Filed Pursuant to Rule 424(b)(3)
Registration No. 333-177526
GREEN BALLAST, INC.
SUPPLEMENT NO. 3
DATED NOVEMBER 19, 2012
TO PROSPECTUS DATED APRIL 19, 2012
We are providing you with this Supplement No.3 dated November 19, 2012, to update the prospectus dated April 19, 2012 (“Prospectus”). The information in this Supplement No.3 supplements, modifies and supersedes some of the information contained in the Prospectus as supplemented by Supplement No. 1, dated June 4, 2012 (“Supplement No. 1”) and Supplement No. 2, dated August 20, 2012 (“Supplement No. 2”). This Supplement No. 3 forms a part of, and must be accompanied or preceded by, the Prospectus as supplemented by Supplement No. 1 and Supplement No. 2.
The purpose of this Supplement No. 3 is to disclose:
· | revisions to “Management’s Discussion and Analysis of Financial Condition and Results of Operations” to include information for the three months and nine months ended September 30, 2012; and |
· | our unaudited financial statements for the three months and nine months ended September 30, 2012. |
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our results of operations and financial condition with the financial statements and related notes included elsewhere in this quarterly report on Form 10-Q. This discussion contains forward-looking statements. Actual results may differ materially from those contained in any forward-looking statements.
Overview
Green Ballast, Inc. (“we”, “us”, “our”, the “Company”) is an innovator, developer and marketer of energy-efficient electronic ballasts for fluorescent fixtures in the commercial lighting industry. We have two product lines at different stages of production, a daylight harvesting ballast and a wireless programmable ballast, which is currently in development. Our daylight harvesting ballasts and wireless programmable ballasts conserve energy and can greatly reduce the energy costs of operating commercial buildings. With rising utility rates, dwindling natural resources, an inadequate national power grid and regulatory mandates to conserve energy, we believe our products are positioned to take advantage of this market opportunity.
We were incorporated on April 13, 2011 and commenced operations on April 15, 2011. We were capitalized on April 15, 2011 with $3,000,000 contributed by Green Ballast LLC, or GBL, which consisted of $2,532,000 in cash and $468,000 in inventory of ballasts. In exchange, we issued to GBL 32,500,000 shares of our common stock, 1,200,000 shares of our redeemable Series A preferred stock and a convertible secured promissory note in the principal amount of $1,800,000. The promissory note issued to GBL is mandatorily convertible into shares of our redeemable Series A preferred stock to the extent the principal balance under the promissory note issued to Gemini Master Fund, Ltd., described below, is reduced.
We acquired the patented technology underlying our products from Gemini Master Fund, Ltd., or Gemini, on April 15, 2011, for a purchase price of $2,200,000, consisting of $400,000 in cash and a convertible secured promissory note in the principal amount of $1,800,000. The intellectual property acquired was recorded for $1,800,906 which is based on the fair value of consideration given. The promissory note issued to Gemini is convertible into shares of our common stock. We also issued warrants to Gemini to purchase up to 5,000,000 shares of our common stock.
Critical Accounting Policies and Estimates
The preparation of our financial statements requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, the disclosure of contingent liabilities and the reported amounts of revenues and expenses. Our estimates are based on assumptions we believe are reasonable under the circumstances. We will evaluate our estimates on an ongoing basis and make changes as experience develops or as we become aware of new information. Actual results may differ from these estimates.
We believe the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Revenues
We recognize revenue when all of the following conditions exist: (i) persuasive evidence of an arrangement between us and our customer, (ii) delivery has occurred, (iii) the revenue amount is determinable, and (iv) collection is reasonably assured. Valuation allowances are established for estimated returns, allowances, and discounts at the time revenue is recognized. Short-term construction-type contracts are accounted for under the completed-contract method. Revenues under the completed-contract method are recognized upon substantial completion which includes acceptance by the customer. Costs incurred by the Company for contracts accounted for under the completed-contract method are capitalized as costs in excess of billings and are charged to cost of goods sold in the period that the related revenue is recognized.
Product Warranties
We provide a limited warranty covering defective materials and workmanship. We generally provide for a 5-year warranty on our products. In the event a claim is made by a customer on a warranty, we will replace the product and reimburse the purchaser $10.00 per ballast to defray any installation costs. We accrue estimated warranty costs at the time products are sold.
