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 March 31, 2012
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 [X] No [ ]
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 May 15, 2012 there were
14,344,067 outstanding shares of the Registrant's Common Stock, $0.001 par
value.
CIRALIGHT GLOBAL, INC.
Report on Form 10-Q
For the Quarter Ended March 31, 2012
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Balance Sheets as of March 31, 2012 (Unaudited)
and December 31, 2011 3
Condensed Statements of Operations for the Three Months
Ended March 31, 2012 and 2011 (Unaudited) 4
Condensed Statements of Cash Flows for the Three Months
Ended March 31, 2012 and 2011 (Unaudited) 5
Notes to Condensed Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 19
Item 3. Quantitative and Qualitative Disclosures about Market Risk 23
Item 4. Controls and Procedures 23
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 24
Item 1A. Risk Factors 24
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 24
Item 3. Defaults Upon Senior Securities 25
Item 4. Mine Safety Disclosures 25
Item 5. Other Information 25
Item 6. Exhibits 25
SIGNATURES 27
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CIRALIGHT GLOBAL, INC
CONDENSED BALANCE SHEETS
(Unaudited)
March 31, December 31,
2012 2011
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 71,244 $ 97,443
Restricted cash 7,600 7,600
Accounts receivable 123,021 175,235
Inventory 198,001 197,619
Prepaid expenses and other current assets 57,820 16,090
------------ ------------
Total current assets 457,686 493,987
------------ ------------
Property and equipment, net 5,654 6,928
Intangible assets, net 26,783 27,198
------------ ------------
Total assets $ 490,123 $ 528,113
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 231,838 $ 128,764
Advances payable - related party 340,000 300,000
Accrued expenses - related party 48,602 151,813
Deferred revenue 46,786 30,932
Other payables 26,392 18,426
------------ ------------
Total current liabilities 693,618 629,935
------------ ------------
Stockholders' equity (deficit)
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,
14,344,067 and 13,289,207 shares issued and outstanding, respectively 14,344 14,322
Additional paid-in capital 2,827,804 2,664,633
Accumulated deficit (3,046,643) (2,781,777)
------------ ------------
Total stockholders' equity (deficit) (203,495) (101,822)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 490,123 $ 528,113
============ ============
The accompanying notes are an integral part of
these condensed financial statements
3
CIRALIGHT GLOBAL, INC
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Quarters Ended
March 31,
-----------------------------------
2012 2011
------------ ------------
Sales $ 159,405 $ 166,692
Cost of goods sold 157,154 143,483
------------ ------------
Gross profit 2,251 23,209
------------ ------------
Operating expenses
Research and development expenses 1,613 19,940
Selling and marketing expenses 38,120 42,198
General and administrative expenses 211,366 193,322
------------ ------------
Total operating expenses 251,099 255,460
------------ ------------
Loss from operations (248,848) (232,251)
------------ ------------
Other expense
Interest expense, net (16,018) --
------------ ------------
Total other expense (16,018) --
------------ ------------
Net loss $ (264,866) $ (232,251)
============ ============
Basic loss per share $ (0.02) $ (0.02)
============ ============
Weighted average shares
used in per share calculation 14,344,067 13,308,496
============ ============
The accompanying notes are an integral part of
these condensed financial statements
4
CIRALIGHT GLOBAL, INC
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended
March 31,
-------------------------------
2012 2011
---------- ----------
Cash flows from operating activities:
Net Loss $ (264,866) $ (232,251)
Adjustments to reconcile net loss to net
cash used in operating activities:
Common stock issued for compensation and services -- 25,000
Options issued for services 8,649 4,462
Options issued for financing costs 11,480 --
Depreciation and amortization 1,689 2,170
Contribution of rent from a related party 1,500 1,500
Bad debt expense -- 6,030
Changes in operating assets and liabilities
(Increase) decrease in Inventory (382) (3,679)
(Increase) decrease in Accounts Receivable 52,214 33,577
(Increase) decrease in prepayments and deposits (15,782) (12,945)
(Increase) decrease in notes receivable - related party -- 35,244
Increase (decrease) in accounts payable 103,075 (56,403)
Increase (decrease) in accrued expenses related party 580 --
Increase (decrease) in other payables 19,790 2,740
Increase (decrease) in deferred revenue 15,854 53,122
---------- ----------
Net cash used in operating activities (66,199) (141,433)
---------- ----------
Net cash used in investing activities -- --
---------- ----------
Cash flows from financing activities:
Cash from sale of common stock -- 3,000
Payment of related party note payable (50,000) (200,000)
Proceeds from related party note payable 90,000 200,000
