Table of Contents
As filed with the Securities and Exchange Commission on June 19,
2017
Registration No. 333-208968
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Post-Effective
Amendment No. 1 to
FORM S-1
REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OF 1933
ILLUMINATION AMERICA, INC.
(Exact name of registrant as specified in
its charter)
Florida
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3646
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27-1073696
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(State or other jurisdiction of
Incorporation or organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification No.)
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2060 NW Boca Raton Blvd., #6
Boca Raton, FL 33431
561-997-7270
(Address, including zip code, and telephone
number, including area code,
of registrant’s principal executive
offices)
Ismael Llera, President
ILLUMINATION AMERICA, INC.
2060 NW Boca Raton Blvd., #6
Boca Raton, FL 33431
561-997-7270
(Name, address, including
zip code, and telephone number, including area code, of agent for service)
Copies to:
Andrew I. Telsey, Esq.
Andrew I. Telsey, P.C.
12835 E. Arapahoe Road
Tower I Penthouse #803
Centennial, CO 80112
Tel: (303) 768-9221
As soon as practicable after the effective
date of this Registration Statement
(Approximate date
of commencement of proposed sale to the public)
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933, check the following box:
x
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering:
o
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering.
o
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check
one):
o
Large
accelerated filer
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o
Accelerated
filer
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o
Non-accelerated
filer (Do not check if a smaller reporting company)
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x
Smaller
reporting company
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(Do not check if a smaller
reporting company)
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x
Emerging
growth company
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|
|
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If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
o
CALCULATION
OF REGISTRATION FEE
Title
of Each Class of Securities
to
be Registered
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Amount
to be
Registered
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Proposed
Maximum
Offering
Price Per Share
(1)
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Proposed
Maximum
Aggregate
Offering
Price
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Amount
of
Registration
Fee
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|
|
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|
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Common
Stock,
Par
value $0.001 per share
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2,485,432
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$0.78
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$1,938,637
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$195.22*
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__________________
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(1)
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Estimated
solely for purposes of calculating the registration fee in accordance with Rule 457(a) under the Securities Act of 1933.
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*
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Previously paid by the Company.
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THE REGISTRANT
HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN
ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH
DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a), MAY DETERMINE.
EXPLANATORY NOTE
On January 12, 2016, we filed with the
Securities and Exchange Commission (the “SEC”) a Registration Statement on Form S-1 (File No. 333-208968) (the “Registration
Statement”), which was subsequently amended on March 3, 2016 (the “Amendment No. 1), March 29, 2016 (the “Amendment
No. 2”) and April 5, 2016 (the “Amendment No. 3”), and declared effective on April 6, 2016. The Form S-1 was
filed to register the resale by the selling stockholders (collectively referred to as the “Selling Stockholders”)
named in the prospectus included in the Form S-1 of up to an aggregate of 2,485,432 shares of our Common Stock, par value $0.001
per share.
This Post-Effective Amendment No. 1
is being filed to update the Registration Statement to include information from our Annual Report on Form 10-K for the year ended
December 31, 2016, filed with the SEC on March 27, 2017, and Quarterly Report on Form 10-Q for the period ended March 31, 2017
(the “March 2017 10-Q”), filed with the SEC on May 10, 2017, and incorporate by reference the Current Reports on Form
8-K filed since April 5, 2016 to the date of this filing.
Since the effectiveness of the Registration
Statement, none of the Selling Shareholders have sold any of the shares registered hereunder. As such, the share information contained
in this Post-Effective Amendment No. 1, including the table of Calculation of Registration Fee and the table of Selling Stockholder,
has not been updated.
All filing fees payable in connection with
the registration of the shares of common stock covered by this Post-Effective Amendment No. 1 were paid by us at the time
of the initial filing of the Registration Statement.
The
information in this prospectus is not complete and may be changed. We may not sell these securities until the Securities and Exchange
Commission declares our registration statement effective. This prospectus is not an offer to sell these securities and is not
soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
Prospectus
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Subject to Completion, dated June 19, 2017
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2,485,432 Shares of Common Stock
This Prospectus relates to the offer and
sale of up to 2,485,432 shares of our Common Stock (“Common Stock”) held by Selling Stockholders listed beginning on
page 20 of this Prospectus (the “Selling Stockholders”), (the “Offering”).
See
“SELLING STOCKHOLDERS.”
The Selling Stockholders may sell their
shares of our Common Stock (the “Shares”) from time to time at the initial price of $0.78 per share until our Common
Stock is quoted on the OTCQB and thereafter at prevailing market prices or privately negotiated prices. Each Selling Stockholder
may be an underwriter within the meaning of Section 2(a)(11) of the Securities Act.
See
“DETERMINATION OF OFFERING
PRICE,” “SELLING STOCKHOLDERS” and “PLAN OF DISTRIBUTION.”
We will pay the expenses of registering
these Shares. We will not receive any proceeds from the sale of Shares of Common Stock in this Offering. All of the net proceeds
from the sale of the Shares will go to the Selling Stockholders. The Selling Shareholders are expected to receive aggregate net
proceeds of approximately $1,938,637 from the sale of their Shares (approximately $0.78 per share).
We received approval from the OTCQB Market
to trade our common stock under the ticker symbol of “ILLU” as of October 10, 2016, but have not yet commenced trading.
There is no guarantee that any sustained trading market will develop in the future.
This Prospectus is part of a registration statement
that we have filed with the US Securities and Exchange Commission. Prior to filing of our registration statement, we were not a
reporting company under the Securities Exchange Act of 1934, as amended. Following the effectiveness of our registration statement,
we became subject to the reporting requirements under the aforesaid Act.
We are an “emerging growth company”
as defined under the federal securities laws and are subject to reduced public company reporting requirements.
Investing in our Common Stock involves
a high degree of risk. You should invest in our Common Stock only if you can afford to lose your entire investment.
SEE
“RISK FACTORS” BEGINNING
ON PAGE 4.
The information in this Prospectus is not
complete and may be changed. This Prospectus is included in the registration statement that was filed by Illumination America,
Inc. with the Securities and Exchange Commission. The Selling Stockholders may not sell these Shares until the registration statement
becomes effective. This Prospectus is not an offer to sell these Shares and is not soliciting an offer to buy these Shares in any
State where the offer or sale is not permitted.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined
if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this Prospectus is ____________,
201_
TABLE OF CONTENTS
PROSPECTUS SUMMARY
This summary provides an overview
of certain information contained elsewhere in this Prospectus and does not contain all of the information that you should consider
or that may be important to you. Before making an investment decision, you should read the entire Prospectus carefully, including
the “RISK FACTORS” section and the financial statements and the notes to the financial statements. In this Prospectus,
the terms “the “Company,” “we,” “us” and “our” refer to Illumination America,
Inc., unless otherwise specified herein.
We were originally formed in the State of Florida
on October 6, 2009 as a limited liability company. On April 24, 2014 we reorganized as a Florida corporation. Since inception we
have been engaged in the design, development, marketing and sales of energy-efficient lighting systems and solutions. Our business
currently involves direct sales of Light Emitting Diode (“LED”) products, including customized resolution of client
lighting issues, which is where we have been generating our revenues to date.
Our current business and intended expansion
include the following:
Purchase of the Assets of Catalyst LED’s LLC
In order to expand our sales efforts, on May
5, 2016, we purchased certain intangible assets including the tradename “Catalyst LED” (“Catalyst”), its
client list, its website domain, list of leads, current pending orders, current bid proposals, and all future orders made under
the Catalyst name, as well as its other unregistered trademarks, and goodwill.
Under the terms agreement we agreed to pay
ForceField Energy Inc., a Nevada corporation, the owner of the assets, $50,000, which was payable in three equal monthly increments
of $16,666, commencing on May 15, 2016. As of the date of this Prospectus, we have made partial payments of $42,934 and currently
owe $7,066 to ForceField, who has agreed to wait to receive the remaining balance until we have enough cash to do so.
During 2016, the purchase of Catalyst helped
to significantly increase our sales over prior year levels, however, the Catalyst products were not profitable. Based on an impairment
analysis we performed at year end, we determined that the $50,000 in intangible assets we recorded when we purchased Catalyst was
fully impaired. As a result we incurred a $50,000 impairment charge for 2016 and wrote off the intangible assets on our balance
sheet as of December 31, 2016. The impairment was primarily attributable due to increased competition in the LED industry which
made the selling of our products more difficult. Given the level of competition in our industry which is expected to increase in
future years, we will more closely examine the prices we pay for future purchases of LED assets should an opportunity materialize.
See “Financial Statements.”
In order to address market trends in the LED
industry and increase our revenue, in 2016 we expanded the markets we offered our products to new customers. Our current business
includes the following:
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·
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Direct Sales of Original Equipment Manufacturer (“OEM”) Products
. To date, all of our revenues have been derived from direct sales earned on products sold by us. These products have been marketed and sold to electrical contractors focusing on large office complexes, arenas, correctional facilities, office warehouses, hospitals and dealerships, schools, churches, real estate investment trusts (REIT’s) among others; and
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·
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Solutions
. We provide our customers with expert advice on how to maximize their savings on electricity usage by installing LED lighting. We do this by analyzing the lighting configuration of a particular location, and by suggesting products that will yield cost savings as well producing lighting quality and color that meets the expectation of our clients
.
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We work with contracted manufacturers from
design to completion insuring the desired results. By partnering with manufacturers we take advantage of their ability to bring
our designs quickly to market thereby relieving ourselves of the heavy investment in machinery and their labor force already in
place.
Based upon our current business plan,
our ability to begin to generate profits from operations is dependent upon our obtaining additional financing and there can be
no assurances that we will ever establish profitable operations. As we pursue our business plan we are incurring significant expenses
without corresponding revenues. In the event that we remain unable to generate significant revenues to pay our operating expenses
we will not be able to achieve profitability or continue operations.
See
“RISK FACTORS.”
In December 2015, we undertook a forward split
of our issued and outstanding Common Stock whereby each share of Common Stock was exchanged for 1.2847603145 shares, with fractional
shares rounded to the nearest round number. All references in the Prospectus to our outstanding Common Shares is presented on a
post-forward split basis, unless indicated otherwise.
During the years ended December 31, 2012, 2013
and 2014, as well as in 2015, we undertook private offerings of our Common Stock wherein we sold an aggregate of 1,569,800 shares
of our Common Stock (1,991,254 shares, post-forward split) for gross proceeds of $1,569,800 ($1.00 per share, $0.78 per share post-split)
to 39 “accredited” investors, as that term is defined under the Securities Act of 1933, as amended. All of the shares
sold in these private offerings are being registered herein.
During the year ended December 31, 2016,
we closed a private offering after accepting subscriptions from four investors and issued 214,744 Units, each Unit consisting
of one share of our Common Stock and one Common Stock Purchase Warrant exercisable to purchase one share of our Common Stock at
an exercise price of $1.00, which Units were sold at a price of $0.78 per Unit for gross proceeds totaling $167,500.
During the three month period ended March 31,
2017, we undertook a new private offering of Units, each Unit consisting of one share of our Common Stock and one Common Stock
Purchase Warrant exercisable to purchase one share of our Common Stock at an exercise price of $1.50, which Units were sold at
a price of $0.75 per Unit. We sold 523,166 Units to six “accredited” investors and received aggregate proceeds of $392,735.
In order to minimize share dilution and to help raise capital to fund our Company, Mr. Marks and Mr. Leiner each voluntarily agreed
to donate up to 1,000,000 of their Company shares back to the Company, donating one share back to the Company for every share of
Common Stock sold by the Company. As of the date of this Prospectus an aggregate of 523,116 shares have been redeemed. No other
individuals donated any capital for the three month period ended March 31, 2017. See “Notes to Financial Statements for the
Three Months Ended March 31, 2017, Note 6. Stockholders Equity.”
During our fiscal years ended December 31,
2016 and 2015, we generated revenues of $734,657 and $206,733 respectively, and incurred net losses of $651,242 in 2016 and $1,199,896
in 2015. Total stockholders’ deficit at December 31, 2016 was $ (372,092). As of December 31, 2016, we had $2,407 in cash.
See
“RISK FACTORS” and “FINANCIAL STATEMENTS.”
Grom Transaction
On May 15, 2017, we entered into a Share Exchange
Agreement with Grom Holdings, Inc. (“Grom”), a Delaware corporation, wherein we have agreed to acquire all of the issued
and outstanding securities of Grom in exchange for the issuance of an aggregate of 103,737,677 shares of our Common Stock (the
“Grom Transaction”). As a result of the issuance of shares of our Common Stock in exchange for the outstanding shares
of Grom, at the Effective Time the stockholders of Grom will become stockholders of our Company and the Grom shareholders will
own approximately 91% of our then issued and outstanding shares of common stock.
A Special Meeting of the Grom Shareholders
has been called for July 7, 2017 for the purpose of obtaining their approval of the transaction. Once obtained, we will file a
registration statement with the SEC on Form S-4, unless an exemption from registration is available. The transaction will
become effective upon the filing of a Statement of Share Exchange and Articles of Exchange with the Florida and Delaware Secretary
of State.
The Grom Transaction also requires that we
amend our Articles of Incorporation to increase our capitalization to 200,000,000 shares of Common Stock authorized, as well as
to change our name to “Grom Holding Corp,” or such other name as may be acceptable to both our Board of Directors and
the Florida Secretary of State. The holders of a majority of our issued and outstanding Common Shares have adopted resolutions
approving such amendments.
If and when effective, Grom will become a wholly
owned subsidiary of our Company. All of the members of our Board of Directors, who are also the Board of Directors of Grom, will
remain and Darren Marks will become our Chief Executive Officer and President and Melvin Leiner will become our Executive Vice
President and Secretary. Our current officers will become officers of a newly formed wholly owned subsidiary, where our existing
LED business will operate.
Our principal offices are located at 2060
NW Boca Raton Blvd., #6, Boca Raton, FL 33431, telephone (561) 997-7270. Our website is www.illuminationamerica.com.
About
The Offering
Common Stock to be Offered by Selling Shareholders
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2,485,432 shares. This number represents approximately 24.2% of the total number of shares outstanding following this Offering.
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Number of shares outstanding before and after the Offering
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10,264,744
(1)
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Use of Proceeds
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We will not receive any proceeds from the sale of the Common Stock.
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Risk Factors
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See the discussion under the caption “RISK FACTORS” and other information in this Prospectus for a discussion of factors you should carefully consider before deciding to invest in our Common Stock.
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_________________________
(1)
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Because we are not selling any of our Common Stock as part of this Offering, the number of issued and outstanding shares of our Common Stock will remain the same following this Offering.
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Selected
Financial Data
The following selected financial data
should be read in conjunction with our financial statements and the related notes to those statements included in “FINANCIAL
STATEMENTS” and with “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS”
appearing elsewhere in this Prospectus. The selected financial data has been derived from our audited and unaudited financial
statements.
Statement of Operations:
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Year Ended December 31,
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2016
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2015
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Revenues
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$
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734,657
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$
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206,733
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Total operating expenses
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$
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829,543
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$
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1,254,293
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Income (Loss) from operations
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$
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(687,309
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)
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$
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(1,225,216
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)
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Related Party - Other income (expense)
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$
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28,991
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$
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25,320
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Provision for income tax
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–
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$
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–
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Net income (loss)
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$
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(651,242
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)
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$
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(1,199,896
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)
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Net income (loss) per share – (basic and fully diluted)
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$
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(0.06
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)
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$
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(0.14
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)
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Weighted common shares outstanding
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10,077,781
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8,698,310
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Balance Sheet:
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Year Ended December 31,
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2016
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2015
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Cash
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$
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2,407
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$
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107,673
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Current assets
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$
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120,918
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$
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163,854
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Total assets
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$
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124,237
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$
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163,854
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Current liabilities
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$
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496,329
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$
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91,204
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Total liabilities
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$
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496,329
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$
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91,204
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Total stockholders’ (deficit) equity
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$
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(372,092)
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|
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$
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72,650
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|
SPECIAL NOTE ABOUT FORWARD-LOOKING STATEMENTS
We have made some statements in this Prospectus,
including some under “RISK FACTORS,” “MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS,” “DESCRIPTION OF BUSINESS” and elsewhere, which constitute forward-looking statements. These statements
may discuss our future expectations or contain projections of our results of operations or financial condition or expected benefits
to us resulting from acquisitions or transactions and involve known and unknown risks, uncertainties and other factors that may
cause our actual results, levels of activity, performance or achievements to be materially different from any results, levels of
activity, performance or achievements expressed or implied by any forward-looking statements. These factors include, among other
things, those listed under “RISK FACTORS” and elsewhere in this Prospectus. In some cases, forward-looking statements
can be identified by terminology such as “may,” “should,” “could,” “expects,” “intends,”
“plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential”
or “continue” or the negative of these terms or other comparable terminology. Although we believe that the expectations
reflected in forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or
achievements.
RISK FACTORS
An investment in our Common Stock
is a risky investment. In addition to the other information contained in this Prospectus, prospective investors should carefully
consider the following risk factors before purchasing shares of our Common Stock offered hereby. We believe that we have included
all material risks.
Risks Related to Our
Business
Our independent accountants have expressed a "going
concern" opinion.
Our financial statements accompanying this
Prospectus have been prepared assuming that we will continue as a going concern, which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. The financial statements do not include any adjustment that might
result from the outcome of this uncertainty. We have a minimal operating history and minimal revenues or earnings from operations.
We have no significant assets or financial resources. We will, in all likelihood, sustain operating expenses without corresponding
revenues for the immediate future.
See
“DESCRIPTION OF BUSINESS” and “MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –
Liquidity and Capital
Resources
.” There are no assurances that we will generate profits from operations.
We have not generated profits from
our operations.
We incurred net losses of $651,242 in
2016 and $1,199,896 in 2015. Based upon our current business plan, our ability to begin to generate profits from operations is
dependent upon our obtaining additional financing and there can be no assurances that we will ever establish profitable operations.
As we pursue our business plan, we are incurring significant expenses without corresponding revenues. In the event that we remain
unable to generate significant revenues to pay our operating expenses, we will not be able to achieve profitability or continue
operations.
Our ability to continue as a going
concern is dependent on raising additional capital, which we may not be able to do on favorable terms, or at all.
We need to raise additional
capital to support our current operations and fund our sales and marketing programs. We estimate that we will need
approximately up to $2,000,000 in additional capital in order to generate profits from operations. We can provide no
assurance that additional funding will be available on a timely basis, on terms acceptable to us, or at all. If we are
unsuccessful in raising additional funding, our business may not continue as a going concern. Even if we do find additional
funding sources, we may be required to issue securities with greater rights than those currently possessed by holders of our
Common Stock. We may also be required to take other actions that may lessen the value of our Common Stock or dilute our
common stockholders, including borrowing money on terms that are not favorable to us or issuing additional equity securities.
If we experience difficulties raising money in the future, our business and liquidity will be materially adversely affected.
See
“MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS –
Liquidity
and Capital Resources
,” below.
We do not currently have an external
line of credit facility with any financial institution.
As indicated above, we have estimated
that we need up to approximately $2,000,000 in additional capital to generate profits from operations. We have attempted to establish
credit facilities with financial institutions but have experienced little or no success in these attempts due primarily to the
current economic climate, specifically the reluctance of most financial institutions to provide such lines of credit to relatively
new business ventures. We also have limited assets available to secure such a line of credit. We intend to continue to attempt
to establish an external line of credit in the future, but there can be no assurances we will be able to do so. The failure to
obtain an external line of credit could have a negative impact on our ability to generate profits.
Our financial results may fluctuate
from period to period as a result of several factors which could adversely affect our stock price.
Our operating results may fluctuate significantly
in the future as a result of a variety of factors, many of which are outside our control. Factors that will affect our financial
results include:
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•
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acceptance of our products and market penetration;
|
|
•
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the amount and timing of capital expenditures and other costs relating to the implementation of our business plan;
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•
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the introduction of new products by our competitors;
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|
•
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general economic conditions and economic conditions specific to our industry.
|
As a strategic response to changes in the competitive environment,
we may from time to time make certain pricing, service, or marketing decisions or acquisitions that could have a material adverse
effect on our business, prospects, financial condition, and results of operations.
We are dependent upon third party suppliers of our products.
We are dependent on our foreign and domestic
partners for our supplies of LED products. While we believe that there are numerous potential sources of LED products available,
if these manufacturers were to cease production or otherwise fail to supply us with quality product in sufficient quantities on
a timely basis and we were unable to contract on acceptable terms for these products with alternative manufacturers it would have
a material adverse effect on our business.
If we fail to retain our key personnel
or if we fail to attract additional qualified personnel, we may not be able to achieve our anticipated level of growth and our
business could suffer.
Our future success and ability to implement
our business strategy depends, in part, on our ability to attract and retain key personnel, and on the continued contributions
of members of our senior management team and key technical personnel, each of whom would be difficult to replace. All of our employees,
including our senior management, are free to terminate their employment relationships with us at any time. Competition for highly
skilled technical people is extremely intense, and we face challenges identifying, hiring and retaining qualified personnel in
many areas of our business. If we fail to retain our senior management and other key personnel or if we fail to attract additional
qualified personnel, we may not be able to achieve our strategic objectives and our business could suffer.
