Attached files
file | filename |
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EX-31.02 - SHADES HOLDINGS, INC. | v205018_ex31-02.htm |
EX-32.01 - SHADES HOLDINGS, INC. | v205018_ex32-01.htm |
EX-32.02 - SHADES HOLDINGS, INC. | v205018_ex32-02.htm |
EX-31.01 - SHADES HOLDINGS, INC. | v205018_ex31-01.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-Q
(Mark
One)
þ
|
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For
the quarterly period ended September 30, 2010
OR
¨
|
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
|
For the
transition period from ______ to ______
Commission
file number: 333-168139
SHADES
HOLDINGS, INC.
(Exact
name of Registrant as specified in its charter)
Florida
|
27-1368114
|
(State
or other jurisdiction of incorporation or organization)
|
(I.R.S.
employer identification no.)
|
20711
Sterlington Drive, Land O’ Lakes, Florida
|
34638
|
(Address
of principal executive offices)
|
(Zip
code)
|
Registrant's
telephone number, including area code: (813) 454-0130
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 þ
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 (§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 ¨ No ¨
Indicate
by check mark whether the registrant is a large 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. (Check one):
Large
accelerated filer ¨ Accelerated
Filer ¨ Non-accelerated
filer ¨ Smaller
reporting company þ
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes ¨ No þ
The
Registrant had 23,527,000 shares of Common Stock, par value $0.0001 per share,
outstanding as of December 9, 2010.
Shades
Holdings, Inc.
INDEX
|
|
Page No.
|
|
PART I. | Financial Information | ||
Item
1.
|
Financial
Statements
|
||
Consolidated
Balance Sheets at December 31, 2009 and September 30, 2010
(Unaudited)
|
F-2
|
||
Consolidated
Statements of Operations Three and Nine Months Ended September 30, 2010
(Unaudited),
for
the Period from November 23, 2009 (Inception) to September 30, 2010
(Unaudited)
|
F-3
|
||
Consolidated
Statement of Stockholders’ Equity: December 31, 2009 and September 30,
2010 (Unaudited)
|
F-4
|
||
Consolidated
Statements of Cash Flows (Unaudited) for the Nine Months Ended September
30, 2010,
for
the Period from November 23, 2009 (Inception) to September 30,
2010
|
F-5
|
||
Notes
to Condensed Consolidated Financial Statements
|
F-6
|
||
Item
2.
|
Management’s
Discussion and Analysis of Financial Condition and Results of
Operation
|
2
|
|
Item
3.
|
Quantitative
and Qualitative Disclosures About Market Risks
|
8
|
|
Item
4.
|
Controls
and Procedures
|
8
|
|
PART
II.
|
Other
Information
|
||
Item
1.
|
Legal
Proceedings
|
9
|
|
Item
2.
|
Unregistered
Sales of Equity Securities and Use of Proceeds
|
9
|
|
Item
3.
|
Defaults
Upon Senior Securities
|
9
|
|
Item
4.
|
Removed
and Reserved
|
9
|
|
Item
5.
|
Other
Information
|
9
|
|
Item
6.
|
Exhibits
|
10
|
|
SIGNATURES
|
11
|
1
Part
1 – Financial Information
Shades
Holdings Inc.
(A
Development Stage Company)
Index To
Consolidated Financial Statements
Table of Contents
|
Page
|
|
Consolidated
Balance Sheets December 31, 2009 and September 30, 2010
(Unaudited)
|
F-2
|
|
Consolidated
Statements of Operations:
For
The Three and Nine Months Ended September 30, 2010
(Unaudited)
For
The Period From November 23, 2009 (Inception) To September 30, 2010
(Unaudited)
|
F-3
|
|
Consolidated
Statements of Stockholders' Equity:
December
31, 2009 and September 30, 2010 (Unaudited)
|
F-4
|
|
Consolidated
Statements of Cash Flows:
For
The Nine Month Period Ended September 30, 2010 (Unaudited)
For
The Period From November 23, 2009 (Inception) To September 30, 2010
(Unaudited)
|
F-5
|
|
Notes
To The Consolidated Financial Statements
|
F-6
|
F-1
Shades
Holdings Inc.
(A
Development Stage Company)
Consolidated
Balance Sheets
September 30, 2010
|
December 31, 2009
|
|||||||
|
(Unaudited)
|
|||||||
Current assets: | ||||||||
Cash
and cash equivalents
|
$ | 22,624 | $ | 19,950 | ||||
Inventory
|
1,278 | - | ||||||
Prepaid
Expenses
|
74,494 | 80,890 | ||||||
Total
current assets
|
98,396 | 100,840 | ||||||
Website-Net
|
2,250 | 3,000 | ||||||
Total
assets
|
$ | 100,646 | $ | 103,840 | ||||
LIABILITIES
AND STOCKHOLDERS' EQUITY
|
||||||||
Current
liabilities:
|
||||||||
Accounts
Payable
|
$ | 63 | $ | 1,712 | ||||
Accrued
Expenses
|
606 | 0 | ||||||
Total
current liabilities
|
669 | 1,712 | ||||||
Stockholders'
Equity:
|
||||||||
Preferred
stock, $0.01 par value;
|
||||||||
10,000,000
shares authorized, none designated or issued
|
- | - | ||||||
Common
stock, $0.0001 par value;
|
||||||||
100,000,000
shares authorized;23,527,000 and 23,310,000 shares issued
and outstanding, respectively
|
2,352 | 2,331 | ||||||
Additional
paid in capital
|
158,040 | 103,812 | ||||||
Deficit
accumulated during development stage
|
(60,415 | ) | (4,015 | ) | ||||
Total
stockholders' equity
|
99,977 | 102,128 | ||||||
Total
liabilities and shareholders' equity
|
$ | 100,646 | $ | 103,840 |
See Notes
To Consolidated Financial Statements
F-2
Shades
Holdings Inc.
(A
Development Stage Company)
Consolidated
Statements of Operations
For The Three Month Period
Ended September 30, 2010
|
For The Nine Month Period
Ended September 30, 2010
|
For The Period From
November 23, 2009 (Date of
Inception) To September 30,
2010
|
||||||||||
|
(Unaudited)
|
(Unaudited)
|
(Unaudited)
|
|||||||||
Revenue
|
$ | 688 | $ | 2,375 | $ | 2,375 | ||||||
Cost
of goods sold
|
708 | 1,747 | $ | 1,747 | ||||||||
Gross
Profit (Loss)
|
(20 | ) | 628 | $ | 628 | |||||||
Selling
and General Administrative
|
26,255 | 57,027 | 61,042 | |||||||||
|
||||||||||||
Net
loss
|
$ | (26,275 | ) | $ | (56,400 | ) | $ | (60,415 | ) | |||
Basic
and diluted loss per share
|
$ | - | $ | - | ||||||||
|
||||||||||||
Weighted
average shares outstanding basic and
diluted
|
23,527,000 | 23,450,882 |
See Notes
To Consolidated Financial Statements
F-3
Shades
Holdings Inc.
