Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2013
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition from __________ to __________.
Commission File Number: 0-54036
CIRALIGHT GLOBAL, INC.
(Exact name of registrant as specified in its charter)
Nevada 26-4549003
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
670 E. Parkridge Ave, Suite 112, Corona, CA 92879
(Address of principal executive offices) (Zip code)
(877) 520-5005
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and
posted on its corporate Web site, if any, every Interactive Data File required
to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss.232.405 of
this chapter) during the preceding 12 months (or for such shorter period that
the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of "large accelerated filer," "accelerated filer" and "smaller
reporting company" in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ]
Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS
DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant filed all documents and reports
required to be filed by Section 12, 13 or 15(d) of the Exchange Act after the
distribution of securities under a plan confirmed by a court. Yes [ ] No [ ]
APPLICABLE ONLY TO CORPORATE ISSUERS
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date: As of August 15, 2013 there were
15,493,479 outstanding shares of the Registrant's Common Stock, $0.001 par
value.
Report on Form 10-Q
For the Quarter Ended June 30, 2013
INDEX
Page
----
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements 3
Condensed Balance Sheets as of June 30, 2013 (Unaudited)
and December 31, 2012 3
Condensed Statements of Operations for the Three and Six
Months Ended June 30, 2013 and 2012 (Unaudited) 4
Condensed Statements of Cash Flows for the Six months ended
June 30, 2013, and 2012 (Unaudited) 5
Notes to Condensed Unaudited Financial Statements 6
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 13
Item 3. Quantitative and Qualitative Disclosures about Market Risk 19
Item 4. Controls and Procedures 19
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 20
Item 1A. Risk Factors 20
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 20
Item 3. Defaults Upon Senior Securities 21
Item 4. Mine Safety Disclosures 21
Item 5. Other Information 21
Item 6. Exhibits 21
SIGNATURES 23
2
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS.
CIRALIGHT GLOBAL, INC
CONDENSED BALANCE SHEETS
(Unaudited)
June 30, December 31,
2013 2012
------------ ------------
(Unaudited)
ASSETS
Current assets:
Cash $ 55,565 $ 81,060
Restricted Cash 7,636 7,636
Accounts receivable, net of allowance of $9,056
and $23,425, respectively 68,281 244,325
Inventory 124,451 128,543
Prepaid expenses and other current assets 85,537 30,590
------------ ------------
Total current assets 341,470 492,154
------------ ------------
Property and equipment, net 7,292 8,748
Intangible assets, net 64,173 67,426
------------ ------------
Total assets $ 412,935 $ 568,328
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable $ 232,482 $ 235,586
Line of credit - related party 573,684 530,000
Accrued Expenses - related parties 83,932 30,877
Deferred Revenue 130,853 94,278
Other payables 149,103 230,290
Notes payable - related parties 62,150 33,000
------------ ------------
Total current liabilities 1,232,204 1,154,031
------------ ------------
Stockholders' equity (deficit)
Preferred stock - $.001 par value; 10,000,000 shares authorized,
1,000,000 Redeemable Series A Preferred shares issued and outstanding 1,000 1,000
Common stock - $.001 par value; 50,000,000 shares authorized,
15,483,479 and 15,066,569 shares issued and outstanding, respectively 15,483 15,066
Additional paid-in capital 3,464,310 3,284,821
Accumulated deficit (4,300,062) (3,886,590)
------------ ------------
Total stockholders' equity (deficit) (819,269) (585,703)
------------ ------------
Total liabilities and stockholders' equity (deficit) $ 412,935 $ 568,328
============ ============
The accompanying notes are an integral part of
these condensed financial statements
3
CIRALIGHT GLOBAL, INC
CONDENSED STATEMENTS OF OPERATIONS
(Unaudited)
For the Quarter Ended For the Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2013 2012 2013 2012
------------ ------------ ------------ ------------
Sales $ 163,061 $ 235,729 $ 397,253 $ 395,134
Cost of goods sold 110,027 216,103 283,339 373,258
------------ ------------ ------------ ------------
Gross profit 53,034 19,626 113,914 21,876
------------ ------------ ------------ ------------
Operating expenses
Research and development expenses 895 12,956 5,199 14,568
Selling and marketing expenses 34,435 60,378 53,956 98,498
General and administrative expenses 216,862 246,623 452,962 457,989
------------ ------------ ------------ ------------
Total operating expenses 252,192 319,957 512,117 571,055
------------ ------------ ------------ ------------
Loss from operations (199,158) (300,331) (398,203) (549,179)
------------ ------------ ------------ ------------
Other expense
Interest expense, net (7,992) (5,482) (15,269) (21,500)
------------ ------------ ------------ ------------
Total other expense (7,992) (5,482) (15,269) (21,500)
------------ ------------ ------------ ------------
Net loss $ (207,150) $ (305,813) $ (413,472) $ (570,679)
============ ============ ============ ============
Basic loss per share $ (0.01) $ (0.02) $ (0.03) $ (0.04)
============ ============ ============ ============
Weighted average shares
used in per share calculation 15,470,304 14,451,138 15,467,512 14,397,602
============ ============ ============ ============
The accompanying notes are an integral part of
these condensed financial statements
4
CIRALIGHT GLOBAL, INC
CONDENSED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended
June 30,
-------------------------------
2013 2012
---------- ----------
Cash flows from operating activities:
Net Loss $ (413,472) $ (570,679)
Adjustments to reconcile net loss to net cash
used in operating activities:
Options issued for services 34,249 42,899
Options issued for financing costs -- 11,480
Depreciation and amortization 4,956 2,659
Contribution of rent from a related party -- 1,500
Bad debt expense (14,369) --
Changes in operating assets and liabilities
(Increase) decrease in inventory 4,092 18,149
(Increase) decrease in accounts receivable 190,413 24,701
(Increase) decrease in prepayments and other current assets (55,073) (14,003)
