UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2011
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE TRANSITION FROM __________ TO __________.
Commission File Number: 0-54036
CIRALIGHT GLOBAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 26-4549003
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
15303 Ventura Blvd., 9th Floor, Sherman Oaks, California 91403
(Address of principal executive offices) (Zip code)
(877) 520-5005
(Registrant's telephone number)
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 [ ] No [X]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
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 [ ] 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]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of November 10, 2011, there were
14,292,567 outstanding shares of the Registrant's Common Stock, $0.001 par
value.
CIRALIGHT GLOBAL, INC.
Report on Form 10-Q
For the Quarter Ended September 30, 2011
INDEX
PAGE
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Balance Sheets as of September 30, 2011 (Unaudited) and December
31, 2010 3
Statements of Operations for the Three and Nine Month Periods
Ended September 30, 2011 and 2010 (Unaudited) 4
Statements of Cash Flows for the Nine Months Ended September 30,
2011 and 2010 (Unaudited) 5
Notes to Unaudited Financial Statements as of September 30, 2011 6
Item 2. Management's Discussion and Analysis of Financial Condition
And Results of Operations 20
Item 3. Quantitative and Qualitative Disclosures about Market Risk 27
Item 4. Controls and Procedures 27
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 30
Item 1A. Risk Factors 30
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 30
Item 3. Defaults Upon Senior Securities 30
Item 4. (Removed and Reserved) 30
Item 5. Other Information 30
Item 6. Exhibits 30
SIGNATURES 33
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CIRALIGHT GLOBAL, INC
BALANCE SHEETS
September 30, December 31,
2011 2010
------------ ------------
(unaudited)
ASSETS
CURRENT ASSETS
Cash $ 64,482 $ 203,108
Accounts receivable 139,905 148,787
Notes receivable - related party -- 75,454
Inventory 183,891 228,106
Prepaid expenses and other current assets 98,952 53,804
------------ ------------
TOTAL CURRENT ASSETS 487,230 709,259
Property and equipment, net 8,627 10,024
Intangible assets, net 27,614 28,861
------------ ------------
TOTAL ASSETS $ 523,471 $ 748,144
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 39,794 $ 211,015
Advances payable - related parties 205,250 200,000
Other payables 56,182 45,372
------------ ------------
TOTAL CURRENT LIABILITIES 301,226 456,387
------------ ------------
STOCKHOLDERS' EQUITY
Preferred stock - $.001 par value; 10,000,000 shares authorized,
1,000,000 Redeemable Series A Preferred shares issued and outstanding 1,000 1,000
Common stock - $.001 par value; 50,000,000 shares authorized,
14,292,567 and 13,289,207 shares issued and outstanding, respectively 14,293 13,289
Additional paid-in capital 2,637,983 2,132,173
Accumulated deficit (2,431,031) (1,854,705)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 222,245 291,757
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 523,471 $ 748,144
============ ============
The accompanying notes are an integral part of these financial statements.
3
CIRALIGHT GLOBAL, INC.
STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended For the Nine Months Ended
September 30, September 30,
------------------------------- -------------------------------
2011 2010 2011 2010
------------ ------------ ------------ ------------
Sales $ 246,013 $ 205,189 $ 823,139 $ 614,182
Cost of goods sold 149,540 177,018 586,974 401,179
----------- ----------- ----------- -----------
Gross profit 96,473 28,171 236,166 213,003
----------- ----------- ----------- -----------
Operating expenses
Research and development expenses 223 28,754 31,833 45,055
Selling and marketing expenses 66,807 79,994 169,653 164,076
General and administrative expenses 208,116 186,457 582,534 695,269
----------- ----------- ----------- -----------
Total operating expenses 275,146 295,205 784,020 904,400
----------- ----------- ----------- -----------
Loss from operations (178,673) (267,034) (547,854) (691,397)
----------- ----------- ----------- -----------
Other income (expense)
Interest income (expense) (12,260) 1,410 (28,472) 4,047
----------- ----------- ----------- -----------
Total other income (expense) (12,260) 1,410 (28,472) 4,047
----------- ----------- ----------- -----------
Net loss $ (190,933) $ (265,624) $ (576,326) $ (687,350)
=========== =========== =========== ===========
Basic loss per share $ (0.01) $ (0.02) $ (0.04) $ (0.05)
=========== =========== =========== ===========
Weighted average shares used in per
share calculation 14,208,702 12,876,854 13,660,919 12,876,854
=========== =========== =========== ===========
The accompanying notes are an integral part of these financial statements.
4
CIRALIGHT GLOBAL, INC
STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended
September 30,
-------------------------------
2011 2010
---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Loss $ (576,326) $ (687,350)
Adjustments to reconcile net loss to net cash
used in operating activities:
Common stock issued for compensation and services 25,000 178,111
Options issued for services 9,611 1,301
Options issued for financing costs 22,960 --
Depreciation and amortization 6,906 9,837
Contribution of rent from a related party 4,500 4,500
Bad debt expenses 25,896 6,909
Changes in operating assets and liabilities
Decrease (increase) in inventory 44,215 (63,864)
(Increase) decrease in accounts receivable (17,014) 144,005
(Increase)decrease in prepayments and deposits (45,148) 72,529
Decrease (increase) in notes receivable - related party 35,244 (3,956)
(Decrease) increase in accounts payable (131,012) 122,564
Increase in notes payable accrued interest - related parties 5,250 13,323
Increase in advances payable - related party -- 15,000
Increase in bonus payable - related party -- 25,860
Increase (decrease) in other payables 10,812 (193,373)
---------- ----------
NET CASH USED IN OPERATING ACTIVITIES (579,106) (354,604)
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment (4,262) --
---------- ----------
NET CASH USED IN INVESTING ACTIVITIES (4,262) --
---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Cash from sale of common stock 475,680 70,000
Cash from exercise of options 1,500 --
Payments of commission on sales of common stock (32,438) --
Stock offering costs -- (7,579)
Payment of related party note payable (200,000) --
Increase in related party advances 200,000 --
Proceeds from note payable - related party -- 50,000
Proceeds from note payable -- 25,000
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES 444,742 137,421
---------- ----------
Net decrease in cash (138,626) (217,183)
Cash, beginning of period 203,108 265,753
---------- ----------
Cash, end of period $ 64,482 $ 48,570
========== ==========
SUPPLEMENTAL CASH FLOW INFORMATION:
Interest paid $ -- $ --
========== ==========
Income taxes paid $ -- $ --
========== ==========
The accompanying notes are an integral part of these financial statements.
5
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
1. Background:
Ciralight Global, Inc. (the "Company") was incorporated in the State of Nevada
on February 26, 2009. The Company is in the business of designing, developing,
and distributing proprietary advanced day lighting systems for traditional
non-residential markets that benefit from natural lighting.
In April 2009, we entered into an Exchange of Stock for Assets Agreement with
Mr. George Adams, Sr. ("Adams Agreement") to acquire certain assets including,
but not limited to, a U.S. patent, patent applications pending in Canada,
Europe, Mexico and the United States, artwork, trademarks, equipment, furniture,
databases, technical drawings, promotional materials, trade names and inventory
parts and marketing rights related to the Suntracker One(TM) and Suntracker
Two(TM) daylighting products previously owned and distributed by Ciralight,
Inc., a Utah corporation, such assets having been foreclosed on by Mr. Adams,
who was the secured creditor of Ciralight, Inc. Ciralight, Inc. is a predecessor
to the Company, although we have no affiliation, contractual or otherwise, with
Ciralight, Inc. or any of its employees, officers or directors.
Ciralight, Inc., the company whose assets were foreclosed on by Mr. Adams, was
also in the business of designing, developing, and distributing proprietary
advanced day lighting systems for traditional non-residential markets that
benefit from natural lighting. Ciralight, Inc. ceased operations on March 14,
2009, following the foreclosure by Mr. Adams. Since the acquisition of the
assets was through a foreclosure, the former company and its officers remain
liable for the Ciralight Inc.'s debts and the Company has no financial
responsibility for those debts. None of the employees or management of Ciralight
Inc. are involved in the Company. The business operations of our Company are
located in Irvine, California and the Company operates with four employees, the
Chief Executive Officer, the Chief Financial Officer / Chief Operations Officer,
a warehouse manager and an executive assistant.
In April 2009, we acquired all of the above described assets from Mr. Adams,
except for the U.S. patent and the patent applications pending in Canada,
Europe, Mexico and the United States, in exchange for 3,200,000 shares of our
common stock and 1,000,000 shares of our Series A Preferred Stock. On December
15, 2009, we acquired the U.S. patent and patent applications pending in Canada,
Europe, Mexico and the United States from Mr. Adams in exchange for the issuance
by us of an additional 400,000 shares of our common stock and a convertible
promissory note in the amount of $250,000. The note is convertible into shares
of our common stock at a conversion rate of one share per $.25 of outstanding
principal and interest. As a result of this transaction, Mr. Adams is our
largest shareholder. Aside from our U.S. patent and our four pending patent
applications, we have no other patent rights.
Reclassifications
Certain reclassifications have been made to prior periods amounts to conform to
the current periods presentations.