(A
Development Stage Company)
Consolidated
Statements of Stockholders’ Equity
Deficit
|
||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||
Preferred Stock
|
Common Stock
|
Additional
|
During
|
|||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Paid in Capital
|
Development Stage
|
Total
|
||||||||||||||||||||||
Balance,
Nov 23, 2009 (Inception):
|
||||||||||||||||||||||||||||
Issuance
of common stock to founder and president valued at $0.0001 per
share
|
- | - | 20,000,000 | $ | 2,000 | $ | - | $ | - | $ | 2,000 | |||||||||||||||||
Issue
shares of common stock for services
|
- | - | 310,000 | 31 | 77,469 | 77,500 | ||||||||||||||||||||||
Issue
shares of common stock for $0.01 per share, net
|
- | - | 3,000,000 | 300 | 26,343 | 26,643 | ||||||||||||||||||||||
Net
loss for December 31, 2009
|
- | - | - | - | - | (4,015 | ) | (4,015 | ) | |||||||||||||||||||
Balance
at December 31, 2009
|
- | - | 23,310,000 | 2,331 | 103,812 | (4,015 | ) | 102,128 | ||||||||||||||||||||
Issue
of common stock for $0.25 per share
|
- | - | 217,000 | 22 | 54,228 | 54,250 | ||||||||||||||||||||||
Net
loss
|
- | - | (56,400 | ) | (56,400 | ) | ||||||||||||||||||||||
Balance
at September 30, 2010 (unaudited)
|
- | - | 23,527,000 | $ | 2,352 | $ | 158,040 | $ | (60,415 | ) | $ | 99,977 |
See Notes
To Consolidated Financial Statement
F-4
Shades
Holdings Inc.
(A
Development Stage Company)
Consolidated
Statements of Cash Flows
For The Nine Month
|
November 23, 2009
|
|||||||
Period Ended
|
( Inception)
|
|||||||
September 30, 2010
|
To September 30, 2010
|
|||||||
(Unaudited)
|
(Unaudited)
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (56,400 | ) | $ | (60,415 | ) | ||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Stock
based compensation
|
20,625 | 22,500 | ||||||
Amortization
of website
|
750 | 750 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Prepaid
expenses
|
(14,229 | ) | (19,494 | ) | ||||
Inventories
|
(1,278 | ) | (1,278 | ) | ||||
Accounts
payable
|
(1,660 | ) | 52 | |||||
Accrued
Expenses
|
615 | 615 | ||||||
Net
cash used in operating activities
|
(51,577 | ) | (57,270 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Intangible
Assets: Purchase
|
- | (3,000 | ) | |||||
Net
cash used for investing activities
|
- | (3,000 | ) | |||||
Cash
flows from financing activities:
|
||||||||
Cash
received from issuance of common stock
|
54,250 | 86,250 | ||||||
Cash
paid for stock issuance costs
|
- | (3,357 | ) | |||||
Net
cash provided by financing activities
|
54,250 | 82,893 | ||||||
Net
increase in cash and cash equivalents
|
2,673 | 22,623 | ||||||
Cash
and cash equivalents at beginning of year
|
19,950 | - | ||||||
Cash
and cash equivalents
|
$ | 22,623 | $ | 19,233 | ||||
Supplemental
disclosures:
|
||||||||
Cash
paid for interest
|
$ | - | $ | - | ||||
Cash
paid for taxes
|
$ | - | $ | - | ||||
Supplemental
disclosures for non-cash items:
|
||||||||
Stock
issued for future services
|
$ | - | $ | 75,625 |
See Notes
To Consolidated Financial Statement
F-5
Shades
Holdings Inc.
(A
Development Stage Company)
Notes To
Consolidated Financial Statements
NOTE 1. BASIS OF PRESENTATION AND
NATURE OF OPERATIONS
The Company – Shades
Holdings, Inc. (the Company) was organized in Florida on November 23,
2009. The Company is in the development stage and has realized only
minimal revenues from its planned operations.
Nature of Business
- We are an internet sales company which, through our wholly
owned subsidiary, Daily Shades, Inc., sells name brand sunglasses at up to 70%
off manufactured suggested retail prices at our website www.dailyshades.com. Our
business strategy is focused on a “daily deal” that is a niche in the internet
market place.
The
Summary of Significant Accounting Policies (Note 3) is presented to assist in
understanding the financial statements. The financial statements and notes are
representations of the Company’s management, which is responsible for their
integrity and objectivity. These accounting policies conform to accounting
principles generally accepted in the United States of America and have been
consistently applied in the preparation of the financial
statements.
References
to accounting principles generally accepted in the Unites States of America are
to those standards promulgated and described in the Accounting Standards
Codification (“ASC”) of the Financial Accounting Standards Board.
Unaudited Consolidated Financial
Statements- The accompanying unaudited consolidated financial
statements as of and for the three and nine month period ended September 30,
2010 have been prepared in accordance with accounting principles generally
accepted in the United States of America for interim financial information.
Accordingly, they do not include all the information and footnotes required for
complete financial statements. However, the unaudited consolidated financial
information includes all adjustments which are, in the opinion of management,
necessary to fairly present the consolidated financial position and the
consolidated results of operations for the interim period presented. The
operations for the three and nine month period ended September 30, 2010 are not
necessarily indicative of the results for the year ending December 31,
2010.
F-6
NOTE 2. GOING
CONCERN
The
preparation of financial statements in accordance with accounting principles
generally
accepted in the United States contemplates that operations will be sustained for
a
reasonable period. However, we have incurred operating losses of $4,015 and
$60,415 from November 23, 2009 (Inception date) through December 31, 2009 and
from our inception date through September 30, 2010 (unaudited),
respectively. Our revenues are minimal. In addition, during these
periods, we used cash of $5,693 and $57,269 (unaudited), respectively, in our
operating activities. Since our inception, we have been substantially dependent
upon funds raised through the sale of common stock and the issuance of common
stock for services. We will need to obtain additional financing to implement our
business plan. We may not be successful unless we can successfully
market our products and generate revenue sufficient to continue our
operations. These conditions raise substantial doubt about our
ability to continue as a going concern for a reasonable period.
Our
ability to continue as a going concern for a reasonable period is dependent upon
our ability to raise sufficient capital to implement our business plan and to
generate profits sufficient to become financially viable. During the years ended
December 31, 2009 and since inception through September 30, 2010 (unaudited), we
raised $28,643 and $82,893, respectively, from the sale of common stock. We
cannot give any assurances regarding the success of our current operations or
our ability to raise adequate capital to finance our operations. Our
consolidated financial statements do not include adjustments relating to the
recoverability of recorded assets or liabilities that might be necessary should
we be unable to continue as a going concern.
NOTES 3. SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Use of Estimates—The Company
prepares the financial statements in accordance with generally accepted
accounting principles of the United States of America and, accordingly, requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Principles of consolidation –
Our consolidated financial statements include the accounts of Shades Holding,
Inc. and its wholly owned subsidiary, Daily Shades, Inc. All significant
intercompany accounts, profits and transactions have been eliminated in
consolidation.
Impairment of Long-Lived
Assets - Our management evaluates its tangible and definite-lived
intangible assets for impairment under ASC 350 Intangible Assets and
ASC 360 Impairments
and Disposals.
Our
evaluation related to tangible and intangible long-lived assets provides a two
step process. The first step is to compare our undiscounted cash flows, as
projected over the remaining useful lives of the assets, to their respective
carrying values. In the event that the carrying values are not recovered by
future undiscounted cash flows, as a second step, we compare the carrying values
to the related fair values and, if lower, record an impairment adjustment. For
purposes of fair value, we generally use replacement costs for tangible fixed
assets and discounted cash flows, using risk-adjusted discount rates, for
intangible assets.
F-7
Cash and Cash
Equivalents—Cash equivalents are comprised of all highly liquid
investments with maturity of three months or less when purchased.
Revenue Recognition– Revenue is recognized when
evidence of the arrangement exists, the product is shipped to a customer, the
fee for the service is fixed or determinable and when we have concluded that
amounts are collectible from the customers. Estimated amounts for sales returns
and allowances are recorded at the time of sale. Shipping costs billed to
customers are included as a component of product sales. The associated cost of
shipping is included as a component of cost of product sales.