Income Taxes
Our financial statements include an estimate of income taxes assessed for any legal jurisdiction in which we operate. These income taxes include both a current amount, as well as a deferred portion which results from a variety of temporary book versus tax treatment differences, including net operating loss carry forwards. These differences result in deferred tax assets and liabilities, which are included in the consolidated balance sheet. Once established, any deferred tax asset must be evaluated to determine whether it is more likely than not that the future tax benefits will be realized, including the likelihood that we will generate sufficient future taxable income to utilize the full amount. When facts and circumstances warrant, we will establish, increase or reduce valuation allowances associated with deferred tax assets in order to reflect which assets meet the more-likely-than-not realizability test. Based on the cumulative losses and lack of operating history, we have recorded a valuation allowance against our net deferred tax assets as we believe that it is more likely than not that these deferred tax assets will not be realized.
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Impairment of Long-Lived Assets
We account for long-lived assets in accordance with the provisions of Financial Accounting Standards Board Accounting Standards Codification Topic 350, Intangibles – Goodwill and Other (ASC 350). We periodically evaluate long-lived assets for indicators that would suggest that the carrying amount of the assets may not be recoverable. The judgments regarding the existence of such indicators are based on factors such as operating performance, market conditions, and legal factors. The valuation of long-lived assets requires the use of judgment in evaluating these indicators.
In accordance with ASC 350, long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized by the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed of would be separately presented in the balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held for sale would be presented separately in the appropriate asset and liability sections of the balance sheet. Our long-lived assets consist primarily of a patent which has a definite life.
Results of Operations
Since our inception on April 13, 2011, we have focused our efforts on building our business operations and making further refinements and developments to our technology. We have not generated any significant revenues and have used cash realized from our initial capitalization, borrowings and from our recent private offerings to fund our operating expenses. For the nine months ended September 30, 2012, we generated a net loss of $4,323,810. During this period, our net sales were $176,018, cost of sales were $108,083 and our gross profit was $67,935. Our net sales continue to be negatively impacted by our decision to modify our sales strategy to focus on original equipment manufacturers and energy service companies. We determined that these customers present us with greater potential for long-term growth and product sales as these customers are more likely to jointly market our products to the customer. As a result of our shift in strategy, it will take more time to penetrate these markets and generate product sales. We have been encouraged by our progress during the fourth quarter of 2012.
Our selling, general and administrative expenses were $3,819,146, resulting in our operating loss of $3,751,211. These expenses included $815,628 of compensation expense related to our restricted stock awards to employees and consultants, $659,170 of product development expenses, $116,362 of employee benefits and taxes, $118,872 of amortization of intangibles and depreciation expenses, and $2,109,114 of general and administrative expenses. At September 30, 2012, we had approximately $904,681 of total unrecognized compensation costs related to stock awards granted under our Restricted Stock Plan. We recognize a portion of these costs ratably over a service period of between 10-35 months. We expect to begin generating meaningful revenue from product sales in the 4th quarter of 2012. However, we expect to continue generating net losses through 2012. Our ability to become profitable depends on our success in generating sufficient revenue from sales of our products to pay our ongoing expenses.
For the three months ended September 30, 2012, we generated a net loss of $1,227,375. During this period, our net sales were $88,667, cost of sales were $63,171 and our gross profit was $25,496. Our net sales continue to be negatively impacted by our decision to modify our sales strategy to focus on original equipment manufacturers and energy service companies. During the third quarter of 2012, the Company entered into contracts to perform lighting retrofits for various schools in Shelby County, Tennessee. These retrofits included installing the Company’s lighting ballast as well as lighting ballast produced by other manufacturers. The Company completed lighting retrofits on two schools during the third quarter and recognized revenue totaling $65,780. The gross margin earned on these lighting retrofits is less than the gross margin the Company earns selling lighting ballast to original equipment manufacturers and others. The Company anticipates completing lighting retrofits on an additional ten schools during the fourth quarter of 2012.
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For the three months ended September 30, 2012, our selling, general and administrative expenses were $1,072,608 resulting in our operating loss of $1,047,112. These expenses included $164,064 of compensation expense related to our restricted stock awards to employees and consultants, $181,943of product development expenses, $36,732 of employee benefits and taxes, $40,107 of amortization of intangibles and depreciation expenses, and $649,762 of general and administrative expenses.
