UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
X.QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2014
OR
.TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission file number 00054146
| LED LIGHTING COMPANY |
|
(Exact Name of Registrant as Specified in its Charter) | ||
Delaware |
| 27-3566984 |
(State or other jurisdiction of incorporation or organization) |
| (I.R.S. Employer Identification No.) |
737 Southpoint Blvd., Suite E, Petaluma, California 94954 |
(Address of principal executive offices) (zip code) |
| (415) 526-3193 |
|
(Registrant's telephone number, including area code) | ||
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 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 . No X.
Indicate the number of shares outstanding of each of the issuer's classes of stock, as of the latest practicable date.
Class |
| Outstanding at August 11, 2014 |
Common Stock, par value $0.0001 |
| 8,408,629 |
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This document contains forward-looking statements, which reflect our views with respect to future events and financial performance. These forward-looking statements are subject to certain uncertainties and other factors that could cause actual results to differ materially from such statements. These forward-looking statements are identified by, among other things, the words "anticipates", "believes", "estimates", "expects", "plans", "projects", "targets" and similar expressions. Statements in this report concerning the following are forward looking statements:
·
future financial and operating results;
·
our ability to fund operations and business plans, and the timing of any funding or corporate development transactions we may pursue;
·
the ability of our suppliers to provide products or services in the future of an acceptable quality on a timely and cost-effective basis;
·
expectations concerning market acceptance of our products;
·
current and future economic and political conditions;
·
overall industry and market trends;
·
management’s goals and plans for future operations; and
·
other assumptions described in this report underlying or relating to any forward-looking statements.
Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date the statement was made. Except to the extent required by applicable securities laws, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. Important factors that may cause actual results to differ from those projected include the risk factors specified below.
USE OF DEFINED TERMS
Except where the context otherwise requires and for the purposes of this report only:
·
"we," "us," "our" and "Company" refer to the business ofLED Lighting Company;
·
"Exchange Act" refers to the United States Securities Exchange Act of 1934, as amended;
·
"SEC" refers to the United States Securities and Exchange Commission;
·
"Securities Act" refers to the United States Securities Act of 1933, as amended;
·
"U.S. dollars," "dollars" and "$" refer to the legal currency of the United States.
2
FINANCIAL STATEMENTS
Condensed balance sheets as of June 30, 2014 (unaudited) and December 31, 2013 (audited) |
| 4 |
Condensed statements of operations for the three and six months ended June 30, 2014 and (unaudited) |
| 5 |
Condensed statements of cash flows for the three and six months ended June 30, 2014 and 2013 (unaudited) |
| 6 |
Notes to condensed financial statements (unaudited) |
| 7 - 13 |
3
LED LIGHTING COMPANY
CONDENSED BALANCE SHEETS
ASSETS |
| June 30, |
| December 31, | ||||
|
|
|
| 2014 |
| 2013 | ||
Current Assets |
| (Unaudited) |
| (Audited) | ||||
| Cash |
| $ | 291 |
| $ | 194 | |
| Prepaid and other current assets |
|
| 47,096 |
|
| − | |
| Loan receivable |
|
| 84,000 |
|
| 84,000 | |
|
| TOTAL ASSETS |
| $ | 131,387 |
| $ | 84,194 |
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS'DEFICIT |
|
|
|
|
|
| ||
Current Liabilities |
|
|
|
|
|
| ||
| Accounts Payable & Accrued Expenses |
|
| 417,913 |
|
| 250,104 | |
| Convertible Promissory Notes |
|
| 15,000 |
|
| 15,000 | |
| Note Payable |
|
| 90,000 |
|
| 70,000 | |
|
| Total Liabilities |
|
| 522,912 |
|
| 335,104 |
|
|
|
|
|
|
|
|
|
Stockholders' Deficit |
|
|
|
|
|
| ||
|
|
|
|
|
|
|
| |
| Preferred stock, $0.0001 par value, 20,000,000 shares authorized; no shares issued and outstanding |
|
| − |
|
| − | |
| Common stock, $0.0001 par value, 100,000,000 shares authorized; 7,153,333 and 6,450,000 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively |
|
| 715 |
|
| 645 | |
| Additional paid-in capital |
|
| 1,040,583 |
|
| 550,319 | |
| Deficit accumulated during the development stage |
|
| (1,432,823) |
|
| (801,874) | |
|
| Total Stockholders' Deficit |
|
| (391,525) |
|
| (250,910) |
|
|
|
|
|
|
|
|
|
|
| TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT |
| $ | 131,387 |
| $ | 84,194 |
The accompanying notes are an integral part of these condensed financial statements.
