UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

 

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 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 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 (§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  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

 

The Registrant had 23,777,000 shares of common stock, par value $0.0001 per share, outstanding as of May 21, 2012.

 

 

  

Shades Holdings, Inc.

INDEX

 

PART I.	Financial Information	Page No.
Item 1.	Financial Statements.
	Consolidated Balance Sheets at December 31, 2011 and March 31, 2012 (Unaudited)	F-1
	Consolidated Statements of Operations for the Three Months Ended March 31, 2012 and 2011(Unaudited) and for the Period from November 23, 2009 (Inception) to March 31, 2012 (Unaudited)	F-2
	Consolidated Statement of Stockholders' Equity: for the Period from November 23, 2009 to (Inception) to March 31, 2012	F-3
	Consolidated Statements of Cash Flows  for the three Months Ended March 31, 2012 and 2011 (Unaudited) and for the Period from November 23, 2009 (Inception)  to March 31, 2012 (Unaudited)	F-4
	Notes to Consolidated Financial Statements	F5-F12
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	3-8
Item 3.	Quantitative and Qualitative Disclosures About Market Risk.	9
Item 4.	Controls and Procedures.	9
PART II.	Other Information
Item 1.	Legal Proceedings.	11
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.	11
Item 3.	Defaults Upon Senior Securities.	11
Item 4.	Mine Safety Procedures	11
Item 5. 6.	Exhibits.	12
		13
SIGNATURES		13-17

  

 

 

 

Shades Holdings, Inc.

(A Development Stage Company) 

Consolidated Balance Sheets

 

 

 

ASSETS
		March 31, 2012				December 31, 2011
Current assets:		(unaudited)
Cash and cash equivalents		$	573			$	1,015
Accounts receivable			181				-
Inventory			2,991				3,145
Total current assets			3,745				4,160
Websites-net			2,250				2,500
Total assets		$	5,995			$	6,660
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable		$	31,097			$	29,656
Accrued expenses			5,843				3,903
Notes payable - related party			7,000				6,000
Total current liabilities			43,940				39,559
Stockholders' equity:
Preferred stock, $0.01 par value;
10,000,000 shares authorized, none issued or outstanding			-				-
Common stock, $0.0001 par value:
100,000,000 shares authorized; 23,777,000 and 23,777,000 shares
issued and outstanding, respectively			2,377				2,377
Additional paid in capital			220,516				220,516
Deficit accumulated during development stage			(260,838	)			(255,792	)
Total stockholders' equity (deficit)			(37,945	)			(32,899	)
Total liabilities and stockholders' equity (deficit)		$	5,995			$	6,660

  

See Notes to Consolidated Financial Statements

 

 

 

Shades Holdings Inc.

(A Development Stage Company)

Consolidated Statements of Operations

 

 

 

		For The Three Months Ended March 31, 2012				For The Three Months Ended March 31, 2011				For The Period From November 23, 2009 (Date of Inception) To March 31, 2012
		(unaudited)				(unaudited)				(unaudited)
Revenue		$	771			$	695			$	5,977
Cost of goods sold			262				441				3,446
Gross profit			509				254				2,531
Accounting and professional expense			3,008				11,575				222,685
Compensation expense			1,664				9,730				35,562
Other general and administrative			538				155				2,169
Advertising			95				117				703
Amortization			250				250				2,250
Total selling, general and administrative			5,555				21,827				263,369
Net (loss)		$	(5,046	)		$	(21,573	)		$	(260,838	)
Basic and diluted (loss) per share		$	(0.00)			$	(0.00)			$	(0.01)
Weighted average shares outstanding
basic and diluted			23,777,000				23,777,000				23,777,000

  

See Notes to Consolidated Financial Statements

 

 

 

 

Shades Holdings Inc.