For the three months ended September 30, 2011, we generated a net loss of $1,162,516. During this period, our net sales were $135,995, cost of sales were $132,675 and our gross profit was $3,320.
For the three months ended September 30, 2011, our selling, general and administrative expenses were $1,002,760 resulting in our operating loss of $999,440. These expenses included $617,432 of compensation expense related to our restricted stock awards to employees and consultants, $100,113 of product development expenses, $25,098 of employee benefits and taxes, $58,058 of amortization of intangibles and depreciation expenses, and $202,059 of general and administrative expenses.
Liquidity and Capital Resources
As of September 30, 2012, we had cash and cash equivalents of $62,627 and working capital deficit of $3,309,652. Since our inception, we have financed operations through issuance of debt and sales of equity securities. For the nine months ended September 30, 2012, we used $2,250,714 of cash for operations. Net cash provided by financing activities totaled $1,503,000 during the nine months ended September 30, 2012. We generated this net cash from proceeds received from sales of our common stock and short term debt financing.
During February 2012, we conducted a private placement of our common stock to accredited investors resulting in the issuance of 1,468,000 shares of common stock, for gross cash proceeds of $367,000. The purchase price for each share was $0.25. During the second quarter of 2012, we conducted a subsequent private placement of our common stock to accredited investors resulting in the issuance of 3,120,000 shares of common stock, for gross cash proceeds of $780,000. The purchase price for each share was $0.25. For the three months ending September 30, 2012 we issued 922,000 shares of common stock, for gross cash proceeds of $230,000.
Management has estimated that our cash on hand as of September 30, 2012 and cash we expect to generate from product sales and capital raising efforts and cash we will save through implementation of cost reduction measures are sufficient to sustain our operations for at least the next 12 months. Our fixed charges for the next twelve months are interest expense of $256,000 and dividend payments on our redeemable preferred stock of $112,000. Our management recognizes that we must significantly increase our product sales or obtain additional capital from other sources in order to achieve profitable operations and fund our cash requirements. We may obtain that capital through additional sales of our common stock or through debt funding. We continue to engage in efforts to raise additional capital through a private placement of equity or through institutional lenders that specialize in financing early stage companies. However, no assurances can be given that additional capital, when needed, will be available or acquired upon terms acceptable to us.
Due to the uncertainty in our ability to successfully raise additional capital to fund our business, and because we will continue to incur operating losses in the foreseeable future, these events raise substantial doubt about our ability to continue as a going concern. We believe that we have developed a viable plan to raise the necessary capital and implement our business strategy. We have engaged a merchant banking firm to assist us in raising up to $10,000,000 in equity financing and a $1,000,000 bridge loan to support our operations during the interim. As of November 9, 2012 $400,000 of the bridge loan has been funded. In addition, our marketing strategy has resulted in our entering into contracts with customers which will generate approximately $1,000,000 of revenue to us. However, we will realize that revenue over time, and it will not be sufficient to fund our ongoing operations without additional capital. There can be no assurance that the merchant banking firm will be successful in assisting us in raising additional capital or that any capital raise will be sufficient to fund our operations or be available or acquired upon terms acceptable to us.
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Off-Balance Sheet Arrangements
As of September 30, 2012, we had no off-balance sheet arrangements that have, or are reasonably likely to have a current or future effect on our financial conditions, results of operations, liquidity, capital expenditures or capital resources.
Recent Developments
In order to bolster our working capital, on April 16, 2012, we borrowed $75,000 from each of our affiliates, Gemini Master Fund, Ltd. (“Gemini”) and Green Ballast LLC (“GBL”), for a total borrowing of $150,000. The loans bear interest at 12% per annum are secured by all of our assets and were scheduled to mature on July 16, 2012. They contain covenants which prohibit us from incurring additional debt, creating any liens and making unscheduled payments under existing debt. On July 16, 2012 we amended the loans and extended the maturity date to October 16, 2012. The loans were paid in full on October 16, 2012.