Inventories – Inventories
consist of retail merchandise that is in its finished form and ready for sale to
end-user customers. Inventories are recorded at the lower of average cost or
market. In-bound freight-related costs from our vendors are included as part of
the net cost of merchandise inventories. Other costs associated with acquiring,
storing and transporting merchandise inventories are expensed as incurred and
included in cost of goods sold. Our inventories are acquired and carried for
retail sale and, accordingly, the carrying value is susceptible to, among other
things, market trends and conditions and overall customer demand.
Intangible assets – The
Company’s
Website is recorded at cost and has a finite life. The Website is
amortized over the estimated periods of benefit of three years.
Earnings (Loss) Per Share -
The Company uses the guidance set forth under FASB topic ASC 260, “Earnings Per
Share” for calculating the basic and diluted loss per share. Basic loss per
share is computed by dividing loss by the weighted average number of common
shares outstanding. Diluted loss per share is computed similar to basic loss per
share except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the potential
shares had been issued and if the additional shares were dilutive. Common
equivalent shares are excluded from the computation of net loss per share if
they would be anti-dilutive. The Company has no potentially dilutive
securities at December 31, 2009 and September 30, 2010 (unaudited).
Fair Value of Financial
Instruments - The Company carries cash and cash equivalents, inventory,
and accounts payable and accrued expense at historical cost which approximates
the fair value because of the short-term nature of these
instruments.
Income Taxes - Income taxes
are accounted for using the liability method of accounting. Under this method,
deferred tax assets and liabilities are recognized for the expected future tax
consequences of differences between the carrying amounts of assets and
liabilities and their respective tax basis, using currently enacted tax rates.
The effect on deferred assets and liabilities of a change in tax rates is
recognized in income in the period when the change is enacted. Deferred tax
assets are reduced by a valuation allowance when it is more likely than not that
some portion or all of the deferred tax assets will not be
realized.
F-8
Share-Based Compensation – We
apply the grant-date fair value method to our share-based payment arrangements
with employees under the rules provided in ASC 718 Accounting for Share-Based
Payments and Staff Accounting Bulletin 107. Share-based compensation
cost for employees is measured at the grant date fair value based on the value
of the award and is recognized over the requisite service period, which is
usually the vesting period for employees.
For
share-based payment transactions with parties other than employees, we apply ASC
505-50 Equity Based Payments to Non-Employees. These non-employee services are
accounted for based on the fair value of the consideration received or the fair
value of the equity instruments issued, whichever is more reliably measureable.
The measurement date for valuing share-based payments made to non-employees is
the earlier of the date at which a commitment for performance by the
counterparty to earn the equity instruments is reached or the date at which the
counterparty’s performance is complete. Share-based payments to
non-employees are recorded at fair value on the measurement date and reflected
in expense over the requisite service period.
Recent Accounting Standards—
The Company does not expect the adoption of recent accounting standards to have
any material impact on its consolidated financial statements.
NOTE 4. PREPAID
EXPENSES
Prepaid
expense consisted of the following:
September 30, 2010
|
December 31, 2010
|
|||||||
(unaudited)
|
||||||||
Registration
statement services
|
$ | 69,486 | $ | 55,265 | ||||
Accounting
services
|
2,083 | 11,458 | ||||||
Search
engine optimization services
|
2,083 | 9,583 | ||||||
Information
technology services
|
842 | 4,584 | ||||||
Total
prepaid expenses
|
$ | 74,494 | $ | 80,890 |
F-9
NOTE 5. INTANGIBLE
ASSETS
The
Company’s intangible assets as of September 30, 2010 (unaudited) and December
31, 2009 are as follows:
September 30, 2010
|
December 31, 20009
|
|||||||
(unaudited)
|
||||||||
Website
Development
|
$ | 3,000 | $ | 3,000 | ||||
Accumilated
Amortization
|
(750 | ) | - | |||||
Intangible
Assets, Net
|
$ | 2,250 | $ | 3,000 | ||||
Unamortized
intangible assets:
|
||||||||
Estimated Amortization
Expense:
|
||||||||
September 30, 2010
|
December 31, 2009
|
|||||||
(unaudited)
|
||||||||
Three
months ended December 31, 2010
|
$ | 250 | $ | 1,000 | ||||
For
the year ended December 31, 2011
|
1,000 | 1,000 | ||||||
For
the year ended December 31, 2012
|
1,000 | 1,000 | ||||||
|
$ | 2,250 | $ | 3,000 |
NOTE 6. EQUITY
TRANSACTIONS
We have
100,000,000 authorized shares of common stock with a par value of $0.0001.
Holders of voting shares are entitled to one vote for each share that they own
at any shareholders' meeting. Each share of common stock entitles the
holder to one vote, either in person or by proxy, at meetings of
shareholders.
We issued
20,310,000 shares of common stock upon formation on November 23, 2009 (date of
inception). We issued 20,000,000 shares to our President and director
at par value for proceeds of $2,000 and the additional 310,000 shares were
issued to vendors in exchange for future services, including legal services,
accounting services, information technology services and search engine
optimization services. See below for a description of each
agreement. We also sold 3,000,000 shares of our common stock at $0.01
per share to accredited investors and received approximately $30,000 in
proceeds.
F-10
On
February 1, 2010, we distributed to potential investors a Private Placement
Memorandum offering 250,000 shares of our common stock at a price of $0.25 per
share. The shares were offered by us on a “best efforts” basis through the
efforts of our President. Although there was no minimum purchase
requirement, each investor was permitted to purchase a maximum of 25,000 shares
subject to our right to permit an investor to purchase more than the maximum
individual subscription. We sold 217,000 shares of our common stock
resulting in cash proceeds of $54,250 to the Company. This Private
Placement Memorandum offering is now closed.
Common Stock Issued for
Services to Non-employees
On
November 23, 2009 the Company entered into a one (1) year consulting agreement
with Ryan Ford for web consultation on our website
dailyshades.com. In consideration for services performed the Company
compensated Mr. Ford with 10,000 shares of common stock.
On
December 17, 2009 the Company entered into a one year consulting agreement with
the Tyler Ryan Group to provide services on content and social media
content. In consideration for the services preformed, the Company
will compensate TRG at $500 a month and issued 40,000 shares of our common stock
as compensation for these services.
On
November 23, 2009 the Company entered into a one (1) year consulting agreement
with Ron Rule for IT services on our website
dailyshades.com. In consideration for services performed the
Company compensated Mr. Rule with 10,000 shares of common stock.
On
November 23, 2009 we issued 200,000 shares of our common stock as compensation
for legal services.
The fair
value of these shares is based upon the fair value of the services to be
performed. See Note 3 and Note 10 for the Share-Based
Compensation.
