Item 1. Business.
Background
LED Power Group, Inc. (“we”, “us”, “our” or the “Company”) was organized under the laws of the State of Nevada on June 8, 2006 under the name “Drayton Harbor Resources, Inc.” and was engaged in the exploration of mineral interest located in British Columbia, Canada. We have relinquished our rights to this mineral interest and changed our focus towards the end of 2008 to the research, development, manufacturing and sales of light-emitting diode (LED) products.
In furtherance of our business objectives, on January 12, 2009, we entered into a definitive Agreement and Plan of Merger with LED Power Group, Inc. f.k.a. LED Power, Inc., a Nevada corporation (“LPI”) and Drayton Acquisition Sub, Inc., our wholly-owned subsidiary, whereby Drayton Acquisition Sub, Inc. merged with and into LPI, with LPI remaining as the surviving entity and becoming our wholly-owned subsidiary. Under the terms of the Agreement and Plan of Merger, we issued 9,000,000 pre-split shares of our common stock to Trussnet Capital Partners (Cayman) Ltd. (“Trussnet”) for all of the issued and outstanding shares of LPI. LPI has limited operations and owns the rights to an Assignment Agreement with Jumbo Power Technology Ltd., Liao Pheng-Piao and Liu Chih-Chun (“Licensors”), dated December 2008 (the “Assignment Agreement”). Under the terms of the Assignment Agreement, LPI was licensed the exclusive rights to certain intellectual property owned by Licensors in relation to the production of LED products.
We were previously involved in a dispute with Trussnet involving the Assignment Agreement, and until such dispute was resolved, we were unable to utilize the intellectual property licensed thereunder to develop LED products. On August 16, 2010, we entered into a Rescission Agreement with Trussnet, Trussnet Capital Partners (HK) Ltd. (“TCP”), and Coach Capital, LLC (the “Rescission Agreement”), whereby we agreed to the rescission of the Assignment Agreement. In consideration of the rescission of the Assignment Agreement, TCP and Trussnet agreed to surrender for cancellation and relinquish any and all ownership interests in 225,000 shares of our common stock issued in connection with the Assignment Agreement.
To further facilitate our shift in business focus, on January 16, 2009, we effected a 2.5-for-1 forward stock split of all of our issued and outstanding shares of common stock. Additionally, on February 2, 2009, we merged with our wholly-owned subsidiary, LPI, for the purposes of effecting a name change to “LED Power Group, Inc.” Effective August 10, 2009, we effected a 1-for-100 reverse split of all our issued and outstanding shares of common stock to better position the company for growth for the rest of 2009 and to facilitate investment and to ultimately enhance overall shareholder value, resulting in a decrease of the outstanding shares of common stock from 72,500,000 to 725,001 and a decrease of our authorized capital to 6,000,000. Effective November 2, 2009, the Company amended its articles of incorporation to increase its authorized capital to 200,000,000 shares of common stock.
On September 24, 2009, issued an aggregate of 1,000,000 shares of our common stock for a purchase price of $10,000 to John J. Lennon, our President, resulting in a change of control and Mr. Lennon owning 57.14% of our issued and outstanding shares. On December 10, 2009, we issued an additional 23,904,015 shares of our common stock pursuant to the conversion of demand notes payable.
We have not generated any revenue from our business operations to date. We were unable to exploit our license under the Assignment Agreement to generate revenues prior to the resolution of our dispute with Trussnet. However, the resolution of this dispute terminated our license under the Assignment Agreement. Although our Board of Directors’ preference would be to obtain funding and license new technology to develop LED products, our Board believes that it must consider all viable strategic alternatives that are in the best interests of our shareholders. Such strategic alternatives include a merger, acquisition, asset purchase, or similar transaction to either develop our LED product business or enter new markets.
Subsequent to our fiscal year ended December 31, 2010, on April 14, 2011, we entered into an Assignment and Assumption Agreement (the “Assumption Agreement”) with American Petro-Hunter Inc., a Nevada corporation (“American Petro”), pursuant to which we acquired from American Petro for $30,000, all of its rights pursuant to a Participation Agreement (the “Participation Agreement”) with Archer Exploration, Inc. (“Archer”) to participate in the drilling for natural gas on a prospect located in Stanislaus County, California. Pursuant to the Participation Agreement, American Petro paid to Archer $200,000 for all costs in connection with the acquisition and operation of the prospect until completion of an initial test well in exchange for a 25% working interest in the prospect. The assignment of the 25% interest to us will only be made upon the successful completion of the initial test well. We will also be responsible for 25% of all expenditures in connection with the development and operation of the prospect for drilling. We may elect not to participate in additional expenditures in connection with the prospect at which time we will forfeit any interests we have in the prospect. American Petro conducted a seismic shoot on August 10, 2009. The results of the seismic indicate the need to reprocess the data and potentially add additional seismic lines to identify the test well locations. We are planning additional seismic shoots and the combined data packages will be used to evaluate whether there is a suitable location for a test well. There are no assurances that we will be successful in implementing our new strategy.
We continue to operate with very limited administrative support, and our current officers and directors continue to be responsible for many duties to preserve our working capital. We expect no significant changes in the number of employees over the next 12 months.
We believe that, with our current efforts to raise capital, we will have sufficient cash resources to satisfy our needs over the next 12 months. Our ability to satisfy cash requirements thereafter will determine whether we achieve our business objectives. Should we require additional cash in the future, there can be no assurance that we will be successful in raising additional debt or equity financing on terms acceptable to our company, if at all.
Our Strategy
Our initial focus will be drilling for natural gas on a prospect located in Stanislaus County, California pursuant to the Participation Agreement. However, in the future, we may attempt to locate and assess potential acquisition targets, including real property, oil and gas rights and oil and gas companies. We intend to focus primarily on oil and gas properties within the U.S. and Canada including exploration, secondary recovery and development projects. Each project will be evaluated by our management based on sound geology, acceptable risk levels and total capital requirements to develop. Our officers and directors expect to travel to different locations throughout North America to evaluate potential acquisitions.
Our ability to execute our strategy as outlined above is dependent on several factors including but not limited to: (i) identifying potential acquisitions of either assets or operational companies with prices, terms and conditions acceptable to us; (ii) additional financing for capital expenditures, acquisitions and working capital either in the form of equity or debt with terms and conditions that would be acceptable to us; (iii) our success in developing revenue, profitability and cash flow; (iv) the development of successful strategic alliances or partnerships; and (v) the extent and associated efforts and costs of federal, state and local regulations in each of the industries in which we plan to operate in. There are no assurances that we will be successful in implementing our strategy as any negative result of one of the factors alone or in combination could have a material adverse effect on our business.
Environmental Regulation
Oil and gas operations are subject to country-specific federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Various permits from governmental bodies are required for drilling operations to be conducted. Numerous governmental departments issue rules and regulations to implement and enforce such laws that are often complex and costly to comply with and that carry substantial administrative, civil and possibly criminal penalties for failure to comply. Under these laws and regulations, we may be liable for remediation or removal costs, damages and other costs associated with releases of hazardous materials (including oil) into the environment, and such liability may be imposed on us even if the acts that resulted in the releases were in compliance with all applicable laws at the time such acts were performed.
The Comprehensive Environmental Response, Compensation, and Liability Act (“CERCLA”) contains provisions requiring the remediation of releases of hazardous substances into the environment and imposes liability, without regard to fault or the legality of the original conduct, on certain classes of persons including owners and operators of contaminated sites where the release occurred and those companies who transport, dispose of, or arrange for disposal of hazardous substances released at the sites. Under CERCLA, such persons may be subject to joint and several liability for the costs of cleaning up the hazardous substances that have been released into the environment, for damages to natural resources and for the costs of certain health studies. Third parties may also file claims for personal injury and property damage allegedly caused by the release of hazardous substances. Although we handle hazardous substances in the future course of our business, we are not aware of any hazardous substance contamination for which we may be liable.
As we enter the oil and gas exploration industry, we do not anticipate that compliance with existing environmental laws and regulations will have a material effect upon our capital expenditures, earnings or competitive position. However, changes in the environmental laws and regulations, or claims for damages to persons, property, natural resources or the environment, could result in substantial costs and liabilities, and thus there can be no assurance that we will not incur significant environmental compliance costs in the future.
Employees
As of December 31, 2010, we had no full time employees. We currently utilize temporary contract labor throughout the year to address business and administrative needs.
Item 1A.
Item 1A. Risk Factors.
The risks described below are the ones we believe are the most important for you to consider, these risks are not the only ones that we face. If events anticipated by any of the following risks actually occur, our business, operating results or financial condition could suffer and the trading price of our common stock could decline.
Investors should carefully consider the risks described below before deciding whether to invest in our common stock. The risks described below are not the only ones we face. Additional risks not presently known to us or that we currently believe are immaterial may also impair our business operations and financial results. If any of the following risks actually occurs, our business, financial condition or results of operations could be adversely affected. In such case, the trading price of our common stock could decline and you could lose all or part of your investment. Our filings with the Securities and Exchange Commission also contain forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including the risks we face described below.
RISKS RELATED TO OUR BUSINESS
Our limited operating history may not serve as an adequate basis to judge our future prospects and results of operations.
We have a limited operating history and due to the rescission of the Assignment Agreement, we have no ability to exploit the license under the Assignment Agreement as contemplated by our business plan. As such, our historical operating results may not provide a meaningful basis for evaluating our business, financial performance and prospects, especially related to our oil and gas exploration activities. Accordingly, you should not rely on our results of operations for any prior periods as an indication of our future performance. Our operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We are in the development stage and potential investors should be aware of the difficulties normally encountered by enterprises in the development stage. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
We have incurred losses in prior periods and may incur losses in the future.