In order to bolster our working capital, on October 16, 2012 and November 5, 2012, we entered into Purchase Agreements with certain accredited investors pursuant to which we issued (i) two 8% Mandatorily Convertible Notes in the aggregate principal amount of $400,000, and (ii) an aggregate of 400,000 shares of our common stock, $0.0001 par value per share, to the Investors, for aggregate proceeds of $400,000. As a condition to closing the above transaction, certain officers, former officers and affiliates agreed to surrender an aggregate of 1,000,000 shares of our common stock. We also pledged to use commercially reasonable efforts to effect a recapitalization of our common stock.
As a result of the above transaction, the exercise price of warrants issued to Gemini for an aggregate of 5,000,000 shares of our common stock was reduced to $0.25 per share.
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FINANCIAL STATEMENTS
GREEN BALLAST, INC.
(A Development Stage Enterprise)
Condensed Balance Sheets
(Unaudited)
September 30, | December 31, | |||||||
2012 | 2011 | |||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 62,627 | 826,365 | |||||
Trade accounts receivable, net | 101,696 | 21,385 | ||||||
Inventories | 874,672 | 508,637 | ||||||
Contract costs in excess of billings | 141,309 | — | ||||||
Prepaid expenses and other | 24,013 | 271,043 | ||||||
Total current assets | 1,204,317 | 1,627,430 | ||||||
Equipment and software, net | 32,047 | 39,891 | ||||||
Intangible assets, net | 1,667,861 | 1,762,865 | ||||||
Other assets | 4,450 | 4,450 | ||||||
Total assets | $ | 2,908,675 | 3,434,636 | |||||
Liabilities, Temporary Equity, and Permanent Deficit | ||||||||
Current liabilities: | ||||||||
Current maturities of debt | $ | 3,083,653 | — | |||||
Accounts payable and accrued expenses | 1,366,895 | 252,073 | ||||||
Dividends payable | 63,421 | 8,000 | ||||||
Total current liabilities | 4,513,969 | 260,073 | ||||||
Long term debt | — | 2,944,122 | ||||||
Total liabilities | 4,513,969 | 3,204,195 | ||||||
Temporary equity: | ||||||||
Redeemable preferred stock, $1.00 par value: | ||||||||
Authorized 5,000,000 shares: | ||||||||
3,000,000 shares designated as Series A; issued and outstanding 1,400,000 shares and 1,200,00 shares at September 30, 2012 and December 31, 2011, respectively | 1,400,000 | 1,200,000 | ||||||
Permanent deficit: | ||||||||
Common stock, $0.0001 par value. Authorized 245,000,000 shares; issued and outstanding 102,849,289 shares and 96,450,400 shares at September 30, 2012 and December 31, 2011, respectively | 4,534 | 3,895 | ||||||
Additional paid-in capital | 4,795,160 | 2,507,724 | ||||||
Deficit accumulated during the development stage | (7,804,988 | ) | (3,481,178 | ) | ||||
Total permanent deficit | (3,005,294 | ) | (969,559 | ) | ||||
Total liabilities, temporary equity, and permanent deficit | $ | 2,908,675 | 3,434,636 |
See accompanying notes to condensed unaudited financial statements.
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GREEN BALLAST, INC.
(A Development Stage Enterprise)
Condensed Statements of Operations
(Unaudited)
For the period | ||||||||||||||||
from April 13, | ||||||||||||||||
For the three | For the nine | For the three | 2011 | |||||||||||||
months ended | months ended | months ended | (inception) to | |||||||||||||
September 30, | September 30, | September 30, | September 30, | |||||||||||||
2012 | 2012 | 2011 | 2011 | |||||||||||||
Net sales | $ | 88,667 | 176,018 | 135,995 | 146,336 | |||||||||||
Cost of sales | 63,171 | 108,083 | 132,675 | 139,439 | ||||||||||||
Gross profit | 25,496 | 67,935 | 3,320 | 6,897 | ||||||||||||
Selling, general, and administrative expenses | 1,072,608 | 3,819,146 | 1,002,760 | 1,852,529 | ||||||||||||
Loss from operations | (1,047,112 | ) | (3,751,211 | ) | (999,440 | ) | (1,845,632 | ) | ||||||||
Interest expense, net | (180,263 | ) | (572,599 | ) | (163,076 | ) | (302,100 | ) | ||||||||
Net loss | $ | (1,227,375 | ) | (4,323,810 | ) | (1,162,516 | ) | (2,147,732 | ) | |||||||
Net loss per share – Basic and diluted | $ | (0.01 | ) | (0.04 | ) | (0.01 | ) | (0.02 | ) | |||||||
Weighted average common shares outstanding: | ||||||||||||||||
Basic and diluted | 102,367,289 | 99,709,462 | 92,000,000 | 92,000,000 |
See accompanying notes to condensed unaudited financial statements.