6
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
2. Basis of Presentation
The accompanying unaudited consolidated financial statements have been prepared
in accordance with accounting principles generally accepted in the United States
of America and in conformity with the instructions to Form 10-Q and Article 8-03
of Regulation S-X and the related rules and regulations of the Securities and
Exchange Commission (the "SEC"). Accordingly, they do not include all of the
information and footnotes required by accounting principles generally accepted
in the United States of America for complete financial statements. In the
opinion of management, the disclosures included in these financial statements
are adequate to make the information presented not misleading.
The unaudited consolidated financial statements included in this document have
been prepared on the same basis as the annual consolidated financial statements
and in management's opinion, reflect all adjustments, including normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and cash flows for the interim periods presented. The
unaudited consolidated financial statements should be read in conjunction with
the audited consolidated financial statements and the notes thereto for the year
ended December 31, 2010 included in the Company's Annual Report on Form 10-K.
The results of operations for the three and nine month periods ended September
30, 2011 are not necessarily indicative of the results that the Company will
have for any subsequent quarter or full fiscal year.
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 amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
3. Liquidity and Operations:
The Company had net losses of $576,326 and $687,350 for the nine month periods
ended September 30 2011 and 2010, respectively.
As of September 30, 2011, the Company had cash and cash equivalents of $64,482.
In addition, the Company had accounts receivable of approximately $140,000,
inventory on hand at a cost valuation of approximately $184,000, with a market
valuation of over $385,000, all fully paid for, and accounts payable of
approximately $40,000. In order to satisfy the Company's short term working
capital needs for operating expenses, the Company's Board of Directors approved
the borrowing of up to $300,000 as a revolving line of credit. The revolving
line of credit consists of advances from related parties and amounted to
$200,000 as of September 30, 2011. The Company is in the process of finalizing
an agreement with the Adams in which the Company will grant one stock option for
each dollar loaned by the Adams for the maximum amount borrowed by the Company
against the line of credit. The agreement shall be for a term of one year and
the options will have an exercise price of $.50 per option, will be exercisable
over five years and will vest quarterly, based on the amount of credit line
outstanding at the end of each calendar quarter. In addition, the interest rate
agreed upon is 2% over the treasury rate on the outstanding amount of the credit
line.
7
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
4. Summary of Significant Accounting Policies:
Cash and Cash Equivalents - The Company considers all highly liquid debt
instruments with original maturities of three months or less to be cash
equivalents.
The Company maintains its cash accounts primarily with banks located in
California. The total cash balances are insured by the FDIC up to $250,000 per
bank. At times, the amount of the Company's cash and cash equivalent exceeds the
balance insured by the FDIC.
Accounts Receivable - The Company's accounts receivable are unsecured and the
Company is at risk to the extent such amounts become uncollectible. Management
continually monitors accounts receivable balances and provides for an allowance
for doubtful accounts at the time collection becomes questionable based on
payment history or age of the receivable. The Company sells products and
services generally on terms of receiving a 50% deposit prior to shipment and the
remaining 50% within 21 days of date of shipment. The Company charges nominal
financing fees on late payments. Accounts receivable are charged to the
allowance for bad debts when the Company has exhausted all reasonable means of
collection. At September 30, 2011, management deemed that all accounts
receivable should be fully collectible.
Inventory - Inventory consists of finished units, parts and packaging materials
and is stated at lower of historical cost or current cost. Management will
establish a reserve for damaged and discontinued inventory when determined
necessary. At September 30, 2011 no reserve was required.
Property and Equipment - Property and equipment are stated at historical cost,
which consists of the net book value of the assets carried on the prior
company's books. Depreciation is computed over the estimated useful lives of the
assets using the straight-line method generally over a 3- to 5-year period.
Leasehold improvements will be amortized on the straight-line method over the
life of the related lease. Expenditures for ordinary maintenance and repairs are
charged to expense as incurred. Upon retirement or disposal of assets, the cost
and accumulated depreciation are eliminated from the account and any gain or
loss is reflected in the statement of operations. Depreciation expense for
property and equipment is recorded as either cost of goods sold or general and
administrative expense, depending on the use of the assets.
Stock Offering Costs - During 2010 and 2011, the Company recorded the
organizational costs associated with private placement offerings as additional
paid in capital and expensed the costs associated with taking the company
public.
Impairment of Long Lived Assets - The Company evaluates its long-lived assets
for impairment, in accordance with FASB ASC 360-10, when events or changes in
circumstances indicate that the related carrying amount may not be recoverable.
Impairment is considered to exist if the total estimated future cash flow on an
undiscounted basis is less than the carrying amount of the related assets. An
impairment loss is measured and recorded based on the discounted estimated
future cash flows. Changes in significant assumptions underlying future cash
flow estimates or fair values of assets may have a material effect on the
Company's financial position and results of operations. No such impairment was
indicated at September 30, 2011.
Shipping and Handling Costs - The Company includes shipping and handling costs
that are billed to our customers in revenue and the actual costs incurred for
shipping and handling are included in costs of goods sold in accordance with the
provisions of FASB ASC 605-45-45-20. The related costs are considered necessary
to complete the revenue cycle.
Revenue Recognition - The Company recognizes revenue from product sales when
persuasive evidence of an arrangement exists, shipment has occurred, the
seller's price to the buyer is fixed or determinable and collectability is
reasonably assured.
8
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
4. Summary of Significant Accounting Policies: (continued)
Warranty Costs - Commencing April 1, 2009, the Company provided a five-year
warranty covering the labor and materials associated with its installations.
Effective September 1, 2009, the Company changed the coverage to ten years in
the U.S. The Company's "advanced skylights" are warranted by the manufacturer
for 10 years, generally. The Company (at its option) will repair, replace or
give credit for the original purchase price on any of its products or parts. An
accrual for a loss contingency has been made, since warranty expenses to date
have been consistent and a reasonable estimate of future expenses can be made,
in accordance with FASB ASC 460-10-50-8 (c).
Changes in the liability for product warranty were as follows:
Product
Warranty
--------
Liability at December 31, 2010 $ 9,476
Settlements made during the period --
Change in liability for warranties issued during the period --
Change in liability for preexisting warranties --
--------
Liability at September 30, 2011 $ 9,476
========
Research and Development Expenses - Research and development expenses are
charged to operations in the period incurred. The amount expensed for the three
month periods ended September 30, 2011 and 2010 were $223 and $28,754,
respectively.
Selling and Marketing Expenses - Selling and marketing expenses are expensed as
incurred. These expenses were $66,807 and $79,994 for the three month periods
ended September 30, 2011 and 2010, respectively.
The Adams Agreement described in Note 1 above, also granted Mr. Adams a royalty
fee of $20.00 for each Suntracker One(TM) and Suntracker Two(TM) unit or any
future units that are based on the patent rights we acquired from him. The
maximum royalty fees payable under the Adams Agreement is $2,000,000 based on
the sale of 100,000 units. As of September 30, 2011, accrued and unpaid
royalties in the amount of $18,480, related to our sale of 924 units, are
reflected on our financial statements.
General and Administrative Expenses - General and administrative expenses are
expensed as incurred. These expenses were $208,116 and $186,457 for the three
month periods ended September 30, 2011 and 2010, respectively.
Concentrations of Credit Risk - Credit risk represents the accounting loss that
would be recognized at the reporting date if counterparties failed completely to
perform as contracted. Concentrations of credit risk (whether on or off balance
sheet) that arise from financial instruments exist for groups of customers or
counterparties when they have similar economic characteristics that would cause
their ability to meet contractual obligations to be similarly affected by
changes in economic or other conditions.
Financial instruments potentially subjecting the Company to concentrations of
credit risk consist principally of accounts receivable. As of September 30,
2011, three distributors each had balances representing over 15% of the
Company's accounts receivable, including one distributors' balance which
Represented approximately 30% of the Company's accounts receivable.
Use of Estimates - The preparation of the 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 disclosure of contingent assets and
liabilities at the date of the balance sheet and the reported amounts of revenue
and expenses during the reporting period. Significant estimates include the
Company's debt discount, and share-based compensation expense. Actual results
could differ from these estimates.
9
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
4. Summary of Significant Accounting Policies: (continued)
Stock-Based Compensation - The Company accounts for stock-based compensation
under the provisions of FASB ASC 718 (Statement of Financial Accounting
Standards No. 123 (revised 2004), "SHARE-BASED PAYMENT"), which requires the
Company to measure the stock-based compensation costs of share-based
compensation arrangements based on the grant date fair value and generally
recognizes the costs in the financial statements over the employee's requisite
service period. Stock-based compensation expense for all stock-based
compensation awards granted was based on the grant date fair value estimated in
accordance with the provisions of FASB ASC 718.
The Company measures compensation expense for its non-employee stock-based
compensation under FASB ASC 505-10 and 50, "Accounting for Equity Instruments
that are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling, Goods or Services". The fair value of the option issued is used to
measure the transaction, as this is more reliable than the fair value of the
services received. The fair value is measured at the value of the Company's
common stock on the date that the commitment for performance by the counterparty
has been reached or the counterparty's performance is complete. The fair value
of the equity instrument is charged directly to compensation expense and
additional paid-in capital.
By recording employee stock-based compensation using the fair value recognition
provisions of Accounting Standards Codification ("ASC") Topic 718 ("ASC 718")
using the modified prospective transition method, and recording non-employee
stock-based compensation expense in accordance with ASC Topic 505, the Company
did not recognize any stock compensation expense for the three months ended
September 30, 2011.
