UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

  (Mark one)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)

OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the Transition Period From ____ to ____

 

Commission file number: 000-54568

 

GREEN BALLAST, INC.

(Exact name of registrant as specified in its charter)

 

Delaware	45-1629984
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2620 Thousand Oaks Blvd., Suite 4000
Memphis, Tennessee	38118
(Address of principal executive offices)	(Zip Code)

 

(901) 260-4400

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

 

Yes x

No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

Yes 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 “accelerated filer,” “large accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one).

 

Large accelerated filer ¨

Accelerated filer ¨

Non-accelerated filer ¨

Smaller reporting company  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

Yes ¨

No x

 

As of August 6, 2013, there were 102,522,289 shares of common stock outstanding.

 

 

TABLE OF CONTENTS

 

FORWARD-LOOKING STATEMENTS	1
PART I
FINANCIAL INFORMATION	2
Item 1.  Financial Statements	2
Item 2.  Management’s Discussion &  Analysis of Financial Condition and Results of Operations	10
Item 3.  Quantitative and Qualitative Disclosures About Market Risk	13
Item 4.  Controls and Procedures	13
PART II
OTHER INFORMATION	14
Item 1.  Legal Proceedings	14
Item 1A.  Risk Factors	14
Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds	14
Item 3.  Defaults Upon Senior Securities	14
Item 4.  Mine Safety Disclosures	14
Item 5.  Other Information	14
Item 6.  Exhibits	15
SIGNATURES	16

 

 

FORWARD-LOOKING STATEMENTS

 

This report contains ‘‘forward-looking statements’’ within the meaning of the federal securities laws, which involve risks and uncertainties. Forward-looking statements include all statements that do not relate solely to historical or current facts, and you can identify forward-looking statements because they contain words such as ‘‘believes,’’ ‘‘expects,’’ ‘‘may,’’ ‘‘will,’’ ‘‘should,’’ ‘‘seeks,’’ ‘‘approximately,’’ ‘‘intends,’’ ‘‘plans,’’ ‘‘estimates,’’ ‘‘projects,’’ ‘‘continue,’’ ‘‘initiative’’ or ‘‘anticipates’’ or similar expressions that concern our prospects, objectives, strategies, plans or intentions. All statements made relating to our operating and growth strategies, product development, energy cost savings, customer relationships, sales strategies and future growth prospects are forward-looking statements.

 

These forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those expected. The reader should not place undue reliance on forward-looking statements. It is very difficult to predict the impact of known factors, and, of course, it is impossible to anticipate all factors that could affect our actual results. These factors include, but are not limited to: our future financial performance, including our revenue, cost of revenue, operating expenses and ability to achieve and maintain profitability; our ability to market, commercialize and achieve market acceptance for our daylight harvesting ballasts, wireless programmable ballasts or any other product candidates or products that we may develop; our ability to innovate and keep pace with changes in technology; the success of our marketing and business development efforts; our ability to maintain, protect and enhance our intellectual property; the effects of increased competition in our market; our ability to effectively manage our growth and successfully enter new markets; and the attraction and retention of qualified employees and key personnel.

 

All subsequent written and oral forward-looking statements attributable to us, or persons acting on our behalf, are expressly qualified in their entirety by these cautionary statements. The forward-looking statements included in this report are made only as of the date hereof. We undertake no obligation to publicly update or revise any forward-looking statement as a result of new information, future events or otherwise, except as otherwise required by law.

 

 

PART I
FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Condensed Balance Sheets

 

(Unaudited)

  