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GREEN BALLAST, INC.
(A Development Stage Enterprise)
Condensed Statement of Stockholders’ Deficit
For the period from April 13, 2011 (inception) to September 30, 2012
(Unaudited)
Permanent deficit | Temporary equity | |||||||||||||||||||||||||||
Deficit | ||||||||||||||||||||||||||||
accumulated | ||||||||||||||||||||||||||||
during the | Total | Redeemable preferred stock | ||||||||||||||||||||||||||
Common stock | Additional | development | permanent | Series A | ||||||||||||||||||||||||
Shares | Amount | paid-in capital | stage | deficit | Shares | Amount | ||||||||||||||||||||||
Initial capitalization | 32,500,000 | $ | 3,250 | 1,129,416 | — | 1,132,666 | 1,200,000 | $ | 595,441 | |||||||||||||||||||
Issuance of warrants in connection with Gemini note | — | — | 60,500 | — | 60,500 | — | — | |||||||||||||||||||||
Stock awards to an advisor and consultants | 3,350,000 | 200 | 90,160 | — | 90,360 | — | — | |||||||||||||||||||||
Restricted stock awards to employees | 56,150,000 | — | 846,830 | — | 846,830 | — | — | |||||||||||||||||||||
Issuance of common stock | 4,450,400 | 445 | 1,053,377 | — | 1,053,822 | — | — | |||||||||||||||||||||
Adjustment to redemption value | — | — | (604,559 | ) | — | (604,559 | ) | — | 604,559 | |||||||||||||||||||
Dividends declared | — | — | (68,000 | ) | — | (68,000 | ) | — | — | |||||||||||||||||||
Net loss | — | — | — | (3,481,178 | ) | (3,481,178 | ) | — | — | |||||||||||||||||||
Balance, December 31, 2011 | 96,450,400 | 3,895 | 2,507,724 | (3,481,178 | ) | (969,559 | ) | 1,200,000 | 1,200,000 | |||||||||||||||||||
Senior debt converted into preferred stock | — | — | — | — | — | 200,000 | 200,000 | |||||||||||||||||||||
Senior debt converted into common stock | 888,889 | 88 | 174,780 | — | 174,868 | — | — | |||||||||||||||||||||
Stock compensation for stock awards to consultants | — | — | 19,149 | — | 19,149 | — | — | |||||||||||||||||||||
Stock compensation for restricted stock awards to employees | — | — | 796,479 | — | 796,479 | — | — | |||||||||||||||||||||
Issuance of common stock | 5,510,000 | 551 | 1,376,449 | — | 1,377,000 | — | — | |||||||||||||||||||||
Dividends declared | — | — | (79,421 | ) | — | (79,421 | ) | — | — | |||||||||||||||||||
Net loss | — | — | — | (4,323,810 | ) | (4,323,810 | ) | — | — | |||||||||||||||||||
Balance, September 30, 2012 | 102,849,289 | $ | 4,534 | 4,795,160 | (7,804,988 | ) | (3,005,294 | ) | 1,400,000 | $ | 1,400,000 |
See accompanying notes to condensed unaudited financial statements.
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GREEN BALLAST, INC.