Income Taxes - The Company accounts for its income taxes under the provisions of
FASB-ASC-10 "Accounting for Income Taxes." This statement requires the use of
the asset and liability method of accounting for deferred income taxes. Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes and
the amounts used for income tax reporting purposes, at the applicable enacted
tax rates. The Company provides a valuation allowance against its deferred tax
assets when the future realizability of the assets is no longer considered to be
more likely than not.
Convertible Notes Payable - The Company accounts for its convertible notes
payable under the provisions of FASB ASC 470 (Staff Position No. APB 14-1
"Accounting for Convertible Debt Instruments that may be Settled in Cash upon
Conversion (including partial cash settlement"). FASB ASC 470 clarifies that
convertible debt instruments that may be settled in cash upon conversion
(including partial cash settlement) are not addressed by FASB ASC 470-20-65-1
(paragraph 12 of APB Opinion No. 14, "Accounting for Convertible Debt and Debt
Issued with Stock Purchase Warrants"). Additionally, FASB ASC 470 specifies that
issuers of such instruments should separately account for the liability and
equity components in a manner that will reflect the entity's nonconvertible debt
borrowing rate when interest cost is recognized in subsequent periods.
The Company accounts for uncertain tax positions in accordance with FASB ASC
740-10, 30 and 270, "Accounting for Uncertainty in Income Taxes." The
application of income tax law is inherently complex. As such, the Company is
required to make certain assumptions and judgments regarding its income tax
positions and the likelihood whether such tax positions would be sustained if
challenged. Interest and penalties related to uncertain tax provisions are
recorded as a component of the provision for income taxes. Interpretations and
guidance surrounding income tax laws and regulations change over time. As such,
changes in the Company's assumptions and judgments can materially affect amounts
recognized in the Company's consolidated balance sheets and statement of
operations.
10
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
5. Balance Sheet Information:
Notes receivable - related party - As of December 31, 2010, the Company held a
note receivable from the President and Chief Executive Officer of the Company,
Randall Letcavage, with an original balance of $69,865. This note accrued
interest at an annual rate of 8% from the effective date of January 15, 2010.
Certain terms of this note receivable were amended and replaced on March 18,
2010, with the following terms: The Company was granted a security interest in
and to 329,647 shares of Company common stock owned by Randall Letcavage as
collateral for the repayment of the note receivable and the note receivable is
due and payable on November 1, 2010. The balance of the note, including accrued
interest, at December 31, 2010 was $75,454. On January 3, 2011, the Company
recorded the satisfaction for the full amount of principal and accrued interest
due on the note receivable.
Inventory consisted of the following at September 30, 2011:
Finished units and components $ 161,286
Packaging crates and materials 22,605
---------
Total Inventory $ 183,891
=========
Prepaid expenses and other current assets consist of the following at September
30, 2011:
Purchase order prepaid deposits $ 82,292
Deposits on account 10,500
Exhibition deposit 6,160
---------
Total Prepayments and deposits $ 98,952
=========
Purchase order prepaid deposits represent the prepayment required under the
agreements with several suppliers of our inventory components.
Property and equipment are stated at cost, net of accumulated depreciation.
Expenditures for maintenance and repairs are expensed as incurred; additions,
renewals and betterments are capitalized. Depreciation of property and equipment
is provided using the straight-line method with estimated lives ranging from 3
to 5 years as follows:
Furniture and equipment $ 10,513
Vehicles 2,771
Tooling costs 24,683
Convention display 1,817
---------
Property and equipment 39,784
---------
Less Accumulated depreciation (31,157)
---------
Total Property and equipment, net $ 8,627
=========
Depreciation expense for the three month period ended September 30, 2011 was
$727 and was recorded as cost of goods sold. The use of the above property and
equipment determines if the depreciation is recorded as cost of goods sold or as
general and administrative expenses.
11
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
5. Balance Sheet Information: (continued)
Intangible assets are stated at cost, net of accumulated amortization.
Amortization of intangible assets is provided using the straight-line method
with estimated lives of 20 years as follows:
Patent and patent applications $ 30,593
Less Accumulated amortization (2,979)
---------
Total Intangible assets, net $ 27,614
=========
Amortization expense for the three month period ended September 30, 2011 was
$416, was related to the Company's patent rights and was recorded as cost of
goods sold.
Organizational Costs - The Company's startup and organizational expenses were
expensed as legal and accounting fees under general and administrative expenses.
Advances Payable - related parties - During the first quarter of 2011, Terry
Adams and George Adams, Sr. each advanced the Company $100,000 for short term
working capital purposes, as represented by the advances payable-related parties
amount of $200,000 at September 30, 2011. The Adam's have agreed to advance the
Company up to $300,000 at an interest rate of two percent over the prime
interest rate. Interest of $2,625 has been recorded for the three months ended
September 30, 2011, making a total amount due of $205,250. On April 1, 2011, in
consideration of the Adams agreeing to offer the Company advances of up to
$300,000, the Company agreed to grant the Adams 300,000 stock options at an
exercise price of $.50 per option that will be exercisable over five years. The
options will vest over one year at 75,000 options per quarter.
Deferred Revenue - There was no amount received from
customers as of September 30, 2011, for products that had not yet been shipped
to them, since our revenue recognition policy is that revenue on our skylights
and parts is recognized when the units or parts ship to the customer.
Other Payables - As of September 30, 2011, the Company had Other Payables
consisting of the following:
Royalty fees payable $ 18,480
Accrued warranty expense 9,476
Accrued compensation 28,226
---------
Total Other payables $ 56,182
=========
Royalty Fees Payable - The Adams Agreement described in Note 1 above, granted
Mr. Adams a royalty fee of $20.00 for each Suntracker One(TM) and Suntracker
Two(TM) unit or any future units that are based on the patent rights we acquired
from him. The maximum royalty fees payable under the Adams Agreement is
$2,000,000 based on the sale of 100,000 units. The royalty fees payable amount
at September 30, 2011 was $18,480 and represents accrued royalties on 924 units
due to Mr. Adams.
Accrued Compensation - The prior Chief Executive Officer of the Company is due
$17,647 in aggregate compensation resulting from accrued compensation. The
current Chief Executive Officer of the Company is due $10,609 in aggregate
compensation resulting from an accrued bonus.
12
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
6. Stockholders' Equity:
Common stock:
The Company is authorized to issue up to 50,000,000 shares of common stock with
a par value of $0.001, under terms and conditions established by the Board of
Directors.
On September 20, 2011, the Company filed a Post-Effective Amendment with the
Securities and Exchange Commission to the previously filed Form S-1 for the
purpose of updating the financial information. The Securities and Exchange
Commission deemed the Post-Effective Amendment effective on September 30, 2011.
The Company had 14,292,567 issued and outstanding common stock shares as of
September 30, 2011. Details of the issued and outstanding common stock shares
are shown below:
Amount of
Description Shares Issued
----------- -------------
Stock issued for acquisition of assets 3,600,000
Stock issued for legal services (founder's shares) 240,000
Stock issued for consulting services (founder's shares) 240,000
Stock issued as compensation (founder's shares) 1,120,000
Stock issued to private offering subscribers 6,595,360
Stock issued for compensation and services rendered 691,858
Stock issued for conversion of notes payable 1,803,349
Stock issued for exercise of stock options 2,000
----------
Total 14,292,567
==========
During the three month period ended March 31, 2010, a total of 873,858 shares of
common stock at $.25 per share were issued on January 15, 2010, consisting of
232,000 shares from sales of our stock through a Private Placement Offering,
282,353 shares as anti-dilution shares for compensation and services rendered
and 359,505 shares for accrued compensation and bonus compensation.
During the three month period ended September 30, 2010, a total of 1,576,408
shares of common stock were issued. On September 24, 2010, 1,552,408 shares of
common stock were issued, at a value of $.25 per share, resulting from the
conversion of an aggregate of $388,102 of convertible notes payable - related
parties, discussed in Note 4. In addition, from August 9, 2010 through September
30, 2010, 24,000 shares of common stock were issued, at a value of $.50 per
share, resulting from sales of our stock through a Private Placement Offering.
During the three month period ended December 31, 2010, a total of 470,941 shares
of common stock were issued, consisting of 50,941 shares at $.50 per share for
the conversion of a note payable and accrued interest in the amount of $25,470
and 420,000 shares from sales of our stock through a Private Placement Offering
at $.50 per share for an aggregate amount of $210,000.
During the three month period ended March 31, 2011, a total of 56,000 shares of
common stock at $.50 per share were issued, consisting of 6,000 shares from
sales of our stock through a Private Placement Offering and 50,000 shares for
engineering and promotional services rendered.
During the three month period ended June 30, 2011, a total of 669,000 shares of
common stock were issued, consisting of 667,000 shares, at $.50 per share, from
sales of our stock through a Private Placement Offering and 2,000 shares from
the exercise of stock options at $.75 per share.
During the three month period ended September 30, 2011, a total of 278,360
shares Of common stock were issued at $.50 per share, from sales of our stock
through a Private Placement Offering.