(Increase) decrease in notes receivable - employee advances 125 --
Increase (decrease) in accrued expenses - related party 19,017 8,676
Increase (decrease) in accounts payable (3,104) 114,671
Increase (decrease) in other payables 42,194 54,417
Increase (decrease) in deferred revenue 36,575 12,069
---------- ----------
Net cash used in operating activities (154,397) (293,461)
---------- ----------
Cash flow used in investing activities
Patent development costs -- (13,710)
Purchase of property, plant & equipment (248) --
---------- ----------
Net cash used in investing activities (248) (13,710)
---------- ----------
Cash flows from financing activities:
Cash from sale of common stock 5,000 100,000
Proceeds from related party notes payable 124,150 180,000
Payments towards related party note payable -- (50,000)
---------- ----------
Net cash provided by financing activities 129,150 230,000
---------- ----------
Net decrease in cash (25,495) (77,171)
Cash, beginning of period 81,060 97,443
---------- ----------
Cash, end of period $ 55,565 $ 20,272
========== ==========
Supplemental cash flow information:
Interest paid $ -- $ --
Income taxes paid $ -- $ --
Non-cash investing and financing activities
Common stock issued for accrued liabilities $ 73,335 $ --
========== ==========
Debt and liabilities settled with common stock $ 67,322 $ --
========== ==========
The accompanying notes are an integral part of
these condensed financial statements
5
CIRALIGHT GLOBAL, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
1. Background:
Ciralight Global, Inc. (the "Company") was incorporated in the State of Nevada
on February 26, 2009. The Company is in the business of designing, developing,
and distributing proprietary advanced day lighting systems for traditional
non-residential markets that benefit from natural lighting.
In April 2009, we entered into an Exchange of Stock for Assets Agreement with
Mr. George Adams, Sr. ("Adams Agreement") to acquire certain assets including,
but not limited to, a U.S. patent, patent applications pending in Canada,
Europe, Mexico and the United States, artwork, trademarks, equipment, furniture,
databases, technical drawings, promotional materials, trade names and inventory
parts and marketing rights related to the SunTracker One(TM) and SunTracker
Two(TM) daylighting products previously owned and distributed by Ciralight,
Inc., a Utah corporation, such assets having been foreclosed on by Mr. Adams,
who was the secured creditor of Ciralight, Inc. Ciralight, Inc. is a predecessor
to the Company, although we have no affiliation, contractual or otherwise, with
Ciralight, Inc. or any of its employees, officers or directors.
Ciralight, Inc., the company whose assets were foreclosed on by Mr. Adams, was
also in the business of designing, developing, and distributing proprietary
advanced day lighting systems for traditional non-residential markets that
benefit from natural lighting. Ciralight, Inc. ceased operations on March 14,
2009, following the foreclosure by Mr. Adams. Since the acquisition of the
assets was through a foreclosure, the former company and its officers remain
liable for the Ciralight Inc.'s debts and the Company has no financial
responsibility for those debts. None of the employees or management of Ciralight
Inc. are involved in the Company. The business operations of our Company are
located in Irvine, California and the Company operates with four employees, the
Chief Executive Officer, the Chief Financial Officer / Chief Operations Officer,
a warehouse manager and an executive assistant.
In April 2009, we acquired all of the above described assets from Mr. Adams,
except for the U.S. patent and the patent applications pending in Canada,
Europe, Mexico and the United States, in exchange for 3,200,000 shares of our
common stock and 1,000,000 shares of our Series A Preferred Stock. On December
15, 2009, we acquired the U.S. patent and patent applications pending in Canada,
Europe, Mexico and the United States from Mr. Adams in exchange for the issuance
by us of an additional 400,000 shares of our common stock and a convertible
promissory note in the amount of $250,000. The note is convertible into shares
of our common stock at a conversion rate of one share per $.25 of outstanding
principal and interest. As a result of this transaction, Mr. Adams is our
largest shareholder.
6
CIRALIGHT GLOBAL, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
2. Basis of Presentation
The accompanying unaudited condensed financial statements have been prepared in
accordance with generally accepted accounting principles in the United States of
America ("GAAP") for interim financial information and in conformity with the
instructions to Form 10-Q and Article 8-03 of Regulation S-X. Accordingly, these
unaudited condensed financial statements do not include all of the information
and footnotes required by GAAP for complete financial statements and, therefore,
should be read in conjunction with the financial statements and related notes
contained in the Company's most recent Annual Report on Form 10-K filed with the
Securities and Exchange Commission ("SEC").
The unaudited condensed financial statements included in this document have been
prepared on the same basis as the annual condensed financial statements and in
management's opinion, reflect all adjustments, including normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and cash flows for the interim periods presented. In the
opinion of management, the disclosures included in these financial statements
are adequate to make the information presented not misleading.
The results of operations for the three month period ended June 30, 2013 is not
necessarily indicative of the results that the Company will have for any
subsequent quarter or full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the amounts reported in
the financial statements and accompanying notes. Actual results could differ
significantly from those estimates.
Reclassifications
Certain reclassifications have been made to prior period amounts to conform to
the current period presentations.
3. Liquidity and Operations:
The Company had a net loss of $413,472 for the six months ended June 30, 2013.
As of June 30, 2013, the Company had cash of $55,565. In addition, the Company
had accounts receivable of $68,281, inventory on hand at a cost valuation of
$124,451, and accounts payable of $232,482.