Changes in accounting standards and
subjective assumptions, estimates and judgments by management related to complex accounting matters could significantly affect
our financial results.
Generally accepted accounting principles
and related pronouncements, implementation guidelines and interpretations with regard to a wide variety of matters that are relevant
to our business, such as, but not limited to, revenue recognition, stock-based compensation, trade promotions, and income taxes
are highly complex and involve many subjective assumptions, estimates and judgments by our management. Changes to these rules or
their interpretation or changes in underlying assumptions, estimates or judgments by our management could significantly change
our reported results.
If we are unable to build and sustain
proper information technology infrastructure, our business could suffer.
We depend on information technology as
an enabler to improve the effectiveness of our operations and to interface with our customers, as well as to maintain financial
accuracy and efficiency. If we do not allocate and effectively manage the resources necessary to build and sustain the proper
technology infrastructure, we could be subject to transaction errors, processing inefficiencies, the loss of customers, business
disruptions, or the loss of or damage to intellectual property through security breach. Our information systems could also be
penetrated by outside parties’ intent on extracting information, corrupting information or disrupting business processes.
Such unauthorized access could disrupt our business and could result in the loss of assets.
Our new products may not achieve
broad market acceptance, which would prevent us from increasing our revenue and market share.
If we fail to achieve broad market acceptance
of our existing and new products, there could be an adverse impact on our ability to increase our revenue, gain market share, and
achieve and sustain profitability. Our ability to achieve broad market acceptance for existing and additional products will be
impacted by a number of factors, including:
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our ability to timely introduce and complete new designs and timely
qualify and certify our products;
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whether the owners of large industrial or commercial facilities will
continue to be willing to purchase our products given our current size of operations;
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our ability to produce LED lighting systems that compete favorably
against other solutions on the basis of price, quality, design, reliability and performance;
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our ability to choose appropriate products from our suppliers that
we will be able to modify to comply with local standards and regulatory requirements, as well as potential in-country manufacturing
requirements; and
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our ability to continue to develop and maintain successful relationships
with our customers and suppliers.
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In addition, our ability to achieve increased
market share will depend on our ability to increase sales to commercial, residential and industrial facilities. These potential
customers often have in certain cases made substantial investments in other types of lighting systems, which may create challenges
for us to achieve their adoption of our LED solutions.
The LED lighting industry is highly
competitive and we expect to face increased competition as new and existing competitors introduce competing products, which could
negatively impact our results of operations and market share.
Marketing and selling our LED solutions
against traditional lighting solutions is highly competitive, and we expect competition to intensify as new and existing competitors
enter the LED lighting market. We believe that there are possibly a number of companies developing LED and other products that
will compete directly with our LED systems.
Some of our competitors have announced
plans to introduce LED products that could compete with our systems. Several of our existing and potential competitors are significantly
larger, have greater financial, marketing, distribution, customer support and other resources, are more established than we are,
and have significantly better brand recognition. Some of our competitors have more resources to develop or acquire, and more experience
in developing or acquiring, new products and technologies and in creating market awareness for these products and technologies.
Further, certain competitors may be able to develop new products more quickly than we can and may be able to develop products that
are more reliable or which provide more functionality than ours. In addition, some of our competitors have the financial resources
to offer competitive products at aggressive or below-market pricing levels, which could cause us to lose sales or market share
or require us to lower prices for our LED systems in order to compete effectively. If we have to reduce our prices by more than
we anticipated, or if we are unable to offset any future reductions in our average selling prices by increasing our sales volume,
reducing our costs and expenses or introducing new products, our gross profit would suffer.
A drop in the price of electricity
derived from the utility grid or from alternative energy sources may harm our business, financial condition and results of operations.
We believe that a decision to purchase
an LED system is strongly influenced by the cost of electricity. Decreases in the prices of electricity would make it more difficult
for all LED systems to compete. In particular, growth in unconventional natural gas production and an increase in global liquefied
natural gas capacity are expected to keep natural gas prices relatively low for the foreseeable future. Persistent low natural
gas prices, lower prices of electricity produced from other energy sources, such as nuclear power, or improvements to the utility
infrastructure could reduce the retail price of electricity from the utility grid, making the purchase of an LED less economically
attractive and lowering sales of our LED lighting systems. In addition, energy conservation technologies and public initiatives
to reduce demand for electricity also could cause a fall in the retail price of electricity from the utility grid which could negatively
impact our sales.
We depend upon a few manufacturers.
Our operations could be disrupted if we encounter problems with these manufacturers.
We rely primarily upon the products of
third party manufacturers with whom we have entered into agreements to allow us to offer their products on an exclusive basis.
Our reliance on those manufacturers makes us vulnerable to possible capacity constraints and reduced control over component availability,
delivery schedules, manufacturing yields and costs.
The revenues that our manufacturers generate
from our orders may represent a relatively small percentage of their overall revenues. As a result, fulfilling our orders may not
be considered a priority in the event of constrained ability to fulfill all of their customer obligations in a timely manner. In
addition, some of the facilities in which our products are manufactured are located outside of the United States. We believe that
the location of these facilities outside of the United States increases supply risk, including the risk of supply interruptions
or reductions in manufacturing quality or controls.
If our manufacturers were unable or unwilling
to manufacture our products in required volumes and at high quality levels or renew existing terms under supply agreements, we
would have to identify, qualify and select acceptable alternative manufacturers. An alternative contract manufacturer may not be
available to us when needed or may not be in a position to satisfy our quality or production requirements on commercially reasonable
terms, including price. Further, in most instances the products we purchase from any particular manufacturer are proprietary to
that manufacturer and it would not be possible to source the same product from another manufacturer. Any significant interruption
in manufacturing would require us to reduce our supply of products to our customers, which in turn would reduce our revenues, harm
our relationships with our customers, and damage our relationships with our distributors and end customers and cause us to forego
potential revenue opportunities.
If we are unable to effectively develop,
manage and expand our distribution channels for our products, our operating results may suffer.
If we are unable to effectively penetrate
additional business channels or develop alternate channels to ensure our products are reaching the appropriate customer base, our
financial results may be adversely impacted. In addition, if we successfully penetrate or develop these channels, we cannot guarantee
that customers will accept our products or that we will be able to deliver them in the timeline established by our customers.
We will rely on our lighting sales agents
to develop and expand their customer base as well as anticipate demand from their customers. If they are not successful, our growth
and profitability may be adversely impacted.
We will operate in an industry that
is subject to significant fluctuation in supply and demand that affects our LED revenue and profitability.
The LED lighting industry is in the early
stages of adoption and is characterized by constant and rapid technological change, rapid product obsolescence and price erosion,
evolving standards, short product life-cycles, and fluctuations in product supply and demand. The industry has experienced significant
fluctuations, often in connection with, or in anticipation of product cycles and declines in general economic conditions. These
fluctuations have been characterized by lower product demand, production overcapacity, higher inventory levels, and increased pricing
pressure.
The adoption of or changes in government
and/or industry policies, standards or regulations relating to the efficiency, performance or other aspects of LED lighting or
changes in government and/or industry policies, standards or regulations that discourage the use of certain traditional lighting
technologies, could impact the demand for our LED products.
The adoption of or changes in government
and/or industry policies, standards or regulations relating to the efficiency, performance or other aspects of LED lighting may
impact the demand for our LED products. Demand for our LED products may also be impacted by changes in government and/or industry
policies, standards or regulations that discourage the use of certain traditional lighting technologies. For example, the Energy
Independence and Security Act of 2007 in the United States imposed constraints on the sale of incandescent lights which began in
2012. These constraints may be eliminated or delayed by legislative action, which could have a negative impact on demand for our
products.
Depressed general economic conditions,
including the strength of the construction market, may adversely affect our operating results and financial condition.
Our business is sensitive to changes in
general economic conditions, both inside and outside the United States. An economic downturn may adversely impact our business.
Sales of our lighting products depend significantly upon the level of new building and renovation construction, which is affected
by commercial and housing market trends, interest rates and the weather. In addition, due to the seasonality of construction and
the sales of lighting products, our revenue and income have tended to be significantly lower in the first quarter of each year.
We may experience substantial fluctuations in our operating results from period to period as a consequence of these factors. Slow
growth in the economy or an economic downturn could adversely affect our ability to meet our working capital requirements and growth
objectives, or could otherwise adversely affect our business, financial condition and results of operations. As a result, any general
or market-specific economic downturns, particularly those affecting new building construction and renovation, or that cause end-users
to reduce or delay their purchases of lighting products, services, or retrofit activities, would have a material adverse effect
on our business, cash flows, financial condition and results of operations.
Our operating results may fluctuate
due to factors that are difficult to forecast and not within our control.
Our past operating results may not be accurate
indicators of future performance, and you should not rely on such results to predict our future performance. Our operating results
have fluctuated significantly in the past, and could fluctuate in the future. Factors that may contribute to fluctuations include:
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changes in aggregate capital spending, cyclicality and other economic
conditions, or domestic and international demand in the industries we serve;
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our ability to effectively manage our working capital;
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our ability to satisfy consumer demands in a timely and cost-effective
manner;
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pricing and availability of labor and materials;
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our inability to adjust certain fixed costs and expenses for changes
in demand;
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seasonal fluctuations in demand and our revenue; and
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disruption in component supply from foreign and or domestic vendors.
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If LED lighting technology fails
to gain widespread market acceptance or we are unable to respond effectively as new lighting technologies and market trends emerge,
our competitive position and our ability to generate revenue and profits may be harmed.
To be successful, we depend on continued
market acceptance of existing LED technology. Although adoption of LED lighting continues to grow, the use of LED lighting products
for general illumination is in its early stages, is still limited and faces significant challenges. Potential customers may be
reluctant to adopt LED lighting products as an alternative to traditional lighting technology because of its higher initial cost
or perceived risks relating to its novelty, reliability, usefulness, light quality, and cost-effectiveness when compared to other
established lighting sources available in the market. Changes in economic and market conditions may also affect the marketability
of some traditional lighting technologies such as declining energy prices in certain regions or countries may favor existing lighting
technologies that are less energy efficient, reducing the rate of adoption for LED lighting products in those areas. Even if LED
lighting products continue to achieve performance improvements and cost reductions, limited customer awareness of the benefits
of LED lighting products, lack of widely accepted standards governing LED lighting products, and customer unwillingness to adopt
LED lighting products in favor of entrenched solutions could significantly limit the demand for LED lighting products and adversely
impact our results of operations. In addition, we will need to keep pace with rapid changes in LED technology, changing customer
requirements, new product introductions by competitors, and evolving industry standards, any of which could render our existing
products obsolete if we fail to respond in a timely manner. Development of new products incorporating advanced technology is a
complex process subject to numerous uncertainties. We have previously experienced, and could in the future experience, delays in
the introduction of new products. If effective new sources of light other than LEDs are discovered, our current products and technologies
could become less competitive or obsolete. If others develop innovative proprietary lighting technology that is superior to ours,
or if we fail to accurately anticipate technology and market trends, respond on a timely basis with our own development of new
products and enhancements to existing products, and achieve broad market acceptance of these products and enhancements, our competitive
position may be harmed and we may not achieve sufficient growth in our net sales to attain or sustain profitability.
If we are unable to manage any future
growth effectively, our profitability and liquidity could be adversely affected.
Our ability to achieve our desired growth
depends on our execution in functional areas such as management, sales and marketing, and general administration and operations.
To manage any future growth, we must continue to improve our distribution, operational and financial processes and systems and
expand, train and manage our employee base. If we are unable to manage our growth effectively, our business and results of operations
could be adversely affected.
If we are not able to compete effectively
against companies with greater resources, our prospects for future success will be jeopardized.
The lighting industry is highly competitive.
In the high performance lighting markets in which we sell our advanced lighting systems, our products compete with lighting products
utilizing traditional lighting technology provided by many vendors. Additionally, in the advanced lighting markets in which we
have primarily competed to date, competition has largely been fragmented among a number of small manufacturers. However, some of
our competitors, particularly those that offer traditional lighting products, are larger, established companies with greater resources
to devote to research and development, manufacturing and marketing, as well as greater brand recognition.
Moreover, we expect to encounter competition
from an even greater number of companies in the general lighting market. Our competitors are expected to include the large, established
companies in the general lighting industry, such as GE, Inc., Osram Sylvania, CREE, Inc. and Royal Philips Electronics. Each of
these competitors has undertaken initiatives to develop LED technology. These companies have global marketing capabilities and
substantially greater resources to devote to research and development and other aspects of the development, manufacture and marketing
of LED lighting products than we possess. The relatively low barriers to entry into the lighting industry and the limited proprietary
nature of many lighting products also permit new competitors to enter the industry easily.
In each of our markets, we also anticipate
the possibility that LED manufacturers, including those that currently supply us with LEDs, may seek to compete with us. Our competitors’
lighting technologies and products may be more readily accepted by customers than our products. Moreover, if one or more of our
competitors or suppliers were to merge with one another, the change in competitive landscape could adversely affect our competitive
position. Additionally, to the extent that competition in our markets intensifies, we may be required to reduce our prices in order
to remain competitive. If we do not compete effectively, or if we reduce our prices without making commensurate reductions in our
costs, our net sales and profitability and our future prospects for success may be harmed.
We depend on independent sales representatives
for a substantial portion of our net sales, and the failure to manage our relationships with these third parties, or the termination
of these relationships, could cause our net sales to decline and harm our business.
We rely significantly on indirect sales
channels to market and sell our products. Most of our products are sold through third-party independent sales representatives.
In addition, these parties provide technical sales support to end-users. Our current agreements within these sales channels are
generally non-exclusive, meaning they can sell products of our competitors. We anticipate that any such agreements we enter into
in the future will be on similar terms. Furthermore, our agreements are generally short-term, and can be cancelled by these sales
channels without significant financial consequence. We cannot control how these sales representatives perform and cannot be certain
that we or end-users will be satisfied by their performance. If these sales representatives significantly change their focus away
from us, or change their historical pattern of selling products from us, there could be a significant impact on our net sales and
profits.
Our products could contain defects
or they may be installed or operated incorrectly, which could reduce sales of those products or result in claims against us.
Despite product testing, defects may be
found in our existing or future products. This could result in, among other things, a delay in the recognition or loss of net sales,
loss of market share, or failure to achieve market acceptance. These defects could cause us to incur significant warranty, support
and repair costs, divert the attention of our engineering personnel from our product development efforts, and harm our relationship
with our customers. The occurrence of these problems could result in the delay or loss of market acceptance of our lighting products
and would likely harm our business. Some of our products use line voltages (such as 120 or 277 AC), which involve enhanced risk
of electrical shock, injury or death in the event of a short circuit or other malfunction. Defects, integration issues or other
performance problems in our lighting products could result in personal injury or financial or other damages to end-users or could
damage market acceptance of our products. Our customers and end-users could also seek damages from us for their losses. A product
liability claim brought against us, even if unsuccessful, would likely be time consuming and costly to defend.
The cost of compliance with environmental,
health and safety laws and regulations could adversely affect our results of operations or financial condition.
We are subject to a broad range of environmental,
health, and safety laws and regulations. These laws and regulations impose increasingly stringent environmental, health, and safety
protection standards and permitting requirements regarding, among other things, air emissions, wastewater storage, treatment, and
discharges, the use and handling of hazardous or toxic materials, waste disposal practices, the remediation of environmental contamination,
and working conditions for our employees. Some environmental laws, such as Superfund, the Clean Water Act, and comparable laws
in U.S. states and other jurisdictions world-wide, impose joint and several liability for the cost of environmental remediation,
natural resource damages, third party claims, and other expenses, without regard to the fault or the legality of the original conduct,
on those persons who contributed to the release of a hazardous substance into the environment. We may also be affected by future
laws or regulations, including those imposed in response to energy, climate change, geopolitical, or similar concerns. These laws
may impact the sourcing of raw materials and the manufacture and distribution of our products and place restrictions and other
requirements on the products that we can sell in certain geographical locations.
We believe that certification and
compliance issues are critical to adoption of our lighting systems, and failure to obtain such certification or compliance would
harm our business.
We are required to comply with certain
legal requirements governing the materials in our products. Although we are not aware of any efforts to amend any existing legal
requirements or implement new legal requirements in a manner with which we cannot comply, our net sales might be adversely affected
if such an amendment or implementation were to occur.
Moreover, although not legally required
to do so, we strive to obtain certification for substantially all our products. In the United States, we seek certification on
substantially all of our products from Underwriters Laboratories (UL®) or Intertek Testing Services (ETL®). Although we
believe that our broad knowledge and experience with electrical codes and safety standards have facilitated certification approvals,
we cannot ensure that we will be able to obtain any such certifications for our new products or that, if certification standards
are amended, that we will be able to maintain such certifications for our existing products. Moreover, although we are not aware
of any effort to amend any existing certification standard or implement a new certification standard in a manner that would render
us unable to maintain certification for our existing products or obtain ratification for new products, our net sales might be adversely
affected if such an amendment or implementation were to occur.
Failure to effectively estimate employer-sponsored
health insurance premiums and incremental costs due to the Affordable Healthcare Act could materially and adversely affect our
results of operations, financial position, and cash flows.
In March 2010, the United States federal
government enacted comprehensive health care reform legislation, which, among other things, includes guaranteed coverage requirements,
eliminates pre-existing condition exclusions and annual and lifetime maximum limits, restricts the extent to which policies can
be rescinded, and imposes new taxes on health insurers, self-insured companies, and health care benefits. The legislation imposes
implementation effective dates that began in 2010 and extend through 2020 with many of the changes requiring additional guidance
from federal agencies and regulations. Possible adverse effects could include increased costs, exposure to expanded liability,
and requirements for us to revise the ways in which healthcare and other benefits are provided to employees. We continue to monitor
the potential impacts the health care reform legislation will have on our financial results.
We may be subject to legal claims
against us or claims by us which could have a significant impact on our resulting financial performance.
At any given time, we may be subject to
litigation, the disposition of which may have an adverse effect upon our business, financial condition, or results of operation.
Such claims include but are not limited to and may arise from product liability and related claims in the event that any of the
products that we sell is faulty or contains defects in materials or design. We may be subject to patent infringement claims from
our products. In addition, we may be subject to claims by our lenders, claims for rent, and claims from our vendors on our accounts
payable; and although we have been able to obtain understandings with the foregoing and have informal forbearance agreements from
those parties, one or more of them may elect to commence collection proceedings which could result in judgments against us and
have a significant negative impact on our operations.
The requirements of being a public
company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management
and qualified board members.
As a public company, we are subject to
the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the
Dodd-Frank Act, and other applicable securities rules and regulations. Compliance with these rules and regulations increases our
legal and financial compliance costs, make some activities more difficult, time-consuming or costly, and increase demand on our
systems and resources, particularly after we are no longer an “emerging growth company,” as defined in the Jumpstart
our Business Startups Act, or the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly and current
reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain
effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required,
improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant
resources and management oversight may be required. As a result, management’s attention may be diverted from other business
concerns which could adversely affect our business and operating results. We may need to hire more employees in the future or engage
outside consultants who will increase our costs and expenses.
In addition, changing laws, regulations
and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend
to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general
and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory
or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings
against us and our business may be adversely affected.
However, for as long as we remain an “emerging
growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to public
companies that are not “emerging growth companies” including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our periodic
reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation
and shareholder approval of any golden parachute payments not previously approved. We may take advantage of these reporting exemptions
until we are no longer an “emerging growth company.”
We would cease to be an “emerging
growth company” upon the earliest of: (i) the first fiscal year following the fifth anniversary of our becoming a reporting
company, (ii) the first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have,
during the previous three-year period, issued more than $1.0 billion in non-convertible debt securities, or (iv) as of the end
of any fiscal year in which the market value of our Common Stock held by non-affiliates exceeded $75 million as of the end of the
second quarter of that fiscal year.
We also expect that being a public company
and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and
we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also
make it more difficult for us to attract and retain qualified members of our board of directors, particularly to serve on our audit
committee and compensation committee, and qualified executive officers.
As a result of disclosure of information
in this Prospectus and in future filings required of a public company, our business and financial condition will become more visible,
which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims
are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation
or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of
our management and adversely affect our business and operating results.
We are an “emerging growth
company” and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies will make
our Common Stock less attractive to investors.
We are an “emerging growth company,”
as defined in the JOBS Act, and we may take advantage of certain exemptions from various reporting requirements that are applicable
to public companies that are not “emerging growth companies” including, but not limited to, not being required to comply
with the auditor attestation requirements of Section 404, reduced disclosure obligations regarding executive compensation in our
periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive
compensation and shareholder approval of any golden parachute payments not previously approved. We cannot predict if investors
will find our Common Stock less attractive because we may rely on these exemptions. If some investors find our Common Stock less
attractive as a result, there may be a less active trading market for our Common Stock and our stock price may be more volatile.