We incurred net losses of $8,817,540 for the period from June 8, 2006 (inception) to December 31, 2010. We cannot be assured that we can achieve or sustain profitability on a quarterly or annual basis in the future. Our operations are subject to the risks and competition inherent in the establishment of a business enterprise. There can be no assurance that future operations will be profitable. We may not achieve our business objectives and the failure to achieve such goals would have an adverse impact on us.
If we are unable to obtain additional funding our business operations will be harmed and if we do obtain additional financing our then existing shareholders may suffer substantial dilution.
We will require additional funds to meet our business objectives, and to take advantage of any available business opportunities. In order to meet our obligations, we will have to raise additional funds. Obtaining additional financing will be subject to market conditions, industry trends, investor sentiment and investor acceptance of our business plan and management. These factors may make the timing, amount, terms and conditions of additional financing unattractive or unavailable to us. If we are not successful in achieving financing in the amount necessary to further our operations, implementation of our business plan may fail or be delayed.
We are subject to new corporate governance and internal control reporting requirements, and our costs related to compliance with, or our failure to comply with, existing and future requirements could adversely affect our business.
We may face new corporate governance requirements under the Sarbanes-Oxley Act of 2002, as well as new rules and regulations subsequently adopted by the Securities and Exchange Commission (“SEC”) and the Public Company Accounting Oversight Board. These laws, rules and regulations continue to evolve and may become increasingly stringent in the future. In particular, under SEC rules, we are required to include management’s report on internal controls as part of our annual report for the fiscal year ending December 31, 2010, pursuant to Section 404 of the Sarbanes-Oxley Act. The financial cost of compliance with these laws, rules and regulations is expected to be substantial. We cannot assure you that we will be able to fully comply with these laws, rules and regulations that address corporate governance, internal control reporting and similar matters. Failure to comply with these laws, rules and regulations could materially adversely affect our reputation, financial condition and the value of our securities.
Our operating revenue will be dependent upon the performance of our properties.
Our operating revenue depends upon our ability to profitably operate our existing property by drilling and completing wells that produce commercial quantities of oil and gas and our ability to expand our operations through the successful implementation of our plans to explore, acquire and develop additional properties. The successful development of oil and gas properties requires an assessment of potential recoverable reserves, future oil and gas prices, operating costs, potential environmental and other liabilities and other factors. Such assessments are necessarily inexact. No assurance can be given that we can produce sufficient revenue to operate our existing property or acquire additional oil and gas producing properties and leases. We may not discover any recoverable reserves in the future, or we may not be able to make a profit from the reserves that we may discover. In the event that we are unable to produce sufficient operating revenue to fund our operations, we will be forced to seek additional, third-party funding, if such funding can be obtained. Such options would possibly include debt financing, sale of equity interests in our Company, joint venture arrangements, or the sale of oil and gas interests. If we are unable to secure such financing on a timely basis, we could be required to delay or scale back our operations. If such unavailability of funds continued for an extended period of time, this could result in the termination of our operations and the loss of an investor’s entire investment.
We own rights to oil properties that have not yet been developed.
We own rights to oil and gas properties that have limited or no development. There are no guarantees that our property will be developed profitably or that the potential oil and gas resources on the property will produce as expected if they are developed.
Title to the properties in which we have an interest may be impaired by title defects.
There is no assurance that we will not suffer a monetary loss from title defects or title failure related to our existing property. Additionally, undeveloped acreage has greater risk of title defects than developed acreage. If there are any title defects or defects in assignment of leasehold rights in properties in which we hold an interest, we will suffer a financial loss.
If we are unable to successfully recruit qualified managerial and field personnel having experience in oil and gas exploration, we may not be able to execute on our business plan.
In order to successfully implement and manage our new business plan, we will be dependent upon, among other things, successfully recruiting qualified managerial and field personnel having experience in the oil and gas exploration business. Competition for qualified individuals is intense. There can be no assurance that we will be able to find, attract and retain existing employees or that we will be able to find, attract and retain qualified personnel on acceptable terms.
Even if we are able to discover oil or natural gas, the potential profitability of oil and gas ventures depends upon factors beyond the control of our Company.
The potential profitability of oil and gas properties is dependent upon many factors beyond our control. For instance, world prices and markets for oil and gas are unpredictable, highly volatile, potentially subject to governmental fixing, pegging, controls or any combination of these and other factors, and respond to changes in domestic, international, political, social and economic environments. Additionally, due to worldwide economic uncertainty, the availability and cost of funds for other expenses have become increasingly difficult, if not impossible, to project. These changes and events may materially affect our future financial performance. These factors cannot be accurately predicted and the combination of these factors may result in our Company not receiving an adequate return on invested capital.
Drilling for oil and gas involves inherent risks that may adversely affect our results of operations and financial condition.
Drilling for oil and gas involves numerous risks, including the risk that we will not encounter commercially productive oil and gas reservoirs. The wells we drill or participate in may not be productive and we may not recover all or any portion of our investment in those wells. The seismic data and other technologies we use do not allow us to know conclusively prior to drilling a well that crude or natural gas is present or may be produced economically. The costs of drilling, completing and operating wells are often uncertain, and drilling operations may be curtailed, delayed or canceled as a result of a variety of factors including, but not limited to:
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unexpected drilling conditions;
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pressure or irregularities in formations;
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equipment failures or accidents;
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mechanical difficulties, such as lost or stuck oil field drilling and service tools;
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fires, explosions, blowouts and surface cratering;
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uncontrollable flows of oil and formation water;
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environmental hazards, such as oil spills, pipeline ruptures and discharges of toxic gases;
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other adverse weather conditions; and
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increase in the cost of, or shortages or delays in the availability of, drilling rigs and equipment.
Certain future drilling activities may not be successful and, if unsuccessful, this failure could have an adverse effect on our future results of operations and financial condition. While all drilling, whether developmental or exploratory, involves these risks, exploratory drilling involves greater risks of dry holes or failure to find commercial quantities of hydrocarbons.
Our oil and gas operations involve substantial costs and are subject to various economic risks.
Our future oil and gas operations are subject to the economic risks typically associated with exploration and development activities, including the necessity of significant expenditures to locate and acquire producing properties and to drill exploratory wells. In conducting exploration and development activities, the presence of unanticipated pressure or irregularities in formations, miscalculations or accidents may cause our exploration and development activities to be unsuccessful. In addition, the cost and timing of drilling, completing and operating wells is often uncertain. We also face the risk that the oil and gas reserves may be less than anticipated, that we will not have sufficient funds to successfully drill on the property, that we will not be able to market the oil and gas due to a lack of a market and that fluctuations in the prices of oil will make development of those leases uneconomical. This could result in a total loss of our investment.
A substantial or extended decline in oil and gas prices may adversely affect our business, financial condition, cash flow, liquidity or results of operations as well as our ability to meet our capital expenditure obligations and financial commitments to implement our business plan.
Any revenues, cash flow, profitability and future rate of growth we achieve will be greatly dependent upon prevailing prices for oil and gas. Our ability to maintain or increase our borrowing capacity and to obtain additional capital on attractive terms is also expected to be dependent on oil and gas prices. Historically, oil and gas prices and markets have been volatile and are likely to continue to be volatile in the future. Prices for oil and gas are subject to potentially wide fluctuations in response to relatively minor changes in supply of and demand for oil and gas, market uncertainty, and a variety of additional factors beyond our control. Those factors include:
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the domestic and foreign supply of oil and natural gas;
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the ability of members of the Organization of Petroleum Exporting Countries and other producing countries to agree upon and maintain oil prices and production levels;
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political instability, armed conflict or terrorist attacks, whether or not in oil or natural gas producing regions;
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the level of consumer product demand;
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the growth of consumer product demand in emerging markets, such as China and India;
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weather conditions, including hurricanes and other natural occurrences that affect the supply and/or demand of oil and natural gas;
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domestic and foreign governmental regulations and other actions;
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the price and availability of alternative fuels;
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the price of foreign imports;
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the availability of liquid natural gas imports; and
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worldwide economic conditions.
These external factors and the volatile nature of the energy markets make it difficult to estimate future prices of oil and natural gas. A substantial or extended decline in oil and natural gas prices may materially affect our future business, financial condition, results of operations, liquidity and borrowing capacity. While our revenues may increase if prevailing oil and gas prices increase significantly, exploration and acquisition costs for additional properties and reserves may also increase.
Competition in the oil and gas industry is highly competitive and there is no assurance that we will be successful in acquiring viable leases.
The oil and gas industry is intensely competitive. We compete with numerous individuals and companies, including many major oil and gas companies which have substantially greater technical, financial and operational resources and staffs. Accordingly, there is a high degree of competition for desirable oil and gas leases, suitable properties for drilling operations and necessary drilling equipment, as well as for access to funds. We cannot predict if the necessary funds can be raised or that any projected work will be completed.
Oil and gas operations are subject to comprehensive regulation which may cause substantial delays or require capital outlays in excess of those anticipated causing an adverse effect on our Company .
Oil and gas operations are subject to country-specific federal, state, and local laws relating to the protection of the environment, including laws regulating removal of natural resources from the ground and the discharge of materials into the environment. Oil and gas operations are also subject to country-specific federal, state, and local laws and regulations which seek to maintain health and safety standards by regulating the design and use of drilling methods and equipment. Various permits from governmental bodies are required for drilling operations to be conducted and no assurance can be given that such permits will be received. Environmental standards imposed by federal, state, provincial, or local authorities may be changed and any such changes may have material adverse effects on our activities. Moreover, compliance with such laws may cause substantial delays or require capital outlays in excess of those anticipated, thus causing an adverse effect on us. Additionally, we may be subject to liability for pollution or other environmental damages. To date, we have not been required to spend any material amount on compliance with environmental regulations. However, we may be required to do so in the future and this may affect our ability to expand or maintain our operations.
