | | | 6,900 | | | | 16,100 | | | | - | | | | 23,000 | |
| | | | | | | | | | | | | | | | | | | | | |
| Forgiveness of note payable by officer | | | - | | | | - | | | | 500 | | | | - | | | | 500 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2005 | | | - | | | | - | | | | - | | | | (10,081 | ) | | | (10,081 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2005 | | | 156,900,000 | | | | 156,900 | | | | (128,400 | ) | | | (15,194 | ) | | | 13,306 | |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2006 | | | - | | | | - | | | | - | | | | (14,617 | ) | | | (14,617 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2006 | | | 156,900,000 | | | | 156,900 | | | | (128,400 | ) | | | (29,811 | ) | | | (1,311 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2007 | | | - | | | | - | | | | - | | | | (6,879 | ) | | | (6,879 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2007 | | | 156,900,000 | | | | 156,900 | | | | (128,400 | ) | | | (36,690 | ) | | | (8,190 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Net loss for the year ended December 31, 2008 | | | - | | | | - | | | | - | | | | (10,620 | ) | | | (10,620 | ) |
| | | | | | | | | | | | | | | | | | | | | |
| Balance, December 31, 2008 | | | 156,900,000 | | | $ | 156,900 | | | $ | (128,400 | ) | | $ | (47,310 | ) | | $ | (18,810 | ) |
The accompanying notes are an integral part of these financial statements.
F4
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007
AND FOR THE PERIOD SEPTEMBER 24, 2004 (INCEPTION) THROUGH DECEMBER 31, 2008
(WITH CUMULATIVE TOTALS SINCE INCEPTION)
| | | | | | | | | Cumulative Totals | |
| | | | | | | | | September 24, 2004 (Inception) | |
| | | 2008 | | | 2007 | | | through December 31, 2008 | |
| | | | | | | | | | |
| CASH FLOWS FROM OPERATING ACTIVITIES | | | | | | | | | |
| Net (loss) | | $ | (10,620 | ) | | $ | (6,879 | ) | | $ | (47,310 | ) |
| | | | | | | | | | | | | |
| Adjustments to reconcile net (loss) to net cash | | | | | | | | | | | | |
| (used in) operating activities: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Changes in assets and liabilities | | | | | | | | | | | | |
| Increase in accounts receivable | | | - | | | | - | | | | (122 | ) |
| Increase in inventory | | | - | | | | (302 | ) | | | (438 | ) |
| Increase (decrease) in accounts payable | | | 1,110 | | | | (2,817 | ) | | | 1,110 | |
| | | | | | | | | | | | | |
| Total adjustments | | | 1,110 | | | | (3,119 | ) | | | 550 | |
| | | | | | | | | | | | | |
| Net cash (used in) operating activities | | | (9,510 | ) | | | (9,998 | ) | | | (46,760 | ) |
| | | | | | | | | | | | | |
| CASH FLOWS FROM INVESTING ACTIVITIES | | | | | | | | | | | | |
| Issuance of common stock | | | - | | | | - | | | | 28,500 | |
| Proceeds from note payable | | | 3,532 | | | | - | | | | 3,532 | |
| Proceeds from note payable – related party | | | 5,000 | | | | 10,000 | | | | 15,000 | |
| | | | | | | | | | | | | |
| Net cash provided by financing activities | | | 8,532 | | | | 10,000 | | | | 47,032 | |
| | | | | | | | | | | | | |
| NET INCREASE (DECREASE) IN | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS | | | (978 | ) | | | 2 | | | | 272 | |
| | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS - | | | | | | | | | | | | |
| BEGINNING OF YEAR | | | 1,250 | | | | 1,248 | | | | - | |
| | | | | | | | | | | | | |
| CASH AND CASH EQUIVALENTS – END OF YEAR | | $ | 272 | | | $ | 1,250 | | | $ | 272 | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL CASH FLOWS INFORMATION: | | | | | | | | | | | | |
| During the year and period, cash was paid for the following: | | | | | | | | | | | | |
| Interest | | $ | - | | | $ | - | | | $ | - | |
| Income taxes | | $ | - | | | $ | - | | | $ | - | |
| | | | | | | | | | | | | |
| SUPPLEMENTAL DISCLOSURE OF NON-CASH | | | | | | | | | | | | |
| INFORMATION: | | | | | | | | | | | | |
| | | | | | | | | | | | | |
| Forgiveness of note payable converted to equity | | $ | - | | | $ | - | | | $ | 500 | |
The accompanying notes are an integral part of these financial statements.