The Company has experienced losses primarily attributable to research,
development, marketing and other costs associated with the strategic plan to
develop as a world class supplier of sustainable lighting technologies. Cash
7
CIRALIGHT GLOBAL, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
flows from operations have not been sufficient to meet our obligations.
Therefore, we have had to raise funds through several financing transactions. At
least until we reach breakeven volume in sales and develop and/or acquire the
capability to manufacture and sell our products profitably, we will need to
continue to rely on cash from external financing sources. Our operations during
the quarter ended June 30, 2013 and the year ended December 31, 2012 were
financed by product sales contracts, common stock issuances, shareholder
advances, as well as from working capital reserves. In addition, on March 23,
2012, the company entered into a revolving line of credit with the Adams family,
a related party, in the amount of up to $500,000. The line of credit is for a
period of six months at an interest rate of prime plus 2%. In the event that the
loan balance is not fully repaid at the end of the six month term, then the
outstanding balance plus accrued interest may be convertible to common stock at
the option of the Creditors at the rate of $0.10 per share. The due date on the
line of credit was extended indefinitely by the Adams with the understanding
that they could call the note due anytime thereafter at their option. In
addition they have advanced amounts in excess of the initial limit of $500,000.
In addition the company was recently approved by the XM Bank (by the Dept. Of
Commerce) to insure and finance transactions for international Distributors and
Dealers. This provides up to $270,000 in financing. Under this XM Bank program,
the company will receive 90% of an international sale at the time the order
ships thus improving the company's cash flow. The international Distributor and
Dealer than have 90 days, instead of 21 days to pay back the XM Bank which is a
good incentive for our Distributors and Dealers to sell more product. When the
Distributor or Dealer pays back XM Bank, the balance of the order is remitted to
the Company. In addition, The company will continue to obtain working capital by
accessing capital markets. On May 24, 2013 the Company signed an agreement with
BCC Valuation Advisors, an investment Banking Company to raise $5,000,000 for
Ciralight Global, Inc. This is expected to take approximately two to six months
to raise. To provide the needed working capital in the meantime a letter making
a call to the existing shareholders to advance their prorata share of a $300,000
bridge loan was distributed on June 14th. This would be a one year loan with
interest at 6% per year, convertible to stock between months six and twelve at
$0.35/share. Management believes that with the increased level of sales, the
call to the shareholders, the working capital funding to be provided by BCC and
the XM Bank financing the company will have sufficient liquidity to carry on
operations for the next twelve months. However, there can be no assurance that
management will be able to fully deliver on its business plans.
4. Related Party Transactions
On March 23, 2012, the company entered into a revolving line of credit with the
Adams family, a related party, in the amount of up to $500,000. The line of
credit is for a period of six months at an interest rate of prime plus 2%. In
the event that the loan balance is not fully repaid at the end of the six month
term, then the outstanding balance plus accrued interest may be convertible to
common stock at the option of the creditors at the rate of $0.10 per share. The
8
CIRALIGHT GLOBAL, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
principle balance owed as of June 30, 2013 was $573,684. As of June 30, 2013 the
Related party line of credit due to George and Terry Adams was $203,684 and
$370,000, respectively. These proceeds have been used for short term working
capital purposes. Interest payable of $27,526 has been recorded as of June 30,
2013, making a total amount due of $601,210.
In addition, the company issued a note to Fred Feck for $33,000 on June 30, 2012
in exchange for rent for the warehouse occupied by the company. Fred Feck is a
board member and Secretary of the company. As of June 30, 2013 the accrued
interest on Mr. Feck's note is $1,742.
On June 14, 2013 the company offered its existing shareholders an opportunity to
participate in a convertible bridge loan based on their pro-rata shareholder
ownership percentage. The bridge loan is for a period of one year with interest
at six percent per annum and convertible to stock at the rate of $.35 per share.
As of June 30, 2013 the amount of $29,150 was loaned by shareholders, pursuant
to this agreement.
The total related party accrued interest of $29,268 is included in the accrued
expenses, related parties amount on the Company's financial statements.
Accrued Expenses - Related Party - As of June 30, 2013, the Company had Accrued
Expenses consisting of the following:
Accrued Expenses - Related Party
Royalty fees - Related Party $54,664
Accrued Interest - Related Parties 29,268
-------
Total Accrued Expenses - Related Parties $83,932
=======
Royalty Fees Payable - The Adams Agreement described in Note 1 above, granted
Mr. Adams a royalty fee of $20.00 for each SunTracker One(TM) and SunTracker
Two(TM) unit or any future units that are based on the patent rights we acquired
from him. The maximum royalty fees payable under the Adams Agreement is
$2,000,000 based on the sale of 100,000 units. At June 30, 2013 accrued
royalties in the amount of $54,664, related to our sale of 2,733 units.
The Company previously leased warehouse space from one of our directors,
Frederick Feck. As of May 31, 2013 the warehouse operation was outsourced to
Cargo House in Carson California.
In January 2010, we entered into a nonexclusive distributorship agreement with
Chaparral Green Energy Solutions, LLC, an entity in which our securities
attorney, David E. Wise, Esq., owns a 50% equity interest. This non-exclusive
dealer agreement with the Company is to sell products in Texas and is on the
same terms, conditions and pricing as other dealer agreements. Thus, Mr. Wise's
company will not receive any beneficial or special treatment over our other
dealers or distributors. The terms and conditions of the dealer agreement with
9
CIRALIGHT GLOBAL, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
Chaparral Green Energy Solutions, LLC are the same as for the other dealer and
distributorship agreements. Therefore, the agreement with Chaparral Green Energy
Solutions, LLC does not contain preferential or more favorable terms or
conditions than agreements with our other dealers or distributors.