NOTE 7. INCOME
TAXES
The
components of the provision for income taxes are as follows:
The
income tax provision consists of the following:
September 30, 2010
|
December 31, 2009
|
|||||||
(unaudited)
|
||||||||
Current
taxes
|
$ | - | $ | - | ||||
Deferred
taxes
|
$ | - | $ | - | ||||
Provision
for income taxes
|
$ | - | $ | - |
F-11
The items
accounting for the difference between income taxes computed at the federal
statutory rate and the provision for income taxes are as follows
September 30, 2010
|
December 31, 2009
|
|||||||
Income
tax at federal statutory rate
|
34.00 | % | 34.00 | % | ||||
State
tax, net of federal effect
|
3.63 | % | 3.63 | % | ||||
Valuation
allowance
|
<37.63>
|
% |
<37.63>
|
% | ||||
Effective
rate
|
0.00 | % | 0.00 | % |
Deferred
income taxes reflect the net tax effects of temporary differences between the
carrying amount of assets and liabilities for financial reporting purposes and
the amounts used for income tax purposes. Significant components of the
Company's deferred income taxes are as follows:
|
September 30,
2010 Nine
Month Period
|
December 31,
2009
|
||||||
(unaudited)
|
||||||||
Net
operating loss carry forwards
|
$ | 22,970 | $ | 1,524 | ||||
Valuation
allowance
|
(22,970 | ) | (1,524 | ) | ||||
Deferred
taxes
|
$ | - | $ | - |
We had a
net operating loss for the year ended December 31, 2009 and for the nine months
ended September 30, 2010. We have provided no current income tax
expense or benefit due to the losses incurred. Our net operating loss
is $4,015 for the period from November 23, 2009 (date of inception) to December
31, 2009 and $56,399 for the nine month period ending September 30, 2010
(unaudited), which is available for carry forward. The net operating
losses are carried forward for up to twenty years and available to offset future
taxable income, if any. The Company has provided a valuation
allowance for the deferred tax benefit resulting from the net operating loss
carryover. The valuation allowance is being applied because of the
limited operating history of the Company and inability to predict taxable income
going forward. In addressing the potential impact of deferred tax
assets, management considers whether it is more likely than not that some
portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation of
future taxable income.
NOTE 8. COMPENSATION
AGREEMENTS
Employment Compensation — We
have not entered into an employment agreement or non-competition agreement with
our President. Our President is compensated $500 monthly for his
services.
F-12
NOTE
9. RELATED PARTIES
On
November 23, 2009, we issued 20,000,000 shares of our restricted common stock to
Sean M. Lyons, our founder, at a share price of $.0001, for consideration of
$2,000. Mr. Lyons developed our business plan and founded the
Company.
On
December 10, 2009, a shareholder, who purchased 1,100,000 shares of our common
stock valued at $0.01 per share, is currently a supplier of
merchandise. Our operations are limited and have not achieved
operational status to date. At December 31, 2009 and for the nine
month period through September 30, 2010 (unaudited), we had purchases from this
supplier of $0 and $2,537, respectively.
Two
shareholders are members of an accounting services organization that provide
services to the Company and are related to the shareholder who provides
merchandise to the Company. During the period ended December 31,
2009, this service organization received 50,000 shares of our common stock
valued at $0.25 per share or a total value of $12,500 in exchange for their
accounting services charged to prepaid expense and amortized over a period of
twelve months.
We do not
own any real estate and do not intend to own real estate in the
future.
We
utilize space leased by a non-affiliated entity of our President on a rent free
basis. If our business expands, we will likely need to lease office and/or
warehouse space.
NOTE
10 SHARE- BASED COMPENSATION
Share-based
payments awards of 310,000 shares of our common stock were granted to
non-employee service providers. These share based payments were initially
charged to prepaid expenses and are amortized to expense over the requisite
service period. Legal services related to our registration statements
and included in prepaid expenses will be charged to paid in capital upon
completion of our registration statement or to expense if our registration is
unsuccessful (See Note 13). These share based services totaled
$77,500 and $0 for the period ended December 31, 2009 and the nine months ended
September 30, 2010 (unaudited), respectively. Share based
compensation expense amounted to $1,875 for the period from November
23, 2009 (inception date) through December 31, 2009 and $6,875 and $20,625 for
the three and nine month periods ended September 30, 2010 (unaudited),
respectively.
NOTE 11.
DIRECTORS
COMPENSATION
On
July 9, 2010 the company elected three Board of Directors to serve one year
terms. The individuals are Sean Lyons, Jesus Diaz, and Ryan
Ford. Mr. Ford will receive 30,000 shares a year for his services
which will vest quarterly and will be awarded at the end of the calendar
year. Mr. Diaz was also added as CFO and will receive 50,000 shares a
year for his services as a board member and CFO. His shares will vest
quarterly and be awarded at end of the calendar year. We will apply
the grant date fair value method to our share based arrangement for these awards
and record compensation expense as these shares vest.
F-13
NOTE
12. SELLING AND GENERAL ADMINISTRATIVE
EXPENSE
Selling
and general administrative expense consisted of the following:
Nine Month Period Ended
September 30, 2010
|
||||
Accounting
and Professional Expense
|
$ | 45,202 | ||
Compensation
Cost
|
4,878 | |||
Other
general administrative
|
3,998 | |||
Advertising
|
2,199 | |||
Amortization
|
750 | |||
Selling
and general administrative expense
|
$ | 57,027 |
NOTE
13. SUBSEQUENT EVENT
On July
9, 2010 the Company’s directors authorized the company to set aside 4,000,000
shares of common stock for the sale and issuance of the Company’s stock pursuant
to the S-1 Registration Statement. Our registration statement became
effective on October 25, 2010. Registration statement costs of
$69,486 (See Note 4) included in prepaid expenses were charged to additional
paid in capital upon completion of our registration
statement.
F-14
Item
2 – Management’s Discussion and Analysis of Financial Condition and Results of
Operations
Our
Management’s Discussion and Analysis should be read in conjunction with our
financial statements included in this report. The following discussion and
analysis is intended to help the reader understand the results of operations,
financial condition and cash flows of Shades Holdings, Inc. Our
Management’s Discussion and Analysis is provided as a supplement to, and should
be read in conjunction with, our consolidated financial statements and the
accompanying notes to the consolidated financial statements included
herein. We were incorporated as a Florida corporation on October 25,
2010. Accordingly, there are no consolidated financial statements for
the comparable three and nine month periods ended September 30,
2009.
Forward
Looking Statements
Certain
statements contained in this report on Form 10-Q and other written material and
oral statements made from time to time by us do not relate to historical or
current facts. As such, they are referred to as “forward-looking
statements,” which are intended to convey our expectations or predictions
regarding the occurrence of possible future events or the existence of trends
and factors that may impact our future plans and operating results. These
forward-looking statements are derived, in part, from various assumptions and
analyses we have made in the context of our current business plan and
information currently available to us and in light of our experience and
perceptions of historical trends, current conditions and expected future
developments and other factors we believe to be appropriate in the
circumstances. You can generally identify forward-looking statements through
words and phrases such as “seek,” “anticipate, ” “believe, ”
“estimate, ” “expect, ” “intend, ” “plan, ” “budget, ” “project, ” “may be, ”
“may continue, ” “may likely result, ” and similar expressions. When reading any
forward looking statement, you should remain mindful that actual results or
developments may vary substantially from those expected as expressed in or
implied by that statement for a number of reasons or factors, such as those
relating to:
|
·
|
whether
or not a market for our products and services develop and, if a market
develops, the pace at which it
develops;
|
|
·
|
our
ability to successfully sell our products and services if a market
develops;
|
|
·
|
our
ability to attract the qualified personnel to implement our growth
strategies;
|
|
·
|
our
ability to develop sales and marketing
capabilities;
|
|
·
|
the
accuracy of our estimates and
projections;
|
|
·
|
our
ability to fund our short-term and long-term financing
needs;
|
|
·
|
changes
in our business plan and corporate strategies; and other risks and
uncertainties discussed in greater detail in the sections of this report,
including the section captioned “Plan of
Operation”.
|
Each
forward-looking statement should be read in context with, and with an
understanding of, the various other disclosures concerning our Company and our
business made elsewhere in this report, as well as other public reports filed
with the SEC. You should not place undue reliance on any forward-looking
statement as a prediction of actual results or developments. We are not
obligated to update or revise any forward-looking statement contained in this
report to reflect new events or circumstances unless and to the extent required
by applicable law.
