UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended August 31, 2013 | |
[ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT |
For the transition period from _________ to ________ | |
Commission file number: 333-177518 |
IDS Industries, Inc. | |
(Exact name of registrant as specified in its charter) | |
Nevada | 45-2758994 |
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.) |
533 Birch Street Lake Elsinore, CA |
92530 |
(Address of principal executive offices) | (Zip Code) |
Registrant’s telephone number: (951) 674-1554 | |
Securities registered under Section 12(b) of the Exchange Act:
| |
Title of each class | Name of each exchange on which registered |
none | not applicable |
Securities registered under Section 12(g) of the Exchange Act: | |
Title of class | |
Common stock, par value of $0.001 |
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [ ] No [X]
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes [ ] No [X]
Indicate by checkmark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [ ] No [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [ ] Accelerated filer [ ] Non-accelerated filer [ ] Smaller reporting company [X]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter. $5,010,950 as of February 28, 2013.
Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 35,646,447 shares as of December 11, 2013.
2 |
PART I
Company Overview
Our business focuses on the design and development of solar and power management technologies and incorporates these into its manufacturing and distribution of solar-based portable power stations and devices. Under an Exclusive License/Royalty Agreement with SP Innovations, Inc. (“SP”), we hold the exclusive right to manufacture, import, export, use, and sell a line of portable, solar-powered generators developed by SP. Under the License Agreement, we pay SP a royalty of five percent (5%) of our total wholesale price for all of the licensed products sold by us. We have begun production and sale of our first portable solar-based power generation station, the Solar Survivor. We are currently marketing the Solar Survivor model as a clean, portable electrical energy solution for every American household. We have also begun development of an intregrated battery management and charge controller system for the optimization of electric power storage systems especially those that are lithium chemistry based.
On February 19, 2013 we hired Randy Sindelar as Vice President of Research and Development with the expressed purpose of furthering our manufacturing quality control systems and processes and to boost our technology development. Mr. Sindelar is spearheading the Company’s lithium iron phosphate and advanced battery management system technologies.
We received our first order from our distributor, American Portable Power, on October 12, 2012, which totaled $85,185.00 with a deposit of $12,500.00 paid. The first delivery of this order was made on January 15, 2013. We were developing an online presence for both consumer and commercial sales with twelve (12) online businesses displaying our product line and have discovered that our sales efforts are better concentrated with a focus on the wholesale, commercial and government marketplaces. We are also developing a sales and distribution network through contracted dealers, energy system integrators, and OEMs nationwide to support our planned sales growth vertically and horizontally.
Products
We began production of our first (1) product this quarter and have scheduled the production of our next three (3) products in the third quarter of FYE 2013. Each product model features our innovative storage and charge design with the overall product line marketed as the economical, sturdy and reliable choice for portable solar energy as part of an emergency/disaster preparedness plan or for those seeking an off-grid, odorless, noiseless and non-flammable source of power.
The Solar Survivor was the first model released and became available for delivery on January 15, 2013. The Solar Survivor is a rugged solar power electrical generator originally housed in a durable hard plastic Styleworks container manufactured by Rubbermaid. The Solar Survivor has been redesigned to feature a customized metallic case with two (2) Inline wheels and telescoping handle that provide users extra easy mobility. The Solar Survivor is powered by a 50AH battery from Universal Power Supply, one of America’s premier battery manufacturers, with power provided by a 45W monocrystaline solar panel, a Windsor 1600 Watt Inverter with three (3) AC receptacles, a USB connection, and a remote control switch. The Solar Survivor configuration provides an efficient source of solar power collection and generation at a suggested retail price of $999.00.
The next three (3) models we planned to release were the Solar Tote, the Solar Rescue and the Solar Kart 420. We have discontinued the pursuit of the Solar Tote and have integrated some of its features into the Solar Survivor. The suggested retail price for the other two (2) models is not determined at this time.
The Solar Rescue is our premier model that has a water resistant customized Pelican Rescue resin case with telescoping handles and two (2) Inline wheels featuring a foldable 45W solar power film panel, a SunSaver Charge Controller with LVD, a 75AH battery from Universal Power Supply, a Windsor 1600 Watt Inverter with three (3) AC receptacles, a USB connection, and a remote control switch.
We are developing and testing our first model targeted for commercial use, the “Solar Kart 420”. The formal name of the unit will be determined in the near future. This portable unit is targeted to feature a Lithium Iron Phosphate battery system complete with a proprietary battery management. This model is scheduled to begin production some time early summer 2013 with distribution available shortly thereafter.
Suppliers and Manufacturers
We currently manufacture our product line through a contract manufacturer, Installing Dealer Supply, Inc. Installing Dealer Supply, Inc. is a Southern California business specializing in componentized manufacturing and assembling for the past 23 years. It provides use with procurement, assembly and inventory services for manufacturing and finished goods for our entire product line on a per piece cost-plus basis. With staff on-hand at the point of assembly, we work with our contract manufacturer to maintain a high product quality and assure continuity and consistency while managing and maintaining lower production costs. We pay our contract manufacturer monthly based on production.
3 |
Expansion and Development Plan
We have contracted with American Portable Power, an ID Brandz, Inc. company based in Santa Ana, CA as our distributor nationwide. Our strategy includes building an independent dealer base initially throughout the U.S. by attaining a dealer in every state within the third quarter of FYE 2013. To that end, we have contracted with Global Results Marketing (GRM) on January 30, 2013 to lead this effort with over thirty-five (35) dealers having been signed as of the close of its third quarter FYE 2013. We are also targeting niche markets that we believe will be readily receptive to our product line, including the off-road vehicle community and hiking, camping, boating and other recreational activities where a clean, quiet and portable electrical energy supply is needed in a remote or off-grid location. Other potential marketplaces include first responders and others that provide disaster relief or emergency services. Many consumers and businesses cannot utilize fossil-fuel based solutions. With our product line, they will have a choice for safe and “green” electricity from solar power generation.
We sub-lease approximately 3,000 square feet of office and warehouse space in Lake Elsinore, California from our manufacturer, Installing Dealer Supply, Inc. The space is used to house our executive offices, as well as for manufacturing and storage. We currently pay rent on the space in the amount of $1,383 per month. The sub-lease is currently a verbal arrangement.
We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.
Item 4. Mine Safety Disclosures
Not applicable.
PART II
Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters and Issuer Purchases of Equity Securities
Market Information
Our common stock is quoted under the symbol “IDST” on the OTCBB operated by the Financial Industry Regulatory Authority, Inc. (“FINRA”) and the OTCQB operated by OTC Markets Group, Inc. Few market makers continue to participate in the OTCBB system because of high fees charged by FINRA. Consequently, market makers that once quoted our shares on the OTCBB system may no longer be posting a quotation for our shares. As of the date of this report, however, our shares are quoted by several market makers on the OTCQB. The criteria for listing on either the OTCBB or OTCQB are similar and include that we remain current in our SEC reporting. Our reporting is presently current and, since inception, we have filed our SEC reports on time.
A trading market for our securities did not begin to develop until after the fiscal year ended August 31, 2012.
The following tables set forth the range of high and low prices for our common stock for the each of the periods indicated as reported by the OTCQB. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.
Fiscal Year Ending August 31, 2013 | ||||||||||
Quarter Ended | High $ | Low $ | ||||||||
August 31, 2013 | 0.0970 | 0.0311 | ||||||||
May 31, 2013 | 0.1800 | 0.0500 | ||||||||
February 28, 2013 | 0.2500 | 0.1208 | ||||||||
November 30, 2012 | 0.2083 | 0.0167 |
Fiscal Year Ending August 31, 2012 | ||||||||||
Quarter Ended | High $ | Low $ | ||||||||
August 31, 2012 | 0.0167 | 0.0167 | ||||||||
May 31, 2012 | N/A | N/A | ||||||||
February 29, 2012 | N/A | N/A | ||||||||
November 30, 2011 | N/A | N/A |
As of December 11, 2013, the last trading price of our common stock was $0.015 per share.
4 |
Penny Stock
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws; (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price; (d) contains a toll-free telephone number for inquiries on disciplinary actions; (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock; (b) the compensation of the broker-dealer and its salesperson in the transaction; (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.
These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling our securities.
Holders of Our Common Stock
As of December 11, 2013, we had 35,646,447 shares of our common stock issued and outstanding, held by sixty-nine (69) shareholders of record.
Dividends
There are no restrictions in our articles of incorporation or bylaws that prevent us from declaring dividends. The Nevada Revised Statutes, however, do prohibit us from declaring dividends where after giving effect to the distribution of the dividend:
1. | we would not be able to pay our debts as they become due in the usual course of business, or; |
2. | our total assets would be less than the sum of our total liabilities plus the amount that would be needed to satisfy the rights of shareholders who have preferential rights superior to those receiving the distribution. |
We have not declared any dividends and we do not plan to declare any dividends in the foreseeable future.
Item 6. Selected Financial Data
A smaller reporting company is not required to provide the information required by this Item.
5 |
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse affect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Results of Operations for the Years Ended August 31, 2013 and August 31, 2012.
During the year ended August 31, 2013, we earned $37,074 in revenue and incurred $93,727 in costs of sales. Our total operating expenses for the year ended August 31, 2013 were $1,154,067, consisting of general and administrative expenses of $389,330, salaries and wages of $283,706, professional fees of $127,517, and marketing and advertising of $353,514. We incurred interest expense of $21,388, loss on a derivative liability of $10,794, amortization of debt discount in the amount of $92,751. In addition, we generated $2,662 in interest income during the year. Our net loss for the year ended August 31, 2013 was therefore $1,332,991. By comparison, during the year ended August 31, 2012, we earned no revenue and incurred operating expenses of $70,667 and interest expense of $110. Our net loss for the year ended August 31, 2012 was $70,777.
During the fiscal year ended August 31, 2013, we began operation of our portable solar generator business. As we go forward with the development of our business during the current fiscal year, we expect that our operating expenses will continue to increase significantly and that we will also begin to generate increasing revenues from the sale of our products.
Liquidity and Capital Resources
As of August 31, 2013, we had total current assets of $199,707 consisting of cash in the amount of $1,960, prepaid expenses of $80,196, inventory of 32,682, accounts receivable of $4,950, a related party receivable of $77,307, and interest receivable from a related party of $2,612. Our total current liabilities as of August 31, 2013 were $937,118, and consisted of accounts payable of $159,596, accrued interest of $19,990, notes payable of $30,000, notes payable to related parties of $290,098, convertible notes payable (net of discount) of $265,992, accrued expenses of $10,159, and a derivative liability of $148,870. Our working capital deficit as of August 31, 2013 was therefore $737,411. During the year ended August 31, 2013, we used net cash of $709,026 in operations and were provided with cash of $695,846 from financing activities.
We have received short term loan financing for the launch of our new portable solar power generator business under various promissory notes. Our promissory note obligations currently issued and outstanding are as follows:
1. We owe the principal sum of $33,850 to Argent Offset, LLC under the terms of a Promissory Note dated February 27, 2013. This note bears interest at an annual rate of eighteen percent (18%), with interest payable monthly. All principal and interest was due August 26, 2013. On November 26, 2013, the lender agreed to waive any default until December 15, 2013 under a temporary forbearance.
2. We owe the principal sum of $125,000 to Steven J. Caspi under the terms of a Convertible Promissory Note and Security Agreement (the “Note”) issued November 19, 2012. The Note bears interest at an annual rate of five percent (5%), with all principal and interest being due on or before November 30, 2013. The Note is convertible to shares of our common stock, in whole or in part at the option of Mr. Caspi, at a conversion price of $1.25 per share. The conversion rights under the Note are subject to a limitation under which Mr. Caspi may not, upon any conversion of the Note, own more than 4.99% of our issued and outstanding common stock. The amounts due under the Note are secured by a security interest in substantially all of our assets. The Note is currently in default and we are in the process of renegotiating terms for repayment.
3. Through August 31, 2013, we have borrowed the total sum of $289,998 from our former President and CEO, Bruce R. Knoblich. Our obligations regarding this loan are currently memorialized in a Promissory Note dated May 31, 2013. The note bears interest at an annual rate of five percent (5%). The note was due on November 30, 2013 and is currently in default.
6 |
4. We have received financing under a series of Convertible Promissory Notes (the “Notes”) issued to Asher Enterprises, Inc. (“Asher”). The Notes bear interest at an annual rate of 8%, with principal and interest coming due approximately nine (9) months from the respective dates of issue. The Notes may be converted in whole or in part, at the option of the holder, to shares of our common stock, par value $0.001, at any time following 180 days after the issuance dates of the Notes. The conversion price under the Note is 51% of the Market Price of our common stock on the conversion dates. For purposes of the Notes, “Market Price” is defined as the average of the 3 lowest closing prices for our common stock on the 30 trading days immediately preceding the conversion dates. The number of shares issuable upon conversion is limited so that the Holder’s total beneficial ownership of our common stock may not exceed 9.99% of the total issued and outstanding shares. This condition may be waived at the option of the holder upon not less than 61 days notice.
Upon conversion of the Notes in whole or in part, we will be obligated to deliver the conversion stock to the holder within 3 business days of our receipt of notice of conversion. Failure to timely deliver conversion stock will cause us to incur daily penalties. The conversion price will be subject to adjustment in the event of certain dilutive issuances of securities, distributions of stock or assets to shareholders, mergers, consolidations, and certain other events. Pre-payment of the Notes will result in certain penalties depending on the time of pre-payment, and will not be allowed after 180 days.
The amounts and respective due dates of the Notes are as follows:
Date | Principal Amount | Due Date | ||||||
March 20, 2013 | $ | 32,500 | December 26, 2013 | |||||
April 4, 2013 | $ | 15,500 | January 8, 2014 | |||||
June 3, 2013 | $ | 32,500 | March 5, 2014 | |||||
August 5, 2013 | $ | 32,500 | May 7, 2014 |
5. On June 19, 2013, we entered into a Promissory Note (the “Note”) with JMJ Financial (“JMJ”). The nominal principal sum of the Note is $300,000, with an original issue discount of ten percent (10%). Upon closing, JMJ will loaned us the sum of $55,000 under the Note, with any additional advances up to the total principal sum to be made in the future and at the sole discretion of JMJ. On August 31, 2013, JMJ loaned us an additional $25,000 under the Note. All unpaid principal and interest due under the Note must be paid within one (1) year of the effective date of each advance made by JMJ under the Note. If we repay the Note in full on or before ninety (90) days after the effective date, no interest will be due. If we do not repay the Note in full on or before ninety (90) days after the effective date, a one-time interest charge of twelve percent (12%) will be added to the principal balance of the Note. We may also pre-pay the Note between 90 and 140 days after the effective date, but any pre-payment during this period must be in an amount equal to 150% of the principal amount being re-paid, plus any unpaid interest and fees due at that time. The Note may be converted in whole or in part, at the option of the holder, to shares of our common stock, par value $0.001. The conversion price under the Note is 60% of the lowest trading price for our common stock in the twenty-five (25) trading days prior to the conversion. In the event that conversion shares are not issuable to the holder by DWAC, an additional 10% discount will apply. The number of shares issuable upon conversion is limited so that the holder’s total beneficial ownership of our common stock may not exceed 4.99% of the total issued and outstanding shares. Upon conversion of the Note in whole or in part, we will be obligated to deliver the conversion stock to the holder within 3 business days of our receipt of notice of conversion. Failure to timely deliver conversion stock will cause us to incur daily penalties.
We will require significant additional financing in order to move forward effectively with the development of our new portable solar power generator business and our battery management and charge controller products line. We intend to fund the development of our new business through debt and/or equity financing arrangements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, in amounts sufficient to fund our planned acquisitions and other activities, or at all.
Off Balance Sheet Arrangements
As of August 31, 2013, there were no off balance sheet arrangements.
Going Concern
We have yet to achieve profitable operations, have accumulated losses of $1,411,613 since our inception and expect to incur further losses in the development of our business, all of which casts substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing from shareholders or other sources to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has no formal plan in place to address this concern but considers that we will be able to obtain additional funds by equity financing and/or related party advances, however there is no assurance of additional funding being available or on acceptable terms, if at all.
7 |
Critical Accounting Policies
In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain. At this time, management does not believe that any of our accounting policies fit this definition.
Recently Issued Accounting Pronouncements
The Company has reviewed issued accounting pronouncements and plans to adopt those that are applicable to it. The Company does not expect the adoption of any other pronouncements to have an impact on its results of operations or financial position.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
A smaller reporting company is not required to provide the information required by this Item.
Item 8. Financial Statements and Supplementary Data
Index to Financial Statements Required by Article 8 of Regulation S-X:
8 |
Silberstein Ungar, PLLC CPAs and Business Advisors
Phone (248) 203-0080
Fax (248) 281-0940
30600 Telegraph Road, Suite 2175
Bingham Farms, MI 48025-4586
www.sucpas.com
Report of Independent Registered Public Accounting Firm
To the Board of Directors of
IDS Industries, Inc.
Lake Elsinore, California
We have audited the accompanying balance sheets of IDS Industries, Inc. as of August 31, 2013 and 2012, and the related statements of operations, stockholders’ equity (deficit), and cash flows for the years then ended. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our 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 audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of IDS industries, Inc. as of August 31, 2013 and 2012, and the results of its operations and its cash flows for the years ended August 31, 2013 and 2012 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 10 to the financial statements, the Company has negative working capital, has not yet received revenue from sales of products or services, and has incurred losses from operations. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans with regard to these matters are described in Note 10. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Silberstein Ungar, PLLC
Bingham Farms, Michigan
December 11, 2013
F-1 |
(FORMERLY IDS SOLAR TECHNOLOGIES, INC.)
BALANCE SHEETS
August 31, 2013 | August 31, 2012 | |||||||
ASSETS | ||||||||
Current Assets: | ||||||||
Cash | $ | 1,960 | $ | 15,140 | ||||
Accounts receivable, net of allowance of $4,950 | 4,950 | — | ||||||
Prepaids and other current assets | 80,196 | — | ||||||
Inventory | 32,682 | — | ||||||
Other receivable – related party | 77,307 | — | ||||||
Interest receivable – related party | 2,612 | — | ||||||
Total Current Assets | 199,707 | 15,140 | ||||||
Property & equipment, net | — | 10,080 | ||||||
Total Assets | $ | 199,707 | $ | 25,220 | ||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | ||||||||
LIABILITIES: | ||||||||
Current Liabilities: | ||||||||
Cash overdraft | $ | 12,413 | $ | — | ||||
Accounts payable | 159,596 | — | ||||||
Derivative liability | 148,870 | — | ||||||
Accrued expenses | 10,159 | 66,632 | ||||||
Accrued interest | 19,990 | 110 | ||||||
Convertible notes payable, net of discount of $93,858 and $0, respectively | 265,992 | — | ||||||
Notes payable – related party | 290,098 | 2,100 | ||||||
Notes payable | 30,000 | — | ||||||
Total Current Liabilities | 937,118 | 68,842 | ||||||
Total Liabilities | 937,118 | 68,842 | ||||||
STOCKHOLDERS’ DEFICIT: | ||||||||
Preferred stock, par value $.001, 10,000,000 authorized, no shares issued and outstanding | — | — | ||||||
Common stock, $.001 par value, 90,000,000 common shares authorized, 34,313,114 and 144,000,000 (post-split) shares issued and outstanding, respectively | 34,313 | 144,000 | ||||||
Additional paid in capital | 639,889 | (109,000 | ) | |||||
Accumulated deficit | (1,411,613 | ) | (78,622 | ) | ||||
Total Stockholders’ Deficit | (737,411 | ) | (43,622 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT | $ | 199,707 | $ | 25,220 |
The accompanying notes are an integral part of these financial statements.
F-2 |
(FORMERLY IDS SOLAR TECHNOLOGIES, INC.)
STATEMENTS OF OPERATIONS
For the Year Ended August 31, | For the Year Ended August 31, | |||||||
2013 | 2012 | |||||||
Revenue | $ | 37,074 | $ | — | ||||
Cost of revenue | 93,727 | — | ||||||
Gross margin | (56,653 | ) | — | |||||
Operating expenses: | ||||||||
Professional fees | 127,517 | 68,605 | ||||||
Salaries and wages | 283,706 | — | ||||||
Marketing and advertising | 353,514 | — | ||||||
General and administrative | 389,330 | 2,062 | ||||||
Total operating expenses | 1,154,067 | 70,667 | ||||||
Loss from operations | (1,210,720 | ) | (70,667 | ) | ||||
Other income and (expense): | ||||||||
Amortization of debt discount | (92,751 | ) | — | |||||
Gain (loss) on derivative liability | (10,794 | ) | — | |||||
Interest expense | (21,388 | ) | (110 | ) | ||||
Interest income | 2,662 | — | ||||||
Total other expense | (122,271 | ) | (110 | ) | ||||
Loss before provision for income taxes | (1,332,991 | ) | (70,777 | ) | ||||
Provision for income taxes | — | — | ||||||
Net Loss | $ | (1,332,991 | ) | $ | (70,777 | ) | ||
Loss per share: | ||||||||
Basic and diluted | $ | (0.04 | ) | $ | (0.00 | ) | ||
Weighted average shares outstanding: basic and diluted | 38,356,630 | 133,049,184 |
The accompanying notes are an integral part of these financial statements.
F-3 |
(FORMERLY IDS SOLAR TECHNOLOGIES, INC.)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
AUGUST 31, 2013
Common Stock Shares | Common Stock Amount | Additional Paid-in Capital | Deficit Accumulated During the Development Stage | Total Stockholders' Equity (Deficit) | ||||||||||||||||
Balance at inception, May 2, 2011 | — | — | — | — | $ | — | ||||||||||||||
Common stock issued in exchange for membership interest | 120,000,000 | 120,000 | (105,000 | ) | — | 15,000 | ||||||||||||||
Net loss for the year ended August 31, 2011 | — | — | — | (7,845 | ) | (7,845 | ) | |||||||||||||
Balance, August 31, 2011 | 120,000,000 | 120,000 | (105,000 | ) | (7,845 | ) | 7,155 | |||||||||||||
Common stock issued for cash | 24,000,000 | 24,000 | (4,000 | ) | — | 20,000 | ||||||||||||||
Net loss for the year ended August 31, 2012 | — | — | — | (70,777 | ) | (70,777 | ) | |||||||||||||
Balance, August 31, 2012 | 144,000,000 | 144,000 | (109,000 | ) | (78,622 | ) | (43,622 | ) | ||||||||||||
Common stock issued for services | 3,157,750 | 3,158 | 464,290 | — | 467,448 | |||||||||||||||
Common stock returned | (113,000,004 | ) | (113,000 | ) | 113,000 | — | — | |||||||||||||
Common stock issued for cash | 155,368 | 155 | 15,843 | — | 15,998 | |||||||||||||||
Conveyance of subsidiary | — | — | 57,147 | — | 57,147 | |||||||||||||||
Debt discount on convertible notes | — | — | 98,609 | — | 98,609 | |||||||||||||||
Net loss for the year ended August 31, 2013 | — | — | — | (1,332,991 | ) | (1,332,991 | ) | |||||||||||||
Balance, August 31, 2013 | 34,313,114 | 34,313 | 639,889 | (1,411,613 | ) | $ | (737,411 | ) |
The accompanying notes are an integral part of these financial statements.
F-4 |
(FORMERLY IDS SOLAR TECHNOLOGIES, INC.)