13
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
6. Stockholders' Equity: (continued)
Preferred stock:
The Company is authorized to issue 10,000,000 shares of preferred stock, par
value $0.001 per share. Currently, we have 1,000,000 shares of preferred stock
issued and outstanding. As part of the purchase contract for the acquisition of
assets, we issued 1,000,000 shares of Series A Preferred Stock to the seller of
those assets, Mr. George Adams, Sr. The Series A Preferred Stock has the
following rights and preferences:
Shares Issued: 1,000,000 shares have been issued to George Adams, Sr. No other
shares of preferred stock shall be issued by the Company that would grant the
holder(s) equal or superior rights to the Series A Preferred Stock.
Voting Rights: As long as the holder of our Series A Preferred Stock owns all
1,000,000 shares of the Company's Series A Preferred Stock and at least
3,200,000 shares of the Company's common stock, such holder shall have the right
to vote 51% of the total votes necessary for the election of directors and for
any acquisition or merger transaction.
Redemption Rights: The Company will have the right to redeem shares of the
Series A Preferred Stock by paying Mr. Adams $1.00 per share. Such redemption
may occur any time the Company has money legally available for such redemption.
7. Stock Options and Warrants:
As of September 30, 2011, the Company had not issued any warrants.
In January 2010, we entered into a stock option agreement with an individual in
recognition of his past activities in the development of the products
manufactured by the Company. The individual has the option to purchase up to
75,900 shares of common stock at $.75 per share. The option expires the sooner
of one year after October 19, 2010, the effective date of the Company's
registration statement or five years from the date of the stock option
agreement.
On December 30, 2010, the Company's Board of Directors approved and adopted the
Company's 2010 Employee and Consultant Stock Incentive Plan ("Plan") and
reserved a total of 800,000 shares of common stock for issuance pursuant to the
Plan. The purpose of this Plan is to provide incentives to attract, retain and
motivate eligible persons whose present and potential contributions are
important to the success of the Company by offering them an opportunity to
participate in the Company's future performance through awards of Options,
Restricted Stock and Stock Bonuses.
On December 30, 2010, the Board of Directors granted a total of 605,000 options
at an exercise price of $.425 per share, exercisable over five years from the
date of grant. We entered into eight stock option agreements with five
individuals in recognition of various services performed for the Company. The
individuals have the option to purchase a certain amount of shares of common
stock at $.425 per share. The options expire on December 15,2015. Jeffrey S.
Brain, the Company's President, Chief Executive Officer and Director, entered
into four stock option agreements relating to assisting the Company with its
registration process and becoming a publicly traded Company, entering into a
certain contract with a major customer and for serving on the Company's board of
14
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
7. Stock Options and Warrants: (continued)
directors. Mr. Brain was granted options to purchase an aggregate of 275,000
shares of common stock. Frederick Feck, the Company's Corporate Secretary and
Director, entered into a stock option agreement for serving on the Company's
board of directors and was granted options to purchase 100,000 shares of common
stock. Jacqui Matsumoto, a Company employee, entered into a stock option
agreement for significant contributions to the Company and was granted options
to purchase 30,000 shares of common stock. David E. Wise, the Company's
corporate securities counsel, entered into a stock option agreement for legal
services to the Company and was granted options to purchase 100,000 shares of
common stock. Terry Adams, a Company founder and investor, entered into a stock
option agreement for significant contributions to the Company and was granted
options to purchase 100,000 shares of common stock.
Stock options exercisable into an aggregate of 680,900 shares of the Company's
common stock were outstanding on December 31, 2010, of which 580,900 were vested
on the date granted and 100,000 are scheduled to vest during 2011. No options
were exercised during the year ended December 31, 2010. The Black-Scholes
option-pricing model was used to estimate the option fair values , in accordance
with the provisions of Statement of Financial Accounting Standards No. 148,
"Accounting for Stock-Based Compensation -- Transition and Disclosure." This
option-pricing model requires a number of assumptions, of which the most
significant are, expected stock price volatility, the expected pre-vesting
forfeiture rate and the expected option term (the amount of time from the grant
date until the options are exercised or expire). Since the Company's stock is
not yet trading nor does it have an extended history of stock prices or
volatility, expected volatility and average contractual life variables were
estimated utilizing a weighted average of comparable published volatilities and
contractual lives based on industry comparables. Expected pre-vesting
forfeitures were estimated based on expected employee turnover. The fair value
of options granted during the year ended December 31, 2010 was estimated as of
the grant date using the Black-Scholes option pricing model with the following
assumptions: a dividend yield of zero percent, an expected volatility of between
70.5% and 71.5%, a risk-free interest rate of 0% and a remaining contractual
life of between 1.0 and 5.0 years.
In April 2011, in consideration of the Adams agreeing to offer the Company
advances up to $300,000, the Company agreed to grant the Adams 300,000 stock
options at an exercise price of $.50 per option that will be exercisable over
five years. The options will vest over one year at 75,000 options per quarter.
In addition, 2000 stock options were exercised at $.75 per option during April
2011.
The following table summarizes the activity of stock options for the nine months
ended September 30, 2011:
Weighted
Number of Average
Shares Exercise
Outstanding Price
----------- -----
Balance, December 31, 2010 680,900 $ .46
Options granted 300,000 .50
Options exercised (2,000) .75
Options forfeited or expired -- --
-------- ------
Balance, September 30, 2011 978,900 $ .47
======== ======
15
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
7. Stock Options and Warrants: (continued)
The weighted average fair value of options granted during the year ended
December 31, 2010 was $0.09 per option and there were no options exercised
during the same period. During the three months ended September 30, 2011, 7,143
options vested for services and 75,000 options vested for financing costs. The
value recorded for the outstanding exercisable options at September 30, 2011 was
$12,167.
8. Commitments and Contingencies:
Operating Leases -- The Company has not entered into any long term leases. The
Company is currently leasing approximately 3,500 square feet of warehouse space
in Corona, California, on a verbal month to month basis from one of our
Directors, Frederick Feck. Commencing October 1, 2009, the Company paid $3,000
per month for the Corona, California warehouse space. For business office space,
the Company has chosen to share space with iCapital to reduce its administrative
cost by sharing costs, avoiding setup costs for phones, internet, furnishings,
etc as well as office staffing. Commencing May 1, 2009, the Company paid $3,000
per month for the office space which is located in Irvine, California on a
verbal month to month lease. Commencing April 1, 2010, we began renting an
executive suite in Corona, California for $150 a month on a month to month basis
and terminated the arrangement and rental payments for the executive offices in
Irvine, California.
In February 2010, we entered into an eighteen month services agreement with a
construction data company regarding Smart BIM; the construction and maintenance
of databases relating to customers, sales leads and marketing strategies. As a
result of the agreement, commencing April 1, 2010, we pay $1,140 per month for a
period of eighteen months.
The company entered into a Private Label Agreement with Firestone Building
Products, in which Firestone Building Products will purchase the Company
products and resell them under the Firestone brand label. Firestone Building
Products is one of the largest roofing system manufacturer's in the United
States with sales in excess of $1.2 billion per year. They will market and sell
the Company products through the Roofing Industry channel.
The Company, as of September 30, 2011 has no additional financial commitments
that would represent long term commitments on behalf of the Company.
Capital Leases - The Company has not entered into any kind of capital leases for
furnishings, equipment or for any other purposes.
Prepaid Inventory - Our agreements with several of our inventory component
suppliers generally provide that between 50% and 60% of the purchase order price
is due upon the placement of an order, with the remaining balance due upon
completion and shipment of the order, normally within 30 days. Purchase order
prepaid deposits are included in the balance sheet as Prepaid expenses and other
current assets. As of September 30, 2011, purchase order prepaid deposits
totaled $82,292 with primarily five of our major suppliers.
16
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
9. Related Party Transactions:
As described in Note 7, above, the Company leases warehouse space from one of
our directors, Frederick Feck and a portion of our CEO, Jeffrey Brain's,
residence is utilized as an office. The Company has recorded contributed capital
of $4,500 relating to the value of the use of the residence for the benefit of
the Company for the nine months ended September 30, 2011.
In January 2010, we entered into a nonexclusive distributorship agreement with
Chaparral Green Energy Solutions, LLC, an entity in which our securities
attorney, David E. Wise, Esq., owns a 50% equity interest. This non-exclusive
dealer agreement with the Company is to sell products in Texas and is on the
same terms, conditions and pricing as other dealer agreements. Thus, Mr. Wise's
company will not receive any beneficial or special treatment over our other
dealers or distributors.
The terms and conditions of the dealer agreement with Chaparral Green Energy
Solutions, LLC are the same as for the other dealer and distributorship
agreements. Therefore, the agreement with Chaparral Green Energy Solutions, LLC
does not contain preferential or more favorable terms or conditions than
agreements with our other dealers or distributors.
In January 2010, we also entered into nonexclusive dealer agreements with both
Green Tech Design-Build, Inc., an entity located in Salt lake City, Utah, and
Eco-Smart, Inc., an entity located in Sarasota, Florida. In addition, we entered
into an exclusive international distribution agreement with Zeev Shimon & Sons,
Ltd., an entity located in Petah-Tikva, Israel.