In addition, Section 107 of the JOBS Act
also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth
company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
However, we are choosing to “opt out” of such extended transition period, and as a result, we will comply with new
or revised accounting standards on the relevant dates on which adoption of such standards is required for non-emerging growth companies.
Section 107 of the JOBS Act provides that our decision to opt out of the extended transition period for complying with new or revised
accounting standards is irrevocable.
Our management and principal shareholders
have the ability to significantly influence or control matters requiring a shareholder vote and other shareholders may not have
the ability to influence corporate transactions.
Currently, our principal shareholders own
in excess of a majority of our outstanding Common Stock. As a result, they have the ability to determine the outcome on all matters
requiring approval of our shareholders, including the election of directors and approval of significant corporate transactions.
Risks Relating to
our Common Stock
There is no trading market for our
securities and there can be no assurance that such a market will develop in the future.
An application has been filed on our
behalf to trade our Common Stock on the OTCQB in the near future. There is no assurance that our application will be approved,
or once approved that a market will develop in the future or, if developed, that it will continue. In the absence of a public
trading market, an investor may be unable to liquidate his investment in our Company.
There are no automated systems for
negotiating trades on the OTCQB and it is possible for the price of a stock to go up or down significantly during a lapse of time
between placing a market order and its execution, which may affect your trades in our securities.
Because there are no automated systems
for negotiating trades on the OTCQB, they are conducted via telephone. In times of heavy market volume, the limitations of this
process may result in a significant increase in the time it takes to execute investor orders. Therefore, when investors place market
orders, an order to buy or sell a specific number of shares at the current market price, it is possible for the price of a stock
to go up or down significantly during the lapse of time between placing a market order and its execution.
Our stock will be considered a “penny stock” so long as it trades below $5.00 per share. This can
adversely affect its liquidity.
It is anticipated that our Common Stock will be considered
a “penny stock” and will continue to be considered a penny stock so long as it trades below $5.00 per share and as
such, trading in our Common Stock will be subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934.
Under this rule, broker/dealers who recommend low-priced securities to persons other than established customers and accredited
investors must satisfy special sales practice requirements. The broker/dealer must make an individualized written suitability determination
for the purchaser and receive the purchaser’s written consent prior to the transaction.
SEC regulations also require additional
disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its associated risks. In addition, broker-dealers
must disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities
they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending
transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the
market price for our securities. In addition, few broker or dealers are likely to undertake these compliance activities. Other
risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.
Any adverse effect on the market
price of our Common Stock could make it difficult for us to raise additional capital through sales of equity securities at a time
and at a price that we deem appropriate.
Sales of substantial amounts of our Common
Stock, or in anticipation that such sales could occur, may materially and adversely affect prevailing market prices for our Common
Stock, if and when such market develops in the future.
The market price of our Common Stock
may fluctuate significantly in the future.
We expect that the market price of our Common Stock may fluctuate in response to one or more of
the following factors, many of which are beyond our control:
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competitive pricing pressures;
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our ability to market our services on a cost-effective and timely basis;
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our inability to obtain working capital financing, if needed;
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changing conditions in the market;
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changes in market valuations of similar companies;
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stock market price and volume fluctuations generally;
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regulatory developments;
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fluctuations in our quarterly or annual operating results;
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additions or departures of key personnel; and
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future sales of our Common Stock or other securities.
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The price at which you purchase shares
of our Common Stock may not be indicative of the price that will prevail in the trading market. You may be unable to sell your
shares of Common Stock at or above your purchase price, which may result in substantial losses to you and which may include the
complete loss of your investment. In the past, securities class action litigation has often been brought against a company following
periods of stock price volatility. We may be the target of similar litigation in the future. Securities litigation could result
in substantial costs and divert management’s attention and our resources away from our business. Any of the risks described
above could adversely affect our sales and profitability and also the price of our Common Stock.
Provisions of our Articles of Incorporation
and Bylaws may delay or prevent a take-over that may not be in the best interests of our stockholders.
Provisions of our Articles of Incorporation
and Bylaws may be deemed to have anti-takeover effects, which include when and by whom special meetings of our stockholders may
be called, and may delay, defer or prevent a takeover attempt.
The requirements of being a public
company may strain our resources, divert management’s attention and affect our ability to attract and retain executive management
and qualified board members.
As a public company, we will be subject
to the reporting requirements of the Securities Exchange Act of 1934, as amended, the Sarbanes-Oxley Act, the Dodd-Frank Act, and
other applicable securities rules and regulations. Compliance with these rules and regulations will increase our legal and financial
compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources,
particularly after we are no longer an “emerging growth company,” as defined in the Jumpstart our Business Startups
Act, or the JOBS Act. The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect
to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure
controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure
controls and procedures and internal control over financial reporting to meet this standard, significant resources and management
oversight may be required. As a result, management’s attention may be diverted from other business concerns, which could
adversely affect our business and operating results. We may need to hire more employees in the future or engage outside consultants,
which will increase our costs and expenses.
In addition, changing laws, regulations
and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing
legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are
subject to varying interpretations, in many cases due to their lack of specificity, and, as a result, their application in practice
may evolve over time as new guidance is provided by regulatory and governing bodies. This could result in continuing uncertainty
regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend
to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general
and administrative expenses and a diversion of management’s time and attention from revenue-generating activities to compliance
activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory
or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings
against us and our business may be adversely affected.
However, for as long as we remain an “emerging
growth company,” we may take advantage of certain exemptions from various reporting requirements that are applicable to public
companies that are not “emerging growth companies” including, but not limited to, not being required to comply with
the auditor attestation requirements of Section 404 of the Sarbanes Oxley Act, reduced disclosure obligations regarding executive
compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory
vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We may take advantage
of these reporting exemptions until we are no longer an “emerging growth company.”
We would cease to be an “emerging
growth company” upon the earliest of: (i) the first fiscal year following the fifth anniversary of this offering, (ii) the
first fiscal year after our annual gross revenues are $1.0 billion or more, (iii) the date on which we have, during the previous
three-year period, issued more than $1.0 billion in non-convertible debt securities, or (iv) as of the end of any fiscal year in
which the market value of our Common Stock held by non-affiliates exceeded $700 million as of the end of the second quarter of
that fiscal year.
We also expect that being a public company
and these new rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and
we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage once we put such coverages
in place, which we intend to implement in the near future. These factors could also make it more difficult for us to attract and
retain qualified members of our board of directors, particularly to serve on our audit committee and compensation committee, and
qualified executive officers.
As a result of disclosure of information
in this Prospectus and in filings required of a public company, our business and financial condition will become more visible,
which we believe may result in threatened or actual litigation, including by competitors and other third parties. If such claims
are successful, our business and operating results could be adversely affected, and even if the claims do not result in litigation
or are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of
our management and adversely affect our business and operating results.
The market price for our Common Stock
will be particularly volatile given our status as a relatively unknown company, with a limited operating history and lack of profits
which could lead to wide fluctuations in our share price. You may be unable to sell your Common Stock at or above your purchase
price, which may result in substantial losses to you.
While there is currently no market
for our Common Stock, our price volatility in the future will be particularly volatile when compared to the shares of larger,
more established companies that trade on a national securities exchange and have large public floats. The volatility in our
share price will be attributable to a number of factors. First, our Common Stock will be, compared to the shares of such
larger, more established companies, sporadically and thinly traded. As a consequence of this limited liquidity, the trading
of relatively small quantities of shares by our shareholders may disproportionately influence the price of those shares in
either direction. The price for our shares could decline precipitously in the event that a large number of our Common Stock
are sold on the market without commensurate demand. Secondly, we are a speculative or “risky” investment due to
our limited operating history and lack of profits to date, and uncertainty of future market acceptance for our potential
products. As a consequence of this enhanced risk, more risk-adverse investors may, under the fear of losing all or most of
their investment in the event of negative news or lack of progress, be more inclined to sell their shares on the market more
quickly and at greater discounts than would be the case with the stock of a larger, more established company that trades on a
national securities exchange and has a large public float. Many of these factors are beyond our control and may decrease the
market price of our Common Stock, regardless of our operating performance. We cannot make any predictions or projections as
to what the prevailing market price for our Common Stock will be at any time.
Our future results may vary significantly which may adversely
affect the price of our Common Stock.
It is possible that our quarterly revenues
and operating results may vary significantly in the future and that period-to-period comparisons of our revenues and operating
results are not necessarily meaningful indicators of the future. You should not rely on the results of one quarter as an indication
of our future performance. It is also possible that in some future quarters, our revenues and operating results will fall below
our expectations or the expectations of market analysts and investors. If we do not meet these expectations, the price of our Common
Stock may decline significantly.
We are classified as an “emerging
growth company” as well as a “smaller reporting company” and we cannot be certain if the reduced disclosure requirements
applicable to emerging growth companies and smaller reporting companies will make our Common Stock less attractive to investors.
As a reporting company under the Exchange
Act, we expect to be classified as an "emerging growth company," as defined in the JOBS Act, we may take advantage of
certain exemptions from various reporting requirements that are applicable to other public companies, including, but not limited
to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure
obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements
of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously
approved. We cannot predict if investors will find our Common Stock less attractive because we may rely on these exemptions. If
some investors find our Common Stock less attractive as a result, there may be a less active trading market for our Common Stock
and our stock price may be more volatile.
Section 107 of the JOBS Act provides that
an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of
the Securities Act of 1933 (the “Securities Act” or “33 Act”) for complying with new or revised accounting
standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until
those standards would otherwise apply to private companies. We have irrevocably opted out of the extended transition period for
complying with new or revised accounting standards pursuant to Section 107(b) of the JOBS Act.
We could remain an “emerging growth
company” for up to five years, or until the earliest of: (i) the last day of the first fiscal year in which our annual gross
revenues exceed $1 billion, (ii) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under
the Exchange Act, which would occur if the market value of our Common Stock that is held by non-affiliates exceeds $700 million
as of the last business day of our most recently completed second fiscal quarter, or (iii) the date on which we have issued more
than $1 billion in non-convertible debt during the preceding three-year period.
Notwithstanding the above, we expect that
we would be a “smaller reporting company.” In the event that we are still considered a “smaller reporting company,”
at such time are we cease being an “emerging growth company,” the disclosure we will be required to provide in our
SEC filings will increase, but will still be less than it would be if we were not considered either an “emerging growth company”
or a “smaller reporting company.” Specifically, similar to “emerging growth companies,” “smaller
reporting companies” are able to provide simplified executive compensation disclosures in their filings; are exempt from
the provisions of Section 404(b) of the Sarbanes-Oxley Act requiring that independent registered public accounting firms provide
an attestation report on the effectiveness of internal control over financial reporting; and have certain other decreased disclosure
obligations in their SEC filings. Decreased disclosures in our SEC filings due to our status as an “emerging growth company”
or “smaller reporting company” may make it harder for investors to analyze our results of operations and financial
prospects. Should we cease to be an “emerging growth company” but remain a “smaller reporting company”,
we would be required to: (1) comply with new or revised US GAAP accounting standards applicable to public companies, (2) comply
with new Public Company Accounting Oversight Board requirements applicable to the audits of public companies, and (3) to make additional
disclosures with respect to related party transactions, namely Item 404(d).
Risks
Relating To This Offering
There is no public market for the
securities and even if a market is created, the market price of our Common Stock will be subject to volatility.
Prior to this Offering, there has been
no public market for our securities and there can be no assurance that an active trading market for the securities offered herein
will develop after this Offering, or, if developed, be sustained. We anticipate that, upon completion of this Offering, we will
cause an application to be filed on our behalf to list our Common Stock for trading on the OTCQB. If for any reason, however,
our application is not approved or if and when listed we do not take all action necessary to allow such market to continue quotation
on the OTCQB or a public trading market does not develop, purchasers of our Common Stock may have difficulty selling their
securities should they desire to do so and holders may lose their entire investment.
FINRA sales practice requirements
may limit a stockholder’s ability to buy and sell our stock.
The Financial Industry Regulatory Authority
(“FINRA”) has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have
reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low priced
securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes
that there is a high probability that speculative low priced securities will not be suitable for at least some customers. The FINRA
requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may have the
effect of reducing the level of trading activity in our Common Stock. As a result, fewer broker-dealers may be willing to make
a market in our Common Stock, reducing a stockholder’s ability to resell shares of our Common Stock.
State securities laws may limit secondary
trading, which may restrict the states in which you can sell the shares offered by this Prospectus.
If you purchase shares of our Common Stock
sold in this Offering, you may not be able to resell the shares in any state unless and until the shares of our Common Stock are
qualified for secondary trading under the applicable securities laws of such state or there is confirmation that an exemption,
such as listing in certain recognized securities manuals, is available for secondary trading in such state. There can be no assurance
that we will be successful in registering or qualifying our Common Stock for secondary trading, or identifying an available exemption
for secondary trading in our Common Stock in every state. If we fail to register or qualify, or to obtain or verify an exemption
for the secondary trading of, our Common Stock in any particular state, our Common Stock could not be offered or sold to, or purchased
by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our Common
Stock, the market for our Common Stock will be limited which could drive down the market price of our Common Stock and reduce the
liquidity of the shares of our Common Stock and a stockholder’s ability to resell shares of our Common Stock at all or at
current market prices, which could increase a stockholder’s risk of losing some or all of his investment.
USE OF PROCEEDS
We will receive none of the proceeds from
the sale of the Common Stock issued and held by our Selling Stockholders in this Offering.
DETERMINATION OF THE OFFERING PRICE
There is currently no public market
for our Common Stock. We have arbitrarily determined the offering price of our publicly tradable Common Stock offered
pursuant to this Prospectus to be $0.78 per share. We believe that this price reflects the appropriate price that a potential
investor would be willing to invest in our Common Stock at this initial stage of our development. The price was arbitrarily
determined and bears no relationship whatsoever to our business plan, the price paid for our shares by our founders, our
assets, earnings, book value or any other criteria of value. The offering price should not be regarded as an indicator of the
future market price of the securities, which is likely to fluctuate.
MARKET PRICE OF AND DIVIDENDS ON THE
COMPANY'S
COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
Market
Information
As of the date of this Prospectus there
is no market for our Common Stock. We have arranged for a securities broker-dealer to submit an application on Form 211 to quote
our stock in the OTCQB, and this application was approved on October 10, 2016. However, trading of our Common Stock has not yet
commenced on the OTCQB or any other trading facility nor has there been any development of a viable trading market for our shares
sufficient to provide stockholders with the opportunity for liquidity. There can be no assurances that trading of our Common Stock
will commence on the OTCQB, or any other existing U.S. trading market.
See
“RISK FACTORS.”
Holders
As of the date of this Prospectus we had
54 holders of record for our Common Shares.
See
“DESCRIPTION OF SECURITIES.”
We are registering the 2,485,432 shares
of Common Stock held by 41 holders of our Shares in our registration statement of which this Prospectus is a part.
Dividend Policy
We have not paid any dividends since our
incorporation and do not anticipate the payment of dividends in the foreseeable future. At present, our policy is to retain earnings,
if any, to develop and market our products. The payment of dividends in the future will depend upon, among other factors, our earnings,
capital requirements, and operating financial conditions.
SELLING STOCKHOLDERS
The Selling Stockholders named in this
Prospectus are offering the 2,485,432 shares of Common Stock offered through this Prospectus. The Selling Stockholders acquired
the 2,485,432 shares of Common Stock offered through this Prospectus from us in either our private placement transactions pursuant
to Regulation D promulgated under the 33 Act, via assignment from existing shareholders or as a result of other authorized issuance
by our Board of Directors pursuant to available exemptions from registration.
The following table provides as of the
date of this Prospectus, information regarding the beneficial ownership of our Common Stock held by each of the Selling Stockholders
and the percentage owned by each Selling Stockholder. Assuming all of the shares registered below are sold by the Selling Stockholders,
none of the Selling Stockholders will own one percent or more or our Common Stock.
Name
of Selling Shareholder
(1)
|
|
|
Shares
of
Common Stock
Owned
(2)
|
|
%
of
Ownership
|
ANN FRIEDBERG
|
|
|
642
|
|
*
|
RAMON ADONI
|
|
|
1,285
|
|
*
|
ALLEN APPELSTEIN
|
|
|
1,285
|
|
*
|
RONNIE B ARONSON & HOWARD ARONSON
JT
|
|
|
642
|
|
*
|
BLAKE BENDETT
|
|
|
642
|
|
*
|
JOY BENDETT
|
|
|
1,285
|
|
*
|
DALE BROADRICK
|
|
|
513,904
|
|
5.1%
|
KRISTEN CAMPAGNA
|
|
|
7,709
|
|
*
|
CHERRY PIPES LTD
(3)
|
|
|
128,476
|
|
1.3%
|
PEDRO D CORREA
|
|
|
6,424
|
|
*
|
CLIFFORD J DRAGONETTI
|
|
|
642
|
|
*
|
DANIEL FEINBERG
|
|
|
642
|
|
*
|
FREDERICK M FRIEDMAN
|
|
|
642
|
|
*
|
MICHAEL FRIEDMAN
|
|
|
90,576
|
|
*
|
GARY GELMAN
|
|
|
12,848
|
|
*
|
RYAN KAVANAUGH
|
|
|
3,854
|
|
*
|
KEVIN A KIRSTEIN
|
|
|
642
|
|
*
|
DANIEL KRUPA
|
|
|
1,285
|
|
*
|
JODI KUDLER
|
|
|
51,390
|
|
*
|
HOLLY J LAND
|
|
|
13,490
|
|
*
|
CAROL N LEVINE
|
|
|
642
|
|
*
|
GEORGE LEVY
|
|
|
359,732
|
|
3.6%
|
STACIE LEVY
|
|
|
642
|
|
*
|
MONA LIEBMANN
|
|
|
64.880
|
|
*
|
RONALD LIEBMANN
|
|
|
234,212
|
|
2.3%
|
SHAWN MACARTHUR
|
|
|
64,238
|
|
*
|
MAGDALENA MUNIAK
|
|
|
195,284
|
|
2%
|
RONALD E NEDRY
|
|
|
32,119
|
|
*
|
PETER GOLD REVOCABLE LIVING TRUST
|
|
|
102,781
|
|
1%
|
PETER GOLD
|
|
|
102,781
|
|
1%
|
GEORGE B PICK
|
|
|
6,424
|
|
*
|
HOWARD SCHNEIDER & JIM CAVANAUGH JT
TEN
|
|
|
128,476
|
|
1.3%
|
CHERYL SCHNEIDLER
|
|
|
1,651
|
|
*
|
DENNIS SCHNEIDLER
|
|
|
1,651
|
|
*
|
MICHAEL SCHNEIDLER
|
|
|
1,651
|
|
*
|
MATHEW ASHER SCHWARTZ
|
|
|
825
|
|
*
|
DAVID B SHEPARD & MYRNA A SHEPARD
JT EN
|
|
|
38,543
|
|
*
|
ANDREW TELSEY
(4)
|
|
|
146,145
|
|
1.5%
|
PAUL STEPHENS
|
|
|
128,476
|
|
1.3%
|
NICHOLAS J TERRICONE
|
|
|
23,126
|
|
*
|
KERRY F WALSH
|
|
|
12,848
|
|
*
|
TOTALS
|
|
|
2,485,432
|
|
24.9%
|
* less than 1%
(1)
|
The named party beneficially owns such shares. The numbers in this table assume that none of the Selling Stockholders purchases additional shares of Common Stock.
|
(2)
|
All of the shares listed are being offered by each of the Selling Shareholders listed.
|
(3)
|
The principal of this company is David Cherry.
|
(4)
|
Mr. Telsey is the owner and principal shareholder of Andrew I. Telsey, P.C., our legal counsel.
|
None of the Selling Stockholders has had
a material relationship with us or any of our affiliates other than as a stockholder at any time within the past three years.
PLAN OF DISTRIBUTION
The Selling Stockholders registering
Common Stock and any of his/her pledges, assignees, and successors-in-interest may, from time to time, sell any or all of their
shares of Common Stock on any stock exchange, market, or trading facility on which the shares are traded or in private transactions.
The Selling Stockholders may offer shares in transactions at fixed or negotiated prices. We arranged for a securities broker-dealer
to submit an application on Form 211 to quote our stock in the OTCQB, and this application was approved on October 10, 2016. However,
trading of our Common Stock has not yet commenced on the OTCQB or any other trading facility nor has there been any development
of a viable trading market for our shares sufficient to provide stockholders with the opportunity for liquidity. While no assurances
can be provided, we believe trading of our Common Stock will commence shortly after the filing of our Post-Effective Amendment
to our registration statement (of which this Prospectus is a part).