The unavailability or high cost of drilling rigs, equipment, supplies, personnel and oil field services could adversely affect our ability to execute our exploration and development plans on a timely basis and within our budget.
Our industry is cyclical and, from time to time, there is a shortage of drilling rigs, equipment, supplies or qualified personnel. During these periods, the costs and delivery times of rigs, equipment and supplies are substantially greater. In addition, the demand for, and wage rates of, qualified drilling rig crews rise as the number of active rigs in service increases. As a result of increasing levels of exploration in response to strong prices of oil and natural gas, the demand for oilfield services and equipment has risen, and the costs of these services and equipment are increasing. If the unavailability or high cost of drilling rigs, equipment, supplies or qualified personnel were particularly severe in areas where we operate, we could be materially and adversely affected.
We depend on the skill, ability and decisions of third party operators to a significant extent.
The success of the drilling and development of the oil properties in which we have or expect to have a working interest is substantially dependent upon the decisions of such third-party operators and their diligence to comply with various laws, rules and regulations affecting such properties. The failure of any third-party operator to make decisions, perform their services, discharge their obligations, deal with regulatory agencies, and comply with laws, rules and regulations, including environmental laws and regulations in a proper manner with respect to properties in which we have an interest could result in material adverse consequences to our interest in such properties, including substantial penalties and compliance costs. Such adverse consequences could result in substantial liabilities to us or reduce the value of our properties, which could negatively affect our results of operations.
The rescission of the Assignment Agreement has significantly impaired our ability to enter the LED lighting market, thereby harming our prospects for future growth.
We were previously involved in a dispute with Trussnet Capital Partners (Cayman) Ltd. regarding our license to certain intellectual property. In order to resolve our dispute with Trussnet, we agreed to the rescission of the Assignment Agreement, leaving us unable to utilize the license to the intellectual property on which we had depended to develop LED products. Similar disputes or other circumstances which inhibit our ability to utilize our intellectual property which we may acquire or develop may be costly and time consuming and significantly delay our ability to execute our business objectives. Any such delays may significantly affect our ability to grow our business and achieve our objectives, and may harm our ability to generate any revenues.
RISKS RELATED TO OUR COMMON STOCK
Our board of directors does not intend to declare or pay any dividends to our stockholders in the foreseeable future.
The declaration, payment and amount of any future dividends will be made at the discretion of our board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors the board of directors considers relevant. There is no plan to pay dividends in the foreseeable future, and if dividends are paid, there can be no assurance with respect to the amount of any such dividend.
Nevada law and our articles of incorporation authorize us to issue shares of stock, which shares may cause substantial dilution to our existing shareholders and/or have rights and preferences greater than our common stock.
Pursuant to our Articles of Incorporation, we have, as of the date of this Report, 200,000,000 shares of common stock authorized. As of March 24, 2011, we have 25,404,016 shares of common stock issued and outstanding. As a result, our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which, if issued, could cause substantial dilution to our existing shareholders.
A limited public trading market exists for our common stock, which makes it more difficult for our stockholders to sell their common stock in the public markets.
Although our common stock is quoted on the OTCBB under the symbol “LPWR” there is a limited public market for our common stock. No assurance can be given that an active market will develop or that a stockholder will ever be able to liquidate its shares of common stock without considerable delay, if at all. Many brokerage firms may not be willing to effect transactions in the securities. Even if a purchaser finds a broker willing to effect a transaction in these securities, the combination of brokerage commissions, state transfer taxes, if any, and any other selling costs may exceed the selling price. Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, lack of available credit, interest rates or international currency fluctuations may adversely affect the market price and liquidity of our common stock.
Our common stock may be subject to the penny stock rules which may make it more difficult to sell our common stock.
The SEC has adopted regulations which generally define a “penny stock” to be any equity security that has a market price, as defined, less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities may be covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors such as, institutions with assets in excess of $5,000,000 or an individual with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with his or her spouse. For transactions covered by this rule, the broker-dealers must make a special suitability determination for the purchase and receive the purchaser’s written agreement of the transaction prior to the sale. Consequently, the rule may affect the ability of broker-dealers to sell our securities and also affect the ability of our stockholders to sell their shares in the secondary market.
Item 1B.
Item 1B. Unresolved Staff Comments.
None.
Item 2.
Item 2. Properties.
We currently maintain our registered offices at 1694 Falmouth Road, Suite 150, Centerville, MA 02632-2933.
Item 3.
Item 3. Legal Proceedings.
We were previously involved in a dispute with Trussnet involving the Assignment Agreement, and until such dispute was resolved, we were unable to utilize the intellectual property licensed thereunder to develop LED products. On August 16, 2010, we entered into a Rescission Agreement with Trussnet, Trussnet Capital Partners (HK) Ltd. (“TCP”), and Coach Capital, LLC (the “Rescission Agreement”), whereby we agreed to the rescission of the Assignment Agreement. In consideration of the rescission of the Assignment Agreement, TCP and Trussnet agreed to surrender for cancellation and relinquish any and all ownership interests in 225,000 shares of our common stock issued in connection with the Assignment Agreement.
Item 4.
Item 4. Removed and Reserved.
Not applicable.
PART II
Item 5.
Item 5.
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Market Information
Our common stock currently trades on the OTC Bulletin Board (“OTCBB”) exchange under the symbol LPWR.OB. The following table sets forth the range of high and low bid information for our common stock as reported on the OTCBB for each calendar quarter indicated below. Prior to October 6, 2008, there was no established trading market for our common stock. Our common stock began trading on the OTCBB on October 6, 2008. The quotations below reflect inter-dealer prices, without retail mark-up, markdown or commission, and may not necessarily represent actual transactions.
All prices listed below have been adjusted to give retroactive effect to a 2.5-for-1 forward stock split of all issued and outstanding shares of our common stock on January 16, 2009 and a 1-for-100 reverse split of all issued and outstanding shares of our common stock on August 10, 2009.
Stockholders
As of April 13, 2011, we had 25,404,016 shares of common stock outstanding held by 31 shareholders.
Dividends
We have not paid dividends to date and do not anticipate paying any dividends in the foreseeable future. Our Board of Directors intends to follow a policy of retaining earnings, if any, to finance our growth. The declaration and payment of dividends in the future will be determined by our Board of Directors in light of conditions then existing, including our earnings, financial condition, capital requirements and other factors.
Issuer Purchases of Equity Securities
None.
Item 6.
Item 6. Selected Financial Data.
Not applicable.
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The discussion and financial statements contained herein are for our fiscal years ended December 31, 2010 and December 31, 2009. The following discussion should be read in conjunction with our consolidated financial statements and notes thereto included elsewhere in this Report. Forward looking statements are statements not based on historical information and which relate to future operations, strategies, financial results or other developments. Forward-looking statements are based upon estimates, forecasts and assumptions that are inherently subject to significant business, economic and competitive uncertainties and contingencies, many of which are beyond our control and many of which, with respect to future business decisions, are subject to change. These uncertainties and contingencies can affect actual results and could cause actual results to differ materially from those expressed in any forward-looking statements made by us, or on our behalf. We disclaim any obligation to update forward-looking statements.
Plan of Operation
Background
We were organized under the laws of the State of Nevada on June 8, 2006 under the name “Drayton Harbor Resources, Inc.” and were engaged in the exploration of mineral interest located in British Columbia, Canada. We have relinquished our rights to this mineral interest and changed our focus towards the end of 2008 to the research, development, manufacturing and sales of light-emitting diode (LED) products.
In furtherance of our business objectives, on January 12, 2009, we entered into a definitive Agreement and Plan of Merger with LED Power Group, Inc. f.k.a. LED Power, Inc., a Nevada corporation (“LPI”) and Drayton Acquisition Sub, Inc., our wholly-owned subsidiary, whereby Drayton Acquisition Sub, Inc. merged with and into LPI, with LPI remaining as the surviving entity and becoming our wholly-owned subsidiary. Under the terms of the Agreement and Plan of Merger, we issued 9,000,000 pre-split shares of our common stock to Trussnet Capital Partners (Cayman) Ltd. for all of the issued and outstanding shares of LPI. LPI has limited operations and owns the rights to an Assignment Agreement with Jumbo Power Technology Ltd., Liao Pheng-Piao and Liu Chih-Chun (“Licensors”), dated December 2008 (the “Assignment Agreement”). Under the terms of the Assignment Agreement, LPI was licensed the exclusive rights to certain intellectual property owned by Licensors in relation to the production of LED products.
We were previously involved in a dispute with Trussnet involving the Assignment Agreement, and until such dispute was resolved, we were unable to utilize the intellectual property licensed thereunder to develop LED products. On August 16, 2010, we entered into a Rescission Agreement with Trussnet, Trussnet Capital Partners (HK) Ltd. (“TCP”), and Coach Capital, LLC (the “Rescission Agreement”), whereby we agreed to the rescission of the Assignment Agreement. In consideration of the rescission of the Assignment Agreement, TCP and Trussnet agreed to surrender for cancellation and relinquish any and all ownership interests in 225,000 shares of our common stock issued in connection with the Assignment Agreement.