F5
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2008 and 2007
NOTE 1 - - ORGANIZATION AND BASIS OF PRESENTATION
Midnight Candle Company (the “Company”) is a distributor of candles. The candles will be marketed in various sizes, shapes and fragrances. These customized candles will be distributed for home use and small business users. The Company does not plan to produce any candles and expects to purchase all of its saleable products from manufactures or enter into private-label relationships with manufactures to place our corporate name on select products. The Company intends to sell enough candles to support business stability and growth with a large portion being sold through the Company’s web site.
NOTE 2 - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Development Stage Company
The Company is considered to be in the development stage as defined in Statement of Financial Accounting Standards (SFAS) No. 7, “Accounting and Reporting by Development Stage Enterprises”. The Company has devoted substantially all of its efforts to business planning, research and development. Additionally, the Company has allocated a substantial portion of their time and investment in bringing their product to the market, and the raising of capital.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
For financial statement presentation purposes, the Company considers short-term, highly liquid investments with original maturities of three months or less to be cash and cash equivalents.
The Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation up to $250,000 and $100,000 as of December 31, 2008 and 2007, respectively. At December 31, 2008 and 2007, there were no uninsured balances.
F6
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007
NOTE 2 - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Accounts Receivable
The Company conducts business and extends credit based on an evaluation of its customers’ financial condition, generally without requiring collateral. Exposure to losses on receivables is expected to vary by customer due to the financial condition of each customer. The Company monitors exposure to credit losses and maintains allowances for anticipated losses considered necessary under the circumstances.
Inventory
Inventory consists of merchandise held for sale in the ordinary course of business and are stated at the lower of cost or market, determined using the first in, first-out (FIFO) method.
Revenue Recognition
The Company’s financial statements are prepared under the accrual method of accounting. Revenues will be recognized in the period the services are performed and costs are recorded in the period incurred rather than paid.
F7
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007
NOTE 2 - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair Value of Financial Instruments
The Company’s financial instruments are all carried at amounts that approximate their estimated fair value as of December 31, 2008 and 2007.
Income Taxes
The provision for income taxes includes the tax effects of transactions reported in the financial statements. Deferred taxes would be recognized for differences between the basis for assets and liabilities for financial statement and income tax purposes. The major difference relate to the net operating loss carry forwards generated by sustaining deficits during the development stage.
Advertising Costs
Advertising and promotions costs are expensed as incurred. The Company incurred no such expenses since inception.
Recent Accounting Pronouncements
ShareBased Payments
In December 2004, the FASB issued Financial Accounting Standards No. 123 (revised 2004) (FAS 123R), “Share-Based Payment, “FAS 123R replaces FAS No. 123, “Accounting for Stock-Based Compensation”, and supersedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” FAS 123R requires compensation expense, measured as the fair value at the grant date, related to share-based payment transactions to be recognized in the financial statements over the period that an employee provides service in exchange for the award. The Company intends to adopt FAS 123R using the “modified prospective” transition method as defined in FAS 123R. Under the modified prospective method, companies are required to record compensation cost prospectively for the unvested portion, as of the date of adoption, of previously issued and outstanding awards over the remaining vesting period of such awards. FAS 123R is effective January 1, 2006. The adoption for FAS 123R did not have a material impact on its financial position and results of operations.
F8
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007
| NOTE 2 - | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) |
In September 2006, the FASB issued FAS No. 157 “Fair Value Measurements”, which provides a definition of fair value, establishes a framework for measuring fair value and requires expanded disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The provisions of SFAS No. 157 should be applied prospectively. The adoption of FAS 157 did not have a material impact on the Company’s financial position or results of operations.