4
LED LIGHTING COMPANY
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
|
| For the three months ended June 30, 2014 |
| For the three months ended June 30, 2013 |
| For the six months ended June 30, 2014 |
| For the six months ended June 30, 2013 | |||||
Revenue |
| $ | − |
| $ | − |
| $ | − |
| $ | − | |
Cost of revenue |
|
| − |
|
| − |
|
| − |
|
| − | |
| Gross profit |
|
| − |
|
| − |
|
| − |
|
| − |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation |
|
| 30,167 |
|
| − |
|
| 255,334 |
|
| − | |
Consulting expense |
|
| 75,000 |
|
| 188,833 |
|
| 175,000 |
|
| 188,833 | |
Operating expenses |
|
| 116,194 |
|
| 94,506 |
|
| 204,328 |
|
| 105,377 | |
Loss before other income |
|
| (221,361) |
|
| (283,339) |
|
| (634,662) |
|
| (294,210) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
|
|
|
| |
Other income |
|
| 3,713 |
|
| − |
|
| 3,713 |
|
| − | |
|
|
|
| 3,713 |
|
| − |
|
| 3,713 |
|
| − |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
| (217,648) |
|
| (283,339) |
|
| (630,949) |
|
| (294,210) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income tax expense |
|
| − |
|
| − |
|
| − |
|
| − | |
Net loss |
| $ | (217,648) |
| $ | (283,339) |
| $ | (630,949) |
| $ | (294,210) | |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per share - basic and diluted |
| $ | (0.03) |
| $ | (0.02) |
| $ | (0.09) |
| $ | (0.02) | |
Weighted average shares - basic and diluted |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| 7,338,444 |
|
| 14,342,857 |
|
| 6,894,222 |
|
| 17,155,801 | |
The accompanying notes are an integral part of these condensed financial statements.
5
LED LIGHTING COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
| For the six months ended June 30, 2014 |
| For the six months ended June 30, 2013 | ||
OPERATING ACTIVITIES: |
|
|
|
|
|
| ||
| Net loss |
| $ | (630,949) |
| $ | (294,210) | |
| Adjustments to reconcile net loss to net cash used by operating activities |
|
|
|
|
|
| |
|
| Common stock issued for services |
|
| 255,000 |
|
| 25,000 |
|
| Common stock issued for debt settlement |
|
| − |
|
| 25,000 |
|
| Stock based compensation |
|
| 334 |
|
| − |
| Changes in operating assets and liabilities |
|
|
|
|
|
| |
|
| Prepaid and other current assets |
|
| (47,096) |
|
| − |
|
| Cash held in escrow |
|
| − |
|
| (58,183) |
|
| Accounts payable & accrued expenses |
|
| 167,808 |
|
| 22,393 |
|
| Net cash used in operating activities |
|
| (254,903) |
|
| (280,000) |
|
|
|
|
|
|
|
|
|
FINANCING ACTIVITIES: |
|
|
|
|
|
| ||
| Proceeds from the issuance of note payable |
|
| 20,000 |
|
| − | |
| Proceeds from the issuance of common stock |
|
| 235,000 |
|
| 280,000 | |
|
| Net cash provided by financing activities |
|
| 255,000 |
|
| 280,000 |
| Net increase in cash |
|
| 97 |
|
| − | |
| Cash, beginning of period |
|
| 194 |
|
| − | |
| Cash, end of period |
| $ | 291 |
| $ | − | |
The accompanying notes are an integral part of these condensed financial statements.
6
LED LIGHTING COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(unaudited)
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
LED LIGHTING COMPANY ("the Company"), formerly known as Fun Media World, Inc., was incorporated under the name of Pinewood Acquisition Corporation under the laws of the State of Delaware on July 19, 2010 and was originally formed to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions.
On May 28, 2013, the Company’s board of directors and stockholders approved an amendment to the Company’s Certificate of Formation to change its corporate name to “LED Lighting Company”, and the amendment was filed with the Secretary of State of the State of Delaware on May 30, 2013. On May 28, 2013, new officers and directors were appointed and elected and the prior officers and directors resigned, resulting in the change of control of the Company.
