The accompanying notes are an integral part of these unaudited consolidated financial statements.
NOTE 1 – Nature of Operations and Going Concern
As used herein and except as otherwise noted, the term "Company", "it(s)", "our", "us", "we" and "mLight" shall mean mLight Tech, Inc., a Florida corporation, and Ding King Training Institute, Inc., a California corporation, its wholly-owned subsidiary.
mLight Tech, Inc. was incorporated in the State of Florida on September 3, 2010, to provide software solutions that simplify the management of networked personal computers. On October 31, 2013, the Company acquired 100% of the issued and outstanding capital stock of the Ding King Training Institute, Inc. ("DKTI"), a California corporation, in exchange for 2,500,000 shares of its common stock. As a result of DKTI's acquisition, DKTI became a wholly-owned subsidiary of the Company. DKTI is the acquirer for financial reporting purposes and mLight is the acquired company. The merger was accounted for as a recapitalization. Consequently, the assets and liabilities and the operations that are reflected in the historical financial statements prior to the merger are those of DKTI, and are recorded at the historical cost basis of DKTI. Subsequent to the merger, the operations of mLight are consolidated with the operations of DKTI. The Company elected to retain September 30 to be its fiscal year end.
The principal business of DKTI is training individuals for a career as a technician in the Automotive Appearance Industry, which includes paintless dent repair, interior restoration, windshield repair, window detailing, odor removal, auto detailing and alloy wheel repair. The individual students are normally employees of auto body shops, car dealers and entrepreneurs looking to start their own businesses.
The financial information presented in these notes to the Company's unaudited consolidated financial statements is for the three months and nine months ended June 30, 2016 and 2015, respectively.
As shown in the accompanying consolidated financial statements, the Company has faced significant liquidity shortages. As of June 30, 2016, the Company's total liabilities exceeded its total assets by $526,850. The Company has a net loss of $57,867 for the nine months ended June 30, 2016 and has recorded an accumulated deficit of $547,500 as of June 30, 2016. The Company has had difficulty in raising capital or obtaining trade credit from vendors. Additionally, the Company has been unable to satisfy its purchase commitments to vendors. These factors raise a substantial doubt about the Company's ability to continue as a going concern. If the Company is unable to obtain adequate capital through borrowings or sale of its common stock, it could be forced to cease operations. Because the Company has no contractual commitments with respect to any of these initiatives, there can be no assurance that additional funds for operations will be available on commercially reasonable terms or in the necessary amounts. Management has further expanded its operations geographically to continue its revenue growth. Management has negotiated an extension for its note payable obligations to provide additional time to realize its expansion plans and/or raise additional capital. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
NOTE 2 – Summary of Significant Accounting Policies
The following summary of significant accounting policies is presented to assist in the understanding of the Company's consolidated financial statements. The consolidated financial statements and notes are the representation of the Company's management who is responsible for their fair presentation. The consolidated financial statements of the Company conform to accounting principles generally accepted in the United States of America (U.S. GAAP).
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of mLight and its wholly-owned subsidiary Ding King Training Institute, Inc. All intercompany balances and transactions are eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents.
Accounts Receivable
Accounts receivable represent income earned from training provided to students for which the Company has not yet received payment. Payment plans are offered to students to pay off remaining tuition on an installment basis over periods not to exceed one year. Accounts receivable are recorded at the invoiced amount and stated at the amount management expect to collect from balances outstanding at period-end. The Company estimates the allowance for doubtful accounts based on an analysis of specific accounts and an assessment of the customer's ability to pay. The Company recorded bad debt expense of $44,094 and $84,333 for the three months and nine months ended June 30, 2016 as compared to bad debt expense of $25,221 and $39,071 for the three months and nine months ended June 30, 2015, respectively.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
Property and Equipment
Property and equipment are stated at cost. Depreciation of property and equipment is calculated based on the straight-line method over the estimated useful lives of the related assets as summarized below. Major renewals and betterments are capitalized while maintenance costs are expensed as incurred. Depreciation and amortization expense for the three months and nine months ended June 30, 2016 was $763 and $2,244, and depreciation and amortization expense for the three months and nine months ended June 30, 2015 was $540 and $2,034, respectively.
Machinery and equipment
|
3 - 5 years
|
|
|
Furniture and office equipment
|
5 years
|
Fair value of Financial Instruments and Fair Value Measurements
ASC 820, "Fair Value Measurements and Disclosures", requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of cash, accounts receivable, accounts payable, accrued liabilities, and short term loans. Pursuant to ASC 820 and ASC 825, "Financial Instruments", the fair value of our cash equivalents is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The Company believes that the recorded values of all of the other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. The Company had no financial assets or liabilities carried and measured on a non-recurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
Revenue Recognition
The Company's tuition packages vary in price according to the different types of training programs purchased by the students. Upon commencement of the courses, the Company recognizes as revenue any deposits previously received, as they are non-refundable upon commencement of the courses. The remaining tuition from the student or the student's employer, which is received upon the commencement of the course or extended credit over a period of one to three months or as agreed upon, is recognized as revenue upon the completion of the training courses. The training course duration is from one to two weeks.