(A Development Stage Company)

Consolidated Statements of Stockholders’ Equity (Deficit)

 

 

 

																										Deficit
																										Accumulated
		Preferred Stock								Common Stock								Additional Paid in				Common Stock				During Development
		Shares				Amount				Shares				Amount				Capital				Payable				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
Issuance shares of common stock for services for $0.25 per share			-				-				310,000				31				77,469				-				-				77,500
Issuance shares of common stock for cash at $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
Issuance shares  of common stock for cash at $0.25 per share through private placement			-				-				217,000				22				54,228				-				-				54,250
Common stock payable for services for $0.25 per share			-				-				-				-				-				37,803				-				37,803
Net loss for December 31, 2010			-				-				-				-				-				-				(171,893	)			(171,893	)
Balance at December 31, 2010			-				-				23,527,000				2,353				158,040				37,803				(175,908	)			22,288
Issuance of common stock for services for $0.25 per share			-				-				155,000				15				38,735				(38,750	)			-				-
Issuance shares  of common stock for cash at $0.25 per share through S1			-				-				95,000				9				23,741				-				-				23,750
Common stock payable for services for $0.25 per share			-				-				-				-				-				25,316				-				25,316
Forgiveness of Common Stock Payable for service			-				-				-				-				-			($	24,369	)			-				(24,369	)
Net loss for December 31, 2011			-				-				-				-				-				-				(79,884	)			(79,884	)
Balance at December 31, 2011			-				-				23,777,000			$	2,377			$	220,516			$	-			$	(255,792	)		$	(32,899	)
Net loss for March 31, 2012			-				-				-				-				-				-				(5,046	)			(5,046	)
Balance as of March 31, 2012(unaudited)		$	-			$	-				23,777,000			$	2,377			$	220,516			$	-				(260,838	)		$	(37,945	)

 

See Notes to Consolidated Financial Statement

 

 

 

Shades Holdings, Inc.

(A Development Stage Company)

Consolidated Statements of Cash Flows

 

 

 

										For The Period From
		For The Three Month				For The Three Month				November 23, 2009
		Period Ended				Period Ended				( Inception) To
		March 31, 2012				March 31, 2011				March 31, 2012
		(unaudited)				(unaudited)				(unaudited)
Cash flows from operating activities:
Net loss		$	(5,046	)		$	(21,573	)		$	(260,838	)
Adjustments to reconcile net (loss) to net cash
used in operating activities:
Stock based compensation			-				9,070				111,515
Amortization of website			250				250				2,250
Changes in operating assets and liabilities:
Accounts receivable			(181	)			-				(181	)
Prepaid expenses			-				3,129				4,735
Inventories			154				-				(2,991	)
Accounts payable			1,441				1,652				31,097
Accrued expenses			1,940				615				5,843
Net cash (used) in operating activities			(1,442	)			(6,857	)			(108,570	)
Cash flows from investing activities:
Acquisition of intangible assets			-				-				(4,500	)
Net cash (used) in investing activities			-				-				(4,500	)
Cash flows from financing activities:
Cash received from issuance of common stock			-								110,000
Cash paid for stock issuance costs			-				-				(3,357	)
Cash received from note payable - related party			1,000				-				7,000
Net cash provided by financing activities			1,000				-				113,643
Net (decrease) increase in cash and cash equivalents			(442	)			(6,857	)			573
Cash and cash equivalents at beginning of year			1,015				12,131				-
											-
Cash and cash equivalents at end of year		$	573			$	5,273			$	573
Supplemental disclosures:
Cash paid for interest		$	-			$	-			$	-
Cash paid for taxes		$	-			$	-			$	-

 

See Notes to Consolidated Financial Statements

 

 

 

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 and Daily Chrono which sells brand name watches up to 75% off manufactured suggested retail price at our website www.dailychrono.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.

 

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 $5,046 and $21,573 for the three months ended March 31, 2012 and 2011, respectively. Additionally our cumulative losses were $260,838 through March 31, 2012. Our revenues are minimal. In addition, during the three months ended March 31, 2012 and 2011 we used cash of $1,442 and $6,857, respectively, in our operating activities. Since our inception, we have been substantially dependent upon funds raised through the sale of common stock. 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.

 

Our ability to continue as a going concern is dependent upon our ability to raise sufficient capital to implement our business plan and to generate profits sufficient to become financially viable. Since inception through March 31, 2012 we raised $110,000 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.

 

 

Shades Holdings, Inc.

(A Development Stage Company)

Notes To Consolidated Financial Statements

 

 

NOTE 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.

 

Cash and Cash Equivalents—Cash equivalents are comprised of all highly liquid investments with an original 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.

 

 

 

 

Shades Holdings, Inc.