STATEMENTS OF CASH FLOWS
For the Year Ended | For the Year Ended | |||||||
August 31, 2013 | August 31, 2012 | |||||||
Cash flows from operating activities: | ||||||||
Net loss for the year | $ | (1,332,991 | ) | $ | (70,777 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Common stock for services | 467,448 | — | ||||||
(Gain) loss on fair value of derivatives | 10,794 | — | ||||||
Amortization of discounts | 93,989 | — | ||||||
Bad debt expense | 4,950 | — | ||||||
Derivative expense | 50,076 | — | ||||||
Change in assets and liabilities: | ||||||||
Increase in accounts receivable | (9,900 | ) | — | |||||
Purchase of inventory | (32,682 | ) | — | |||||
Increase in prepaids and other current assets | (82,949 | ) | — | |||||
Increase in note receivable – related party | (77,307 | ) | — | |||||
Increase in interest receivable – related party | (2,612 | ) | — | |||||
Increase in accounts payable | 172,009 | — | ||||||
Increase in customer deposits | — | 5,000 | ||||||
Increase (decrease) in accrued expenses | 30,149 | 58,965 | ||||||
Net cash used in operating activities | (709,026 | ) | (6,812 | ) | ||||
Cash flows from investing activities | ||||||||
Property and equipment | — | (10,080 | ) | |||||
Net cash provided by (used) in investing activities | — | (10,080 | ) | |||||
Cash flows from financing activities: | ||||||||
Proceeds from convertible debt | 359,850 | — | ||||||
Increase in note payable – related party | 289,998 | 2,000 | ||||||
Increase in other notes payable | 30,000 | — | ||||||
Proceeds from the sale of common stock | 15,998 | 20,000 | ||||||
Net cash provided by financing activities | 695,846 | 22,000 | ||||||
Net increase (decrease) in cash | (13,180 | ) | 5,108 | |||||
Cash at beginning of period | 15,140 | 10,032 | ||||||
Cash at end of period | $ | 1,960 | $ | 15,140 | ||||
Supplemental Cash Flow Information: | ||||||||
Cash paid for interest | $ | 55 | $ | — | ||||
Cash paid for taxes | $ | — | $ | — | ||||
Supplemental disclosure of non cash activities | ||||||||
Conveyance of subsidiary | $ | 57,147 | $ | — |
The accompanying notes are an integral part of these financial statements.
F-5 |
(FORMERLY IDS SOLAR TECHNOLOGIES, INC.)
NOTES TO THE FINANCIAL STATEMENTS
AUGUST 31, 2013
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Business
IDS Industries, Inc. (“IDS” or the “Company”) is a GIIRS-rated “green” energy company that designs and develops solar and power management technologies and incorporates these into its manufacturing and distribution of solar-based portable power stations and other solar-based products for consumer, business, government, and disaster relief applications. We offer a line of portable solar power generators under our Company brand name, IDS Solar TechnologiesÔ.
The Company was formed as Step Out, Inc., a Nevada corporation on May 2, 2011. On July 18, 2011 Step Out issued 10,000,000 common shares to acquire 100% membership interest in SOI Nevada, LLC, a Nevada limited liability corporation from the sole shareholder. The membership interest was acquired at book value from the shareholder. SOI Nevada, LLC became a wholly-owned subsidiary of Step Out, Inc.
On September 19, 2012, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Membership Interests and Assumption of Obligations (the “Agreement”) with our sole officer and director, Sterling Hamilton. Pursuant to the Agreement, the Company transferred all membership interests in our operating subsidiary, SOI Nevada, LLC, to Mr. Hamilton. In exchange for this assignment of membership interests, Mr. Hamilton agreed to assume and cancel all liabilities relating to our former business of developing a chain of flotation tank therapy spas. In addition, Mr. Hamilton agreed to release all liability under a promissory note due and owing to him in the amount of $2,000.
As a result of the Agreement, the Company is no longer pursuing its former business plan. Under the direction of our newly appointed officers and directors, as set forth below, we intend to develop a business focused on the design, development, manufacturing and distribution of renewable-energy based portable and mobile electrical generators and power stations under our own brand name, IDS Solar TechnologiesÔ.
Effective October 12, 2012, the Board of Directors approved a merger with our wholly-owned subsidiary, IDS Acquisition, Inc., pursuant to NRS 92A.180. IDS Acquisition was incorporated in the state of Nevada on September 25, 2012. As part of the merger with our wholly-owned subsidiary, our board authorized a change in the name of the company to “IDS Solar” Technologies, Inc.”
On January 7, 2013 we launched our planned new product line on a limited basis; with the initial model, the Solar Survivor. The Company continues to design and development other models of electric generators and power stations based on customer input and feedback.
Effective February 7, 2013, the board of directors approved a one for twelve forward split of the Company’s common stock. All shares throughout these financial statement and Form 10-K have been retroactively restated to reflect the forward split. This event was reported in an 8-K on February 4, 2013.
Effective May 29, 2013, the board of directors authorized a change in the name of the company to “IDS Industries, Inc.” The new name reflects the direction and focus of the Company more accurately given the full slate of products in advanced development including the battery management and energy storage fields.
Basis of Presentation
The accompanying financial statements 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"). In the opinion of management, all adjustments necessary in order for the financial statements to be not misleading have been reflected herein. The Company has adopted an August 31 year end.
Development Stage Company
The Company is deemed to have exited the development stage on February 28, 2013 as it began planned principle operations.
Cash and Cash Equivalents
The Company considers all highly liquid investments with maturities of three months or less to be cash equivalents. There were no cash equivalents as of August 31, 2013 and 2012.
F-6 |
Basic Loss per Share
Basic income (loss) per share is calculated by dividing the Company’s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by dividing the Company’s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year. The diluted weighted average number of shares outstanding is the basic weighted number of shares adjusted for any potentially dilutive debt or equity. There were no such common stock equivalents outstanding as of August 31, 2013 and 2012.
Concentrations of Credit Risk
The Company maintains its cash in bank deposit accounts, the balances of which at times may exceed federally insured limits. The Company continually monitors its banking relationships and consequently has not experienced any losses in such accounts. The Company believes it is not exposed to any significant credit risk on cash.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are provided utilizing the straight-line method over the related asset’s estimated useful life of three years.
Maintenance and repairs are charged to expense as incurred; renewals and improvements that extend the useful life of the assets are capitalized. Upon retirement or disposal, the asset cost and the related accumulated depreciation and amortization are eliminated from the respective accounts and a resulting gain or loss, if any, is included in the results of operations.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out method; market value is based upon estimated replacement costs.
Allowance for doubtful accounts
We maintain an allowance for doubtful accounts for estimated losses that result from the failure or inability of our customers to make required payments. When determining the allowance, we consider the probability of recoverability of accounts receivable based on past experience. Accounts receivable may also be fully reserved for when specific collection issues are known to exist. The analysis of receivables is performed quarterly, and the allowances are adjusted accordingly.
Fair Value of Financial Instruments
For certain of the Company’s non-derivative financial instruments, including cash and cash equivalents, receivables, prepaids, inventory, accounts payable, and other accrued liabilities, the carrying amount approximates fair value due to the short-term maturities of these instruments. The estimated fair value of long-term debt is based primarily on borrowing rates currently available to the Company for similar debt issues. The fair value approximates the carrying value of long-term debt.
ASC Topic 820, “Fair Value Measurements and Disclosures,” requires disclosure of the fair value of financial instruments held by the Company. ASC Topic 825, “Financial Instruments,” defines fair value, and establishes a three-level valuation hierarchy for disclosures of fair value measurement that enhances disclosure requirements for fair value measures. The carrying amounts reported in the balance sheets for receivables and current liabilities each qualify as financial instruments and are a reasonable estimate of their fair values because of the short period of time between the origination of such instruments and their expected realization and their current market rate of interest. The three levels of valuation hierarchy are defined as follows:
· | Level 1. Observable inputs such as quoted prices in active markets; |
· | Level 2. Inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; |
· | Level 3. Unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions. |
F-7 |
The following presents the gross value of assets and liabilities that were measured and recognized at fair value, as of August 31, 2013.
Level I | Level II | Level III | Fair Value | |||||||||||||
Derivative liability | $ | — | $ | 148,870 | $ | — | $ | 148,870 |
Stock-Based Compensation
We account for equity instruments issued in exchange for the receipt of goods or services from non-employees. Costs are measured at the fair market value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earlier of the date on which there first exists a firm commitment for performance by the provider of goods or services or on the date performance is complete. The Company recognizes the fair value of the equity instruments issued that result in an asset or expense being recorded by the Company, in the same period(s) and in the same manner, as if the Company has paid cash for the goods or services.
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, “Equity-Based Payments to Non-Employees” (“Topic No. 505-50”). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The fair value of common stock issued for payments to non-employees is measured at the market price on the date of grant. The fair value of equity instruments, other than common stock, is estimated using the Black-Scholes option valuation model. In general, the Company recognizes an asset or expense in the same manner as if it was to pay cash for the goods or services instead of paying with or using the equity instrument. During the current fiscal year, the Company issued 3,157,750 shares of common stock valued at $467,448 to non-employees. A total of $402,624 was expensed during fiscal year ended August 31, 2013, and $64,824 remains in prepaid consulting as of August 31, 2013.
The Company accounts for employee stock-based compensation in accordance with the guidance of FASB ASC Topic 718, Compensation - Stock Compensation which requires all share-based payments to employees, including grants of employee stock options, to be recognized in the financial statements based on their fair values. The fair value of the equity instrument is charged directly to compensation expense and credited to additional paid-in capital over the period during which services are rendered. There has been no stock-based compensation issued to employees.
Income Taxes
Income taxes are computed using the asset and liability method of accounting. Under the asset and liability method, a deferred tax asset or liability is recognized for estimated future tax effects attributable to temporary differences and carryforwards. The measurement of deferred income tax assets is adjusted by a valuation allowance, if necessary, to recognize future tax benefits only to the extent, based on available evidence; it is more likely than not such benefits will be realized. The Company’s deferred tax assets were fully reserved at August 31, 2013 and 2012.
The Company accounts for its income taxes using the Income Tax topic of the FASB ASC 740, which requires the recognition of deferred tax liabilities and assets for expected future tax consequences of events that have been included in the financial statements or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse.
Revenue Recognition
Sales of products and related costs of products sold are recognized when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the price is fixed or determinable, and (iv) collectability is reasonably assured. These terms are typically met upon the prepayment or invoicing, and shipment of products.
Reclassification
Certain reclassifications have been made to the August 31, 2012 financial information to conform to the presentation used in the August 31, 2013 financial statements.
F-8 |
Recent Accounting Pronouncements
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, ''Technical Corrections and Improvements" in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, "Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)" in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, "Intangibles -Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment" in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles -Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles, Goodwill and Other General Intangibles, other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity's financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued, that might have a material impact on its financial position or results of operations.
NOTE 2 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following August 31:
2013 | 2012 | |||||||
Property and equipment | $ | — | $ | 10,080 | ||||
Less: accumulated depreciation | — | — | ||||||
Property and equipment, net | $ | — | $ | 10,080 |
No depreciation expense was taken for the year ended August 31, 2012 or thereafter, as the asset acquired had not yet been placed into service. The asset as of August 31, 2012 was owned by the Company’s prior subsidiary, SOI Nevada, LLC, of which full ownership was transferred to the sole officer and director on September 19, 2012; therefore, the asset is no longer owned by the company.
F-9 |
NOTE 3 – NOTE RECEIVABLE
On August 15, 2013, the Company executed a Note Receivable for $77,307 for funds that it has advanced over the past year to another company owned by the former CEO. The note bears interest at 8% and matures in ninety days. As of August 31, 2013, the note has accrued $2,612 in interest. Collection on the note is currently past due.
NOTE 4 – PREPAIDS AND OTHER CURRENT ASSETS
Prepaids and other current assets consisted of the following at August 31, 2013:
August 31, 2013 | ||||
Prepaid consulting | $ | 64,824 | ||
Unamortized original issue discount | 6,762 | |||
Deferred financing costs | 8,610 | |||
Total prepaids and other current assets | $ | 80,196 |
NOTE 5 – NOTES PAYABLE
On September 30, 2012, the Company executed a promissory note with an individual for $1,900. The note bears interest at 10% and was due on or before December 29, 2012. This note and all accrued interest has been repaid in full.
On October 12, 2012, the Company executed a promissory note with Argent Offset, LLC for $20,000. The note bears interest at 18% and was due on or before January 10, 2013. On February 27, 2013, a new convertible promissory note was executed for $33,850. The note bears interest at 18% compounded monthly and is due August 26, 2013. The new note amends and replaces in its entirety the note dated October 12, 2012. Pursuant to the terms of the note, it is convertible into shares of the Company’s common stock at the option of the holder at any time in whole or in part at a conversion rate of $0.11. On the commitment date, management evaluated the conversion feature with respect to the benefit of the holder and determined the value of the conversion feature to be $18,464. This amount has been recorded as a discount against the outstanding balance of the note. The discount was amortized to interest expense over the life of the debt using the effective interest method. Interest charged to operations relating to the amortization of the debt discount for the year ended August 31, 2013 amounted to $18,464. In addition, the note included one warrant giving the holder the right to purchase 50,000 shares of common stock at a price of $0.20 per share for a period of three years. As required by ASC 470-20 the Company valued the warrant and recorded a debt discount to additional paid in capital in the amount of $3,690 based on the discount to market available at the time of issuance. The discount was to be amortized over the life of the loan to interest expense. As of August 31, 2013, $3,690 has been amortized to interest expense. As of August 31, 2013, the note has accrued interest of $1,641. On November 26, 2013, an agreement of temporary forbearance was executed in which for a $1,000 fee the lender agreed to waive any default until December 15, 2013.
On December 3, 2012, the Company executed a convertible promissory note with Steven J. Caspi (“Caspi”) for $125,000. The note bears interest at 5% and was due on or before November 30, 2013. Pursuant to the terms of the note, it is convertible into shares of the Company’s common stock at the option of the holder at any time in whole or in part at a conversion rate of $1.25. On the commitment date, management evaluated the conversion feature with respect to the benefit of the holder and determined the value of the conversion feature to be $60,000. This amount has been recorded as a discount against the outstanding balance of the note. The discount is being amortized to interest expense over the life of the debt using the effective interest method. Interest charged to operations relating to the amortization of the debt discount for the year ended August 31, 2013 amounted to $44,712. The note also issued one warrant giving the holder the right to purchase 15,625 shares of common stock at a price of $2.00 per share for a period of five years. As required by ASC 470-20 the Company recorded a debt discount to additional paid in capital in the amount of $16,455 based on the discount to market available at the time of issuance. The discount is to be amortized over the life of the loan to interest expense. As of August 31, 2013, $12,263 has been amortized to interest expense. As of August 31, 2013, this note is still outstanding and has accrued interest of $4,766. The note is shown net of a debt discount of $19,480 at August 31, 2013 This note is currently in default with the parties renegotiating the terms of repayment.
On March 20, 2013, the Company executed a convertible promissory note for $32,500 with an investor. The note bears interest at 8% per annum and is due on or before December 26, 2013. The note is convertible at a 49% discount any time during the period beginning 180 days following the date of the note. As of August 31, 2013 this note is still outstanding and has accrued interest of $1,168.
On April 4, 2013, the Company executed a convertible promissory note for $15,500 with an investor. The note bears interest at 8% per annum and is due on or before January 8, 2014. The note is convertible at a 49% discount any time during the period beginning 180 days following the date of the note. As of August 31, 2013 this note is still outstanding and has accrued interest of $506.
F-10 |
On June 3, 2013, the Company executed a convertible promissory note for $32,500 with an investor. The note bears interest at 8% per annum and is due on or before December 26, 2013. The note is convertible at a 49% discount any time during the period beginning 180 days following the date of the note. As of August 31, 2013 this note is still outstanding and has accrued interest of $637.
On August 5, 2013, the Company executed a convertible promissory note for $32,500 with an investor. The note bears interest at 8% per annum and is due on or before December 26, 2013. The note is convertible at a 49% discount any time during the period beginning 180 days following the date of the note. As of August 31, 2013 this note is still outstanding and has accrued interest of $192.
On June 15, 2013, the Company executed a promissory note for $15,000 with a shareholder. The note bears interest at 10% and was due within ninety days. As of August 31, 2013 this note was still outstanding and has subsequently become past due. Accrued interest as of August 31, 2013 is $312.
On June 12, 2013, the Company executed a promissory note for $15,000. The loan was due August 12, 2013. The note does not bear interest but its principal balance includes a loan fee of $5,000. Subsequent to August 31, 2013, the loan was extended with no specific terms of repayment.
On June 19, 2013, the Company executed a Convertible Promissory Note (the “note”) with JMJ Financial (“JMJ”). The nominal principal sum of the Note is $300,000, with an original issue discount of ten percent (10%). The note matures one year from the effective date of each payment, which are made at the sole discretion of JMJ. The Note is convertible into common stock in whole or in part at a variable conversion price equal to a 60% discount to the lowest trade price in the twenty five trading days prior to conversion.
The Company received its first payment from JMJ towards the loan of $55,000 on June 19, 2013. The Company recorded a debt discount in the amount of $60,500 (payment plus 10% original discount) in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $75,507 based on the Black Scholes Merton pricing model using the following attributes: .13% risk free rate, 134% volatility and a one year term to maturity.
As of August 31, 2013, $12,266 of the discount has been amortized to interest expense. In addition, the Company fair valued the derivative at $102,245 resulting in a loss on the change in fair value of the derivative. Accrued interest totaled $1,452 due to a onetime 12% interest charge incurred if the loan was not repaid within ninety days. The note is shown net of a debt discount of $48,234 at August 31, 2013.
The Company received its second payment from JMJ towards the loan of $25,000 on August 14, 2013. The Company recorded a debt discount in the amount of $27,500 (payment plus 10% original discount) in connection with the initial valuation of the beneficial conversion feature of the note to be amortized utilizing the interest method of accretion over the term of the note. Further, the Company recognized a derivative liability of $62,569 based on the Black Scholes Merton pricing model using the following attributes: .12% risk free rate, 144% volatility and a one year term to maturity.
As of August 31, 2013, $1,356 of the discount has been amortized to interest expense. In addition, the Company fair valued the derivative at $46,625 resulting in a gain on the change in fair value of the derivative. Accrued interest totaled $163 due to a onetime 12% interest charge incurred if the loan was not repaid within ninety days. The note is shown net of a debt discount of $26,144 at August 31, 2013.
F-11 |
A summary of the status of the Company’s debt discounts, derivative liabilities and original issue discounts, and changes during the periods is presented below:
Debt Discount | August 31, 2012 | Additions | Amortization | August 31, 2013 | ||||||||||||
Caspi | $ | — | $ | 76,455 | $ | 56,975 | $ | 19,480 | ||||||||
Argent | — | 22,154 | 22,154 | — | ||||||||||||
JMJ – 6/19/13 | — | 60,500 | 12,266 | 48,234 | ||||||||||||
JMJ – 8/14/13 | — | 27,500 | 1,356 | 26,144 | ||||||||||||
$ | — | $ | 186,609 | $ | 92,751 | $ | 93,858 |
Derivative Liabilities | August 31, 2012 | Initial Valuation | Reevaluation on 8/31/2013 | (Gain) Loss on Derivative | ||||||||||||
JMJ – 6/19/13 | $ | — | $ | 75,507 | $ | 102,245 | $ | 26,738 | ||||||||
JMJ – 8/14/13 | — | 62,569 | 46,625 | (15,944 | ) | |||||||||||
$ | — | $ | 138,076 | $ | 148,870 | $ | 10,794 |
Original Issue Discount | August 31, 2012 | Additions | Amortization | August 31, 2013 | ||||||||||||
JMJ – 6/19/13 | $ | — | $ | 5,500 | $ | 1,115 | $ | 4,385 | ||||||||
JMJ – 8/14/13 | — | 2,500 | 123 | 2,377 | ||||||||||||
$ | — | $ | 8,000 | $ | 1,238 | $ | 6,762 |
NOTE 6 – STOCK WARRANTS
A summary of the status of the Company’s outstanding stock and changes during the periods is presented below:
Shares available to purchase with warrants | Weighted
Average Price | Weighted
Average Fair Value | ||||||||||||
Outstanding, August 31, 2012 | — | $ | — | $ | — | |||||||||
Issued | 65,625 | 0.63 | 0.23 | |||||||||||
Exercised | — | — | — | |||||||||||
Forfeited | — | — | — | |||||||||||
Expired | — | — | — | |||||||||||
Outstanding, August 31, 2013 | 65,625 | $ | 0.63 | $ | 0.23 | |||||||||
Exercisable, August 31, 2013 | 65,625 | $ | 0.63 | $ | 0.23 |
Range of Exercise Prices | Number Outstanding at 8/31/13 | Weighted Average Remaining Contractual Life | Weighted Average Exercise Price | |||||||||||
$0.20 - $2.00 | 65,625 | 2.9 years | $ | 0.63 |
F-12 |
NOTE 7 - RELATED PARTY TRANSACTIONS
During the period ended August 31, 2012 a Director made advances to the company totaling $2,000. These advances bear interest at 6% and were due October 4, 2013. Interest of $110 was accrued as of August 31, 2012.
On September 19, 2012, the Company entered into an Agreement of Conveyance, Transfer and Assignment of Membership Interests and Assumption of Obligations (the “Agreement”) with our former sole officer and director, Sterling Hamilton. Pursuant to the Agreement, the Company transferred all membership interests in our operating subsidiary, SOI Nevada, LLC, to Mr. Hamilton. In exchange for this assignment of membership interests, Mr. Hamilton agreed to assume and cancel all liabilities relating to our former business of developing a chain of flotation tank therapy spas. In addition, Mr. Hamilton agreed to release all liability under a promissory note due and owing to him in the amount of $2,000.
Also on September 19, 2012, Mr. Hamilton agreed to transfer 583,333 of his shares of common stock to a group of four purchasers for a total purchase price of $20,000. The source of the consideration paid to Mr. Hamilton was the existing funds of the purchasers. The sale of these shares was exempt from registration under Section 4(2) of the Securities Act. Also, in connection with the sale of these shares, Mr. Hamilton cancelled 9,416,667 of his shares and returned them to treasury.
On May 8, 2013, the Company issued 99,996 shares of common stock to its CFO, for services. The shares were valued using the closing stock price on the day of issuance of $0.093, for a total expense of $9,250.
Notes Payable
During the year ended August 31, 2013, the Company’s former CEO, Bruce Knoblich and the Company executed a promissory note for $289,998. The note bears interest at 5% and is due within one year. As of August 31, 2013 this note is still outstanding and has accrued interest of $7,569.
On June 15, 2013, the Company executed a promissory note for $15,000 with a shareholder. The note bears interest at 10% and is due within ninety days. As of August 31, 2013 this note is still outstanding and has accrued interest of $312.
NOTE 8 - COMMON STOCK
The Company has 10,000,000 preferred shares authorized at par value of $0.001 per share and has 90,000,000 common shares authorized at a par value of $0.001 per share.
On February 25, 2012, the Company issued 24,000,000 common shares for cash of $20,000.
On September 19, 2012, Mr. Hamilton, the Company’s former CEO and Director, cancelled 113,000,004 of his shares and returned them to treasury.
On or about November 8, 2012, the Company issued 120,000 shares of common stock for services. The shares were valued using the closing stock price on the day of issuance of $0.208, for a total expense of $25,000. Of the total expense, $15,104 has been booked to prepaid expense and will be allocated over the remaining term of the contract.
On January 4, 2013, the Company issued 100,000 shares of common stock for consulting services. The shares were valued using the closing stock price on the day of issuance of $1.45, for a total expense of $145,000.
Effective February 7, 2013, the board of directors approved a one for twelve forward split of the Company’s common stock. All share and per share data throughout this Form 10-K have been retroactively restated to reflect the forward split.
On February 15, 2013, the Company issued 1,200,000 shares of common stock for advertising and investor relation services. The shares were valued using the closing stock price on the day of issuance of $0.205, for a total expense of $246,000. Of the total expense, $28,188 has been booked to prepaid expense and will be allocated over the remaining three month term of the contract.
F-13 |
On May 8, 2013, the Company issued 99,996 shares of common stock to its CFO for services. The shares were valued using the closing stock price on the day of issuance of $0.093, for a total expense of $9,250.
On May 15, 2013, the Company issued 337,754 shares of common stock for services. The shares were valued using the closing stock price on the day of issuance of $0.09, for a total expense of $30,398. Of the total expense, $21,532 has been booked to prepaid expense and will be allocated over the remaining term of the contract.
On June 14, 2013, the Company issued 200,000 shares of common stock for services. The shares were valued using the closing stock price on the day of issuance of $0.059, for a total expense of $11,800.
During the period ended August 31, 2013, the Company sold 155,368 shares of common stock for cash proceeds of $15,998.
All shares were issued without registration under the Securities Act of 1933, as amended, in reliance upon the exemption afforded by Section 4(2) of that Act.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
During the year ended August 31, 2013, the Company rented office space on a month to month basis for $1,383 a month. Rent expense for the year ended August 31, 2013 was $15,910.