---------- ----------
Net cash provided by financing activities 40,000 3,000
---------- ----------
Net decrease in cash (26,199) (138,433)
Cash, beginning of period 97,443 203,108
---------- ----------
Cash, end of period $ 71,244 $ 64,675
========== ==========
Supplemental cash flow information:
Interest paid $ -- $ --
Income taxes paid $ -- $ --
Non-cash investing and financing activities
Common stock issued for accrued compensation $ -- $ --
========== ==========
Debt and liabilities settled with common stock $ -- $ --
========== ==========
Exchange of Note Receivable for Legal Fees $ -- $ --
========== ==========
The accompanying notes are an integral part of
these condensed financial statements
5
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(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.
2. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("GAAP") for interim financial information and in conformity with the
instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these
unaudited condensed financial statements do not include all of the information
and footnotes required by GAAP for complete financial statements and, therefore,
should be read in conjunction with the financial statements and related notes
contained in the Company's most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission ("SEC").
The unaudited condensed financial statements included in this document have been
prepared on the same basis as the annual condensed 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. In the
opinion of management, the disclosures included in these financial statements
are adequate to make the information presented not misleading.
6
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
The results of operations for the three month period ended March 31, 2012 is not
necessarily indicative of the results that the Company will have for any
subsequent quarter or full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
significantly from those estimates.
Reclassifications
Certain reclassifications have been made to prior periods amounts to conform to
the current periods presentations.
3. Liquidity and Operations:
The Company had a net loss of $264,866 for the three months ended March 31,
2012. As of March 31, 2012, the Company had cash of approximately $79,000, of
which $7,600 is restricted. In addition, the Company had accounts receivable of
approximately $123,000, inventory on hand at a cost valuation of approximately
$198,000, and accounts payable of approximately $232,000.
The Company has experienced losses primarily attributable to research,
development, marketing and other costs associated with the strategic plan to
develop as a world class supplier of sustainable lighting technologies. Cash
flows from operations have not been sufficient to meet our obligations.
Therefore, we have had to raise funds through several financing transactions. At
least until we reach breakeven volume in sales and develop and/or acquire the
capability to manufacture and sell our products profitably, we will need to
continue to rely on cash from external financing sources. Our operations during
the quarter ended March 31, 2012 and the year ended December 31, 2011 were
financed by product sales contracts, common stock issuances, as well as from
working capital reserves. In addition, on March 23, 2012, the company entered
into a revolving line of credit with the Adams family, a related party, for an
additional amount of $500,000. The line of credit is for a period of six months
at an interest rate of prime plus 2%. In the event that the loan balance is not
fully repaid at the end of the six month term, then the outstanding balance plus
accrued interest shall be convertible to common stock at the rate of $0.10 per
share. The company will utilize this facility to fund operations and position
the company to further access capital markets. Management believes that with the
additional line of credit that there is sufficient liquidity to carry on
operations for the next twelve months. However, there can be no assurance that
management will be able to fully deliver on its business plans.
7
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(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.
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 March 31, 2012, management deemed that all accounts receivable
should be fully collectible.
Concentration of Credit Risk - Financial instruments that potentially subject
the Company to concentrations of credit risk consist of cash and trade accounts
receivable. Credit is extended to customers based on an evaluation of the
customer's financial condition. As of March 31, 2012 the top three distributors
had balances representing 44%, 32% and 20% respectively of the Company's total
accounts receivable balance. The Company maintains its cash balances in the
aggregate at various financial institutions. At times such balances may exceed
federally insured limits. The Company has not experienced any losses in such
accounts. The Company believes it is not exposed to any significant credit risk
on cash.