On April 1, 2011, in consideration for the Adams family notes, the Company
granted the Adams family 300,000 stock options at an exercise price of $.50 per
option that will be exercisable over five years. The options will vest over one
year at 75,000 options per quarter. Additionally, the Company executed a note
payable to Vera Cruz Properties, which is owned by a related party, Fred Feck,
who agreed to accrue the monthly rent on our Corona, California warehouse
facility in order to assist the company with its cash flow. The note was
executed on June 30, 2012, with interest at prime plus two, all due and payable
in one year. The note is convertible to common stock at option of the holder at
the price of $.50 per share.
During the six months ending June 30, 2013 there were 133,336 shares issued to
the Board of Directors for their services and to Smokey Robinson, a Board member
for his services related to Marketing and Public Relations. Through April 30,
2013, each of the six Board Members received 50,000 common stock shares with the
shares accrued monthly and issuable quarterly. In addition, through April 30,
2013, Smokey Robinson received 50,000 shares for his marketing and public
relation services. These are also accrued monthly and issuable quarterly. The
Board will adopt a Board Compensation plan at the next Board meeting.
In April 2012 Jarett Fenton was hired to serve as a contract Chief Financial
Officer. In May 2012, the Board added Terry Adams, Larry Eisenberg, Richard Katz
and William "Smokey" Robinson Jr. to the Board of Directors. Terry Adams was
appointed by the Board to serve as the Chairman of the Board. At the June 25,
2012 Shareholder meeting, all of the Board of Directors were elected to new
terms. The Board thereafter confirmed the officers to be Terry Adams, as
Chairman of the Board, Jeff Brain as CEO, President and Chief Operating Officer,
Jarett Fenton as Chief Financial Officer and Fred Feck as Secretary. In December
2012, Jarrett Fenton stepped down to pursue other opportunities.
5. Stockholders' Equity:
Common stock:
During the three month period ended March 31, 2013, a total of 402,624 shares of
common stock were issued. In January 2013, 33,334 shares of common stock were
issued to Directors Eisenberg, Katz, Brain and Adams each, for a total of
133,336 shares for services rendered, at $.55 per share. In addition, George
Adams converted $67,322 of his line of credit at the rate of $.25/share for a
total of 269,288 shares of common stock.
10
CIRALIGHT GLOBAL, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
During the three month period ended June 30, 2013, a total of 14,286 shares of
common stock were issued. These shares were purchased by a shareholder at the
rate of $.35 per share.
6. Stock Options and Warrants:
The following table summarizes the activity of stock options for the six months
ended June 30, 2013:
Number of Shares Weighted Average
Outstanding Exercise Price
----------- --------------
Balance, December 31, 2012 1,352,900 $ .464
Options vested 100,000 $ .464
Options Exercised -- --
Options forfeited or expired -- --
Balance, June 30, 2013 1,452,900 $.464
The weighted average fair values of options vested during the quarter ended June
30, 2013 was $.25 per option. The value recorded for the options vested during
the six months ended June 30, 2013 was $34,249.
The following table summarizes the activity of warrants for the six months ended
June 30, 2013:
Number of Warrants Weighted Average
Outstanding Exercise Price
----------- --------------
Balance, December 31, 2012 400,000 $ .50
Warrants granted -- --
Warrants Exercised -- --
Warrants forfeited or expired -- --
Balance, June 30, 2013 400,000 $ .50
During the six months ended June 30, 2013, the company granted no stock purchase
warrants.
11
CIRALIGHT GLOBAL, INC.
NOTES TO THE CONDENSED FINANCIAL STATEMENTS
June 30, 2013
(Unaudited)
7. Commitments and Contingencies:
Operating Leases -- The Company has not entered into any long term leases. The
Company previously leased approximately 3,500 square feet of warehouse space in
Corona, California, on a verbal month to month basis from one of our Directors,
Frederick Feck. Commencing June 1, 2013, the Company outsourced the warehouse
operations to Cargo House in Carson, California.
Prepaid Inventory - Ciralight has agreements with several inventory component
suppliers generally provide that between 50% and 60% of the purchase order price
is due upon the placement of an order, with the remaining balance due upon
completion and shipment of the order, normally within 30 days. Purchase order
prepaid deposits are included in the balance sheet as Prepaid expenses and other
current assets. As of June 30, 2013, purchase order prepaid deposits totaled
$65,557 with several of our major suppliers.
8. Legal Matters:
We have no legal matters pending against us. On August 15, 2011 we filed a
collection action against Nature's Lighting for their failure to pay for product
purchased from us. The amount owed to us is $39,000 plus legal fees and costs.
On January 30, 2012 we were successful in obtaining a default judgment and now
are proceeding to collect the balance owed to us. In the first quarter of 2013,
this legal matter was resolved with a settlement agreement that provides
Ciralight with the sum of $23,000 paid over 10 months. Through June 30, 2013,
the Company has received payments totaling $18,500 pursuant to the settlement.
Ciralight Global, Inc. has potential litigation against Suntron Corporation for
issues related to faulty work done during production in 2011 and 2012. Ciralight
has notified Suntron regarding our damages and losses and hopes to reach a
settlement. Ciralight has notified Suntron that our damages exceed any balance
we owe them and therefore do not consider that we owe them any money. Our
potential damages include our payment for faulty product, for reimbursement of
engineering fees to investigate the problems, rework costs, recall costs, lost
sales and damage to our reputation.
9. Subsequent Events:
The Company has performed an evaluation of subsequent events pursuant to ASC 855
and the subsequent events which would require recognition or disclosure in the
financial statements are as follows:
In July 2013, a total of 10,000 shares of common stock were issued. These shares
were purchased for cash by a shareholder at the rate of $.35 per share.