NOTE 10 - GOING CONCERN
As of August 31, 2013, the Company has a working capital deficit of $737,411, limited revenue and an accumulated deficit of $1,411,613. The financial statements are prepared using the generally accepted accounting principles applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. Without realization of additional capital, it would be unlikely for the Company to continue as a going concern. The Company’s management plans on raising cash from public or private debt or equity financing, on an as needed basis and in the longer term, upon achieving profitable operations through its business activities.
NOTE 11 – INCOME TAXES
For the year ended August 31, 2013, the Company has incurred a net loss of $1,332,991 and, therefore, has no tax liability. The net deferred tax asset generated by the loss carry-forward has been fully reserved. The cumulative net operating loss carry-forward is approximately $1,412,000 at August 31, 2012, and will expire beginning in the year 2031.
The provision for Federal income tax consists of the following for the years ended August 31, 2013 and 2012:
2013 | 2012 | |||||||
Federal income tax benefit attributable to: | ||||||||
Current operations | $ | 453,217 | $ | 24,064 | ||||
Less: valuation allowance | (453,217 | ) | (24,064 | ) | ||||
Net provision for Federal income taxes | $ | — | $ | — |
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of August 31, 2013 and 2012:
2013 | 2012 | |||||||
Deferred tax asset attributable to: | ||||||||
Net operating loss carryover | $ | 479,948 | $ | 26,731 | ||||
Valuation allowance | (479,948 | ) | (26,731 | ) | ||||
Net deferred tax asset | $ | — | $ | — |
F-14 |
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $1,412,000 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
ASC Topic 740 provides guidance on the accounting for uncertainty in income taxes recognized in a company's financial statements. Topic 740 requires a company to determine whether it is more likely than not that a tax position will be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must measure the tax position to determine the amount to recognize in the financial statements.
The Company includes interest and penalties arising from the underpayment of income taxes in the statements of operations in the provision for income taxes. As of August 31, 2013, the Company had no accrued interest or penalties related to uncertain tax positions.
The Company files income tax returns in the U.S. federal jurisdiction and in the state of Nevada.
NOTE 12 - SUBSEQUENT EVENTS
Subsequent to August 31, 2013, the Company executed a convertible promissory note for $10,000. The note bears interest at 10% per annum and is due within one year.
In accordance with ASC 855-10, the Company has analyzed its operations subsequent August 31, 2013 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above.
F-15 |
Item 9. Changes In and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A. Controls and Procedures
As required by Rule 13a-15 under the Securities Exchange Act of 1934, we have carried out an evaluation of the effectiveness of our disclosure controls and procedures as of the end of the period covered by this annual report, being August 31, 2013. This evaluation was carried out under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer.
Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include controls and procedures designed to ensure that information required to be disclosed in our company’s reports filed under the Securities Exchange Act of 1934 is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, to allow timely decisions regarding required disclosure.
Based upon that evaluation, including our Chief Executive Officer and Chief Financial Officer, we have concluded that our disclosure controls and procedures were ineffective as of the end of the period covered by this annual report.
Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934). Management has assessed the effectiveness of our internal control over financial reporting as of August 31, 2013 based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. As a result of this assessment, management concluded that, as of August 31, 2013, our internal control over financial reporting was not effective. Our management identified the following material weaknesses in our internal control over financial reporting, which are indicative of many small companies with small staff: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.
We plan to take steps to enhance and improve the design of our internal control over financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material weaknesses identified above. To remediate such weaknesses, we hope to implement the following changes during our fiscal year ending August 31, 2014: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out in (i) and (ii) are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to an exemption for non-accelerated filers set forth in Section 989G of the Dodd-Frank Wall Street Reform and Consumer Protection Act.
None
9 |
PART III
Item 10. Directors, Executive Officers and Corporate Governance
Our sole executive officer and director is as follows:
Name | Age | Position(s) and Office(s) Held | ||||
Scott Plantinga | 54 | President, Chief Executive Officer, and Director | ||||
Bruce R. Knoblich | 59 | Chairman of the Board and Director | ||||
Pamela J. McKeown | 51 | Chief Financial Officer, Secretary, and Treasurer | ||||
George Rodriguez | 41 | Vice President | ||||
Anthony Hama | 44 | Director |
Set forth below is a brief description of the background and business experience of each of our current executive officers and directors.
Scott Plantinga is our President, Chief Executive Officer, and a Director. He also currently serves as the President and CEO of Installing Dealer Supply, Inc. a leading distributer of garage doors, gate automation, and access control equipment based in Lake Elsinore, California. From 2011 to 2012, Mr. Plantinga served as Operations Manager for Nylok, a Berkshire Hathaway company servicing the aerospace, electronics, industrial and automotive industries. From 2008 to 2010, he was a Plant Manager and then General Manager for Saturn Fasteners, Inc., a fastener manufacturer serving the aviation, aerospace, and military industries. From 2004 to 2008, Mr. Plantinga was the Director of Business Excellence for Freedman Seating Company, an industry leader in the design and manufacture of bus and rail seating. From 2002 to 2004, he served as a Plant Manager for U.S. Plastic Lumber, Ltd., a manufacturer of composite blends and plastic extruded profile lumber for building products. From 1994 to 2002, he worked with Krueger International, a manufacturer of contract office, college and healthcare furnishings. At Krueger International, he served as a Plant Manager, General Manager, and then as General Manager of Operations. Mr. Plantinga earned a B.S. from Purdue University School of Technology where he majored in Supervision with concentrations in Operations Management and Industrial Engineering. He is also a Certified Manufacturing Engineer with the Society of Manufacturing Engineers and holds a Six Sigma Green Belt Certification from the University of Illinois.
Bruce R. Knoblich is our Chairman of the Board and a Director. Mr. Knoblich is currently the President of Installing Dealer Supply, Inc., a company he founded in December of 1989. Installing Dealer Supply is a leading distributer of garage doors, gate automation, and access control equipment based in Lake Elsinore, California. Prior to his founding of Installing Dealer Supply, Inc., Mr. Knoblich served as General Manager of Frantz Manufacturing Company, a garage door manufacturer with divisions that produced bearings for different industries, at their Temecula California distribution center from 1984 to 1989. In this role, Mr. Knoblich was responsible for overseeing the company’s entire local operation. From 1977 to 1984, Mr. Knoblich served as a sales representative for Frantz Manufacturing Company. From 1974 to 1977, Mr. Knoblich worked for Heiwig Industrial Sales, a manufacturer’s representative that specialized in iron castings and screw machine products. In 1977, Mr. Knoblich graduated from Western Illinois University with a bachelor’s degree in business.
Pamela J. McKeown is our Chief Financial Officer, Secretary, and Treasurer. For the past 11 years, Ms. McKeown has been the Controller for Installing Dealer Supply, Inc. She has been responsible for developing and managing the finances and accounting of Installing Dealer Supply along with the company’s operations, inclusive of sales, customer service, purchasing, inventory and credit management. Ms. McKeown has prior experience with large corporations, including DLS Constructors, a noted provider of underground piping for highways to the State of California, and with Air Control Management, Inc. (ACM), a supplier to the tract home industry.
George Rodriguez is our Vice President. Since 2011, Mr. Rodriguez has been the developer and operator of a personal and professional website focused on book reviews and leveraging the knowledge found in non-fiction works. From 1994 to 2011, Mr. Rodriguez had a 17-year career with Amarr Garage Door, the nation’s leading garage door manufacturer. During his time at Amarr, Mr. Rodriguez’s positions included General Manager for the Albuquerque Distribution Center, General Manager for the Bay Area Distribution Center in California, General Manager of the Southern California Distribution Center, Sales Manager for Southern California, District Sales Manager, and Director of Sales for the West Coast. Mr. Rodriguez’s final position with Amarr was Director of Retail Sales. In this position, he was responsible for all of Amarr’s nationwide retail accounts. Mr. Rodriguez graduated from Stanford University with a bachelor’s degree in political science in 1994.
Anthony Hama is one of our Directors. From February 2010 through May 2012, Mr. Hama served as the Chief Financial Officer for Land Baron Investments, a real estate investment company in Nevada (“Land Baron”). Mr. Hama was responsible for financial management and oversight of Land Baron. Prior to joining Land Baron, from January 2005 through January 2010, Mr. Hama worked as a director of investment with TREC Investment Realty. With TREC Investment Realty, Mr. Hama was responsible for the acquisition and management of commercial real estate nationwide. Mr. Hama’s other notable work includes working for Bank of America Securities from 2002 through 2003, Equity Office Properties Trust from 1999 through 2002, KPMG Peat Marwick from 1996 through 1997, and Smith Barney, Inc. from 1993 through 1995. Mr. Hama graduated with a Bachelors of Arts in economics from UCLA and from Cornell University with a Masters of Business Administration.
10 |
Term of Office
Our Directors are appointed for a one year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board.
Family Relationships
There are no family relationships between or among the directors, executive officers or persons nominated or chosen by us to become directors or executive officers.
Involvement in Certain Legal Proceedings
To the best of our knowledge, during the past ten years, none of the following occurred with respect to a present or former director, executive officer, or employee: (1) any bankruptcy petition filed by or against any business of which such person was a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (2) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (3) being subject to any order, judgment or decree, not subsequently reversed, suspended, vacated, of any court of competent jurisdiction, permanently or temporarily enjoining, barring, suspending or otherwise limiting his or her involvement in any type of business, securities or banking activities; and (4) being found by a court of competent jurisdiction (in a civil action), the SEC or the Commodities Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
Committees of the Board
We do not currently have a compensation committee, executive committee, or stock plan committee.
Audit Committee
We do not have a separately-designated standing audit committee. The entire Board of Directors performs the functions of an audit committee, but no written charter governs the actions of the Board when performing the functions of what would generally be performed by an audit committee. The Board approves the selection of our independent accountants and meets and interacts with the independent accountants to discuss issues related to financial reporting. In addition, the Board reviews the scope and results of the audit with the independent accountants, reviews with management and the independent accountants our annual operating results, considers the adequacy of our internal accounting procedures and considers other auditing and accounting matters including fees to be paid to the independent auditor and the performance of the independent auditor. Our Board of Directors, which performs the functions of an audit committee, does not have a member who would qualify as an “audit committee financial expert” within the definition of Item 407(d)(5)(ii) of Regulation S-K. We believe that, at our current size and stage of development, the addition of a special audit committee financial expert to the Board is not necessary.
Nomination Committee
Our Board of Directors does not maintain a nominating committee. As a result, no written charter governs the director nomination process. Our size and the size of our Board, at this time, do not require a separate nominating committee.
11 |
When evaluating director nominees, our directors consider the following factors:
- | The appropriate size of our Board of Directors; |
- | Our needs with respect to the particular talents and experience of our directors; |
- | The knowledge, skills and experience of nominees, including experience in finance, administration or public service, in light of prevailing business conditions and the knowledge, skills and experience already possessed by other members of the Board; |
- | Experience in political affairs; |
- | Experience with accounting rules and practices; and |
- | The desire to balance the benefit of continuity with the periodic injection of the fresh perspective provided by new Board members. |
Our goal is to assemble a Board that brings together a variety of perspectives and skills derived from high quality business and professional experience. In doing so, the Board will also consider candidates with appropriate non-business backgrounds.
Other than the foregoing, there are no stated minimum criteria for director nominees, although the Board may also consider such other factors as it may deem are in our best interests as well as our stockholders. In addition, the Board identifies nominees by first evaluating the current members of the Board willing to continue in service. Current members of the Board with skills and experience that are relevant to our business and who are willing to continue in service are considered for re-nomination. If any member of the Board does not wish to continue in service or if the Board decides not to re-nominate a member for re-election, the Board then identifies the desired skills and experience of a new nominee in light of the criteria above. Current members of the Board are polled for suggestions as to individuals meeting the criteria described above. The Board may also engage in research to identify qualified individuals. To date, we have not engaged third parties to identify or evaluate or assist in identifying potential nominees, although we reserve the right in the future to retain a third party search firm, if necessary. The Board does not typically consider shareholder nominees because it believes that its current nomination process is sufficient to identify directors who serve our best interests.
Code of Ethics
As of August 31, 2013, we had not adopted a Code of Ethics for Financial Executives, which would include our principal executive officer, principal financial officer, principal accounting officer or controller, or persons performing similar functions.
Item 11. Executive Compensation
Compensation Discussion and Analysis
Our President and CEO, Scott Plantinga, has been paid a salary of $100,000 per year. Subsequent to the reporting period, and effective September 1, 2013, we entered into an Executive Employment Agreement with Mr. Plantinga (the “Agreement”). The Agreement provides him with a base salary of $121,000 per year, together with a signing bonus of $25,000, and annual bonuses in the discretion of the board. In addition, Mr. Plantinga shall receive 6,500,000 shares of common stock at the outset of the Agreement and will also participate in future employee stock option programs. The initial term of the Agreement is two years, subject to renewal. The Agreement contains various other terms and conditions and should be reviewed in its entirety for more information. The goals of the Agreement are to continue to retain Mr. Plantinga with a cash salary commensurate with his experience and responsibilities, while also providing him an incentive to maximize shareholder value by vesting him with significant stock ownership.
We do not have formal written employment agreements with our other executives. We currently pay our Chairman, Bruce R. Knoblich, a salary of $100,000 per year. We pay our Vice President, George Rodriguez, a salary of $70,000 per year. The salary for our CFO, Pamela McKeown, was $60,000 per year until July of 2013, when she received an increase to $75,000 per year. At this time, we do not have a formal system of compensation for our executive officers. Compensation arrangements with our officers and directors are the subject of ongoing development and we will make appropriate additional disclosures as they are further developed and formalized.
12 |
Summary Compensation Table
The table below summarizes all compensation awarded to, earned by, or paid to our former or current executive officers for the fiscal years ended 2013 and 2012.
SUMMARY COMPENSATION TABLE | |||||||||
Name and principal position |
Year | Salary ($) |
Bonus ($) |
Stock Awards ($) |
Option Awards ($) |
Non-Equity Incentive Plan Compensation ($) |
Nonqualified Deferred Compensation Earnings ($) |
All Other Compensation ($) |
Total ($) |
Scott Plantinga, President and CEO | 2013 2012 |
$11,696.76 $ n/a |
$- $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$11,696.76 $ n/a |
Bruce R. Knoblich, Chairman, former President and CEO | 2013 2012 |
$90,764.83 $ n/a |
$- $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$90,764.83 $ n/a |
Pamela J. McKeown, CFO, Secretary, and Treasurer | 2013 2012 |
$50,860.67 $ n/a |
$ - $ n/a |
$9,250 $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$60,110.67 $ n/a |
George Rodriguez, Vice President | 2013 2012 |
$64,166.72 $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$ - $ n/a |
$64,166.72 $ n/a |
Sterling Hamilton, former officer | 2013 2012 |
$ n/a $0 |
$ n/a $0 |
$ n/a $0 |
$ n/a $0 |
$ n/a $0 |
$ n/a $0 |
$ n/a $0 |
$ n/a $0 |
Narrative Disclosure to the Summary Compensation Table
The table above reflects the compensation paid to each named executive officer during the fiscal year ended August 31, 2013. In addition to cash compensation as indicated, our CFO was awarded 99,996 shares of common stock valued at $9,250.
13 |
Outstanding Equity Awards at Fiscal Year-End
The table below summarizes all unexercised options, stock that has not vested, and equity incentive plan awards for each named executive officer as of August 31, 2013.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END | |||||||||
OPTION AWARDS | STOCK AWARDS | ||||||||
Name | Number of Securities Underlying Unexercised Options (#) Exercisable |
Number of Securities Underlying Unexercised Options (#) Unexercisable |
Equity Incentive Plan Awards: Number of Securities Underlying Unexercised Unearned Options (#) |
Option Exercise Price ($) |
Option Expiration Date |
Number of Shares or Shares of Stock That Have Not Vested (#) |
Market Value of Shares or Shares of Stock That Have Not Vested ($) |
Equity Incentive Plan Awards: Number of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
Equity Incentive Plan Awards: Market or Payout Value of Unearned Shares, Shares or Other Rights That Have Not Vested (#) |
Scott Plantinga | - | - | - | - | - | - | - | - | - |
Bruce R. Knoblich | - | - | - | - | - | - | - | - | - |
Pamela J. McKeown | - | - | - | - | - | - | - | - | - |
George Rodriguez | - | - | - | - | - | - | - | - | - |
Sterling Hamilton, former officer | - | - | - | - | - | - | - | - | - |
Director Compensation
The table below summarizes all compensation of our directors for the year ended August 31, 2013.
DIRECTOR COMPENSATION | |||||||
Name | Fees Earned or Paid in Cash |
Stock Awards |
Option Awards |
Non-Equity Incentive Plan Compensation |
Non-Qualified Deferred Compensation Earnings |
All Other Compensation |
Total |
Scott Plantinga | - | - | - | - | - | - | - |
Bruce R. Knoblich | - | - | - | - | - | - | - |
Anthony Hama | - | - | - | - | - | - | - |
Sterling Hamilton, former director | - | - | - | - | - | - | - |
14 |
Narrative Disclosure to the Director Compensation Table
We do not compensate our directors for their service at this time.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
The following table sets forth, as of December 11, 2013, the beneficial ownership of our common stock by each executive officer and director, by each person known by us to beneficially own more than 5% of the our common stock and by the executive officers and directors as a group:
Title of class | Name and address of beneficial owner (1) | Amount of beneficial ownership | Percent of class* | |
Executive Officers & Directors: | ||||
Common | Scott Plantinga 533 Birch Street Lake Elsinore, CA 92530 |
1,333,333 | 3.74% | |
Common | Bruce R. Knoblich 533 Birch Street Lake Elsinore, CA 92530 |
6,000,000 | 16.83% | |
Common | Pamela J. McKeown 533 Birch Street Lake Elsinore, CA 92530 |
219,996 | 0.62% | |
Common | George Rodriguez 533 Birch Street Lake Elsinore, CA 92530 |
200,004 | 0.56% | |
Common | Anthony Hama 533 Birch Street Lake Elsinore, CA 92530 |
54,504 | 0.15% | |
Common | Total all executive officers and directors | 7,807,837 | 21.91% | |
Other 5% Shareholders | ||||
None |
(1) | As used in this table, "beneficial ownership" means the sole or shared power to vote, or to direct the voting of, a security, or the sole or shared investment power with respect to a security (i.e., the power to dispose of, or to direct the disposition of, a security). In addition, for purposes of this table, a person is deemed, as of any date, to have "beneficial ownership" of any security that such person has the right to acquire within 60 days after such date. |
15 |
Item 13. Certain Relationships and Related Transactions, and Director Independence
Except as stated herein, none of our directors or executive officers, nor any proposed nominee for election as a director, nor any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to all of our outstanding shares, nor any members of the immediate family (including spouse, parents, children, siblings, and in-laws) of any of the foregoing persons has any material interest, direct or indirect, in any transaction over the last two years or in any presently proposed transaction which, in either case, has or will materially affect us.
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we believe that Anthony Hama is an independent director.
Item 14. Principal Accounting Fees and Services
Below is the table of Audit Fees (amounts in US$) billed by our auditor in connection with the audit of the Company’s annual financial statements for the years ended:
Financial Statements for the Year Ended August 31 | Audit Services | Audit Related Fees | Tax Fees | Other Fees |
2013 | $16,000 | $6,300 | $0 | $0 |
2012 | $5,500 | $4,500 | $0 | $0 |
16 |
PART IV
Item 15. Exhibits, Financial Statements Schedules
(a) | Financial Statements and Schedules |
The following financial statements and schedules listed below are included in this Form 10-K.
Financial Statements (See Item 8)
(b) | Exhibits |
Exhibit Number | Description |
3.1 | Articles of Incorporation(1) |
3.2 | Bylaws(1) |
10.1 | Exclusive License / Royalty Agreement with SP Innovations, Inc.(3) |
10.2 | Promissory Note issued to Argent Offset, LLC dated February 27, 2013(4) |
10.3** | Temporary Forbearance Agreement with Argent Offset, LLC |
10.4 | Convertible Promissory Note and Security Agreement with Steven J. Caspi(5) |
10.5 | Marketing / Sales & National Call Center Services Agreement with Global Response Marketing, LLC(6) |
10.6 | Convertible Promissory Note with Asher Enterprises, Inc. dated March 20, 2013(7) |
10.7 | Securities Purchase Agreement with Asher Enterprises, Inc. dated March 20, 2013(7) |
10.8 | Convertible Promissory Note with Asher Enterprises, Inc. dated April 4, 2013(7) |
10.9 | Securities Purchase Agreement with Asher Enterprises, Inc. dated April 4, 2013(7) |
10.10 | Convertible Promissory Note with Asher Enterprises, Inc. dated June 3, 2013(7) |
10.11 | Securities Purchase Agreement with Asher Enterprises, Inc. dated June 3, 2013(7) |
10.12 | Promissory Note to JMJ Financial(8) |
10.13 | Amendment to Promissory Note to JMJ Financial(8) |
10.14 | Promissory Note issued to Bruce R. Knoblich dated May 31, 2013(9) |
10.15** | Convertible Promissory Note with Asher Enterprises, Inc. dated August 5, 2013 |
10.16** | Securities Purchase Agreement with Asher Enterprises, Inc. dated August 5, 2013 |
10.17** | Promissory Note from Installing Dealer Supply, Inc. |
10.18** | Executive Employment Agreement with Scott Plantinga |
31.1 | Certification of Chief Executive Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
31.2 | Certification of Chief Financial Officer pursuant to Securities Exchange Act Rule 13a-14(a)/15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 |
32.1 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
101** | The following materials from the Company’s Annual Report on Form 10-K for the year ended August 31, 2013 formatted in Extensible Business Reporting Language (XBRL). |
(1) Incorporated by reference to Registration Statement on Form S-1 filed October 26, 2011.
(2) Incorporated by reference to Current Report on Form 8-K filed September 19, 2012.
(3) Incorporated by reference to Current Report on Form 8-K filed November 14, 2012.
(4) Incorporated by reference to Quarterly Report on Form 10-Q filed April 15, 2013.
(5) Incorporated by reference to Current Report on Form 8-K filed December 7, 2012
(6)
Incorporated by reference to Current Report on Form 8-K filed January 30, 2013
(7) Incorporated by reference to Current Report on Form 8-K filed June 7, 2013
(8) Incorporated by reference to Current Report on Form 8-K filed June 21, 2013
(9) Incorporated by reference to Quarterly Report of Form 10-Q filed July 15, 2015
**Provided herewith
17 |
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
IDS SOLAR TECHNOLOGIES, INC.
By: | /s/ Scott Plantinga |
Scott Plantinga | |
Title: | Chief Executive Officer, President and Director |
Date: | December 13, 2013 |
Pursuant to the 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.
By: | /s/ Scott Plantinga |
Scott Plantinga | |
Title: | Chief Executive Officer, President and Director |
Date: | December 13, 2013 |
By: | /s/ Bruce R. Knoblich |
Bruce R. Knoblich | |
Title: | Chairman of the Board and Director |
Date: | December 13, 2013 |
By: | /s/ Pamela . McKeown |
Pamela J. McKeown | |
Title: | Chief Financial Officer, Secretary, and Treasurer |
Date: | December 13, 2013 |
By: | /s/ Anthony Hama |
Anthony Hama | |
Title: | Director |
Date: | December 13, 2013 |
18 |
CERTIFICATIONS
I, Scott Plantinga, certify that;
1. | I have reviewed this annual report on Form 10-K for the year ended August 31, 2013 of IDS Industries, Inc (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: December 13, 2013
/s/ Scott Plantinga
By: Scott Plantinga
Title: Chief Executive Officer
CERTIFICATIONS
I, Pamela McKeown , certify that;
1. | I have reviewed this annual report on Form 10-K for the year ended August 31, 2013 of IDS Industries, Inc (the “registrant”); |
2. | Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; |
4. | The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: |
a. | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
b. | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, 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; |
c. | Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
d. | Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and |
5. | The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): |
a. | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
b. | Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. |
Date: December 13, 2013
/s/ Pamela McKeown
By: Pamela McKeown
Title: Chief Financial Officer
CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND
CHIEF FINANCIAL OFFICER
PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the annual Report of IDS Industries, Inc (the “Company”) on Form 10-K for the year ended August 31, 2013 filed with the Securities and Exchange Commission (the “Report”), I, Scott Plantinga, Chief Executive Officer of the Company, and I Pamela McKeown, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. | The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934; and |
2. | The information contained in the Report fairly presents, in all material respects, the consolidated financial condition of the Company as of the dates presented and the consolidated result of operations of the Company for the periods presented. |
By: | /s/ Scott Plantinga |
Name: | Scott Plantinga |
Title: | Principal Executive Officer |
Date: | December 13, 2013 |
By: | /s/ Pamela McKeown |
Name: | Pamela McKeown |
Title: | Principal Financial Officer and Principal Accounting Officer |
Date: | December 13, 2013 |
This certification has been furnished solely pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
TEMPORARY FORBEARANCE AGREEMENT
THIS TEMPORARY FORBEARANCE AGREEMENT (this "AGREEMENT"), dated as of August 26, 2013, as amended November 26, 2013, between IDS Industries, Inc., a Nevada corporation (the "COMPANY") and Argent Offset LLC, a California corporation, the "HOLDER"). Capitalized terms not otherwise defined herein shall have the meanings specified in the Note (as defined below).