To further facilitate our shift in business focus, on January 16, 2009, we effected a 2.5-for-1 forward stock split of all of our issued and outstanding shares of common stock. Additionally, on February 2, 2009, we merged with our wholly-owned subsidiary, LPI, for the purposes of effecting a name change to “LED Power Group, Inc.” Effective August 10, 2009, we effected a 1-for-100 reverse split of all our issued and outstanding shares of common stock to better position the company for growth for the rest of 2009 and to facilitate investment, and to ultimately enhance overall shareholder value, resulting in a decrease of the outstanding shares of common stock from 72,500,000 to 725,001 and a decrease of our authorized capital to 6,000,000. Effective November 2, 2009, the Company amended its articles of incorporation to increase its authorized capital to 200,000,000 shares of common stock.
On September 24, 2009, we issued an aggregate of 1,000,000 shares of our common stock for a purchase price of $10,000 to John J. Lennon, our President, resulting in a change of control and Mr. Lennon owning 57.14% of our issued and outstanding shares. On December 10, 2009, we issued an additional 23,904,015 shares of our common stock pursuant to the conversion of demand notes payable.
We have not generated any revenue from our business operations to date. We were unable to exploit our license under the Assignment Agreement to generate revenues prior to the resolution of our dispute with Trussnet. However, the resolution of this dispute terminated our license under the Assignment Agreement. Although our Board of Directors’ preference would be to obtain funding and license new technology to develop LED products, our Board believes that it must consider all viable strategic alternatives that are in the best interests of our shareholders. Such strategic alternatives include a merger, acquisition, asset purchase, or similar transaction to either develop our LED product business or enter new markets.
Subsequent to our fiscal year ended December 31, 2010, on April 14, 2011, we entered into an Assignment and Assumption Agreement (the “Assumption Agreement”) with American Petro-Hunter Inc., a Nevada corporation (“American Petro”), pursuant to which we acquired from American Petro for $30,000, all of its rights pursuant to a Participation Agreement (the “Participation Agreement”) with Archer Exploration, Inc. (“Archer”) to participate in the drilling for natural gas on a prospect located in Stanislaus County, California. Pursuant to the Participation Agreement, American Petro paid to Archer $200,000 for all costs in connection with the acquisition and operation of the prospect until completion of an initial test well in exchange for a 25% working interest in the prospect. The assignment of the 25% interest to us will only be made upon the successful completion of the initial test well. We will also be responsible for 25% of all expenditures in connection with the development and operation of the prospect for drilling. We may elect not to participate in additional expenditures in connection with the prospect at which time we will forfeit any interests we have in the prospect. American Petro conducted a seismic shoot on August 10, 2009. The results of the seismic indicate the need to reprocess the data and potentially add additional seismic lines to identify the test well locations. We are planning additional seismic shoots and the combined data packages will be used to evaluate whether there is a suitable location for a test well. There are no assurances that we will be successful in implementing our new strategy.
Critical Accounting Policies
The preparation of financial statements in conformity with United States generally accepted accounting principles requires management of our company to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
Our management routinely makes judgments and estimates about the effects of matters that are inherently uncertain. As the number of variables and assumptions affecting the probable future resolution of the uncertainties increase, these judgments become even more subjective and complex. Our significant accounting policies are discussed in Note 3 to our financial statements for the fiscal year ended December 31, 2010 included in this Form 10-K. We have identified the following accounting policies, described below, as the most important to an understanding of our current financial condition and results of operations.
Development stage company
The Company complies with Financial Accounting Standards Board Statement (“SFAS”) No. 7, Accounting and Reporting by Development Stage Enterprises, as amended, for its characterization of the Company as a Development Stage Company. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced.
Loss per share
In accordance with ASC subtopic 260-10, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted loss per common share is not presented because it is anti-dilutive. The weighted average number of shares outstanding during the periods has been retroactively restated to reflect a forward stock split of four new shares for one old share, effective on January 4, 2008, a forward stock split of 2.5 new shares for one old share, effective on January 16, 2009, and a reverse stock split of one new share for 100 old shares, effective on August 10, 2009.
Long lived assets
Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Major renewals and improvements are capitalized, while minor replacements, maintenance and repairs are charged to current operations.
Impairment losses are recorded on fixed assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. During the fiscal year ended December 31, 2009, the Company recorded $8,280,000 for impairment of the license subject to the Assignment Agreement as it did not have marketable value at the time. The Assignment Agreement was subsequently rescinded, thereby terminating the Company’s ability to use the license.
Results of Operations
The following is management’s discussion and analysis of certain significant factors which have affected the Company’s financial condition and results of operations during the periods included in the accompanying financial statements.
Financial Condition as of December 31, 2010
We reported total current assets of $279 at December 31, 2010, consisting of cash. Total current liabilities reported of $273,779 consisted of $51,470 in accounts payable and accrued liabilities and of $22,008 in notes payable and advances, and of $200,301 in convertible notes payable and accrued interest. We had a working capital deficiency of $273,500 at December 31, 2010.
Stockholders’ Deficiency increased from $100,310 for the year ended December 31, 2009 to $273,500 at December 31, 2010.
We are currently a development stage company focused in the LED industry, and evaluating opportunities for expansion within that industry or others through acquisitions or other strategic relationships.
Cash and Cash Equivalents
As of December 31, 2010, we had cash of $279. As such, we anticipate that we will have to raise additional capital through debt or equity financings to fund our operations and implement and execute a business plan during the next 6 to 12 months.
Results of Operations For the Fiscal Year Ended December 31, 2010
For the fiscal year ended December 31, 2010, we incurred a net loss of $173,190.
Results of Operations For the Fiscal Year Ended December 31, 2009
For the fiscal year ended December 31, 2009, we incurred a net loss of $8,541,509.
Results of Operations for the Year Ended December 31, 2010 as Compared to the Year Ended December 31, 2009
General and administrative expenses
During the fiscal year ended December 31, 2010, we incurred total expenses of $173,190, as compared to $8,541,509 for the year ended December 31, 2009. These expenses were related mainly to investor relations and professional fees. Other expenses were incurred in relation to activities associated with maintaining a public listing, such as legal and accounting fees. In 2009, the Company recorded $8,280,000 for impairment of a license as it did not have marketable value at the time.
Expenses or other cash flows in this period may not be indicative of future periods as we are in the early development stage.
Liquidity and Capital Resources
As of December 31, 2010, we had cash of $279, and working capital deficiency of $273,500. During the year ended December 31, 2010, we funded our operations from the proceeds of private sales of equity. We plan to continue further financings, and we believe that this will provide sufficient working capital to fund our operations for at least the next 12 months. Changes in our operating plans, increased expenses, additional acquisitions or other events, including strategic alternatives we may pursue, may cause us to seek additional equity or debt financing in the future.
For the period ended December 31, 2010, we used $170,197 of net cash to fund operating activities. Net cash used in operating activities reflected $5,287 in prepaid expenses and $1,480 in accrued interest offset by $3,774 in accounts payable and accrued liabilities.
During the fiscal year ended December 31, 2010, we borrowed $165,269 through the issuance of convertible promissory notes, and $5,001 via advances.
We anticipate that our cash requirements will be not be significant in the near term as we only recently resolved our dispute with Trussnet, which rendered us unable to exploit our licensed intellectual property. We expect to continue to use cash to fund operations for at least the remaining of our fiscal year ended December 31, 2011 until we are able to implement our business plans with respect to exploring and exploiting any oil and gas interests.
Off-Balance Sheet Arrangements
There are no off-balance sheet arrangements.
Capital Expenditures
We did not make any capital expenditures in the fiscal year ended December 31, 2010.
Contractual Obligations
The following table outlines payments due under our significant contractual obligations over the periods shown, exclusive of interest:
The above table outlines our obligations as of December 31, 2010 and does not reflect any changes in our obligations that have occurred after that date.
Item 7A
Item 7A Quantitative and Qualitative Disclosures About Market Risk.
Not applicable.
Item 8.
Item 8. Financial Statements and Supplementary Data.
Reference is made to the financial statements, the report of our independent registered public accounting firm, and the notes thereto of this report, which financial statements, report, and notes are incorporated herein by reference.
Item 9.
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure.
None.
Item 9A.
Item 9A. Controls and Procedures.
Disclosure Controls and Procedures
We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer, who is also our principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined by Rule 13a-15(e) and 15d-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of the end of our fiscal year ending December 31, 2010, pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are not effective in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Exchange Act as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (“GAAP”) and includes those policies and procedures that:
-
Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
-
Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and
-
­Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.
As of December 31, 2010, our management assessed the effectiveness of our internal control over financial reporting based on the criteria for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based on that evaluation, they concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of U.S. GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal controls and that may be considered to be material weaknesses.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee of our board of directors due to a lack of a majority of independent board members and a lack of a majority of outside directors on our board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) inadequate segregation of duties consistent with control objectives; and (3) ineffective controls over period end financial disclosure and reporting processes.
Our management believes that the material weaknesses set forth in items (2) and (3) above did not have an effect on our financial results. However, our management believes that the lack of a functioning audit committee and the lack of a majority of outside directors on our board of directors results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in our financial statements in future periods.
Management’s Remediation Initiatives
In an effort to remediate the identified material weaknesses and other deficiencies and enhance our internal control over financial reporting, we have initiated, or plan to initiate upon the receipt of sufficient funds and increase in operations, the following series of measures:
·
We will create a position to segregate duties consistent with control objectives and will increase our personnel resources and technical accounting expertise within the accounting function;
·
We plan to appoint one or more outside directors to our board of directors who shall be appointed to an audit committee resulting in a fully functioning independent audit committee who will undertake the oversight in the establishment and monitoring of required internal controls and procedures such as reviewing and approving estimates and assumptions made by management.