		June 30,				December 31,
		2013				2012
Assets
Current assets:
Cash and cash equivalents		$	91,475				15,439
Trade accounts receivable, net			202,627				504,092
Inventories			528,421				651,064
Contract costs in excess of billings			18,120				100,978
Prepaid expenses and other			31,766				11,992
Total current assets			872,409				1,283,565
Equipment and software, net			28,654				37,083
Intangible assets, net			1,572,857				1,636,193
Other assets			4,450				4,450
Total assets		$	2,478,370				2,961,291
Liabilities, Temporary Equity, and Permanent Deficit
Current liabilities:
Current maturities of debt		$	3,875,923				3,535,989
Accounts payable and accrued expenses			1,822,767				1,389,270
Accrued wages			301,918				545,616
Dividends payable			147,418				91,420
Total current liabilities			6,148,026				5,562,295
Long term debt							—
Total liabilities			6,148,026				5,562,295
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 at June 30, 2013 and December 31, 2012			1,400,000				1,400,000
Permanent deficit:
Common stock, $0.0001 par value. Authorized 245,000,000 shares;
issued and outstanding 102,522,289 shares and 102,497,289 shares
at June 30, 2013 and December 31, 2012, respectively			4,602				4,599
Additional paid-in capital			6,172,275				5,137,507
Deficit accumulated during the development stage			(11,246,533	)			(9,143,110	)
Total permanent deficit			(5,069,656	)			(4,001,004	)
Total liabilities, temporary equity, and permanent deficit		$	2,478,370				2,961,291

  

See accompanying notes to condensed unaudited financial statements.

 

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Condensed Statements of Operations

 

(Unaudited)

  

																		For the period
																		from April 13,
		For the three				For the three				For the six				For the six				2011
		months ended				months ended				months ended				months ended				(inception) to
		June 30,				June 30,				June 30,				June 30,				June 30,
		2013				2012				2013				2012				2013
Net sales		$	462,686				55,859				696,037				87,351				1,725,005
Cost of sales			335,385				26,443				406,949				44,912				1,304,102
Gross profit			127,301				29,416				289,088				42,439				420,903
Selling, general, and administrative expenses			874,975				1,283,408				1,956,162				2,746,538				9,962,157
Loss from operations			(747,674	)			(1,253,992	)			(1,667,074	)			(2,704,099	)			(9,541,254	)
Interest expense, net			(143,594	)			(210,011	)			(436,349	)			(392,336	)			(1,705,279	)
Net loss		$	(891,268	)			(1,464,003	)			(2,103,423	)			(3,096,435	)			(11,246,533	)
Net loss per share - Basic and diluted			(0.01	)			(0.01	)			(0.02	)			(0.03	)			(0.11	)
Weighted average common shares outstanding:
Basic and diluted			102,522,289				99,760,067				102,518,122				98,358,781				98,328,294

 

See accompanying notes to condensed unaudited financial statements.

 

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Condensed Statement of Stockholders’ Deficit

 

For the period from April 13, 2011 (inception) to June 30, 2013

 

(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			—				—				23,001				—				23,001				—				—
Stock compensation for restricted stock awards to employees			—				—				956,691				—				956,691				—				—
Issuance of common stock			6,158,000				616				1,511,384				—				1,512,000				—				—
Dividends declared			—				—				(107,420	)			—				(107,420	)			—				—
Cancellation of restricted stock awards			(1,000,000	)			—				12,880				—				12,880				—				—
Fair value adjustment from warrant modification			—				—				58,467				—				58,467				—				—
Net loss			—				—				—				(5,661,932	)			(5,661,932	)			—				—
Balance, December 31, 2012			102,497,289			$	4,599				5,137,507				(9,143,110	)			(4,001,004	)			1,400,000			$	1,400,000
Stock compensation for stock awards to consultants			—				—				7,704				—				7,704
Stock compensation for restricted stock awards to employees			—				—				314,719				—				314,719
Issuance of common stock			25,000				3				5,017				—				5,020
Dividends declared			—				—				(55,998	)			—				(55,998	)
Capital contributions from forgiveness of accrued salaries and director fees			—				—				763,326				—				763,326
Net loss			—				—				—				(2,103,423	)			(2,103,423	)
Balance, June 30, 2013			102,522,289			$	4,602				6,172,275				(11,246,533	)			(5,069,656	)			1,400,000			$	1,400,000

 

See accompanying notes to condensed unaudited financial statements.