12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
CAUTIONARY FORWARD - LOOKING STATEMENT
The following discussion should be read in conjunction with our financial
statements and related notes.
Certain matters discussed herein may contain forward-looking statements that are
subject to risks and uncertainties. Such risks and uncertainties include, but
are not limited to, the following:
* the volatile and competitive nature of our industry,
* the uncertainties surrounding the rapidly evolving markets in which we
compete,
* the uncertainties surrounding technological change of the industry,
* our dependence on its intellectual property rights,
* the success of marketing efforts by third parties,
* the changing demands of customers and
* the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should any of
the underlying assumptions prove incorrect, actual results of current and future
operations may vary materially from those anticipated.
THE FOLLOWING DISCUSSION AND ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL
CONDITION OF CIRALIGHT GLOBAL, INC., FOR THE THREE MONTH PERIOD ENDED JUNE 30,
2013 (UNAUDITED) SHOULD BE READ IN CONJUNCTION WITH THE FINANCIAL STATEMENTS,
AND THE NOTES TO THOSE FINANCIAL STATEMENTS THAT ARE INCLUDED IN ITEM 1
ELSEWHERE IN THIS FILING. REFERENCES TO "WE," "OUR," OR "US" IN THIS SECTION
REFERS TO THE COMPANY AND ITS SUBSIDIARIES. OUR DISCUSSION INCLUDES
FORWARD-LOOKING STATEMENTS BASED UPON CURRENT EXPECTATIONS THAT INVOLVE RISKS
AND UNCERTAINTIES, SUCH AS OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS.
ACTUAL RESULTS AND THE TIMING OF EVENTS COULD DIFFER MATERIALLY FROM THOSE
ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A RESULT OF A NUMBER OF
FACTORS, INCLUDING THOSE SET FORTH UNDER THE RISK FACTORS, FORWARD-LOOKING
STATEMENTS AND BUSINESS SECTIONS IN THIS PROSPECTUS. WE USE WORDS SUCH AS
"ANTICIPATE," "ESTIMATE," "PLAN," "PROJECT," "CONTINUING," "ONGOING," "EXPECT,"
"BELIEVE," "INTEND," "MAY," "WILL," "SHOULD," "COULD," AND SIMILAR EXPRESSIONS
TO IDENTIFY FORWARD-LOOKING STATEMENTS.
13
OVERVIEW
We are a manufacturer and wholesaler of "advanced skylights" for use in
warehouses, schools, retail stores, airports, military installations and
residential buildings. We renamed our products as of January 1st, 2011. Our
products are no longer referred to as SunTrackerOne, SunTrackerTwo, and
SunTrackerThree. Instead, our 4'x4' SunTracker is now called the SunTracker 400,
(with an option of a single or triple mirror), and our 4'x8' SunTracker is now
called the SunTracker 800. When our smaller model for homes and classrooms is
released, it will be called the SunTracker 200. These new model names are
simple, intuitive, and reinforce the brand name and image.
We were incorporated in the state of Nevada on February 26, 2009, under the name
"Ciralight West, Inc." On March 13, 2009, we changed our name to "Ciralight
Global, Inc." In April 2009, we entered into an Exchange of Stock for Assets
Agreement with Mr. George Adams, Sr. to acquire certain assets including, but
not limited to, a United States patent, patent applications pending in Canada,
Europe, Mexico and the United States, artwork, trademarks, equipment, furniture,
databases, technical drawings, promotional materials, trade names and inventory
parts and marketing rights related to the Suntracker One(TM) and Suntracker
Two(TM) daylighting products previously owned and distributed by Ciralight,
Inc., a Utah corporation, such assets having been foreclosed on by Mr. Adams,
who was the secured creditor of Ciralight, Inc. We did not acquire any equity
securities, debts, liabilities or financial obligations of Ciralight, Inc., the
Prior Company. Ciralight, Inc. is a predecessor to Ciralight Global, Inc.,
although we have no affiliation, contractual or otherwise, with Ciralight, Inc.
or any of its employees, officers or directors. Ciralight, Inc. ceased
operations on January 27, 2009.
In April 2009, we acquired all of the above described assets from Mr. Adams,
except for the United States patent and the patent applications pending in
Canada, Europe, Mexico and the United States, in exchange for 3,200,000 shares
of our common stock and 1,000,000 shares of our Series A Preferred Stock. In
December 2009, we acquired the United States patent and the patent applications
pending in Canada, Europe, Mexico and the United States from Mr. Adams in
exchange for the issuance by us of an additional 400,000 shares of our common
stock and a convertible promissory note in the amount of $250,000. The
promissory note we issued to Mr. Adams is convertible into shares of our common
stock at a conversion rate of one share per $.25 of outstanding principal and
interest. As a result of this transaction, Mr. Adams is our largest shareholder
and has voting control over us.
As described in the above paragraphs, Ciralight, Inc. is a predecessor to
Ciralight Global, Inc., since the major portion of the business and assets of
Ciralight, Inc. were acquired by Ciralight Global, Inc. in a series of related
successions in each of which the acquiring person or entity acquired the major
portion of the business and assets of Ciralight, Inc.
14
In order to provide working capital, Ciralight Global, Inc. sold common stock
through a private placement that raised $1,300,000 with the sale of 5,200,000
shares at a price of $0.25 per share from April 30, 2009 to January 15, 2010.
During the third and fourth quarters of 2010, the Company sold common stock
through a private placement that raised $222,000 with the sale of 444,000 shares
at a price of $0.50 per share. During 2011, the Company sold common stock
through a private placement that raised $475,680 with the sale of 951,360 shares
at a price of $0.50 per share.