See
“RISK FACTORS.” Sales may be at fixed
or negotiated prices. A selling security holder may use any one or more of the following methods when selling shares:
|
·
|
ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
|
|
·
|
block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
|
|
·
|
purchases by a broker-dealer as principal and resale by the broker-dealer for its account;
|
|
·
|
an exchange distribution in accordance with the rules of the applicable exchange;
|
|
·
|
privately negotiated transactions;
|
|
·
|
settlement of short sales entered into after the effective date of the registration statement of which this Prospectus is a part;
|
|
·
|
broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;
|
|
·
|
through the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
|
|
·
|
a combination of any such methods of sale; or
|
|
·
|
any other method permitted pursuant to applicable law.
|
Broker-dealers engaged by the Selling
Stockholders may arrange for other broker-dealers to participate in sales in amounts to be negotiated, but in the case of an agency
transaction not in excess of a customary brokerage commission, and in the case of a principal transaction a markup or markdown
not in excessive amounts. Each Selling Stockholder may be an underwriter, within the meaning of Section 2(a)(11) of the
Securities Act. Any broker-dealers or agents that participate in the sale of the Common Stock or interests therein may also be
deemed to be an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act. Any discounts, commissions,
concessions or profit earned on any resale of the shares may be underwriting discounts and commissions under the Securities Act.
A Selling Stockholder, who is an “underwriter” within the meaning of Section 2(a)(11) of the Securities Act is subject
to the Prospectus delivery requirements of the Securities Act.
We are bearing all costs relating to the
registration of the Common Stock, which are estimated at approximately $42,386. The Selling Stockholders, however, will pay any
commissions or other fees payable to brokers or dealers in connection with the sale of the Common Stock. We are paying the expenses
of the Offering because we seek to enable our Common Stock to be traded on the OTCQB. We believe that the registration
of the resale of shares on behalf of existing shareholders may facilitate the development of a public market in our Common Stock
if our Common Stock is approved for trading on the OTCQB. We have agreed to indemnify the Selling Stockholders against
certain losses, claims, damages, and liabilities, including liabilities under the 33 Act.
We agreed to keep this Prospectus effective
until the earlier of: (i) the date on which the shares may be resold by the Selling Stockholders without registration by reason
of Rule 144 under the Securities Act or any other rule of similar effect, or (ii) all of the shares have been sold pursuant to
this Prospectus or Rule 144 under the Securities Act or any other rule of similar effect. The resale shares will be sold only through
registered or licensed brokers or dealers if required under applicable state securities laws. In addition, in certain states, the
resale shares may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from
the registration or qualification requirement is available and is complied with.
Under applicable rules and regulations
under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), any person engaged in the distribution
of the resale shares may not simultaneously engage in market-making activities with respect to the Common Stock for the applicable
restricted period, as defined in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders
will be subject to applicable provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M,
which may limit the timing of purchases and sales of shares of the Common Stock by the selling stockholders or any other person.
We will make copies of this Prospectus available to the Selling Stockholders and have informed them of the need to deliver a copy
of this Prospectus to each purchaser at or prior to the time of the sale.
Some of the information in this Prospectus
contains forward-looking statements that involve substantial risks and uncertainties. You can identify these statements by forward-looking
words such as “may,” “will,” “expect,” “anticipate,” “believe,” “estimate,”
and “continue,” or similar words. You should read statements that contain these words carefully because they:
|
·
|
discuss our future expectations;
|
|
·
|
contain projections of our future results of operations or of our financial condition; and
|
|
·
|
state other “forward-looking” information.
|
We believe it is important to communicate
our expectations. However, there may be events in the future that we are not able to accurately predict or over which we have no
control. Our actual results and the timing of certain events could differ materially from those anticipated in these forward-looking
statements as a result of certain factors, including those set forth under “RISK FACTORS” and “DESCRIPTION OF
BUSINESS” and elsewhere in this Prospectus.
See
“RISK FACTORS.”
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Overview
We were originally formed in the State
of Florida on October 6, 2009 as a limited liability company. On April 24, 2014 we reorganized as a Florida corporation. Since
inception we have been engaged in the design, development, marketing and sales of energy-efficient lighting systems and solutions.
We have intended to create and develop a reliable source of revenue from our activities in order to create the opportunity to
market proprietary products that can be utilized both in a commercially beneficial manner, as well as on a custom basis.
Purchase of the Assets of Catalyst LED’s
LLC
In order to expand our sales efforts, on May
5, 2016, we purchased certain intangible assets including the tradename “Catalyst LED” (“Catalyst”), its
client list, its website domain, list of leads, current pending orders, current bid proposals, and all future orders made under
the Catalyst name, as well as its other unregistered trademarks, and goodwill.
Under the terms agreement we agreed to pay
ForceField Energy Inc., a Nevada corporation, the owner of the assets, $50,000, which was payable in three equal monthly increments
of $16,666, commencing on May 15, 2016. As of the date of this Report, we have made partial payments of $42,934 and currently owe
$7,066 to ForceField, who has agreed to wait to receive the remaining balance until we have enough cash to do so.
During 2016, the purchase of Catalyst helped
to significantly increase our sales over prior year levels, however, the Catalyst products were not profitable. Based on an impairment
analysis we performed at year end, we determined that the $50,000 in intangible assets we recorded when we purchased Catalyst was
fully impaired. As a result we incurred a $50,000 impairment charge for 2016 and wrote off the intangible assets on our balance
sheet as of December 31, 2016. The impairment was primarily attributable due to increased competition in the LED industry which
made the selling of our products more difficult. Given the level of competition in our industry which is expected to increase in
future years, we will more closely examine the prices we pay for future purchases of LED assets should an opportunity materialize.
Our executive offices are located at 2060
NW Boca Raton Blvd, Suite 6, Boca Raton, FL 33431, telephone (561) 997-7270
.
Our website address is www.illuminationamerica.com.
Results
of Operations
Comparison of Results of Operations for the three months ended
March 31, 2017 and 2016
Revenue
During the three month period ended March 31,
2017, we generated revenues of $155,745, compared to revenues of $19,777 during the three month period ended March 31, 2016, an
increase of $135,968. The increase is attributable to the completion of more projects in 2017 compared to 2016. During the three
month period ended March 31, 2017, we were involved in 5 active projects compared to 1 active project in excess of $10,000 during
the comparable period in 2016.
Our LED business is based upon bidding and
winning new LED contracts. Once an LED project is completed there is very little, if any, opportunity to generate additional revenue
from that contract. We believe that our quarterly and annual revenues and gross margins are not indicative of sustainable revenue
and margin levels we expect to achieve. On March 31, 2017, we decided not to renew the contract of our primary LED salesman who
had generated substantially all of our sales during the past twelve months. Although this salesman sold most of our projects, these
sales net of his salary and costs associated with each of these projects failed to result in profits. Therefore, we do not expect
to generate comparable levels of sales in the immediate future. Until we achieve higher sustainable revenue levels, we do not believe
revenue comparisons from period to period will be meaningful. LED projects we typically undertake vary in size and complexity.
For example, the number of LED bulbs and fixtures required for an office building may vary from the amount required for a small
retail outlet.
Gross margin
Gross margin is calculated by subtracting cost
of sales from revenue. Gross margin percentage is calculated by dividing gross margins by revenue. Our gross margin has been and
will continue to be affected by a variety of factors, including product mix and fluctuations in the cost of purchased products
and components and our ability to properly estimate the costs of projects.
Gross margin for the three month period ended
March 31, 2017 was 27.9%, compared to gross margin of 24.3% of revenue during the three month ended March 2016. Until we reach
higher levels of revenue our gross margin will be subject to sometimes significant fluctuation because the amount of mark-up we
can take on our products varies from job to job and are impacted by factors such as market competition, type of fixtures to be
installed and the lighting budgets of each client.
Operating expenses
During the three month period ended March 31,
2017, operating expenses were $179,224, compared to operating expenses of $144,808 incurred during the three month period ended
March 31, 2016, an increase of $34,416. The principal reason for this increase is an increase in payroll expenses of $37,309, from
$24,129 during the three month period ended March 31, 2016, to 61,838 during the comparable period in 2017 as a result of increased
sales commissions and sales compensation. While our general and administrative expenses decreased by approximately $11,000, executive
compensation increased by approximately $6,000. The remainder of our operating expenses remained relatively constant in the three
month periods ended March 31, 2016 and 2017.
Other Income
Since January 1, 2013, we have sub-leased
a portion of our office space to a related company, Grom Holdings, Inc. at the rate of $2,000 per month plus miscellaneous additional
charges for other office services. For the three month periods ended March 31, 2017 and March 31, 2016, we recorded $7,020 and
$7,543 in other income related to the lease on our Income Statement in “Other Income Related Party.” Additionally,
in the 2016 period we recorded $7,076 in one-time “other income” related to a 2015 vendor overcharge that wasn’t
discovered until the after the completion of the 2015 financial statements.
Net loss
As a result, during the three month period
ended March 31, 2017, we generated a net loss of $128,801 ($0.01) per share compared to a net loss of 125,338 or ($0.01) for the
same three month period ended March 31, 2016. Although we were able to increase our sales and gross margin in the 2017 period
substantially above 2016, our loss was substantially the same due to increased operating expenses. Until we can significantly
increase our sales levels, we will not be profitable.
Liquidity
and Capital Resources
At March 31, 2017, we had $3,128 in cash.
Net cash used in operating activities was ($391,654)
during the three month period ended March 31, 2017, compared to ($105,373) during the comparable period in 2016. The increase in
the cash used during the three months ended March 31, 2017 compared to the same period in 2016 was primarily attributable to an
increase of $212,660 in accounts receivable in 2017 compared to a reduction in accounts receivable of $32,354 in 2016, and to a
decrease of $126,575 in accounts payable during the three month period ended March 31, 2017, compared to a decrease of $7,632 in
the same period in 2016.
Cash flows provided or used in investing activities
were $-0- during the three months ended March 31, 2017 and 2016.
Cash flows provided or used by financing activities
were $392,375 during the three months ended March 31, 2017, compared to $-0- in the same period in 2016. The cash flow from financing
activity came from proceeds from the sale of Common Stock. As described in this Report these proceeds have been classified as
“Donated Capital” in our Statements of Cash Flows.
Since our inception all of our funding has
been obtained from private placements of our securities and from loans from our directors. During the year ended December 31, 2016,
we sold 214,744 Units to 4 “accredited” investors at a price of $0.78 per Unit and received aggregate proceeds of $167,500.
Each Unit consisted of one share of our Common Stock and one Common Stock Purchase Warrant exercisable to purchase one share of
our Common Stock at an exercise price of $1.50 per warrant.
During the three month period ended March 31,
2017, we sold 523,166 Units to 6 “accredited” investors at a price of $0.75 per Unit and received aggregate proceeds
of $392,735. Each Unit consisted of one share of our Common Stock and one Common Stock Purchase Warrant exercisable to purchase
one share of our Common Stock at an exercise price of $1.50 per warrant. Messrs. Marks and Leiner donated an aggregate of 523,166
of their shares back to us to avoid dilution to our other shareholders. We used the proceeds derived from this offering to pay
expenses of the proposed Grom acquisition.
Historically, we believe that our principal
difficulty in our ability to successfully generate profits had been the lack of available capital to operate and expand our business.
Due to the growing intense competition in the LED industry we do not believe we can obtain profitable without a significant infusion
of up to $2.0 million in additional working capital to be utilized to hire a major sale force, scale our business to larger entities
as well as expanding our marketing efforts. As of the date of this Prospectus we have no commitment from any investor or investment-banking
firm to provide us with the necessary funding and there can be no assurances we will obtain such funding in the future. Failure
to obtain this additional financing will have a material negative impact on our ability to generate profits in the future.
As such, we believe that our best course of
action is to acquire another business in another industry.
Grom Transaction
Relevant thereto, on May 15, 2017, we entered
into a Share Exchange Agreement with Grom Holdings, Inc. (“Grom”), a Delaware corporation, wherein we have agree to
acquire all of the issued and outstanding securities of Grom in exchange for the issuance of an aggregate of 103,737,677 shares
of our Common Stock (the “Grom Transaction”). As a result of the issuance of shares of our Common Stock in exchange
for the outstanding shares of Grom, at the Effective Time the stockholders of Grom will become stockholders of our Company and
the Grom shareholders will own approximately 91% of our then issued and outstanding shares of Common Stock.
A Special Meeting of the Grom Shareholders
has been called for July 7, 2017 for the purpose of obtaining their approval of the transaction. Once obtained, we will file a
registration statement with the SEC on Form S-4, unless an exemption from registration is available. The transaction will
become effective upon the filing of a Statement of Share Exchange and Articles of Exchange with the Florida and Delaware Secretary
of State.
The Grom Transaction also requires that we
amend our Articles of Incorporation to increase our capitalization to 200,000,000 shares of Common Stock authorized, as well as
to change our name to “Grom Holding Corp,” or such other name as may be acceptable to both our Board of Directors and
the Florida Secretary of State. The holders of a majority of our issued and outstanding Common Shares have adopted resolutions
approving such amendments.
If and when effective, Grom will become a wholly
owned subsidiary of our Company. All of the members of our Board of Directors, who are also the Board of Directors of Grom, will
remain and Darren Marks will become our Chief Executive Officer and President and Melvin Leiner will become our Executive Vice
President and Secretary. Our current officers will become officers of a newly formed wholly owned subsidiary, where our existing
LED business will operate. See “Business – Grom Acquisition” for more information concerning the business operations
of Grom.
As described through this Prospectus, while
no assurances can be provided t we believe our efforts to acquire Grom will be successful.
Critical
Accounting Policies and Estimates
Critical accounting estimates
– The discussion and analysis of our financial condition and results of operations are based upon our consolidated financial
statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation
of these consolidated financial statements requires us to make estimates and judgments that affect the amounts of assets, liabilities,
revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates
based on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the
results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent
from other sources. Actual results may differ from these estimates under different assumptions or conditions. The following represents
a summary of our critical accounting policies, defined as those policies that we believe are the most important to the portrayal
of our financial condition and results of operations and that require management’s most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effects of matters that are inherently uncertain.
Stock-based Compensation
–
We account for stock-based compensation using the fair value method following the guidance set forth in section 718-10 of the FASB
Accounting Standards Codification for disclosure about Stock-Based Compensation. This section requires a public entity to measure
the cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). That cost will be recognized over the period during which an employee is required to provide service
in exchange for the award- the requisite service period (usually the vesting period). No compensation cost is recognized for equity
instruments for which employees do not render the requisite service.
Leases
– We follow the
guidance in ASC 840 “
Leases
,” which requires us to evaluate the lease agreements we enter into to determine
whether they represent operating or capital leases at the inception of the lease.
Inflation
Although our operations are influenced
by general economic conditions, we do not believe that inflation had a material effect on our results of operations during the
three months ended March 31, 2017.
Off-Balance Sheet
Arrangements
We have not entered into any off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would
be considered material to investors.
Recent
Accounting Pronouncements
Under the Jumpstart Our Business Startups
Act, or the JOBS Act, we meet the definition of an “emerging growth company.” We have irrevocably elected to opt out
of the extended transition period for complying with new or revised accounting standards pursuant to Section 107(b) of the
JOBS Act. As a result, we will comply with new or revised accounting standards on the relevant dates on which adoption of such
standards is required for non- emerging growth companies.
We have implemented all new accounting
pronouncements that are in effect and that may impact our financial statements and we do not believe that there are any other
new pronouncements that have been issued that might have a material impact on our financial position or results of operations.
DESCRIPTION OF BUSINESS
Overview
We were originally formed in the State
of Florida on October 6, 2009 as a limited liability company. On April 24, 2014 we reorganized as a Florida corporation. Since
inception we have been engaged in the design, development, marketing and sales of energy-efficient lighting systems and solutions.
Our business currently involves direct sales of LED products, including customized resolution of client lighting issues, which
is where we have been generating our revenues to date.
Business Summary
In order to address market trends in the LED
industry and increase our revenue, in 2016 we expanded the markets we offered our products to new customers. Our current business
includes the following:
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Direct Sales of Original Equipment Manufacturer (“OEM”) Products
. To date, all of our revenues have been derived from direct sales earned on products sold by us. These products have been marketed and sold to electrical contractors focusing on large office complexes, arenas, correctional facilities, office warehouses, hospitals and dealerships, schools, churches, real estate investment trusts (REIT’s) among others; and
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Solutions
. We provide our customers with expert advice on how to maximize their savings on electricity usage by installing LED lighting. We do this by analyzing the lighting configuration of a particular location, and by suggesting products that will yield cost savings as well producing lighting quality and color that meets the expectation of our clients.
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Target Markets
Prior to 2016 we focused on five target markets.
In 2016 we reduced our efforts in the museum and gallery market and in the large/super retailers category due to our lack of success
in generating significant revenues in these markets. As a result, we have identified three separate markets where we have, or intend
to direct our sales efforts, including:
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Office complex and warehouses
– We provide site specific solutions through design and development of specific fixtures including our custom, proprietary products not generally available in the marketplace. We attempt to generate business in this market through referrals, including leads from manufacturers, attendance at trade shows and in-house sales calls and mailings. This category accounted for in excess of 85% of our sales in 2016. We expect this category to account for a comparable or higher percentage of our sales in 2017.
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Design and Consulting Services
- We provide these services for new construction and retro fitting existing locations. Although this category accounted for a negligible portion of our sales in 2016, we believe opportunities exist in 2017 where our expertise in design and consulting services will provide us with a competitive advantage over our competition. There can be no assurance that we will generate sales in this market in 2017.
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Arenas and Gymnasiums
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In addition, we have assessed the need to reduce power and eliminate maintenance on gym lighting. Our product, a 150 watt, 15,750 lumen LED High Bay fixture, replaces 430 watt metal halide fixtures that constantly require ballast and bulb replacements. With our product, we estimate the next time these fixtures will need maintenance will be in the year 2030. Another advantage is that these LED High Bay fixtures do not require a warm up period. They are instant off and on so that at down hours during the day there is no need to leave the lighting on, thus saving even more on the electric bill. This category accounted for approximately 12% of our business in 2016. We believe there are opportunities in this market in 2017.
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Key
Strategic Business and Marketing Objectives
The LED market during the past few years has
become highly competitive in terms of pricing, the number of entities and concerns offering services, and the variety of high quality
LED products available from numerous manufacturers. We had hoped to differentiate ourselves from our competition by producing new
products and designs, however, our lack of available funding has caused us to change our strategy.
We have experience in submitting patent applications
so we are familiar with what new designs have merit and which are “patentable.” As of the date of this Report we have
created the packaging and secured the products for 100 samples of one product currently in beta testing which we believe could
be manufactured and marketed in 2017. It is a proprietary portable light source that we called the “Multitasker-LED”
with several applications. The cost to market and manufacture enough of this product to determine whether it is commercially viable
and profitable, is approximately $25,000 per year. There can be no assurance that this product will be successfully marketed or
generate any material revenues.
Product Fulfillment
We purchase all our products from US manufacturers
including Orion Energy System, MSI, Deep Roof, Green Giant Lighting LLC, AMAX, Cireon, Deco Lighting, PlanLED and Sunpark to supply
products to our targeted market. Due to the competitiveness of the LED industry, we do not believe the loss of any one or several
of these suppliers would have a material impact on our business. As we believe is traditional in our industry, we do not have contracts
with these companies but submit purchase orders on an individual basis for each product order we submit. Generally, turn around
delivery takes between 4 to 12 weeks from the date we submit the purchase order, depending upon the complexity of the order product,
as many of these products are custom solutions. We have analyzed delivery and financing needs and believe that we have a logical
and achievable plan for satisfying larger orders in this manner. We work with the aforesaid contract manufacturers from design
to completion insuring the desired results. By partnering with manufacturers we take advantage of their ability to bring our designs
quickly to market thereby relieving ourselves of the heavy investment in machinery.
Sales and Revenue/ Strategy
During 2016, we increased our sales to $731,657,
compared to 206,733 in 2015. In 2016, approximately 48% of our revenue was generated from a sale of $348,000 in lighting to an
electrical contractor, Marathon Electric, who completed a very large installation at an office warehouse facility. Additionally
in 2016, we completed one project for an arena at a cost of $85,000, an office warehouse at a cost of $73,000, a hospital for $57,000,
a correctional facility for $38,000 and two projects for REITS with revenue of $41,000. The seven projects described above account
for 92% of our revenue in 2016. The remaining 8% of our business was comprised of approximately 30 smaller projects in a variety
of industries, averaging approximately $2,000 in size.
During 2015, we completed 27 contracts including
exhibit lighting for The History of Miami Museum; interior exhibit lighting at Florida International University/Frost Museum, entry
way lighting to individual apartments at The Park of Dorchester and The Park of Knightsbridge; exterior landscape and elevation
lighting, interior general lighting and highlighting the alter at St. Gregory’s Episcopal Church; exterior parking lot lights
and building facade at Lost Tree Preserve; interior and exterior lighting for Aqua Gulf Corp Headquarters; installation of outside
fixtures at Burger King; replacement of fluorescent lighting at Papa John’s Pizza and at various Dunkin Donuts; and installation
of interior lighting at St. John Paul gymnasium.
We are a contract business whose product mix
changes from year to year because once LED lighting is installed, there is very little, if any, opportunity for repeat business
due to the efficacy of LED lighting.