In February 2008, the Financial Accounting Standards Board issued Staff Position No. 157-2 (FSP 157-2), which delays the effective date of SFAS 157 for one year for all nonfinancial assets and liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. The Company does not have nonfinancial assets and nonfinancial liabilities that are required to be measured at fair value on a recurring basis. Based on this guidance, the Company expects to adopt the provisions of SFAS 157 as related to nonfinancial assets and nonfinancial liabilities, effective January 1, 2009 and this adoption is not expected to have a material impact on the Company’s financial statements.
In September 2006, the FASB issued SFAS No. 158 “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans”, which amends SFAS No. 87 “Employers’ Accounting for Pensions” (SFAS No. 87), SFAS No. 88 “Employers’ Accounting for Settlements and Curtailments of Defined Benefit Pension Plans and for Termination Benefits” (SFAS No. 88), SFAS No. 106 “Employers’ Accounting for Postretirement Benefits Other Than Pensions” (SFAS No. 106), and SFAS No. 132R “Employers’ Disclosure about Pensions and Other Postretirement Benefits (revised 2003)” (SFAS No. 132R). This Statement requires companies to recognize an asset or liability for the overfunded or underfunded status of their benefit plans in their financial statements. SFAS No. 158 also requires the measurement date for plan assets and liabilities to coincide with the sponsor’s year-end. The standard provides two transition alternatives related to the change in measurement date provisions. The recognition of an asset and liability related to the funded status provision is effective for fiscal year ending after December 15, 2006 and the change in measurement date provisions is effective for fiscal years ending after December 15, 2008. This pronouncement has no effect on the Company at this time.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Liabilities, including an amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 permits entities to choose, at specified election dates, to measure many financial instruments and certain other items at fair value that are not currently required to be measured at fair value. Unrealized gains and losses shall be reported on items for which the fair value option has been elected in earnings at each subsequent reporting date. SFAS No. 159 is effective for fiscal years beginning after November 15, 2007. Early adoption is permitted as of the beginning of a fiscal year that begins on or before November 15, 2007, provided the entity also elects to apply the provisions of SFAS No. 157 “Fair Value Measurements” (“SFAS No. 157”). The adoption of FAS No. 159 did not have a material impact on the Company’s financial position or results of operations.
F9
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007
NOTE 2 - - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interest in Consolidated Financial Statements” (“SFAS No. 160”). SFAS No. 160, This Statement amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements. Before this Statement was issued, limited guidance existed for reporting noncontrolling interests. As a result, considerable diversity in practice existed. So-called minority interests were reported in the consolidated statement of financial position as liabilities or in the mezzanine section between liabilities and equity. This Statement improves comparability by eliminating that diversity. SFAS No. 160 is effective for fiscal years, and interim periods within those fiscal years, beginning on or after December 15, 2008. Earlier adoption is prohibited. The Company is currently assessing the impact that SFAS No. 160 will have on its financial statements.
In March 2008, the FASB issued SFAS No. 161, "Disclosures about Derivative Instruments and Hedging Activities: an amendment of FASB Statement No. 133" ("SFAS No. 161"). SFAS No. 161 changes the disclosure requirements for derivative instruments and hedging activities. The Company is reviewing the provisions of SFAS No. 161, which is effective the first quarter of fiscal 2010, and currently does not anticipate that this new accounting standard will have an impact on the financial statements.
In May 2008, the FASB issued SFAS No. 162, "The Hierarchy of Generally Accepted Accounting Principles" (SFAS No. 162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". The implementation of this standard will not have a material impact on Company’s financial statements.
F10
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007
NOTE 3 - - Net (Loss) Per Share of Common Stock
The following table sets forth the computation of basic and diluted earnings per share for the year ended December 31, 2008 and for the period September 24, 2004 (Inception) through December 31, 2008:
| | | | | | | |
| | | | | | | |
| | | 2008 | | | 2007 | |
| | | | | | | |
| Net Loss | | | (10,620 | ) | | | (6,879 | ) |
| | | | | | | | | |
| Weighted average common shares | | | | | | | | |
| outstanding (Basic) | | | 156,900,000 | | | | 156,900,000 | |
| | | | | | | | | |
| Options | | | | | | | | |
| Warrants | | | | | | | | |
| | | | | | | | | |
| Weighted average common shares | | | | | | | | |
| outstanding (Diluted) | | | 156,900,000 | | | | 156,900,000 | |
There are no common stock equivalents outstanding at December 31, 2008 and 2007.