(A Development Stage Company)

Notes To Consolidated Financial Statements

 

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 Websites are recorded at cost and have a finite life. The Websites are 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 March 31, 2011 and March 31, 2012.

 

Fair Value of Financial Instruments - Fair Value of Financial Instruments:  Our financial instruments consist of cash and cash equivalents, accounts receivable, accounts payable and accrued expenses. We believe that the carrying amounts of the financial instruments approximate their respective current fair values due to their relatively short maturities. 

 

Pursuant to the requirements of the Fair Value Measurements and Disclosures Topic of the FASB Codification, the Company’s financial assets and liabilities measured at fair value on a recurring basis are classified and disclosed in one of the following three categories:

 

Level 1: Financial instruments with unadjusted quoted prices listed on active market exchanges. 

 

Level 2: Financial instruments lacking unadjusted, quoted prices from active market exchanges, including over the counter traded financial instruments. The prices for the financial instruments are determined using prices for recently traded financial instruments with similar underlying terms as well as directly or indirectly observable inputs, such as interest rates and yield curves that are observable at commonly quoted intervals.

 

Level 3: Financial instruments that are not actively traded on a market exchange. This category includes situations where there is little, if any, market activity for the financial instrument. The prices are determined using significant unobservable inputs or valuation techniques.

 

 

Shades Holdings, Inc.

(A Development Stage Company)

Notes To Consolidated Financial Statements

 

All cash and cash equivalents are considered Level 1 measurements for all periods presented. We do not have any financial instruments classified as Level 2 or Level 3 and there were no movements between these categories.

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.

 

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 pronouncements - In May 2011, the FASB issued an update that amends the guidance provided in ASC Topic 820, Fair Value Measurement, by clarifying some existing concepts, eliminating wording differences between GAAP and International Financial Reporting Standards (“IFRS”), and in some limited cases, changing some principles to achieve convergence between GAAP and IFRS. The update results in a consistent definition of fair value, establishes common requirements for the measurement of and disclosure about fair value between GAAP and IFRS, and expands the disclosures for fair value measurements that are estimated using significant unobservable (Level 3) inputs. This update becomes effective in the second quarter of fiscal 2012. We do not expect the adoption of this update to have a material impact on our consolidated financial statements.

 

 

Shades Holdings, Inc.

(A Development Stage Company)

Notes To Consolidated Financial Statements

 

In June 2009, the Financial Accounting Standards Board (“FASB”) issued the FASB Accounting Standards Codification (“Codification”). The Codification is the single source for all authoritative Generally Accepted Accounting Principles (“GAAP”) recognized by the FASB to be applied for financial statements issued for periods ending after September 15, 2009. The Codification does not change GAAP and did not have a material impact on the Company’s financial statements.

 

NOTE 4. INTANGIBLE ASSETS

 

 

The Company’s intangible assets as of March 31, 2012 and March 31, 2011 are as follows:

 

 

NOTE 5. NOTE PAYABLE

 

In November 2011 we took out a short term note from a fund for $6,000. In March of 2012 we took another $1,000 for the same fund. In April of 2012 the previous notes along with a new note for $18,000 were combined into one note totaling $25,000 with a one year term. That fund is managed by our CEO Sean Lyons. Terms of the note were twelve percent per annum for one year with a default clause of an additional $3,000 added to principal. The note is secured by inventory and domains owned by the Company.

 

 

 

 

Shades Holdings, Inc.

(A Development Stage Company)

Notes To Consolidated Financial Statements

 

NOTE 6. ADVERTISING

 

The Company expenses advertising costs as they are incurred. Advertising expenses for the three months ended March 31, 2012 and 2011, were $95 and $117, respectively.

NOTE 7. 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 $26,643 in proceeds.

 

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 is no minimum purchase requirement, each investor is 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 have 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.

 

On June 3, 2011 the Company closed its Registered Direct Offering and the Registered Resale Offering on Form S1. The Company sold 95,000 shares of our common stock at a price of $0.25 per share. All the shares sold were from the Registered Direct Offering, no shares from the Registered Resale Offering were sold. The Company sold 95,000 shares of common stock resulting in cash proceeds of $23,750.