WHEREAS, on February 27, 2013, the Company issued a $33,850.00 Convertible Promissory Note due August 26, 2013 (the "Note") to the Holder;
WHEREAS, on the Company has requested to pay and the Holder has agreed to accept a fee of $1,000.00 (the “Forbearance Fee”) to be paid on the earlier of December 15,2013 or the occurrence of a Termination Event (as defined in Section 3).
WHEREAS, the Company has requested, and the Holder has agreed, subject to the terms and conditions set forth in this Agreement, for the period commencing on August 26, 2013 and ending on the earlier of December 15, 2013 (the "PAYMENT DATE") or the occurrence of a Termination Event (as defined in Section 3) (the "WAIVER PERIOD"), (i) to waive any Default or Event of Default existing solely as a result of the failure of the Company to pay to Holder all amounts due commencing August 26, 2013 and continuing through and including December 15, 2013, with payments to be made to the Holder on the Payment Date), and (ii) that it shall refrain from exercising its rights and remedies against the Company in connection with the Company's failure to pay Holder prior to the Payment Date;
NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreement of the parties hereinafter set forth, the parties hereto hereby agree as follows:
1. WAIVER OF DEFAULT. The Holder hereby waives, until the expiration of the Waiver Period, any Default or Event of Default existing solely as a result of the Company's failure to pay to Holder the Forbearance Fee prior to the Payment Date. The Company acknowledges that interest shall accrue at the rate of 18.0% per annum from the date each payment is due pursuant to the Note until all amounts are paid in full in cash.
2. STANDSTILL. Holder hereby agrees that during the Waiver Period it will not exercise any remedy under the Note, at law or in equity, which it hereafter may have in respect of any Default or Event of Default resulting solely from the failure of the Company to pay to Holder the Forbearance Fee prior to the Payment Date.
3. TERMINATION. This Agreement shall terminate upon the earlier of (i) the payment in full to Holder of the Forbearance Fee, plus all amounts owing thereon pursuant to the Note and Section 1 hereof, (ii) the occurrence of an Event of Default (other than in connection with the Forbearance Fee) and (iii) any repurchase of the Note pursuant to Section 2 of the Note; provided, that this Agreement shall only terminate with respect to the Note actually repurchased from the Holder pursuant to the terms of the Note (a "TERMINATION EVENT"). ABSENCE OF WAIVER. The parties hereto agree that, except to the extent expressly set forth herein, nothing contained herein shall be deemed to:
(a) be a consent to, or waiver of, any Default or Event of Default; or
(b) prejudice any right or remedy which the Holder may now have or may in the future have under the Note or otherwise, including, without limitation, any right or remedy resulting from any Default or Event of Default.
4. REPRESENTATIONS. Each party hereto hereby represents and warrants to the other parties that:
(a) each party is a corporation or partnership, as applicable, duly organized, validly existing, and in good standing under the laws of the state of its incorporation or formation, as applicable;
(b) the execution, delivery and performance of this Agreement by such party is within its corporate or trust powers, as applicable, has been duly authorized by all necessary corporate or trust action, as applicable, has received all necessary consents and approvals (if any shall be required), and does not and will not contravene or conflict with any provisions of law or of the charter or by-laws, or trust agreement, as applicable, of such party or of any material agreement binding upon such party or its property; and
(c) this Agreement will be a legal, valid and binding obligation of each party, enforceable against it in accordance with its terms.
In addition, the Company represents and warrants that to the best of its knowledge, except as set forth herein no Default or Event of Default under the Note has occurred and is continuing.
5. CONTINUING EFFECT, ETC. Except as expressly provided herein, the Company hereby agrees that the Note shall continue unchanged and in full force and effect, and all rights, powers and remedies of the Holder thereunder and under applicable law are hereby expressly reserved. The Company also hereby agrees that it will apply, to the maximum extent possible, any net proceeds from any public offering by the Company in excess of the amounts invested in the public offering by the Holder to pay to the Holder any amount of the Forbearance Fee and balance due on the Note then outstanding.
6. MISCELLANEOUS.
(a) Section headings used in this Agreement are for convenience of reference only and shall not affect the construction of this Agreement.
(b) This Agreement may be executed in any number of counterparts and by the different parties on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same agreement.
(c) This Agreement shall be a contract made under and governed by the laws of the State of California.
(d) All obligations of the Company and rights of the Holder expressed herein shall be in addition to and not in limitation of those provided by applicable law.
(e) This Agreement shall be binding upon the Company, the Holder and their respective successors and assigns, and shall inure to the benefit of the Company, the Holder and their respective successors and assigns.
(f) All amendments or modifications of this Agreement and all consents, waivers and notices delivered hereunder or in connection herewith shall be in writing.
7. WAIVER OF JURY TRIAL. THE COMPANY AND THE HOLDER HEREBY IRREVOCABLY WAIVES ALL RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR RELATING TO THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
2 |
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their duly authorized representatives as of the first date written above.
“Company”: IDS Industries, Inc. |
/s/ Scott Planiga |
Scott Plantinga President/CEO |
“Holder”: Argent Offset, LLC |
/s/ Rick Narveson |
Rick Narveson, Managing Member |
3 |
NEITHER THE ISSUANCE NOR SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPT ABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES.
Principal Amount: $32,500.00 | Purchase Price : $32,500.00 |
Issue Date: August 5, 2013 |
CONVERTIBLE PROMISSORY NOTE
FOR VALUE RECEIVED, IDS INDUSTRIES, INC. (f/k/a/ IDS Solar Technologies, Inc.), a Nevada corporation (hereinafter called the "Borrower"), hereby promises to pay to the order of ASHER ENTERPRISES, INC., a Delaware corporation , or registered assigns (the "Holder") the sum of $32,500.00 together with any interest as set forth herein, on May 7, 2014 (the "Maturity Date"), and to pay interest on the unpaid principal balance hereof at the rate of eight percent (8%) (the "Interest Rate") per annum from the date hereof (the "Issue Date") until the same becomes due and payable , whether at maturity or upon acceleration or by prepayment or otherwise . This Note may not be prepaid in whole or in part except as otherwise explicitly set forth herein. Any amount of principal or interest on this Note which is not paid when due shall bear interest at the rate of twenty two percent (22%) per annum from the due date thereof until the same is paid ("Default Interest"). Interest shall commence accruing on the date that the Note is fully paid and shall be computed on the basis of a 365-day year and the actual number of days elapsed. All payments due hereunder (to the extent not converted into common stock, $0.00 1 par value per share (the "Common Stock") in accordance with the terms hereof) shall be made in lawful money of the United States of America. All payments shall be made at such address as the Holder shall hereafter give to the Borrower by written notice made in accordance with the provisions of this Note. Whenever any amount expressed to be due by the te1ms of this Note is due on any day which is not a business day, the same shall instead be due on the next succeeding day which is a business day and, in the case of any interest payment date which is not the date on which this Note is paid i n full, the extension of the due date thereof shall not be taken into account for purposes of determining the amount of interest due on such date. As used in this Note, the term "business day" shall mean any day other than a Saturday, Sunday or a day on which commercial banks in the city of New York, New York are authorized or required by law or executive order to remain closed. Each capitalized term used herein, and not otherwise defined, shall have the meaning ascribed thereto in that certain Securities Purchase Agreement dated the date hereof, pursuant to which this Note was originally issued (the " Purchase Agreement").
This Note is free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Borrower and will not impose personal liability upon the h older thereof.
The following terms shall apply to this Note:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right. The Holder shall have the right from time to time, and at any time during the period beginning on the date which is one hundred eighty (180) days following the date of this Note and ending on the later of: (i) the Maturity Date and (ii) the date of payment of the Default Amount (as defined in Article TIT) pursuant to Section 1 .6(a) or Article III, each in respect of the remaining outstanding principal amount of this Note to convert all or any part of the outstanding and unpaid principal amount of this Note into fully paid and non- assessable shares of Common Stock, as such Common Stock exists on the Issue Date, or any shares of capital stock or other securities of the Borrower into which such Common Stock shall hereafter be changed or reclassified at the conversion price (the "Conversion Price") determined as provided herein (a "Conversion"); provided , however, that in no event shall the Holder be entitled to convert any portion of this Note in excess of that portion of this Note upon conversion of which the sum of (1) the number of shares of Common Stock beneficially owned by the Holder and its affiliates (other than shares of Common Stock which may be deemed beneficially owned through the ownership of the unconverted portion of the Notes or the unexercised or unconverted portion of any other security of the Borrower subject to a limitation on conversion or exercise analogous to the limitations contained herein ) and (2) the number of shares of Common Stock issuable upon the conversion of the portion of this Note with respect to which the determination of this proviso is being made, would result in beneficial ownership by the Holder and its affiliates of more than 9.99% of the outstanding shares of Common Stock. For purposes of the proviso to the immediately preceding sentence , beneficial ownership shall be determined in accordance with Section 13(d) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Regulations l3D-G thereunder, except as otherwise provided in clause (1) of such proviso, provided, further, however, that the limitations on conversion may be waived by the Holder upon , at the election of the Holder, not less than 61 days ' prior notice to the Borrower, and the provisions of the conversion limitation shall continue to apply until such 6lst day (or such later date, as determined by the Holder, as may be specified in such notice of waiver). The number of shares of Common Stock to be issued upon each conversion of this Note shall be determined by dividing the Conversion Amount (as defined below) by the applicable Conversion Price then in effect on the date specified in the notice of conversion, in the form attached hereto as Exhibit A (the "Notice of Conversion"), delivered to the Borrower by the Holder in accordance with Section 1.4 below; provided that the Notice of Conversion is submitted by facsimile or e-mail (or by other means resulting in, or reasonably expected to result in, notice) to the Borrower before 6:00 p.m ., New York , New York time on such conversion date (the ."Conversion Date"). The tem1 "Conversion Amount" means, with respect to any conversion of this Note , the sum of (I) the principal amount of this Note to be converted in such conversion plus (2) at the Holder's option, accrued and unpaid interest, if any, on such principal amount at the interest rates provided in this Note to the Conversion Date, plus at the Holder 's option, Default Interest, if any, on the amounts referred to in the immediately preceding clauses (1) and/or (2) plus (4) at the Holder's option, any amounts owed to the Holder pursuant to Sections 1.3 and l .4(g) hereof.
1.2 Conversion Price.
(a) Calculation of Conversion Price. The conversion price (the "Conversion Price") shall equal the Variable Conversion Price (as defined herein) (subject to equitable adjustments for stock splits, stock dividends or rights offerings by the Borrower relating to the Borrower's securities or the securities of any subsidiary of the Borrower, combinations, recapitalization, reclassifications , extraordinary distribution s and similar events). The "Variable Conversion Price" shall mean 51% multiplied by the Market Price (as defined herein) (representing a discount rate of 49%). "Market Price" means the average of the lowest three (3) Trading Prices (as defined below) for the Common Stock during the thirty (30) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. "Trading Price" means, for any security as of any date, the closing bid price on the Over-the-Counter Bulletin Board, or applicable trading market (the "OTCBB") as reported by a reliable reporting service ("Reporting Service") designated by the Holder (i.e. Bloomberg) or, if the OTCBB is not the principal trading market for such security, the closing bid price of such security on the principal securities exchange or trading market where such security is listed or traded or, if no closing bid price of such security is available in any of the foregoing manners, the average of the closing bid prices of any market makers for such security that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If the Trading Price cannot be calculated for such security on such date in the manner provided above, the Trading Price shall be the fair market value as mutually determined by the Borrower and the holders of a majority in interest of the Notes being converted for which the calculation of the Trading Price is required in order to determine the Conversion Price of such Notes. "Trading Day" shall mean any day on which the Common Stock is tradable for any period on the OTCBB, or on the principal securities exchange or other securities market on which the Common Stock is then being traded.
2 |
(b) Conversion Price During Major Announcements. Notwithstanding anything contained in Section l .2(a) to the contrary, in the event the Borrower (i) makes a public announcement that it intends to consolidate or merge with any other corporation (other than a merger in which the Borrower is the surviving or continuing corporation and its capital stock is unchanged) or sell or transfer all or substantially all of the assets of the Borrower or (ii) any person, group or entity (including the Borrower) publicly announces a tender offer to purchase 50% or more of the Borrower's Common Stock (or any other takeover scheme) (the date of the announcement referred to in clause (i) or (ii) is hereinafter referred to as the "Announcement Date"), then the Conversion Price shall, effective upon the Announcement Date and continuing through the Adjusted Conversion Price Termination Date (as defined below), be equal to the lower of (x) the Conversion Price which would have been applicable for a Conversion occurring on the Announcement Date and (y) the Conversion Price that would otherwise be in effect. From and after the Adjusted Conversion Price Termination Date, the Conversion Price shall be determined as set forth in this Section I .2(a). For purposes hereof, "Adjusted Conversion Price Termination Date" shall mean , with respect to any proposed transaction or tender offer (or takeover scheme) for which a public announcement as contemplated by this Section 1.2(b) has been made, the date upon which the Borrower (in the case of clause (i) above) or the person , group or entity (in the case of clause (ii) above) consummates or publicly announces the termination or abandonment of the proposed transaction or tender offer (or takeover scheme) which caused this Section 1.2(b) to become operative.
1.3 Authorized Shares. The Borrower covenants that during the period the conversion right exists, the Borrower will reserve from its authorized and unissued Common Stock a sufficient number of shares, free from preemptive rights, to provide for the issuance of Common Stock upon the full conversion of this Note issued pursuant to the Purchase Agreement. The Borrower is required at all times to have authorized and reserved five times the number of shares that is actually issuable upon full conversion of the Note (based on the Conversion Price of the Notes in effect from time to time)(the "Reserved Amount"). The Reserved Amount shall be increased from time to time in accordance with the Borrower's obligations pursuant to Section 4(g) of the Purchase Agreement. The Borrower represents that upon issuance, such shares will be duly and validly issued, fully paid and non-assessable. In addition, if the Borrower shall issue any securities or make any change to its capital structure which would change the number of shares of Common Stock into which the Notes shall be convertible at the then current Conversion Price, the Borrower shall at the same time make proper provision so that thereafter there shall be a sufficient number of shares of Common Stock authorized and reserved, free from preemptive rights, for conversion of the outstanding Notes. The Borrower (i) acknowledges that it has irrevocably instructed its transfer agent to issue certificates for the Common Stock issuable upon conversion of this Note, and (ii) agrees that its issuance of this Note shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute and issue the necessary certificates for shares of Common Stock in accordance with the terms and conditions of this Note.
If, at any time the Borrower does not maintain the Reserved Amount it will be considered an Event of Default under Section 3.2 of the Note.
1.4 Method of Conversion.
(a) Mechanics of Conversion. Subject to Section 1.1, this Note may be converted by the Holder in whole or in part at any time from time to time after the Issue Date, by submitting to the Borrower a Notice of Conversion (by facsimile, e-mail or other reasonable means of communication dispatched on the Conversion Date prior to 6:00 p.m., New York, New York time) and (B) subject to Section 1.4(b), surrendering this Note at the principal office of the Borrower.
(b) Surrender of Note Upon Conversion. Notwithstanding anything to the contrary set forth herein, upon conversion of this Note in accordance with the terms hereof, the Holder shall not be required to physically surrender this Note to the Borrower unless the entire unpaid principal amount of this Note is so converted. The Holder and the Borrower shall maintain records showing the principal amount so converted and the dates of such conversions or shall use such other method, reasonably satisfactory to the Holder and the Borrower, so as not to require physical surrender of this Note upon each such conversion. In the event of any dispute or discrepancy, such records of the Borrower shall, prima facie, be controlling and determinative in the absence of manifest error. Notwithstanding the foregoing, if any portion of this Note is converted as aforesaid, the Holder may not transfer this Note unless the Holder first physically surrenders this Note to the Borrower, whereupon the Borrower will forthwith issue and deliver upon the order of the Holder a new Note of like tenor, registered as the Holder (upon payment by the Holder of any applicable transfer taxes) may request, representing in the aggregate the remaining unpaid principal amount of this Note. The Holder and any assignee, by acceptance of this Note, acknowledge and agree that, by reason of the provisions of this paragraph, following conversion of a portion of this Note, the unpaid and unconverted principal amount of this Note represented by this Note may be less than the amount stated on the face hereof.
(c) Payment of Taxes. The Borrower shall not be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of shares of Common Stock or other securities or property on conversion of this Note in a name other than that of the Holder (or in street name), and the Borrower shall not be required to issue or deliver any such shares or other securities or property unless and until the person or persons (other than the Holder or the custodian in whose street name such shares are to be held for the Holder's account) requesting the issuance thereof shall have paid to the Borrower the amount of any such tax or shall have established to the satisfaction of the Borrower that such tax has been paid.
3 |
(d) Delivery of Common Stock Upon Conversion. Upon receipt by the Borrower from the Holder of a facsimile transmission or e-mail (or other reasonable means of communication) of a Notice of Conversion meeting the requirements for conversion as provided in this Section 1.4, the Borrower shall issue and deliver or cause to be issued and delivered to or upon the order of the Holder certificates for the Common Stock issuable upon such conversion within three (3) business days after such receipt (the "Deadline ") (and, solely in the case of conversion of the entire unpaid principal amount hereof, surrender of this Note) in accordance with the terms hereof and the Purchase Agreement.
(e) Obligation of Borrower to Deliver Common Stock. Upon receipt by the Borrower of a Notice of Conversion, the Holder shall be deemed to be the holder of record of the Common Stock issuable upon such conversion , the outstanding principal amount and the amount of accrued and unpaid interest on this Note shall be reduced to reflect such conversion , and, unless the Borrower defaults on its obligations under this Article I, all rights with respect to the portion of this Note being so converted shall forthwith terminate except the right to receive the Common Stock or other securities, cash or other assets, as herein provided , on such conversion. If the Holder shall have given a Notice of Conversion as provided herein , the Borrower's obligation to issue and deliver the certificates for Common Stock shall be absolute and unconditional, irrespective of the absence of any action by the Holder to enforce the same, any waiver or consent with respect to any provision thereof, the recovery of any judgment against any person or any action to enforce the same, any failure or delay in the enforcement of any other obligation of the Borrower to the holder of record, or any setoff, counterclaim, recoupment, limitation or termination , or any breach or alleged breach by the Holder of any obligation to the Borrower, and irrespective of any other circumstance which might otherwise limit such obligation of the Borrower to the Holder in connection with such conversion. The Conversion Date specified in the Notice of Conversion shall be the Conversion Date so long as the Notice of Conversion is received by the Borrower before 6:00 p.m., New York, New York time, on such date.
(f) Delivery of Common Stock by Electronic Transfer. In lieu of delivering physical certificates representing the Common Stock issuable upon conversion , provided the Borrower is participating in the Depository Trust Company ("DTC") Fast Automated Securities Transfer ("FAST") program , upon request of the Holder and its compliance with the provisions contained in Section 1.1 and in this Section 1.4, the Borrower shall use its best efforts to cause its transfer agent to electronically transmit the Common Stock issuable upon conversion to the Holder by crediting the account of Holder's Prime Broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system.
(g) Failure to Deliver Common Stock Prior to Deadline. Without in any way limiting the Holder's right to pursue other remedies, including actual damages and/or equitable relief, the parties agree that if delivery of the Common Stock issuable upon conversion of this Note is not delivered by the Deadline (other than a failure due to the circumstances described in Section 1.3 above, which failure shall be governed by such Section) the Borrower shall pay to the Holder $2,000 per day in cash, for each day beyond the Deadline that the Borrower fails to deliver such Common Stock. Such cash amount shall be paid to Holder by the fifth day of the month following the month in which it has accrued or, at the option of the Holder (by written notice to the Borrower by the first day of the month following the month in which it has accrued), shall be added to the principal amount of this Note, in which event interest shall accrue thereon in accordance with the terms of this Note and such additional principal amount shall be convertible into Common Stock in accordance with the terms of this Note. The Borrower agrees that the right to convert is a valuable right to the Holder. The damages resulting from a failure, attempt to frustrate, interference with such conversion right are difficult if not impossible to qualify. Accordingly the parties acknowledge that the liquidated damages provision contained in this Section l .4(g) are justified.
1.5 Concerning the Shares. The shares of Common Stock issuable upon conversion of this Note may not be sold or transferred unless (i) such shares are sold pursuant to an effective registration statement under the Act or (ii) the Borrower or its transfer agent shall have been furnished with an opinion of counsel (which opinion shall be in form, substance and scope customary for opinions of counsel in comparable transactions) to the effect that the shares to be sold or transferred may be sold or transferred pursuant to an exemption from such registration or (iii) such shares are sold or transferred pursuant to Rule 144 under the Act (or a successor rule) ("Rule 144") or (iv) such shares are transferred to an "affiliate" (as defined in Rule 144) of the Borrower who agrees to sell or otherwise transfer the shares only in accordance with this Section 1.5 and who is an Accredited Investor (as defined in the Purchase Agreement). Except as otherwise provided in the Purchase Agreement (and subject to the removal provisions set forth below), until such time as the shares of Common Stock issuable upon conversion of this Note have been registered under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold, each certificate for shares of Common Stock issuable upon conversion of this Note that has not been so included in an effective registration statement or that has not been sold pursuant to an effective registration statement or an exemption that permits removal of the legend, shall bear a legend substantially in the following form, as appropriate:
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTTVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPT ABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
4 |
The legend set forth above shall be removed and the Borrower shall issue to the Holder a new certificate therefore free of any transfer legend if (i) the Borrower or its transfer agent shall have received an opinion of counsel, in form , substance and scope customary for opinions of counsel in comparable transactions , to the effect that a public sale or transfer of such Common Stock may be made without registration under the Act, which opinion shall be accepted by the Company so that the sale or transfer is effected or (ii) in the case of the Common Stock issuable upon conversion of this Note, such security is registered for sale by the Holder under an effective registration statement filed under the Act or otherwise may be sold pursuant to Rule 144 without any restriction as to the number of securities as of a particular date that can then be immediately sold. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
1.6 | Effect of Certain Events. |
(a) Effect of Merger, Consolidation, Etc. At the option of the Holder, the sale, conveyance or disposition of all or substantially all of the assets of the Borrower , the effectuation by the Borrower of a transaction or series of related transactions in which more than 50% of the voting power of the Borrower is disposed of, or the consolidation , merger or other business combination of the Borrower with or into any other Person (as defined below) or Persons when the Borrower is not the survivor shall either: (i) be deemed to be an Event of Default (as defined in Article TTI) pursuant to which the Borrower shall be required to pay to the Holder upon the consummation of and as a condition to such transaction an amount equal to the Default Amount (as defined in Article III) or (ii) be treated pursuant to Section 1.6(b) hereof. "Person" shall mean any individual, corporation, limited liability company, partnership, association, trust or other entity or organization.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any time when this Note is issued and outstanding and prior to conversion of all of the Notes, there shall be any merger, consolidation, exchange of shares, recapitalization , reorganization, or other similar event, as a result of which shares of Common Stock of the Borrower shall be changed into the same or a different number of shares of another class or classes of stock or securities of the Borrower or another entity, or in case of any sale or conveyance of all or substantially all of the assets of the Borrower other than in connection with a plan of complete liquidation of the Borrower, then the Holder of this Note shall thereafter have the right to receive upon conversion of this Note, upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore issuable upon conversion, such stock, securities or assets which the Holder would have been entitled to receive in such transaction had this Note been converted in full immediately prior to such transaction (without regard to any limitations on conversion set forth herein), and in any such case appropriate provisions shall be made with respect to the rights and interests of the Holder of this Note to the end that the provisions hereof (including, without limitation, provision s for adjustment of the Conversion Price and of the number of shares issuable upon conversion of the Note) shall thereafter be applicable, as nearly as may be practicable in relation to any securities or assets thereafter deliverable upon the conversion hereof. The Borrower shall not affect any transaction described in this Section l.6(b) unless (a) it first gives, to the extent practicable , thirty (30) days prior written notice (but in any event at least fifteen (15) days prior written notice) of the record date of the special meeting of shareholders to approve, or if there is no such record date, the consummation of, such merger, consolidation, exchange of shares, recapitalization , reorganization or other similar event or sale of assets (during which time the Holder shall be entitled to convert this Note) and (b) the resulting successor or acquiring entity (if not the Borrower) assumes by written instrument the obligations of this Section I.6(b). The above provisions shall similarly apply to successive consolidations, mergers, sales, transfers or share exchanges.