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 March 31, 2012 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.
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 March 31, 2012.
8
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(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, 2011 $ 9,476
Warranty Costs Accrued 32,769
Warranty Claims (20,364)
--------
Liability at March 31, 2012 $ 21,881
========
STOCK-BASED COMPENSATION - The Company accounts for stock-based compensation
under the provisions of FASB ASC 718 "Compensation - Stock Compensation," 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.
The Company recognizes stock compensation expense 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.
9
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
4. Summary of Significant Accounting Policies: (continued)
INCOME TAXES - The Company accounts for income taxes in accordance with
Accounting Standards Codification 740, INCOME TAXES ("ASC 740"). Deferred tax
assets and liabilities are determined based on the temporary differences between
the financial reporting and tax bases of assets and liabilities, applying
enacted statutory tax rates in effect for the year in which the differences are
expected to reverse. A valuation allowance is recorded when it is more likely
than not that some or all of the deferred tax assets will not be realized.
The Company uses a two-step approach to recognizing and measuring uncertain tax
positions accounted for in accordance with ASC 740. The first step is to
evaluate the tax position for recognition by determining if the weight of
available evidence indicates that it is more likely than not that the position
will be sustained on audit, including resolution of related appeals or
litigation processes, if any. The second step is to measure the tax benefit as
the largest amount that is more likely than not to be realized upon settlement.
The Company will classify the liability for unrecognized tax benefits as current
to the extent that the Company anticipates payment (or receipt) of cash within
one year. There were no significant matters determined to be unrecognized tax
benefits taken or expected to be taken in a tax return that have been recorded
on the Company's condensed financial statements for the three months ended March
31, 2012.
The Company recognizes interest and penalties related to unrecognized tax
benefits in the tax provision. As of and for the three months ended March 31,
2012, there were no interest or penalties related to income taxes that have been
accrued or recognized.
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.
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.
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.
RESEARCH AND DEVELOPMENT EXPENSES - Research and development expenses are
charged to operations in the period incurred. The amount expensed for the three
month period ended March 31, 2012 and 2011 were $1,613 and $19,940,
respectively.
SELLING AND MARKETING EXPENSES - Selling and marketing expenses are expensed as
incurred. These expenses were $38,120 and $42,198 for the three month period
ended March 31, 2012 and 2011, respectively.
GENERAL AND ADMINISTRATIVE EXPENSES - General and administrative expenses are
expensed as incurred. These expenses were $211,366 and $193,322 for the three
month periods ended March 31, 2012 and 2011, respectively.
10
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
4. Summary of Significant Accounting Policies: (continued)
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.
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.
5. Balance Sheet Information:
Cash consisted of the following at March 31, 2012:
Checking accounts $66,292
Savings accounts 1,262
Petty cash 1,716
Undeposited funds 1,974
-------
$71,244
=======
Inventory consisted of the following at March 31, 2012:
Finished units and components $190,466
Packaging crates and materials 7,535
--------
Total Inventory $198,001
========
Prepaid expenses and other current assets consist of the following at March 31,
2012:
Purchase order prepaid deposits $15,172
Prepaid expenses 44,622
-------
Total Prepayments and deposits $59,794
=======
Purchase order prepaid deposits represent the prepayment required under the
agreements with several suppliers of our inventory components.
11
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
5. Balance Sheet Information: (continued)
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 presented in the following schedule.
Property and equipment consist of the following at December 31:
Furniture and equipment $ 10,513
Vehicles 2,771
Tooling costs 24,683
Convention display 1,817
--------
Property and equipment 39,784
--------
Less Accumulated depreciation (34,130)
--------
Total Property and equipment, net $ 5,654
========
Depreciation expense for the three month period ended March 31, 2012 was $1,273
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.
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 (3,810)
--------
Total Intangible assets, net $ 26,783
========
Amortization expense for the three month period ended March 31, 2012 was $416,
was related to the Company's patent rights and was recorded as cost of goods
sold.