RISKS, UNCERTAINTIES AND TRENDS RELATING TO THE COMPANY AND INDUSTRY
The industrial lighting industry is intensely competitive. We have numerous
competitors in the United States and elsewhere. Several of these competitors
have already successfully marketed and commercialized products that compete with
our products. Our success is dependent up our ability to effectively and
profitably produce, market and sell our products. Our business strategy and
success is dependent on the skills and knowledge of our management team and
consultants. The marketability and profitability of our products is subject to
unknown economic conditions, which could significantly impact our business,
financial condition, the marketability of our products and our profitability. We
are vulnerable to the current economic crisis which may negatively affect our
profitability. Our success depends, in part, on the quality of our products.
Our SunTracker(TM) products provide natural daylighting that is a key component
in many current construction and existing structures. SunTrackers(TM) are
maintenance free, powered by the sun and completely self-contained. We are
currently marketing our SunTracker(TM) products to warehouse owners, roofing
companies, shopping centers, schools and military installations in the United
States. We are working on establishing sales in Canada, Mexico and overseas. The
market for advanced skylights is growing year over year due to pressures on
building owners, tenants, schools and government agencies to reduce energy
consumption and expense. The "green" movement, carbon footprint ideology and
other environmental initiatives should provide increased growth in our market
segment.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our management's discussion and analysis of our financial condition and results
of operations are based on our condensed financial statements, which have been
prepared in accordance with generally accepted accounting principles in the
United States of America ("GAAP") for interim financial information and in
conformity with the instructions to Form 10-Q and Article 8-03 of Regulation
S-X. Accordingly, these unaudited condensed financial statements do not include
all of the information and footnotes required by GAAP for complete financial
statements and, therefore, should be read in conjunction with the financial
statements and related notes contained in the Company's most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission ("SEC").
15
The unaudited condensed financial statements included in this document have been
prepared on the same basis as the annual condensed financial statements and in
management's opinion, reflect all adjustments, including normal recurring
adjustments, necessary to present fairly the Company's financial position,
results of operations and cash flows for the interim periods presented. In the
opinion of management, the disclosures included in these financial statements
are adequate to make the information presented not misleading.
The results of operations for the three month period ended June 30, 2013 is not
necessarily indicative of the results that the Company will have for any
subsequent quarter or full fiscal year.
RESULTS OF OPERATIONS
SIX MONTHS ENDED JUNE 30, 2013 COMPARED TO SIX MONTHS ENDED JUNE 30, 2012
NET SALES. Net sales increased slightly from $395,134 for the six months ended
June 30, 2012 to $397,253 for the six months ended June 30, 2013. This increase
in sales was due to the resolution of the manufacturing problem with the
production of our GPS Controller. Ciralight terminated its relationship in
mid-September, 2012, with the manufacturer and elected to move production of its
GPS Controllers to a new supplier. The new manufacturer has been able to reach
full production and we have been able to fill back orders that had accumulated,
as well as proceed with new orders. A number of sales were slated to ship in
June 2013 but were delayed into July, due to a delay in receiving a shipment of
domes. The total of these shipments is approximately $145,000.
COST OF SALES. Cost of sales decreased from $373,258 for the six months ended
June 30, 2012 to $283,339 for the six months ended June 30, 2013. This was
achieved through production efficiencies that reduced costs, as well as
decreased warranty and product replacement costs.
GROSS PROFIT. Gross profit substantially increased from $21,876 for the six
months ended June 30, 2012 to $113,914 for the six months ended June 30, 2013.
This increase in gross profit was due to increased sales, and lower production
costs and elimination of the Suntron related warranty costs.
OPERATING EXPENSES. Our operating expenses consist of research and development
expenses, selling and marketing expenses and general and administrative
expenses. Total operating expenses decreased from $571,055 for the six months
ended June 30, 2012 to $512,117 for the six months ended June 30, 2013. This
slight increase was due to the compensation to the Board of Directors which
increased from two members to six members being recorded quarterly, while in the
past it was recorded at the end of each year.
16
General and administrative expenses decreased from $457,989 for the six months
ended June 30, 2012 to $452,962 for the six months ended June 30, 2013. This
decrease was due to changes in our operations that result in cost efficiencies
such as outsourcing the warehouse operations which cut certain staffing and
related occupancy costs.
Selling and marketing expenses decreased from $98,498 for the six months ended
June 30, 2012 to $53,956 for the six months ended June 30, 2013. This decrease
was the result of changes in our marketing and selling programs.
Research and Development expenses decreased from $14,568 for the six months
ended June 30, 2012 to $5,199 for the six months ended June 30, 2013. This
decrease was the result of lower engineering costs associated with the Suntron
issue that occurred in 2012.
INCOME TAXES. For the six months ended June 30, 2013, management has decided not
to record the tax benefit.
LIQUIDITY AND CAPITAL RESOURCES
CASH FLOWS - FOR THE THREE MONTH PERIODS ENDED JUNE 30, 2013 and 2012.
Net cash used in operating activities was $(154,398) for the six months ended
June 30, 2013 and resulted primarily from a net loss of $413,472 partially
offset by sales, collection of receivables, increases in other payables,
collection of deferred revenue and increases in accounts payable. Net cash used
in operating activities was $(293,461) for the three month period ended June 30,
2012 and resulted primarily from a net loss of $570,679 partially offset by
decreases in accounts receivable and related party notes receivable and an
increase in deferred revenues.