Historical net (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants.
All dilutive securities were not included in the calculation of dilutive earnings per share because the effect would be anti-dilutive when the Company has incurred a loss from operations. The Company currently has no potentially dilutive securities outstanding.
F11
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007
NOTE 4 - - NOTES PAYABLE
Represents three unsecured loans, $2,282 from a non-affiliated third party and two for $750 and $500 from another non-affiliated third party that loans the Company money on an as-needed basis. The notes are due on demand and bear no interest.
NOTE 5 - - NOTES PAYABLE – RELATED PARTY
Represents three unsecured notes payable for $5,000 each to the officer of the Company. They were all used for working capital needs. Two are due on demand without interest. A third was due April 20, 2008, without interest, and is currently in default.
NOTE 6 - - STOCKHOLDERS’ EQUITY
On September 24, 2004 the Company was formed with one class of common stock, par value $.001. The Company was originally authorized to issue up to 100,000,000 shares of common stock. On May 14, 2008, the Company amended its articles of incorporation to authorize the issuance of up to 200,000,000 shares of common stock, par value $0.001.
In November 2004, the Company issued 5,000,000 shares of stock to its officer for cash of $5,000.
In March and June 2005, the Company issued 230,000 shares (60,000 and 170,000 shares in March 2005 and June 2005, respectively) of common stock at $0.10 per share for $23,000. These shares were issued in accordance with a Private Placement Memorandum dated December 15, 2004.
In June 2005, a stockholder of the Company forgave a note payable to the Company for $500.
On October 15, 2008, the Company affected a forward split of the Company’s issued and outstanding common stock on a 30:1 basis and further amended the Company’s Articles of Incorporation, which will increase the authorized capital stock of the Company from 100,000,000 shares with a par value of $0.001 per share to 200,000,000 shares of par value common stock. All shares have been retroactively restated to report this transaction.
As of December 31, 2008, there were no additional issuances of common stock.
F12
MIDNIGHT CANDLE COMPANY
(A DEVELOPMENT STAGE COMPANY)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 2008 and 2007
NOTE 7 - - GOING CONCERN
As shown in the accompanying financial statements, as is typical of companies going through the development stage, the Company incurred losses since inception. The Company is currently in the development stage, and there is no guarantee whether the Company will be able to generate enough revenue and/or raise capital to support current operations and generate anticipated sales. This raises substantial doubt about the Company’s ability to continue as a going concern.
Management believes that the Company’s capital requirements will depend on many factors including the success of the Company’s product development efforts. With the business plan being followed, Management believes along with working capital being raised that the operations and sales will make the Company a viable entity over the next twelve months.
The financial statements do not include any adjustments relating to the recoverability or classification of recorded assets and liabilities that might result should the Company be unable to continue as a going concern.
NOTE 8 - - PROVISION FOR INCOME TAXES
Deferred income taxes will be determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes will be measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.
At December 31, 2008 and 2007, deferred tax assets consist of the following:
| | | 2008 | | | 2007 | |
| Deferred tax assets | | $ | 14,193 | | | $ | 11,007 | |
| Less: valuation allowance | | | (14,193 | ) | | | (11,007 | ) |
| Net deferred tax assets | | $ | - | | | $ | - | |
At December 31, 2008 and 2007, the Company had accumulated deficits during the development stage of $47,310 and $36,690 available to offset future taxable income through 2020. The Company established valuation on allowances equal to the full amount of the deferred tax assets due to the uncertainty of the utilization of the operating losses in future periods.
F13
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
None.