Advances Payable-related party - George Adams advanced the company $90,000
during the first quarter of 2012. This was partially offset by a repayment of
$50,000 to Terry Adams on February 1, 2012. At March 31, 2012 the Advances
Payable- related party balance was $340,000. Related accrued interest of $12,193
is included in the Other Payables amount on the Company's financial statements.
On March 23, 2012, the company entered into a revolving line of credit with the
Adams family, a related party, for an additional amount of $500,000. The line of
credit is for a period of six months at an interest rate of prime plus 2%. In
the event that the loan balance is not fully repaid at the end of the six month
term, then the outstanding balance plus accrued interest shall be convertible to
common stock at the rate of $0.10 per share. The company will utilize this
facility to fund operations and position the company to further access capital
markets.
12
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
5. Balance Sheet Information: (continued)
Other Payables - As of March 31, 2012, the Company had Other Payables consisting
of the following:
Other Payables
Accrued warranty expense $21,881
Accrued compensation 4,511
-------
Total Other payables $26,392
=======
Other Payables - Related Party
Royalty fees - related party $36,409
Accrued interest 12,193
-------
Total Other payables - related party $48,602
=======
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. At March 31, 2012 accrued
royalties in the amount of $36,409, related to our sale of 1,820 units.
Deferred Revenue - Shipments that were staged and ready for shipment were
recorded as deferred revenue. Upon shipment to customers, the sale will be
recorded as revenue. Deferred Revenue totaled $46,786 at March 31, 2012.
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.
The Company had 14,344,067 issued and outstanding common stock shares as of
March 31, 2012. Details of the issued and outstanding common stock shares are
shown below.
13
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
6. Stockholders' Equity: (continued)
Common stock shares issued as of March 31, 2012 are as follows:
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 743,358
Stock issued for conversion of notes payable 1,803,349
Stock issued for exercise of stock options 2,000
----------
Total 14,344,067
==========
During the three month period ended March 31, 2012, a total of 21,500 shares of
common stock were issued for services rendered during 2011 and valued at the
aggregate amount of $11,825.
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 references:
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.
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.
14
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
7. Stock Options and Warrants:
As of March 31, 2012, the Company had not issued any warrants.
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
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 978,900 shares of the Company's
common stock were outstanding on December 31, 2011, of which 580,900 were vested
on the date granted and 100,000 are scheduled to vest during 2012. 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, 2011 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.
15
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
7. Stock Options and Warrants: (continued)
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, 2,000 stock options were exercised at $.75 per option during April
2011.
On January 1, 2012, the Board of Directors granted a total of 400,000 options at
an exercise price of $0.47 per share, exercisable over five years from the date
of grant. The Company entered into stock option agreements with three
individuals in recognition of serving on the Company's board during 2011. The
individuals have the option to purchase shares of common stock at $0.47 per
share, which expires on December 31, 2016. Jeffrey S. Brain, the Company's
President, Chief Executive Officer and Director, Frederick Feck, the Company's
Corporate Secretary and Director and Terry Adams, Company Director, were each
granted options to purchase 100,000 shares of common stock. In addition, David
E. Wise, the Company's corporate securities counsel, entered into a stock option
agreement for legal services to be performed for the Company during 2012. Mr.
Wise was granted options to purchase 100,000 shares of common stock.
The following table summarizes the activity of stock options for the nine months
ended March 31, 2012:
Weighted
Number of Average
Shares Exercise
Outstanding Price
----------- ------
Balance, December 31, 2011 978,900 $ .47
Options granted 100,000 .47
Options exercised -- --
Options forfeited or expired -- --
--------- ------
Balance, March 31, 2012 1,078,900 $ .47
========= ======
The weighted average fair values of options granted during the quarter ended
March 31, 2012 was $0.35 per option. The value recorded for the options granted
during the quarter was $34,597.
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, the Company 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.