 

Common Stock Issued for Services to Non-employees

 

On November 23, 2009 the Company entered into a one 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, (TRG) to provide services on content and social media content. In consideration for the services preformed, the Company compensated TRG at $500 a month and issued 40,000 shares of our common stock as compensation for these services for one year. Their services were extended at a monthly fee of $500. As of the end of September 30, 2011 quarter, the agreement with TRG was not renewed.

 

  

Shades Holdings, Inc.

(A Development Stage Company)

Notes To Consolidated Financial Statements

 

 

On November 23, 2009 the Company entered into a one 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 was based upon the fair value of the services performed. See Note 3 and Note 8 for the Share-Based Compensation.

 

 

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.

 

NOTE 9. RELATED PARTIES

 

 

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, Snazzy Buys owned by Marylyn Phillips, wife of Dale Phillips of Total CFO. Our operations are limited and have achieved limited operational status to date. At March 31, 2011 and dating back to November 23, 2009 (inception) we had purchases from this supplier totaling $3,468.

 

During the period ending June 30, 2011 the Company extended a share based compensation agreement with a related party (See Note 10).

 

On November 23, 2009, we entered into an agreement with Total CFO, LLC under which Total CFO, LLC agreed to provide us with tax preparation services and general book keeping services for a 12

month term.  The agreement can be terminated by either party upon 30 days notice.  In exchange for the services rendered under the agreement, we issued Total CFO, LLC 50,000 shares of our restricted common stock.  These services were valued at $12,500 based on a price of $0.25 per share.  Natalie Collins, who owns fifty percent (50%) of Total CFO, LLC, owns 600,000 shares of the Company’s common stock.  These shares were acquired in our 2009 common stock offering at a price of $0.01 per share, for an aggregate purchase price of $6,000.  Dale Phillips owns the remaining 50% and is her father. The Company also has agreed to issue Total CFO, LLC an additional 50,000 shares of its common stock in exchange for tax preparation services and general book keeping services for 2011. The agreement with Total CFO was not renewed for the 2012 year.

 

 

 

Shades Holdings, Inc.

(A Development Stage Company)

Notes To Consolidated Financial Statements

 

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 payment awards of 75,000 shares of our common stock were granted to non-employee service providers during the year ended December 31, 2011.

 

The Company’s Board of Directors and Officers were also compensated with shares for services provided (See Note 9). 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 (See Note 7).

 

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. The same structured agreement was renewed as of November 24, 2010, 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. In 2010 the shares were not issued however the cost was recognized. The shares were issued June 2, 2011.

 

NOTE 11.    Directors compensation  

 

On July 9, 2010 the company elected three Board of Directors to serve one year term. 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 end of the calendar year 2011. 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 2011. Mr. Lyons will receive 50,000 shares a year for his services as a board member and CEO. His shares will vest quarterly and be awarded at end of the calendar year 2011. 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.

On February 23, 2011 our board members and CFO were issued their shares for services relating to 2010. These shares cost were recognized in 2010.

 

On December 1, 2011 our board members, CFO, and CEO met to discuss forgiving all stock compensation due for 2011 (See below). At that time it was unanimously agreed that all stock compensation for 2011 would be forgiven. Based on the need for future financing the group agreed further issuance of shares may impede the likelihood of obtaining needed financing. Additionally at that time it was agreed for the same reason mentioned above Total CFO’s services would not be renewed.

 

 

 

 

 

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.

 

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 and watches 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 March 31,2012, we incurred a cumulative loss of ($260,838) and have only generated limited revenues from our business operations. We offer and sell high quality, name brand sunglasses and watches to our customers through our wholly-owned subsidiary, Daily Shades, Inc. The high quality, name brand sunglasses are offered at discounts of up to 70% of the manufacturer’s suggested retail price and are offered and sold through our website at , and the high quality, name brand watches are offered at discounts of up to 75% of the manufacturer’s suggested retail price and are offered and sold through our website at www.dailychrono.com. We intend to continue offering our products only through our websites.  We currently offer a different pair of sunglasses and a different watch each day to our customers through our websites.  We generally offer our sunglasses and watches for a limited period of time and present the offer as a “daily deal” on our websites.  Each day our quantities vary, so our customers do not know how many pairs of sunglasses or watches we will have of a particular model.  We have also added “bargain bins” that consist of single models, old models and slightly damaged models.