(c) Adjustment Due to Distribution. If the Borrower shall declare or make any distribution of its assets (or rights to acquire its assets) to holders of Common Stock as a dividend, stock repurchase, by way of return of capital or otherwise (including any dividend or distribution to the Borrower's shareholders in cash or shares (or rights to acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"), then the Holder of this Note shall be entitled, upon any conversion of this Note after the date of record for determining shareholders entitled to such Distribution, to receive the amount of such assets which would have been payable to the Holder with respect to the shares of Common Stock issuable upon such conversion had such Holder been the holder of such shares of Common Stock on the record date for the determination of shareholders entitled to such Distribution.
(d) Adjustment Due to Dilutive Issuance. If, at any time when any Notes are issued and outstanding, the Borrower issues or sells, or in accordance with this Section 1.6(d) hereof is deemed to have issued or sold, any shares of Common Stock for no consideration or for a consideration per share (before deduction of reasonable expenses or commissions or underwriting discounts or allowances in connection therewith) less than the Conversion Price in effect on the date of such issuance (or deemed issuance) of such shares of Common Stock (a "Dilutive Issuance"), then immediately upon the Dilutive Issuance, the Conversion Price will be reduced to the amount of the consideration per share received by the Borrower in such Dilutive Issuance.
5 |
The Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or grants any warrants, rights or options (not including employee stock option plans), whether or not immediately exercisable, to subscribe for or to purchase Common Stock or other securities convertible into or exchangeable for Common Stock ("Convertible Securities") (such warrants, rights and options to purchase Common Stock or Convertible Securities are hereinafter referred to as "Options") and the price per share for which Common Stock is issuable upon the exercise of such Options is Jess than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon the exercise of such Options" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or granting of all such Options, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the exercise of all such Options, plus, in the case of Convertible Securities issuable upon the exercise of such Options, the minimum aggregate amount of additional consideration payable upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the exercise of all such Options (assuming full conversion of Convertible Securities, if applicable) . No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon the exercise of such Options or upon the conversion or exchange of Convertible Securities issuable upon exercise of such Options.
Additionally, the Borrower shall be deemed to have issued or sold shares of Common Stock if the Borrower in any manner issues or sells any Convertible Securities, whether or not immediately convertible (other than where the same are issuable upon the exercise of Options), and the price per share for which Common Stock is issuable upon such conversion or exchange is less than the Conversion Price then in effect, then the Conversion Price shall be equal to such price per share. For the purposes of the preceding sentence, the "price per share for which Common Stock is issuable upon such conversion or exchange" is determined by dividing (i) the total amount, if any, received or receivable by the Borrower as consideration for the issuance or sale of all such Convertible Securities, plus the minimum aggregate amount of additional consideration, if any, payable to the Borrower upon the conversion or exchange thereof at the time such Convertible Securities first become convertible or exchangeable, by (ii) the maximum total number of shares of Common Stock issuable upon the conversion or exchange of all such Convertible Securities . No further adjustment to the Conversion Price will be made upon the actual issuance of such Common Stock upon conversion or exchange of such Convertible Securities.
It shall only be considered a Dilutive Issuance if there issuances made in conjunction with a like transaction (i.e. convertible debenture)
(e) Purchase Rights. If, at any time when any Notes are issued and outstanding, the Borrower issues any convertible securities or rights to purchase stock, warrants, securities or other property (the "Purchase Rights") pro rata to the record holders of any class of Common Stock, then the Holder of this Note will be entitled to acquire, upon the terms applicable to such Purchase Rights, the aggregate Purchase Rights which such Holder could have acquired if such Holder had held the number of shares of Common Stock acquirable upon complete conversion of this Note (without regard to any limitations on conversion contained herein) immediately before the date on which a record is taken for the grant, issuance or sale of such Purchase Rights or, if no such record is taken , the date as of which the record holders of Common Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(f) Notice of Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price as a result of the events described in this Section 1.6, the Borrower, at its expense, shall promptly compute such adjustment or readjustment and prepare and furnish to the Holder a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Borrower shall, upon the written request at any time of the Holder, furnish to such Holder a like certificate setting forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other securities or property which at the time would be received upon conversion of the Note.
1.7 Trading Market Limitations. Unless permitted by the applicable rules and regulations of the principal securities market on which the Common Stock is then listed or traded, in no event shall the Borrower issue upon conversion of or otherwise pursuant to this Note and the other Notes issued pursuant to the Purchase Agreement more than the maximum number of shares of Common Stock that the Borrower can issue pursuant to any rule of the principal United States securities market on which the Common Stock is then traded (the "Maximum Share Amount"), which shall be 9.99% of the total shares outstanding on the Closing Date (as defined in the Purchase Agreement), subject to equitable adjustment from time to time for stock splits, stock dividends, combinations, capital reorganizations and similar events relating to the Common Stock occurring after the date hereof. Once the Maximum Share Amount has been issued , if the Borrower fails to eliminate any prohibitions under applicable law or the rules or regulations of any stock exchange, interdealer quotation system or other self-regulatory organization with jurisdiction over the Borrower or any of its securities on the Borrower's ability to issue shares of Common Stock in excess of the Maximum Share Amount, in lieu of any further right to convert this Note, this will be considered an Event of Default under Section 3.3 of the Note.
6 |
1.8 Status as Shareholder. Upon submission of a Notice of Conversion by a Holder, (i) the shares covered thereby (other than the shares , if any, which cannot be issued because their issuance would exceed such Holder's allocated portion of the Reserved Amount or Maximum Share Amount) shall be deemed converted into shares of Common Stock and (ii) the Holder's rights as a Holder of such converted portion of this Note shall cease and terminate, excepting only the right to receive certificates for such shares of Common Stock and to any remedies provided herein or otherwise available at law or in equity to such Holder because of a failure by the Borrower to comply with the terms of this Note. Notwithstanding the foregoing, if a Holder has not received certificates for all shares of Common Stock prior to the tenth (10th) business day after the expiration of the Deadline with respect to a conversion of any portion of this Note for any reason, then (unless the Holder otherwise elects to retain its status as a holder of Common Stock by so notifying the Borrower) the Holder shall regain the rights of a Holder of this Note with respect to such unconverted portions of this Note and the Borrower shall, as soon as practicable, return such unconverted Note to the Holder or, if the Note has not been surrendered , adjust its records to reflect that such portion of this Note has not been converted. In all cases, the Holder shall retain all of its rights and remedies (including, without limitation, (i) the right to receive Conversion Default Payments pursuant to Section 1.3 to the extent required thereby for such Conversion Default and any subsequent Conversion Default and (ii) the right to have the Conversion Price with respect to subsequent conversions determined in accordance with Section 1.3) for the Borrower's failure to convert this Note.
1.9 Prepayment. Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the Issue Date and ending on the date which is ninety (90) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any notice of prepayment hereunder (an "Optional Prepayment Notice ") shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the date fixed for prepayment (the "Optional Prepayment Date"), the Borrower shall make payment of the Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the "Optional Prepayment Amount") equal to 135%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and l .4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is ninety-one (91) days following the issue date and ending on the date which is one hundred twenty (120) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full, in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note, and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Second Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the "Second Optional Prepayment Amount") equal to 145%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest , if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1.3 and l .4(g) hereof . If the Borrower delivers an Optional Prepayment Notice and fails to pay the Second Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
Notwithstanding anything to the contrary contained in this Note, at any time during the period beginning on the date which is one hundred twenty-one (121) days following the issue date and ending on the date which is one hundred eighty (180) days following the issue date, the Borrower shall have the right, exercisable on not less than three (3) Trading Days prior written notice to the Holder of the Note to prepay the outstanding Note (principal and accrued interest), in full , in accordance with this Section 1.9. Any Optional Prepayment Notice shall be delivered to the Holder of the Note at its registered addresses and shall state: (1) that the Borrower is exercising its right to prepay the Note , and (2) the date of prepayment which shall be not more than three (3) Trading Days from the date of the Optional Prepayment Notice. On the Optional Prepayment Date, the Borrower shall make payment of the Third Optional Prepayment Amount (as defined below) to or upon the order of the Holder as specified by the Holder in writing to the Borrower at least one (1) business day prior to the Optional Prepayment Date. If the Borrower exercises its right to prepay the Note, the Borrower shall make payment to the Holder of an amount in cash (the "Third Optional Prepayment Amount") equal to 150%, multiplied by the sum of: (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the Optional Prepayment Date plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and (x) plus (z) any amounts owed to the Holder pursuant to Sections 1 .3 and l .4(g) hereof. If the Borrower delivers an Optional Prepayment Notice and fails to pay the Third Optional Prepayment Amount due to the Holder of the Note within two (2) business days following the Optional Prepayment Date, the Borrower shall forever forfeit its right to prepay the Note pursuant to this Section 1.9.
7 |
After the expiration of one hundred eighty (180) following the date of the Note, the Borrower shall have no right of prepayment.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent (a) pay, declare or set apart for such payment , any dividend or other distribution (whether in cash, property or other securities) on shares of capital stock other than dividends on shares of Common Stock solely in the form of additional shares of Common Stock or (b) directly or indirectly or through any subsidiary make any other payment or distribution in respect of its capital stock except for distributions pursuant to any shareholders' rights plan which is approved by a majority of the Borrower's disinterested directors.
2.2 Restriction on Stock Repurchases. So long as the Borrower shall have any obligation under this Note, the Borrower shall not without the Holder's written consent redeem, repurchase or otherwise acquire (whether for cash or in exchange for property or other securities or otherwise) in any one transaction or series of related transactions any shares of capital stock of the Borrower or any warrants, rights or options to purchase or acquire any such shares.
2.3 Borrowings. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, create, incur, assume guarantee, endorse, contingently agree to purchase or otherwise become liable upon the obligation of any person, firm, partnership , joint venture or corporation, except by the endorsement of negotiable instruments for deposit or collection, or suffer to exist any liability for borrowed money, except (a) borrowings in existence or committed on the date hereof and of which the Borrower has informed Holder in writing prior to the date hereof, (b) indebtedness to trade creditors or financial institutions incurred in the ordinary course of business or (c) borrowings, the proceeds of which shall be used to repay this Note .
2.4 Sale of Assets. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. Any consent to the disposition of any assets may be conditioned on a specified use of the proceeds of disposition.
2.5 Advances and Loans. So long as the Borrower shall have any obligation under this Note, the Borrower shall not, without the Holder's written consent, lend money, give credit or make advances to any person , firm, joint venture or corporation, including, without limitation, officers, directors, employees, subsidiaries and affiliates of the Borrower, except loans, credits or advances (a) in existence or committed on the date hereof and which the Borrower has informed Holder in writing prior to the date hereof, (b) made in the ordinary course of business or (c) not in excess of $100,000.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails to pay the principal hereof or interest thereon when due on this Note, whether at maturity, upon acceleration or otherwise.
3.2 Conversion and the Shares. The Borrower fails to issue shares of Common Stock to the Holder (or announces or threatens in writing that it will not honor its obligation to do so) upon exercise by the Holder of the conversion rights of the Holder in accordance with the terms of this Note, fails to transfer or cause its transfer agent to transfer (issue) (electronically or in certificated form) any certificate for shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, the Borrower directs its transfer agent not to transfer or delays, impairs , and/or hinders its transfer agent in transferring (or issuing) (electronically or in certificated form) any certificate for shares of Common Stock to be issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note, or fails to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instructions in respect thereof) on any certificate for any shares of Common Stock issued to the Holder upon conversion of or otherwise pursuant to this Note as and when required by this Note (or makes any written announcement , statement or threat that it does not intend to honor the obligations described in this paragraph) and any such failure shall continue uncured (or any written announcement, statement or threat not to honor its obligations shall not be rescinded in writing) for three (3) business days after the Holder shall have delivered a Notice of Conversion . It is an obligation of the Borrower to remain current in its obligations to its transfer agent. It shall be an event of default of this Note, if a conversion of this Note is delayed, hindered or frustrated due to a balance owed by the Borrower to its transfer agent. If at the option of the Holder, the Holder advances any funds to the Borrower's transfer agent in order to process a conversion, such advanced funds shall be paid by the Borrower to the Holder within forty eight (48) hour s of a demand from the Holder.
8 |
3.3 Breach of Covenants. The Borrower breaches any material covenant or other material term or condition contained in this Note and any collateral documents including but not limited to the Purchase Agreement and such breach continues for a period of ten (I0) days after written notice thereof to the Borrower from the Holder.
3.4 Breach of Representations and Warranties. Any representation or warranty of the Borrower made herein or in any agreement, statement or certificate given in writing pursuant hereto or in connection herewith (including, without limitation, the Purchase Agreement), shall be false or misleading in any material respect when made and the breach of which has (or with the passage of time will have) a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.5 Receiver or Trustee. The Borrower or any subsidiary of the Borrower shall make an assignment for the benefit of creditors, or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business, or such a receiver or trustee shall otherwise be appointed.
3.6 Judgments. Any money judgment, writ or similar process shall be entered or filed against the Borrower or any subsidiary of the Borrower or any of its property or other assets for more than $50,000, and shall remain unvacated, unbonded or unstayed for a period of twenty (20) days unless otherwise consented to by the Holder, which consent will not be unreasonably withheld.
3.7 Bankruptcy. Bankruptcy, insolvency, reorganization or liquidation proceedings or other proceedings, voluntary or involuntary, for relief under any bankruptcy law or any law for the relief of debtors shall be instituted by or against the Borrower or any subsidiary of the Borrower.
3.8 Delisting of Common Stock. The Borrower shall fail to maintain the listing of the Common Stock on at least one of the OTCBB or an equivalent replacement exchange, the Nasdaq National Market, the Nasdaq Small Cap Market, the New York Stock Exchange, or the American Stock Exchange.
3.9 Failure to Comply with the Exchange Act. The Borrower shall fail to comply with the reporting requirements of the Exchange Act; and/or the Borrower shall cease to be subject to the reporting requirement s of the Exchange Act.
3.10 Liquidation. Any dissolution, liquidation, or winding up of Borrower or any substantial portion of its business.
3.11 Cessation of Operations. Any cessation of operations by Borrower or Borrower admits it is otherwise generally un able to pay its debts as such debts become due, provided, however, that any disclosure of the Borrower's ability to continue as a "going concern" shall not be an admission that the Borrower cannot pay its debts as they become due.
3.12 Maintenance of Assets. The failure by Borrower to maintain any material intellectual property rights, personal, real property or other assets which are necessary to conduct its business (whether now or in the future).
3.13 Financial Statement Restatement. The restatement of any financial statements filed by the Borrower with the SEC for any date or period from two years prior to the Issue Date of this Note and until this Note is no longer outstanding, if the result of such restatement would, by comparison to the unrestated financial statement, have constituted a material adverse effect on the rights of the Holder with respect to this Note or the Purchase Agreement.
3.14 Reverse Splits. The Borrower effectuates a reverse split of its Common Stock without twenty (20) days prior written notice to the Holder.
3.15 Replacement of Transfer Agent. In the event that the Borrower propose s to replace its transfer agent, the Borrower fails to provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower.
9 |
3.16 Cross-Default. Notwithstanding anything to the contrary contained in this Note or the other related or companion documents , a breach or default by the Borrower of any covenant or other term or condition contained in any of the Other Agreement s, after the passage of all applicable notice and cure or grace periods, shall, at the option of the Holder, be considered a default under this Note and the Other Agreements, in which event the Holder shall be entitled (but in no event required) to apply all rights and remedies of the Holder under the terms of this Note and the Other Agreements by reason of a default under said Other Agreement or hereunder. "Other Agreements" means, collectively, all agreements and instruments between , among or by: (1) the Borrower, and, or for the benefit of, (2) the Holder and any affiliate of the Holder, including, without limitation , promissory notes; provided, however, the term "Other Agreements" shall not include the related or companion documents to this Note. Each of the loan transactions will be cross-defaulted with each other loan transaction and with all other existing and future debt of Borrower to the Holder.
Upon the occurrence and during the continuation of any Event of Default specified in Section 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due at the Maturity Date), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the Default Sum (as defined herein). UPON THE OCCURRENCE AND DURING THE CONTINUATION OF ANY EVENT OF DEFAULT SPECIFIED TN SECTION 3.2, THE NOTE SHALL BECOME IMMEDIATELY DUE AND PAYABLE AND THE BORROWER SHALL PAY TO THE HOLDER , IN FULL SATISFACTION OF ITS OBLIGATIONS HEREUNDER, AN AMOUNT EQUAL TO: (Y) THE DEFAULT SUM (AS DEFINED HEREIN); MULTIPLIED BY (Z) TWO (2). Upon the occurrence and during the continuation of any Event of Default specified in Sections 3.1 (solely with respect to failure to pay the principal hereof or interest thereon when due on this Note upon a Trading Market Prepayment Event pursuant to Section 1.7 or upon acceleration) , 3.3, 3.4, 3.6, 3.8, 3.9, 3.11, 3.12, 3.13, 3.14, and/or 3. 15 exercisable through the delivery of written notice to the Borrower by such Holders (the "Default Notice"), and upon the occurrence of an Event of Default specified the remaining sections of Articles III (other than failure to pay the principal hereof or interest thereon at the Maturity Date specified in Section 3,1 hereof), the Note shall become immediately due and payable and the Borrower shall pay to the Holder, in full satisfaction of its obligations hereunder, an amount equal to the greater of (i) 150% times the sum of (w) the then outstanding principal amount of this Note plus (x) accrued and unpaid interest on the unpaid principal amount of this Note to the date of payment (the "Mandatory Prepayment Date") plus (y) Default Interest, if any, on the amounts referred to in clauses (w) and/or (x) plus (z) any amounts owed to the Holder pursuant to Sections 1 .3 and 1.4(g) hereof (the then outstanding principal amount of this Note to the date of payment plus the amounts referred to in clauses (x), (y) and (z) shall collectively be known as the "Default Sum") or (ii) the "parity value" of the Default Sum to be prepaid, where parity value means (a) the highest number of shares of Common Stock issuable upon conversion of or otherwise pursuant to such Default Sum in accordance with Article I, treating the Trading Day immediately preceding the Mandatory Prepayment Date as the "Conversion Date" for purposes of determining the lowest applicable Conversion Price, unless the Default Event arises as a result of a breach in respect of a specific Conversion Date in which case such Conversion Date shall be the Conversion Date), multiplied by (b) the highest Closing Price for the Common Stock during the period beginning on the date of first occurrence of the Event of Default and ending one day prior to the Mandatory Prepayment Date (the "Default Amount") and all other amounts payable hereunder shall immediately become due and payable, all without demand, presentment or notice , all of which hereby are expressly waived, together with all costs, including , without limitation, legal fees and expenses, of collection, and the Holder shall be entitled to exercise all other rights and remedies available at law or in equity.
If the Borrower fails to pay the Default Amount within five (5) business days of written notice that such amount is due and payable, then the Holder shall have the right at any time, so long as the Borrower remains in default (and so long and to the extent that there are sufficient authorized shares), to require the Borrower, upon written notice , to immediately issue, in lieu of the Default Amount , the number of shares of Common Stock of the Borrower equal to the Default Amount divided by the Conversion Price then in effect.
10 |
ARTICLE IV. MISCELLANEOUS
4.1 Failure or Indulgence Not Waiver. No failure or delay on the part of the Holder in the exercise of any power, right or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or privilege preclude other or further exercise thereof or of any other right, power or privileges. All rights and remedies existing hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
4.2 Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein , shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested , postage prepaid, (iii) delivered by reputable air courier service with charges prepaid, or (iv) transmitted by hand delivery, telegram, or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice. Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice is to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Borrower, to: |
IDS INDUSTRIES, INC. (f/k/a/ IDS Solar Technologies, Inc.) |
533 Birch Street |
Lake Elsinore, CA 92530 |
Attn: BRUCE R. KNOBLICH, Chief Executive Officer |
facsimile: |
With a copy by fax only to (which copy shall not constitute notice): |
(enter name of law firm] --- Attn: [attorney name] |
[enter address line 1] |
[enter city, state, zip] |
facsimile: [enter fax number] |
If to the Holder: |
ASHER ENTERPRISES, INC. |
1 Linden Pl., Suite 207 Great Neck, NY. 11021 |
Attn: Curt Kramer , President |
facsimile: 516-498-9894 |
With a copy by fax only to (which copy shall not constitute notice): |
Naidich Wurman Birnbaum & Maday, LLP |
80 Cuttermill Road, Suite 410 |
Great Neck, NY 11021 |
facsimile: 516-466-3555 |
11 |
4.3 Amendments. This Note and any provision hereof may only be amended by an instrument in writing signed by the Borrower and the Holder. The term "Note" and all reference thereto, as used throughout this instrument , shall mean this instrument (and the other Notes issued pursuant to the Purchase Agreement) as originally executed, or if later amended or supplemented , then as so am ended or supplemented.
4.4 Assignability. This Note shall be binding upon the Borrower and its successors and assigns, and shall inure to be the benefit of the Holder and its successors and assigns. Each transferee of this Note must be an "accredited investor" (as defined in Rule 501 (a) of the 1933 Act). Notwithstanding anything in this Note to the contrary, this Note may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
4.5 Cost of Collection. If default is made in the payment of this Note, the Borrower shall pay the Holder hereof costs of collection, including reasonable attorneys' fees.
4.6 Governing Law. This Note shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Note shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Note hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Borrower and Holder waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Note or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each party hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
4.7 Certain Amounts. Whenever pursuant to this Note the Borrower is required to pay an amount in excess of the outstanding principal amount (or the portion thereof required to be paid at that time) plus accrued and unpaid interest plus Default Interest on such interest, the Borrower and the Holder agree that the actual damages to the Holder from the receipt of cash payment on this Note may be difficult to determine and the amount to be so paid by the Borrower represents stipulated damages and not a penalty and is intended to compensate the Holder in part for loss of the opportunity to convert this Note and to earn a return from the sale of shares of Common Stock acquired upon conversion of this Note at a price in excess of the price paid for such shares pursuant to this Note. The Borrower and the Holder hereby agree that such amount of stipulated damages is not plainly disproportion ate to the possible loss to the Holder from the receipt of a cash payment without the opportunity to convert this Note into shares of Common Stock.
4.8 Purchase Agreement. By its acceptance of this Note, each party agrees to be bound by the applicable terms of the Purchase Agreement.
4.9 Notice of Corporate Events. Except as otherwise provided below, the Holder of this Note shall have no rights as a Holder of Common Stock unless and only to the extent that it converts this Note into Common Stock. The Borrower shall provide the Holder with prior notification of any meeting of the Borrower's shareholders (and copies of proxy materials and other information sent to shareholder s). In the event of any taking by the Borrower of a record of its shareholder s for the purpose of determining shareholders who are entitled to receive payment of any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire (including by way of merger, consolidation, reclassification or recapitalization) any share of any class or any other securities or property, or to receive any other right, or for the purpose of determining shareholders who are entitled to vote in connection with any proposed sale, lease or conveyance of all or substantially all of the assets of the Borrower or any proposed liquidation, dissolution or winding up of the Borrower, the Borrower shall mail a notice to the Holder, at least twenty (20) days prior to the record date specified therein (or thirty (30) days prior to the consummation of the transaction or event, whichever is earlier), of the date on which any such record is to be taken for the purpose of such dividend, distribution , right or other event, and a brief statement regarding the amount and character of such dividend , distribution, right or other event to the extent known at such time. The Borrower shall make a public announcement of any event requiring notification to the Holder hereunder substantially simultaneously with the notification to the Holder in accordance with the terms of this Section 4.9.