Net cash was used in investing activities for the six months ended June 30, 2013
for the purchase of Property and equipment in the amount of $248, and Net cash
used in investing activities for the six months ended June 30, 2012 for Software
Development in the amount of $13,910.
Net cash provided by financing activities was $129,150 for the six months ended
June 30, 2013 and resulted primarily from net proceeds from related party notes
payable. Net cash provided by financing activities was $230,000 for the three
month period ended June 30, 2012 and resulted primarily from net proceeds from
related party notes payable.
The Company had net losses of $413,472, and $570,679 for the six months ended
June 30, 2013 and 2012 respectively. As of June 30, 2013, the Company had cash
of $55,565. In addition, the Company had accounts receivable of $68,281,
inventory on hand at a cost valuation of $124,451, and accounts payable of
$232,482.
The Company has experienced losses primarily attributable to an interruption in
the product supply during the third and fourth quarters of 2012, as well as
increased research, development, marketing and other costs associated with the
17
strategic plan to position the company as a world class supplier of sustainable
lighting technologies. Cash flows from operations have not been sufficient to
meet our obligations. Therefore, we have had to raise funds through several
financing transactions. At least until we reach breakeven volume in sales and
develop and/or acquire the capability to manufacture and sell our products
profitably, we will need to continue to rely on cash from external financing
sources. Our operations during the quarter ended June 30, 2013 and the year
ended December 31, 2012 were financed by product sales contracts, common stock
issuances, as well as from working capital reserves. In addition, on March 23,
2012, the company entered into a revolving line of credit with the Adams family,
a related party, in the amount of up to $500,000. The line of credit was
initially for a period of six months at an interest rate of prime plus 2%. This
line of credit has been extended through 2013.
In addition, the Company was approved by the XM Bank (by the Dept. of Commerce)
to insure and finance transactions for international Distributors and Dealers.
This provides up to $270,000 in financing. Under this XM Bank program, the
Company will receive 90% of an international sale at the time the order ships
thus improving the Company's cash flow. The international Distributor and Dealer
than have 90 days, instead of 21 days to pay back the XM Bank which is a good
incentive for our Distributors and Dealers to sell more product. When the
Distributor or Dealer pays back XM Bank, the balance of the order is remitted to
the Company. In addition, The Company will continue to obtain working capital by
accessing capital markets. On May 24, 2013 the Company signed an agreement with
BCC Valuation Advisors, an investment Banking Company to raise $5,000,000 for
Ciralight Global, Inc. However, we cannot guarantee that any money will be
raised by BCC Valuation Advisors. This is expected to take approximately two to
six months to raise. To provide the needed working capital in the meantime a
letter making a call to the existing shareholders to advance their prorata share
of a $300,000 bridge loan was distributed on June 14th. This would be a one year
loan with interest at 6% per year, convertible to stock between months six and
twelve at $0.35/share. Management believes that with the increased level of
sales, the call to the shareholders, the working capital funding to be provided
by BCC and the XM Bank financing the company will have sufficient liquidity to
carry on operations for the next twelve months. However, there can be no
assurance that management will be able to fully deliver on its business plans.
CONTRACTUAL OBLIGATIONS AND OFF-BALANCE SHEET ARRANGEMENTS
CONTRACTUAL OBLIGATIONS
We have certain fixed contractual obligations and commitments that include
future estimated payments. Changes in our business needs, cancellation
provisions, changing interest rates, and other factors may result in actual
payments differing from the estimates. We cannot provide certainty regarding the
timing and amounts of payments. We have presented below a summary of the most
significant assumptions used in our determination of amounts presented in the
tables, in order to assist in the review of this information within the context
of our consolidated financial position, results of operations and cash flows.
18
The following table summarizes our contractual obligations as of June 30, 2013,
and the effect these obligations are expected to have on our liquidity and cash
flows in future periods.
Payments Due by Period
------------------------------------------------
Less than
Total 1 year 1-3 Years 3-5 Years 5 years +
-------- -------- --------- --------- ---------
Contractual Obligations:
Advances payable - related parties $606,684 $606,684 $ -- $ -- $ --
Interest Payments (1) 29,268 29,268 -- -- --
Operating Leases 0 0 -- -- --
Commitments to Purchase Inventory 61,166 61,166 -- -- --
-------- -------- -------- -------- -------
Totals: $697,118 $697,118 $ -- $ -- $ --
======== ======== ======== ======== =======
----------
(1) Advances payable - related parties bear interest at the rate of Prime Rate
(as quoted in the Wall Street Journal) plus 2% per annum and estimated
interest payments are expected to be paid upon payment or satisfaction of
the advances.
OFF-BALANCE SHEET ARRANGEMENTS
We have not entered into any other financial guarantees or other commitments to
guarantee the payment obligations of any third parties. We have not entered into
any derivative contracts that are indexed to our shares and classified as
stockholders' equity or that are not reflected in our financial statements.
Furthermore, we do not have any retained or contingent interest in assets
transferred to an unconsolidated entity that serves as credit, liquidity or
market risk support to such entity. We do not have any variable interest in any
unconsolidated entity that provides financing, liquidity, market risk or credit
support to us or engages in leasing, hedging or research and development
services with us.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not applicable.
ITEM 4. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures.
As of the end of the period covered by this report, we carried out an
evaluation, under the supervision and with the participation of our management,
of the effectiveness of the design and operation of our disclosure controls and
procedures (as defined in the Securities Exchange Act Rules 13a-15(e) and
15d-15(e)). Based on that evaluation, we have concluded that as of the end of
19
the period covered by this report, our disclosure controls and procedures were
effective to ensure that information required to be disclosed by us in reports
we file or submit under the Exchange Act is (1) recorded, processed, summarized
and reported within the time periods specified in SEC rules and forms, and (2)
accumulated and communicated to our management, to allow timely decisions
regarding required disclosure.