Evaluation of Disclosure Controls and Procedures
We maintain a set of disclosure controls and procedures designed to ensure that information we are required to disclose in reports filed under the Securities Exchange Act is recorded, processed, summarized and reported within the time periods specified by the SEC’s rules and forms. Disclosure controls are also designed with the objective of ensuring that this information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure.
Based upon their evaluation as of the end of the period covered by this report, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are not effective to ensure that information required to be included in our periodic SEC filings is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms.
Our Board of Directors were advised by Bagell, Josephs, Levine & Company, LLC, the Company’s independent registered public accounting firm, that during their performance of audit procedures for 2008 Bagell, Josephs, Levine & Company, LLC identified a material weakness as defined in Public Company Accounting Oversight Board Standard No. 5 in the Company’s internal control over financial reporting.
This deficiency consisted primarily of inadequate staffing and supervision that could lead to the untimely identification and resolution of accounting and disclosure matters and failure to perform timely and effective reviews. However, the size of the Company prevents us from being able to employ sufficient resources to enable us to have adequate segregation of duties within our internal control system. Management is required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.
Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, 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 of America and includes those policies and procedures that:
| | 1. | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company; |
| | 2. | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and |
| | 3. | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements. |
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2008, management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO") and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee due to a lack of a majority of independent members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes. The aforementioned material weaknesses were identified by our Chief Executive Officer in connection with the review of our financial statements as of December 31, 2008.
Management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
This annual report does not include an attestation report of the Corporation's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Corporation's registered public accounting firm pursuant to temporary rules of the SEC that permit the Corporation to provide only the management's report in this annual report.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting that occurred during our most recent fiscal quarter that have materially affected, or reasonably likely to materially affect, our internal control over financial reporting.
None.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Midnight Candle Company's Directors are elected by the stockholders to a term of one (1) year and serve until their successors are elected and qualified. The officers are appointed by the Board of Directors to a term of one (1) year and serves until his/her successor is duly elected and qualified, or until he/she is removed from office. The Board of Directors has no nominating, auditing, or compensation committees.
The names and ages of our directors and executive officers and their positions are as follows:
| Name | | Age | | Position |
| | | | | |
| Helen C. Cary | | 52 | | President, CEO and Director |
| | | | | |
| Patrick Deparini | | 34 | | Secretary and Treasurer |
Helen C. Cary, President, Chief Executive Officer, and Director, attended Rio Salado Community College from 1992 to 1993 and the AWEE Women's Career Center from 1993 to 1994, where she received training in the area of advanced production techniques. Her work experience includes employment contracts with Armtek Defense Systems from 2002 to 2003 and SpeedFam-IPEC from 2000 to 2002. At both companies she was a production supervisor for Chemical Mechanical Planarizer Tool manufacture, where her duties included the power-up, debugging, calibrating and alignment of very sophisticated electronic gear. Since 2004, Ms. Cary has been employed at FX Currency Trading.
Patrick Deparini, Secretary/Treasurer, Chief Financial Officer, received a Bachelor of Science degree in Finance, with an emphasis on Managerial Finance, from the University of Nevada, Las Vegas. For the previous seven years, he has been an officer and director of Nascent Group, Inc., a company offering various document preparation and advisory services. His duties with Midnight Candle Company include oversight of all operational aspects from corporate governance to implementation of the Company’s business strategy.
Family Relationships
None.
Involvement on Certain Material Legal Proceedings During the Last Five Years
No director, officer, significant employee or consultant has been convicted in a criminal proceeding, exclusive of traffic violations.
No bankruptcy petitions have been filed by or against any business or property of any director, officer, significant employee or consultant of the Company nor has any bankruptcy petition been filed against a partnership or business association where these persons were general partners or executive officers.
No director, officer, significant employee or consultant has been permanently or temporarily enjoined, barred, suspended or otherwise limited from involvement in any type of business, securities or banking activities.
No director, officer or significant employee has been convicted of violating a federal or state securities or commodities law.
Audit Committee and Financial Expert
We do not have an Audit Committee. Our director performs some of the same functions of an Audit Committee, such as recommending a firm of independent certified public accountants to audit the annual financial statements; reviewing the independent auditor’s independence, the financial statements and their audit report; and reviewing management's administration of the system of internal accounting controls. The Company does not currently have a written audit committee charter or similar document.