During the first quarter of 2011, Terry Adams and George Adams, Sr. each
advanced the Company $100,000 for short term working capital purposes, as
represented by the advances payable-related parties amount of $200,000 at June
30, 2011. The Adam's have agreed to advance the Company up to $300,000 at an
interest rate of two percent over the prime interest rate. Interest of $2,625
has been recorded for the three months ended June 30, 2011, making a total
amount due of $202,625. On April 1, 2011, in consideration of the Adams agreeing
to offer the Company advances of up to $300,000, the Company agreed to grant the
Adams 300,000 stock options at an exercise price of $.50 per option that will be
exercisable over five years. The options will vest over one year at 75,000
options per quarter.
10. Share Based Compensation:
In January 2010, 352,941 common stock shares at $.25 per share, with an
aggregate value of $88,235, were issued as compensation and for services
rendered in order to satisfy the anti-dilution rights. The Chief Executive
Officer and Chief Financial Officer of the Company were each due $30,000 in
17
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
10. Share Based Compensation: (continued)
aggregate compensation resulting from $3,000 per month accrued for each of them
from March through December 2009. In addition, the Chief Financial Officer was
due additional compensation of $29,876 for the period from February 26, 2009
(inception) to December 31, 2009. Our board of directors granted anti-dilution
rights to Jeffrey Brain, iCapital Finance, Inc. (a company owned by Randall
Letcavage, our former Chief Executive Officer, and his business partner,
Rosemary Nguyen), Randall Letcavage and David E. Wise, our securities counsel.
These anti-dilution rights entitled Jeffrey Brain, iCapital Finance, Inc.,
Randall Letcavage and David E. Wise to acquire additional shares of our common
stock at $.25 per share in order to maintain their original percentage ownership
in the our common stock. The rights entitled the holders to acquire additional
shares as a result of the private offering conducted by the Company. The
anti-dilution rights agreement entitled the holders to acquire their additional
shares prior to March 31, 2010, at the same share price of $.25 that subscribers
were purchasing stock for in the private offering. The holders exercised their
rights during December 2009.
11. Legal Matters:
On October 15, 2009, we filed a lawsuit in the Superior Court of the State of
California for the County of Orange, Central Justice Center (Case No. 30-2009,
00314998) ("Complaint") against Jacque Stevens, Rex Miller, Greg Schmalz, A-1
Daylighting, Consultech, Daylight Specialist and DOES 1-25. The Complaint
includes five causes of action by us against the defendants: Tortious
Interference with Contract, Commercial Disparagement, Conspiracy, Breach of
Contract, Unfair Business Practices and Libel. The Complaint alleges that we
entered into a nondisclosure agreement as part of an agreement to work toward
completing a joint venture/private label of our solar lighting systems with
Firestone Building Products and that defendants attempted to interfere with our
business relationship with Firestone Building Products by disparaging our
products (misrepresentations regarding prior sales, installations and quality of
service and that we provided or substituted defective or improper parts in our
products). We are seeking general, special and punitive or exemplary damages and
injunctive relief against the defendants.
While some of the defendants have answered the Complaint, none of them has filed
a counterclaim against us in this case. We are in settlement negotiations with
various defendants in this case. Recently, we dismissed Defendant Greg Schmaltz
from the case as a result of a settlement agreement with Defendant Schmaltz
pursuant to which we released him from any liability to us and he, in turn,
released us from any liability to him or his company, First Team Marketing and
Communications. As a result of this settlement agreement, Defendant Schmalz
dismissed Lawsuits A and B described below. We do not believe we have any legal
exposure in this case.
On January 14, 2010, we were served with process in two lawsuits, which we
deemed to be frivolous. Both of these lawsuits were filed in the Superior Court
of the State of California for the County of Orange, Central Justice Center
(Case No. 30-2010, 00334139) ("Lawsuit A"). Lawsuit A is styled First Team
Marketing and Communications vs. Ciralight Global, Inc., Ciralight, Inc. and
DOES 1-25. Lawsuit A is a suit on an open book account in the amount of
approximately $62,000. We believe that this suit should have been brought
against Ciralight, Inc., a defunct corporation, with whom we have no affiliation
or relationship. The second of these lawsuits (Case No. 30-2010, 003344479)
("Lawsuit B") is styled Greg Schmalz Consultants LLC vs. Ciralight Global, Inc.,
Ciralight, Inc. and DOES 1-25. Lawsuit B is a suit on an open book account in
the amount of approximately $34,000. As discussed above, Lawsuits A and B have
been dismissed.
18
CIRALIGHT GLOBAL, INC.
NOTES TO THE FINANCIAL STATEMENTS
September 30, 2011
(Unaudited)
12. Subsequent Events:
The Company has performed an evaluation of subsequent events in accordance with
ASC Topic 855. Other than the events noted below, the Company is not aware of
any subsequent events which would require recognition or disclosure in the
financial statements.
Subsequent to September 30, 2011, the Company has continued to enter into Dealer
Agreements with authorized dealers regarding the sale, installation and
servicing of our products.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY FORWARD - LOOKING STATEMENT
The following discussion should be read in conjunction with our financial
statements and related notes.
Certain matters discussed herein may contain forward-looking statements
that are subject to risks and uncertainties. Such risks and uncertainties
include, but are not limited to, the following:
* the volatile and competitive nature of our industry,
* the uncertainties surrounding the rapidly evolving markets in which we
compete,
* the uncertainties surrounding technological change of the industry, o
our dependence on its intellectual property rights,
* the success of marketing efforts by third parties,
* the changing demands of customers and
* the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should
any of the underlying assumptions prove incorrect, actual results of current and
future operations may vary materially from those anticipated.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF CIRALIGHT GLOBAL, INC., FOR THE THREE AND NINE MONTH PERIODS ENDED
SEPTEMBER 30, 2011 and 2010 (UNAUDITED) SHOULD BE READ IN CONJUNCTION WITH THE
FINANCIAL STATEMENTS, AND THE NOTES TO THOSE FINANCIAL STATEMENTS THAT ARE
INCLUDED IN ITEM 1 ELSEWHERE IN THIS FILING. REFERENCES TO "WE," "OUR," OR "US"
IN THIS SECTION REFERS TO THE COMPANY AND ITS SUBSIDIARIES. OUR DISCUSSION
INCLUDES FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE
RISKS AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND
INTENTIONS. ACTUAL RESULTS AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY FROM
THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING THOSE SET FORTH UNDER THE RISK FACTORS, FORWARD-LOOKING
STATEMENTS AND BUSINESS SECTIONS IN THIS PROSPECTUS. WE USE WORDS SUCH AS
"ANTICIPATE," "ESTIMATE," "PLAN," "PROJECT," "CONTINUING," "ONGOING," "EXPECT,"
"BELIEVE," "INTEND," "MAY," "WILL," "SHOULD," "COULD," AND SIMILAR EXPRESSIONS
TO IDENTIFY FORWARD-LOOKING STATEMENTS.
OVERVIEW
We are a manufacturer and wholesaler of "advanced skylights" for use in
warehouses, schools, retail stores, airports, military installations and
residential buildings. We develop, market and sell the Suntracker One(TM) and
Suntracker Two(TM) units and we are currently marketing our advanced daylighting
system under the name Smart Skylight(TM).
We were incorporated in the state of Nevada on February 26, 2009, under the
name "Ciralight West, Inc." On March 13, 2009, we changed our name to "Ciralight
Global, Inc." In April 2009, we entered into an Exchange of Stock for Assets
Agreement with Mr. George Adams, Sr. to acquire certain assets including, but
not limited to, a United States patent, patent applications pending in Canada,
Europe, Mexico and the United States, artwork, trademarks, equipment, furniture,
databases, technical drawings, promotional materials, trade names and inventory
parts and marketing rights related to the Suntracker One(TM) and Suntracker
Two(TM) daylighting products previously owned and distributed by Ciralight,
Inc., a Utah corporation, such assets having been foreclosed on by Mr. Adams,
who was the secured creditor of Ciralight, Inc. We did not acquire any equity
securities, debts, liabilities or financial obligations of Ciralight, Inc., the
Prior Company. Ciralight, Inc. is a predecessor to Ciralight Global, Inc.,
20
although we have no affiliation, contractual or otherwise, with Ciralight, Inc.
or any of its employees, officers or directors. Ciralight, Inc. ceased
operations on January 27, 2009.
In April 2009, we acquired all of the above described assets from Mr.
Adams, except for the United States patent and the patent applications pending
in Canada, Europe, Mexico and the United States, in exchange for 3,200,000
shares of our common stock and 1,000,000 shares of our Series A Preferred Stock.
In December 2009, we acquired the United States patent and the patent
applications pending in Canada, Europe, Mexico and the United States from Mr.
Adams in exchange for the issuance by us of an additional 400,000 shares of our
common stock and a convertible promissory note in the amount of $250,000. The
promissory note we issued to Mr. Adams is convertible into shares of our common
stock at a conversion rate of one share per $.25 of outstanding principal and
interest. As a result of this transaction, Mr. Adams is our largest shareholder
and has voting control over us. Mr. Adams converted his promissory note to
common stock in September 2010.
As described in the above paragraphs, Ciralight, Inc. is a predecessor to
Ciralight Global, Inc., since the major portion of the business and assets of
Ciralight, Inc. were acquired by Ciralight Global, Inc. in a series of related
successions in each of which the acquiring person or entity acquired the major
portion of the business and assets of Ciralight, Inc.