The LED Lighting Company plans to supply LED (light-emitting diode) light bulbs and light fixtures to the commercial, industrial and consumer/retail markets. All of our products are tested and listed by UL Underwriters Laboratories (UL) or Electrical Testing Laboratories (ETL). Additionally, all products to be supplied will be tested and in compliance with industry standards such as those set up by Energy Star, and the Illuminating Engineering Society of North America (IESNA).
Effective as of October 12, 2013, the Company entered into an Agreement and amendment (the “Agreement”) with Goeken Group Corp. and its wholly-owned subsidiary, PolyBrite, pursuant to which the Company and PolyBrite agreed to work together to secure funding for PolyBrite, retain the management consulting services of the Catalyst Acquisition Group LLC, and complete a transaction in which PolyBrite will become a publicly traded company through an acquisition with the Company. The completion of the transactions described in the Agreement are subject to numerous conditions, many of which are outside of the control of the Company, and the Company cannot provide any assurances as to when the transactions may be completed, if at all.
PolyBrite is an innovative global lighting technology company that develops state of the art LED lighting systems. PolyBrite’s proprietary technology is intended to bring the energy, environmental and economic advantages of LED technology to the marketplace. PolyBrite engineers and manufactures solid-state lighting products, creating lamps and lighting systems under its Borealis Lighting brand, lighted/safety pet products under PolyBrite Lighted Pet Products brand and industrial/commercial safety products under PolyBrite Lighted Safety Products brand. Additional information regarding PolyBrite may be found on their company website at www.polybrite.com.
BASIS OF PRESENTATION
The accompanying unaudited condensed financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) for interim financial information. Accordingly, they do not include all of the information and notes required by U.S. GAAP for complete financial statements. The unaudited accompanying condensed financial statements include all adjustments, composed of normal recurring adjustments, considered necessary by management to fairly state our results of operations, financial position and cash flows. The operating results for interim periods are not necessarily indicative of results that may be expected for any other interim period or for the full year. These unaudited financial statements should be read in conjunction with the condensed financial statements and notes thereto included in our Annual Report on Form 10-K for the year ended December 31, 2013 (2013 Form 10-K) as filed with the SEC.
In the quarter ending June 30, 2014, the Company has elected to early adopt Accounting Standards Update No. 2014-10,Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting Requirements. The adoption of this ASU allows the Company to remove the inception to date information and all references to development stage.
7
NOTE 1 - NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
USE OF ESTIMATES
The preparation of condensed financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
CONCENTRATION OF RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of cash. The Company places its cash with high quality banking institutions. The Company did not have cash balances in excess of the Federal Deposit Insurance Corporation limit as of June 30, 2014 and December 31, 2013.
INCOME TAXES
Under ASC 740, "Income Taxes", deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases.
Due to our history of losses since inception, there is not enough evidence at this time to support that we will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a valuation allowance, since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized. Therefore, no federal or state income taxes are expected and none have been recorded as of June 30, 2014. Income taxes have been accounted for using the liability method.
LOSS PER COMMON SHARE
Basic loss per common shares excludes dilution and is computed by dividing net loss by the weighted average number of common shares outstanding during the period. Diluted loss per common share reflects the potential dilution that could occur if securities or other contracts to issue common stock were exercised or converted into common stock or resulted in the issuance of common stock that then shared in the loss of the entity. As of June 30, 2014 and December 31, 2013 there were no outstanding dilutive securities.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company follows guidance for accounting for fair value measurements of financial assets and financial liabilities and for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability. The level in the fair value hierarchy within which a fair measurement in its entirety falls is based on the lowest level input that is significant to the fair value measurement in its entirety.
The carrying amounts of financial assets and liabilities, such as cash and accrued liabilities, approximate their fair values because of the short maturity of these instruments.
8
NOTE 2 - GOING CONCERN
The Company has sustained operating losses and an accumulated deficit of $1,432,823 since inception of the Company on July 19, 2010 through June 30, 2014. The Company's continuation as a going concern is dependent on its ability to generate sufficient cash flows from operations to meet its obligations, which it has not been able to accomplish to date, and/or obtain additional financing from its stockholders and/or other third parties.