12 |
4.10 Remedies. The Borrower acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Holder, by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Borrower acknowledges that the remedy at law for a breach of its obligations under this Note will be inadequate and agrees, in the event of a breach or threatened breach by the Borrower of the provisions of this Note, that the Holder shall be entitled , in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Note and to enforce specifically the terms and provisions thereof, without the necessity of showing economic loss and without any bond or other security being required.
IN WITNESS WHEREOF, Borrower has caused this Note to be signed in its name by its duly authorized officer this August 5, 2013.
IDS INDUSTRIES, INC. |
(f/k/a/ JDS Solar Technologies) |
By: /s/ Bruce Knoblich |
Bruce Knoblich |
Chief Executive Officer |
13 |
EXHIBIT A
NOTICE OF CONVERSION
The undersigned hereby elects to convert $ principal amount of the Note (defined below) into that number of shares of Common Stock to be issued pursuant to the conversion of the Note ("Common Stock") as set forth below , of IDS INDUSTRIES, INC. (f/k/a/ IDS Solar Technologies, Inc.), a Nevada corporation (the "Borrower") according to the conditions of the convertible note of the Borrower dated as of August 5, 2013 (the "Note"), as of the date written below. No fee will be charged to the Holder for any conversion, except for transfer taxes, if any.
Box Checked as to applicable instructions:
[ ] The Borrower shall electronically transmit the Common Stock issuable pursuant to this Notice of Conversion to the account of the undersigned or its nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC Transfer").
Name of DTC Prime Broker: Account Number:
[ ] The undersigned hereby requests that the Borrower issue a certificate or certificates for the number of shares of Common Stock set forth below (which numbers are based on the Holder's calculation attached hereto) in the name(s) specified immediately below or, if additional space is necessary, on an attachment hereto:
ASHER ENTERPRISES, INC.
1 Linden Pl., Suite 207 Great Neck, NY. 11021
Attention: Certificate Delivery (5 16) 498-9890
Date of Conversion:
Applicable Conversion Price: $
Number of Shares of Common Stock to be Issued
Pursuant to Conversion of the Notes
Amount of Principal Balance Due remaining
Under the Note after this conversion:
ASHER ENTERPRISES, INC.
By:
Name: Curt Kramer
Title: President Date:
1 Linden Pl., Suite 207 Great Neck, NY. 11021
14 |
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT (the "Agreement"), dated as of August 5, 2013, by and between IDS INDUSTRIES, INC. (f/k/a/ IDS Solar Technologies, Inc.), a Nevada corporation, with headquarters located at 533 Birch Street, Lake Elsinore, CA 92530 (the "Company"), and ASHER ENTERPRISES, INC., a Delaware corporation, with its address at 1 Linden Place, Suite 207, Great Neck, NY 1 1021 (the "Buyer").
WHEREAS:
A. The Company and the Buyer are executing and delivering this Agreement in reliance upon the exemption from securities registration afforded by the rules and regulations as promulgated by the United States Securities and Exchange Commission (the "SEC") under the Securities Act of 1933, as amended (the "1933 Act");
B. Buyer desires to purchase and the Company desires to issue and sell, upon the terms and conditions set forth in this Agreement an 8% convertible note of the Company, in the form attached hereto as Exhibit A, in the aggregate principal amount of $32,500.00 (together with any note(s) issued in replacement thereof or as a dividend thereon or otherwise with respect thereto in accordance with the terms thereof, the "Note"), convertible into shares of common stock, $0.001 par value per share, of the Company (the "Common Stock"), upon the terms and subject to the limitations and conditions set forth in such Note.
C. The Buyer wishes to purchase, upon the terms and conditions stated in this Agreement, such principal amount of Note as is set forth immediately below its name on the signature pages hereto; and
NOW THEREFORE, the Company and the Buyer severally (and not jointly) hereby agree as follows:
1. Purchase and Sale of Note.
a. Purchase of Note. On the Closing Date (as defined below), the Company shall issue and sell to the Buyer and the Buyer agrees to purchase from the Company such principal amount of Note as is set forth immediately below the Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i) the Buyer shall pay the purchase price for the Note to be issued and sold to it at the Closing (as defined below) (the "Purchase Price") by wire transfer of immediately available funds to the Company, in accordance with the Company's written wiring instructions, against delivery of the Note in the principal amount equal to the Purchase Price as is set forth immediately below the Buyer's name on the signature pages hereto, and (ii) the Company shall deliver such duly executed Note on behalf of the Company, to the Buyer, against delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or written waiver) of the conditions thereto set forth in Section 6 and Section 7 below, the date and ti me of the issuance and sale of the Note pursuant to this Agreement (the "Closing Date") shall be 12:00 noon, Eastern Standard Time on or about August 7, 2013, or such other mutually agreed upon time. The closing of the transactions contemplated by this Agreement (the "Closing") shall occur on the Closing Date at such location as may be agreed to by the parties.
2. Buyer's Representation s and Warranties. The Buyer represents and warrants to the Company that:
a. Investment Purpose. As of the date hereof, the Buyer is purchasing the Note and the shares of Common Stock issuable upon conversion of or otherwise pursuant to the Note (including, without limitation, such additional shares of Common Stock, if any, as are issuable (i) on account of interest on the Note, (ii) as a result of the events described in Sections 1.3 and 1.4(g) of the Note or (iii) i n payment of the Standard Liquidated Damages Amount (as defined in Section 2(f) below) pursuant to this Agreement, such shares of Common Stock being collectively referred to herein as the "Conversion Shares" and, collectively with the Note, the "Securities") for its own account and not with a present view towards the public sale or distribution thereof, except pursuant to sales registered or exempted from registration under the 1933 Act; provided, however, that by making the representations herein, the Buyer does not agree to hold any of the Securities for any minimum or other specific term and reserves the right to dispose of the Securities at any time in accordance with or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor" as that term is defined in Rule 50l (a) of Regulation D (an "Accredited Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities are being offered and sold to it in reliance upon specific exemptions from the registration requirements of United States federal and state securities laws and that the Company is relying upon the truth and accuracy of, and the Buyer 's compliance with, the representations, warranties, agreements, acknowledgments and understandings of the Buyer set forth herein in order to determine the availability of such exemptions and the eligibility of the Buyer to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been, an d for so long as the Note remain outstanding will continue to be, furnished with all material s relating to the business, finances and operations of the Company and materials relating to the offer and sale of the Securities which have been requested by the Buyer or its advisors. The Buyer and its advisors, if any, have been, and for so long as the Note remain outstanding will continue to be, afforded the opportunity to ask question s of the Company. Notwithstanding the foregoing, the Company has not disclosed to the Buyer any material nonpublic information and will not disclose such information unless such information is disclosed to the public prior to or promptly following such disclosure to the Buyer. Neither such inquiries nor any other due diligence investigation conducted by Buyer or any of its advisors or representatives shall modify, amend or affect Buyer's right to rely on the Company's representations and warranties contained in Section 3 below. The Buyer understands that its investment in the Securities involves a significant degree of risk. The Buyer is not aware of any facts that may constitute a breach of any of the Company's representations and warranties made herein.
e. Governmental Review. The Buyer under stands that no United States federal or state agency or any other government or governmental agency has passed upon or made any recommendation or endorsement of the Securities.
f. Transfer or Re-sale. The Buyer understands that (i) the sale or re- sale of the Securities has not been and is not being registered under the 1933 Act or any applicable state securities laws, and the Securities may not be transferred unless (a) the Securities are sold pursuant to an effective registration statement under the 1933 Act, (b) the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be in form, substance and scope customary for opinions of counsel in comparable transactions to the effect that the Securities to be sold or transferred may be sold or transferred pursuant to an exemption from such registration , which opinion shall be accepted by the Company, (c) the Securities are sold or transferred to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer who agrees to sell or otherwise transfer the Securities only in accordance with this Section 2(f) and who is an Accredited Investor, (d) the Securities are sold pursuant to Rule 144, or (e) the Securities are sold pursuant to Regulation S under the 1933 Act (or a successor rule) ("Regulation S"), and the Buyer shall have delivered to the Company, at the cost of the Buyer, an opinion of counsel that shall be inform, substance and scope customary for opinions of counsel in corporate transactions, which opinion shall be accepted by the Company; (ii) any sale of such Securities made in reliance on Rule 144 may be made only in accordance with the terms of said Rule and further, if said Rule is not applicable, any re-sale of such Securities under circumstances in which the seller (or the person through whom the sale is made) may be deemed to be an underwriter (as that term is defined in the 1933 Act) may require compliance with some other exemption under the 1933 Act or the rules and regulations of the SEC thereunder; and (iii) neither the Company nor any other person is under any obligation to register such Securities under the 1933 Act or any state securities laws or to comply with the terms and conditions of any exemption thereunder (in each case). Notwithstanding the foregoing or anything else contained herein to the contrary, the Securities may be pledged as collateral in connection with a bona fide margin account or other lending arrangement.
g. Legends. The Buyer understands that the Note and, until such time as the Conversion Shares have been registered under the 1933 Act may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a pa1ticular date that can then be immediately sold, the Conversion Shares may bear a restrictive legend in substantially the following form (and a stop-transfer order may be placed against transfer of the certificates for such Securities):
"NEITHER THE ISSUANCE AND SALE OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE EXERCISABLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES LAWS. THE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED (I) IN THE ABSENCE OF (A) AN EFFECTIVE REGISTRATION STATEMENT FORTHE SECURITIES UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR (B) AN OPINION OF COUNSEL (WHICH COUNSEL SHALL BE SELECTED BY THE HOLDER), IN A GENERALLY ACCEPTABLE FORM, THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR (II) UNLESS SOLD PURSUANT TO RULE 144 OR RULE 144A UNDER SAID ACT. NOTWITHSTANDING THE FOREGOING, THE SECURITIES MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER LOAN OR FINANCING ARRANGEMENT SECURED BY THE SECURITIES."
The legend set forth above shall be removed and the Company shall issue a certificate without such legend to the holder of any Security upon which it is stamped, if, unless otherwise required by applicable state securities laws, (a) such Security is registered for sale under an effective registration statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144 or Regulation S without any restriction as to the number of securities as of a particular date that can then be immediately sold, or (b) such holder provides the Company with an opinion of counsel, in form, substance and scope customary for opinions of counsel in comparable transactions, to the effect that a public sale or transfer of such Security may be made without registration under the 1933 Act, which opinion shall be accepted by the Company so that the sale or transfer is effected. The Buyer agrees to sell al l Securities, including those represented by a certificate(s) from which the legend has been removed, in compliance with applicable prospectus delivery requirements, if any. In the event that the Company does not accept the opinion of counsel provided by the Buyer with respect to the transfer of Securities pursuant to an exemption from registration, such as Rule 144 or Regulation S, at the Deadline, it will be considered an Event of Default pursuant to Section 3.2 of the Note.
h. Authorization; Enforcement. This Agreement has been duly and validly authorized. This Agreement has been duly executed and delivered on behalf of the Buyer, and this Agreement constitutes a valid and binding agreement of the Buyer enforceable in accordance with its terms.
i. Residency. The Buyer is a resident of the jurisdiction set forth immediately below the Buyer's name on the signature pages hereto.
2 |
3. Representations and Warranties of the Company. The Company represents and warrants to the Buyer that:
a. Organization and Qualification. The Company and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and the jurisdiction in which each is incorporated. The Company and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. "Material Adverse Effect" mean s any material adverse effect on the business, operations, assets, financial condition or prospects of the Company or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. "Subsidiaries" means any corporation or other organization, whether incorporated or unincorporated, in which the Company owns, directly or indirectly, any equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite corporate power and authority to enter into and perform this Agreement, the Note and to consummate the transactions contemplated hereby and thereby and to issue the Securities, in accordance with the terms hereof and thereof, (ii) the execution and delivery of this Agreement, the Note by the Company and the consummation by it of the transactions contemplated hereby and thereby (including without l imitation , the issuance of the Note and the issuance and reservation for issuance of the Conversion Shares issuable upon convers ion or exercise thereof) have been duly authorized by the Company's Board of Directors and no further consent or authorization of the Company, its Board of Directors, or its shareholders is required , (iii) this Agreement has been duly executed and delivered by the Company by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Agreement and the other documents executed in connection herewith and bind the Company accordingly, and (iv) this Agreement constitutes, and upon execution and delivery by the Company of the Note, each of such instruments will constitute, a legal, valid and binding obligation of the Company enforceable against the Company in accordance with its terms.
Capitalization. As of the date hereof, the authorized capital stock of the Company consists of: (i) 90,000,000 shares of Common Stock, $0.001 par value per share, of which 34,313,114 shares are issued and outstanding; and (ii) 10,000,000 shares of Preferred Stock, $0.00 1 par value per share, of which no shares are issued and outstanding; no shares are reserved for issuance pursuant to the Company's stock option plans, no shares are reserved for issuance pursuant to securities (other than the Note and three (3) prior convertible promissory notes in favor of the Buyer : (a) prior convertible promissory note in favor of the Buyer dated March 20, 2013 in the amount of $32,500.00 for which 2,300,000 shares of Common Stock are presently reserved and (b) prior convertible promissory note in favor of the Buyer dated April 4, 20 13 in the amount of $15,500.00 for which 2,410,000 shares of Common Stock are presently reserve d and (c) prior convertible promissory note in favor of the Buyer dated June 3, 3013 in the amount of $32,500.00 for which 8,090,000 shares of Common Stock are presently reserved) exercisable for, or convertible into or exchangeable for shares of Common Stock and 12,200,000 shares are reserved for issuance upon conversion of the Note . All of such outstanding shares of capital stock are, or upon issuance will be, duly authorized, validly issued, fully paid and non-assessable. No shares of capital stock of the Company are subject to preemptive rights or any other similar rights of the shareholders of the Company or any liens or encumbrances imposed through the actions or failure to act of the Company. As of the effective date of this Agreement , (i) there are no outstanding options, warrant s, scrip, rights to subscribe for, puts, calls, rights of first refusal , agreements, understandings, claims or other commitments or rights of any character whatsoever relating to, or securities or rights convertible into or exchangeable for any shares of capital stock of the Company or any of its Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is or may become bound to issue additional shares of capital stock of the Company or any of its Subsidiaries, (ii) there are no agreements or arrangements under which the Company or any of its Subsidiaries is obligated to register the sale of any of its or their securities under the 1933 Act and (iii) there are no anti- dilution or price adjustment provisions contained in any security issued by the Company (or in any agreement providing rights to security holders) that will be triggered by the issuance of the Note or the Conversion Shares. The Company has furnished to the Buyer true and correct copies of the Company's Certificate of Incorporation as in effect on the date hereof ("Certificate of Incorporation"), the Company's By-Laws, as in effect on the date hereof (the "By-laws"), and the terms of all securities convertible into or exercisable for Common Stock of the Company and the material rights of the holders thereof in respect thereto. The Company shall provide the Buyer with a written update of this representation signed by the Company's Chief Executive on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Conversion Shares are duly authorized and reserved for issuance and, upon conversion of the Note in accordance with its respective terms, will be validly issued, fully paid and non-assessable, and free from all taxes, liens, claims and encumbrances with respect to the issue thereof and shall not be subject to preemptive rights or other similar rights of shareholders of the Company and will not impose personal liability upon the holder thereof.
3 |
e. Acknowledgment of Dilution. The Company under stands and acknowledges the potentially dilutive effect to the Common Stock upon the issuance of the Conversion Shares upon conversion of the Note. The Company further acknowledges that its obligation to issue Conversion Shares upon conversion of the Note in accordance with this Agreement, the Note is absolute and unconditional regardless of the dilutive effect that such issuance may have on the ownership interests of other shareholders of the Company.
f. No Conflicts. The execution, delivery and performance of this Agreement , the Note by the Company and the consummation by the Company of the transactions contemplated hereby and thereby (including, without limitation, the issuance and reservation for issuance of the Conversion Shares) will not (i) conflict with or result in a violation of any provision of the Certificate of Incorporation or By-laws, or (ii) violate or conflict with , or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any right s of termination , amendment , acceleration or cancellation of, any agreement, indenture , patent , patent license or instrument to which the Company or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation , order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Company or its securities are subject) applicable to the Company or any of its Subsidiaries or by which any property or asset of the Company or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, termination s, amendments, accelerations , cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation of its Certificate of Incorporation, By-laws or other organizational documents and neither the Company nor any of its Subsidiaries is in default (and no event has occurred which with notice or lapse of time or both could put the Company or any of its Subsidiaries in default) under, and neither the Company nor any of its Subsidiaries has taken any action or failed to take any action that would give to others any right s of termination, amendment, acceleration or cancellation of, any agreement, indenture or instrument to which the Company or any of its Subsidiaries is a party or by which any property or assets of the Company or any of its Subsidiaries is bound or affected, except for possible default s as would not, individually or in the aggregate, have a Material Adverse Effect. The businesses of the Company and its Subsidiaries, if any, are not being conducted, and shall not be conducted so long as the Buyer owns any of the Securities, in violation of any law, ordinance or regulation of any governmental entity. Except as specifically contemplated by this Agreement and as required under the 1933 Act and any applicable state securities laws, the Company is not required to obtain any consent, authorization or order of, or make any filing or registration with, any court, governmental agency, regulatory agency, self-regulatory organization or stock market or any third party in order for it to execute, deliver or perform any of its obligations under this Agreement, the Note in accordance with the terms hereof or thereof or to issue and sell the Note in accordance with the terms hereof and to issue the Conversion Shares upon conversion of the Note . All consents, authorizations , orders, filings and registrations which the Company is required to obtain pursuant to the preceding sentence have been obtained or effected on or prior to the date hereof. The Company is not in violation of the listing requirements of the Over-the Counter Bulletin Board (the "OTCBB") and does not reasonably anticipate that the Common Stock will be delisted by the OTCBB in the foreseeable future. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
g. SEC Documents; Financial Statements. The Company has timely filed all reports , schedules , forms, statements and other documents required to be filed by it with the SEC pursuant to the reporting requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act") (all of the foregoing filed prior to the date hereof and all exhibits included therein and financial statements and schedules thereto and documents (other than exhibits to such documents) incorporated by reference therein, being hereinafter referred to herein as the "SEC Documents"). Upon written request the Company will deliver to the Buyer true and complete copies of the SEC Documents, except for such exhibits and incorporated documents. As of their respective dates, the SEC Documents complied in all material respects with the requirements of the 1934 Act and the rules and regulations of the SEC promulgated thereunder applicable to the SEC Documents, and none of the SEC Documents, at the ti me they were filed with the SEC, contained any untrue statement of a material fact or omitted to state a material fact required to be stated therein or necessary in order to make the statements therein, in light of the circumstances under which they were made, not misleading. None of the statements made in any such SEC Documents is, or has been , required to be amended or updated under applicable law (except for such statements as have been amended or updated in subsequent filings prior the date hereof). As of their respective dates, the financial statements of the Company included in the SEC Documents complied as to form in all material respects with applicable accounting requirements and the published rules and regulations of the SEC with respect thereto. Such financial statements have been prepared in accordance with United States generally accepted accounting principle s, consistently applied, during the periods involved and fairly present in all material respects the consolidated financial position of the Company and its consolidated Subsidiaries as of the dates thereof and the consolidated results of their operations and cash flows for the periods then ended (subject, in the case of unaudited statements, to normal year-end audit adjustments). Except as set forth in the financial statements of the Company included in the SEC Document s, the Company has no liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to May 31, 2013, and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in such financial statements, which, individually or in the aggregate , are not material to the financial condition or operating results of the Company . The Company is subject to the reporting requirements of the 1934 Act.
h. Absence of Certain Changes. Since May 31, 2013, there has been no material adverse change and no material adverse development in the assets, liabilities, business, properties, operations, financial condition, results of operations, prospects or 1934 Act reporting status of the Company or any of its Subsidiaries.
i. Absence of Litigation. There is no action, suit, claim, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the Company or any of its Subsidiaries, threatened against or affecting the Company or any of its Subsidiaries, or their officers or directors in their capacity as such, that could have a Material Adverse Effect. Schedule 3(i) contains a complete list and summary description of any pending or, to the knowledge of the Company, threatened proceeding against or affecting the Company or any of its Subsidiaries, without regard to whether it would have a Material Adverse Effect. The Company and its Subsidiaries are unaware of any facts or circumstances which might give rise to any of the foregoing.
j. Patents, Copyrights, etc. The Company and each of its Subsidiaries owns or possesses the requisite licenses or rights to use all patents, patent applications, patent rights, inventions, know-how , trade secrets, trademark s, trademark applications, service marks, service names, trade names and copyrights ("Intellectual Property") necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); there is no claim or action by any person pertaining to, or proceeding pending, or to the Company's knowledge threatened, which challenges the right of the Company or of a Subsidiary with respect to any Intellectual Property necessary to enable it to conduct its business as now operated (and, as presently contemplated to be operated in the future); to the best of the Company's knowledge, the Company's or its Subsidiaries' current and intended products, services and processes do not infringe on any Intellectual Property or other rights held by any person; and the Company is unaware of any facts or circumstances which might give rise to any of the foregoing. The Company and each of its Subsidiaries have taken reasonable security measures to protect the secrecy, confidentiality and value of their Intellectual Property.
4 |
k. No Materially Adverse Contracts, Etc. Neither the Company nor any of its Subsidiaries is subject to any charter, corporate or other legal restriction, or any judgment, decree, order, rule or regulation which in the judgment of the Company's officers has or is expected in the future to have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a party to any contract or agreement which in the judgment of the Company's officers has or is expected to have a Material Adverse Effect.
l. Tax Status. The Company and each of its Subsidiaries has made or filed all federal, state and foreign income and all other tax returns, reports and declarations required by any jurisdiction to which it is subject (unless and only to the extent that the Company and each of its Subsidiaries has set asi e on its books provisions reasonably adequate for the payment of all unpaid and unreported taxes) and has paid all taxes and other governmental assessments and charges that are material in amount, shown or determined to be due on such returns, reports and declarations, except those being contested in good faith and has set aside on its books provisions reasonably adequate for the payment of all taxes for periods subsequent to the periods to which such returns, reports or declarations apply. There are no unpaid taxes in any material amount claimed to be due by the taxing authority of any jurisdiction, and the officers of the Company know of no basis for any such claim. The Company has not executed a waiver with respect to the statute of limitations relating to the assessment or collection of any foreign, federal, state or local tax. Non e of t e Company's tax returns is presently being audited by any taxing authority.
m. Certain Transactions. Except for arm's length transactions pursuant to which the Company or any of its Subsidiaries makes payments in the ordinary course of business upon terms no less favorable than the Company or any of its Subsidiaries could obtain from third parties and other than the grant of stock options disclosed on Schedule 3(c), none of the officers, directors, or employees of the Company is presently a party to any transaction with the Company or any of its Subsidiaries (other than for services as employees , officers and directors), including any contract, agreement or other arrangement providing for the furnishing of services to or by, providing for rental of real or personal property to or from, or otherwise requiring payments to or from any officer, director or such employee or, to the knowledge of the Company, any corporation, partnership, trust or other entity in which any officer, director, or any such employee has a substantial interest or is an officer, director, trustee or partner.
n. Disclosure. All information relating to or concerning the Company or any of its Subsidiaries set forth in this Agreement and provided to the Buyer pursuant to Section 2{d) hereof and otherwise in connection with the transactions contemplated hereby is true and correct in all material respects and the Company has not omitted to state any material fact necessary in order to make the statements made herein or therein, in light of the circumstances under which they were made, not misleading. No event or circumstance has occurred or exists with respect to the Company or any of its Subsidiaries or its or their business, properties, prospects, operations or financial conditions, which, under applicable law, rule or regulation, requires public disclosure or announcement by the Company but which has not been so publicly announced or disclosed (assuming for this purpose that the Company's reports filed under the 1934 Act are being incorporated into an effective registration statement filed by the Company under the 1933 Act).
o. Acknowledgment Regarding Buyer' Purchase of Securities. The Company acknowledges and agrees that the Buyer is acting solely in the capacity of arm's length purchasers with respect to this Agreement and the transactions contemplated hereby. The Company further acknowledge s that the Buyer is not acting as a financial advisor or fiduciary of the Company (or in any similar capacity) with respect to this Agreement and the transactions contemplated hereby and any statement made by the Buyer or any of its respective representatives or agents in connection with this Agreement and the transactions contemplated hereby is not advice or a recommendation and is merely incidental to the Buyer' purchase of the Securities. The Company further represents to the Buyer that the Company's decision to enter into this Agreement has been based solely on the independent evaluation of the Company and its representatives.
p. No Integrated Offering. Neither the Company, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of the Securities to the Buyer. The issuance of the Securities to the Buyer will not be integrated with any other issuance of the Company's securities (past, current or future) for purposes of any shareholder approval provisions applicable to the Company or its securities.
q. No Brokers. The Company has taken no action which would give rise to any claim by any person for brokerage commissions, transaction fees or similar payments relating to this Agreement or the transactions contemplated hereby.
r. Permits; Compliance. The Company and each of its Subsidiaries is in possession of all franchises, grants, authorizations, licenses, permits, easements, variances, exemption s, consents, certificates, approvals and orders necessary to own, lease and operate its properties and to carry on its business as it is now being conducted (collectively, the "Company Permits"), and there is no action pending or, to the knowledge of the Company, threatened regarding suspension or cancellation of any of the Company Permits. Neither the Company nor any of its Subsidiaries is in conflict with, or in default or violation of, any of the Company Permits, except for any such conflicts, defaults or violations, which, individually or in the aggregate, would not reasonably be expected to have a Material Adverse Effect. Since May 31, 20 13, neither the Company nor any of its Subsidiaries has received any notification with respect to possible conflicts, defaults or violation s of applicable laws, except for notices relating to possible conflicts, defaults or violations, which conflicts, defaults or violations would not have a Material Adverse Effect.