16
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
In February 2010, the Company 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. Before the first payment was made, SmartBim sold their BIM operation
to a third party. Ciralight determined that the organizational changes that the
contractor made in their operation made the contract non viable. As such, the
Company terminated the agreement on September, 20 2011 in favor of a one-time
payment to the contractor of $2,660.
The Company, as of March 31, 2012 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 - Ciralight has agreements with several 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 March 31, 2012, purchase order prepaid deposits totaled
$15,172 with primarily two of our major suppliers.
9. Related Party Transactions:
As described in Note 8, 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 $1,500 relating to the value of the use of the residence for the benefit of
the Company for three months ended March 31, 2012.
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.
As of March 31, 2012 the Advances Payable - related party balance due to George
and Terry Adams was $240,000 and $100,000, respectively. These advances have
been used for short term working capital purposes. Interest payable of $12,193
has been recorded as of March 31, 2012, making a total amount due of $352,193.
On April 1, 2011, in consideration of the Adams advances to offer the Company,
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.
17
CIRALIGHT GLOBAL, INC
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
March 31, 2012
(Unaudited)
10. Legal Matters:
We have no legal matters pending against us. On August 15, 2011 we filed a
collection action against Nature's Lighting for their failure to pay for product
purchased from us. The amount owed to us is approximately $39,000 plus legal
fees and costs. On January 30, 2012 we were successful in obtaining a default
judgment and now are proceeding to collect the balance owed to us.
11. Subsequent Events:
The Company has performed an evaluation of subsequent events pursuant to ASC 855
and is not aware of any subsequent events which would require recognition or
disclosure in the financial statements other than as follows.
12. New Accounting Pronouncements
In April 2011, the Financial Accounting Standards Board (FASB) issued ASU
2011-04, FAIR VALUE MEASUREMENT (TOPIC 820): AMENDMENTS TO ACHIEVE COMMON FAIR
VALUE MEASUREMENT AND DISCLOSURE REQUIREMENTS IN U.S. GAAP AND IFRS. This ASU
amends current fair value measurement and disclosure guidance to include
increased transparency around valuation input and investment categorization. ASU
2011-04 is effective for fiscal years and interim periods beginning after
December 15, 2011, with early adoption not permitted. The adoption of ASU
2011-04 in the first quarter of 2012 did not have an impact on our financial
position, results of operations, or cash flows.
In June 2011, the FASB issued ASU 2011-05, COMPREHENSIVE INCOME (TOPIC 220):
PRESENTATION OF COMPREHENSIVE INCOME. ASU 2011-05 allows an entity to present
components of net income and other comprehensive income in one continuous
statement, referred to as the statement of comprehensive income, or in two
separate, but consecutive statements. ASU 2011-05 eliminates the option to
present the components of other comprehensive income as part of the statement of
changes in stockholders' equity. In December 2011, the FASB issued ASU 2011-12
"Comprehensive Income (Topic 220): Deferral of the Effective Date for Amendments
to the Presentation of Reclassifications of Items Out of Accumulated Other
Comprehensive Income in Accounting Standards Update No. 2011-05." ASU 2011-12
deferred the effective date of the specific requirement to present items that
are reclassified out of accumulated other comprehensive income to net income
alongside their respective components of net income and other comprehensive
income. While the new guidance changes the presentation of comprehensive income,
there are no changes to the components that are recognized in net income or
other comprehensive income under current accounting guidance. ASU 2011-05 is
effective for fiscal years and interim periods beginning after December 15, 2011
and must be applied retrospectively. The adoption of ASU 2011-05 in the first
quarter of 2012 did not have an impact on our financial position, results of
operations, or cash flows.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet (Topic 210),
DISCLOSURES ABOUT OFFSETTING ASSETS AND LIABILITIES, which requires companies to
disclose information about financial instruments that have been offset and
related arrangements to enable users of their financial statements to understand
the effect of those arrangements on their financial position. Companies will be
required to provide both net (offset amounts) and gross information in the notes
to the financial statements for relevant assets and liabilities that are offset.
ASU 2011-11 is effective for fiscal years, and interim periods within those
years, beginning on or after January 1, 2013. We do not expect the adoption of
ASU 2011-11 in the first quarter of 2013 to have an impact on our financial
position, results of operations, or cash flows.