We have no financial expert. We believe the cost related to retaining a financial expert at this time is prohibitive. Further, because of our start-up operations, we believe the services of a financial expert are not warranted.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our directors and executive officers, and persons who beneficially own more than 10% of a registered class of our equity securities, to file reports of beneficial ownership and changes in beneficial ownership of our securities with the SEC on Forms 3 (Initial Statement of Beneficial Ownership), 4 (Statement of Changes of Beneficial Ownership of Securities) and 5 (Annual Statement of Beneficial Ownership of Securities). Directors, executive officers and beneficial owners of more than 10% of our Common Stock are required by SEC regulations to furnish us with copies of all Section 16(a) forms that they file. As a company with securities registered under Section 15(d) of the Exchange Act, our executive officers and directors, and persons who beneficially own more than ten percent of our common stock are not required to file Section 16(a) reports.
Code of Ethics
We have not adopted a Code of Business Conduct and Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions in that our sole officer and director serves in all the above capacities.
Corporate Governance
Nominating Committee
We do not have a Nominating Committee or Nominating Committee Charter. Our sole Director performs some of the functions associated with a Nominating Committee. We have elected not to have a Nominating Committee in that we are a development stage company.
Director Nomination Procedures
Nominees for Directors are identified and suggested by the members of the Board or management using their business networks. The Board has not retained any executive search firms or other third parties to identify or evaluate director candidates and does not intend to in the near future. In selecting a nominee for director, the Board or management considers the following criteria:
| | 1. | Whether the nominee has the personal attributes for successful service on the Board, such as demonstrated character and integrity; experience at a strategy/policy setting level; managerial experience dealing with complex problems; an ability to work effectively with others; and sufficient time to devote to our affairs; |
| | 2. | Whether the nominee has been the chief executive officer or senior executive of a public company or a leader of a similar organization, including industry groups, universities or governmental organizations; |
| | 3. | Whether the nominee, by virtue of particular experience, technical expertise or specialized skills or contacts relevant to our current or future business, will add specific value as a Board member; and |
| | 4. | Whether there are any other factors related to the ability and willingness of a new nominee to serve, or an existing Board member to continue his service. |
The Board or management has not established any specific minimum qualifications that a candidate for director must meet in order to be recommended for Board membership. Rather, the Board or management will evaluate the mix of skills and experience that the candidate offers, consider how a given candidate meets the Board’s current expectations with respect to each such criterion and make a determination regarding whether a candidate should be recommended to the stockholders for election as a Director. During 2008, we received no recommendation for Directors from our stockholders.
We will consider for inclusion in our nominations of new Board of Directors nominees proposed by stockholders who have held at least 1% of our outstanding voting securities for at least one year. Board candidates referred by such stockholders will be considered on the same basis as Board candidates referred from other sources. Any stockholder who wishes to recommend for our consideration a prospective nominee to serve on the Board of Directors may do so by giving the candidate’s name and qualifications in writing to our Secretary at the following address: 79013 Bayside Court, Indio, CA 92203.
Summary Compensation Table
The following table sets forth, for the last completed fiscal years ended December 31, 2008 and 2007 the cash compensation paid by the Company, as well as certain other compensation paid with respect to those years and months, to the Chief Executive Officer and, to the extent applicable, each of the three other most highly compensated executive officers of the Company in all capacities in which they served:
| Summary Compensation Table |
| |
Name and Principal Position | Year | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compen-sation ($) | Non-qualified Deferred Compen-sation Earnings ($) | All Other Compen-sation ($) | Total ($) |
| | | | | | | | | | |
| Helen C. Cary | 2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| President | 2007 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| | | | | | | | | | |
| Patrick Deparini | 2008 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
| Secretary and Treasurer | 2007 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 |
Directors' Compensation
Our director is not entitled to receive compensation for services rendered to us, or for each meeting attended except for reimbursement of out-of-pocket expenses. We have no formal or informal arrangements or agreements to compensate our director for services she provides as a director of our company.