Background
We are an
online retailer of discount sunglasses incorporated under the laws of Florida on
November 23, 2009. We are a development stage company and have
recently commenced our business operations. From our inception on November
23, 2009 through September 30, 2010, we incurred a cumulative loss of $60,415
and have only generated nominal revenues from our business
operations. We offer and sell high quality, name brand sunglasses to
our customers through our wholly owned subsidiary, Daily Shades, Inc., at
discounts of up to 70% of the manufacturer’s suggested retail
price. Our products are offered and sold through our website at www.dailyshades.com
and we intend to continue offering our products only through our websites.
We currently offer a different pair of sunglasses each day to our customers
through our website. We generally offer our sunglasses for a limited
period of time and present the offer as a “daily deal” on our website.
Each day our quantities vary so our customers do not know how many pairs of
sunglasses we will have of a particular model. We have also recently added
a bargain bin that consist of single models, old models and slightly damaged
models. We have also purchased the domain dailychrono.com and
have that website under construction. We intend to sell watches on
that website using a similar business model and are targeting to have the new
website up and operating by the first quarter of 2011.
2
Plan
of Operation
We are a
development-stage company, which currently sells discount sunglasses and seeks
to expand its business model to include the sale of other products. During our
development stage, we have and are devoting substantially all of our efforts to
marketing and advertising through the use of different medias. We are
also engaged in developing our business infrastructure and we are seeking
capital to support the further development and deployment of our internet sales
platform. As of the date of this report, our activities have been limited to
various organizational matters, limited operations, and the development of our
business plan.
During
our development stage, as discussed above, we will incur significant
expenditures for organizational costs and marketing, arising both internally and
externally. Initially, our organizational costs will make up the majority of our
expenses. We currently estimate that during our fiscal year ending
December 31, 2010, our marketing expenditures will amount to approximately
$4,000 and our operating costs will amount to approximately $65,000. These
expenditures are entirely predicated on the success of our financing efforts
discussed in Liquidity and Capital Resources, below. We have had to pay for most
of our organizational costs with cash and currently anticipate that we will be
required to pay for our marketing efforts with cash. However, to the extent that
outside parties will entertain share-based payment arrangements, we will likely
pursue negotiations on those lines. As discussed in Note 6, Equity
Transactions, contained in the explanatory notes to our audited financial
statements for the period ended December 31, 2009 and September 30, 2010
(unaudited), we previously issued shares of our common stock as compensation to
our social media content consultation, our IT consultant and our legal service
provider. We will seek stock-based compensation arrangements in the
future.
Our
website sales platform is currently generating limited revenues. We
anticipate that our marketing efforts will increase the traffic to our website,
dailyshades.com,
which will result in an increase in revenues. Our revenues are
primarily derived from the sale of products over our website. We also
have one advertising space on our main website in which we offer a “banner”
style advertisement. That advertising space generates limited revenue
for us. In the future, we plan to expand that opportunity and to
allow additional advertising space on our main website and on our additional
websites. In addition, we are working on converting the domain names
that we own to “live” websites by posting “splash pages” on those existing
domain addresses indicating that those pages are coming soon and linking back to
dailyshades.com, our
main webpage. A “splash page” is a simple one page website that
requires minimal development output and expenditures but that will allow us
additional exposure on the internet.
As we
stated above, we are currently generating nominal revenues from our business
operations. Under our current business plan, we intend to invest a
substantial portion of our revenues in our marketing
efforts. However, because we have limited revenues, we are currently
spending very little on our marketing efforts. To the extent that our
revenues increase and provide the needed financing to spend money on marketing,
the intended allocation of our financial resources will be as
follows:
Expenditure Item
|
Percent
of Total
Expenditures
|
|||
Advertising
|
30 | % | ||
Social
Media/Blogging
|
20 | % | ||
SEO
development
|
15 | % | ||
Inventory
|
10 | % | ||
Website
Maintenance/Enhancement
|
10 | % | ||
General
Working Capital
|
15 | % |
Advertising, social media, and
search engine optimization (“SEO”) services. In order for our
business model to be successful, we must acquire, convert and retain
customers. In order to acquire customers, we must increase the
traffic to our website. As such, our highest priority will be to
increase our marketing/advertising expenses. We utilize various
channels to market our products, including click-through based advertising on
shopping comparison engines, targeted e-mails, display and banner advertisements
on high-traffic portals, social networking via major social media sites, and
onsite promotions on our websites. If we are able to obtain the
necessary capital, we intend to increase the ads we purchase from internet
search engine providers like Google and Yahoo!. While we believe that
repetitive ads on the internet are a highly effective marketing tool, the costs
associated with these advertisements are significant to our operations.
Using Google Ad Words, we can create advertisements and choose
keywords, which are words or phrases related to our business. When
people search on Google using one of our keywords, our ad may appear next to the
search results. This allows us to advertise to an audience that is
already interested in the products we provide. Using this form of
advertising, we can establish spending limits and we are generally only charged
if someone clicks our ad, not just when our ad is displayed. At the
development stage that we are in, we do not have adequate resources to devote a
substantial amount to internet advertising. Year to date, we have
spent approximately $3,000 on this type of advertising. This is far
short of the $10,000 per month goal that we believe is needed to see a
substantial effect on revenues.
3
All of
our social media through Facebook and Twitter is currently done by our
management. We believe this is an excellent marketing tool; however,
we believe it should be done by a professional group. While we have
initially budgeted $10,000 per month to pay a professional group to manage this
marketing aspect of our business, the development stage at which we are at has
caused us to forego this expense until our financial position
improves. We intend to construct “fan pages” of our business on
Facebook and similar sites, each of which cost approximately $2,500 for setup
alone. There are also monthly costs associated with the maintenance
of these “fan pages.” This campaign is our second priority after our
Google Ad Words project. However, we do not currently have the capital and
resources necessary to finance this project. We also anticipate establishing a
blog on our website. We believe this will assist us in drawing
additional traffic to our website. Estimates for establishing a
“blog” can vary depending on the amount of content and number of
bloggers. We believe initial costs will be approximately $1,500, with
monthly costs related to maintenance. Finally, we also intend to
reach our customers through daily “tweets” on Twitter. We find this
is a valuable tool to remind customers to visit our website for our “daily
deal.”
Our
search engine optimization (SEO) work is the next marketing aspect we plan on
expanding when we are financially able. We have retained an outside
marketing firm to assist us in enhancing and developing our website and to
assist us with SEO. SEO is the practice of maximizing the volume or
quality of traffic to a web site from search engines such as Google or Yahoo!
via "natural" or un-paid search results. Our efforts in this area
have been limited due to our limited budget. However, with proper
funding, this aspect of our marketing campaign would be vastly expanded to
increase our ranking in searches.
Acquisition of
inventory. With the expansion of our marketing campaign, we
anticipate an increase in our sales. As such, additional inventory
channels would need to be found. While our current business model
does not require that we maintain high inventory levels, as our business grows,
we may need to acquire and hold inventory. If our inventory demands
reach a certain level, we might need to find warehouse space. The
determination of size and cost at this point would be
unknown. However, we do not believe we will require warehouse space
until the third or fourth quarter of 2011, at the earliest. As of
September 30, 2010, we currently retain very minimal inventory of approximately
$1,400.
Website maintenance and
enhancement. Due to our existing budget constraints, we do a
minimum amount of maintenance and updating to our website. If our
marketing campaign is successful and additional traffic is directed to our
website, we will need to spend additional money on maintaining and enhancing our
website to remain competitive.