 

  

Plan of Operation

 

We are a development-stage company, which currently sells discount sunglasses and watches which 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. Our organizational costs have made up the majority of our expenses to date. 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 7, Equity Transactions, contained in the explanatory notes to our financial statements, 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. With numerous recent developments such as XBRL formatting for all filings which will incur substantial cost in the near future and the growing difficulties for small publicly traded companies to easily trade on the open market. The Company, for the protection of its shareholder base, may seek to identify a privately-held operating company that desires to become a public company by combining with us via reverse merger or some other form of transaction. The Company may seek a target that demonstrates potential long-term growth, rather than short-term earnings. The Company has not entered into discussions or a definitive agreement with any party concerning an acquisition or merger.

 

Our website sales platform is currently generating limited revenues. From inception (November 23, 2009) through March 31, 2012, we generated $5,997 in revenues from our operations. We anticipate that our marketing efforts will increase the traffic to our websites, dailyshades.com and dailychrono.com, which will result in an increase in revenues. Our revenues are primarily derived from the sale of products over our websites. We also have one advertising space on each of our websites, dailyshades.com and dailychrono.com, 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 websites and on our additional websites. Our additional daily deal domains, which include dailyflops.com, dailylids.com, dailytote.com and dailysneaks.com, have “splash pages” with advertisements on them and a link back to our websites, dailyshades.com and dailychrono.com. 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 and have reduced our cost to minimal amounts. 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 high. 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. When substantial funds are raised we anticipate spending approximately thirty percent (30%) of our funds on this type of advertising.. This will consist primarily of increased advertising with Adwords on Google, Facebook Ads/Contest, and subscriber list contest/promotions from our website. Our social media followers have vastly expanded over the last several quarters along with subscribers to our website.

 

 

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 reconstruct “fan pages” of our business on Facebook and similar sites, each of which will cost approximately $2,500 at a minimum. 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 from 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. Many wholesalers require that we place certain minimum orders for inventory, which we are currently unable to do because the minimum orders exceed our current budget. 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 second or third quarter of 2012, at the earliest. As of March 31, 2012, we currently retain very minimal inventory of approximately $2,991.

 

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. Recently most of this budget has gone to building the new dailychrono.com website. This site will also display the daily deal for dailyshades.com. Additional updates are being done on dailyshades.com such as links to dailychrono.com, updating the shopping cart, and other minor cosmetic improvements.

 

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 shoes and other similar items.  We have acquired the website domain names of , , , , and . We launched our website dailychrono.com, a website devoted to watches, in the third quarter of 2011. Other than the launch of dailychrono.com, we do not anticipate expanding our business until the fouth quarter of 2012. 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 two employees, Sean Lyons, who is our Principal Executive Officer, and Jesus Diaz, our Principal Accounting Officer. If our sales increase, we will need to hire additional people to accommodate that increase. However, that was not anticipated to happen until the fourth quarter of 2011, but now due to capital restraints and limited sales will be delayed until at least the second quarter of 2012, 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 $5,046 during the three months ended March 31, 2012 and $260,838 from inception (November 23, 2009) through March 31, 2012. In addition, we used cash of $1,442 in support of our operating activities during the three months ended March 31, 2012. As of March 31, 2012, we had cash on hand of $573 and working capital of $(40,195). A substantial portion of our working capital results accounts payable which is related to professional services consisting mostly of legal and accounting. 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 financing 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.

 

 

We sold 95,000 shares of our common stock under our Registration Statement on Form S-1 (File No. 333-168139) at $0.25 per share for total proceeds to the Company of $23,750. The Registration Statement was declared effective by the SEC on October 25, 2010 and the Company closed the offering on June 7, 2011. We had hoped to sell additional shares under the Registration Statement, however there was not sufficient demand for our shares in the market. Since we did not raise sufficient capital under the Registration Statement to sustain our current minimal operations and implement our business plan, we may seek advances from our existing shareholders to meet our existing working capital needs. In addition, we may seek debt financing or short term loans. However, further funding is not assured for the Company to continue as a going concern 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. 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.