Currently our sales efforts and growth are
directed towards larger projects in excess of $30,000. Through their network of contacts and their relationship with suppliers,
our salespeople have identified potential large corporate customers who control large property portfolios in the millions of square
feet. As a result, as of the date of this Report we have submitted a bid with a large auto manufacturer covering hundreds of thousands
of square feet of factory space. There can be no assurances we will be successful in winning this bid.
We either develop and sell LED lights, or sell
existing product lines, fixtures and components, or partner with innovative manufacturers to provide commercial and institutional
users with state-of-the-art technology. Ultimately, we believe that the performance in terms of payback and longevity will enable
us to penetrate the highest levels of institutional decision makers and achieve high volume sales to prestigious clients. In turn,
this will enable us to establish large scale brand recognition that will be vital to future success in this rapidly emerging industry.
There are no assurances that our efforts in this regard will be successful.
Sales revenue is currently generated
through the efforts of our management and through one salesman who operates from his home office located and who travels to client
locations when needed. He has exclusive accounts and territories and is paid on a commission basis. Sales made by our management
are not subject to any commission payment. For the periods ended December 31, 2016 and 2015, we paid $45,501 and $-0- in sales
commissions, respectively.
Seasonality
Our lighting solutions are sold to customers
primarily in the retrofit markets. Additionally, our business exhibits some seasonality, with net sales being affected by the
impact of weather and seasonal demand on construction, availability of rebate programs and retrofit and installation programs,
particularly during the winter months in the northeast. Because of these seasonal factors, we have experienced, and generally
expect to experience inconsistent quarterly revenue.
Advantages
of LED Lights
An LED is a semiconductor device which converts
electricity into light. LED lighting has been around since the 1960’s, but is just now becoming integral in the lighting
industry. At the end of 2007, Congress enacted the Energy Independence and Security Act, which gave the directive to end production
of most incandescent bulbs between 2012 and 2014. The United States Department of Energy estimates that the adoption of LED lighting
across the US would reduce greenhouse emissions by 246 metric tons, reduce electric consumption by 25% percent, and save the energy
equivalent to 24 large power plants. While LEDs make up only about 2 to 3% of the $80 Billion lighting market today, analysts estimate
that by 2020 they will comprise over 85%.
LED lighting has been used in low-tech items
for over ten years in everyday appliances, digital equipment that requires continual lighted read-outs, traffic lights, mining
lights, automobile dashboards and other applications, but it has only been recently that the LED lighting industry has been able
to make the advances in technology that is transforming the lighting industry. We now have powerful every day lamps that use as
little as 15% to 20% of the electric power needed for existing light bulbs.
LED’s are highly energy efficient, contain
no mercury and have a longer (up to 80%) life span than their incandescent light bulb counterparts. Although diodes come in different
sizes most are about ¼ inch in diameter and uses about 10 milliamps to operate at about a tenth of a watt. LED’s are
small in size and provide higher intensity.
LEDs are better at placing light in a single
direction than incandescent or fluorescent bulbs. They are more rugged and damage-resistant than compact fluorescents and incandescent
bulbs. LEDs are durable, and resistant to thermal and vibration shock. They turn on instantly from -40C to 185C, making them ideal
for multiple applications in “every walk of life.” LEDs don’t flicker and are consistent, as opposed to the pulsating
image from florescent lighting.
LED lighting is also a function of the “greener”
style of living. The conversion to LED lighting continues to gain momentum and traction, and we believe LEDs are emerging as the
#1 lighting option because they use a fraction of the energy used in today’s incandescent light bulbs and last 10 times longer
.
They are also considered environmentally safer than florescent lights, which contain mercury. LEDs have many energy efficient advantages
over traditional lighting methods. These include: low energy consumption, long service life, and no infrared or ultraviolet radiation
which degrades fine art. LEDs also have more consistent color temperatures making it ideal for museums, galleries and retail applications.
The adoption of LEDs and global energy conservation are new ways of managing energy efficiency. LED lighting is a perfect example
of low cost, consumer friendly technology that has a real impact on the amount of energy consumed.
The latest analysis “2017 Global Lighting
Market Outlook” published on November 2, 2016 by LEDinside, a division of TrendForce, finds that the LED lighting market
was worth US $29.6 billion in 2016 and is to rise to US $ 33.1 billion in 2017. Meanwhile, the penetration rate of LED lighting
is expected to reach 52%. Thanks to regional lighting development, LED lighting is expected to account for 23% of total lightings
in Europe by 2016, which is the highest across the world. The second and third highest region are to be found in North America
and China. However, the Asia-Pacific region is experiencing the fastest growth rate in LED lighting.
This has created a massive window of opportunity
that must be met due to eight primary reasons for replacement and new installation applications:
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Substantial direct energy savings.
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LEDs produce 50%-80% less heat than conventional light sources thereby providing substantial reduction in HVAC (air conditioning) savings.
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LEDs last considerably longer than conventional lighting (50-150,000 hours).
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LEDs do not typically burn out like traditional bulbs but rather decrease in light output.
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Reduction of labor and replacement costs.
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Non Toxic, recyclable product.
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Federal, State, Municipal Tax incentives.
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The transition from conventional lighting to
LED has raised several issues and brought forth tremendous opportunity. For those seeking to market to the residential community
the issues are minor and therefore lends itself to high volume producers and mass merchandisers. For those like us, who have chosen
to concentrate on industrial and commercial applications; the issues are more complex and require true expertise. It is this expertise
that we believe will enable us to build long lasting relationships. By promoting our solution-based approach in one area, clients
tend to ask us to look at other areas of need rather than sourcing products through general supply based companies.
To facilitate our business of providing state
of-the-art and custom solutions, we have assembled a network of strategic partners that include professional sales representatives,
manufacturers and distributors. Our vision is to use our expertise and knowledge in the area of commercial lighting to identify
and bring together opportunities for our advanced LED lighting products. Our goal is to avoid having to compete strictly on price.
d
isadvantages
of LED Lights
Numerous high profile companies both
domestically and internationally have recently transitioned, or are in process of changing the lighting in their offices, warehouses,
hospitals, municipal buildings, schools, outdoor lighting venues and other locations, to LED lighting from conventional lighting.
Nevertheless, the LED lighting market is a relatively new market compared to conventional non-LED lighting market and as such
has certain disadvantages.
The disadvantages of LED lighting include the following:
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Pricing
– although LED pricing continues to fall as technology improves,
it
currently remains initially priced significantly higher than conventional lighting, although
over the long run, savings on energy consumption and less frequent replacement makes
LED lighting less expensive than conventional lighting. The amount and timing of these
savings will be dependent on the price of electricity within the jurisdiction where the
lighting is installed, and on the amount of time during the day and night the LED lighting
is used;
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Design
characteristics
– due to the design of the LED bulbs, retrofitting or replacing
current lighting is sometimes difficult to accomplish;
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Lighting color-
the
lighting color of LED technology is currently limited and may be unsatisfactory as a
replacement for some existing conventional lighting applications; and
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Shape
or Look of LED bulb –
in some applications that shape or look of the bulb may
not suitable
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Grom Transaction
On May 15, 2017, we entered into a Share Exchange
Agreement with Grom Holdings, Inc. (“Grom”), a Delaware corporation, wherein we have agreed to acquire all of the issued
and outstanding securities of Grom in exchange for the issuance of an aggregate of 103,737,677 shares of our Common Stock. As a
result of the issuance of shares of our Common Stock in exchange for the outstanding shares of Grom, at the Effective Time the
stockholders of Grom will become stockholders of our Company and the Grom shareholders will own approximately 91% of our then issued
and outstanding shares of common stock.
A Special Meeting of the Grom Shareholders
has been called for July 7, 2017 for the purpose of obtaining their approval of the transaction. Once obtained, we will file a
registration statement with the SEC on Form S-4, unless an exemption from registration is available. The transaction will
become effective upon the filing of a Statement of Share Exchange and Articles of Exchange with the Florida and Delaware Secretary
of State.
The Grom Transaction also requires that we
amend our Articles of Incorporation to increase our capitalization to 200,000,000 shares of Common Stock authorized, as well as
to change our name to “Grom Holding Corp,” or such other name as may be acceptable to both our Board of Directors and
the Florida Secretary of State. The holders of a majority of our issued and outstanding Common Shares have adopted resolutions
approving such amendments.
If and when effective, Grom will become a wholly
owned subsidiary of our Company. All of the members of our Board of Directors, who are also the Board of Directors of Grom, will
remain and Darren Marks will become our Chief Executive Officer and President and Melvin Leiner will become our Executive Vice
President and Secretary. Our current officers will become officers of a newly formed wholly owned subsidiary, where our existing
LED business will operate.
If and when this proposed transaction
closes, of which there can be no assurance, our current LED business will be transferred to a new wholly owned subsidiary. In addition,
Messrs. Llera and Andrews will resign as officers and directors of our Company and become the officers and directors of this new
subsidiary company. Management of Grom shall assume the positions of management of the resulting holding company, including the
appointment of Darren Marks as Chief Executive Officer and Melvin Leiner as Executive Vice President, Secretary, Treasurer and
Chief Financial Officer.
Grom Holdings, Inc. is a holding company,
incorporated in Delaware in March 2015, that conducts all of its operations through its three wholly owned subsidiaries, Grom Social,
Inc., Grom Educational Services Inc.(“GES”) and TD Holdings Limited. Grom Social, Inc. is a Florida corporation, incorporated
in March 2012, which operates a social media network for children. TD Holdings Limited, which Grom acquired in July 2016, is a
Hong Kong corporation and the parent company of Top Draw Animation, Inc., a corporation formed and operating in Manila, Philippines,
which operates an animation business. GES is a newly formed educational subsidiary that was formed concurrent with Grom’s
acquisition of the assets and business of an entity that provides web filtering services to children (described below).
Grom’s core business is its social
media website for children, “Grom Social.” The Grom Social website is located at www.gromsocial.com. As of January
2017, Grom Social had approximately 4.3 million users in over 200 countries and territories. A "user" is defined as any
child between the ages of 5 and 16 who sign up for a Grom Social account. Each child must receive parental approval to gain full
access to the Grom Social platform. Grom communicates with its database both actively, through email and a parent/guardian portal
and passively, through messaging on the child’s profile page and through seventeen Grom characters.
Top Draw Animation produces digital
animation and provides pre-production and production services to a variety of international producers. Top Draw Animation was established
in 1999 by Wayne Dearing, who, along with Stella Dearing, continues to be responsible for its day to day operations. Eventually,
it is Grom’s intention to utilize the animation expertise of Top Draw Animation to provide animated content to Grom Social.
In addition, on January 11, 2017, Grom
acquired the assets of Norcross, Georgia based TeleMate.Net Software’s NetSpective Webfilter Division an entity that provides
web filtering services to approximately 400 school districts which encompasses an estimated 2.0 million children from the ages
from 5-17. This Webfilter division operates within our GES subsidiary
In February, 2017, we agreed to extend up
to $1.0 million in unsecured interest free loans to Grom. As of March 31, 2017, we had extended $212,660 in loans receivable to
Grom, compared to $-0- for the period ended December 31, 2016.
Government
Regulation
We are not subject to any extraordinary
governmental regulations.
Employees
As of the date of this Prospectus we
have three employees, Mr. Llera and Mr. Williams, both members of our management, one fulltime salesman and one commission only
sales representatives. We have consulted with and expect to continue to use the services of independent consultants and contractors
with whom our management has a pre-existing relationship to perform various professional services. We expect that we will continue
to use contractors to assist us with our clients.
Our employees work at will and are not represented by a collective
bargaining unit. We believe our relationship with our employees is excellent. None of our employees are members of any union.
Trademarks/Trade
names/Intellectual Property
We are in the process of submitting patent
applications, including a priority fixture patent that, unlike conventional fluorescent tube fixtures, holds the LED tube in what
we consider to be a more advantageous way, directing the LED light to achieve a broader and more even beam spread covering from
fixture to fixture. The product is intended for continuous lighting such as hallways, where fixtures are mounted perpendicular
to the direction of the hallway.
We are also currently working with four
manufactures to develop and produce higher end, decorative, vapor proof units that house LED tubes. One will manufacture and provide
the fixture, another is producing a luminous lens of their own design, the third will supply the LED tube, and the fourth will
provide the assembly.
We have additional products in design and
development that we will be seeking to gain “patent approval” in 2016.
We also attempt to protect our intellectual
property via the deployment of non-disclosure agreements. There are no assurances that these non-disclosure agreements will prevent
a third party from infringing upon our rights.
See
“RISK FACTORS.”
Property
Our principal place of business is
located at 2060 NW Boca Raton Blvd., Suite 6, Boca Raton, FL 33431, which consists of approximately 1,550 square feet, which
lease expires in November 2018. This space consists of four executive and open areas. We renewed this lease during the 4th
quarter of 2015. We pay monthly rent of $2,669.99 during the initial year of the lease, escalating to $2,738.33 per month
during year 2 and $2,806.80 per month during year 3 for this location. Management believes that this space will meet our
needs for the foreseeable future. Our telephone number is (561) 997-7270.
Since November 2012 we have sublet
approximately 500 square feet of this space to an affiliated company. We receive monthly rent of $2,000 per month for this
sublease.
Legal
Proceedings
We are unaware of any pending or threatened
litigation by or against us.
LED Lighting Industry
Trends
LED’s are semiconductor-based devices
that generate light. As the cost of LEDs decreases and their performance improves, we expect that they will continue to compete
more effectively in the general illumination market versus traditional lighting. High-brightness LEDs are the core, light-producing
components within an LED lighting system. We believe the LED lighting industry is experiencing the following trends:
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Technological Innovations Expand LED Functionality
.
Since the introduction of the first visible LED in the 1960s, the technology has offered an increasingly wide variety of colored
lighting, beginning with red and expanding to green, yellow and orange. Initial rudimentary applications included traffic lights,
automotive brake lights and indicator lights. In the mid-1990s, LEDs became capable of emitting blue light. With the advent of
blue LEDs, combined with phosphor technology, LEDs made another technological leap by emitting white light. This breakthrough enabled
LEDs to compete with traditional lighting solutions for applications in commercial, industrial and residential markets. In an effort
to lower energy consumption, lighting companies are focusing on increasing “lumens per watt.” Lumens per watt (often
referred to as “efficacy”) is an industry standard that measures the amount of light emitted per watt of electrical
power used, meaning the more lumens per watt, the more energy-efficient the product. Traditional incandescent lighting sources
can produce between 10 and 35 lumens per watt, while fluorescent and HID light sources can produce output exceeding 100 lumens
per watt. Today’s LEDs are currently performing well over 100 lumens per watt at the LED level, making them comparable to,
and often better than, fluorescent and HID light sources.
|
|
·
|
High Energy Costs Drive LED Adoption
.
As a result of high energy prices and the expectation that prices will continue to rise, businesses and consumers are increasingly
adopting new technologies to reduce energy consumption. LED lighting technology is inherently more energy efficient and can result
in more than 80% power savings over incandescent solutions. According to The Department of Energy, 22% of all energy consumption
in the United States is from lighting applications. This combined rate represents approximately 35% of all energy consumption in
commercial buildings as compared to approximately 15% for residential users and 5% for industrial companies. Despite safety issues
and concerns, compact fluorescent (CFL) lamps are used for lighting energy conservation. However, recent technological advancements
to LED lighting have made it more commercially viable in terms of brightness, efficiency, lamp life, safety and color-rendering
(CRI). In addition, competitive pressures, declining LED costs and greater manufacturing efficiencies are driving down LED lamp
prices. As a result of these gains and while there can be no assurances, we believe LED adoption should continue to expand. For
example, LED lamps are currently outselling CFL lamps in Japan as the quality of light is far superior to CFLs. In 2011, an analysis
of the global lighting market by Freedonia predicts that the LED market share for new construction will grow from 7% in 2010 to
70% in 2020. In the same period, LED market share for replacement lamps and retrofits will soar from 5% to 53%. In dollars, the
same study estimated that the overall LED lighting market will grow by about 30% per year and reach approximately $84 billion in
2020.
|
|
·
|
Legislative Influences Spur
Market Adoption of Energy Efficient LED Lighting.
Government regulations, such as initiatives by the United
States Department of Energy and the Environmental Protection Agency’s Energy Star Certification Program, are driving
adoption of more energy efficient lighting solutions. Energy Star sets industry-wide international recommendations for
lighting products that outline efficiency and performance criteria, helping manufacturers promote their products and
purchasers better understand lighting products. Governments are also adopting or proposing legislation to promote energy
efficiency and conservation. Lower energy consumption translates into lower electricity generation, often from coal power
plants, and thus can significantly lower carbon emissions. Legislative actions to promote energy efficiency can beneficially
impact the LED lighting market in the countries adopting such legislation and other countries, as well. For example, several
countries have effectively banned the 40, 60, and 100-watt incandescent light bulbs and are expected to progressively apply
these restrictions to lower-wattage bulbs. In addition, LED lighting solutions are free of hazardous materials such as
mercury, which can be harmful to the environment. Any restrictions on the use of hazardous substances could adversely affect
one of the LED lamp’s primary competitors, the CFL market.
|
While LEDs make up only about 2 to 3%
of the $80 billion lighting market today, analysts estimate that by 2015 they will comprise over 48% and by 2020, 85% according
to Stock Opportunity: LED Industry.
MANAGEMENT
Executive Officers,
Directors and Key Personnel
The following table sets forth information regarding our management:
Name
|
|
Age
|
|
Position
|
|
|
|
|
|
Ismael A. Llera
|
|
55
|
|
President, Chief Executive Officer, Chief Financial
Officer
|
|
|
|
|
|
William Andrews
|
|
70
|
|
Chief Operating Officer, Vice President – Sales,
Marketing and Design
|
|
|
|
|
|
Darren M. Marks
|
|
50
|
|
Director
|
|
|
|
|
|
Melvin Leiner
|
|
77
|
|
Director
|
|
|
|
|
|
Dr. Thomas Rutherford
|
|
62
|
|
Director
|
The above listed members of our management will serve until
the next annual meeting of the shareholders of our Company or until their death, resignation, retirement, removal, or disqualification,
or until their successors have been duly elected and qualified.
Mr. Llera is the brother-in-law of Melvin Leiner. No other family
relationship exists by or among our management.
Biographies
Ismael A. Llera, President, Chief
Executive Officer and Chief Financial Officer.
Mr. Llera was appointed to his positions with our Company in October 2014.
Prior, from January 2004 through October 2014 he was Vice President of Administration for DNA Brands, Inc., which was formerly
a public reporting company engaged in the sale and marketing of energy drinks and meat snacks and located in Boca Raton, FL. Mr.
Llera received a Bachelor of Science degree from Barry University in 1985. He devotes all of his time to our affairs.
William Andrews, Chief Operating
Officer, Vice President – Sales, Marketing and Design.
Mr. Andrews has held his positions with our Company since
June 2015. Prior to our incorporation, Mr. Andrews was our operations manager in charge of sales marketing and design. Prior to
joining Illumination America in 2009, Mr. Andrews owned and operated his own commercial interior design company for 35 years. He
devotes all of his time to our affairs.
Darren M. Marks, Director.
Mr.
Marks was one of our Managers while we were a limited liability company. When we converted into a corporation he became a Director.
In addition, Mr. Marks is also Chairman and CEO of Grom Social, Inc., a privately held Florida corporation with a digital and social
media platform focused on providing kids between the ages of 5 to16 a safe educational, fun, and highly interactive social networking
platform. Also, since July 2010 he has been a Director of DNA Brands, Inc., Boca Raton, FL, a company engaged in the sale and marketing
of energy drinks and meat snacks. He was the President, Chief Executive Officer of that company from July 2010 through January
1, 2015. Prior, from 2007 through July 2010, he held similar positions with DNA Beverage, Inc. He devotes only such time as necessary
to our business, which is not expected to exceed 10 hours per month.
Melvin Leiner, Director.
Mr.
Leiner was one of our Managers while we were a limited liability company. When we converted into a corporation he became a Director.
In addition, he is and has been Executive Vice President, Chief Financial Officer, Chief Operating Officer, Secretary, Treasurer
and a Director of DNA Brands, Inc. since July 2010. Prior from 2007 through July 2011, he held similar positions with DNA Beverage,
Inc., the predecessor company of DNA Brands, Inc. He devotes only such time as necessary to our business, which is not expected
to exceed 20 hours per month.
Dr. Thomas J. Rutherford, Director
,
was appointed as a director of our Company in January 2017. In addition, he has served as a director of Grom Holdings, Inc. since
July 2015. Mr. Rutherford is a highly renowned and respected oncologist and a national expert in cancer, with more than 30 years
of highly specialized surgical and clinical expertise in gynecologic cancer care. Dr. Rutherford has published in excess of 200
articles and case reports during his career and is a highly sought after speaker and lecturer. Dr. Rutherford is currently the
Director of Oncology for South Florida University in Tampa, FL, a position he assumed in January 2017. Prior, from January 2015
through December 2016, he was the Director of Oncology for Connecticut Oncology, a Division of Women’s Health of Connecticut,
a 270 member practitioner group covering 50% of the population in Connecticut and Director of Cancer Services for Western Connecticut
Health Network leading more than 100 physician subspecialists including surgeons, medical oncologists and radiation oncologists.