18
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,
* our dependence on its intellectual property rights,
* the success of marketing efforts by third parties, o 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 MONTH PERIOD ENDED MARCH 31,
2012 (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 renamed our products as of January 1st, 2011. Our
products are no longer referred to as SunTrackerOne, SunTrackerTwo, and
SunTrackerThree. Instead, our 4'x4' SunTracker is now called the SunTracker 400,
(with an option of a single or triple mirror), and our 4'x8' SunTracker is now
called the SunTracker 800. When our smaller model for homes and classrooms is
released, it will be called the SunTracker 200. These new model names are
simple, intuitive, and reinforce the brand name and image.
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
19
securities, debts, liabilities or financial obligations of Ciralight, Inc., the
Prior Company. Ciralight, Inc. is a predecessor to Ciralight Global, Inc.,
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.
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 provide working capital, Ciralight Global, Inc. sold common stock
through a private placement that raised $1,300,000 with the sale of 5,200,000
shares at a price of $0.25 per share from April 30, 2009 to January 15, 2010.
During the third and fourth quarters of 2010, the Company sold common stock
through a private placement that raised $222,000 with the sale of 444,000 shares
at a price of $0.50 per share. During 2011, the Company sold common stock
through a private placement that raised $475,680 with the sale of 951,360 shares
at a price of $0.50 per share.
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 SunTracker(TM) products provide natural daylighting that is a key component
in many current construction and existing structures. SunTrackers(TM) are
maintenance free, powered by the sun and completely self-contained. We are
currently marketing our SunTracker(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.
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 generally accepted accounting principles in the
United States of America ("GAAP") for interim financial information and in
conformity with the instructions to Form 10-Q and Article 8-03 of Regulation
S-X. Accordingly, these unaudited condensed financial statements do not include
all of the information and footnotes required by GAAP for complete financial
statements and, therefore, should be read in conjunction with the financial
statements and related notes contained in the Company's most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission ("SEC").
20
The unaudited condensed financial statements included in this document have been
prepared on the same basis as the annual condensed 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. In the
opinion of management, the disclosures included in these financial statements
are adequate to make the information presented not misleading.
The results of operations for the three month period ended March 31, 2012 is not
necessarily indicative of the results that the Company will have for any
subsequent quarter or full fiscal year.
USE OF ESTIMATES
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
significantly from those estimates.
RECLASSIFICATIONS
Certain reclassifications have been made to prior periods amounts to conform to
the current periods presentations.
See Note 4, "Summary of Significant Accounting Policies" to our condensed
consolidated financial statements included in this Quarterly Report on Form 10-Q
for a full description of accounting policies.
See Note 12. "Recent Accounting Pronouncements," to our condensed consolidated
financial statements included in this Quarterly Report on Form 10-Q for a
summary of recent accounting pronouncements.
RESULTS OF OPERATIONS
THREE MONTHS ENDED MARCH 31, 2012 COMPARED TO THREE MONTHS ENDED MARCH 31, 2011
NET SALES. Net sales decreased 4% from $166,692 for the three months ended March
31, 2011 to $159,405 for the three months ended March 31, 2012.
COST OF SALES. Cost of sales increased 10% from $143,483 for the three months
ended March 31, 2011 to $157,154 for the three months ended March 31, 2012. Cost
of sales consists of the cost of our products with related shipping and warranty
costs. In the first quarter of 2012, we replaced the controller units associated
with the initial installations of our new controller. These specific units were
experiencing a sensor saturation issue that caused the units to track
incorrectly. This issue is limited to the initial build of the controller.
Working with the manufacturer, we have repaired most of these controllers, and
have accrued a liability for the remaining units to be repaired. The cost
associated with the replacement of these units has been recognized as a warranty
expense an consequently effects our reported cost of sales.