5 |
s. Environmental Matters.
(i) There are, to the Company's knowledge, with respect to the Company or any of its Subsidiaries or any predecessor of the Company, no past or present violations of Environmental Laws (as defined below) , releases of any material into the environment, actions, activities, circumstances, conditions, events, incidents, or contractual obligations which may give rise to any common law environmental liability or any liability under the Comprehensive Environmental Response, Compensation and Liability Act of 1980 or similar federal, state, local or foreign laws and neither the Company nor any of its Subsidiaries has received any notice with respect to any of the foregoing, nor is any action pending or, to the Company's knowledge, threatened in connection with any of the foregoing. The term "Environmental Laws" means all federal, state, local or foreign laws relating to pollution or protection of human health or the environment (including, without limitation , ambient air, surface water, groundwater, land surface or subsurface strata), including, without limitation , laws relating to emissions, discharges, releases or threatened releases of chemicals, pollutants contaminants, or toxic or hazardous substances or wastes (collectively, "Hazardous Materials") into the environment, or otherwise relating to the manufacture, processing, distribution , use, treatment, storage, disposal, transport or handling of Hazardous Materials , as well as all authorizations, codes, decrees, demands or demand letters, injunctions, judgments , licenses, notices or notice letters, orders, permits , plans or regulations issued, entered , promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or disposed of in compliance with applicable law, no Hazardous Materials are contained on or about any real property currently owned, leased or used by the Company or any of its Subsidiaries, and no Hazardous Materials were released on or about any real property previously owned, leased or used by the Company or any of its Subsidiaries during the period the property was owned, leased or used by the Company or any of its Subsidiaries, except i n the normal course of the Company's or any of its Subsidiaries' business.
(iii) There are no underground storage tanks on or under any real property owned, leased or used by the Company or any of its Subsidiaries that are not in compliance with applicable law.
t. Title to Property. The Company and its Subsidiaries have good and marketable title in fee simple to all real property and good and marketable title to all personal property owned by them which is material to the business of the Company and its Subsidiaries, in each case free and clear of all liens, encumbrances and defects except such as are described in Schedule 3(t) or such as would not have a Material Adverse Effect. Any real property and facilities held under lease by the Company and its Subsidiaries are held by them under valid, subsisting and enforceable leases with such exception s as would not have a Material Adverse Effect.
u. Insurance. The Company and each of its Subsidiaries are insured by insurers of recognized financial responsibility against such losses and risks and in such amounts as management of the Company believes to be prudent and customary in the businesses in which the Company and its Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any reason to believe that it will not be able to renew its existing insurance coverage as and when such coverage expires or to obtain similar coverage from similar insurers as may be necessary to continue its business at a cost that would not have a Material Adverse Effect. Upon written request the Company will provide to the Buyer true and correct copies of all policies relating to directors' and officers' liability coverage, errors and omissions coverage, and commercial general li ability coverage.
v. Internal Accounting Controls. The Company and each of its Subsidiaries maintain a system of internal accounting con trolls sufficient, in the judgment of the Company's board of directors , to provide reasonable assurance that (i) transactions are executed in accordance with management's genera l or specific authorizations, (ii) transactions are recorded as necessary to permit preparation of financial statements in conformity with generally accepted accounting principles and to maintain asset accountability, (ii i) access to assets is permitted only in accordance with management's general or specific authorization and (iv) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences.
w. Foreign Corrupt Practices. Neither the Company, nor any of its Subsidiaries, nor any director, officer, agent, employee or other person acting on behalf of the Company or any Subsidiary has, in the course of his actions for, or on behalf of, the Company, used any corporate funds for any unlawful contribution, gift, entertainment or other unlawful expenses relating to political activity; mad e any direct or indirect unlawful payment to any foreign or domestic government official or employee from corporate funds; violated or is in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or made any bribe, rebate, payoff, influence payment, kickback or other unlawful payment to any foreign or domestic government official or employee.
x. Solvency. The Company (after giving effect to the transactions contemplated by this Agreement) is solvent (i.e., its assets have a fair market value in excess of the amount required to pay its probable liabilities on is existing debts as they become absolute and matured) and currently the Company has no information that would lead it to reasonably conclude that the Company would not, after giving effect to the transaction contemplated by this Agreement, have the ability to, nor does it intend to take any action that would impair its ability to, pay its debts from time to time incurred in connection therewith as such debts mature. The Company did not receive a qualified opinion from its auditors with respect to its most recent fiscal year end and, after giving effect to the transactions contemplated by this Agreement, does not anticipate or know of any basis upon which its auditors might issue a qualified opinion in respect of its current fiscal year.
y. No Investment Company. The Company is not, and upon the issuance and sale of the Securities as contemplated by this Agreement will not be an "investment company" required to be registered under the Investment Company Act of 1940 (an "Investment Company"). The Company is not controlled by an Investment Company.
z. Breach of Representations and Warranties by the Company. If the Company breaches any of the representations or warranties set forth in this Section 3, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an Event of default under Section 3.4 of the Note.
6 |
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to satisfy timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with respect to the Securities as required under Regulation D and to provide a copy thereof to the Buyer promptly after such filing. The Company shall, on or before the Closing Date, take such action as the Company shall reasonably determine is necessary to qualify the Securities for sale to the Buyer at the applicable closing pursuant to this Agreement under applicable securities or "blue sky" laws of the states of the United States (or to obtain an exemption from such qualification), and shall provide evidence of any such action so taken to the Buyer on or prior to the Closing Date.
c. Use of Proceeds. The Company shall use the proceeds for general working capital purposes.
d. Right of First Refusal. Unless it shall have first delivered to the Buyer, at least twenty four (24) hours prior to the closing of such Future Offering (as defined herein), written notice describing the proposed Future Offering, including the terms and conditions thereof and proposed definitive documentation to be entered into in connection therewith, and providing the Buyer an option during the twenty four (24) hour period following delivery of such notice to purchase the securities being offered in the Future Offering on the same terms as contemplated by such Future Offering (the limitations referred to in this sentence and the preceding sentence are collectively referred to as the "Right of First Refusal") (and subject to the exceptions described below), the Company will not conduct any equity financing (including debt with an equity component) ("Future Offerings") during the period beginning on the Closing Date and ending twelve (12) months following the Closing Date or upon Payoff or full conversion of the Note. In the event the term s and conditions of a proposed Future Offering are amended in any respect after delivery of the notice to the Buyer concerning the proposed Future Offering, the Company shall deliver a new notice to the Buyer describing the amended terms and conditions of the proposed Future Offering and the Buyer thereafter shall have an option during the twenty four (24) hour period following delivery of such new notice to purchase its pro rata share of the securities being offered on the same terms as contemplated by such proposed Future Offering, as amended. The foregoing sentence shall apply to successive amendments to the terms and conditions of any proposed Future Offering. The Right of First Refusal shall not apply to any transaction involving (i) issuances of securities in a firm commitment underwritten public offering (excluding a continuous offering pursuant to Rule 415 under the 1933 Act) or (ii) issuances of securities as consideration for a merger, consolidation or purchase of assets, or in connection with any strategic partnership or joint venture (the primary purpose of which is not to raise equity capital), or in connection with the disposition or acquisition of a business, product or license by the Company. The Right of First Refusal also shall not apply to the issuance of securities upon exercise or conversion of the Company's options, wa1i-ants or other convertible securities outstanding as of the date hereof or to the grant of additional options or warrants, or the issuance of additional securities, under any Company stock option or restricted stock plan approved by the shareholders of the Company. The Right of First refusal shall be limited to like transaction s (i .e. convertible debentures) that do not exceed
$75,000.00 in the aggregate.
e. Expenses. The Company's obligation with respect to this transaction is to reimburse Buyer' expenses shall be $2,500, which will be deducted from the loan proceeds.
f. Financial Information. Upon written request the Company agrees to send or make available the following reports to the Buyer until the Buyer transfers, assigns, or sells all of the Securities: (i) within ten ( I 0) days after the filing with the SEC, a copy of its Annual Report on Form 10-K its Quarterly Reports on Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day after release, copies of all press releases issued by the Company or any of its Subsidiaries; and (iii) contemporaneously with the making available or giving to the shareholders of the Company, copies of any notices or other information the Company makes available or gives to such shareholders.
g. [INTENTIONALLY DELETED]
h. Listing. The Company shall promptly secure the listing of the Conversion Shares upon each national securities exchange or automated quotation system, if any, upon which shares of Common Stock are then listed (subject to official notice of issuance) and, so long as the Buyer owns any of the Securities, shall maintain, so long as any other shares of Common Stock shall be so listed, such listing of all Conversion Shares from time to time issuable upon conversion of the Note. The Company will obtain and, so long as the Buyer owns any of the Securities, maintain the listing and trading of its Common Stock on the OTCBB or any equivalent replacement exchange, the Nasdaq National Market ("Nasdaq"), the Nasdaq Small Cap Market ("Nasdaq Small Cap"), the New York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX ") and will comply in all respects with the Company 's reporting, filing and other obligations under the bylaws or rules of the Financial Industry Regulatory Authority ("FINRA") and such exchanges, as applicable. The Company shall promptly provide to the Buyer copies of any notices it receives from the OTCBB and any other exchanges or quotation systems on which the Common Stock is then listed regarding the continued eligibility of the Common Stock for listing on such exchanges and quotation system s.
i. Corporate Existence. So long as the Buyer beneficially owns any Note, the Company shall maintain its corporate existence and shall not sell all or substantially all of the Company's assets, except in the event of a merger or consolidation or sale of all or substantially all of the Company's assets, where the surviving or successor entity in such transaction (i) assumes the Company's obligations hereunder and under the agreements and instruments entered into in connection herewith and (ii) is a publicly traded corporation whose Common Stock 1s listed for trading on the OTCBB, Nasdaq, Nasdaq Small Cap, NYSE or AMEX.
7 |
j. No Integration. The Company shall not make any offers or sales of any security (other than the Securities) under circumstances that would require registration of the Securities being offered or sold hereunder under the 1933 Act or cause the offering of the Securities to be integrated with any other offering of securities by the Company for the purpose of any stockholder approval provision applicable to the Company or its securities.
k. Breach of Covenants. If the Company breaches any of the covenants set forth in this Section 4, and in addition to any other remedies available to the Buyer pursuant to this Agreement, it will be considered an event of default under Section 3.4 of the Note.
l. Failure to Comply with the 1934 Act. So long as the Buyer beneficially owns the Note, the Company shall comply with the reporting requirements of the 1934 Act; and the Company shall continue to be subject to the reporting requirements of the 1934 Act.
m. Trading Activities. Neither the Buyer nor its affiliates has an open short position in the common stock of the Company and the Buyer agree that it shall not, and that it will cause its affiliates not to, engage in any short sales of or hedging transactions with respect to the common stock of the Company.
n. Transfer Agent Instructions. The Company shall issue irrevocable instructions to its transfer agent to issue certificates, registered in the name of the Buyer or its nominee, for the Conversion Shares in such amounts as specified from time to time by the Buyer to the Company upon conversion of the Note in accordance with the terms thereof (the "Irrevocable Transfer Agent Instructions"). In the event that the Borrower proposes to replace its transfer agent, the Borrower shall provide, prior to the effective date of such replacement, a fully executed Irrevocable Transfer Agent Instructions in a form as initially delivered pursuant to the Purchase Agreement (including but not limited to the provision to irrevocably reserve shares of Common Stock in the Reserved Amount) signed by the successor transfer agent to Borrower and the Borrower. Prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold, all such certificates shall bear the restrictive legend specified in Section 2(g) of this Agreement. The Company warrants that: (i) no instruction other than the Irrevocable Transfer Agent Instructions referred to in this Section 5, and stop transfer instructions to give effect to Section 2(f) hereof (in the case of the Conversion Shares, prior to registration of the Conversion Shares under the 1933 Act or the date on which the Conversion Shares may be sold pursuant to Rule 144 without any restriction as to the number of Securities as of a particular date that can then be immediately sold), will be given by the Company to its transfer agent and that the Securities shall otherwise be freely transferable on the books and records of the Company as and to the extent provided in this Agreement and the Note; (ii) it will not direct its transfer agent not to transfer or delay, impair, and/or hinder its transfer agent in transferring (or issuing)(electronically or in certificated form) any certificate for Conversion Shares to be issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement; and (iii) it will not fail to remove (or directs its transfer agent not to remove or impairs, delays, and/or hinders its transfer agent from removing) any restrictive legend (or to withdraw any stop transfer instruction s in respect thereof) on any certificate for any Conversion Shares issued to the Buyer upon conversion of or otherwise pursuant to the Note as and when required by the Note and this Agreement. Nothing in this Section shall affect in any way the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply with all applicable prospectus delivery requirements, if any, upon re-sale of the Securities. If the Buyer provides the Company, at the cost of the Buyer, with (i) an opinion of counsel in form, substance and scope customary for opinions in comparable transactions, to the effect that a public sale or transfer of such Securities may be made without registration under the 1933 Act and such sale or transfer is effected or (ii) the Buyer provides reasonable assurances that the Securities can be sold pursuant to Rule 144, the Company shall permit the transfer, and, in the case of the Conversion Shares, promptly instruct its transfer agent to issue one or more certificates, free from restrictive legend, in such name and in such denominations as specified by the Buyer. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer, by vitiating the intent and purpose of the transactions contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Section 5 may be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Section, that the Buyer shall be entitled, in addition to all other available remedies, to an injunction restraining any breach and requiring immediate transfer, without the necessity of showing economic loss and without any bond or other security being required.
6. Conditions to the Company's Obligation to Sell. The obligation of the Company hereunder to issue and sell the Note to the Buyer at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions thereto, provided that these conditions are for the Company's sole benefit and may be waived by the Company at any time in its sole discretion:
a. The Buyer shall have executed this Agreement and delivered the same to the Company.
b. The Buyer shall have delivered the Purchase Price in accordance with Section 1(b) above.
8 |
c. The representations and warranties of the Buyer shall be true and correct in all material respects as of the date when made and as of the Closing Date as though mad e at that time (except for representations and warranties that speak as of a specific date), and the Buyer shall have performed, satisfied and complied in all material respects with the covenants, agreements and condition s required by this Agreement to be performed, satisfied or complied with by the Buyer at or prior to the Closing Date.
d. No litigation , statute, rule, regulation , executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
7. Conditions to The Buyer's Obligation to Purchase. The obligation of the Buyer hereunder to purchase the Note at the Closing is subject to the satisfaction, at or before the Closing Date of each of the following conditions, provided that these conditions are for the Buyer's sole benefit and may be waived by the Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to the Buyer the duly executed Note (in such denominations as the Buyer shall request) in accordance with Section 1(b) above.
c. The Irrevocable Transfer Agent Instructions, in form and substance satisfactory to a majority-in-interest of the Buyer, shall have been delivered to and acknowledged in writing by the Company's Transfer Agent.
d. The representations and warranties of the Company shall be true and correct in all material respects as of the date when made and as of the Closing Date as though made at such time (except for representations and warranties that speak as of a specific date) and the Company shall have performed, satisfied and complied in all material respects with the covenants, agreements and conditions required by this Agreement to be performed , satisfied or complied with by the Company at or prior to the Closing Date. The Buyer shall have received a certificate or certificates, executed by the chief executive officer of the Company, dated as of the Closing Date, to the foregoing effect and as to such other matters as may be reasonably requested by the Buyer including, but not limited to certificates with respect to the Company's Certificate of Incorporation, By-laws and Board of Directors' resolutions relating to the transactions contemplated hereby.
e. No litigation, statute, rule, regulation , executive order, decree, ruling or injunction shall have been enacted, entered, promulgated or endorsed by or in any court or governmental authority of competent jurisdiction or any self-regulatory organization having authority over the matters contemplated hereby which prohibits the consummation of any of the transactions contemplated by this Agreement.
f. No event shall have occurred which could reasonably be expected to have a Material Adverse Effect on the Company including but not limited to a change in the 1934 Act reporting status of the Company or the failure of the Company to be timely in its 1934 Act reporting obligations.
g. The Conversion Shares shall have been authorized for quotation on the OTCBB and trading in the Common Stock on the OTCBB shall not have been suspended by the SEC or the OTCBB.
h. The Buyer shall have received an officer's certificate described in Section 3(c) above, dated as of the Closing Date.
8. Governing Law; Miscellaneous.
a. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of New York without regard to principles of conflicts of laws. Any action brought by either party against the other concerning the transactions contemplated by this Agreement shall be brought only in the state courts of New York or in the federal courts located in the state and county of Nassau. The parties to this Agreement hereby irrevocably waive any objection to jurisdiction and venue of any action instituted hereunder and shall not assert any defense based on lack of jurisdiction or venue or based upon forum non conveniens. The Company and Buyer waive trial by jury. The prevailing party shall be entitled to recover from the other party its reasonable attorney's fees and costs. In the event that any provision of this Agreement or any other agreement delivered in connection herewith is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any such provision which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision of any agreement. Each pa1ty hereby irrevocably waives personal service of process and consents to process being served in any suit, action or proceeding in connection with this Agreement or any other Transaction Document by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
9 |
b. Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original but all of which shall constitute one and the same agreement and shall become effective when counterparts have been signed by each party and delivered to the other party.
c. Headings. The headings of this Agreement are for convenience of reference only and shall not form part of, or affect the interpretation of, this Agreement.
d. Severability. In the event that any provision of this Agreement is invalid or unenforceable under any applicable statute or rule of law, then such provision shall be deemed inoperative to the extent that it may conflict therewith and shall be deemed modified to conform with such statute or rule of law. Any provision hereof which may prove invalid or unenforceable under any law shall not affect the validity or enforceability of any other provision hereof.
e. Entire Agreement; Amendments. This Agreement and the instruments referenced herein contain the entire understanding of the parties with respect to the matters covered herein and therein and, except as specifically set forth herein or therein, neither the Company nor the Buyer makes any representation, warranty, covenant or undertaking with respect to such matters. No provision of this Agreement may be waived or amended other than by an instrument in writing signed by the majority in interest of the Buyer.
f. Notices. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder shall be in writing and, unless otherwise specified herein , shall be (i) personally served, (ii) deposited in the mail, registered or certified, return receipt requested , postage prepaid , (iii) delivered by reputable air courier service with charges prepaid , or (iv) transmitted by hand delivery, telegram , or facsimile, addressed as set forth below or to such other address as such party shall have specified most recently by written notice . Any notice or other communication required or permitted to be given hereunder shall be deemed effective (a) upon hand delivery or delivery by facsimile, with accurate confirmation generated by the transmitting facsimile machine, at the address or number designated below (if delivered on a business day during normal business hours where such notice i s to be received), or the first business day following such delivery (if delivered other than on a business day during normal business hours where such notice is to be received) or (b) on the second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
If to the Company, to: |
IDS INDUSTRIES , INC. (f/k/a/ IDS Solar Technologies, Inc.) |
533 Birch Street |
Lake Elsinore, CA 92530 |
Attn: BRUCE R. K.NOBLICH, Chief Executive Officer |
facsimile: [enter fax number] |
With a copy by fax only to (which copy shall not constitute notice): |
[enter name of law firm] -- Attn: [attorney name] |
[enter address line 1] |
[enter city, state, zip] |
facsimile: [enter fax number] |
If to the Buyer: |
ASHER ENTERPRISES, INC. |
1 Linden Pl., Suite 207 |
Great Neck, NY. 11021 |
Attn: Curt Kramer, President |
facsimile: 516-498-9894 |
With a copy by fax only to (which copy shall not constitute notice): |
Naidich Wurman Birnbaum & Maday LLP |
80 Cuttermill Road , Suite 410 |
Great Neck , NY 11021 |
facsimile: 516-466-3555 |
Each party shall provide notice to the other party of any change in address.
10 |
g. Successors and Assigns. This Agreement shall be binding upon and inure to the benefit of the pa11ies and their successors and assigns. Neither the Company nor the Buyer shall assign this Agreement or any rights or obligations hereunder without the prior written consent of the other. Notwithstanding the foregoing, subject to Section 2(f), the Buyer may assign its rights hereunder to any person that purchases Securities in a private transaction from the Buyer or to any of its "affiliates," as that term is defined under the 1934 Act, without the consent of the Company.
h ..Third Party Beneficiaries. This Agreement is intended for the benefit of the parties hereto and their respective permitted successors and assigns, and is not for the benefit of, nor may any provision hereof be enforced by, any other person.
i. Survival. The representations and warranties of the Company and the agreements and covenants set forth in this Agreement shall survive the closing hereunder notwithstanding any due diligence investigation conducted by or on behalf of the Buyer. The Company agrees to indemnify and hold harmless the Buyer and all their officers, directors, employee s and agents for loss or dam age arising as a result of or related to any breach or alleged breach by the Company of any of its representation s, wa1i-anties and covenants set forth in this Agreement or any of its covenants and obligations under this Agreement, including advancement of expenses as they are incurred.
j. Publicity. The Company, and the Buyer shall have the right to review a reasonable period of time before issuance of any press releases, SEC, OTCBB or FINRA filings, or any other public statements with respect to the transactions contemplated hereby; provided, however, that the Company shall be entitled, without the prior approval of the Buyer, to make any press release or SEC, OTCBB (or other applicable trading market) or FINRA filings with respect to such transactions as is required by applicable law and regulations (although the Buyer shall be consulted by the Company in connection with any such press release prior to its release and shall be provided with a copy thereof and be given an opportunity to comment thereon).
k. Further Assurances. Each party shall do and perform, or cause to be done and performed, all such further acts and things, and shall execute and deliver all such other agreements, certificates, instruments and document s, as the other party may reasonably request in order to carry out the intent and accomplish the purposes of this Agreement and the consummation of the transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement will be deemed to be the language chosen by the parties to express their mutual intent, and no rules of strict construction will be applied against any party.
m. Remedies. The Company acknowledges that a breach by it of its obligations hereunder will cause irreparable harm to the Buyer by vitiating the intent and purpose of the transaction contemplated hereby. Accordingly, the Company acknowledges that the remedy at law for a breach of its obligations under this Agreement will be inadequate and agrees, in the event of a breach or threatened breach by the Company of the provisions of this Agreement , that the Buyer shall be entitled , in addition to all other available remedies at law or in equity, and in addition to the penalties assessable herein, to an injunction or injunctions restraining, preventing or curing any breach of this Agreement and to enforce specifically the terms and provisions hereof, without the necessity of showing economic loss and without any bond or other security being required.