We anticipate that these initiatives will be at least partially, if not fully, implemented by December 31, 2011. Additionally, we plan to test our updated controls and remediate our deficiencies by December 31, 2011.
Changes in Internal Control over Financial Reporting
We have had very limited operations and there were no changes in our internal controls over financial reporting that occurred during the three months ended December 31, 2010 that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
Item 9B.
Item 9B. Other Information.
Convertible Note Financings
In December 2009 and during the fiscal year ended December 31, 2010, the Company received $178,229 pursuant to 8 convertible promissory notes. The notes are unsecured, bear interest at 10% per annum calculated annually, and are due on demand. Any payments of principal or interest in arrears bear interest at 30% per annum calculated annually. Default in payment shall, at the option of the holder, render the entire balance payable. The notes and accrued can be converted, at the option of the lender, into shares of common stock of the Company, at such price and in such terms as being offered to investors at the time of conversion. At December 31, 2010, the Company has accrued $11,848 (December 31, 2009 - $1) in interest pursuant to these notes.
During the fiscal year ended December 31, 2010, the Company received an additional $10,145 pursuant to 3 convertible promissory notes. The notes are unsecured, bear interest at 10% per annum calculated annually, and are due on demand. Default in payment shall, at the option of the holder, render the entire balance payable. The notes and accrued can be converted, at the option of the lender, into shares of common stock of the Company, at such price and in such terms as being offered to investors at the time of conversion. At December 31, 2010, the Company has accrued $668 (December 31, 2009 - $nil) in interest pursuant to these notes.
We offered and sold the convertible notes in reliance on Section 506 of Regulation D and/or Regulation S of the Securities Act, and comparable exemptions for sales to "accredited" investors under state securities laws.
Participation Agreement
On April 14, 2011, we entered into the Assumption Agreement with American Petro, pursuant to which we acquired from American Petro for $30,000 all of its rights pursuant to the Participation Agreement with Archer to participate in the drilling for natural gas on a prospect located in Stanislaus County, California. Pursuant to the Participation Agreement, American Petro paid to Archer $200,000 for all costs in connection with the acquisition and operation of the prospect until completion of an initial test well in exchange for a 25% working interest in the prospect. The assignment of the 25% interest to us will only be made upon the successful completion of the initial test well. We will also be responsible for 25% of all expenditures in connection with the development and operation of the prospect for drilling. We may elect not to participate in additional expenditures in connection with the prospect at which time we will forfeit any interests we have in the prospect.
PART III
Item 10.
Item 10. Directors, Executives Officers and Corporate Governance.
Directors and Executive Officers
The following table sets forth the names and ages of our current directors and executive officers, the principal offices and positions held by each person:
Person
Age
Position
John J. Lennon
President, Chief Executive Officer, Treasurer, Secretary, Director
John J. Lennon. On December 1, 2008, the Board of Directors of the Company appointed Mr. John J. Lennon as President, Secretary, Treasurer and sole member of the Board of Directors of the Company. Our board concluded Mr. Lennon should serve as a director based on his background in natural resource exploration, experience in raising funds through debt and equity financing, and previous public company leadership positions.
Mr. Lennon has served as President, Chief Financial Officer and Director of UV Flu Technologies, Inc., a public company, since November 2009, President, Chief Executive Officer and Director of Far East Wind Power Corp., a public company, since September 2009, President of Chamberlain Capital Partners since 2004, Director of American Durahomes from 2006, and Treasurer/Director/VP of Finance of US Starcom from 2005 to 2007. Mr. Lennon also has served as a Director of American Petro-Hunter, Inc., a public company, since February 2009, and served as President of this company from February 2009 to June 2009. Chamberlain Capital Partners assists companies in the area of maximizing shareholder value through increased sales, cost reduction and refined business strategy. Mr. Lennon has also assisted companies in obtaining debt financing, private placements and other methods of funding. He is responsible for corporate reporting, press releases, and funding related initiatives for American Durahomes, a private corporation, and previously for US Starcom, a public entity. On December 31, 2007, Mr. Lennon was appointed Chief Executive Officer, President, Chief Financial Officer, Secretary, Treasurer and director of Explortex Energy Inc., a publicly reporting company, which is a natural resource exploration company engaged in the participation in drilling of oil and gas in the United States. From 1987 to 2004, Mr. Lennon served as Senior Vice President of Janney Montgomery Scott, Osterville, MA, Smith Barney and Prudential Bache Securities, managing financial assets for high net worth individuals. Mr. Lennon also previously served as a Director, Treasurer and VP of Finance of Brite-Strike Tactical Illumination Products, Inc., a public company, from August 2008 to July 2009 and President of Explorex Energy, a private corporation, from January 2008 to June 2009.
There are no arrangements, understandings, or family relationships pursuant to which our executive officers were selected.
Audit Committee
Our Board of Directors has not established a separately-designated standing audit committee within the meaning of Section 3(a)(58)(A) of the Exchange Act. Instead, the entire Board of Directors acts as the audit committee within the meaning of Section 3(a)(58)(B) of the Exchange Act. We are seeking candidates for outside directors to serve on a separate audit committee when we establish one. Due to our small size and limited operations and resources, it has been difficult to recruit outside directors.
Audit Committee Financial Expert
Due to our small size and limited operations and resources, we currently do not have an audit committee financial expert on our Board of Directors.
Code of Ethics
Given our limited operations and resources and because we are in the development stage, we have not yet adopted a code of ethics. Upon commencement of significant operations and hiring other executive officers, we intend to adopt a code of ethics that will apply to all our officers, directors and employees.
Section 16(a) Beneficial Ownership Reporting Compliance
Except as set forth above, and based solely upon a review of Forms 3, 4 and 5 delivered to us as filed with the Securities and Exchange Commission, our executive officers and directors, and persons who own more than 10% of our common stock timely filed all required reports pursuant to Section 16(a) of the Securities Exchange Act during the fiscal year ended December 31, 2010.
Item 11.
Item 11. Executive Compensation.
The summary compensation table below shows certain compensation information for services rendered in all capacities to us by our principal executive officer and by each other executive officer whose total annual salary and bonus exceeded $100,000 during the fiscal periods ended December 31, 2010 and December 31, 2009. Other than as set forth below, no executive officer’s total annual compensation exceeded $100,000 during our last fiscal period.
Summary Compensation Table
(1) The Company entered into a Management and Governance Consultant Agreement with Chamberlain Capital Partners on December 1, 2008. Pursuant to the agreement, Chamberlain Capital Partners provides services to us relating to corporate management and governance and consults with our officers and employees concerning matters relating to corporate management, governance, including day-to-day operations, accounting, regulatory compliance, marketing and investor relation services. We agreed to pay Chamberlain Capital Partners $2,500 per month for services rendered pursuant to the agreement. The agreement expired pursuant to its own terms on November 30, 2009, and either party had the right to terminate the agreement at any time by providing 30 days written notice to the other party. Effective December 1, 2009, the agreement with Chamberlain Capital Partners is continuing on a month-to-month basis. Mr. Lennon is the president of Chamberlain Capital Partners, and billed our Company a total of $30,000 and $30,000 for the fiscal years ended December 31, 2010 and December 31, 2009, respectively, for services performed under the Management and Governance Consultant Agreement.
Director Compensation
We do not pay compensation to directors for attendance at meetings. We do reimburse directors for reasonable expenses incurred during the course of their performance. There has been no compensation awarded to, earned by, or paid to any of our named directors during the last fiscal year.
Pension and Retirement Plans; Payments Upon Termination or Change of Control
Currently, we do not offer any annuity, pension or retirement benefits to be paid to any of our officers, directors or employees, in the event of retirement. There are also no compensatory plans or arrangements with respect to any individual named above which results or will result from the resignation, retirement or any other termination of employment with our company, or from a change in the control of our Company.
Compensation Policies and Practices As They Relate to the Company’s Risk Management
We believe that our compensation policies and practices for our employees, including our executive officers, do not create risks that are reasonably likely to have a material adverse effect on our company.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
Security Ownership Of Certain Beneficial Owners And Management
The following table sets forth, as of March 29, 2011, the number and percentage of outstanding shares of our common stock owned by (i) each director and each named executive officer, (ii) all directors and named executive officers as a group, and (iii) each person known to us to beneficially own more than 5% of our outstanding common stock. Share ownership is deemed to include all shares that may be acquired through the exercise or conversion of any other security immediately or within the next 60 days. Such shares that may be so acquired are also deemed outstanding for purposes of calculating the percentage of ownership for that individual or any group of which that individual is a member. Unless otherwise indicated, the stockholders listed possess sole voting and investment power with respect to the shares shown.
(1)
Unless otherwise noted, the security ownership disclosed in this table is of record and beneficial. Unless provided for otherwise, the address for each of the beneficial owners named below is the Company’s business address.
(2)
Under Rule 13d-3 under the Exchange Act, shares not outstanding but subject to options, warrants, rights, conversion privileges pursuant to which such shares may be acquired within 60 days after March [●], 2011 are deemed to be outstanding for the purpose of computing the percentage of outstanding shares owned by the persons having such rights, but are not deemed outstanding for the purpose of computing the percentage for such other persons.
We do not know of any other shareholder who has more than 5 percent of the issued shares.
There are no voting trusts or similar arrangements known to us whereby voting power is held by another party not named herein which may at a subsequent date result in a change of control. We know of no trusts, proxies, power of attorney, pooling arrangements, direct or indirect, or any other contract arrangement or device with the purpose or effect of divesting such person or persons of beneficial ownership of our common shares or preventing the vesting of such beneficial ownership.