GROSS PROFIT. Gross profit decreased $20,958 from $23,209 for the three months
ended March 31, 2011 to $2,251 for the three months ended March 31, 2012. The
decrease in gross profit is largely due to the replacement of the controller
units associated with the initial installations of our new controller. These
specific units were experiencing a sensor saturation issue that caused the units
to track incorrectly. This issue is limited to the initial build of the
controller. Working with the manufacturer, we have repaired most of these
controllers, and have accrued a liability for the remaining units to be
repaired. The replacement cost of these units has been recognized as a warranty
expense an consequently negatively effects our reported gross profit.
OPERATING EXPENSES. Our operating expenses consist of research and development
expenses, selling and marketing expenses and general and administrative
expenses. Total operating expenses decreased 2% from $255,460 for the three
months ended March 31, 2011 to 251,099 for the three months ended March 31,
2012.
General and administrative expenses increased 9% from $193,322 for the three
months ended March 31, 2011 to $211,366 for the three months ended March 31,
2012.
21
Selling and marketing expenses decreased 10% from $42,198 for the three months
ended March 31, 2011 to $38,120 for the three months ended March 31, 2012.
Research and Development expenses decreased 92% from $19,940 for the three
months ended March 31, 2011 to $1,613 for the three months ended March 31, 2012.
INCOME TAXES. For the three months ended March 31, 2012, management has decided
not to record the tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - FOR THE THREE MONTH PERIODS ENDED MARCH 31, 2012 and 2011.
Net cash used in operating activities was $66,199 for the three months ended
March 31, 2012 and resulted primarily from a net loss of $264,866 partially
offset by decreases in accounts receivable and increases in accounts payable.
Net cash used in operating activities was $141,433 for the three month period
ended March 31, 2011 and resulted primarily from a net loss of $232,251
partially offset by decreases in accounts receivable and related party notes
receivable and an increase in deferred revenues.
Net cash provided by financing activities was $40,000 for the three months ended
March 31, 2012 and resulted from net related party advances of $40,000. Net cash
provided by financing activities was $3,000 for the three month period ended
March 31, 2011 and resulted from the sale of common stock.
The Company had net losses of $264,866, and $232,251 for the three months ended
March 31, 2012 and 2011 respectively. As of March 31, 2012, the Company had cash
of approximately $79,000, of which $7,600 is restricted. In addition, the
Company had accounts receivable of approximately $123,000, inventory on hand at
a cost valuation of approximately $198,000, and accounts payable of
approximately $232,000.
The Company has experienced losses primarily attributable to research,
development, marketing and other costs associated with the strategic plan to
develop as a world class supplier of sustainable lighting technologies. Cash
flows from operations have not been sufficient to meet our obligations.
Therefore, we have had to raise funds through several financing transactions. At
least until we reach breakeven volume in sales and develop and/or acquire the
capability to manufacture and sell our products profitably, we will need to
continue to rely on cash from external financing sources. Our operations during
the quarter ended March 31, 2012 and the year ended December 31, 2011 were
financed by product sales contracts, common stock issuances, as well as from
working capital reserves. In addition, on March 23, 2012, the company entered
into a revolving line of credit with the Adams family, a related party, for an
additional amount of $500,000. The line of credit is for a period of six months
at an interest rate of prime plus 2%. In the event that the loan balance is not
fully repaid at the end of the six month term, then the outstanding balance plus
accrued interest shall be convertible to common stock at the rate of $0.10 per
share. The company will utilize this facility to fund operations and position
the company to further access capital markets. Management believes that with the
additional line of credit that there is sufficient liquidity to carry on
operations for the next twelve months. However, there can be no assurance that
management will be able to fully deliver on its business plans.
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.
22
The following table summarizes our contractual obligations as of March 31, 2012,
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 $340,000 $340,000 $ -- $ -- $ --
Interest Payments (1) 12,193 12,193 -- -- --
Operating Leases 43,800 43,800 -- -- --
Commitments to Purchase Inventory 42,407 42,407 -- -- --
-------- -------- -------- -------- --------
Totals: $486,358 $486,358 $ -- $ -- $ --
======== ======== ======== ======== ========
----------
(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.