(A Development Stage Enterprise)
Condensed Statement of Cash Flows
(Unaudited)
For the period | For the period | |||||||||||
from April 13, | from April 13, | |||||||||||
For the nine | 2011 | 2011 | ||||||||||
months ended | (inception) to | (inception) to | ||||||||||
September 30, | September 30, | September 30, | ||||||||||
2012 | 2011 | 2012 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (4,323,810 | ) | (2,147,732 | ) | (7,804,988 | ) | |||||
Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||
Amortization of intangibles | 95,004 | 58,058 | 184,730 | |||||||||
Depreciation of equipment and software | 23,868 | — | 29,405 | |||||||||
Amortization of debt discounts | 364,399 | 175,660 | 644,537 | |||||||||
Stock awards to outside advisor and consultants | 19,149 | 79,980 | 109,309 | |||||||||
Stock-based compensation expense | 796,479 | 564,554 | 1,643,309 | |||||||||
Changes in operating assets and liabilities: | ||||||||||||
Trade accounts receivable | (80,311 | ) | (126,242 | ) | (101,696 | ) | ||||||
Inventories | (366,035 | ) | 65,243 | (406,672 | ) | |||||||
Contract costs in excess of billings | (141,309 | ) | — | (141,309 | ) | |||||||
Other assets | 247,030 | (13,857 | ) | (28,463 | ) | |||||||
Accounts payable and accrued expenses | 1,114,822 | 94,189 | 1,366,895 | |||||||||
Net cash used in operating activities | (2,250,714 | ) | (1,250,147 | ) | (4,504,943 | ) | ||||||
Cash flows from investing activities: | ||||||||||||
Acquisition of intellectual property | — | (400,000 | ) | (400,000 | ) | |||||||
Purchase of equipment and software | (16,024 | ) | (18,970 | ) | (61,452 | ) | ||||||
Net cash used in investing activities | (16,024 | ) | (418,970 | ) | (461,452 | ) | ||||||
Cash flows from financing activities: | ||||||||||||
Proceeds from issuance of short-term debt | 150,000 | — | 150,000 | |||||||||
Proceeds from issuance of long-term debt | — | 1,073,478 | 1,073,478 | |||||||||
Proceeds from issuance of common stock | 1,377,000 | 1,705,772 | 3,445,770 | |||||||||
Proceeds from issuance of preferred stock | — | 502,552 | 502,552 | |||||||||
Payment of stock issuance costs | — | (58,778 | ) | (58,778 | ) | |||||||
Payment of dividends | (24,000 | ) | (36,000 | ) | (84,000 | ) | ||||||
Net cash provided by financing activities | 1,503,000 | 3,187,024 | 5,029,022 | |||||||||
(Decrease) increase in cash and cash equivalents | (763,738 | ) | 1,517,907 | 62,627 | ||||||||
Cash and cash equivalents, beginning of period | 826,365 | — | — | |||||||||
Cash and cash equivalents, end of period | $ | 62,627 | 1,517,907 | 62,627 |
See accompanying notes to condensed unaudited financial statements.
9 |
GREEN BALLAST, INC.
(A Development Stage Enterprise)
Notes to Condensed Unaudited Financial Statements
September 30, 2012
(1) | Description of Business |
Green Ballast, Inc. (the Company) was incorporated in the State of Delaware on April 13, 2011. The Company is headquartered in Memphis, Tennessee. The Company develops, markets, and distributes daylight harvesting and programmable ballasts for fluorescent fixtures, which incorporates energy efficient technology.
On April 15, 2011, the Company was capitalized with $3,000,000 contributed by Green Ballast LLC (GBL), which consisted of $2,532,000 in cash and $468,000 in inventory of ballasts. In exchange, 32,500,000 shares of common stock, 1,200,000 shares of redeemable Series A preferred stock, and a convertible promissory note in the principal amount of $1,800,000 (GBL Note) were issued by the Company.
The proceeds from the capitalization were used to purchase certain assets, including intellectual property, from Gemini Master Fund, Ltd. (Gemini) for a purchase price of $2,200,000, pursuant to an asset purchase agreement. The consideration paid consisted of $400,000 in cash, and the issuance of a convertible promissory note in the principal amount of $1,800,000 (Gemini Note) and warrants to purchase up to 5,000,000 shares of common stock.
(2) | Summary of Significant Accouting Policies |
(a) | Basis of Presentation |
The accompanying condensed unaudited financial statements of the Company have not been audited and have been prepared by management in accordance with accounting principles generally accepted in the United States of America.
In the opinion of management, these condensed unaudited financial statements reflect all of the normal and recurring adjustments necessary to present fairly the financial position at September 30, 2012 and December 31, 2011, the results of operations for the three and nine months ended September 30, 2012, the three months ended September 30, 2011 and for the period from inception of April 13, 2011 to September 30, 2011 and April 13, 2011 to September 30, 2012, and the cash flows for nine months ended September 30, 2012 and for the period from inception of April 13, 2011 to September 30, 2011 and April 13, 2011 to September 30, 2012, and the statement of stockholders’ deficit for the period from inception of April 13, 2011 to September 30, 2012.