Changes in Internal Control over Financial Reporting.
There have not been changes in our internal controls over financial reporting
during the period covered by this report that have materially affected, or are
reasonably likely to materially affect, our internal control over financial
reporting.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
We have no legal matters pending against us. On August 15, 2011 we filed a
collection action against Nature's Lighting for their failure to pay for product
purchased from us. On January 30, 2012 we were successful in obtaining a default
judgment and now are proceeding to collect the balance owed to us. The final
settlement amount owed to us is $23,000, of which $18,500 has been received by
the company through June 30, 2013.
The Company is not aware of any other threatened or pending litigation against
the Company.
ITEM 1A. RISK FACTORS.
Not applicable.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
During the three month period ended March 31, 2013, a total of 402,624 shares of
common stock were issued. In January 2013, 33,334 shares of common stock were
issued to Directors Eisenberg, Katz, Brain and Adams each, for a total of
133,336 shares for services rendered, at $.55 per share. In addition, George
Adams converted $67,322 of his line of credit at the rate of $.25/share for a
total of 269,288 shares of common stock.
During the three month period ended June 30, 2013, a total of 14,286 shares of
common stock were issued. These shares were purchased by a shareholder at the
rate of $.35 per share.
The above shares were issued in reliance on the exemption from registration
requirements of the 33 Act provided by Section 4(2) or Regulation D, Rule 506,
promulgated there under.
20
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None.
ITEM 4. MINE SAFETY DISCLOSURES
None.
ITEM 5. OTHER INFORMATION.
None.
ITEM 6. EXHIBITS.
See Exhibit Index below for exhibits required by Item 601 of regulation S-K.
EXHIBIT INDEX
List of Exhibits attached or incorporated by reference pursuant to Item 601 of
Regulation S-K:
Exhibit No. Description
----------- -----------
3(i).1* Articles of Incorporation of Ciralight West, Inc. filed February
26, 2009, with the Secretary of State of Nevada
3(i).2* Certificate of Amendment to the Articles of Incorporation filed on
March 13, 2009, with the Secretary of State of Nevada (changing
name to Ciralight Global, Inc.).
3(i).3* Certificate of Amendment to the Articles of Incorporation filed on
April 22, 2009, with theSecretary of State of Nevada.
3(ii)* By-Laws of Ciralight Global, Inc.
4.1* Certificate of Designation of Series A Preferred Stock filed on
July 22, 2009, with the Secretaryof State of Nevada
10.1* Exchange of Stock for Assets Agreement dated as of April 1, 2009,
by and between Ciralight Global, Inc. and George Adams, Sr.
10.2* Amendment to Exchange of Stock for Assets Agreement by and between
Ciralight Global,Inc. and George Adams, Sr. dated December 15,
2009.
10.3* Assignment of Issued United States Patent and Pending United
States Patent Application dated December 17, 2009
21
10.4* Domestic Non-Exclusive Dealer Agreement(undated and unsigned
prototype)
10.5* Domestic Non-Exclusive Distribution Agreement(undated and unsigned
prototype)
10.6* Domestic Non-Exclusive Dealer Agreement by and between Ciralight
Global, Inc. and Chaparral Green Energy Solutions, LLC dated as of
January 1, 2010
10.7* Domestic Non-Exclusive Dealer Agreement dated December 1, 2009, by
and between Ciralight Global, Inc. and Green Tech Design-Build,
Inc.
10.8* International Distribution Agreement dated January 15, 2010, by
and between Ciralight Global, Inc. and ZEEV Shimon & Sons, Ltd.
10.9* International Dealership Agreement dated June 18, 2009, by and
between Ciralight Global, Inc. and RSB Construction LTD.
10.10* Domestic Non-Exclusive Dealer Agreement dated April 1, 2010, by
and between Ciralight Global, Inc. and J-MACS Consulting, LLC.
10.11* Domestic Non-Exclusive Dealer Agreement dated April 15, 2010, by
and between Ciralight Global, Inc. and The Energy Solutions Group
Worldwide, LLC.
10.12* Domestic Non-Exclusive Dealer Agreement dated April 15, 2010, by
and between Ciralight Global, Inc. and Kemper & Associates, Inc.,
d/b/a Total Roofing & Reconstruction.
10.13* Domestic Non-Exclusive Dealer Agreement dated December 1, 2009, by
and between Ciralight Global, Inc. and Eco-Smart, Inc.
10.14* Commercial Lease Agreement dated April 1, 2010, by and between
Ciralight Global, Inc. and Frederick Feck.
10.15* Material Liability Agreement dated September 3, 2009, by and
between Ciralight Global, Inc. and Suntron Corporation.
10.16* Material Terms and Conditions of Verbal Office Lease for Executive
Offices in Irvine, California.
10.17* Material Terms and Conditions of Verbal Office Lease for
Warehouse/Offices in Corona, California
14* Code of Business Conduct and Ethics
22
21* Subsidiaries.
31.1** Certification of Principal Executive Officer and Principal
Financial Officer Pursuant to 18 U.S.C. Section 1350
32.1** 906 Certification of Principal Executive Officer and Principal
Financial Officer
101** Interactive data files pursuant to Rule 405 of Regulation S-T
----------
* Exhibits incorporated by reference to Registrant's Form S-1 Registration
Statement, Registration No. 333-165638.
** Filed herewith.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
CIRALIGHT GLOBAL, INC.
Date: August 19, 2013 /s/ Jeffrey S. Brain
----------------------------------------
Jeffrey S. Brain
President, Chief Executive Officer
2