 

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Condensed Statements of Cash Flows

 

(Unaudited)

  

										For the period
										from April 13,
		For the six				For the six				2011
		months ended				months ended				(inception) to
		June 30,				June 30,				June 30,
		2013				2012				2013
Cash flows from operating activities:
Net loss		$	(2,103,423	)			(3,096,435	)			(11,246,533	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization of intangibles			63,336				63,336				279,734
Depreciation of equipment and software			16,108				15,429				48,792
Amortization of debt discounts			276,954				252,559				1,067,294
Stock awards to outside advisor and consultants			7,704				15,297				120,865
Stock-based compensation expense			314,719				636,267				2,131,120
Changes in operating assets and liabilities:
Trade accounts receivable			301,465				(36,999	)			(202,627	)
Inventories			122,643				(322,307	)			(60,421	)
Contract costs in excess of billings			82,858				—				(18,120	)
Prepaid expenses and other			(19,774	)			255,179				(36,216	)
Accounts payable and accrued expenses			433,497				333,086				1,822,767
Accrued wages			519,628				—				1,065,244
Net cash provided by (used in) operating activities			15,715				(1,884,588	)			(5,028,101	)
Cash flows from investing activities:
Acquisition of intellectual property			—				—				(400,000	)
Purchase of property and equipment			(7,679	)			(13,835	)			(77,446	)
Net cash used in investing activities			(7,679	)			(13,835	)			(477,446	)
Cash flows from financing activities:
Proceeds from issuance of short-term debt			125,000				150,000				2,223,478
Repayment of short-term debt			(57,000	)			—				(432,000	)
Proceeds from issuance of common stock			—				1,147,000				3,445,770
Proceeds from issuance of preferred stock			—				—				502,552
Payment of stock issuance costs			—				—				(58,778	)
Payment of dividends			—				(24,000	)			(84,000	)
Net cash provided by financing activities			68,000				1,273,000				5,597,022
Increase (decrease) in cash and cash equivalents			76,036				(625,423	)			91,475
Cash and cash equivalents, beginning of period			15,439				826,365				—
Cash and cash equivalents, end of period		$	91,475				200,942				91,475

 

Non cash item:

Capital contribution of $763,326 during Q2 ‘13 was a result of forgiveness of accrued salaries and director fees

  

See accompanying notes to condensed unaudited financial statements.

  

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Notes to Condensed Unaudited Financial Statements

 

June 30, 2013

 

(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 Accounting 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 June 30, 2013 and December 31 2012, the results of operations for the three months ended June 30, 2013, the three months ended June 30, 2012, the six months ended June 30, 2013, the six months ended June 30, 2012, and for the period from inception of April 13, 2011 to June 30, 2013, the cash flows for the six months ended June 30, 2013 and June 30, 2012, and for the period from inception of April 13, 2011 to June 30, 2013, and the statement of stockholders’ deficit for the period from inception of April 13, 2011 to June 30, 2013.

 

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, 2012. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year.

 

(Continued)

 

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Notes to Condensed Unaudited Financial Statements

 

June 30, 2013

 

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 June 30, 2013, 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 June 30, 2013. 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 $5,275,617 and $5,069,656, respectively, as of June 30, 2013, and has used $5,028,101 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.

 

During the current quarter, four members of management executed waivers to forgo their respective accrued salaries and seven directors executed waivers to forgo their respective accrued director fees as of June 30, 2013. This forgiveness of accrued salaries and fees was accounted for as a capital contribution since these individuals are also shareholders of the Company. Accordingly, the Company increased its additional paid-in capital by $763,326 during the current quarter.

 

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, net of offering costs.

  

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Notes to Condensed Unaudited Financial Statements

 

June 30, 2013

  

During 2012, the Company issued 6,158,000 shares of common stock totaling $1,512,000. Included in the 6,158,000 shares of common stock are common shares issued as part of the Investor Notes offering in 2012 totaling 650,000 shares. In addition, in connection with the Investor Notes issued during the period from October 2012 through December 2012, certain officers, former officers and affiliates agreed to surrender an aggregate of 1,000,000 shares of common stock granted under the restricted stock compensation plan. The cancellation of these shares resulted in the acceleration of stock compensation of $12,880 in December 2012

 

The Company issued 25,000 shares of common stock as part of the Investor Note offering of $25,000 in January 2013 as further described in Note 5.

 

(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. During April 2013, the Company amended this convertible debt by extending the maturity dates to July 15, 2013.