The Company's revenue recognition policy is based on the revenue recognition criteria established under the SEC's Staff Accounting Bulletin No. 104. The criteria and how the Company satisfies each element are as follows: (1) persuasive evidence of an arrangement - the Company and the student or the student's employer (the customer) enters into a signed contract with the Company; (2) delivery has occurred - as noted above, upon the commencement of the course, the deposit is non-refundable per the terms of the signed contract and upon completion of the course, the Company has provided all services to be delivered to the student under the contract; (3) the price is fixed and determinable - the signed contract indicates a fixed dollar amount for the tuition for the courses enrolled by the student; (4) collectability is reasonable assured - the Company receives as payment a deposit and the balance of the tuition before the course is completed, or credit is extended for installment payments, as evidenced by promissory note not to exceed one year.
The Company records licensing revenue by granting an annual exclusive license to sell Dent Tools Direct, USA Inc. ("Dent Tools") merchandise online under the Ding King name and logo on the DKTI website. The Company recognizes licensing revenue ratably monthly as the Company earns revenue and satisfies conditions for recognition of revenues (See Note 7).
Income Taxes
The Company accounts for income taxes using the asset and liability method in accordance with ASC 740,
Income Taxes
. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax basis of assets and liabilities, and for operating loss and tax credit carry forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. The Company follows the provisions of ASC 740-10, "
Accounting for Uncertain Income Tax Positions
." When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying consolidated balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
Earnings (Loss) Per Common Share
The Company computes net earnings (loss) per share in accordance with ASC 260, "
Earnings per Share
". ASC 260 requires presentation of both basic and diluted net earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing earnings (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. For the three months and nine months ended June 30, 2016 and 2015, there were no potentially dilutive common shares outstanding during the period.
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 3 – Payroll Taxes
On January 21, 2016, the Company negotiated a settlement with the Internal Revenue Service ("IRS") taxing authority and agreed to a monthly payment of $756 starting March 15, 2016, to pay previously unpaid payroll tax obligations of $18,130 over a period of 24 months. The Company had accrued a total of $44,442 that included an estimate for penalties and interest. The IRS has agreed to waive the charge for penalties and interest provided the Company submits a written request to the IRS for waiver of penalties and interest. The Company has submitted a request for waiver of penalties and interest, and is awaiting for approval. The monthly payment of $756 has been deferred by the IRS pending resolution of the Company's waiver request. Management has reduced the payroll tax liability by $26,312 as a change in estimate, which is reflected in selling, general and administrative line item on the consolidated statements of operations for the nine months ended June 30, 2016. The Company has included this unpaid payroll taxes obligation of $18,130 in accrued expenses on the balance sheet at June 30, 2016.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
NOTE 4 - Notes Payable
Notes payable consists of:
|
|
June 30,
2016
|
|
|
September 30,
2015
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to individual, unsecured, 5% interest, due March 31, 2017
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
Note payable to individual, unsecured, 5% interest, due March 31, 2017
|
|
|
68,000
|
|
|
|
68,000
|
|
|
|
|
|
|
|
|
|
|
Note payable to individual, unsecured, 5% interest, due March 31, 2017
|
|
|
7,500
|
|
|
|
7,500
|
|
|
|
|
|
|
|
|
|
|
Note payable to bank, secured, week day payment of $481.14 for 330 weekdays
|
|
|
141,454
|
|
|
|
-
|
|
|
|
|
266,954
|
|
|
|
125,500
|
|
Less: Debt discount
|
|
|
(43,900
|
)
|
|
|
-
|
|
|
|
$
|
223,054
|
|
|
$
|
125,500
|
|
|
|
|
|
|
|
|
|
|
Notes payable - current portion, net of debt discount of $37,927
|
|
$
|
209,783
|
|
|
$
|
-
|
|
Notes payable - long term portion, net of debt discount of $5,973
|
|
$
|
13,271
|
|
|
$
|
125,500
|
|
On January 9, 2015, the Company and the individual debt holder of the three promissory notes (then totaling $133,000) mutually agreed to extend the payment due date of these promissory notes due on March 31, 2015 to March 31, 2017.