These unaudited condensed financial statements have been prepared on a going concern basis, which implies the Company will continue to meet its obligations and continue its operations for the next fiscal year. The continuation of the Company as a going concern is dependent upon financial support from its stockholders, the ability of the Company to obtain necessary equity financing to continue operations, successfully locating and negotiate with a business entity for the combination of that target company with the Company.
The management of the Company plans to use their personal funds or seek equity or debt financing to pay all expenses incurred by the Company in 2014. There is no assurance that the Company will ever be profitable. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result should the Company be unable to continue as a going concern.
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS
Adopted
In February 2013, Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2013-04,Obligations Resulting from Joint and Several Liability Arrangements for Which the Total Amount of the Obligation is Fixed at the Reporting Date.The objective of the amendments in this update is to provide guidance for the recognition, measurement, and disclosure of obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date, except for those obligations addressed within existing guidance in U.S. GAAP. The amendment requires an entity to measure obligations resulting from joint and several liability arrangements for which the total amount of the obligation within the scope of this guidance is fixed at the reporting date as the sum of the amount the reporting entity agreed to pay on the basis of its arrangement among its co-obligors and an additional amount the reporting entity expects to pay on behalf of its co-obligors. The entity is required to disclose the nature and amount of the obligation as well as other information about those obligations. The Company adopted this ASU as of January 1, 2014. This adoption did not have an effect on our financial statements.
On July 18, 2013, the FASB issued ASU 2013-11,Income Taxes (Topic 740): Presentation of an Unrecognized Tax Benefit when a Net Operating Loss Carryforward, a Similar Tax Loss, or a Tax Credit Carryforward Exists.Topic 740 does not include explicit guidance on the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. The objective of the amendments in this update is to eliminate that diversity in practice. The Company adopted this ASU as of January 1, 2014. This ASU did not have an effect on our financial statements.
On June 10, 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-10,Development Stage Entities (Topic 915) – Elimination of Certain Financial Reporting Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation, which eliminates the concept of a development stage entity (DSE) its entirety from current accounting guidance. We have elected early adoption of this standard, which eliminates the designation of DSEs and the requirement to disclose results of operations and cash flows since inception.
Not Adopted
In April 2014, the FASB issued ASU 2014-08,Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity to reduce diversity in practice for reporting discontinued operations. Under the previous guidance, any component of an entity that was a reportable segment, an operating segment, a reporting unit, a subsidiary, or an asset group was eligible for discontinued operations presentation. The revised guidance only allows disposals of components of an entity that represent a strategic shift (e.g., disposal of a major geographical area, a major line of business, a major equity method investment, or other major parts of an entity) and that have a major effect on a reporting entity’s operations and financial results to be reported as discontinued operations. The revised guidance also requires expanded disclosure in the financial statements for discontinued operations as well as for disposals of significant components of an entity that do not qualify for discontinued operations presentation. The updated guidance is effective for periods beginning after December 15, 2014. The Company currently has operations that are reported as discontinued operations and does not expect the adoption of this guidance to have a material effect on its financial position, results of operations, or cash flows.
9
NOTE 3 - RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
We have evaluated the recent accounting pronouncements through ASU 2014-12 and believe that none of them will have a material effect on our financial statements.
NOTE 4 - LOAN RECEIVABLE
Loan receivable amounted to $84,000 as of June 30, 2014 and December 31, 2013, and consists of an advance of $70,000 made to Polybrite and fees of $14,000 earned related to the December 2013 Purchase Order Financing and Distribution Agreement that was entered into with Polybrite.
NOTE 5 - ACCOUNTS PAYABLE AND ACCRUED EXPENSES
Accounts payable and accrued expenses consist of the following as of June 30, 2014 and December 31, 2013:
|
| June 30, 2014 |
| December 31, 2013 | ||
|
|
|
|
|
|
|
Accounts payable |
| $ | 193,913 |
| $ | 126,104 |
Payroll related liabilities |
|
| 210,000 |
|
| 110,000 |
Other current liabilities |
|
| 14,000 |
|
| 14,000 |
|
|
|
|
|
|
|
|
| $ | 417,913 |
| $ | 250,104 |
Effective October 17, 2013, LED Lighting Company entered into an Employment Agreement with Kevin Kearney, its Chief Executive Officer, Chief Financial Officer, President and Secretary. The Employment Agreement provides for a term of one year; annual compensation of $120,000. The Company accrued $80,000 related to this agreement as of June 30, 2014.