Securities Authorized For Issuance Under Equity Compensation Plans
None.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Related Party Transactions
In connection with Mr. Lennon’s appointment as President, Chief Executive Officer, Treasurer, Secretary and Director, we entered into a Management and Governance Consultant Agreement with Chamberlain Capital Partners on December 1, 2008. Pursuant to the agreement, Chamberlain Capital Partners provides services to us relating to corporate management and governance and consults with our officers and employees concerning matters relating to corporate management, governance, including day-to-day operations, accounting, regulatory compliance, marketing and investor relation services. We agreed to pay Chamberlain Capital Partners $2,500 per month for services rendered pursuant to the agreement. The agreement expired pursuant to its own terms on November 30, 2009, and either party had the right to terminate the agreement at any time by providing 30 days written notice to the other party. Effective December 1, 2009, the agreement with Chamberlain Capital Partners is continuing on a month-to-month basis. Mr. Lennon is the president of Chamberlain Capital Partners, and billed our Company a total of $30,000 and $30,000 for the fiscal years ended December 31, 2010 and December 31, 2009, respectively, for services performed under the Management and Governance Consultant Agreement. Mr. Lennon is the President of Chamberlain Capital Partners.
Subsequent to our fiscal year ended December 31, 2010, on April 14, 2011, we entered into the Assumption Agreement with American Petro, pursuant to which we acquired from American Petro for $30,000 all of its rights pursuant to the Participation Agreement with Archer to participate in the drilling for natural gas on a prospect located in Stanislaus County, California. Pursuant to the Participation Agreement, American Petro paid to Archer $200,000 for all costs in connection with the acquisition and operation of the prospect until completion of an initial test well in exchange for a 25% working interest in the prospect. Mr. Lennon also serves as Chairman of the Board and Chief Financial Officer of American Petro,
Review, Approval or Ratification of Transactions with Related Persons
Although we have not adopted a Code of Ethics, we rely on our board to review related party transactions on an ongoing basis to prevent conflicts of interest. Our board reviews a transaction in light of the affiliations of the director, officer or employee and the affiliations of such person’s immediate family. Transactions are presented to our board for approval before they are entered into or, if this is not possible, for ratification after the transaction has occurred. If our board finds that a conflict of interest exists, then it will determine the appropriate remedial action, if any. Our board approves or ratifies a transaction if it determines that the transaction is consistent with the best interests of the Company.
Director Independence
During 2010, we did not have any independent directors on our board. We evaluate independence by the standards for director independence established by applicable laws, rules, and listing standards including, without limitation, the standards for independent directors established by The New York Stock Exchange, Inc., The NASDAQ Stock Market, and the SEC.
Subject to some exceptions, these standards generally provide that a director will not be independent if (a) the director is, or in the past three years has been, an employee of ours; (b) a member of the director’s immediate family is, or in the past three years has been, an executive officer of ours; (c) 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); (d) 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; (e) 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 (f) 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 $200,000 or two percent of that other company’s consolidated gross revenues.
Board Leadership Structure and Role in Risk Oversight
John J. Lennon serves the Company both as its principal executive officer and sole director. At present, we have determined this leadership structure is appropriate for our Company due to our small size and limited operations and resources.
The Board is actively involved in the general oversight of risks that could affect our Company. This oversight is conducted primarily through regular monitoring and oversight of particular risks within the Company, as well as the Company’s engagement of Chamberlain Capital Partners, which provides our Company with, among other things, corporate management and governance and regulatory compliance consulting services.
Item 14.
Item 14. Principal Accounting Fees and Services.
The following table shows the fees paid or accrued by us for the audit and other services provided by Weaver & Martin LLC, the Company’s independent registered public accounting firm since August 7, 2009 for the fiscal periods shown:
(1)
The registration of the Company’s prior auditor, Moore and Associates, Chartered Accountants, under the Public Company Accounting Oversight Board was revoked on August 27, 2009. As a result, the audit opinion of Moore and Associates for fiscal year 2008 has been rendered invalid. Accordingly, amounts included in Audit Fees during 2009 include amounts paid or accrued by us for the audit of both fiscal years 2008 and 2009 by Weaver and Martin LLC.
Audit fees consist of fees billed for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by the above auditors in connection with statutory and regulatory fillings or engagements.
In the absence of a formal audit committee, the full Board of Directors pre-approves all audit and non-audit services to be performed by the independent registered public accounting firm in accordance with the rules and regulations promulgated under the Exchange Act. The Board of Directors pre-approved 100% of the audit, audit-related and tax services performed by the independent registered public accounting firms in fiscal 2010 and 2009. The percentage of hours expended on the respective principal accountants’ engagement to audit the Company’s financial statements for the most recent fiscal year that were attributed to work performed by persons other than the respective principal accountants’ full-time, permanent employees was 0%.
PART IV
Item 15.
Item 15. Exhibits, Financial Statement Schedules.
(a) Financial Statements and Financial Statement Schedules
(1)
Financial Statements are listed in the Index to Financial Statements on page of this report.
(2)
No financial statement schedules are included because such schedules are not applicable, are not required, or because required information is included in the consolidated financial statements or notes thereto.
(b) Exhibits
Exhibit
Number
Exhibit
3.1
Articles of Incorporation of Company, including all amendments to date. (1)
3.2
Bylaws of Company. (2)
10.1
Agreement and Plan of Merger among Drayton Harbor Resources, Inc., Drayton Acquisition Sub, Inc. and LED Power, Inc. dated January 12, 2009. (3)
10.2
Management and Governance Consultant Agreement between Drayton Harbor Resources Inc. and Chamberlain Capital Partners dated December 1, 2008. (4)
10.3
Rescission Agreement dated August 16, 2010, by and between LED Power Group, Inc. (f.k.a. LED Power, Inc.), Trussnet Capital Partners (HK) Ltd., Trussnet Capital Partners (Cayman) Ltd., and Coach Capital, LLC. (5)
10.4
Assignment and Assumption Agreement dated April 14, 2011 by and between American Petro-Hunter Inc. and the Company
List of Subsidiaries.
31.1
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
31.2
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a), promulgated under the Securities Exchange Act of 1934, as amended.
32.1
Certification Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1)
Incorporated herein by reference to exhibits previously filed on Registrant’s Registration Statement on Form SB-1, filed on September 7, 2006, Current Reports on Form 8-K, filed February 5, 2009 and August 11, 2009, and Schedule 14C Information, filed on October 13, 2009.
(2)
Incorporated herein by reference to exhibits previously filed on Registrant’s Quarterly Report on Form 10-Q, filed on May 14, 2009.
(3)
Incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on January 16, 2009.
(4)
Incorporated herein by reference to exhibits previously filed on Registrant’s Annual Report on Form 10-K, filed on March 31, 2009.
(5)
Incorporated herein by reference to exhibits previously filed on Registrant’s Current Report on Form 8-K, filed on August 20, 2010.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
LED POWER GROUP, INC.
Dated: April 15, 2011
/s/ John J. Lennon
By: John J. Lennon
Its: President, Secretary, Treasurer and Director
(Principal Executive Officer)
Dated: April 15, 2011
/s/ John J. Lennon
By: John J. Lennon
Its: President, Secretary, Treasurer and Director
(Principal Financial Officer and Principal Accounting Officer)
Pursuant to requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Capacity
Date
/s/ John J. Lennon
President, Secretary,
March 29, 2011
John J. Lennon
Treasurer and Director
LED Power Group, Inc.
(A Development Stage Company)
Financial Statements
December 31, 2010 and 2009
To the Board of Directors and Stockholders
LED Power Group, Inc.
Centerville, Massachusetts
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
We have audited the accompanying balance sheet of LED Power Group, Inc. (A Development Stage Company) as of December 31, 2010 and 2009 and the related statements of operations, stockholders’ deficit, and cash flows for the years then ended and for the period of June 8, 2006 (Inception) to December 31, 2010. LED Power Group, Inc.’s management is responsible for these financial statements. Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the 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. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit 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 effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audit of the financial statements 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, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of LED Power Group, Inc. as of December 31, 2010 and 2009 and the results of its operations, stockholders’ deficit, and cash flows for the years then ended and for the period of June 8, 2006 (Inception) to December 31, 2010 in conformity with accounting principles generally accepted in the United States of America.
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 has suffered recurring losses from operations and is dependent upon the continued sale of its securities or obtaining debt financing for funds to meet its cash requirements. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Weaver & Martin, LLC
Kansas City, Missouri
April 15, 2011
LED Power Group, Inc.
(A Development Stage Company)
Balance Sheets
The accompanying notes are an integral part of these audited financial statements.
LED Power Group, Inc.
(A Development Stage Company)
Statements of Operations
For the Years Ended December 31, 2010 and 2009
And for the Period from June 8, 2006 [Inception] to December 31, 2010
The accompanying notes are an integral part of these audited financial statements.
LED Power Group, Inc.
(A Development Stage Company)
Statements of Stockholders' Equity (Deficit)
For the period from June 8, 2006 [Inception] to December 31, 2010
*The common stock issued has been retroactively restated to reflect forward stock splits of 4 new shares for 1 old share, effective January 4, 2008, a 2.5 new shares for 1 old share, effective January 16, 2009 and a 1 new share for 100 old shares, effective July 27, 2009
The accompanying notes are an integral part of these audited financial statements.
LED Power Group, Inc.