Dr. Rutherford practiced at Yale Oncology and served as Professor of Oncology and Director of Oncology Fellowship at Yale University
School of Medicine from July 1993 through December 2014. Dr. Rutherford received a Bachelor of Science degree in 1976 from Roanoke
College, a Master of Science degree from John Carroll University in 1979 and a PhD from the Medical College of Ohio in 1989. He
devotes only such time as necessary to our affairs.
Director
Independence
Our Board is currently composed of three
members. Our Common Stock is not currently listed for trading on a national securities exchange and, as such, we are not subject
to any director independence standards. No member of our Board of Directors is considered an independent director. We evaluated
independence in accordance with the rules of The New York Stock Exchange, Inc., which generally provides that a director is not
independent if: (i) the director is, or in the past three years has been, an employee of ours; (ii) a member of the director’s
immediate family is, or in the past three years has been, an executive officer of ours; (iii) the director or a member of the director’s
immediate family has received more than $120,000 per year in direct compensation from us other than for service as a director (or
for a family member, as a non-executive employee); (iv) the director or a member of the director’s immediate family is, or
in the past three years has been, employed in a professional capacity by our independent public accountants, or has worked for
such firm in any capacity on our audit; (v) the director or a member of the director’s immediate family is, or in the past
three years has been, employed as an executive officer of a company where one of our executive officers serves on the compensation
committee; or (vi) the director or a member of the director’s immediate family is an executive officer of a company that
makes payments to, or receives payments from, us in an amount which, in any twelve-month period during the past three years, exceeds
the greater of $1,000,000 or 2% of that other company’s consolidated gross revenues.
Once we achieve public status, of which
there can be no assurance, we will insure that our committees as well as Board of Directors complies with all the requirements
of a public company under the auspices of the OTC Marketplace.
Board
Committees
As of the date of this Prospectus we do
not have any committees of our Board of Directors. We expect to form an Audit Committee, a Compensation Committee, a Corporate
Governance Committee, and a Nominating Committee in the near future.
EXECUTIVE COMPENSATION
Remuneration
The
following table sets forth information concerning all cash and non-cash compensation awarded to, earned by or paid to our executive
officers. We do not currently have an established policy to provide compensation to members of our Board of Directors for their
services in that capacity, although we may choose to adopt a policy in the future.
SUMMARY COMPENSATION TABLE
Name and Principal Position
|
|
Year
|
|
Salary
($)
|
|
Bonus
($)
|
|
Option Awards
($)
|
|
All Other
Compensation ($)
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ismael A. Llera,
|
|
|
2014
|
|
|
35,860
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
35,860
|
|
President, CEO, CFO
|
|
|
2015
|
|
|
75,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
75,000
|
|
|
|
|
2016
|
|
|
61,192
|
|
|
|
|
|
|
|
|
|
|
|
61,192
|
(1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William Andrews, COO, Vice President
|
|
|
2014
|
|
|
72,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
72,000
|
|
|
|
|
2015
|
|
|
72,000
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
72,000
|
|
|
|
|
2016
|
|
|
63,461
|
|
|
–
|
|
|
–
|
|
|
–
|
|
|
63,461
|
|
(1)
Mr. Llera’s salary
was changed to $95,000 per year effective April 1, 2016. As of December 31, 2016, Mr. Llera was owed $29,230 in accrued salary.
(2)
As of December 31, 2016, Mr.
Andrews was owed $18,900 in accrued salary.
Salaries are established by our Board of
Directors. We currently do not have a Compensation Committee but expect to have one in place in the future once we have independent
directors. None of our employees are employed pursuant to an employment agreement.
Compensation
of Directors
Other than the compensation described above
in the Summary Compensation Table, our officers and directors are reimbursed for actual expenses incurred.
Stock
Plan
We have not adopted a stock plan but may
do so in the future.
Employment
Agreements
None of our executive officers are party
to any employment agreement with us.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table contains certain information
regarding beneficial ownership of our Common Stock as of the date of this Prospectus by (i) each person who is known by us to own
beneficially more than 5% of our Common Stock, (ii) each of our officers and Directors, and (iii) all Directors and executive officers
as a group.
Class of Securities
|
|
Name and Address
|
|
|
# of Common
Shares
|
|
|
% of Class
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Darren Marks
(1)
2060 NW Boca Raton Blvd., #6,
Boca Raton, FL, 33431
|
|
|
|
2,629,128
|
|
|
|
25.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Melvin Leiner
(1)
2060 NW Boca Raton Blvd., #6,
Boca Raton, FL, 33431
|
|
|
|
2,629,128
|
|
|
|
24.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Ismael Llera
(1)
2060 NW Boca Raton Blvd., #6,
Boca Raton, FL, 33431
|
|
|
|
642,380
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
William Andrews
(1)
2060 NW Boca Raton Blvd., #6,
Boca Raton, FL, 33431
|
|
|
|
642,380
|
|
|
|
6.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
Dr. Thomas Rutherford
(1)
2060 NW Boca Raton Blvd., #6,
Boca Raton, FL, 33431
|
|
|
|
400,000
|
|
|
|
3.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
Common
|
|
All Officers and Directors as a Group (5 persons)
|
|
|
|
6,943,016
|
|
|
|
67.6
|
%
|
_______________
(1)
Officer and/or director of our Company
(2)
Held under the name Family Tys, LLC.
(3)
Held under the name 4 Life LLC
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to verbal agreements, our directors
have advanced working capital to pay certain of our expenses. The advances are due on demand and non-interest bearing. The outstanding
amount due to related parties was $154,447 and $34,751 as of December 31, 2016 and December 31, 2015, respectively.
Since November, 2012, we have sub-leased a
portion of our office space to a related company, Grom Holdings, Inc., at the rate of $2,000 per month plus miscellaneous additional
charges for other office services. Grom is a privately held company that is controlled by our 2 directors. As of December 31, 2016
and December 31, 2015, the balances owed to us by Grom for the rent on this space were $-0- and $32,782, respectively. Of these
amounts $26,000 in each period represented unpaid rent due from the related party. As of the date of this Prospectus, all outstanding
balances have been paid in full.
In February 2017, Dr. Thomas Rutherford, a
director, purchased 400,000 Units at a price of $0.75 per Unit offered by us as part of a private offering. Each Unit is comprised
of one share of our Common Stock and one Common Stock Purchase Warrant exercisable to purchase one share of our Common Stock at
an exercise price of $1.50 per Warrant.
In order to minimize share dilution and to
help raise capital to fund our Company, Mr. Marks and Mr. Leiner each voluntarily agreed to donate up to 1,000,000 of their Company
shares back to the Company, donating one share back to the Company for every share of Common Stock sold by the Company. As of the
date of this Prospectus an aggregate of 523,116 shares have been redeemed. No other individuals donated any capital for the three
month period ended March 31, 2017. See “Notes to Financial Statements for the Three Months Ended March 31, 2017, Note 6.
Stockholders Equity.”
Grom Transaction
On May 15, 2017, we entered into a Share Exchange
Agreement with Grom Holdings, Inc. (“Grom”), a Delaware corporation, wherein we have agreed to acquire all of the issued
and outstanding securities of Grom in exchange for the issuance of an aggregate of 103,737,677 shares of our Common Stock (the
“Grom Transaction”). As a result of the issuance of shares of our Common Stock in exchange for the outstanding shares
of Grom, at the Effective Time the stockholders of Grom will become stockholders of our Company and the Grom shareholders will
own approximately 91% of our then issued and outstanding shares of Common Stock.
A Special Meeting of the Grom Shareholders
has been called for July 7, 2017 for the purpose of obtaining their approval of the transaction. Once obtained, we will file a
registration statement with the SEC on Form S-4, unless an exemption from registration is available. The Grom Transaction
will become effective upon the filing of a Statement of Share Exchange and Articles of Exchange with the Florida and Delaware
Secretary of State.
The Grom Transaction also requires that we
amend our Articles of Incorporation to increase our capitalization to 200,000,000 shares of Common Stock authorized, as well as
to change our name to “Grom Holding Corp,” or such other name as may be acceptable to both our Board of Directors and
the Florida Secretary of State. The holders of a majority of our issued and outstanding Common Shares have adopted resolutions
approving such amendments.
If and when effective, Grom will become a wholly
owned subsidiary of our Company. All of the members of our Board of Directors, who are also the Board of Directors of Grom, will
remain and Darren Marks will become our Chief Executive Officer and President and Melvin Leiner will become our Executive Vice
President and Secretary. Our current officers will become officers of a newly formed wholly owned subsidiary, where our existing
LED business will operate.
In February 2017, Dr. Thomas Rutherford,
a director, as well as a director of Grom, purchased 400,000 Units at a price of $0.75 per Unit offered by us as part of a private
offering. Each Unit is comprised of one share of our Common Stock and one Common Stock Purchase Warrant exercisable to purchase
one share of our Common Stock at an exercise price of $1.50 per Warrant. In order to minimize share dilution and to help raise
capital to fund the transaction, Mr. Marks and Mr. Leiner each voluntarily agreed to donate up to 1,000,000 of their Company shares
back to the Company, donating one share back to the Company for every share of Common Stock sold by the Company. No other individuals
donated any capital for the three month period ended March 31, 2017. See “Notes to Financial Statements for the Three Months
Ended March 31, 2017, Note 6. Stockholders Equity.”
There have been no other related party transactions,
or any other transactions or relationships required to be disclosed pursuant to Item 404 of Regulation S-K.
DESCRIPTION OF SECURITIES
Common
Stock
There are 100,000,000 shares of Common
Stock, $.001 par value, authorized, with 10,264,744 shares issued and outstanding and 25,000,000 shares of Preferred Stock, par
value $0.001 per share, authorized, none of which has been issued or is outstanding. If the Grom Transaction described hereinabove
becomes effective, our current shareholders have agreed to amend our Articles of Incorporation to increase the number of authorized
shares of our Common Stock to 200,000,000 in order to allow us to have sufficient shares to consummate the Grom Transaction, as
well as to have additional authorized but unissued Common Shares available for subsequent issuance. As of the date of this Prospectus
there are no definitive plans or obligations to issue any additional shares of our Common Stock.
The holders of Common Stock are entitled to
one vote for each share held on all matters submitted to a vote of shareholders. Holders of Common Stock are entitled to receive
ratably such dividends, if any, as may be declared by the Board of Directors out of funds legally available therefor, subject
to any preferential dividend rights of outstanding Preferred Stock, which may be authorized and issued in the future. Upon a liquidation,
dissolution or winding up of our Company the holders of Common Stock are entitled to receive ratably the net assets available
after the payment of all debts and other liabilities, and subject further only to the prior rights of any outstanding Preferred
Stock which may be authorized and issued in the future. The holders of Common Stock have no preemptive, subscription, redemption
or conversion rights. The outstanding shares of Common Stock are, and the shares offered herein will be, when issued and paid
for, fully paid and non-assessable. Cumulative voting in the election of directors is not permitted and the holders of a majority
of the number of outstanding shares will be in a position to control the election of directors at a general shareholder meeting
and may elect all of the directors standing for election. We have no present intention to pay cash dividends to the holders of
Common Stock.
Preferred
Stock
Our Articles of Incorporation, as amended,
also authorizes ten million shares of Preferred Stock, par value of $0.001 per share, none of which has been issued. The Preferred
Stock is entitled to preference over the Common Stock with respect to the distribution of assets of our Company in the event of
liquidation, dissolution, or winding-up of our Company, whether voluntarily or involuntarily, or in the event of the any other
distribution of our assets, among our stockholders for the purposes of winding-up affairs. The authorized but unissued shares of
Preferred Stock may be divided into and issued in designated series from time to time by one or more resolutions adopted by the
Board of Directors. The Directors, in their sole discretion, have the power to determine the relative powers, preferences, and
rights of each series of Preferred Stock.
Transfer
Agent and Registrar
We have retained Corporate Stock Transfer,
Inc., 3200 Cherry Creek Drive South, Suite 430, Denver, CO 80209, phone (303) 282-4800 as the transfer agent for our Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Market sales of shares of our Common Stock
after this Offering and from time to time, and the availability of shares for future sale, may reduce the market price of our Common
Stock. Sales of substantial amounts of our Common Stock, or the perception that these sales could occur, could adversely affect
prevailing market prices for our Common Stock and could impair our future ability to obtain capital, especially through an offering
of equity securities. After the effective date of the registration statement of which this Prospectus is a part, all of the shares
sold in this Offering will be freely tradable without restrictions or further registration under the Securities Act, unless the
shares are purchased by our affiliates. After the effective date of the registration statement of which this Prospectus is a part,
all of the shares registered in this Offering, constituting 2,485,432 shares, will be freely tradable without restrictions or further
registration under the Securities Act, unless the shares are purchased by our affiliates, as that term is defined in Rule 144 under
the Securities Act. The balance of 7,779,312 shares which are not being registered will be eligible for sale pursuant to the exemption
from registration. However, these shares not being registered are held by our management and other affiliates who are limited to
selling only 1% of our issued and outstanding shares every 90 days.
If and when our Common Stock commences trading,
of which there can be no assurance, it is anticipated that our Common Stock will be considered a “penny stock” and
will continue to be considered a penny stock so long as it trades below $5.00 per share and as such, trading in our Common Stock
will be subject to the requirements of Rule 15g-9 under the Securities Exchange Act of 1934. Under this rule, broker/dealers who
recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales
practice requirements. The broker/dealer must make an individualized written suitability determination for the purchaser and receive
the purchaser’s written consent prior to the transaction.
SEC regulations also require additional
disclosure in connection with any trades involving a “penny stock,” including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and its associated risks. In addition, broker-dealers must
disclose commissions payable to both the broker-dealer and the registered representative and current quotations for the securities
they offer. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from recommending
transactions in our securities, which could severely limit the liquidity of our securities and consequently adversely affect the
market price for our securities. In addition, few broker or dealers are likely to undertake these compliance activities. Other
risks associated with trading in penny stocks could also be price fluctuations and the lack of a liquid market.
See
“RISK
FACTORS.”
Rule
144
Rule 144, adopted by the Securities and
Exchange Commission pursuant to the Securities Act of 1933, generally provides an exemption for the resale or privately offered
securities provided the conditions of the rule are met, which include, among other limitations, that the securities be held for
a minimum of nine months due to the fact that we expect to be a reporting company pursuant to the Securities Exchange Act of 1934,
as amended. Consequently, our shareholders who are affiliates and whose shares are not being registered as part of the registration
statement we have filed with the SEC (of which this Prospectus is a part) may not be able to avail themselves of Rule 144 or otherwise
be readily able to liquidate their investments in the event of an emergency or for any other reason, and the shares may not be
accepted as collateral for a loan. If such non-affiliate has owned the shares for at least nine months, he or she may sell the
shares without complying with any of the restrictions of Rule 144 once we are deemed a reporting company.
INTERESTS OF NAMED EXPERTS AND COUNSEL
No expert or counsel named in this Prospectus
as having prepared or certified any part of this Prospectus or having given an opinion upon the validity of the securities being
registered or upon other legal matters in connection with the registration or offering of the Common Stock was employed on a contingency
basis, or had, or is to receive, in connection with the Offering, a substantial interest, direct or indirect, in the Company or
any of its parents or subsidiaries. Nor was any such person connected with the Company or any of its parents or subsidiaries as
a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
LEGAL MATTERS
The validity of the Common Stock offered
hereby will be passed upon by Andrew I. Telsey, P.C., Centennial, Colorado. Andrew I. Telsey, sole shareholder of Andrew I. Telsey,
P.C., owns 146,145 shares of our Common Stock.
EXPERTS
The financial statements of Illumination
America, Inc. as of and for the years ended December 31, 2016 and 2015 included herein have been audited by BF Borgers
CPA PC, independent registered public accountants, as indicated in their reports with respect thereto, and are in reliance upon
the authority of said firm as experts in accounting and auditing.
DISCLOSURE OF COMMISSION POSITION ON
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES
Insofar as indemnification for liabilities
arising under the 33 Act may be permitted to directors, officers or persons controlling our Company pursuant to the foregoing provisions,
or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against
public policy as expressed in the Securities Act and is, therefore, unenforceable.
ADDITIONAL INFORMATION
We have filed this registration statement
on Form S-1, including exhibits, with the SEC with respect to the shares being offered in this Offering. This Prospectus is part
of the registration statement, but it does not contain all of the information included in the registration statement or exhibits.
If and when the SEC declares our registration statement effective, we will begin filing reports pursuant to the Securities Exchange
Act of 1934, as amended. For further information with respect to our Common Stock, and us we refer you to the registration statement
and to the exhibits and schedules to the registration statement. Statements contained in this Prospectus as to the contents of
any contract or any other document referred to herein are not necessarily complete, and in each instance, we refer you to the copy
of the contract or other document filed as an exhibit to the registration statement. Each of these statements is qualified in all
respects by this reference. You may inspect a copy of the registration statement without charge at the SEC’s principal office
in Washington, D.C., and copies of all or any part of the registration statement may be obtained from the Public Reference Section
of the SEC, 100 F. St. NE, Washington, D.C. 20549, upon payment of fees prescribed by the SEC. The SEC maintains a worldwide website
that contains reports, proxy and information statements and other information regarding registrants that file electronically with
the SEC. The address of the website is
http://www.sec.gov
. The SEC’s toll free investor information service can be
reached at 1-800-SEC-0330.
FINANCIAL STATEMENTS
The audited financial statements for
the fiscal years ending December 31, 2016 and 2015 are set forth on pages F-1 - F-11 and the unaudited interim
financial statements for the three months ended March 31, 2017, which are set forth on pages F-12 - F-19;
YOU SHOULD RELY ONLY ON THE INFORMATION
CONTAINED IN THIS PROSPECTUS. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS PROSPECTUS.
WE ARE OFFERING TO SELL, AND SEEKING OFFERS TO BUY, SHARES OF COMMON STOCK ONLY IN JURISDICTIONS WHERE OFFERS AND SALES ARE PERMITTED.
THE INFORMATION CONTAINED IN THIS PROSPECTUS IS ACCURATE ONLY AS OF THE DATE OF THIS PROSPECTUS REGARDLESS OF THE TIME OF DELIVERY
OF THIS PROSPECTUS, OR OF ANY SALE OF OUR COMMON STOCK.
INCORPORATION OF
CERTAIN INFORMATION BY REFERENCE
The SEC’s rules allow us to incorporate
by reference information into this prospectus. This means that we can disclose important information to you by referring you to
another document. Any information referred to in this way is considered part of this prospectus from the date we file that document.
We incorporate by reference into this prospectus
the following documents or information filed with the SEC (other than, in each case, documents or information deemed to have been
furnished and not filed in accordance with SEC rules):
(1) Current Report on Form 8-K, filed with
the SEC on May 6, 2016
(2) Annual Report on Form 10-K for the
year ended December 31, 2016, filed with the SEC on March 27, 2017
(3) Quarterly Report on Form 10-Q for the three months ended March
31, 2017, filed with the SEC on May 10, 2017
(4) Current Report on Form 8-K, filed with
the SEC on January 17, 2017
(5) Current Report on Form 8-K, filed with
the SEC on May 17, 2017
Any statement contained herein or in a document, all or a portion of which is incorporated or deemed to be
incorporated by reference herein, shall be deemed to be modified or superseded for purposes of this Registration Statement to
the extent that a statement contained herein which also is or is deemed to be incorporated by reference herein modifies or supersedes
such statement. Any such statement so modified or superseded shall not be deemed, except as so modified or amended, to constitute
a part of this Registration Statement.
Index to Financial
Statements
|
|
Page
|
For the years ended December 31, 2016 and 2015
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm
|
|
F-3
|
|
|
|
Balance Sheet as of December 31, 2016 and 2015
|
|
F-4
|
|
|
|
Statement of Operations and Comprehensive Loss for the years ended December 31, 2016 and 2015
|
|
F-5
|
|
|
|
Statement of Changes in Shareholder’ Equity (Deficit) for the years ended December 31, 2016 and 2015
|
|
F-6
|
|
|
|
Statement of Cash Flows for the years ended December 31, 2016 and 2015
|
|
F-7
|
|
|
|
Notes to Financial Statements
|
|
F-8
|
|
|
|
|
|
|
For the Quarter Ended March 31, 2017
|
|
|
|
|
|
Balance Sheets as of March 31, 2017 (Unaudited) and December 31, 2016
|
|
F-12
|
|
|
|
Interim Unaudited Statements of Operations and Comprehensive Income (Loss) for the Three Months Ended March 31, 2017 and 2016
|
|
F-13
|
|
|
|
Interim Unaudited Statements of Cash Flows for the Three Months Ended March 31, 2017 and 2016
|
|
F-14
|
|
|
|
Notes to Interim Unaudited Financial Statements
|
|
F-15
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders
of Illumination America, Inc.:
We have audited the accompanying balance
sheets of Illumination America, Inc. (“the Company”) as of December 31, 2016 and 2015 and the related statements of
operations, stockholders’ equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility
of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audits in accordance with
standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the
audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinions.