Effective October 17, 2013, the Company entered into an amendment to its Consulting Agreement with George Mainas a stockholder, providing for additional consulting services from George Mainas in consideration for a monthly consulting fee of $10,000. The Company accrued $90,000 related to this agreement as of June 30, 2014.
On December 10, 2013, the Company entered into a Consulting Agreement with J. Thomas Hannan providing for certain consulting services from him in consideration for a monthly consulting fee of $40,000.The Company accrued $40,000 related to this agreement as of June 30, 2014.
NOTE 6 - CONVERTIBLE PROMISSORY NOTES
Effective November 7, 2013, the Company entered into two Secured Convertible Promissory Notes with two investors in the aggregate amount of $15,000. The notes accrue interest at 10% per annum and are due and payable in one year. The note holders may convert all principal and interest outstanding under the notes into shares of Company common stock at the conversion price of $0.10 per share, and receive, upon conversion, an equal number of warrants to purchase shares of Company common stock at a $1.00 exercise price for a term of 3 years, with cashless exercise provision.
NOTE 7 - NOTE PAYABLE
In December 2013, the Company issued an unsecured and non-interest bearing note payable for an amount of $70,000. The note payable is due on demand.
In April 2014, the Company issued an unsecured and non-interest bearing note payable for an amount of $20,000. The note payable is due on demand.
10
NOTE 8 - STOCKHOLDERS' DEFICIT
The Company is authorized to issue 100,000,000 shares of common stock and 20,000,000 shares of preferred stock. As of June 30, 2014, there are 7,153,333 shares of common stock issued and outstanding and none of preferred stock.
On July 19, 2010, the Company issued 20,000,000 common shares to its sole director and officer for $2,000 in cash.
On May 27, 2011, the Company redeemed from its then two shareholders an aggregate of 19,500,000 of its 20,000,000 shares of outstanding stock at a redemption price of $0.0001 per share for an aggregate redemption price of $1,950.
On June 1, 2011, the Company issued 19,500,000 shares of common stock to new unrelated third party investors in order to evoke a change in ownership.
On March 2, 2012, Mr. Yanshi (Steven) Chen, the owner of 17,000,000 shares of the Company’s common stock, and DEP Group (a BVI corporation), the owner of 2,500,000 shares of the Company's common stock, transferred all such shares aggregating 19,500,000 shares of the outstanding 20,000,000 shares (97.5%) of the Company's common stock to Joseph Merhi for an aggregate purchase price of $95,000.
On May 28, 2013, the Company entered into a Share Cancellation Agreement with the then 3 existing stockholders of the Company pursuant to which the stockholders agreed to collectively cancel 18,900,000 of their issued and outstanding shares resulting in 1,100,000 shares issued and outstanding among the 3 stockholders. One of the 3 existing stockholders is Joseph Merhi, who is also a director of the Company.
Effective May 28, 2013, the Company entered into subscription agreements with 11 accredited investors pursuant to which the Company agreed to issue a total of 2,800,000 shares of common stock at $.10 per share, and three-year warrants to purchase up to 2,800,000 shares of common stock at $1.00 per share, in exchange for cash proceeds totaling $280,000. On May 28, 2013, the Company entered into subscription agreement with its outside legal counsel pursuant to which the Company agreed to issue a total of 250,000 shares of common stock at $.10 per share, and three-year warrants to purchase up to 250,000 shares of common stock at $1.00 per share, to settle legal service expenses amounted to $25,000. The Company also entered subscription agreement with an accredited investor pursuant to which the Company issued a total of 250,000 shares of common stock at $.10 per share, and three-year warrants to purchase up to 250,000 shares of common stock at $1.00 per share, to settle expenses that investor paid on behalf of the Company.
On May 28, 2013, the Company entered into subscription agreement with its outside legal counsel pursuant to which the Company agreed to issue a total of 250,000 shares of common stock at $0.10 per share, and three-year warrants to purchase up to 250,000 shares of common stock at $1.00 per share, to settle legal service expenses amounted to $25,000. The Company also entered subscription agreement with an accredited investor pursuant to which the Company issued a total of 250,000 shares of common stock at $0.10 per share, and three-year warrants to purchase up to 250,000 shares of common stock at $1.00 per share, to settle expenses that investor paid on behalf of the Company.