Employment Contracts and Officers' Compensation
Since our incorporation, we have not paid any compensation to our officers, directors and employees. We do not have employment agreements. Any future compensation to be paid will be determined by our Board of Directors, and an employment agreement will be executed. We do not currently have plans to pay any compensation until such time as we are cash flow positive.
Stock Option Plan And Other Long-term Incentive Plan
We currently do not have existing or proposed option/SAR grants.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information as of the date of this offering with respect to the beneficial ownership of Midnight Candle Company’s common stock by all persons known by Midnight Candle to be beneficial owners of more than 5% of any such outstanding classes, and by each director and executive officer, and by all officers and directors as a group. Unless otherwise specified, the named beneficial owner has, to our knowledge, either sole or majority voting and investment power.
| Title Of Class | Name, Title and Address of Beneficial Owner of Shares(1) | | Amount of Beneficial Ownership(2) | | | Percent of Class | |
| | | | | | | | |
| Common | Helen C. Cary, President and CEO | | | 150,000,000 | | | | 95.6 | % |
| | | | | | | | | | |
| | All Directors and Officers as a group (1 person) | | | 150,000,000 | | | | 95.6 | % |
Notes:
| | 1. | The address for Helen C. Cary is c/o Midnight Candle Company, 79013 Bayside Court, Indio, CA 92203. |
| | 2. | As used in this table, “beneficial ownership” means the sole or shared power to vote, or to direct the voting of, a security, or the sole or share investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of a security). |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
In November 2004, Midnight Candle Company issued 150,000,000 shares of its $0.001 par value common stock as founder's shares to Helen C. Cary, an officer and the sole director of Midnight Candle Company, for total cash in the amount of $5,000.
Midnight Candle Company does not lease or rent any property. Ms. Cary, President, provides office space and services at 79013 Bayside Court, Indio, California, 99203, without charge.
Director Independence
The Board of Directors has concluded that our sole director, Helen C. Cary, is not independent in accordance with the director independence standards.
The following table sets forth fees billed to us by our independent auditors for the years ended 2008 and 2007 for (i) services rendered for the audit of our annual financial statements and the review of our quarterly financial statements, (ii) services rendered that are reasonably related to the performance of the audit or review of our financial statements that are not reported as Audit Fees, and (iii) services rendered in connection with tax preparation, compliance, advice and assistance.
| SERVICES | | 2008 | | | 2007 | |
| | | | | | | |
| Audit fees | | $ | 5,399 | | | $ | 5,094 | |
| Audit-related fees | | | - | | | | - | |
| Tax fees | | | 300 | | | | 600 | |
| All other fees | | | | | | | - | |
| | | | | | | | | |
| Total fees | | $ | 5,699 | | | $ | 5,694 | |
| Exhibit Number | Name and/or Identification of Exhibit |
| | |
| 3 | Articles of Incorporation & By-Laws |
| | |
| | (a) Articles of Incorporation (1) |
| | |
| | (b) By-Laws (1) |
| | |
| 31 | Rule 13a-14(a)/15d-14(a) Certifications |
| | |
| 32 | Certification under Section 906 of the Sarbanes-Oxley Act (18 U.S.C. Section 1350) |
| | |
| (1) | Incorporated by reference to the Registration Statement on Form SB-2, as amended, previously filed with the SEC. |
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereto duly authorized.
| MIDNIGHT CANDLE COMPANY |
| (Registrant) |
| |
| By: /s/ Helen C. Cary, President & CEO |
In accordance with the requirements of the Securities Act of 1933, this Registration Statement was signed by the following persons in the capacities and on the dates stated:
| Signature | Title | Date |
| | | |
| /s/ Helen C. Cary | Chief Executive Officer and | March 31, 2009 |
| Helen C. Cary | President | |
| | | |
| /s/ Patrick Deparini | Chief Financial Officer | March 31, 2009 |
| Patrick Deparini | | |
| | | |
| /s/ Patrick Deparini | Principal Accounting Officer | March 31, 2009 |
| Patrick Deparini | | |