In our opinion, the financial statement
referred to above present fairly, in all material respects, the financial position of Illumination America, Inc., as of December
31, 2016 and 2015, and the results of its operations and its cash flows for the years then ended, in conformity with generally
accepted accounting principles in the United States of America.
The company is not required to have, nor
were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for
the purpose of expressing an opinion on the Company's internal control over financial reporting. Accordingly, we express
no such opinion.
The accompanying financial statements have
been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the
Company’s significant operating losses raise substantial doubt about its ability to continue as a going concern. The
financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ B F Borgers CPA PC
B F Borgers CPA PC
Lakewood, CO
March 24, 2017
Illumination America, Inc.
BALANCE SHEET
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Assets
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
2,407
|
|
|
$
|
107,673
|
|
Accounts Receivable
|
|
|
115,899
|
|
|
|
17,453
|
|
Related Party Receivable
|
|
|
–
|
|
|
|
32,872
|
|
Prepaid Expenses
|
|
|
1,612
|
|
|
|
4,856
|
|
Deposits
|
|
|
1,000
|
|
|
|
1,000
|
|
Total Current Assets
|
|
|
120,918
|
|
|
|
163,854
|
|
Other assets
|
|
|
3,319
|
|
|
|
–
|
|
Total Assets
|
|
$
|
124,237
|
|
|
$
|
163,854
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
225,027
|
|
|
|
32,773
|
|
Other accrued expenses
|
|
|
116,855
|
|
|
|
23,680
|
|
Due to related parties
|
|
|
154,447
|
|
|
|
34,751
|
|
Total Current Liabilities
|
|
|
496,329
|
|
|
|
91,204
|
|
Total Liabilities
|
|
|
496,329
|
|
|
|
91,204
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, authorized 100,000,000;
common shares issued and outstanding 10,264,744 as of December 31, 2016 and 10,000,000 as of December 31, 2015
|
|
|
10,265
|
|
|
|
10,000
|
|
Preferred stock, $0.001 par value, 25,000,000 shares authorized, -0- share issued and outstanding, respectively
|
|
|
|
|
|
|
|
|
Additional paid-in capital
|
|
|
2,485,288
|
|
|
|
2,279,053
|
|
Accumulated Deficit
|
|
|
(2,867,645
|
)
|
|
|
(2,216,403
|
)
|
Total Stockholders' (Deficit) Equity
|
|
|
(372,092
|
)
|
|
|
72,650
|
|
Total Liabilities and Stockholders' (Deficit) Equity
|
|
$
|
124,237
|
|
|
$
|
163,854
|
|
See accompanying notes to financial statements
Illumination America, Inc.
STATEMENT OF OPERATIONS
|
|
For the Years Ended
|
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
Revenues
|
|
$
|
734,657
|
|
|
$
|
206,733
|
|
Cost of Sales
|
|
|
592,423
|
|
|
|
177,656
|
|
Gross Margin
|
|
|
142,234
|
|
|
|
29,077
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
104,626
|
|
|
|
131,063
|
|
Stock-based compensation
|
|
|
39,000
|
|
|
|
713,753
|
|
Executive compensation
|
|
|
92,762
|
|
|
|
33,000
|
|
Payroll expenses
|
|
|
235,017
|
|
|
|
96,038
|
|
Impairment of intangible assets
|
|
|
50,000
|
|
|
|
–
|
|
Professional fees
|
|
|
273,701
|
|
|
|
249,359
|
|
Rent
|
|
|
34,437
|
|
|
|
31,080
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
829,543
|
|
|
|
1,254,293
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(687,309
|
)
|
|
|
(1,225,216
|
)
|
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
7,076
|
|
|
|
–
|
|
Other Income- Related Party
|
|
|
28,991
|
|
|
|
25,320
|
|
Total Other Income
|
|
|
36,067
|
|
|
|
25,320
|
|
|
|
|
|
|
|
|
|
|
Net Loss before Income Taxes
|
|
|
(651,242
|
)
|
|
|
(1,199,896
|
)
|
|
|
|
|
|
|
|
|
|
Income Tax Benefit
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(651,242
|
)
|
|
$
|
(1,199,896
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share - Basic and Diluted
|
|
|
(0.06
|
)
|
|
$
|
(0.14
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding - Basic and Diluted
|
|
|
10,077,781
|
|
|
|
8,698,310
|
|
See accompanying notes to financial statements
Illumination America, Inc.
STATEMENT OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED December 31, 2016
and 2015
|
|
Common Stock
|
|
|
Additional Paid-In
|
|
|
Stockholders'
|
|
|
Total Stockholders'
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Equity
|
|
Balance, December 31, 2015
|
|
|
10,000,000
|
|
|
$
|
10,000
|
|
|
$
|
2,279,053
|
|
|
$
|
(2,216,403
|
)
|
|
$
|
72,650
|
|
Common stock issued for cash in a private placement
|
|
|
214,744
|
|
|
|
215
|
|
|
|
11,521
|
|
|
|
|
|
|
|
11,736
|
|
Issuance of common stock warrants in connection with the issuance of common stock in a private placement
|
|
|
|
|
|
|
|
|
|
|
155,764
|
|
|
|
|
|
|
|
155,764
|
|
Shares issued for services
|
|
|
50,000
|
|
|
|
50
|
|
|
|
38,950
|
|
|
|
|
|
|
|
39,000
|
|
Net loss for year ended December 31, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(651,242
|
)
|
|
|
(594,242
|
)
|
Balance, December 31, 2016
|
|
|
10,264,744
|
|
|
$
|
10,265
|
|
|
$
|
2,485,288
|
|
|
$
|
(2,867,645
|
)
|
|
$
|
(372,092
|
)
|
See accompanying notes to financial statements
Illumination America, Inc.
STATEMENT OF CASH FLOWS
|
|
For the Years Ended
|
|
|
|
December 31,
2016
|
|
|
December 31, 2015
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(651,242
|
)
|
|
$
|
(1,199,896
|
)
|
Adjustment to reconcile net loss from operations:
|
|
|
|
|
|
|
|
|
Stock-based compensation
|
|
|
39,000
|
|
|
|
713,753
|
|
Changes in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
(98,446
|
)
|
|
|
24,724
|
|
Related Party Receivable
|
|
|
32,872
|
|
|
|
(6,872
|
)
|
Prepaid Expenses
|
|
|
3,244
|
|
|
|
4,144
|
|
Accounts Payable and Accrued Expenses
|
|
|
257,444
|
|
|
|
7,667
|
|
Impairment of intangible assets
|
|
|
50,000
|
|
|
|
–
|
|
Due to related parties
|
|
|
119,696
|
|
|
|
(52,023
|
)
|
Net Cash (Used in) Operating Activities
|
|
|
(247,432
|
)
|
|
|
(508,503
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Purchase of Intangible Assets
|
|
|
(25,334
|
)
|
|
|
–
|
|
Net Cash (Used in) Investing Activities
|
|
|
(25,334
|
)
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Issuance of Capital Stock for cash
|
|
|
167,500
|
|
|
|
615,000
|
|
Net Cash Provided by Financing Activities
|
|
|
167,500
|
|
|
|
615,000
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
(105,266
|
)
|
|
|
106,497
|
|
Cash at Beginning of Period
|
|
|
107,673
|
|
|
|
1,176
|
|
Cash at End of Period
|
|
$
|
2,407
|
|
|
$
|
107,673
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information:
|
|
|
|
|
|
|
|
|
Debt Related to Purchase of Intangible Assets
|
|
$
|
24,666
|
|
|
$
|
–
|
|
See accompanying notes to financial statements
Illumination America, Inc.
Notes to Financial Statements
December 31, 2016 and 2015
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Illumination America, Inc., formerly Illumination
America, LLC, a Florida limited liability company, was formed on October 6, 2009. A Certificate of Conversion and Articles of Incorporation
were filed August 4, 2014, with an organizational date deemed effective October 6, 2009, for Illumination America, Inc., the resulting
Florida corporation.
The Company’s accounting year end is December 31.
NOTE 2 – GOING CONCERN
The Company’s financial statements
as of December 31, 2016 have been prepared using generally accepted accounting principles in the United States of America applicable
to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern. The Company has incurred significant losses.
In order to continue as a going concern,
the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for
the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses
and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful
in accomplishing any of its plans. These financial statements do not include any adjustments related to the recoverability and
classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company
have been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when
earned, and expenses and losses or recognized when incurred.
Forward Stock Split
On December 22, 2015, the Company’s
board of directors authorized a forward split of the Company’s issued and outstanding Common Stock whereby each share of
Common Stock was exchanged for 1.2847603145 shares, with fractional shares rounded to the nearest round number. In connection therewith,
Company shareholders of record as of the close of business on December 22, 2015 the record date, received an additional 1.2847603145
shares of the Company’s Common Stock for each share of Common Stock held by them on the record date. Under the guidelines
of Staff Accounting Bulletin 4c, a capital structure change such as a stock split that occurs after the date of the most recent
balance sheet must be given retroactive effect in the balance sheet. Accordingly, all references to the numbers of common shares
and per share data in the accompanying financial statements have been adjusted to reflect this forward split on a retroactive basis,
unless indicated otherwise.
Use of Estimates
The preparation
of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported
amounts of liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. The most significant estimates relate to revenue recognition, valuation
of accounts receivable and inventories, purchase price allocation of acquired businesses, impairment of long lived assets and goodwill,
valuation of financial instruments, income taxes, and contingencies. The Company bases its estimates on historical experience,
known or expected trends and various other assumptions that are believed to be reasonable given the quality of information available
as of the date of these financial statements. The results of these assumptions provide the basis for making estimates about the
carrying amounts of assets and liabilities that are not readily apparent from other sources. Actual results could differ from these
estimates.
Cash and Cash Equivalents
The Company considers all highly liquid
temporary cash investments with an original maturity of three months or less to be cash equivalents. At December 31, 2016 and December
31, 2015, the Company cash equivalents totaled $2,407 and $107,763 respectively.
Accounts Receivable
We record accounts receivable at net realizable
value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the
accounts receivable balances and is charged to Other income (expense) in the consolidated statements of operations. We calculate
this allowance based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables,
and our relationships with, and the economic status of, our customers. As of December 31, 2016 and 2015, an allowance for estimated
uncollectible accounts was determined to be unnecessary.
Stock Purchase Warrants
The Company accounts
for warrants issued to purchase shares of its common stock 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.
Net Loss per Share
Net loss per common share is computed by
dividing net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards,
ASC Topic 260, "Earnings per Share." Basic earnings per common share (“EPS”) calculations are determined
by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per
common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common
share equivalents outstanding.
Revenue Recognition
We recognize revenue when the four revenue
recognition criteria are met, as follows:
|
·
|
Persuasive evidence of an arrangement exists
– our customary practice is to obtain written evidence, typically in the form of a sales contract or purchase order;
|
|
·
|
Delivery
– when custody is transferred to our customers either upon shipment to or receipt at our customers’ locations, with no right of return or further obligations, such as installation;
|
|
·
|
The price is fixed or determinable
– prices are typically fixed at the time the order is placed and no price protections or variables are offered; and
|
|
·
|
Collectability is reasonably assured
– we typically work with businesses with which we have a long standing relationship, as well as monitoring and evaluating customers’ ability to pay.
|
Refunds and returns, which are minimal,
are recorded as a reduction of revenue. Payments received by customers prior to our satisfying the above criteria are recorded
as unearned income in the consolidated balance sheets. To date, substantially all of the Company’s revenue has come from
the sale of LED tubes and fixtures. If the Company enters into a project requiring installation, this installation is performed
by the client or from a third party contractor and no revenue is recognized on the installation since the third party directly
bills the client.
Fair Value of Financial Instruments
The Company applies the accounting guidance
under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain
related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most
advantageous market in which it would transact business and considers assumptions that marketplace participants would use when
pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value
hierarchy for measurements of fair value as follows:
|
☐
|
Level 1 - quoted market prices in active markets for identical assets or liabilities.
|
|
|
|
|
☐
|
Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
|
|
|
☐
|
Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.
|
The carrying amount of the Company's financial
instruments approximates their fair value as of December 31, 2016 and December 31, 2015, due to the short-term nature of these
instruments.
Recent Accounting Pronouncements
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 4 – OTHER ASSETS, IMPAIRMENT
OF INTANGIBLE ASSETS
At December 31,
2016, as a result of deteriorating profitability of Catalyst LED and significant delays associated with new business opportunities,
the Company performed the impairment test as prescribed by ASC 350 on the carrying value of its intangible asset, and as a result,
recorded an impairment charge totaling $50,000.
NOTE 5 – RELATED PARTY TRANSACTIONS
Since January 1, 2013 the Company has sub-leased
a portion of its office space to a related company, Grom Holdings, Inc. at the rate of $2,000 per month, plus miscellaneous additional
charges for other office services. As of December 31, 2016 and December 31, 2015, the balance of the related party receivables
on the Company’s balance sheet were $-0- and $32,872, respectively, all of which represented unpaid rent due from the related
party.
For both the years ended December 31, 2016
and December 31, 2015, the Company recorded $28,991 and 25,320, respectively, in other income related to the lease on its Income
Statement in “Other Income Related Party”.
Members of the Company’s Board of
Directors have advanced working capital to pay expenses of the Company. These loans payable are due on demand and non-interest
bearing. The outstanding amount due to related parties was $154,447 and $34,751 as of December 31, 2016 and December 31, 2015,
respectively.
NOTE 6 – STOCKHOLDERS EQUITY
Common Stock
The Company has 100,000,000 shares of
Common Stock authorized with a par value of $0.001 per share and 25,000,000 shares of Preferred Stock authorized, with a par value
of $0.001 per share. As of December 31, 2016 and 2015 there were 10,264,744 and 10,000,000 common shares outstanding, respectively.
No shares of Preferred Stock are outstanding.
Common Stock Issued in Private Placements
During the year ended December 31, 2016,
the Company accepted subscription agreements from 4 investors and issued 214,744 shares of its common stock at a price of $0.78
per share along with an equal number of stock purchase warrants exercisable at $1.50 per share for gross proceeds totaling $167,500.
During the year ended December 31, 2015,
the Company accepted subscription agreements from 6 investors and issued 790,128 shares of its common stock for gross proceeds
totaling $615,000.
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 $155,764 to these stock purchase warrants using the following variables as of December 31, 2016:
Common stock price
|
|
|
$0.78
|
|
Warrant exercise price
|
|
|
$1.50
|
|
Expected dividend yield
(1)
|
|
|
0.00
|
%
|
Risk-free interest rate
(2)
|
|
|
2.93
|
%
|
Expected volatility
(3)
|
|
|
164.09
|
%
|
Expected life (in years)
|
|
|
5
|
|
______________
(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 is based upon the average volatility rate of three similar publicly traded companies.
|
Common Stock Issued in Exchange for Services
During the year ended December 31, 2016,
the Company issued 50,000 shares of its common stock for services valued at $0.78 per share amounting to $39,000. The price of
$0.78 represented the Company’s share price in its private placement throughout all of 2016 to a Company salesman pursuant
to the terms of his employment agreement with the Company.
Stock Purchase Warrants
The following table reflects all outstanding and exercisable
warrants at December 31, 2016:
|
|
Number of
Warrants
Outstanding
|
|
|
Weighted Average
Exercise Price
|
|
|
Average Remaining
Contractual
Life (Years)
|
|
Balance, January 1, 2016
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
214,744
|
|
|
$
|
1.00
|
|
|
|
4.25
|
|
Balance December 31, 2016
|
|
|
214,744
|
|
|
$
|
1.00
|
|
|
|
4.25
|
|
NOTE 7 – COMMITMENTS AND CONTINGENCIES
On November 1, 2015, the Company entered into a new lease agreement
for a period of three years at a base rate of $2,670 per month subject to annual escalation provisions.
Periods
|
|
Amounts
|
|
|
|
|
|
For the year ended December 31, 2017
|
|
$
|
32,996
|
|
|
|
|
|
|
Thereafter
|
|
$
|
28,068
|
|
NOTE 8 –SUBSEQUENT EVENTS
On January 11, 2017, the Company executed
a non-binding Letter of Intent (“LOI”) with Grom Holdings, Inc., a Delaware corporation (“Grom”), whereby
the Company reached an agreement in principle to acquire all of Grom’s issued and outstanding common stock. Darren Marks,
Melvin Leiner and Dr. Thomas Rutherford are directors of both companies and Messrs. Marks and Leiner are the principal shareholders
of both companies. Under the terms of the LOI, the Company will issue 4.17 shares of our common stock in exchange for every share
of Grom common stock issued and outstanding at closing. It is anticipated that Grom will have no more than 25 million of its common
shares issued and outstanding immediately prior to the closing date.
The proposed transaction is subject to
various conditions, including but not limited to execution of applicable Exchange Agreements, approval of the same by both of the
Company’s shareholders, completion of independent financial audits of Grom for the years ended December 31, 2016 and 2015,
the issuance of an order of effectiveness to a registration statement the Company intends to file on Form S-4 and various other
matters.
On February 10, 2017 we received and accepted
a subscription for 400,000 Units from one of our directors and received net proceeds of $300,000 ($.75 per share). Each Unit consists
of one share of the Company’s Common Stock and one Common Stock Purchase Warrant exercisable to purchase one share of the
Company’s Common Stock at an exercise price of $1.50 per share. In addition, Messrs. Marks and Leiner, two of our directors
and our principal shareholders, voluntarily redeemed an aggregate of 400,000 shares of their stock so as to avoid dilution to other
existing shareholders arising as a result of this equity financing.
ILLUMINATION AMERICA, INC.
BALANCE SHEETS
|
|
March 31,
2017
|
|
|
December 31,
2016
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
3,128
|
|
|
$
|
2,407
|
|
Accounts Receivable
|
|
|
65,966
|
|
|
|
115,899
|
|
Related Party Receivable
|
|
|
212,660
|
|
|
|
–
|
|
Prepaid Expenses
|
|
|
2,702
|
|
|
|
1,612
|
|
Deposits
|
|
|
1,000
|
|
|
|
1,000
|
|
Total Current Assets
|
|
|
285,456
|
|
|
|
120,918
|
|
Other Assets
|
|
|
–
|
|
|
|
3,319
|
|
Total Assets
|
|
$
|
285,456
|
|
|
$
|
124,237
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts Payable
|
|
$
|
131,207
|
|
|
$
|
225,027
|
|
Other accrued expenses
|
|
|
84,100
|
|
|
|
116,855
|
|
Due to related parties
|
|
|
178,669
|
|
|
|
154,447
|
|
Total Current Liabilities
|
|
|
393,976
|
|
|
|
496,329
|
|
Total Liabilities
|
|
|
393,976
|
|
|
|
496,329
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 25,000,000 shares authorized, -0- shares issued and outstanding
|
|
|
|
|
|
|
|
|
Common stock, par value $0.001, authorized 100,000,000; $0.001 par value common shares issued and outstanding 10,264,744 shares as of March 31, 2017 and December 31, 2016, respectively
|
|
|
10,265
|
|
|
|
10,265
|
|
Additional paid-in capital
|
|
|
2,877,663
|
|
|
|
2,485,288
|
|
Accumulated Deficit
|
|
|
(2,996,448
|
)
|
|
|
(2,867,645
|
)
|
Total Stockholders' Deficit
|
|
|
(108,520
|
)
|
|
|
(372,092
|
)
|
Total Liabilities and Stockholders' Deficit
|
|
$
|
285,456
|
|
|
|
124,237
|
|
See accompanying notes to financial statements
ILLUMINATION AMERICA, INC.
STATEMENTS OF OPERATIONS (unaudited)
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
155,745
|
|
|
$
|
19,777
|
|
Cost of Sales
|
|
|
112,342
|
|
|
|
14,976
|
|
Gross Margin
|
|
|
43,403
|
|
|
|
4,801
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
23,524
|
|
|
|
34,694
|
|
Executive compensation
|
|
|
23,750
|
|
|
|
18,000
|
|
Payroll expenses
|
|
|
61,838
|
|
|
|
24,129
|
|
Professional fees
|
|
|
60,997
|
|
|
|
59,975
|
|
Rent
|
|
|
9,115
|
|
|
|
8,010
|
|
|
|
|
|
|
|
|
|
|
Total Operating Expenses
|
|
|
179,224
|
|
|
|
144,808
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(135,821
|
)
|
|
|
(140,007
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Other Income
|
|
|
–
|
|
|
|
7,076
|
|
Other Income-Related Party
|
|
|
7,020
|
|
|
|
7,543
|
|
Total Other Income
|
|
|
7,020
|
|
|
|
14,619
|
|
|
|
|
|
|
|
|
|
|
Net Loss before Income Taxes
|
|
|
(128,801
|
)
|
|
|
(125,388
|
)
|
|
|
|
|
|
|
|
|
|
Income Tax (Benefit)
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(128,801
|
)
|
|
|
(125,388
|
)
|
|
|
|
|
|
|
|
|
|
Net Loss per Common Share - Basic and Diluted
|
|
$
|
(0.01
|
)
|
|
$
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
Weighted Average Number of Common Shares Outstanding - Basic and Diluted
|
|
|
10,264,744
|
|
|
|
10,000,000
|
|
See accompanying notes to financial statements
ILLUMINATION AMERICA, INC.