 

Furthermore, with numerous recent developments, including the implementation of XBRL formatting for all filers, including smaller reporting companies, the administrative costs associated with being a public company continue to increase. If we cannot generate profitable operations to sustain our current business activities, in order to protect our existing stockholders, we may seek to identify a privately-held operating company that desires to become a public company by combining with us via reverse merger or some other form of transaction. If we decide to explore this alternative, the Company will seek a target that demonstrates potential long-term growth, rather than short-term earnings. The Company has not entered into a definitive agreement with any party concerning an acquisition or merger. Sean Lyons, our Chief Executive Officer and director, will be primarily responsible for identifying acquisition opportunities. However, we believe that prospects also may come to our attention from a variety of sources, including professional advisors such as attorneys and accountants, securities broker-dealers and venture capitalists. we may seek to identify a privately-held operating company that desires to become a public company by combining with us via reverse merger or some other form of transaction.

  

Cash balances amounted to $573 as of March 31, 2012 compared to $5,273 at March 31, 2011. We have working capital of $(40,195) as of March 31, 2012 and we had working capital of $8,035 at March 31, 2011. Our working capital decreased as a result of our net loss during the year ended December 31, 2011 and the three months ended March 31, 2012.

 

Cash Flow from Operating Activities – We used cash of $1,442 in our operating activities during the three months ended March 31, 2012 and $6,857 during the three months ended March 31, 2011.

 

We recorded a net loss of $5,046 and $21,573 during the three months ended March 31, 2012 and 2011.

 

Our cash from operating activities also includes cash flow provided by changes in our operating assets and liabilities of $3,354 for the three months ended March 31, 2012 compared to cash flow provided by change in our operating assets and liabilities of $5,396 for the three months ended March 31, 2011.

 

Our inventory was $2,991 at March 31, 2012 compared to $2,962 at March 31, 2011. We made inventory purchases to take advantage of favorable pricing for these purchases.

 

Our non-cash prepaid expenses were $0 at March 31, 2012 compared to $8,328 at March 31, 2011. The decrease is attributable to the amortization of share based payments for accounting, information technology services and legal services.

 

Accounts payable and accrued expenses were $36,940 at March 31, 2012, an increase of $31,412 from $8,528 at March 31, 2011. This use of funds is due to the timing of payments for services accrued at December 31, 2011.

  

Cash Flow from Investing Activities – We used $0 cash and $0 in our investing activities during the three months ended March 31, 2012 and 2010.

 

We have no commitments for the purchase of property and equipment or other long lived assets.

 

Cash Flow from Financing Activities –We have been substantially dependent on these types of financings since inception.

We had 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 were 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 were sold, would have been proceeds to the benefit of the Company. The Company closed this offering on June 7, 2011. The Company sold 95,000 shares in the offering for total proceeds of $23,750.

 

 

 

In November 2011 we took out a short term note from a fund for $6,000. In March of 2012 we took another $1,000 for the same fund. In April of 2012 the previous notes along with a new note for $18,000 were combined into one note totaling $25,000 with a one year term. That fund is managed by our CEO Sean Lyons. Terms of the note were twelve percent per annum for one year with a default clause of an additional $3,000 added to principal. The note is secured by inventory and domains owned by the Company.

 

Results of Operations

 

Three Months Ended March 31, 2012 and 2011

 

Revenues – We derive our revenues from the sale of tangible products primarily sunglasses. Our consolidated product sales of sunglasses and watches were $771 and $695 for the three months ended March 31, 2012 and 2011. 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 $262 and $441 for the three months ended March 31, 2012 and 2011. 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.

 

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 were $95 and $117 for the three months ended March 31, 2012 and 2011. Due to limited operating activity our advertising expense is set at minimum levels. Much of our advertising is done by management through social media sites such as Facebook.

 

Accounting and Professional Expense – Accounting and consulting professional expenses (including expenses associated with our filings with the regulatory agencies) were $3,008 and $11,575 for the three months ended March 31, 2012 and 2011. 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 $1,664 and $9,730 for the three months ended March 31, 2012 and 2011. Our compensation costs are for our Principal Executive Officer and Chief Financial Officer.

 

Amortization – Our amortization of intangible assets was $250 and $250 for the three months ended March 31, 2012 and 2011. 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 $538 and $155 for the three months ended March 31, 2012 and 2011. These costs reflect normal operating expenses and other administrative expenses, including, without limitation, travel and entertainment expenses.