During the period from May 28, 2013 to December 31, 2013, the Company entered into subscription agreements with 13 accredited investors pursuant to which the Company agreed to issue a total of 2,850,000 shares of common stock at $0.10 per share, and three-year warrants to purchase up to 2,850,000 shares of common stock at $1.00 per share, in exchange for cash proceeds totaling $285,000.
Effective October 17, 2013, the Company issued 500,000 shares of Company common stock to each of Kevin Kearney, George Mainas and Steven J. Davis, the Company’s legal counsel, in consideration for services provided to the Company without payment of cash compensation, and for their efforts in negotiating and securing the agreement with Goeken Group Corp. and PolyBrite International, Inc.
On December 10, 2013, the Company entered into a Consulting Agreement with J. Thomas Hannan providing for certain consulting services from him in consideration for a monthly consulting fee of $5,000 dollars and the issuance of 500,000 shares of Company common stock.
11
NOTE 8 - STOCKHOLDERS' DEFICIT (Continued)
Between January 17, 2014 and June 30, 2014the Company agreed to issue to 6 accredited investors a total of 363,333 shares of Common Stock and 363,333 warrants to purchase shares of Common Stock at an exercise price of $1.00 with a 3 year term, resulting in proceeds to the Company of $235,000.
On March 17, 2014, the Company entered into a consulting agreement with Gary Rockis for certain sales and business related consulting services in consideration for the issuance of 300,000 shares of Company common stock. The shares were valued using the price per share used in the most recent equity sale transaction of $0.75.
On June 12, 2014, and in connection with Gary Rockis consulting agreement mentioned above, the Company issued additional 40,000 shares of Company common stock as a bonus payment. The shares were valued using the price per share used in the most recent equity sale transaction of $0.75.
NOTE 9 - STOCK BASED COMPENSATION
Generally, all forms of share-based payments, including stock option grants, restricted stock grants and stock appreciation rights are measured at their fair value on the awards’ grant date, based on the estimated number of awards that are ultimately expected to vest. Share-based compensation awards issued to non-employees for services rendered are recorded at either the fair value of the services rendered or the fair value of the share-based payment, whichever is more readily determinable. The expenses resulting from share-based payments are recorded in operating expenses in the statement of operations.
Stock Options
On May 28, 2013, the Company’s board of directors and stockholders approved the adoption of the LED Lighting Company 2013 Equity Incentive Plan (the “2013 Plan”). The 2013 Plan is intended to aid the Company in recruiting and retaining key employees, directors or consultants and to motivate them by providing incentives through the granting of awards of stock options or other stock based awards. The 2013 Plan is administered by the board of directors. Directors, officers, employees and consultants of the Company and its affiliates are eligible to participate under the 2013 Plan. A total of 1,500,000 shares of common stock have been reserved for awards under the 2013 Plan.
Effective October 17, 2013, the Company issued 100,000 options to purchase Common Stock under its 2013 Equity Incentive Plan to each of three consultants in consideration for services provided to the Company. The options have an exercise price of $1.00 per share and may be exercised for a period of two years from the date of issuance.
There were no stock options granted during the six month ended June 30, 2014. For the year ended December 31, 2013, the fair value of each option award is estimated on the date of grant using the Black-Scholes option valuation model that uses the following assumptions: expected volatility 45%, expected term of 1 year and risk free rate of 0.13%. Expected volatilities are based on historical volatilities of the comparable publicly traded companies. The Company uses historical data to estimate option exercise and employee termination within the valuation model. The expected term of options granted is derived from estimates and represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the contractual life of the option is based on the U.S. Treasury yield curve in effect at the time of grant. The estimated fair value of options granted in 2013 was $0.
Warrants
On May 28, 2013 and in connection with the subscription agreement mentioned above, the Company issued three-year warrants to purchase up to 3,330,000 shares of common stock at an exercise price of $1.00 per share.
During the period from January 17 to June 30, 2014 and in connection with the subscription agreement mentioned above, the Company issued three-year warrants to purchase up to 363,333 shares of common stock at an exercise price of $1.00 per share.