 

In October 2012 through December 2012, the Company entered into purchase agreements with certain accredited investors pursuant to which the Company issued eleven 8% Mandatorily Convertible Notes (Investor Notes) in the aggregate principal amount of $650,000 and an aggregate of 650,000 shares of common stock, $0.0001 par value per share for aggregate proceeds of $650,000. These Notes are subject to a conversion into common stock subject to a mandatory conversion event, as defined in the purchase agreements. These Investor Notes mature on October 16, 2013 and have a principal balance of $650,000. The common stock was recorded at its fair value of $135,000. A resulting discount to the Investor Notes was recognized as an adjustment to interest expense over the life of the notes using a method that approximates the effective-interest method.

 

In January 2013, the Company entered into a purchase agreement with an accredited investor pursuant to which the Company issued an 8% Mandatorily Convertible Note in the aggregate principal amount of $25,000 and an aggregate of 25,000 shares of common stock, $0.0001 par value per share for aggregate proceeds of $25,000. This Investor Note is subject to a conversion into common stock subject to a mandatory conversion event, as defined in the purchase agreement. This Note matures on October 16, 2013 and has a principal balance of $25,000. The common stock was recorded at its fair value of $5,020. A resulting discount to the Investor Note was recognized as an adjustment to interest expense over the life of the note using a method that approximates the effective-interest method.

 

In March 2013, the Company borrowed $100,000 from an employee of the Company. The loan bore interest at 12% per annum, matured on May 22, 2013, was secured by a portion of the Company’s outstanding receivables, and was paid off in full in July 2013.

 

 

GREEN BALLAST, INC.

(A Development Stage Enterprise)

 

Notes to Condensed Unaudited Financial Statements

 

June 30, 2013

  

(6)

Subsequent Events

 

Management has performed an evaluation of the Company’s activities through the time of filing of this Quarterly Report on Form 10-Q and has concluded that there are no significant subsequent events requiring recognition or disclosure in these financial statements.

  

 

Item 2.   Management’s Discussion & 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 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.

 

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 six months ended June 30, 2013, we generated a net loss of $2,103,423. During this period, our net sales were $696,037, cost of sales were $406,949 and our gross profit was $289,088. We continue to implement our sales strategy to focus on energy service companies located in regions with high utility costs and higher rebate programs available in such areas. We continue to have encouraging discussions with potential customers in these regions, and we believe our sales will continue to increase for the remainder of fiscal year 2013.

 

 

Our selling, general and administrative expenses were $1,956,162, resulting in our operating loss of $1,667,074. These expenses included $322,423 of compensation expense related to our restricted stock awards to employees and consultants, $7,534 of product development expenses, $31,383 of employee benefits and taxes, $79,444 of amortization of intangibles and depreciation expenses, and $1,515,378 of general and administrative expenses. At June 30, 2013, we had approximately $405,315 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.

 

Liquidity and Capital Resources

 

As of June 30, 2013, we had cash and cash equivalents of $91,475 and working capital deficit of $5,275,617. Since our inception, we have financed operations through issuance of debt and sales of equity securities. For the six months ended June 30, 2013, we provided $15,715 of cash from operations. Net cash provided by financing activities totaled $68,000 during the six months ended June 30, 2013. We generated this net cash from proceeds received from the issuance of short term debt and common stock. Our fixed charges for the next twelve months are interest expense of $256,008 and dividend payments on our redeemable preferred stock of $111,996.

 

Due to our net losses and negative cash flow from our operations since inception, and our expectation that these conditions will continue for the foreseeable future, there is substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is subject to our ability to obtain necessary funding from outside sources, including additional funding from the sale of our equity or debt securities and short-term financings, and to increase sales of our products. We are presently engaged in discussions with several potential investors in order to raise the additional funds needed to sustain our operations. We have undertaken several initiatives in order to reduce our cash requirements, such as voluntary reduction in salaries by our management, extended payment terms from suppliers and contractors and discussions with our creditors to accept delayed payments. We are in discussions to modify our loan agreements with Gemini and GBL, which have agreed not to declare us in default of these loans until further notice despite their having matured on July 15, 2013. During the current quarter, four members of management executed waivers to forgo their respective accrued salaries and seven directors executed waivers to forgo their respective accrued director fees as of June 30, 2013.  This forgiveness of accrued salaries and fees was accounted for as a capital contribution since these individuals are also shareholders of the Company. Additionally, we believe that we will continue to generate additional cash through our sales efforts which will allow us to sustain our operations over the short-term.