 

Net Loss – We have reported net loss of $5,064 and $21,573 during the three months ended March 31, 2012 and 2011. This 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, along with subsequent events tied to the 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. Additionally, new cost and work will be generated now to fulfill the XBRL formatting requirements for all future filings. 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 the explanatory notes to our audited financial statements for the period ended December 31, 2010 and December 31, 2011. On an on-going basis, we evaluate our estimates, including those related to deferred tax assets and valuation allowance, impairment of long-lived assets and 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, accounts receivable, intangible assets, investments and financial instruments.

 

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.

 

Accounts Receivable – Accounts receivable represent 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 Accounting Standards Codification 350 (Intangible Assets) and Accounting Standards Codification 360 (Impairment and Disposals). 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 – Our financial instruments consist of cash and cash equivalents, inventory, accounts payable and accrued expense. We carry cash and cash equivalents, inventory, accounts payable and accrued expense at historical costs; their respective estimated fair values approximate carrying values because of the short-term nature of these investments.

 

Earnings (Loss) Per Share - The Company uses the guidance set forth under FASB Topic Accounting Standards Codification 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 for the year ended December 31, 2011 and December 31, 2010.

 

 

 

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.

 

Share-Based Compensation – We apply the grant-date fair value method to our share-based payment arrangements with employees under the rules provided in Accounting Standards Codification 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 Accounting Standards Codification 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 measurable. 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 Pronouncements

 

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.

 

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 Principal Executive Officer and Principal 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 March 31, 2012. 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 Principal Executive Officer and Principal Financial Officer have concluded that as of March 31, 2012, our disclosure controls and procedures were not effective due to the material weaknesses described below.

 

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 four material weaknesses which have caused management to conclude that, as of March 31, 2012, 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 two employees. 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

 

.

Our management is responsible for establishing and maintaining adequate internal controls over financial reporting. Under the supervision and with the participation of our management, including our chief executive officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting using framework similar to criteria referenced in the initial steps of the Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).

 

A material weakness is a significant deficiency (as defined in the Public Company Accounting Oversight Board’s Auditing Standard No. 2), or a combination of significant deficiencies, that results in reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of the Company’s internal controls over financial reporting, management determined that there were control deficiencies that constituted material weaknesses, as described below.

 

* We have noted that there may be an insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.

 

* We do not have an audit committee or an independent audit committee financial expert. While not being legally obligated to have an audit committee or independent audit committee financial expert, it is the managements view that to have audit committee, comprised of independent board members, and an independent audit committee financial expert is an important entity-level control over the Company's financial statements. Currently, the Board does not have sufficient independent directors to form such an audit committee. Also, the Board of Directors does not have an independent director with sufficient financial expertise to serve as an independent financial expert.

  

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report is not subject to attestation by our registered public accounting firm pursuant to rules of the SEC that permit us to provide only management’s report in this annual report.

 

Remediation Efforts to Address Deficiencies in Internal Control Over Financial Reporting 

 

 

 

As a result of the findings from the investigation and a company-led accounting review, management intends to take practical, cost-effective steps in implementing internal controls, when the financial operation of the company allows, including the following remedial measures:

 

*Interviewing and potentially hiring outside consultants that are experts in designing internal controls over financial reporting based on criteria established in Internal Control-Integrated Framework issued by COSO.

 

*Board to review and make recommendations to shareholders concerning the composition of the Board of Directors, with particular focus on issues of independence. The Board of Directors to consider nominating an audit committee and audit committee financial expert, which may or may not consist of independent members.

 

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

  

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.

  

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. The Company sold 95,000 shares of its common stock at $0.25 per share, for total proceeds to the Company of $23,750. The Company used the proceeds for general operating expenses. The Company terminated the Registration Statement on June 7, 2011.

 

Item 3. Defaults Upon Senior Securities - None.

 

Item 4. Mine Safety Procedures – None.

 

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Item 6. Exhibits

 

Exhibit No.	Description
3.01*	Articles of Incorporation of Shades Holdings, Inc.
3.02*	Bylaws of Shades Holdings, Inc.
10.01**	Final Note.
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 May 21, 2012.
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 May 21, 2012.
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 May 21, 2012.
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 May 21, 2012.
101.1***	Interactive Data Files

 

* 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.

 

*** Pursuant to Rule 406T of Regulation S-T, these Interactive Data Files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise are not subject to the liability under these sections.

 

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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: May 21, 2012

 

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