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NOTE 9 - STOCK BASED COMPENSATION (Continued)
Since the warrants were issued in connection with a private placement and sale of Company’s common stock, there were no accounting impact related to the issuance of warrants on the accompanying condensed financial statements Additionally, the associated warrants were valued using the Black-Scholes-Merton valuation model with the following assumptions: risk free interest rates of 0.13% - 0.14%, dividend yield of 0%, volatility factors of the expected market price of similar common stock of 45% - 103%, and an expected life of 1 year. The aggregate fair value of the warrants on grant date was $31,541.
A summary of warrant activity is as follows:
|
|
|
| Weighted- |
| Average |
|
| ||
|
|
|
| Average |
| Remaining |
| Aggregate | ||
|
|
|
| Exercise |
| Contractual |
| Intrinsic | ||
|
| Options |
| Price |
| Life (Years) |
| Value | ||
Outstanding at December 31, 2013 |
| 3,850,000 |
| $ | 1.00 |
| 2.42 |
| $ | − |
Granted |
| 363,333 |
|
| 1.00 |
| 1.99 |
|
| − |
Exercised |
| − |
|
| − |
| − |
|
| − |
Forfeited or expired |
| − |
|
| − |
| − |
|
| − |
Outstanding at June 30, 2014 |
| 4,213,333 |
| $ | 1.00 |
| 1.99 |
| $ | − |
Exercisable at June 30, 2014 |
| 4,213,333 |
| $ | 1.00 |
| 1.99 |
| $ | − |
NOTE 10 - SUBSEQUENT EVENTS
Effective July 1, 2014, the Company entered into a consulting agreement with Andrew Molasky for his provision of certain business consulting services to the Company. The consulting agreement provides for the Company’s issuance of 1,255,295 shares of Company common stock to Mr. Molasky in consideration for his services. In connection with the consulting agreement, the Company also issued a common stock purchase warrant to Mr. Molasky pursuant to which he may purchase up to 1,255,295 shares of Company common stock at $1.00 per share for up to three years.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the information contained in the financial statements of the Company and the notes which form an integral part of the financial statements which are attached hereto. The financial statements mentioned above have been prepared in conformity with accounting principles generally accepted in the United States of America and are stated in United States dollars.
LED Lighting Company (formerly Fun World Media, Inc.) ("LED Company" or the "Company") was incorporated as Pinewood Acquisition Corporation ("Pinewood") on July 19, 2010 under the laws of the State of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. On May 24, 2011, the Company amended its certificate of incorporation to change its name to De Yang International Group Ltd. and on March 2, 2012, the Company amended its certificate of incorporation to change its name to Fun World Media, Inc. On May 30, 2013, the Company amended its certificate of incorporation to change its name to LED Lighting Company.
On October 7, 2010, the Company registered its common stock on a Form 10 registration statement filed pursuant to the Securities Exchange Act of 1934 (the "Exchange Act") and Rule 12(g) thereof. The Company files with the Securities and Exchange Commission periodic and current reports under Rule 13(a) of the Exchange Act, including quarterly reports on Form 10-Q and annual reports Form 10-K.
Overview of Business and Results of Operations
The LED Lighting Company plans to supply LED light bulbs and light fixtures to the commercial, industrial and consumer/retail markets. To that end, the Company has entered into a Non-Exclusive Distributor Agreement and Sales Representative Agreement with Polybrite International, Inc. (“Polybrite”) to distribute and sell their products. PolyBrite is an innovative global lighting technology company that develops state of the art LED lighting systems. PolyBrite’s proprietary technology is intended to bring the energy, environmental and economic advantages of LED technology to the marketplace. PolyBrite engineers and manufactures solid-state lighting products, creating lamps and lighting systems under its Borealis Lighting brand, lighted/safety pet products under PolyBrite Lighted Pet Products brand and industrial/commercial safety products under PolyBrite Lighted Safety Products brand. Additional information regarding PolyBrite may be found on their company website at www.polybrite.com. All of their products are tested and listed by UL Underwriters Laboratories (UL) or Electrical Testing Laboratories (ETL). Additionally, all products to be supplied will be tested and in compliance with industry standards such as those set up by Energy Star, and the Illuminating Engineering Society of North America (IESNA).