In order to raise working capital, we commenced a Private Placement
Offering in the amount of $800,000 in April 2009. Our common stock was offered
at a fixed price of $.25 per share. We raised the $800,000 by mid October 2009
and the investors purchased a 40% stake in the company for a total of 3,200,000
shares.
In October 2009, the Company elected to extend the private offering in
order to raise an additional $500,000 in working capital by offering 2,000,000
additional shares at $.25 per share. We raised the additional $500,000 by mid
January 2010, at which time the offering was closed.
In May 2011, the Company elected to raise funds through a private offering
and planned to raise an additional $500,000 in working capital by offering
1,000,000 additional shares at $.50 per share. We raised $500,680 through
September 30, 2011 with the issuance of 1,001,360 shares of the Company's common
stock.
RISKS, UNCERTAINTIES AND TRENDS RELATING TO THE COMPANY AND INDUSTRY
The industrial lighting industry is intensely competitive. We have numerous
competitors in the United States and elsewhere. Several of these competitors
have already successfully marketed and commercialized products that compete with
our products. Our success is dependent up our ability to effectively and
profitably produce, market and sell our products. Our business strategy and
success is dependent on the skills and knowledge of our management team and
consultants. The marketability and profitability of our products is subject to
unknown economic conditions, which could significantly impact our business,
financial condition, the marketability of our products and our profitability. We
are vulnerable to the current economic crisis which may negatively affect our
profitability. Our success depends, in part, on the quality of our products.
Our Smart Skylight(TM) products provide natural daylighting that is a key
component in many current construction and existing structures. Smart
Skylights(TM) are maintenance free, powered by the sun and completely
self-contained. We are currently marketing our Smart Skylight(TM) products to
warehouse owners, roofing companies, shopping centers, schools and military
installations in the United States. We are working on establishing sales in
Canada, Mexico and overseas. The market for advanced skylights is growing year
over year due to pressures on building owners, tenants, schools and government
agencies to reduce energy consumption and expense. The "green" movement, carbon
footprint ideology and other environmental initiatives should provide increased
growth in our market segment.
21
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of our financial condition and
results of operations are based on our condensed financial statements, which
have been prepared in accordance with accounting principles generally accepted
in the United States. The preparation of these financial statements requires us
to make estimates and assumptions that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the financial statements as well as the reported net sales and expenses
during the reporting periods. On an ongoing basis, we evaluate our estimates and
assumptions. We base our estimates on historical experience and on various other
factors that we believe are reasonable under the circumstances, the results of
which form the basis for making judgments about the carrying value of assets and
liabilities that are not readily apparent from other sources. Actual results may
differ from these estimates under different assumptions or conditions.
While our significant accounting policies are more fully described in Note
3 to our financial statements, we believe that the following accounting policies
are the most critical to aid the reader in fully understanding and evaluating
this discussion and analysis:
BASIS OF PRESENTATION - The accompanying financial statements have been
prepared in accordance with generally accepted accounting principles for
financial information and have been prepared pursuant to the rules and
regulations of the Securities and Exchange Commission for smaller reporting
companies. In the opinion of management, all adjustments, consisting of normal
recurring accruals, necessary for a fair presentation of the results of
operations of the Company for the Three and Nine Month Periods Ended September
30, 2011 and 2010 (Unaudited) have been reflected herein.
INVENTORIES - Inventories, consisting primarily of finished skylight units
and parts for sale, are recorded using the average cost method. Inventory
acquired from the prior company was booked at the historical cost of the prior
company.
REVENUE RECOGNITION - Revenue on our skylights and parts are recognized
when the units or parts ship to the customer.
EARNINGS PER SHARE - Earnings per share is computed in accordance with the
provisions of Financial Accounting Standards (FASB) Accounting Standards
Codification (ASC) Topic 260 (SFAS No. 128, "EARNINGS PER Share"). Basic net
income (loss) per share is computed using the weighted-average number of common
shares outstanding during the period. Diluted earnings per share is computed
using the weighted-average number of common shares outstanding during the
period, as adjusted for the dilutive effect of the Company's outstanding
convertible preferred shares using the "if converted" method and dilutive
potential common shares. Potentially dilutive securities include warrants,
convertible preferred stock, restricted shares, and contingently issuable
shares.
STOCK-BASED COMPENSATION - The Company accounts for stock-based
compensation under the provisions of FASB ASC 718 (Statement of Financial
Accounting Standards No. 123 (revised 2004), "SHARE-BASED PAYMENT"), which
requires the Company to measure the stock-based compensation costs of
share-based compensation arrangements based on the grant date fair value and
generally recognizes the costs in the financial statements over the employee's
requisite service period. Stock-based compensation expense for all stock-based
compensation awards granted was based on the grant date fair value estimated in
accordance with the provisions of FASB ASC 718.
SHIPPING AND HANDLING COSTS - The Company includes shipping and handling
costs that are billed to our customers in revenue and the actual costs incurred
for shipping and handling are included in cost of goods sold in accordance with
the provisions of FASB ASC 605-45-45-20. The related costs are considered
necessary to complete the revenue cycle.
22
WARRANTY COSTS - Commencing April 1, 2009, the Company provided a five-year
warranty covering the labor and materials associated with its installations.
Effective September 1, 2009, the Company changed the coverage to ten years in
the U.S. The Company's "advanced skylights" are warranted by the manufacturer
for 10 years, generally. The Company (at its option) will repair, replace or
give credit for the original purchase price on any of its products or parts. An
accrual for a loss contingency has been made, since warranty expenses to date
have been consistent and a reasonable estimate of future expenses can be made,
in accordance with FASB ASC 460-10-50-8 (c).
COMPREHENSIVE INCOME (LOSS) - FASB ASC Topic 220 (Statement of Financial
Accounting Standards No. 130, "REPORTING COMPREHENSIVE INCOME") establishes
standards for reporting comprehensive income (loss) and its components in a
financial statement that is displayed with the same prominence as other
financial statements. Comprehensive income (loss), as defined, includes all
changes in equity during the period from non-owner sources, such as foreign
currency translation adjustments.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
Management reviewed accounting pronouncements issued during the three month
period ended September 30, 2011, and no pronouncements were adopted.
COMPARISON OF THE THREE MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
NET SALES. Net sales for the three months ended September 30, 2011 were
$246,013 compared to net sales of $205,189 for the three months ended September
30, 2010.
Sales and demand for our products have been increasing each quarter. As a
result of increased sales our gross profit was $96,473 for the three months
ended September 30, 2011 compared to $28,171 for the three months ended
September 30, 2010.
COST OF SALES. Cost of sales for the three months ended September 30, 2011
was $149,540 on net revenue of $246,013, representing 61%, and providing a gross
profit of 39%. Cost of sales for the three months ended September 30, 2010 was
$177,018 on net revenue of $205,189, representing 86%, and providing a gross
profit of 14%.
Cost of Sales have decreased due to the Company's implemented changes in
its business operations in the ongoing effort to decrease its cost of sales.
These include stricter controls over the movement of inventory to reduce losses,
damage, and waste, making improvements to the products in order to reduce
warranty work, implementing cost effective shipping options available through
better pre-planning and scheduling, managing inventory levels by scheduling
production to match demand forecasts, changing to more quality oriented
suppliers, negotiating more favorable manufacturing agreements, and implementing
cost reducing design changes.
GROSS PROFIT. Gross profit for the three months ended September 30, 2011
was $96,473, providing a gross profit margin of 39%. Gross profit for the three
months ended September 30, 2010 was $28,171, providing a gross profit margin of
14%.
Our gross profit has increased with continued product enhancements and
refinements to our production process. We anticipate higher gross profit margins
in the future.
23
OPERATING EXPENSES. Our operating expenses consist of research and
development expenses, selling and marketing expenses and general and
administrative expenses. For the three months ended September 30, 2011 and 2010,
total operating expenses were $275,146 and $295,205, respectively. As a
percentage of sales, operating expenses were approximately 112% for the three
months ended September 30, 2011, compared to 144% for the three months ended
September 30, 2010.
Reduced operating expenses have resulted from a number of changes in the
manner in which the business was operated. We have created a culture of
efficiency and accountability. We eliminated the practice of having consultants
and sales people on retainers. Compensation is tied to work completed. We
elected not to directly hire sales personnel and instead require that they work
for third party dealers and distributors, thus reducing the overhead cost of
carrying and supporting an extended staff.
INCOME TAXES. For the three months ended September 30, 2011, management has
decided not to record the tax benefit.
COMPARISON OF THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2011 AND 2010
NET SALES. Net sales for the nine month period ended September 30, 2011
were $823,139 compared to $614,182 for the nine month period ended September 30,
2010.
As a result of the efficiencies we implemented, our gross profit was
$236,166 for the nine month period ended September 30, 2011 compared to $213,003
for the nine month period ended September 30, 2010.
COST OF SALES. Cost of sales for the nine month period ended September 30,
2011 was $586,974 on net sales of $823,139, representing 71%, and providing a
gross profit of 29% compared to the nine month period ended September 30, 2010
in which cost of sales was $401,179 on net sales of $614,182, representing 65%,
and providing a gross profit of 35%.