On May 9, 2016, the Company entered into a Business Loan Agreement ("Loan Agreement") with a bank and received cash proceeds of $109,500. The loan is secured by the assets of the Company, and requires the Company to make a weekday payment of $481.14 for 330 weekdays. The Loan Agreement specifically requires the Company to use the cash proceeds solely for its working capital needs and not to be used for funding dividends or distributions to shareholders. The Company is in violation of the terms of Loan Agreement since the Company used to cash proceeds received to fund officer's compensation.
The Company has recorded a total interest expense of $6,944 and $10,082 for the three months and nine months ended June 30, 2016, and $3,325 and $9,975 for the three months and nine months ended June 30, 2015, respectively.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
NOTE 5 – Commitments and Contingencies
Operating Lease
The Company leases real property in Costa Mesa, California, under an operating lease which commenced on August 1, 2014 for a term of thirty-six (36) months and expires on July 31, 2017. During the lease term, the Company shall pay an initial monthly base rent of $1,843 plus its share of monthly direct expense charge of $566 for a total initial monthly rent of $2,409 for a period of twelve (12) months. The monthly base rent will increase to $1,899 commencing August 1, 2015 and continuing through July 31, 2016, and to $1,956 commencing August 1, 2016 and continuing through July 31, 2017, respectively. The monthly direct expense charge is subject to adjustment pursuant to the terms of the lease. The Company paid a security deposit of $6,270 upon execution of the lease.
On September 25, 2015, the Company executed another leased property in Costa Mesa, California, under an operating lease which commenced on October 1, 2015 for a term of twenty (20) months that expires on July 31, 2017. During the first twelve months of the lease term, the Company shall pay a monthly base rent of $712 plus its share of monthly common area maintenance charge of $120 for a total monthly commitment of $832. Thereafter, starting October 1, 2016, the monthly base rent will increase to $741 plus monthly share of common are maintenance of $120 for a total monthly commitment of $861. The Company paid a security deposit of $861 on this lease.
On January 7, 2016, the Company agreed to lease a real property in Greenville, South Carolina, under an operating lease arrangement for a thirty-six (36) months term commencing April 1, 2016 for a monthly base rent of $900 and an additional monthly charge of $125 for common area maintenance. The Company paid a security deposit of $1,025 and the lease expires on March 31, 2019.
On June 27, 2016, the Company entered into an operating lease whereby, the Company sub-leased an office space from a third party effective June 1, 2016, at a monthly rent of $1,400 for a period of twenty-five (25) months. The Company paid a security deposit of $1,400 and the sub-lease expires on June 30, 2018.
The total rent expense including common area maintenance charges was $18,741 and $46,810, for the three months and nine months ended June 30, 2016 compared to $7,229 and $21,687 for the three months and nine months ended June 30, 2015. The minimum future payment commitment for the lease property is summarized below:
For the year ending September 30:
|
|
Payments
|
|
2016 (balance of the year)
|
|
$
|
17,280
|
|
2017
|
|
|
62,926
|
|
2018
|
|
|
24,900
|
|
2019
|
|
|
6,150
|
|
Total
|
|
$
|
111,256
|
|
Legal Matters
From time to time the Company may become a party to litigation matters involving claims against the Company. Management believes that there are no current matters that would have a material effect on the Company's financial position or results of operations.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
NOTE 6 – Purchase Commitments
The Company received $430,000 in advances from a manufacturer and a distributor for anticipated rebates from purchases of paint and related products. In exchange for the advanced funds, the Company agreed to exclusively purchase paint and related products from the manufacturer and the distributor over a five and seven year period commencing in 2007 up to a certain dollar volume amount (the "Rebate Agreement(s)"). The Company initially recorded the amount of the advances as a liability on the balance sheet under "Purchase commitments". Based on the volume of products purchased by the Company, this liability is reduced on a pro-rata basis. The Company has not purchased the volume of products at the rate anticipated in the Rebate Agreements. Based on the amount of products purchased to date by the Company, the remaining amount of the rebates advanced is $366,824 and $369,547 as of June 30, 2016 and September 30, 2015, respectively.
The total dollar amount of products the Company is required to buy under the Rebate Agreement from the distributor was $4,200,000. The Company's original distributor ceased operations and sold its business to the Company's current distributor, and management believes the Rebate Agreement was assigned to the current distributor. The Rebate Agreement with the distributor expired in November 2012. Management is still operating under the same contractual terms of the agreement as if it is still effective. The Company has previously made an effort to contact the current distributor regarding its purchase commitments. Management anticipates they will be able to successfully negotiate a revised agreement to fulfill the purchase commitment or obtain a concession from the distributor as the Company is currently purchasing products in the ordinary course of business. In the event the Company cannot negotiate a satisfactory agreement, other vendors exist in the market to purchase these products and management believes there would be no significant impact on the Company's operations. If the Company is unable to negotiate an extension or concessions to repay the obligation, the Company may incur legal costs of litigation for breach of contract.