General working capital
needs. If we are successful in establishing our sunglass
segment, we will likely rollout additional “daily deal” sites for other clothing
accessories such as hats, watches, shoes and other similar items. We have
acquired the website domain names of dailychrono.com,
dailytote.com,
dailylids.com,
dailyflops.com,
and dailysneaks.com. Currently
dailychrono.com, a
website devoted to watches, is under construction and anticipated to launch in
the first quarter of 2011. Other than the launch of dailychrono.com, we
do not anticipate expanding our business until the third or fourth quarter of
2011. As we expand, we will focus on those markets that we believe
have the greatest sales potential and the least competition. The
advertising/marketing campaign for these new segments would be substantially
similar to those used for our sunglasses segment.
As our
business grows, we also will need to hire additional employees. We
currently only have one employee, Sean Lyons, who is our Principal Executive
Officer. If our sales increase, we will need to hire additional
people to accommodate that increase. However, that is not anticipated
to happen until the second or third quarter of 2011, at the
earliest. We believe our initial personnel needs will be in website
maintenance, sales/customer service and a general operations
manager.
Liquidity
and Capital Resources
The
preparation of financial statements in accordance with generally accepted
accounting principles contemplates that operations will be sustained for a
reasonable period. However, we have incurred operating losses of ($26,275) and
($56,400) during the three and nine month periods ended September 30, 2010. In
addition, during these periods, we used cash of $51,576 and $57,269,
respectively, in support of our operating activities. As of September 30, 2010,
we have cash on hand of $22,624 and working capital of $97,727. A substantial
portion of our working capital results from non-cash share based payments for
prepaid expenses totaling $74,494 for stock issued to service providers for
legal, accounting and information technology services rendered to our
company. Since our inception, we have been substantially dependent
upon funds raised through the sales of our stock in private placements to
sustain our operating activities. Our operating plan will
require substantially all available liquid resources and additional financings
sources, which we may not be able to achieve, to continue our business
operations. These conditions raise substantial doubt about our ability to
continue as a going concern for a reasonable period.
Our
preferred method of raising this necessary capital will be to sell shares
through our current stock offering. Our Registration Statement on
Form S-1 (File No. 333-168139), related to our initial public offering, was
declared effective by the SEC on October 25, 2010. A total of 4,000,000 shares
of common stock were registered with the SEC to be sold by the Company with an
aggregate offering price of $1,000,000 for the Company if all shares are sold.
As of the date of this filing the Company has not sold any shares under the
registration statement.
If we are
not successful at selling sufficient shares to meet our minimum financing needs,
we will seek advances from our existing shareholders. In addition, we
may seek debt financing or short term loans. If we do not secure at
least $200,000 we may not be able to continue our current minimal operations
beyond the next twelve months and our business plan will fail. We
currently do not have any financing commitments (binding or non-binding) and we
cannot give you any assurance that we will be able to secure the additional cash
or working capital we may require to continue our operations and fully implement
the initial phase of our business plan.
4
The
Company received $54,250 from the sale of its stock through private placements
during the nine months ended September 30, 2010 to support our operating
activities. However, further funding is not assured for the Company to continue
as a going concern for a reasonable period and, ultimately, we need to generate
profitable operations to sustain our business activities. We cannot give any
assurances regarding the success of management’s plans. Our consolidated
financial statements do not include adjustments relating to the recoverability
of recorded assets or liabilities that might be necessary should we be unable to
continue as a going concern.
Cash
balances amounted to $22,624 as of September 30, 2010 compared to $19,950 at
December 31, 2009. We have working capital of $97,727 as of September 30, 2010
and we had working capital of $99,128 at December 31, 2009. Our working capital
decreased as a result of our net loss during the nine months ended September 30,
2010.
Cash Flow from
Operating Activities – We used cash of
$51,577 in our operating activities during the nine months ended September 30,
2010.
We
recorded a net loss of ($26,275) and ($56,400) during the three and nine months
ended September 30, 2010.
Our cash
from operating activities also includes cash flow from changes in our operating
assets and liabilities of $16,552 for the nine months ended September 30, 2010
compared to a use of cash of $14,520 for the period from November 23, 2009
(inception) through December 31, 2009.
Our
inventory was $1,278 at September 30, 2010 compared to $0 at December 31,
2009. We made inventory purchases to take advantage of favorable
pricing for these purchases.
Our
non-cash prepaid expenses inventory were $74,494 at September 30, 2010 compared
to $80,890 at December 31, 2009. The decrease is attributable to the
amortization of share based payments for accounting, information technology
services and legal services. In October of 2010, we charged non-cash
share based registration statements costs of $69,486 to paid in capital upon the
effective registration of our common stock on October 25, 2010.
Accounts
payable and accrued expenses were $669 at September 30, 2010, a decrease of
$1,043 from $1,712 at December 31, 2009. This use of funds is due to
the timing of payments for services accrued at December 31, 2009.
Cash Flow from
Investing Activities – We used cash of $0
and $3,000 in our investing activities during the nine months ended September
30, 2010 and for the period from November 23, 2009 (inception) through December
31, 2009, respectively. We incurred $3,000 of costs associated with the
development costs for our website at December 31, 2009 and incurred $0 for
investing activities during the nine months ended September 30,
2010.
We have
no commitments for the purchase of property and equipment or other long lived
assets.
Cash Flow from
Financing Activities – We received $54,250
of cash from our financing activities related to a private placement offering of
our stock during the nine months ended September 30, 2010 and generated $28,643
of net proceeds from the sale of our stock for the period from November 23, 2009
through December 31, 2009 from a private placement offering of our stock and the
sale of our common stock to our founding stockholder. We have been substantially
dependent on these types of financings since inception.
We
currently have approximately 5,102,222 shares of our common stock available for
sale to the public with the completion of our registration statement which
became effective October 25, 2010. A total of 1,102,222 of these
shares are offered by our selling shareholders with no proceeds to the benefit
of the Company from the sales of these shares. The proceeds from the
sale of the remaining 4,000,000 shares, if any shares are sold, will be proceeds
to the benefit of the Company. Through December 7, 2010, the Company
has not sold any of these shares. There can be no assurances that any of our
common stock available for sale to the public will be sold or that funding
sources to meet our business needs will become available or on terms that are
suitable to our management. The Company’s focus has been on filing
its registration statement and addressing the regulatory requirements associated
with becoming a public company rather than actively offering its
shares. The Company intends to begin actively offering its shares to
raise the funds necessary to implement its business plan.
Results
of Operations
Three
Months Ended September 30, 2010
Revenues – We derive our revenues
from the sale of tangible products primarily sunglasses. Our consolidated
product sales of sunglasses were $688 for the three months ended September 30,
2010. Our revenues are limited and will continue to be limited until we can
fully implement our business plan.
5
Cost of Product Sales – Our cost of product sales were $708 for the three months ended September 30, 2010. Our cost of product sales is a direct result of our sales activity. Costs of products sold included unexpected emergency shipping costs and product pricing costs and resulted in our cost of products sold exceeding our revenue during this period.
Selling General
and Administrative Expenses – Operating expenses consist of advertising
expense, accounting and professional expenses, compensation costs and general,
amortization and administrative expenses. Our analysis of the material
components of changes in operating expenses are as follows:
Advertising and
Promotion – Advertising and promotion expense was $1,479 for the three
months ended September 30, 2010. Due to limited operating
activity our advertising expense is set at minimum levels.