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.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
including our Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of our disclosure controls and
procedures (as defined in the Securities Exchange Act Rules 13a-15(e) and
15d-15(e)). Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that as of the end of the period covered by this
report, our disclosure controls and procedures were effective to ensure that
information required to be disclosed by us in reports we file or submit under
the Exchange Act is (1) recorded, processed, summarized and reported within the
time periods specified in SEC rules and forms, and (2) accumulated and
communicated to our management, including our Chief Executive Officer and Chief
Financial Officer, to allow timely decisions regarding required disclosure.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING.
There have not been changes in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
23
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We have no legal matters pending against us. On August 15, 2011 we filed a
collection action against Nature's Lighting for their failure to pay for product
purchased from us. The amount owed to us is $39,000 plus legal fees and costs.
On January 30, 2012 we were successful in obtaining a default judgment and now
are proceeding to collect the balance owed to us.
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.
During the three month period ended March 31, 2012, a total of 21,500 shares of
common stock were issued at $0.55 per share for services rendered during 2011.
The above shares were issued in reliance on the exemption from registration
requirements of the 33 Act provided by Section 4(2) promulgated thereunder, as
the issuance of the stock did not involve a public offering of securities based
on the following:
* the investors represented to us that they were acquiring the
securities for their own account for investment and not for the
account of any other person and not with a view to or for
distribution, assignment or resale in connection with any distribution
within the meaning of the 33 Act;
* we provided each investor with written disclosure prior to sale that
the securities have not been registered under the 33 Act and,
therefore, cannot be resold unless they are registered under the 33
Act or unless an exemption from registration is available;
* the investors agreed not to sell or otherwise transfer the purchased
securities unless they are registered under the 33 Act and any
applicable state laws, or an exemption or exemptions from such
registration are available;
* each investor had knowledge and experience in financial and other
business matters such that he, she or it was capable of evaluating the
merits and risks of an investment in us;
* each investor was given information and access to all of our
documents, records, books, officers and directors, our executive
offices in Irvine, California and our warehouse facility in Corona,
California, pertaining to the investment and was provided the
opportunity to ask questions and receive answers regarding the terms
and conditions of the offering and to obtain any additional
information that we possesses or were able to acquire without
unreasonable effort and expense;
* each investor had no need for liquidity in their investment in us and
could afford the complete loss of their investment in us;
* we did not employ any advertisement, article, notice or other
communication published in any newspaper, magazine or similar media or
broadcast over television or radio;
* we did not conduct, hold or participate in any seminar or meeting
whose attendees had been invited by any general solicitation or
general advertising;
* we placed a legend on each certificate or other document that
evidences the securities stating that the securities have not been
registered under the 33 Act and setting forth or referring to the
restrictions on transferability and sale of the securities;
* we placed stop transfer instructions in our stock transfer records;
* we sold securities to less than 35 individuals who were not
"accredited investors" as defined in Rule 501 of Regulation D
promulgated under the 33 Act;
24
* no underwriter or broker-dealer was involved in the offering; and
* we made independent determinations that such persons were
sophisticated or accredited investors and that they were capable of
analyzing the merits and risks of their investment in us, that they
understood the speculative nature of their investment in us and that
they could lose their entire investment in us.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES.
Not Applicable.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
See Exhibit Index below for exhibits required by Item 601 of regulation S-K.
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 State of Nevada
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)
25
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.
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 of Chief Executive Officer under Section 302 of
Sarbanes-Oxley Act of 2002.
31.2** Certification of Chief Financial Officer under Section 302 of
Sarbanes-Oxley Act of 2002.
32.1** Certification Chief Executive Officer under Section 906 of
Sarbanes-Oxley Act of 2002.
32.2** Certification Chief Financial Officer 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.
26
SIGNATURES
Pursuant to the requirements 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: May 15, 2012 /s/ Jeffrey S. Brain
--------------------------------------
Jeffrey S. Brain
President, Chief Executive Officer
Date: May 15, 2012 /s/ Jarett Fenton
--------------------------------------
Jarett Fenton
Chief Financial Officer
27