Reverse Stock Split
On October 9, 2012, the Company effectuated a one-for-two reverse
split of its preferred and common stock. All references in these consolidated financial statements to the number of preferred shares,
common shares or warrants, price per share and weighted average number of common shares outstanding prior to the 1:2 reverse stock
split have been adjusted to reflect this stock split on a retroactive basis, unless otherwise noted.
Preferred stock
The Company is authorized to issue 12,500,000 shares of preferred
stock at a par value of $0.001. At December 31, 2013 and 2012, no shares of preferred stock were issued or outstanding.
Common stock
The Company is authorized to issue 37,500,000
shares of common stock at a par value of $0.001. At December 31, 2013 and 2012, shares of common stock totaling 17,033,531 and
16,080,815 were issued and outstanding, respectively.
Common Stock Issued in Private Placements
On September 5, 2011, the Company commenced
a private offering of 1.5 million shares at $6.00 per share.
In February 2012, the Company amended this
offering by reducing the share price from $6.00 to $4.00 per share. Following the February 2012 amendment, the Company accepted
subscription agreements from investors and issued 12,500 shares of its common stock for gross proceeds totaling $50,000. The cost
of these issuances was $5,000. Additionally, the Company accepted subscription agreements from two of its officers and issued 37,500
shares of its common stock for gross proceeds totaling $150,000. The purchase of these shares is consistent with the terms of the
Company’s private placement described above. There was no cost associated with the officer issuances.
On July 1, 2012, the Company modified its offering
to include one stock purchase warrant per share of common stock sold. The stock purchase warrants are exercisable at $4.00 per
share and expire one year from their date of issuance. Since the July 1, 2012 modification through the date of December 31, 2012,
the Company has accepted subscription agreements from investors and issued 575,250 shares of its common stock and 562,750 stock
purchase warrants for gross proceeds totaling $2,276,000. The cost of these issuances was $227,600. Using the Black-Scholes model,
the Company allocated a relative fair value of $945,872 to these stock purchase warrants.
During the year ended December 31, 2013, the
Company accepted subscription agreements from investors and issued 830,250 shares of its common stock and 842,750 stock purchase
warrants for gross proceeds totaling $3,321,000. The cost of these issuances was $332,100. The stock purchase warrants have been
accounted for as equity in accordance with FASB ASC 480, Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock, Distinguishing Liabilities from Equity. Using the Black-Scholes model, the Company allocated
a relative fair value of $1,139,550 to these stock purchase warrants.
Common Stock Issued in Exchange for Consulting, Professional
and Other Services
During the year ended December 31, 2012, the Company issued 37,395
shares of its common stock in exchange for various services. These issuances were comprised of 10,000 shares valued at $4.00 per
share issued in lieu of cash to settle outstanding accounts payable aggregating $40,000; 18,145 shares valued at $72,000 to its
independent directors per the terms of their compensation agreements; 5,000 shares valued at $27,000 to an independent contractor
per the terms of its distribution agreement; and 4,250 shares valued at $18,400 in promotional activities to attendees of various
financing events hosted by the Company.
During the year ended December 31, 2013, the Company issued 28,716
shares of its common stock in exchange for various services. A total number of 14,832 shares valued at $78,000 were issued to three
independent directors per the terms of the compensation agreement. In the meantime, 6,620 common shares were issued to four contractors
as compensation for their services with a fair value of 34,692. The Company also issued 7,264 shares with a fair value of $38,076
in promotional activities to attendees of various financing events hosted by the Company.
Each share issuance made in exchange for services
was valued based upon the trading price of the Company’s common stock on its respective date of award.
Common Stock Issued in the Acquisition of Distribution Rights
On August 27, 2012, the Company entered into
a five year distribution agreement with Lightsky located in Shanghai, China whereby it became the exclusive distributor of Lightsky’s
LED lighting products in the United States, Canada and Mexico. The Company issued 150,000 shares of its common stock valued at
$780,000, or $5.20 per share, which represented the quoted market price on the date of the transaction. The shares are restricted
for an eighteen month period following their date of issuance (see Note 9 — Goodwill and Intangible Assets, Net).
Stock Purchase Warrants
The following table reflects all outstanding and exercisable stock
purchase warrants for the periods ended December 31, 2012 and December 31, 2013:
| |
|
Number of
Warrants
Outstanding |
|
|
Weighted Average
Exercise Price |
|
|
Remaining
Contractual
Life (Years) |
|
| Balance, December 31, 2011 |
|
|
— |
|
|
$ |
— |
|
|
|
— |
|
| Warrants issued |
|
|
562,750 |
|
|
|
4.00 |
|
|
|
0.71 |
|
| Warrants exercised |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Warrants forfeited |
|
|
— |
|
|
|
— |
|
|
|
— |
|
| Balance, December 31, 2012 |
|
|
562,750 |
|
|
$ |
4.00 |
|
|
|
0.71 |
|
| Warrants issued |
|
|
842,750 |
|
|
|
4.00 |
|
|
|
0.79 |
|
| Warrants exercised |
|
|
(93,750 |
) |
|
|
4.00 |
|
|
|
— |
|
| Warrants forfeited |
|
|
(481,500 |
) |
|
|
4.00 |
|
|
|
— |
|
| Balance December 31, 2013 |
|
|
830,250 |
|
|
$ |
4.00 |
|
|
|
0.80 |
|
All stock purchase warrants are exercisable for a period of one
year from the date of issuance. The remaining contractual life of the stock purchase warrants outstanding as of December 31, 2013
ranged from 0.10 to 1.0 years.
During the year ended December 31, 2013, the Company issued 93,750
shares of its common stock for gross proceeds totaling $375,000 following the exercise of an equal amount of stock purchase warrants.
The cost of these issuances was $37,500. No stock purchase warrants were exercised during the year ended December 31, 2012.
The value of the stock purchase warrants was
determined using the following Black-Scholes methodology:
| |
|
For the Years Ended |
|
| |
|
December 31, 2013 |
|
|
December 31, 2012 |
|
| |
|
|
|
|
|
|
| Expected dividend yield (1) |
|
|
0.00 |
% |
|
|
0.00 |
% |
| Risk-free interest rate (2) |
|
|
0.09 – 0.15 |
% |
|
|
0.16 – 0.21 |
% |
| Expected volatility (3) |
|
|
16.69 – 145.28 |
% |
|
|
111.94 – 152.31% |
% |
| Expected life (in years) |
|
|
1.00 |
|
|
|
1.00 |
|
_____________
| (1) |
The Company has no history or expectation of paying cash dividends on its common stock. |
| (2) |
The risk-free interest rate is based on the U.S. Treasury yield for a term consistent with the expected life of the awards in effect at the time of grant. |
| (3) |
The volatility of the Company’s common stock is based on trading activity for the previous one year period ended at each stock purchase warrant contract date. |
|