Accounting and
Professional Expense – Accounting and consulting professional expenses
were $20,040 for the three months ended September 30, 2010. The expenses in the
current quarterly period include non-cash share-based payment expense for
accounting and information technology services of $6,873. These costs include
fees relating to professional consulting for information technology services and
accounting services and external audit related expenses. Our fees for these
services will continue as these services support our operations.
Compensation
Costs – Compensation related costs consist of salaries and payroll taxes.
These costs were $1,526 for the three months ended September 30, 2010. Our
compensation costs are for our Principal Executive Officer.
Amortization
– Our amortization of intangible assets was $250 for the three months ended
September 30, 2010. The expense is related to the amortization of our website
over its useful life.
Other General and
Administrative – These costs and expenses include general office
expenses. Our general and administrative costs were $2,960 for the three months
ended September 30, 2010. These costs reflect normal operating expenses
associated with our filings with the regulatory agencies and other
administrative expenses.
Net Loss –
We have reported net loss of ($26,275) during the three months ended September
30, 2010. This net loss is a result of the items discussed in the preceding
discussion.
Nine
months Ended September 30, 2010
Revenues – We derive our revenues
from the sale of tangible products primarily sunglasses. Our consolidated
product sales of sunglasses were $2,375 for the nine months ended September 30,
2010. Gross profit margin of 26.5% was achieved during the nine month
period. We expect our margins to increase over time. Our
revenues are limited and will continue to be limited until we can fully
implement our business plan.
Cost of Product
Sales – Our cost of product sales were $1,747 for the nine months ended
September 30, 2010. Our cost of product sales is a direct result of our sales
activity. Costs of products sold reflect our normal costs for
products we sell but include some unexpected emergency shipping costs and
product pricing costs which did not significantly impact our gross profit
levels.
Selling General
and Administrative Expense – These operating expenses consist of
advertising expense, accounting and professional expenses, compensation costs
and general expenses, amortization and administrative expenses. Our analysis of
the material components of changes in our operating expenses are as
follows:
Advertising and
Promotion – Advertising and promotion expense was $2,199 for the nine
months ended September 30, 2010. Due to limited operating
activity our advertising expense is set at minimum levels however we expect
these expenses to increase as our operating activity increases.
Accounting and
Professional Expense - Accounting and consulting professional expenses
were $45,202 for the nine months ended September 30, 2010. These expenses in the
current quarterly period include non-cash share-based payment expense for
accounting and information technology services of $20,625. These costs include
fees relating to professional consulting for information technology services and
accounting services and external audit related expenses. Our fees for these
services will continue as these services support our operations.
Compensation
Costs – Compensation related costs consist of salaries and payroll taxes.
These costs were $4,878 for the nine months ended September 30, 2010. Our
compensation costs relate to payroll for our Principal Executive
Officer.
Amortization
- Our amortization of intangible assets was $750 for the nine months ended
September 30, 2010. The expense is related to the amortization of our website
over its useful life.
6
Other General and
Administrative – These costs and expenses include general office
expenses. Our general and administrative costs were $3,998 for the nine months
ended September 30, 2010 and $0 for the nine months ended September 30, 2009.
These costs reflect normal operating expenses associated with our filings with
the regulatory agencies and other administrative expenses.
Net Loss –
We have reported net loss of ($56,400) during the nine months ended September
30, 2010. The net loss is a result of the items discussed in the preceding
discussion.
We have
experienced a recent increase in our professional costs primarily because of
professional accounting and legal fees incurred in connection with the
preparation and filing of our registration statement on Form S-1. We
believe that these increased costs are associated with our efforts to become a
public company. However, our administrative and overall general costs will
continue to remain high now that our registration statement has been declared
effective. Our costs associated with legal and accounting fees will
remain higher than historical amounts because, as a reporting company, we are
required to comply with the reporting requirements of the Securities and
Exchange Act of 1934. This involves the preparation and filing of the quarterly
and annual reports required under the Exchange Act as well as the other filing
requirements found in that Act. We will also incur additional expenses
associated with the services provided by our transfer agent. In addition, to the
work we are presently doing, we will need to focus our time and energy to
complying with the Exchange Act. This will detract from our ability and efforts
to expand our business model and future product and service
offerings.
We
anticipate incurring these additional expenses related to being a public company
without receiving a substantial increase in revenues associated with this
undertaking. Therefore, these additional expenses will not be offset by an
increase in revenue. There is currently no public market for our common stock.
We will need to compensate for these additional costs associated with becoming a
public company by revenues generated from our products or from the public or
private sale of or equity securities, the procurement of advances from our
majority shareholder, debt financing or short-term loans, or a combination of
the foregoing. As discussed elsewhere in this report, we currently do not have
any financing commitments (binding or non-binding) and we cannot give you any
assurance that we will be able to secure the additional cash or working capital
we may require to continue our operations and meet these increased
costs.
Off-Balance
Sheet Arrangements
We do not
have any off-balance sheet arrangements.
Critical
Accounting Policies
Our
discussion and analysis of our financial condition and results of operations are
based upon our consolidated financial statements, which have been prepared in
accordance with accounting principles generally accepted in the United States of
America. The preparation of these consolidated financial statements requires us
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosures of contingent assets
and liabilities. For a description of those estimates, see Note 3, Summary of
Significant Accounting Policies, contained in our notes to our consolidated
financial statements for the period ended December 31, 2009 and September 30,
2010 (unaudited). On an on-going basis, we evaluate our estimates, including
those related to deferred tax assets and valuation allowance, impairment of
long-lived assets, fair value of our financial instruments and equity
instruments. We base our estimates on historical experience and on various other
assumptions that we believe to be 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; however, we believe that our estimates, including those for the
above-described items, are reasonable.
While all
of our accounting policies impact the consolidated financial statements, certain
policies are viewed to be critical. Critical accounting policies are those that
are both most important to the portrayal of our financial condition and results
of operations and that require management’s most subjective or complex judgments
and estimates. Management believes the policies that fall within this category
are the policies on revenue recognition and accounts receivable and intangible
assets, investments, financial instruments.
Revenue recognition – Revenue
is recognized when evidence of the arrangement exists, the product is shipped to
a customer, or in the limited circumstances, at destination, when terms provide
that title passes at destination, and when we have concluded that amounts are
collectible from the customers. Estimated amounts for sales returns and
allowances are recorded at the time of sale. Shipping costs billed to customers
are included as a component of product sales. The associated cost of shipping is
included as a component of cost of product sales.
7
Accounts receivable –
Accounts receivable represents normal trade obligations from customers
that are subject to normal trade collection terms, without discounts or rebates.
Notwithstanding these collections, we periodically evaluate the collectability
of our accounts receivable and consider the need to establish an allowance for
doubtful accounts based upon our historical collection experience and
specifically identifiable information about our customers.
Inventories – Inventories
consist of retail merchandise that is in its finished form and ready for sale to
end-user customers. Inventories are recorded at the lower of average cost or
market. In-bound freight-related costs from our vendors are included as part of
the net cost of merchandise inventories. Other costs associated with acquiring,
storing and transporting merchandise inventories are expensed as incurred and
included in cost of goods sold. Our inventories are acquired and carried for
retail sale and, accordingly, the carrying value is susceptible to, among other
things, market trends and conditions and overall customer demand.
Impairments – The Company’s
management evaluates its tangible and definite-lived intangible assets for
impairment under Statement of Financial Accounting for the
Impairment or Disposal of Long-Lived Assets annually at the
beginning of our fourth fiscal quarter or more frequently in the presence of
circumstances or trends that may be indicators of impairment. Our evaluation is
a two step process. The first step is to compare our undiscounted cash flows, as
projected over the remaining useful lives of the assets, to their respective
carrying values. In the event that the carrying values are not recovered by
future undiscounted cash flows, as a second step, we compare the carrying values
to the related fair values and, if lower, record an impairment adjustment. For
purposes of fair value, we generally use replacement costs for tangible fixed
assets and discounted cash flows, using risk-adjusted discount rates, for
intangible assets.