The company plans to reduce the cost of sales by implementing a number of
changes in the business operations. These includes stricter controls over the
movement of inventory to reduce losses, damage, and waste, making improvements
to the products in order to reduce warranty work, implementing cost effective
shipping options available through better pre-planning and scheduling, managing
inventory levels by scheduling production to match demand forecasts, changing to
local quality oriented suppliers to reduce inbound shipping costs, negotiating
more favorable manufacturing agreements, and implementing cost reducing design
changes.
GROSS PROFIT. Gross profit for the nine month period ended September 30,
2011 was $236,166, providing a gross profit margin of 29% compared to gross
profit for the nine month period ended September 30, 2010 of $213,003, providing
a gross profit margin of 35%.
During 2010 and 2011, in an effort to address issues experienced by
customers that purchased product from the former company, Ciralight, Inc., we
sold replacement parts or parts that had been purchased, but never shipped to
old customers, at our cost. This has lowered our gross profit margin but this
practice will be stopping as most of the prior customer issues have been
addressed. With the elimination of resolution of past issues, continued product
enhancements and refinements to our production process, we anticipate higher
gross profit margins in the future.
OPERATING EXPENSES. Our operating expenses consist of research and
development expenses, selling and marketing expenses and general and
administrative expenses. For the nine month period ended September 30, 2011,
total operating expenses were $784,020; as a percentage of sales, operating
expenses were approximately 95%. For the nine month period ended September 30,
24
2010, total operating expenses were $904,400; as a percentage of sales,
operating expenses were approximately 147%.
Reduced operating expenses will result from a number of changes in the
manner in which the business was operated. In 2009 our Company operated with
only four employees and outsourced required additional services on an as needed
basis. No employees from the prior company were employed or brought over to our
Company. They were not part of the rights we acquired and this has created a
culture of efficiency and accountability. We eliminated the practice of having
consultants and sales people on retainers. Compensation is tied to work
completed. We elected not to directly hire sales personnel and instead require
that they work for third party dealers and distributors, thus reducing the
overhead cost of carrying and supporting an extended staff.
INCOME TAXES. For the nine month period ended September 30, 2011,
management has decided not to record the tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - FOR THE NINE MONTH PERIODS ENDED SEPTEMBER 30, 2011 and 2010.
Net cash used in operating activities was $579,106 and $354,604 for the
nine month period ended September 30, 2011 and for the nine month period ended
September 30, 2010, respectively. Net cash used in operating activities the nine
month period ended September 30, 2011 was attributable primarily to decreases in
accounts payable, inventory and notes receivable-related parties, offset by
increases in accounts receivable and prepayments and deposits. Net cash used in
operating activities for the nine month period ended September 30, 2010, was
attributable to decreases in accounts receivable and prepayments and deposits,
offset by increases in inventory and accounts payable.
Cash used in investing activities for the nine month period ended September
30, 2011 was $4,262 from the acquisition of property and equipment compared to
no cash used in investing activities for the nine month period ended September
30, 2010.
Net cash provided by financing activities was $444,742 and $137,421 for the
nine month periods ended September 30, 2011 and 2010, respectively. Net cash
provided by financing activities for both periods was attributable to sales of
the Company's common stock through a private offering and proceeds from notes
payable for the nine month period ended September 30, 2010.
MATERIAL IMPACT OF KNOWN EVENTS ON LIQUIDITY
The disruption in the credit markets has had a significant adverse impact
on a number of financial institutions. As of September 30, 2011, however, our
liquidity and capital investments have not been materially adversely impacted,
and we believe that they will not be materially adversely impacted in the near
future. We will continue to closely monitor our liquidity and the credit
markets. We cannot, however, predict with any certainty the impact to us of any
further disruption in the credit environment.
There are no other known events that are expected to have a material impact
on our short-term or long-term liquidity.
CAPITAL RESOURCES
We have financed our operations primarily through cash flows from
operations and debt and equity financings. We commenced a private placement
offering in the amount of $800,000 in April 2009. Our common stock was offered
at a fixed price of $.25 per share. We raised the $800,000 by mid October 2009
and the investors purchased a 40% stake in the company for a total of 3,200,000
shares.
25
In May 2011, the Company elected to raise funds through a private offering
in order to raise an additional $500,000 in working capital by offering
1,000,000 additional shares at $.50 per share. We have raised $472,680 through
September 6, 2011 and the balance of the offering has been closed.
We believe that our current cash and cash equivalents and anticipated cash
flow from operations will be sufficient to meet our anticipated cash needs,
including our cash needs for working capital and capital expenditures, for at
least the next six months.
While we would like to grow our business with our cash flow, a robust
increase in orders for our products, delays in collection of our accounts
receivable and/or the incurrance of unforeseen expenses would likely necessitate
our engaging in a capital raising transaction in the third or fourth quarter of
2010.
We may also seek to raise additional cash to fund future investments or
acquisitions we may decide to pursue. To the extent it becomes necessary to
raise additional cash in the future, we may seek to raise it through the sale of
debt or equity securities, funding from joint-venture or strategic partners,
debt financing or loans, issuance of common stock, or a combination of the
foregoing. We currently do not have any binding commitments for, or readily
available sources of, additional financing. Nor do we have any current plans to
raise additional capital. However we reserve the right to raise additional
capital in the future in which case the percentage ownership of our shareholders
would be diluted. We cannot provide any assurances that we will be able to
secure the additional cash or working capital we may require to continue our
operations.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
CONTRACTUAL OBLIGATIONS
We have certain fixed contractual obligations and commitments that include
future estimated payments. Changes in our business needs, cancellation
provisions, changing interest rates, and other factors may result in actual
payments differing from the estimates. We cannot provide certainty regarding the
timing and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our consolidated financial position, results of operations, and cash flows.
The following table summarizes our contractual obligations as of September
30, 2011, and the effect these obligations are expected to have on our liquidity
and cash flows in future periods.
Payments Due by Period
------------------------------------------------------
Less than
Total 1 year 1-3 Years 3-5 Years 5 years +
----- ------ --------- --------- ---------
Contractual Obligations:
Advances payable - related parties $200,000 $200,000 $ -- $ -- $ --
Interest Payments (1) 5,250 5,250 -- -- --
Operating Leases 37,800 37,800 -- -- --
Commitments to Purchase Inventory 82,292 82,292 -- -- --
-------- -------- --------- --------- --------
Totals: $325,342 $325,342 $ -- $ -- $ --
======== ======== ========= ========= ========
----------
(1) Advances payable - related parties bear interest at the rate of Prime Rate
(as quoted in the Wall Street Journal) plus 2% per annum and estimated
interest payments are expected to be paid upon payment or satisfaction of
the advances.
26
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any other financial guarantees or other
commitments to guarantee the payment obligations of any third parties. We have
not entered into any derivative contracts that are indexed to our shares and
classified as stockholders' equity or that are not reflected in our financial
statements. Furthermore, we do not have any retained or contingent interest in
assets transferred to an unconsolidated entity that serves as credit, liquidity
or market risk support to such entity. We do not have any variable interest in
any unconsolidated entity that provides financing, liquidity, market risk or
credit support to us or engages in leasing, hedging or research and development
services with us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
(a) Evaluation of Disclosure Controls and Procedures
We conducted an evaluation under the supervision and with the participation
of our management, including Jeffrey S. Brain, our Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures. The term "disclosure controls and
procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities
and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other
procedures of a company that are designed to ensure that information required to
be disclosed by the company in the reports it files or submits under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures also include, without limitation, controls
and procedures designed to ensure that information required to be disclosed by a
company in the reports that it files or submits under the Exchange Act is
accumulated and communicated to the company's management, including its
principal executive and principal financial officers, or persons performing
similar functions, as appropriate, to allow timely decisions regarding required
disclosure. Based on this evaluation, our Chief Executive Officer and Chief
Financial Officer concluded as of December 31, 2010, and again as of September
30, 2011, that our disclosure controls and procedures have been improved and
Were maintained effectively at the reasonable assurance level in our internal
controls over financial reporting discussed immediately below.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules 13a-15(f) and
15d-15(f) under the Exchange Act. Our internal control over financial reporting
is designed 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. Our
internal control over financial reporting 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 our
assets;
(2) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance
with U.S. GAAP, and that our receipts and expenditures are being made
only in accordance with the authorization of our management and
directors; and
(3) provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that
could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
27
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over
financial reporting as of December 31, 2010, and again at September 30, 2011. In
making this assessment, management used the framework set forth in the report
entitled Internal Control--Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework
summarizes each of the components of a company's internal control system,
including (i) the control environment, (ii) risk assessment, (iii) control
activities, (iv) information and communication, and (v) monitoring. This annual
report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting.
Management's report was not subject to attestation by our registered public
accounting firm pursuant to temporary rules of the Securities and Exchange
Commission that permits us to provide only management's report in this annual
report.
IDENTIFIED MATERIAL WEAKNESSES AND SIGNIFICANT DEFICIENCIES
A material weakness is a control deficiency, or combination of control
deficiencies, that results in more than a remote likelihood that a material
misstatement of the financial statements will not be prevented or detected.
Management identified the following internal control deficiency which we had
assessed as a material weakness as of September 30, 2011 and December 31, 2010
during its assessment of our internal control over financial reporting as
follows:
1. We did not have adequate segregation of duties over certain areas of
our financial reporting process.
The internal control deficiency identified above will only be completely
corrected if the company expands and has the capacity to adequately segregate
the duties to mitigate risk in financial reporting. Expansion will depend mostly
on the ability of management to begin operations and generate enough income to
warrant growth in personnel.