Effective as of October 12, 2013, the Company entered into an Agreement and amendment (the “Agreement”) with Goeken Group Corp. and its wholly-owned subsidiary, PolyBrite, pursuant to which the Company and PolyBrite agreed to work together to secure funding for PolyBrite and complete a transaction in which PolyBrite will become a publicly traded company through an acquisition with the Company (the “Polybrite Acquisition”). The parties initially anticipated the Polybrite Acquisition would be completed on or before March 31, 2014, which did not occur. On July 22, 2014, the parties entered into an amendment to the Agreement pursuant to which the parties anticipate entering into a definitive agreement for the Polybrite Acquisition on or before September 30, 2014, and completing the Polybrite Acquisition on or before December 31, 2014. However, the completion of the Polybrite Acquisition is subject to numerous conditions, many of which are outside of the control of the Company, and the Company cannot provide any assurances that the Company will enter into a definitive agreement for the Polybrite Acquisition, or that the Polybrite Acquisition will be completed on or before December 31, 2014, or completed at all.
Revenue
We had no revenues during the three and six month periods ended June 30, 2014 and June 30, 2013.
Net Loss
Our net loss for the three months ended June 30, 2014 was $217,648 compared to $283,339 for the three months ended June 30, 2013. The decrease in net loss compared to the prior year period is mainly the result of a decrease in consulting expenses from $188,833 in 2013 to $75,000 in 2014. Our net loss for the three months ended June 30, 2014 included $30,000 of non-cash expenses related to common stock issued for services.
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Our net loss for the six months ended June 30, 2014 was $630,949 compared to $294,210 for the six months ended June 30, 2013. The increase in net loss compared to the prior year period is the result of $255,334 stock based compensation related to issuing equity based instruments as compensation, $93,458 of professional fees and $61,782 of general and administrative expenses.
Liquidity and Capital Resources
As of June 30, 2014, we had cash of $291; total assets of $131,387; and total liabilities of $522,912.
For the six months ended June 30, 2014, net cash used in operations was $254,903. For the six months ended June 30, 2014, the Company received $255,000 in proceeds from the issuance of common stock. Our total stockholder’s deficit at June 30, 2014 was $1,432,823.
To date, we have financed our operations through funding by our stockholders and the issuance of promissory notes and common stock and securities convertible into common stock. We will need to secure additional financing to continue our operations. However, we cannot provide any assurances that we will be able to raise additional funds to meet our cash needs or that we can achieve profitability. The failure to secure any financing will severely curtail our plans for future growth or in more severe scenarios the continued operations of our Company. Based on our need to raise additional funds to implement our business plans for the next twelve months, we have included a discussion concerning the presentation of our financial statements on a going concern basis in the notes to our financial statements and our independent public accountants have included a similar discussion in their opinion on our financial statements through December 31, 2013.
ITEM 3. Quantitative and Qualitative Disclosures About Market Risk.
Information not required to be filed by Smaller reporting companies.
ITEM 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our principal executive officer and principal financial officer (who is the same person), we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report.
This Quarterly Report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. As a smaller reporting company, management's report was not subject to attestation by the Company's registered public accounting firm.
Changes in Internal Control over Financial Reporting
There have been no changes in our internal control over financial reporting during the first quarter of fiscal 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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ITEM 1. LEGAL PROCEEDINGS
There are no legal proceedings against the Company and the Company is unaware of such proceedings contemplated against it.
ITEM 1A. RISK FACTORS
The “Risk Factors” contained in our Annual Report on Form 10-K filed with the SEC on March 28, 2014 (the “Form 10-K”) are hereby incorporated by reference herein. Readers are encouraged to read the Form 10-K including those risk factors.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On June 12, 2014, and in connection with a consulting agreement with Gary Rockis, the Company issued an additional 40,000 shares of Company common stock as a bonus payment. The issuance of shareswas made in reliance on the exemption provided by Section 4(2) of the Securities Act of 1933, as amended (the “Securities Act”) for the offer and sale of securities not involving a public offering, and Regulation D promulgated under the Securities Act. The Company’s reliance upon Section 4(2) of the Securities Act in issuing the securities was based upon the following factors: (a) the issuance of the securities was an isolated private transaction by us which did not involve a public offering; (b) there was only one recipient; (c) there were no subsequent or contemporaneous public offerings of the securities by us; (d) the securities were not broken down into smaller denominations; and (e) the negotiations for the sale or issuance of the securities took place directly between the individual and the Company.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
(a) Exhibits