STATEMENTS OF CASH FLOWS (unaudited)
|
|
For the Three Months Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
|
|
Net Loss
|
|
$
|
(128,801
|
)
|
|
$
|
(125,388
|
)
|
Changes in Operating Assets and Liabilities
|
|
|
|
|
|
|
|
|
Accounts Receivable
|
|
|
49,933
|
|
|
|
8,760
|
|
Related Party Receivable
|
|
|
(212,660
|
)
|
|
|
32,354
|
|
Prepaid Expenses
|
|
|
2,227
|
|
|
|
1,456
|
|
Accounts Payable and Accrued Expenses
|
|
|
(126,575
|
)
|
|
|
(7,632
|
)
|
Due to related parties
|
|
|
24,222
|
|
|
|
(14,923
|
)
|
Net Cash (Used in) Operating Activities
|
|
|
(391,654
|
)
|
|
|
(105,373
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
|
|
|
|
|
|
Net Cash Provided by Investing Activities
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Donated Capital
|
|
|
392,375
|
|
|
|
–
|
|
Net Cash Provided by Financing Activities
|
|
|
392,375
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
Net Increase (Decrease) in Cash
|
|
|
721
|
|
|
|
(105,373
|
)
|
Cash at Beginning of Period
|
|
|
2,407
|
|
|
|
107,673
|
|
Cash at End of Period
|
|
$
|
3,128
|
|
|
$
|
2,300
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to financial statements
ILLUMINATION AMERICA, INC.
Notes to Unaudited Financial Statements
For The Three Month Interim Period Ended March
31, 2017 and 2016
NOTE 1 – ORGANIZATION AND DESCRIPTION OF BUSINESS
Illumination America, Inc., formerly Illumination
America, LLC, a Florida limited liability company, was formed on October 6, 2009. A Certificate of Conversion and Articles of Incorporation
were filed August 4, 2014, with an organizational date deemed effective October 6, 2009, for Illumination America, Inc., the resulting
Florida corporation.
Letter of Intent to Acquire Grom Holdings,
Inc
.
On January 11, 2017, the Company executed a
non-binding Letter of Intent (“LOI”) with Grom Holdings, Inc., a Delaware corporation (“Grom”), whereby
the Company reached an agreement in principle to acquire all of Grom’s issued and outstanding common stock. Darren Marks,
Melvin Leiner and Dr. Thomas Rutherford are directors of both companies and Messrs. Marks and Leiner are the principal shareholders
of both companies. Under the terms of the LOI, the Company will issue 4.17 shares of its common stock in exchange for every share
of Grom common stock issued and outstanding at closing. It is anticipated that Grom will have no more than 25 million of its common
shares issued and outstanding immediately prior to the closing date.
The proposed transaction is subject to
various conditions, including but not limited to execution of applicable Exchange Agreements, approval of the same by the
shareholders of both companies, completion and acceptance by the Company of the results of independent financial audits of Grom
for the years ended December 31, 2016 and 2015, the issuance of an order of effectiveness to a registration statement the
Company is required to file on Form S-4, and various other matters.
The Company’s accounting year end is
December 31.
NOTE 2 – GOING CONCERN
The Company’s financial statements as
of March 31, 2017, have been prepared using generally accepted accounting principles in the United States of America applicable
to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business.
The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue
as a going concern. The Company has incurred significant losses.
In order to continue as a going concern, the
Company will need, among other things, additional capital resources. Since it is very unlikely that the Company can obtain sufficient
capital to profitably run its LED lighting business in the current competitive LED environment, the Company has entered into an
agreement to acquire another company. See “Letter of Intent to Acquire Grom Holdings, Inc.” above.
If the acquisition is successfully consummated,
of which there can be no assurance, management’s plan is to thereafter operate the Company primarily as a social media company
for children. Based upon the results of operations of the Company’s LED lighting business, management may then elect to dispose
of the LED lighting business, either through sale or other means. Management cannot provide any assurances that the Company will
be successful in accomplishing its plan. These financial statements do not include any adjustments related to the recoverability
and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial statements of the Company have
been prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”).
This basis of accounting involves the application of accrual accounting and consequently, revenues and gains are recognized when
earned, and expenses and losses or recognized when incurred.
Use of Estimates
The preparation of financial statements in
conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of liabilities and
disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The most significant estimates relate to revenue recognition, valuation of accounts receivable
and inventories, purchase price allocation of acquired businesses, impairment of long lived assets and goodwill, valuation of financial
instruments, income taxes, and contingencies. The Company bases its estimates on historical experience, known or expected trends
and various other assumptions that are believed to be reasonable given the quality of information available as of the date of these
financial statements. The results of these assumptions provide the basis for making estimates about the carrying amounts of assets
and liabilities that are not readily apparent from other sources. Actual results could differ from these estimates.
Cash and Cash Equivalents
The Company considers all highly liquid temporary cash investments
with an original maturity of three months or less to be cash equivalents.
Accounts Receivable
We record accounts receivable at net realizable
value. This value includes an appropriate allowance for estimated uncollectible accounts to reflect any loss anticipated on the
accounts receivable balances and is charged to Other income (expense) in the statements of operations. We calculate this allowance
based on our history of write-offs, the level of past-due accounts based on the contractual terms of the receivables, and our relationships
with, and the economic status of, our customers. As of March 31, 2017 and December 31, 2016, an allowance for estimated uncollectible
accounts was determined to be unnecessary.
Stock Purchase Warrants
The Company accounts for warrants issued to
purchase shares of its common stock 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.
Net Loss per Share
Net loss per common share is computed by dividing
net loss by the weighted average common shares outstanding during the period as defined by Financial Accounting Standards, ASC
Topic 260, "Earnings per Share." Basic earnings per common share (“EPS”) calculations are determined by dividing
net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share
calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents
outstanding.
Revenue Recognition
We recognize revenue when the four revenue recognition criteria
are met, as follows:
|
·
|
Persuasive evidence of an arrangement exists
– our customary
practice is to obtain written evidence, typically in the form of a sales contract or purchase order;
|
|
·
|
Delivery
– when custody is transferred to our customers
either upon shipment to or receipt at our customers’ locations, with no right of return or further obligations, such as installation;
|
|
·
|
The price is fixed or determinable
– prices are typically
fixed at the time the order is placed and no price protections or variables are offered; and
|
|
·
|
Collectability is reasonably assured
– we typically work
with businesses with which we have a long standing relationship, as well as monitoring and evaluating customers’ ability
to pay.
|
Refunds and returns, which are minimal, are
recorded as a reduction of revenue. Payments received by customers prior to our satisfying the above criteria are recorded as unearned
income in the balance sheets. To date, substantially all of the Company’s revenue has come from the sale of LED tubes and
fixtures. If the Company enters into a project requiring installation, this installation is performed by the client or from a third-party contractor and no revenue is recognized on the installation since the third party directly bills the client.
Fair Value of Financial Instruments
The Company applies the accounting guidance
under Financial Accounting Standards Board (“FASB”) ASC 820-10, “Fair Value Measurements”, as well as certain
related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most
advantageous market in which it would transact business and considers assumptions that marketplace participants would use when
pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value hierarchy for measurements
of fair value as follows:
|
·
|
Level 1 - quoted market prices in active markets for identical assets
or liabilities.
|
|
·
|
Level 2 - inputs other than Level 1 that are observable, either directly
or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar
assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable
market data for substantially the full term of the assets or liabilities.
|
|
·
|
Level 3 - unobservable inputs that are supported by little or no market
activity and that are significant to the fair value of the assets or liabilities.
|
The carrying amount of the Company's financial
instruments approximates their fair value as of March 31, 2017 and December 31, 2016, due to the short-term nature of these instruments.
Recent Accounting Pronouncements
The Company has implemented all new accounting
pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new
pronouncements that have been issued that might have a material impact on its financial position or results of operations.
NOTE 4 – OTHER ASSETS, IMPAIRMENT OF INTANGIBLE ASSETS
At December 31, 2016, as a result of deteriorating
profitability of Catalyst LED and significant delays associated with new business opportunities, the Company performed the impairment
test as prescribed by ASC 350 on the carrying value of its intangible asset, and as a result, recorded an impairment charge totaling
$50,000.
NOTE 5 – RELATED PARTY TRANSACTIONS
Since January 1, 2013 the Company has sub-leased
a portion of its office space to a related company, Grom Holdings, Inc. at the rate of $2,000 per month, plus miscellaneous additional
charges for other office services. As of March 31, 2017 and December 31, 2016, the balance of the related party receivables on
the Company’s balance sheet were $-0- and $-0-, respectively, all of which represented unpaid rent due from the related party.
Related party receivables and donated capital
On January 11, 2017, the Company executed a
non-binding Letter of Intent (“LOI”) with Grom whereby the Company reached an agreement in principle to acquire all
of Grom’s issued and outstanding common stock. Darren Marks, Melvin Leiner and Dr. Thomas Rutherford are directors of both
companies and Messrs. Marks and Leiner are the principal shareholders of both companies. In order to expedite and facilitate the
consummation of the transaction in an economical fashion; and to fund accounting, legal and other expenses associated with the
transaction, these directors agreed to do following during the three month period ended March 31, 2017:
|
·
|
In order to minimize share dilution and
to help raise capital to fund the transaction, Mr. Marks and Mr. Leiner each voluntarily agreed to donate up to 1,000,000 of their
Company shares back to the Company, donating one share back to the Company for every share of Common Stock sold by the Company.
No other individuals donated any capital for the three month period ended March 31, 2017.
|
|
·
|
In February 2017, Dr. Thomas Rutherford,
an independent director for both the Company and Grom, purchased 400,000 Units at a price of $0.75 per Unit offered by the Company
as part of a private offering. Each Unit is comprised of one share of the Company’s Common Stock and one Common Stock Purchase
Warrant exercisable to purchase one share of the Company’s Common Stock at an exercise price of $1.50 per Warrant. At that
time Messrs. Marks and Leiner donated an aggregate of 400,000 of their shares back to the Company to avoid dilution to the remaining
shareholders of the Company. See “Note 6. Stockholders Equity,” below.
|
In February, 2017 the Company agreed
to extend up to $1.0 million in unsecured interest free loans to Grom.
As of March 31, 2017, the Company had extended
$212,660 in loans receivable to Grom, compared to $-0- for the period ended December 31, 2016.
Related party payables
Since the inception of the Company, Mr. Marks
and Mr. Leiner have advanced working capital to pay expenses of the Company. These loans payable are due on demand and non-interest
bearing. The outstanding amount due to related parties was $178,669 and $154,447 as of March 31, 2017 and December 31, 2016. respectively.
NOTE 6 – STOCKHOLDERS EQUITY
Common Stock
The Company has 100,000,000 shares of Common
Stock authorized with a par value of $0.001 per share and 25,000,000 shares of Preferred Stock authorized, with a par value of
$0.001 per share. As of March 31, 2017 and December 31, 2016, there were 10,264,744 common shares outstanding. No shares of Preferred
Stock are outstanding.
Common Stock Issued in Private Placements
During the year ended December 31, 2016, the
Company accepted subscription agreements from 4 investors and issued 214,744 shares of its common stock at a price of $0.78 per
share along with an equal number of stock purchase warrants exercisable at $1.00 per share for gross proceeds totaling $167,500.
These proceeds were used exclusively for working capital purposes.
During the three month period ended March 31,
2017, the Company sold 523,166 Units to 6 “accredited” investors at a price of $0.75 per Unit and received aggregate
proceeds of $392,735. Each Unit consisted of one share of Common Stock and one Common Stock Purchase Warrant exercisable to purchase
one share of Common Stock at an exercise price of $1.50 per warrant. The proceeds from this Offering are primarily to pay for expenses
related to the proposed acquisition of Grom by the Company. Messrs. Marks and Leiner donated an aggregate of 523,166 of their shares
back to the Company to avoid dilution to the remaining shareholders of the Company. Under the guidelines of FASB Topic 505-30 “Treasury
Stock”, the amount of $392,735 is considered donated capital on the cost basis, and is included in Paid in Capital on the
Company’s balance sheet.
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 $333,862 for 523,166 stock purchase warrants using the following variables as of March 31, 2017:
Common stock price
|
|
$
|
0.75
|
|
Warrant exercise price
|
|
$
|
1.50
|
|
Expected dividend yield
(1)
|
|
|
0.00%
|
|
Risk-free interest rate
(2)
|
|
|
1.93%
|
|
Expected volatility
(3)
|
|
|
184.55%
|
|
Expected life (in years)
|
|
|
3
|
|
_____________________
(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 is based upon the average volatility rate of three similar publicly traded companies.
|
Common Stock Issued in Exchange for Services
On December 31, 2016, the Company issued 50,000
shares of its common stock to a Company salesman pursuant to the terms of his employment agreement with the Company. This common
stock issued for services was valued at $0.78 per share, amounting to $39,000. The price of $0.78 represented the Company’s
share price in its private placement throughout all of 2016.
Stock Purchase Warrants
The following table reflects all outstanding and exercisable warrants
at March 31, 2017:
|
|
Number of
Warrants
Outstanding
|
|
|
Weighted
Average
Exercise Price
|
|
|
Average
Remaining
Contractual
Life (Years)
|
|
Balance, January 1, 2016
|
|
|
–
|
|
|
|
|
|
|
|
|
|
Warrants issued
|
|
|
214,744
|
|
|
$
|
1.00
|
|
|
|
4.25
|
|
Balance December 31, 2016
|
|
|
214,744
|
|
|
$
|
1.00
|
|
|
|
4.25
|
|
Warrants issued for the period ended March 31, 2017
|
|
|
523,166
|
|
|
$
|
1.50
|
|
|
|
2.75
|
|
Balance, March 31, 2017
|
|
|
737,910
|
|
|
$
|
1.35
|
|
|
|
3.18
|
|
PROSPECTUS
__________________, 201__
Until ____________, 20__, all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers’ obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions.
|
PART II - INFORMATION NOT REQUIRED IN
PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE
AND DISTRIBUTION
The expenses to be paid by the Registrant
are as follows. All amounts, other than the SEC registration fee, are estimates.
|
|
Amount to be Paid
|
|
SEC registration fee
|
|
$
|
195
|
|
Legal fees and expenses
|
|
$
|
25,000
|
|
Accounting fees and expenses
|
|
$
|
16,000
|
|
Miscellaneous
|
|
$
|
1,000
|
|
|
|
|
|
|
Total
|
|
$
|
42,195
|
|
ITEM 14. INDEMNIFICATION OF DIRECTORS
AND OFFICERS
Under the Florida Business Corporation
Act and our Articles of Incorporation, our directors and officers will have no personal liability to us or our shareholders for
monetary damages incurred as the result of the breach or alleged breach by a director or officer of his “duty of care.”
This provision does not apply to the directors’: (i) acts or omissions that involve intentional misconduct, fraud or a knowing
and culpable violation of law, or (ii) approval of an unlawful dividend, distribution, stock repurchase or redemption. This provision
would generally absolve directors of personal liability for negligence in the performance of his duties, including gross negligence.
The effect of this provision in our Articles
of Incorporation is to eliminate the rights of our Company and our shareholders (through shareholder’s derivative suits on
behalf of our Company) to recover monetary damages against a director for breach of his fiduciary duty of care as a director (including
breaches resulting from negligent or grossly negligent behavior) except in the situations described in clauses (i) and (ii) above.
This provision does not limit nor eliminate the rights of our Company or any shareholder to seek non-monetary relief such as an
injunction or rescission in the event of a breach of a director’s duty of care. Section 145 of the Florida General Corporation
Law provides corporations the right to indemnify their directors, officers, employees and agents in accordance with applicable
law.
Insofar as indemnification for liabilities
arising under the Securities Act of 1933, as amended, may be permitted to directors, officers, or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed that in the opinion of the Securities and Exchange Commission,
such indemnification is against public policy as expressed in the Securities Act of 1933, as amended, and is therefore unenforceable.
ITEM 15. RECENT SALES OF UNREGISTERED
SECURITIES
In November 2015, the Company’s Board
of Directors authorized the issuance of 113,753 shares of Common Stock in exchange for legal services and 250,000 shares for consulting
services. We relied upon the exemption from registration provided by Section 4(a)(2) of the Securities Act of 1933, as amended,
to issue these shares, as this transaction did not involve a public offering and the individuals who received shares had special
knowledge of our operations and business.
In June 2015, we issued 350,000 shares
of our Common Stock to a consultant pursuant to the terms of a Consulting Agreement. We relied upon the exemption from registration
provided by Section 4(a)(2) of the Securities Act of 1933, as amended, to issue these shares, as this transaction did not involve
a public offering and the individuals who received shares had special knowledge of our operations and business.
During the years ended December 31, 2015,
2014 and 2013, the Company also sold 315,000, 125,000 and 405,000 shares of its Common Stock in its private offerings of shares,
which shares were sold at a price of $1.00 per share ($0.78 per share post-split). All share and price references are pre-forward
split. We relied upon the exemption from registration provided by Regulation D of the Securities Act of 1933, as amended, to issue
these shares.
During the year ended December 31,
2016, we accepted subscription agreements from four investors and issued 214,744 Units, each Unit consisting of one share of our
Common Stock and one Common Stock Purchase Warrant exercisable to purchase one share of our Common Stock at an exercise price
of $1.00, which Units were sold at a price of $0.78 Unit for gross proceeds totaling $167,500.
During the three month period ended
March 31, 2017, we commenced a new private offering of Units. Each Unit is comprised of one share of the Company’s Common
Stock and one Common Stock Purchase Warrant exercisable to purchase one share of the Company’s Common Stock at an exercise
price of $1.50 per Warrant. As of the date of this registration statement we have sold 523,166 Units to six “accredited”
investors and received aggregate proceeds of $392,735.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
101.INS
|
|
XBRL Instances 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
|
* Previously filed in our S-1 registration
statement filed with the Commission on January 13, 2016
**
Previously filed in our S1/A1 amended registration statement filed with the Commission on March 3, 2016
ITEM 17. UNDERTAKINGS
The undersigned registrant
hereby undertakes to:
|
(1)
|
File, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
|
|
(A)
|
Include any Prospectus required by Section 10(a)(3) of the Securities Act of 1933;
|
|
(B)
|
Reflect in the Prospectus any facts or events which, individually or together, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of Prospectus filed with the Securities and Exchange Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume and price represent no more than a 20 percent change in the maximum aggregate offering price set forth in the “Calculation of Registration Fee” table in the effective registration statement;
|
|
(C)
|
Include any additional or changed material information on the plan of distribution.
|
|
(2)
|
For determining liability under the Securities Act of 1933, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering thereof.
|
|
(3)
|
File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
|
|
(4)
|
For determining liability of the undersigned registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities, the undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
|
|
(A)
|
Any preliminary Prospectus or Prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 under the Securities Act of 1933;
|
|
(B)
|
Any free writing Prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
|
|
(C)
|
The portion of any other free writing Prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
|
|
(D)
|
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
|
Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to
the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the SEC such indemnification is
against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification
against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification
by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
Each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or prospectus
that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration
statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior
to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of
the registration statement or made in any such document immediately prior to such date of first use.
SIGNATURES
Pursuant to the requirements of the Securities
Act, the registrant has duly caused this amendment to its registration statement to be signed on its behalf by the undersigned
in the city of Boca Raton, Florida on June 19, 2017.
|
ILLUMINATION AMERICA, INC.
|
|
By:
/s/ Ismael Llera
Ismael Llera, President, Chief Executive
Officer,
Chief Financial Officer
|
|
|
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that
each person whose signature appears below hereby constitutes and appoints Ismael Llera, Chief Executive Officer, as his true and
lawful attorney-in-fact and agent, with full power of substitution and re-substitution, for him and in his name, place and stead
in any and all capacities, in connection with this Registration Statement, including to sign in the name and on behalf of the undersigned,
this Registration Statement and any and all amendments thereto, including post-effective amendments and registrations filed pursuant
to Rule 462 under the U.S. Securities Act of 1933, and to file the same, with all exhibits thereto, and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto such attorney-in-fact and agents full power and authority
to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents
and purposes as he might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent, or his
substitute, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities
Act, the following persons in the capacities and on the dates indicated have signed this amended Registration Statement:
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
/s/ Melvin Leiner
Melvin Leiner
|
|
Director
|
|
June 19, 2017
|
|
|
|
|
|
/s Darren Marks
|
|
Director
|
|
June 19, 2017
|
Darren Marks
|
|
|
|
|
s/ Dr. Thomas Rutherford
|
|
Director
|
|
June 19, 2017
|
Dr. Thomas Rutherford
|
|
|
|
|