We did not have effective comprehensive entity-level internal controls
specific to the structure of our board of directors and organization of critical
committees. Due to our expected expansion, as disclosed in this Form 10-Q,
without correcting this significant deficiency and ensuring that our board of
directors has the proper oversight and committees are properly established, the
control environment in subsequent years may not be effective.
We had engaged a regionally-recognized independent consulting firm assisted
management with its assessment of the effectiveness of our internal control over
financial reporting, including scope determination, planning, staffing,
documentation, testing, remediation and retesting and overall program management
of the assessment project. In conclusion, our Chief Executive Officer and Chief
Financial Officer surmised that the Company has improved the effective internal
control over financial reporting as of September 30, 2011.
MANAGEMENT'S REMEDIATION INITIATIVES
We are in the further process of evaluating our material and significant
deficiencies. We have already begun to remediate many of the deficiencies.
However, others will require additional people, including adding to our board of
directors, which will take longer to remediate.
In an effort to remediate the identified material weaknesses and other
deficiencies and enhance our internal controls, we have initiated, or plan to
initiate, the following series of measures:
1. Identify and retain one or two new directors for our board of
directors including a member who is appropriately credentialed as a
financial expert with a goal of having sufficient independent board of
directors oversight;
28
2. Ensure all entity level controls are applied at all levels of the
organization and are scalable for acquisition or merge targets;
3. Establish comprehensive, formal general accounting policies and
procedures and require directors or employees to sign off such
policies and procedures as documentation of their understanding of and
compliance with company policies;
4. Make all directors or employees subject to our Code of Ethics
(including those employees in acquisition targets) and require all
employees and directors to sign our Code of Ethics on an annual basis
and retain the related documentation; and,
5. Implement better segregation of duties given the size of our company.
We believe that the above five initiatives had been at least partially, if
not fully, implemented by September 30, 2011.
CONCLUSION
The above identified material weakness did not result in material
adjustments to our September 30, 2011 financial statements. However, it is
reasonably possible that, if not re-mediated, the identified material weakness
noted above could result in a material misstatement in our reported financial
statements that might result in a material misstatement in a future annual or
interim period.
In light of the identified material weakness, management, performed (1)
significant additional substantive review of those areas described above, and
(2) performed additional analyses, including, but not limited to, a detailed
balance sheet and statement of operations analytical review that compared
changes from the prior period's financial statements and analyzed all
significant differences. These procedures were completed so management could
gain assurance that the financial statements and schedules included in this Form
10-Q fairly present in all material respects the Company's financial position,
results of operations and cash flows for the periods presented.
The changes noted above, are the only changes during our most recently
completed fiscal quarter that have materially affected or are reasonably likely
to materially affect, our internal control over financial reporting, as defined
in Rules 13a-15(f) and 15d-15(f) under the Exchange Act.
On July 29, 2010, the Company's Form S-1 Registration Statement was
declared effective by the Securities and Exchange Commission, thus we have not
been required to include an attestation report of the Company's registered
public accounting firm regarding internal control over financial reporting.
Management's reports have not been subject to attestation by the Company's
registered public accounting firm pursuant to temporary rules of the Securities
and Exchange Commission that permit the Company to provide only management's
report in its Annual Report.
(b) Changes in Internal Control over Financial Reporting
We did not make any changes in our Internal Control over Financial
Reporting during the quarter ended September 30, 2011.
29
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
On October 15, 2009, we filed a lawsuit in the Superior Court of the State
of California for the County of Orange, Central Justice Center (Case No.
30-2009, 00314998) ("Complaint") against Jacque Stevens, Rex Miller, A-1
Daylighting, Consultech, Daylight Specialist and DOES 1-25. The Complaint
includes five causes of action by us against the defendants: Tortious
Interference with Contract, Commercial Disparagement, Conspiracy, Breach of
Contract, Unfair Business Practices and Libel. The Complaint alleges that we
entered into a nondisclosure agreement as part of an agreement to work toward
completing a joint venture/private label of our solar lighting systems with
Firestone Building Products and that defendants attempted to interfere with our
business relationship with Firestone Building Products by disparaging our
products (misrepresentations regarding prior sales, installations and quality of
service and that we provided or substituted defective or improper parts in our
products). We are seeking general, special and punitive or exemplary damages and
injunctive relief against the defendants.
While some of the defendants have answered the Complaint, none of them has
filed a counterclaim against us in this case. We do not believe we have any
legal exposure in this case.
The Company is not aware of any other threatened or pending litigation
against the Company.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
Since April 15, 2011, the Company issued the following unregistered shares
of Common Stock:
Number of Aggregate Nature of
Date of Issue Shares Issued Sales Price Transaction
------------- ------------- ----------- -----------
5/2011-9/2011 1,001,360 $500,680 Private Placement Offering
Management believes the above shares of Common Stock were issued pursuant
to an exemption from registration under Section 4(2) and/or Rule 506 of
Regulation D of the Securities Act of 1933, as amended. The certificates
representing such shares bear the standard 1933 Act restrictive legend and the
investors have executed documents representing that the shares were being
acquired for investment purposes only and not with a view the distribution
thereof. No broker or underwriter was involved in any of the above transactions.
The proceeds from the cash sales are being used for working capital.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. (REMOVED AND RESERVED)
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
See Exhibit Index below for exhibits required by Item 601 of regulation
S-K.
30
EXHIBIT INDEX
List of Exhibits attached or incorporated by reference pursuant to Item 601
of Regulation S-K:
Exhibit No. Description
----------- -----------
3(i).1* Articles of Incorporation of Ciralight West, Inc. filed February
26, 2009, with the Secretary of
3(i).2* Certificate of Amendment to the Articles of Incorporation filed
on March 13, 2009, with the Secretary of State of Nevada(changing
name to Ciralight Global, Inc.).
3(i).3* Certificate of Amendment to the Articles of Incorporation filed
on April 22, 2009, with theSecretary of State of Nevada.
3(ii)* By-Laws of Ciralight Global, Inc.
4.1* Certificate of Designation of Series A Preferred Stock filed on
July 22, 2009, with the Secretaryof State of Nevada
10.1* Exchange of Stock for Assets Agreement dated as of April 1, 2009,
by and between Ciralight Global, Inc. and George Adams, Sr.
10.2* Amendment to Exchange of Stock for Assets Agreement by and
between Ciralight Global,Inc. and George Adams, Sr. dated
December 15, 2009.
10.3* Assignment of Issued United States Patent and Pending United
States Patent Application dated December 17, 2009
10.4* Domestic Non-Exclusive Dealer Agreement(undated and unsigned
prototype)
10.5* Domestic Non-Exclusive Distribution Agreement(undated and
unsigned prototype)
10.6* Domestic Non-Exclusive Dealer Agreement by and between Ciralight
Global, Inc. and Chaparral Green Energy Solutions, LLC dated as
of January 1, 2010
10.7* Domestic Non-Exclusive Dealer Agreement dated December 1, 2009,
by and between Ciralight Global, Inc. and Green Tech
Design-Build, Inc.
10.8* International Distribution Agreement dated January 15, 2010, by
and between Ciralight Global, Inc. and ZEEV Shimon & Sons, Ltd.
10.9* International Dealership Agreement dated June 18, 2009, by and
between Ciralight Global, Inc. and RSB Construction LTD.
10.10* Domestic Non-Exclusive Dealer Agreement dated April 1, 2010, by
and between Ciralight Global, Inc. and J-MACS Consulting, LLC.
31
10.11* Domestic Non-Exclusive Dealer Agreement dated April 15, 2010, by
and between Ciralight Global, Inc. and The Energy Solutions Group
Worldwide, LLC.
10.12* Domestic Non-Exclusive Dealer Agreement dated April 15, 2010, by
and between Ciralight Global, Inc. and Kemper & Associates, Inc.,
d/b/a Total Roofing & Reconstruction.
10.13* Domestic Non-Exclusive Dealer Agreement dated December 1, 2009,
by and between Ciralight Global, Inc. and Eco-Smart, Inc.
10.14* Commercial Lease Agreement dated April 1, 2010, by and between
Ciralight Global, Inc. and Frederick Feck.
10.15* Material Liability Agreement dated September 3, 2009, by and
between Ciralight Global, Inc. and Suntron Corporation.
10.16* Material Terms and Conditions of Verbal Office Lease for
Executive Offices in Irvine, California.
10.17* Material Terms and Conditions of Verbal Office Lease for
Warehouse/Offices in Corona, California
14* Code of Business Conduct and Ethics
21* Subsidiaries.
31.1** Certification under Section 302 of Sarbanes-Oxley Act of 2002.
32.1** Certification under Section 906 of Sarbanes-Oxley Act of 2002.
101** Interactive data files pursuant to Rule 405 of Regulation S-T.
----------
* Exhibits incorporated by reference to Registrant's Form S-1 Registration
Statement, Registration No. 333-165638.
** Filed herewith.
32
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CIRALIGHT GLOBAL, INC.
Date: November 11, 2011 /s/ Jeffrey S. Brain
--------------------------------------------
Jeffrey S. Brain
President, Chief Executive Officer and Chief
Financial Officer (Principal Accounting,
Executive and Financial Officer)
33