Certain information, accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting principles have been condensed or omitted in this Form 10-Q pursuant to certain rules and regulations of the Securities and Exchange Commission. These condensed unaudited financial statements should be read in conjunction with the audited financial statements and notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.
(Continued)
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GREEN BALLAST, INC.
(A Development Stage Enterprise)
Notes to Condensed Unaudited Financial Statements
September 30, 2012
The condensed unaudited financial statements have been prepared under Financial Accounting Standards Board Accounting Standards Codification 915, Development Stage Entities. A development stage enterprise is one in which planned principal operations have not commenced, or if its operations have commenced, there have been no significant revenues therefrom. As of September 30, 2012, the Company is a development stage enterprise since the Company has not generated significant revenue from the sale of its products from its inception on April 13, 2011 through September 30, 2012. The Company has principally been devoted to developing the next generation of ballasts, raising product awareness, and raising capital.
(b) | Revenue Recognition |
The Company recognizes revenue when products are shipped and the customer takes ownership and assumes risk of loss, collection of the relevant receivable is probable, persuasive evidence of an arrangement exists, and the sales price is fixed or determinable. Shipping and other transportation costs charged to buyers are recorded in both sales and costs of sales.
Short-term construction-type contracts are accounted for under the completed-contract method. Revenues under the completed-contract method are recognized upon substantial completion which includes acceptance by the customer. Costs incurred by the Company for contracts accounted for under the completed-contract method are capitalized as costs in excess of billings and are charged to cost of goods sold in the period that the related revenue is recognized.
(3) | Going Concern |
The Company is in the development stage, has a working capital deficit and stockholders’ deficit of $3,309,652 and $3,005,294, respectively, as of September 30, 2012, and has used $4,504,943 of cash in operations from inception. The Company has sustained operating losses since its inception. As a developmental stage enterprise, the Company is still in the process of developing and sufficiently executing its business plan to sustain financial viability. As a result, the Company may not have sufficient liquidity to meet its debt service requirements or to satisfy other financial obligations as they come due over the next 12 months. These issues raise substantial doubt about the Company’s ability to continue as a going concern. The ability of the Company to continue as a going concern is dependent on its ability to raise additional capital and implement its business plan. The financial statements do not include any adjustment that might be necessary if the Company is unable to continue as a going concern.
Management believes that actions presently being taken to obtain additional funding and implement its strategic plans provide the opportunity for the Company to continue as a going concern. However there can be no assurance that such additional funding will occur or that the Company can implement its strategic plans.
(4) | Common Stock Issuances |
In July 2011, the Company circulated a private placement memorandum to offer 12 million shares of its common stock. The shares of common stock were offered at $0.25 per share. As of December 31, 2011, the Company had received subscriptions and issued 4,450,400 shares for proceeds totaling $1,112,600, before offering costs.
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GREEN BALLAST, INC.
(A Development Stage Enterprise)
Notes to Condensed Unaudited Financial Statements
September 30, 2012
During the first nine months of 2012, the Company received subscriptions and issued 5,510,000 shares of common stock for proceeds totaling $1,377,000.
(5) | Debt Transactions |
In April 2012, Gemini converted an aggregate of $200,000 of its $1.8 million convertible debt into common stock of the Company. As a result of the conversion, the Company’s indebtedness to Gemini under its existing promissory note was reduced by $200,000. In addition, the GBL note was automatically converted into shares of redeemable Series A preferred stock on the basis of one share for every $1.00 that the outstanding principal amount of the Gemini note is reduced. The remaining principal outstanding under each of these previously issued Gemini and GBL promissory notes is $1.6 million each.
In April 2012, the Company borrowed $75,000 from each of the Company’s affiliates, Gemini and GBL, for a total borrowing of $150,000. The loans bear interest at 12% per annum, mature on October 16, 2012, and are secured by all of the Company’s assets.
During October 2012, the loans from Gemini and GBL totaling $150,000 were retired upon maturity.
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