Financial instruments –
Financial instruments consist of cash, evidence of ownership in an
entity, and contracts that both (i) impose on one entity a contractual
obligation to deliver cash or another financial instrument to a second entity,
or to exchange other financial instruments on potentially unfavorable terms with
the second entity, and (ii) conveys to that second entity a contractual right
(a) to receive cash or another financial instrument from the first entity, or
(b) to exchange other financial instruments on potentially favorable terms with
the first entity. Accordingly, our financial instruments consist of cash and
cash equivalents, accounts receivable, accounts payable, accrued
liabilities. We carry cash and cash equivalents, accounts payable and
accrued liabilities at historical costs; their respective estimated fair values
approximate carrying values.
Recent
Accounting Standards
Effective
July 1, 2009, the Company adopted the Financial Accounting Standards Board
(“FASB”) Accounting Standards Codification (“ASC”) 105-10, Generally Accepted Accounting
Principles – Overall (“ASC 105-10”). ASC 105-10 establishes the FASB Accounting Standards
Codification (the “Codification”) as the source of authoritative
accounting principles recognized by the FASB to be applied by nongovernmental
entities in the preparation of financial statements in conformity with U.S.
GAAP. Rules and interpretive releases of the SEC under authority of federal
securities laws are also sources of authoritative U.S. GAAP for SEC registrants.
All guidance contained in the Codification carries an equal level of authority.
The Codification superseded all existing non-SEC accounting and reporting
standards. All other non-grandfathered, non-SEC accounting literature not
included in the Codification is non-authoritative. The FASB will not issue new
standards in the form of Statements, FASB Staff Positions or Emerging Issues
Task Force Abstracts. Instead, it will issue Accounting Standards Updates
(“ASUs”). The FASB will not consider ASUs as authoritative in their own right.
ASUs will serve only to update the Codification, provide background information
about the guidance and provide the bases for conclusions on the change(s) in the
Codification. References made to FASB guidance throughout this document have
been updated for the Codification.
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
We have
had no changes in or disagreements with our accountants.
Item
3. Quantitative and Qualitative Disclosure about Market Risk
Not
applicable to smaller reporting companies.
Item
4. Controls and Procedures
Evaluation
of Disclosure Controls and Procedures
An
evaluation was conducted, with the participation of 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 Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange
Act”), as of September 30, 2010. This evaluation was to ensure that information
required to be disclosed by us in the reports filed or submitted by us under the
Exchange Act is recorded, processed, summarized and reported, within the time
periods specified in the Securities Exchange Commission's rules and
forms. In addition, the evaluation’s goal was to ensure that
information required to be disclosed by us in the reports filed or submitted by
us under the Exchange Act is accumulated and communicated to our management,
including our Principal Executive and Principal Financial Officers, as
appropriate, to allow timely decisions regarding required disclosure. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer have
concluded that as of September 30, 2010, our disclosure controls and procedures
were not effective due to the material weaknesses described
below.
8
In light
of the material weaknesses described below, we performed additional analysis and
other post-closing procedures to ensure our financial statements were prepared
in accordance with generally accepted accounting principles. Accordingly, we
believe that the financial statements included in this report fairly present, in
all material respects, our financial condition, results of operations and cash
flows for the periods presented.
A
material weakness is a control deficiency (within the meaning of the Public
Company Accounting Oversight Board (PCAOB) Auditing Standard No. 5) or
combination of control deficiencies, such that there is a reasonable possibility
that a material misstatement of the annual or interim financial statements will
not be prevented or detected. Management has identified the following three
material weaknesses which have caused management to conclude that, as of
September 30, 2010, our disclosure controls and procedures were not
effective:
Deficiencies pertaining to a lack of
human resources within our finance and accounting functions: We currently
only have one employee. The lack of appropriately skilled personnel and less
effective monitoring activities could result in material misstatements to
financial statements not being detected in a timely manner.
Deficiencies pertaining to the lack
of controls or ineffectively designed controls: Our control design
analysis and process walk-throughs disclosed a number of instances where review
approvals were undocumented, where established policies and procedures were not
defined, and controls were not in place.
Deficiencies related to information
technology control design and operating effectiveness weaknesses: This
material weakness resulted from the absence of key formalized information
technology policies and procedures and could result in (1) unauthorized system
access, (2) application changes being implemented without adequate reliability
testing, (3) inconsistent investigation of system errors and the absence of
timely or properly considered remedial actions, and (4) over reliance on
spreadsheet applications without quality control assurances. These factors could
lead to material errors and misstatements to financial statements occurring
without timely detection.
Deficiencies related to failures in
operating effectiveness of the internal control over financial reporting:
Our procedures relating to operating effectiveness, including monitoring
activities, of financial reporting internal controls continue to be ineffective.
When an assessment was done to confirm the effectiveness of the internal control
over financial reporting, controls were not operating effectively. We need to
remediate our material weakness in internal control.
Management’s
Report on Internal Control over Financial Reporting
There
have not been any changes in the Company’s internal control over financial
reporting, as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act, during its last fiscal quarter that have materially affected, or
are reasonably likely to materially affect its internal control over financial
reporting. However, we are in the process of determining the remediation
measures necessary to address our control deficiencies and material
weaknesses.
PART
II OTHER
INFORMATION
Item 1. Legal Proceedings -
None.
Item
2. Unregistered Sales of Equity Securities and Use of
Proceeds
We have
no recent sales of unregistered securities.
Use
of Proceeds From Sales of Registered Securities
Our
Registration Statement on Form S-1 (File No. 333-168139), related to our initial
public offering, was declared effective by the SEC on October 25, 2010. A total
of 4,000,000 shares of common stock were registered with the SEC to be sold by
the Company with an aggregate offering price of $1,000,000 for the Company if
all shares are sold. As of the date of this filing the Company has not sold any
shares under the registration statement. The Company is not actively offering
its shares. The Company’s focus has been on filing its registration
statement and addressing the regulatory requirements associated with becoming a
public company rather than actively offering its shares. The Company
intends to begin actively offering its shares to raise the funds necessary to
implement its business plan.
Item 3. Defaults Upon Senior Securities -
None.
Item
4. Removed and Reserved
Item 5. Other Information –
None.
9
Item
6. Exhibits
Exhibit No.
|
Description
|
|
3.01*
|
Articles
of Incorporation of Shades Holdings, Inc.
|
|
3.02*
|
Bylaws
of Shades Holdings, Inc.
|
|
31.01**
|
Certification
of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
December 9, 2010.
|
|
31.02**
|
Certification
of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) as
adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, dated
December 9, 2010.
|
|
32.01**
|
Certification
of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
December 9, 2010.
|
|
32.02**
|
Certification
of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, dated
December 9, 2010.
|
*
Previously filed as an exhibit to the Registration Statement on Form S-1 filed
with the Securities and Exchange Commission dated July 16, 2010.
** Filed
herewith.
10
SIGNATURE
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.
SHADES
HOLDINGS, INC.
|
||
By:
|
/s/ Sean M. Lyons
|
|
Sean
M. Lyons, Principal Executive Officer
|
||
By:
|
/s/ Jesus Diaz
|
|
Jesus
Diaz, Principal Financial Officer and Principal Accounting
Officer
|
||
Dated:
December 9, 2010
|
11