(A Development Stage Company)
Statements of Cash Flows
For the Years Ended December 31, 2010 and 2009
And for the Period from June 8, 2006 [Inception] to December 31, 2010
The accompanying notes are an integral part of these audited financial statements.
LED Power Group, Inc.
(A Development Stage Company)
Notes to Financial Statements
December 31, 2010 and 2009
1.
Nature of operations
LED Power Group, Inc. (the “Company”) was incorporated in the State of Nevada, United States of America, on June 8, 2006, under the name Drayton Harbor Resources, Inc.
The Company had limited operations acquiring and exploring mineral interests and, during the fiscal year ended December 31, 2008, relinquished its rights to the mineral interest and changed its business focus to the research, development, manufacturing and sales of light-emitting diode (LED) products. In furtherance of its business objectives, on January 12, 2009, the Company entered into a definitive Agreement and Plan of Merger with LED Power Group, Inc. f.k.a. LED Power, Inc., a Nevada corporation (“LPI”) and Drayton Acquisition Sub, Inc., our wholly-owned subsidiary, whereby Drayton Acquisition Sub, Inc. merged with and into LPI, with LPI remaining as the surviving entity and becoming our wholly-owned subsidiary. Under the terms of the Agreement and Plan of Merger, we issued 9,000,000 pre-split shares of our common stock to Trussnet Capital Partners (Cayman) Ltd. (“Trussnet”) for all of the issued and outstanding shares of LPI. LPI has limited operations and owns the rights to an Assignment Agreement with Jumbo Power Technology Ltd., Liao Pheng-Piao and Liu Chih-Chun (“Licensors”), dated December 2008 (the “Assignment Agreement”). Under the terms of the Assignment Agreement, LPI was licensed the exclusive rights to certain intellectual property owned by Licensors in relation to the production of LED products.
Effective August 23, 2010, the Company entered into a rescission agreement with Trussnet, Trussnet Capital Partners (HK) Ltd. (“TCP”), and Coach Capital, LLC (the “Rescission Agreement”), whereby the Company agreed to the rescission of the Assignment Agreement. In consideration of the rescission of the Assignment Agreement, TCP and Trussnet agreed to surrender for cancellation and relinquish any and all ownership interests in 225,000 shares of the Company’s common stock issued in connection with the Assignment Agreement. The shares were returned to treasury and cancelled.
The Company is listed on the Over-the-Counter Bulletin Board under the symbol LPWR.
2.
Going concern
These financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for its next fiscal year. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At December 31, 2010, the Company had not yet achieved profitable operations, had accumulated losses of $8,817,540 since its inception, had a working capital deficiency of $273,500 and expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
The Company expects to continue to incur substantial losses as it executes its business plan and does not expect to attain profitability in the near future. Since its inception, the Company has funded operations through short-term borrowings and equity investments in order to meet its strategic objectives. The Company's future operations are dependent upon external funding and its ability to execute its business plan, realize sales and control expenses. Management believes that sufficient funding will be available from additional borrowings and private placements to meet its business objectives, including anticipated cash needs for working capital, for a reasonable period of time. However, there can be no assurance that the Company will be able to obtain sufficient funds to continue the development of its business operation, or if obtained, upon terms favorable to the Company.
3.
Summary of significant accounting policies
The accompanying financial statements of LED Power Group, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”). Because a precise determination of many assets and liabilities is dependent upon future events, the preparation of financial statements for a period necessarily involves the use of estimates, which have been made using careful judgment. Actual results may vary from these estimates.
a. Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments with an original maturity of ninety days or less.
b. Development stage company
The Company complies with Financial Accounting Standard Board Statement (“SFAS”) No. 7 for its characterization of the Company as a Development Stage Company. The Company is devoting substantially all of its present efforts to establish a new business and none of its planned principal operations have commenced.
c. Loss per share
In accordance with ASC subtopic 260-10, the basic loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period. Diluted loss per common share is not presented because it is anti-dilutive. The weighted average number of shares outstanding during the periods has been retroactively restated to reflect the following:
·
a forward stock split of 4 new shares for one old share, effective January 4, 2008;
·
a forward stock split of 2.5 new shares for one old share, effective January 16, 2009;
·
a reverse stock split of one new share for 100 old shares, effective August 10, 2009.
d. Income taxes
The Company accounts for income taxes under ASC topic 740-10-25. Under ASC 740-10-25, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between their financial statement carrying amounts and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
e.
Long-lived assets
Property and equipment are stated on the basis of historical cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets. Major renewals and improvements are capitalized, while minor replacements, maintenance and repairs are charged to current operations.
Impairment losses are recorded on fixed assets used in operations when indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than the assets' carrying amount. There were no impairment losses in 2010. During the fiscal year ended December 31, 2009, the Company recorded $8,280,000 for impairment of a license as it does not have marketable value at this time (refer to notes 9 and 13).
f.
Equity financing
The Company issues common stock and other equity instruments in order to raise capital. In each case, the Company evaluates the characteristics of these instruments in the context of the provisions of SFAS 150 in order to determine the appropriate equity or liability classification.
g.
Foreign currency translation
Monetary items denominated in a foreign currency are translated into US dollars, the reporting currency, at exchange rates prevailing at the balance sheet date and non-monetary items are translated at exchange rates prevailing when the assets were acquired or obligations incurred. Foreign currency denominated revenue and expense items are translated at exchange rates prevailing at the transaction date. Gains or losses arising from the translations are included in operations.
h.
Advertising
The Company expenses advertising costs as incurred. The Company has not incurred advertising expenses for the year ended December 31, 2010, and for the period from inception to December 31, 2010.
4.
Recent accounting pronouncements
a.
In June 2009, the FASB issued ASC 105 Accounting Standards Codification TM and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification TM (the “Codification”) has become the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with Generally Accepted Accounting Principles (“GAAP”). All existing accounting standard documents are superseded by the Codification and any accounting literature not included in the Codification will not be authoritative. Rules and interpretive releases of the SEC issued under the authority of federal securities laws, however, will continue to be the source of authoritative generally accepted accounting principles for SEC registrants. Effective September 30, 2009, all references made to GAAP in our consolidated financial statements will include references to the new Codification. The Codification does not change or alter existing GAAP and, therefore, has not had impact on our financial position, results of operations or cash flows.
b.
In June 2009, the FASB issued changes to the consolidation guidance applicable to a variable interest entity (VIE). FASB ASC Topic 810, "Consolidation," amends the guidance governing the determination of whether an enterprise is the primary beneficiary of a VIE, and is, therefore, required to consolidate an entity, by requiring a qualitative analysis rather than a quantitative analysis. The qualitative analysis will include, among other things, consideration of who has the power to direct the activities of the entity that most significantly impact the entity's economic performance and who has the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant to the VIE. This standard also requires continuous reassessments of whether an enterprise is the primary beneficiary of a VIE. FASB ASC 810 also requires enhanced disclosures about an enterprise's involvement with a VIE. Topic 810 is effective as of the beginning of interim and annual reporting periods that begin after November 15, 2009. This has not had impact on the Company’s financial position, results of operations or cash flows.
c.
In June 2009, the FASB issued Financial Accounting Standards Codification No. 860 - Transfers and Servicing. FASB ASC No. 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor's continuing involvement, if any, in transferred financial assets. FASB ASC No. 860 is effective as of the beginning of each reporting entity's first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The adoption of FASB ASC No. 860 has not had impact on the Company’s financial statements.
d.
International Financial Reporting Standards
In November 2008, the Securities and Exchange Commission (“SEC”) issued for comment a proposed roadmap regarding potential use of financial statements prepared in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board. Under the proposed roadmap, the Company would be required to prepare financial statements in accordance with IFRS in fiscal year 2014, including comparative information also prepared under IFRS for fiscal 2013 and 2012. The Company is currently assessing the potential impact of IFRS on its financial statements and will continue to follow the proposed roadmap for future developments.
5.
Financial instruments
a.
Credit risk
The Company maintains cash deposits with financial institutions, which from time to time may exceed federally insured limits. The Company has not experienced any losses in connection with these deposits and believes it is not exposed to any significant credit risk from cash.
b.
Fair values
Financial instruments that are subject to fair disclosure requirements are carried in the financial statements at amounts that approximate fair value and include cash, accounts payable and accrued expenses and notes payable. Fair values are based on assumptions concerning the amount and timing of estimated future cash flows and assumed discount rates reflecting varying degrees of risk.
c.
Liquidity risk
The Company is exposed to liquidity risk as its continued operations are dependent upon obtaining additional capital or achieving profitable operations to satisfy its liabilities as they come due.
6.
Fair value measurement
The Company adopted ASC Topic 820-10 at the beginning of 2009 to measure the fair value of certain of its financial assets required to be measured on a recurring basis. The adoption of ASC Topic 820-10 did not impact the Company’s financial condition or results of operations. ASC Topic 820-10 establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). ASC Topic 820-10 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants on the measurement date. A fair value measurement assumes that the transaction to sell the asset or transfer the liability occurs in the principal market for the asset or liability. The three levels of the fair value hierarchy under ASC Topic 820-10 are described below:
Level 1 - Valuations based on quoted prices in active markets for identical assets or liabilities that an entity has the ability to access.
Level 2 - Valuations based on quoted prices for similar assets and liabilities in active markets, quoted prices for identical assets and liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable data for substantially the full term of the assets or liabilities.
Level 3 - Valuations based on inputs that are supportable by little or no market activity and that are significant to the fair value of the asset or liability.
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of December 31, 2009:
The following table presents a reconciliation of all assets and liabilities measured at fair value on a recurring basis as of December 31, 2010:
7.