 

However, unless we are successful in raising additional capital or increasing the cash generated from our sales efforts, we will not have sufficient cash resources to meet our requirements over the next 12 months. there can be no assurance that we will be successful in obtaining such funding or increasing our sales. Even if we are successful in raising the additional funds or increasing our sales, we could incur unexpected costs or expenses or fail to collect on our accounts receivable, or experience other unexpected cash requirements that could force us to seek additional financing. In addition, if we issue additional equity or debt securities, stockholders are likely to experience additional dilution, and the new equity securities may have rights, preferences or privileges that are superior to those of existing holders of our common stock.

 

If we are unsuccessful in obtaining additional financing or increasing the sales of our products, we will be required to reduce the scope of our operations, reduce our commercialization efforts and take other action to substantially reduce our expenses. There is no assurance that such activity will be sufficient to maintain operations until any additional financing can be located. If we fail to obtain such financing or if we are unable to increase our sales and decrease, or delay paying, our expenses, we will have to discontinue our operations.

 

Off-Balance Sheet Arrangements

 

As of June 30, 2013, 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.

 

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

Not required for smaller reporting companies.

 

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures

 

Under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Principal Accounting Officer, the Company conducted an evaluation of the effectiveness of its disclosure controls and procedures (as such term is defined in Rules 13a-15(a) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on this evaluation, the Company’s Chief Executive Officer and Principal Accounting Officer concluded that the Company’s disclosure controls and procedures were effective as of such date. The Company’s disclosure controls and procedures are designed to ensure that information required to be disclosed by the Company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission and that such information is accumulated and communicated to management, including the Chief Executive Officer and Principal Accounting Officer, to allow timely decisions regarding required disclosure.

 

Internal Control Over Financial Reporting

 

There has been no change in the Company’s internal control over financial reporting during the quarter ended June 30, 2013, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

PART II
OTHER INFORMATION

 

Item 1.   Legal Proceedings

 

In June 2013, we terminated William H. Bethell’s employment with the Company for cause and removed him as Chief Financial Officer and Treasurer of the Company. On July 10, 2013, we were named as a respondent in a complaint filed by Mr. Bethell with the American Arbitration Association in Memphis, Tennessee. In the complaint, Mr. Bethell alleges breach of contract, and asserts that we terminated his employment in contravention of his employment contract. The complaint seeks monetary damages for unpaid salary through the termination date and for the remainder of the term of his employment contract, additional shares of Common Stock of the Company and the release of Mr. Bethell from certain non-compete and confidentiality agreements. We believe we properly terminated Mr. Bethell’s employment, and that we have strong defenses to this claim. We intend to vigorously defend the case.

 

On August 5, 2013, we filed a lawsuit in the United States District Court for the Western District of Tennessee, Western Division against Mr. Bethell, GNAC, LLC, Nick Bussanich and various unnamed defendants. Our lawsuit alleges that Messers. Bethell and Bussanich defamed the Company, violated non-compete agreements and non-disclosure agreements and breached their fiduciary duty and duty of loyalty by, among other things, soliciting sales from current Company customers and communicating untrue information about the Company. The lawsuit further alleges that the various defendants conspired together and tortuously interfered with business relationships of the Company and induced employees of the Company to breach their contracts with the Company. In the lawsuit we are seeking monetary damages, a temporary restraining order, and an injunction enjoining the defendants from further engaging in the alleged activities.

 

Item 1A. Risk Factors

 

Not required for smaller reporting companies.

 

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

 

None

 

Item 3.   Defaults Upon Senior Securities

 

None.

 

Item 4.   Mine Safety Disclosures

 

Not applicable.

 

Item 5.   Other Information

 

Effective as of August 14, 2013, Mr. Peter Weisman resigned as a director of the Company.

 

 

Item 6. Exhibits

 

Exhibit No.		Description
Exhibit 31.1		Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 #
Exhibit 31.2		Certification of Principal Accounting Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 #
Exhibit 32.1		Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 #
Exhibit 32.2		Certification of Principal Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 #
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

_______________________________________________ 

#

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.

 

Date: August 14, 2013

 

	Green Ballast, Inc.
	By:	/s/ J. Kevin Adams
		J. Kevin Adams
		Chief Executive Officer and President
	By:	/s/ Penelope Springer
		Penelope Springer
		Principal Accounting Officer