The total dollar amount of products the Company is required to buy under the Rebate Agreement from the manufacturer was $1,780,000. The contract with the manufacturer expired in November 2014. Management is still operating under the same contractual terms of the agreement as if it is still effective. The Company has previously made an effort to contact the current manufacturer regarding its purchase commitments. If the Company cannot fulfill the purchase obligation, management anticipates they will be able to negotiate a time extension to fulfill the purchase commitment. If the Company is unable to negotiate extensions or concessions to repay the obligation, the Company may incur legal costs of litigation for breach of contract.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
NOTE 7 – Related Party Transactions
Transactions with the Shareholder
Cash received by the principal shareholder/Officer has been recorded as compensation to officer. The Company has recorded $189,342 and $257,525 as compensation expense for the three months and nine months ended June 30, 2016, and $29,995 and $87,357 for the three months and nine months ended June 30, 2015, respectively. In addition, the same officer provided a short-term advance to the Company in the amount of $600 as of June 30, 2016 and $500 as of September 30, 2015, towards its working capital requirements (See Note 4).
Purchases and Advances from Affiliated Entity
The Company had purchased its paintless repair tools in the past from Dent Tools Direct ("Dent Tools"), a previously affiliated entity through common ownership. On January 17, 2014, the principal shareholder of the Company divested his ownership interest in Dent Tools for $1 consideration. The Company purchased no tools from Dent Tools for the three months and nine months ended June 30, 2016, and $0 and $102,579 of tools for the three months and nine months ended June 30, 2015, respectively, of which no amounts were outstanding as payables at June 30, 2016 and September 30, 2015, respectively.
On January 4, 2013, DKTI entered into a licensing agreement with Dent Tools whereby, DKTI granted an exclusive license to Dent Tools to sell Dent Tools merchandise online under the Ding King name and logo on the DKTI website. Dent Tools agreed to pay DKTI a royalty of $300,000 over a 24 month period. The payment terms agreed for licensing were a monthly payment of $20,000 for the calendar year 2013 for a total of $240,000, and the remaining balance of $60,000 to be paid at the monthly amount of $5,000 over the next twelve months. In addition, Dent Tools agreed to settle on behalf of DKTI a note payable to an individual in the amount of $25,000 in lieu of payment towards the licensing fee during the year ended September 30, 2014. On September 15, 2014, DKTI and Dent Tools renewed their licensing agreement whereby Dent Tools agreed to pay cash or sell product in advance $95,000 in licensing fees for the twelve months period starting January 1, 2015 to December 31, 2015. The Company received the licensing fee of $95,000 as of December 31, 2014 with $13,798 in cash and $81,202 in settlement for purchase of tools and accessories from Dent Tools.
The Company has recorded $0 and $23,750 in licensing revenues for the three months and nine months ended June 30, 2016, and $23,750 and $62,500 in licensing revenues for the three months and nine months ended June 30, 2015, respectively. As the license agreement expired on December 31, 2015, all revenue has been recognized. The Company currently has no license agreement in place to provide future revenues.
mLight Tech, Inc. and Subsidiary
Notes to the Consolidated Financial Statements
June 30, 2016 and 2015
(Unaudited)
NOTE 8 – Stockholders' Equity
The Company's capitalization at June 30, 2016 was 300,000,000 authorized common shares with a par value of $0.0001 per share.
On February 8, 2013, mLight's board of directors authorized a 20 for 1 forward split. The record date of the split was February 26, 2013 and the effective date was February 27, 2013. After the split, the total issued and outstanding shares were 204,000,000. All prior period shares and per share calculations in these financial statements and elsewhere in this report have been retroactively adjusted to reflect this stock split.
On August 1, 2013, in a private transaction, Todd Sudeck, the sole director and officer of the Company, acquired a total of 180,000,000 shares of the Company's common stock from Edward Sanders, the Company's former director and officer and principal shareholder. Mr. Sudeck's 180,000,000 shares amount to approximately 88.24% of the Company's currently issued and outstanding common stock.
On October 31, 2013, the Company acquired all 100% of the issued and outstanding capital stock of the Ding King Training Institute, Inc. by issuing 2,500,000 shares of its common stock valued at $250. The acquisition is being accounted as recapitalization. At the closing of the acquisition, the Company recorded an increase in common stock of $15,400 as a result of recapitalization.
As a result of all stock issuances, the Company has 206,500,000 shares of common stock issued and outstanding at June 30, 2016 and September 30, 2015, respectively.
NOTE 9 – Subsequent Events
Management has evaluated subsequent events through the date of this filing, noting no items that would impact the accounting for events or transactions in the current period or require additional disclosure.