Notes payable to related parties
During the year ended December 31, 2007, the Company received $17,006 pursuant to promissory notes with two of its former directors. The notes are unsecured, bear no interest and don’t have any specific terms of repayment. At December 31, 2010 and 2009, these notes are included on the balance sheets.
8.
Demand notes payable
During the year ended December 31, 2008, the Company received $41,007 pursuant to five convertible promissory notes. On November 15, 2009, these notes and accrued interest of $3,232 were converted into 4,423,847 shares of common stock of the Company.
During the year ended December 31, 2009, the Company received $186,508 pursuant to 15 convertible promissory notes. On November 15, 2009, these notes and accrued interest of $8,293 were converted into 19,480,168 shares of common stock of the Company.
During the remaining of the fiscal year ended December 31, 2009, and during the fiscal year ended December 31, 2010, the Company received $178,229 pursuant to 8 convertible promissory notes. The notes are unsecured, bear interest at 10% per annum calculated annually, and are due on demand. Any payments of principal or interest in arrears bear interest at 30% per annum calculated annually. Default in payment shall, at the option of the holder, render the entire balance payable. The notes and accrued can be converted, at the option of the lender, into shares of common stock of the Company, at such price and in such terms as being offered to investors at the time of conversion. At December 31, 2010, the Company has accrued $11,848 (December 31, 2009 - $1) in interest pursuant to these notes, as follows:
During the fiscal year ended December 31, 2010, the Company received an additional $10,145 pursuant to 3 convertible promissory notes. The notes are unsecured, bear interest at 10% per annum calculated annually, and are due on demand. Default in payment shall, at the option of the holder, render the entire balance payable. The notes and accrued can be converted, at the option of the lender, into shares of common stock of the Company, at such price and in such terms as being offered to investors at the time of conversion. At December 31, 2010, the Company has accrued $668 (December 31, 2009 - $nil) in interest pursuant to these notes, as follows:
9.
Capital stock
On January 4, 2008, the Company forward split its issued common shares on the basis of four new shares for one old share. The Company increased its authorized share capital from 150 million to 600 million shares.
On January 12, 2009, the Company issued 9,000,000 (pre-split) (225,000 post-split) shares of its common stock to Trussnet Capital Partners (Cayman) Ltd. for all of the issued and outstanding shares of LED Power Group, Inc. pursuant to a merger agreement and underlying assignment agreement. Under the terms of the agreements, the Company has acquired the license to exclusive rights of certain intellectual property in relation to the production of LED products. The shares were valued at fair market on the day of the agreements, being $0.92 per share (refer to note 13).
On January 16, 2009, the Company forward split its issued common shares on the basis of two and one half new shares for one old share.
On August 10, 2009, the Company reverse split its issued common shares on the basis of one new share for one hundred old shares, and reduced its authorized capital form 600,000,000 to 6,000,000 shares of common stock.
On September 24, 2009, the Company issued 1,000,000 shares of common stock at $0.01 per share, for gross proceeds of $10,000.
Effective November 2, 2009, the Company amended its articles of incorporation to increase its authorized capital to 200,000,000 shares of common stock.
The number of shares referred to in these financial statements has been restated to give retroactive effect on the stock splits.
On December 10, 2009, the Company issued an additional 23,904,015 shares of common stock pursuant to conversion of $227,515 in demand notes payable and $11,525 in accrued interest.
Effective August 23, 2010, 225,000 shares that had been issued to Trussnet in connection to the license agreement described in note 13 were returned to treasury for cancellation.
At December 31, 2010 the Company had 25,404,016 shares of common stock issued and outstanding (2009 - 25,654,016).
At December 31, 2010, the Company had no outstanding options or warrants.
10.
Income taxes
The Company follows ASC subtopic 740-10 (formerly Statement of Financial Accounting Standard No. 109, “Accounting for Income Taxes”) for recording the provision for income taxes. ASC 740-10 requires the use of the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred tax assets and liabilities are computed based upon the difference between the financial statement and income tax basis of assets and liabilities using the enacted marginal tax rate applicable when the related asset or liability is expected to be realized or settled. Deferred income tax expenses or benefits are based on the changes in the asset or liability each period. If available evidence suggests that it is more likely than not that some portion or all of the deferred tax assets will not be realized, a valuation allowance is required to reduce the deferred tax assets to the amount that is more likely than not to be realized. Future changes in such valuation allowance are included in the provision for deferred income taxes in the period of change.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. Our deferred tax assets consist of the benefit from net operating loss (“NOL”) carry-forwards and from the impairment of our license in 2009. The NOL carry-forwards begin to expire in 2028. Our deferred tax assets are offset by a valuation allowance due to the uncertainty of their realization.
The Company’s effective income tax rate is higher than would be expected if the federal statutory rate were applied to income before tax, primarily because of expenses deductible for financial reporting purposes that are not deductible for tax purposes during the year ended December 31, 2009 and 2010.
The provision for income tax, using an effective tax rate of thirty-four percent (34%), consists of the following for the years ended December 31, 2010 and 2009:
At December 31, 2010, we had an NOL carryover of approximating $537,540 that is available to offset future taxable income. The cumulative tax effect at the expected rate of thirty-four percent (34%) of significant items comprising our net deferred tax amount is as follows for the years ended December 31, 2010 and 2009:
11.
Related party transactions
a.
During the fiscal year ended December 31, 2007, the Company received $17,006 pursuant to promissory notes with two of its former directors. The notes are unsecured, bear no interest and don’t have any specific terms of repayment, and are outstanding at December 31, 2010;
b.
In December 2008, the Company entered into a contract for management services with a company controlled by the President and a director of the Company, requiring the payment of $2,500 per month plus applicable expenses for a period of one year, expiring on November 30, 2009. This commitment continues on a month to month basis and can be terminated by either party with 30 days notice. During the years ended December 31, 2010 and 2009, $30,000 and $30,000, respectively, was paid or accrued pursuant to this agreement.
12.
Commitments
a.
On November 1, 2008, the Company entered into a contract for investor relations services requiring the payment of $7,500 per month expiring on October 31, 2010. This commitment was terminated effective August 31, 2010.
b.
On November 15, 2008, the Company entered into a contract for communication support services requiring the payment of $3,750 per month expiring on November 14, 2010. This commitment was terminated effective March 31, 2009;
c.
On December 1, 2008, the Company entered into a contract for management consulting services with a company controlled by the President and a director of the Company requiring the payment of $2,500 per month expiring on November 30, 2009. This commitment continues on a month to month basis.
13.
Merger
On January 12, 2009, the Company entered into a definitive Agreement and Plan of Merger with LED Power Group, Inc. f.k.a. LED Power, Inc., a Nevada corporation (“LPI”) and Drayton Acquisition Sub, Inc., our wholly-owned subsidiary, whereby Drayton Acquisition Sub, Inc. merged with and into LPI, with LPI remaining as the surviving entity and becoming our wholly-owned subsidiary. Under the terms of the Agreement and Plan of Merger, we issued 9,000,000 pre-split shares of our common stock to Trussnet Capital Partners (Cayman) Ltd. (“Trussnet”) for all of the issued and outstanding shares of LPI. LPI has limited operations and owns the rights to an Assignment Agreement with Jumbo Power Technology Ltd., Liao Pheng-Piao and Liu Chih-Chun (“Licensors”), dated December 2008 (the “Assignment Agreement”). Under the terms of the Assignment Agreement, LPI was licensed the exclusive rights to certain intellectual property owned by Licensors in relation to the production of LED products. Additionally, on February 2, 2009, the Company merged with our wholly-owned subsidiary LPG for the purposes of effective a name change to “LED Power Group, Inc.”
The 9,000,000 shares were valued at fair market on the day of the agreements, being $0.92 per share. During the fiscal year ended December 31, 2009, $8,280,000 was recorded for impairment of the license as it does not have marketable value at this time.
The Company was involved in a dispute with Trussnet regarding the Assignment Agreement, and until such dispute was resolved, was unable to utilize the intellectual property licensed thereunder to develop LED products. On August 16, 2010, the Company entered into a rescission agreement with Trussnet, Trussnet Capital Partners (HK) Ltd. (“TCP”), and Coach Capital, LLC (the “Rescission Agreement”), whereby the Company agreed to the rescission of the Assignment Agreement. In consideration of the rescission of the Assignment Agreement, TCP and Trussnet agreed to surrender for cancellation and relinquish any and all ownership interests in 225,000 shares of the Company’s common stock issued in connection with the Assignment Agreement. Effective August 23, 2010, the shares were returned to treasury for cancellation.
14.
Subsequent events
Participation Agreement
On April 14, 2011, the Company entered into an Assignment and Assumption Agreement (the “Assumption Agreement”) with American Petro-Hunter Inc., a Nevada corporation (“American Petro”), pursuant to which the Company acquired from American Petro for $30,000, all of its rights pursuant to a Participation Agreement (the “Participation Agreement”) with Archer Exploration, Inc. (“Archer”) to participate in the drilling for natural gas on a prospect located in Stanislaus County, California. Pursuant to the Participation Agreement, American Petro paid to Archer $200,000 for all costs in connection with the acquisition and operation of the prospect until completion of an initial test well in exchange for a 25% working interest in the prospect. The assignment of the 25% interest to the Company will only be made upon the successful completion of the initial test well. The Company will also be responsible for 25% of all expenditures in connection with the development and operation of the prospect for drilling. The Company may elect not to participate in additional expenditures in connection with the prospect at which time the Company will forfeit any interests we have in the prospect.
In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through April 15, 2011, the date the financial statements were issued.