IN WITNESS WHEREOF, the undersigned Buyer and the Company have caused this Agreement to be duly executed as of the date first above written.
IDS.INDUSTRIES, Inc. (f/k/a/ IDS Solar Technologies, Inc.) | |
By: /s/ Bruce Knoblich | |
BRUCE R. KNOBLICH | |
Chief Executive Officer | |
ASHER ENTERPRISES, INC | |
By: /s/ Curt Kramer | |
Name: Curt Kramer | |
Title: President | |
1 Linden Pl., Suite 207 | |
Great Neck, NY. 11021 | |
AGGREGATE SUBSCRIPTION AMOUNT: | |
Aggregate Principal Amount of Note: | $32,500.00 |
Aggregate Purchase Price : | $32,500.00 |
11 |
NEITHER THIS NOTE NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE HAVE BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”) OR ANY STATE SECURITIES LAWS AND NEITHER THIS NOTE NOR ANY INTEREST THEREIN NOR THE SECURITIES INTO WHICH THIS NOTE IS CONVERTIBLE MAY BE OFFERED, SOLD, TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND SUCH LAWS OR AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND SUCH LAWS.
Installing Dealer Supply, Inc.
Promissory Note
August 15, 2013
$77,307.00
FOR VALUE RECEIVED, the undersigned, Installing Dealer Supply, Inc. (Maker), promises to pay to the order of IDS Solar Technologies, Inc. (Note Holder) or the successors and assigns, the principal sum of Seventy Seven Thousand Three Hundred Seven and no/100 Dollars ($77,307.00) (Principal) subject to the terms and conditions set forth herein.
Principal payment shall be made to:
IDS Solar Technologies, Inc.
533 Birch Street
Lake Elsinore, CA 92530
The consideration for this loan shall be simple annual interest rate of 8% charged and paid monthly.
The principal shall be due and payable in full in one payment, without offset or deduction, in lawful money of the United States, by Ninety (90) days from final funding of loan (maturity date).
Maker will reimburse legal expenses to Note Holder for any costs and expenses incurred in enforcing this Note to the extent allowable by applicable law. Those expenses include, but are not limited to, reasonable attorney’s fees.
Installing Dealer Supply, Inc. and any other entity that has obligations under this Note waive the rights of Presentment and Notice of Dishonor. "Presentment" means the right to require the Note Holder to demand payment of amounts due. "Notice of Dishonor" means the right to require the Note Holder to give notice to other persons that amounts due have not been paid.
The Maker represents and warrants to Holder:
Organization and Qualification. The Maker and each of its Subsidiaries (as defined below), if any, is a corporation duly organized, validly existing and in good standing under the laws of the jurisdiction in which it is incorporated, with full power and authority (corporate and other) to own, lease, use and operate its properties and to carry on its business as and where now owned, leased, used, operated and conducted. The Maker and each of its Subsidiaries is duly qualified as a foreign corporation to do business and is in good standing in every jurisdiction in which its ownership or use of property or the nature of the business conducted by it makes such qualification necessary except where the failure to be so qualified or in good standing would not have a Material Adverse Effect. “Material Adverse Effect” means any material adverse effect on the business, operations, assets, financial condition or prospects of the Maker or its Subsidiaries, if any, taken as a whole, or on the transactions contemplated hereby or by the agreements or instruments to be entered into in connection herewith. “Subsidiaries” means any corporation or other organization, whether incorporated or unincorporated, in which the Maker owns, directly or indirectly, any equity or other ownership interest.
Authorization; Enforcement. (i) The Maker has all requisite corporate power and authority to enter into and perform this Note and to consummate the transactions contemplated hereby and thereby and to agree to all fees charged, in accordance with the terms hereof, (ii) the execution and delivery of this Note by the Maker and the consummation by it of the transactions contemplated hereby and thereby have been duly authorized by the Maker’s Board of Directors and no further consent or authorization of the Maker, its Board of Directors, or its shareholders is required, (iii) this Note has been duly executed and delivered by the Maker by its authorized representative, and such authorized representative is the true and official representative with authority to sign this Note and the other documents executed in connection herewith and bind the Maker accordingly, and (iv) this Note constitutes, a legal, valid and binding obligation of the Maker enforceable against the Maker in accordance with its terms.
No Conflicts. The execution, delivery and performance the Note by the Maker and the consummation by the Maker of the transactions contemplated hereby will not (i) conflict with or result in a violation of any provision of the Articles of Incorporation or By-laws of the Maker, or (ii) violate or conflict with, or result in a breach of any provision of, or constitute a default (or an event which with notice or lapse of time or both could become a default) under, or give to others any rights of termination, amendment, acceleration or cancellation of, any agreement, indenture, patent, patent license or instrument to which the Maker or any of its Subsidiaries is a party, or (iii) result in a violation of any law, rule, regulation, order, judgment or decree (including federal and state securities laws and regulations and regulations of any self-regulatory organizations to which the Maker or its securities are subject) applicable to the Maker or any of its Subsidiaries or by which any property or asset of the Maker or any of its Subsidiaries is bound or affected (except for such conflicts, defaults, terminations, amendments, accelerations, cancellations and violations as would not, individually or in the aggregate, have a Material Adverse Effect).
2 |
No Integrated Offering. Neither the Maker, nor any of its affiliates, nor any person acting on its or their behalf, has directly or indirectly made any offers or sales in any security or solicited any offers to buy any security under circumstances that would require registration under the 1933 Act of the issuance of this note or the Conversion Stock to the Holder.
No Investment Company. The Company is not an “investment company” required to be registered under the Investment Company Act of 1940 (an “Investment Company”). The Maker is not controlled by an Investment Company.
This Note is a uniform instrument with limited variations in some jurisdictions.
Notices. Any notice herein required or permitted to be given shall be in writing and may be personally served or delivered by courier or sent by United States mail and shall be deemed to have been given upon receipt if personally served (which shall include telephone line facsimile transmission) or sent by courier or three (3) days after being deposited in the United States mail, certified, with postage pre-paid and properly addressed, if sent by mail. For the purposes hereof, the address of the Note Holder shall be 533 Birch Street, Lake Elsinore, CA 92530; and the address of the Maker shall be 533 Birch Street, Lake Elsinore, CA 92530. Both the Holder or its assigns and the Maker may change the address for service by delivery of written notice to the other as herein provided.
Amendment. This Note and any provision hereof may be amended only by an instrument in writing signed by the Maker and the Note Holder.
Assignability. This Note shall be binding upon the Maker and its successors and assigns and shall inure to be the benefit of the Holder and its successors and assigns; provided, however, that so long as no Event of Default has occurred, this Note shall only be transferable in whole subject to the restrictions contained in the restrictive legend on the first page of this Note.
Governing Law. This Note shall be governed by the internal laws of the State of California, without regard to conflicts of laws principles.
Replacement of Note. The Maker covenants that upon receipt by the Maker of evidence reasonably satisfactory to it of the loss, theft, destruction or mutilation of this Note, and in case of loss, theft or destruction, of indemnity or security reasonably satisfactory to it (which shall not include the posting of any bond), and upon surrender and cancellation of such Note, if mutilated, the Maker will make and deliver a new Note of like tenor.
3 |
Severability. In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired thereby.
Headings. The headings of the sections of this Note are inserted for convenience only and do not affect the meaning of such section.
Counterparts. This Note may be executed in multiple counterparts, each of which shall be an original, but all of which shall be deemed to constitute on instrument.
IN WITNESS WHEREOF, with the intent to be legally bound hereby, the Maker as executed this Note as of the date first written above.
MAKER:
/s/ Scott Plantinga
Scott Plantinga, President and CEO Date: August 15, 2013
Installing Dealer Supply, Inc.
NOTE HOLDER:
/s/ Bruce R. Knoblich
Bruce R. Knoblich, President and CEO Date: August 15, 2013
IDS Solar Technologies, Inc.
4 |
Executive Employment Agreement
This Executive Employment Agreement (the “Agreement”) is made as of 9/1/13 between IDS Industries, Inc. with its principal place of business located at Nevada (the "Company") and S. Scott Plantinga, located in Huntington Beach, CA (the "Executive").
1. Terms of Employment
(a) Position. Company hereby employs the Executive as Chief Executive Officer, and the Executive accepts such employment with Company subject to the terms and conditions of this Agreement.
(b) Duties. Executive shall have such duties and responsibilities as may be assigned by the Board of Directors not inconsistent with the position.
(c) Dedication. Executive shall devote his full business time and best efforts to the business and affairs of the Company.
(d) Performance. Executive shall faithfully and diligently perform Executive’s duties in conformity with the directions of the Company and serve the Company to the best of Executive’s abilities.
(e) Permitted Activities. Executive may:
(i) Serve on industry, trade, civic or charitable boards or committees;
(ii) Engage in charitable activities and community affairs; and
(iii) Manage personal investments, as long as such activities do not materially interfere with the performance of Executive's duties and responsibilities.
Compensation
(a) Base Salary
(i) Salary. Executive shall receive a base salary in the amount of $121,000 as a "Base Salary". Contract date recognized as 8/31/13 so therefore would be corrected through a retro-active adjustment based on this initiation date.
(ii) Payment. The Base Salary shall be payable in accordance with the customary payroll practices of the Company.
(iii) Adjustments. The Base Salary may be increased from time to time during the term of this Agreement in the sole discretion of the Company Board of Directors.
(b) Signing Bonus. Upon execution of this Agreement, Company shall pay to Executive an initial signing bonus of $25,000.
(c) Annual Bonus. For each fiscal year during the term of employment, the Executive shall be eligible to receive a bonus in a range of 15 – 200% based on performance, and as may be determined from time to time by the Board in its discretion.
(d) Incentive Compensation. During the term of employment, the Executive shall be eligible to participate in any equity-based incentive compensation plan or program adopted by the Company.
(i) Stock Based Compensation. Shall include 6,500,000 shares of IDS Industries f/k/a IDS Solar Technologies (IDST) granted to the Executive immediately upon initiation of this Agreement.
(ii) ESOP. When the Board creates this program Executive program shall include execution back dated to March of 2013
(iii) Roth IRA. Shall be funded by IDS Industries with Executive to be the beneficiary name each year of this contract. It will receive maximum allowable contribution to a Roth IRA as defined by Federal laws.
(iv) at the one year anniversary of this 2 year contract the Executive will have the option to an additional 500,000 shares
3. Expenses
(a) Reimbursement. Company shall pay all reasonable travel, dining and other ordinary, necessary and reasonable business expenses incurred by the Executive in the performance of his duties under this Agreement, subject to budget and/or other limitations or conditions imposed by the Executive Committee and/or the Board.
(b) Substantiation. The Executive shall, as a condition of any such payment or reimbursement, submit verification, substantiation and documentation of the nature and amount of such expenses in accordance with the policies of Company from time to time.
4. Holiday & Vacation.
(a) Entitlement. The Executive shall be entitled to 4 weeks (20 business days) of vacation leave each year during the term of this Agreement without any deduction in his compensation, and at such times within each year as the Executive may determine, taking into account Company's schedule and the Executive's duties relative thereto, such vacation leave which a maximum of 2 weeks of vacation shall be carried over at the end of each year if not fully utilized in that year.
(b) Vacation Benefits upon Termination. Upon the termination or expiration of the Executive's employment by Company under this Agreement, the Executive shall be entitled to compensation for any unutilized vacation leave.
(c) Paid Holidays. The Executive shall be entitled to 11 (eleven) recognized Company Holidays annually that will be paid at throughout the duration of employment agreement.
5. Benefits.
(a) Term Life Insurance. In addition to any term life insurance provided to other Executives of Company, Company shall purchase a term life insurance policy in the amount of $1,000,000 for personal life on the life of the Executive, commencing on 12/1/13. Executive would identify beneficiaries and the policy shall remain in effect for the duration of Executive's employment with Company under this Agreement. The obligation of Company to purchase such policy shall be conditioned on Executive's successful completion of any required medical examination(s) such that the policy can be bought at standard rates. The Executive shall, in his sole discretion, name the beneficiaries of the policy.
2 |
(b) Key Man Life Insurance. A matching term life insurance policy for IDS Industries as the beneficiary in the amount of $1,000,000 for personal life on the life of the Executive, commencing on 12/1/13. The policy shall remain in effect for the duration of Executive's employment with Company under this Agreement. The obligation of Company to purchase such policy shall be conditioned on Executive's successful completion of any required medical examination(s) such that the policy can be bought at standard rates. The Executive shall, in his sole discretion, name the beneficiaries of the policy
(c) Pension. As part of the compensation for services rendered under this Agreement, Executive shall be entitled to participate in the Company's pension, profit sharing, and 401K plans if such plans are established by Company.
(c) Automobile. The Company shall make available to Executive a car through a lease agreement not to exceed $450/month for professional (and private) use.
(d) Membership. Company shall pay for the Executive's expenses of membership, receipt of publications, and other participation in the relevant programs and activities of the Cabana Club of Huntington Beach.
6. Representations and Warranties. The Company and the Executive respectively represents and warrants to each other that each respectively is fully authorized and empowered to enter into the Agreement and that their entering into the Agreement and to each parties' knowledge the performance of their respective obligations under the Agreement will not violate any agreement between the Company or the Executive respectively and any other person, firm or organization or any law or governmental regulation.
7. Confidential Information
(a) Obligation. The Executive agrees to maintain the strict confidentiality of all Confidential Information during the term of this Agreement and thereafter.
(b) Scope. For purposes of this Agreement, "Confidential Information" shall mean all information and materials of Company, and all information and materials received by Company from third parties (including but not limited to affiliates, subsidiaries, chapters, and members of Company), which are not generally publicly available and all other information and materials which are of a proprietary or confidential nature, even if they are not marked as such.
(c) Survival. This provision shall survive the termination of this Agreement indefinitely.
8. Intellectual Property
(a) Ownership. Executive agrees that all copyrights, trademarks, patents, and other intellectual property rights to works or marks arising in from or in connection with the Executive's employment by Company are "work made for hire" within the definition of Section 101 of the Copyright Act (17 U.S.C. 101) and shall remain the sole and exclusive property of Company.
(c) Assignment of Interest. To the extent any work product is not deemed to be a work made for hire within the definition of the Copyright Act, Executive with effect from creation of any and all work product, hereby assigns, and agrees to assign, to Company all right, title and interest in and to such work product, including but not limited to copyright, all rights subsumed thereunder, and all other intellectual property rights, including all extensions and renewals thereof.
3 |
(d) Moral Rights. Executive also agrees to waive any and all moral rights relating to the work product, including but not limited to, any and all rights of identification of authorship and any and all rights of approval, restriction or limitation on use, and subsequent modifications.
(e) Assistance. Executive further agrees to provide all assistance reasonably requested by Company, both during and subsequent to the Term of this Agreement, in the establishment, preservation and enforcement of Company's rights in the work product.
(f) Return of Property. Upon the termination of this Agreement, Executive agrees to deliver promptly to Company all printed, electronic, audio-visual, and other tangible manifestations of work product, including all originals and copies thereof.
9. Non-Competition
(a) Restrictions. During the term of this Agreement and for a period of 2 Years of direct competition immediately following the termination of this Agreement, Executive shall not, directly or indirectly, without the prior written consent Company, own, manage, operate, join, control, finance or participate in the ownership, management, operation, control or financing of, or be connected as an officer, director, employee, partner, principal, agent, representative, or consultant of any Entity engaged in the Restricted Business of Solar Generators.
(b) Exceptions. Executive shall not be deemed to be in contravention of the foregoing if Employee participates as a passive investor holding up to 1% of the equity securities of an Entity engaged in the Restricted Business, which securities are publicly traded.
10. Non-Solicitation.
During the term of this Agreement and for a one year period after any termination of this Agreement, Executive will not, without the prior written consent of the Company, either directly or indirectly, on Executive 's own behalf or in the service or on behalf of others, solicit or attempt to solicit, divert or hire away any person employed by the Company.
11. Non-Disparagement.
(a) Executive Obligation. Executive will not at any time, during or after the Term, disparage, defame or denigrate the reputation, character, image, products or services of the Company, or of any of its Affiliates, or, any of its or its Affiliate s directors, officers, stockholders, members, employees or agents.
(b) Company Obligation. The Company will not, except as may be required by law, issue any official press release or statement which is intended to disparage Executive.
12. Acknowledgement.
Executive expressly acknowledges that the covenants of this Agreement are supported by good and adequate consideration, and that such covenants are reasonable and necessary in terms of duration, scope and geographic area to protect the legitimate business interests of Company.
4 |
13. Term of Employment
(a) Initial Term. The term of the Executive's employment under this Agreement shall commence on the Effective Date and continue until 8/31/15 (the "Term"), unless his employment is sooner terminated pursuant to the provisions of the Termination of Employment section.
(b) Automatic Renewal. Commencing on 9/1/15 and on each anniversary of that date thereafter, the Term shall be extended for an additional one year period.
(c) Notice Not to Renew. Either party may give notice of the intention not to extend the Term in writing at least 120 days prior to each such anniversary date.
14. Termination of Employment
(a) Termination Upon Death. This Agreement shall terminate automatically upon the death of the Executive.
(b) Automatic Termination Upon Disability. This Agreement shall terminate automatically upon Total Disability of the Executive.
Total Disability. Total Disability means the Executive is unable to perform the duties set forth in this Agreement for a period of twelve consecutive weeks, or 90 cumulative business days in any 12-month period, as a result of physical or mental illness or loss of legal capacity.
(c) Termination Upon Retirement. The Executive may voluntarily terminate this Agreement at any time by reason of Retirement.
Retirement. Retirement is the cessation by Executive of all full-time employment of any kind.
(d) Termination by the Company For Cause. The Company shall have the right to terminate Executive's employment under this Agreement at any time for Cause, which termination shall be effective immediately. Termination for "Cause" shall include termination for:
(i) material breach of this Agreement by Executive;
(ii) intentional nonperformance or misperformance of such duties, or refusal to abide by or comply with the reasonable directives of his superior officers, or the Corporation's policies and procedures;
(iii) Executive's gross negligence in the performance of his material duties under this Agreement;
(iv) Executive's willful dishonesty, fraud or misconduct with respect to the business or affairs of the Corporation, that in the reasonable judgment of the President and/or the Board of Directors materially and adversely affects the Corporation;
(v) Executive's conviction of, or a plea of nolo contendere to, a Class I or II felony or other crime involving;
5 |
(vi) the commission of any act in direct or indirect competition with or materially detrimental to the best interests of Corporation that is in breach of Executive s fiduciary duties of care, loyalty and good faith to Corporation.
Cause will not, however, include any actions or circumstances constituting Cause under (i) or (ii) above if Executive cures such actions or circumstances within 30 days of receipt of written notice from Corporation setting forth the actions or circumstances constituting Cause. In the event Executive's employment under this Agreement is terminated for Cause, Executive shall thereafter have no right to receive compensation or other benefits under this Agreement. Exception to be expenses and any earned income up to that point in time.
(e) Termination by the Company Without Cause. The Company may upon a majority vote of the Board of Directors, terminate the Executive's employment under this Agreement without Cause at any time upon 120 days prior written notice to the Executive. Executive shall be entitled to Severance Benefits as stated in the Termination Benefits section.
(f) Termination Upon a Change in Control. If the Executive's employment is terminated by the Company without Cause or by the Executive for Good Reason in connection with or within two years after Change in Control, the Executive shall be entitled to Severance Benefits as stated in the Termination Benefits section.
(g) Change in Control. For purposes of this Agreement, unless the Board determines otherwise, a Change of Control of the Company shall be deemed to have occurred at such time as:
(i) any person (as the term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act)) is or becomes the beneficial owner (as defined in Rule 13d-3 under the Exchange Act), directly or indirectly, of voting securities of the Company representing more than 50% of the Company s outstanding voting securities or rights to acquire such securities except for any voting securities issued or purchased under any employee benefit plan of the Company or its subsidiaries; or
(ii) any sale, lease, exchange or other transfer (in one transaction or a series of transactions) of all or substantially all of the assets of the Company; or
(iii) a plan of liquidation of the Company or an agreement for the sale or liquidation of the Company is approved and completed; or
(iv) the Board determines in its sole discretion that a Change in Control has occurred, whether or not any event described above has occurred or is contemplated.
(h) Termination by the Executive for Good Reason. The Executive may terminate his employment under this Agreement for Good Reason, in which case the Executive shall be entitled to Severance Benefits as stated in the Termination Benefits section. For purposes of this Agreement, "Good Reason" shall mean the occurrence of any of the following events without the Executive's written consent:
(i) a material diminution of the Executive's title, authority, status, duties or responsibilities;
6 |
(ii) any reduction in the Executive's Base Salary;
(iii) a material breach by the Company of this Agreement; or
(iv) the Company requires Executive to locate his office to a location more than fifty miles outside of the metropolitan area of the Executive's home city.
(i) Termination by the Executive Without Good Reason. The Executive may terminate his employment under this Agreement at any time for any reason or no reason by giving the Company 30 days prior written notice of the termination. Following any such notice, the Company may reduce or remove any and all of Executive s duties, positions and titles with the Company, and any such reduction or removal shall not constitute Good Reason.
(j) Notice Requirements. Any Termination by the Company for Cause, or by Executive for Good Reason, shall be communicated by Notice of Termination to the other party hereto given in accordance with the Notice section of this Agreement. For purposes of this Agreement, a "Notice of Termination" means a written notice which:
(i) indicates the specific termination provision in this Agreement relied upon,
(ii) to the extent applicable, sets forth in reasonable detail the facts and circumstances claimed to provide a basis for termination of Executive's employment under the provision so indicated and
(iii) if the Date of Termination (as defined below) is other than the date of receipt of such notice, specifies the termination date.
The failure by Executive or the Company to set forth in the Notice of Termination any fact or circumstance which contributes to a showing of Good Reason or Cause shall not waive any right of Executive or the Company, respectively, hereunder or preclude Executive or the Company, respectively, from asserting such fact or circumstance in enforcing Executive's or the Company's rights hereunder.
(k) Date of Termination. "Date of Termination" means:
(i) if the Executive's employment is Terminated by the Company for Cause, or by the Executive for Good Reason, the date of receipt of the Notice of Termination or any later date specified therein, as the case may be,
(ii) if the Executive's employment is terminated by the Company other than for Cause or Disability, the Date of Termination shall be the date on which the Company notifies the Executive of such termination and
(iii) if the Executive's employment is terminated by reason of death, Retirement or Disability, the Date of Termination shall be the date of death or Retirement of the Executive or the Disability Effective Date, as the case may be.
(l) Release. Notwithstanding anything in the Severance Benefits section to the contrary, in no event shall the Executive be entitled to receive any amounts, rights or benefits under the Severance Benefits section unless the Executive executes a release of claims against the Company.
7 |
15. Compensation Upon Termination
(a) Accrued Obligations. "Accrued Obligations" shall mean, as of the Date of Termination, the sum of:
(i) the Executive's base salary under this Agreement through the Date of Termination to the extent not theretofore paid,
(ii) the amount of any deferred compensation and other cash compensation accrued by the Executive as of the Date of Termination to the extent not theretofore paid,
(iii) any vacation pay, expense reimbursements and other cash entitlements accrued by the Executive as of the Date of Termination to the extent not theretofore paid,
(iv) any grants and awards vested or accrued under any equity-based incentive compensation plan or program and
(v) all other benefits which have accrued as of the Date of Termination. For the purpose of this definition, except as provided in the applicable plan, program or policy, amounts shall be deemed to accrue ratably over the period during which they are earned, but no discretionary compensation shall be deemed earned or accrued until it is specifically approved by the Board in accordance with the applicable plan, program or policy.
With respect to the provision of Other Benefits, the term Other Benefits as utilized in this Section shall include, without limitation, and Executive shall be entitled after the Disability Effective Date to receive.
(b) Severance Benefits. "Severance Benefits" shall mean, as of the Date of Termination, an amount equal to the sum of (i) the Executive's then-current annual base salary, plus (ii) the average of the sum of the highest bonus amounts earned by the Executive during the Employment Period.
(c) Additional Compensation. (removed)
(d) Cause; Without Good Reason. If the Executive's employment is terminated By the Company For Cause or By the Executive Without Good Reason during the Employment Period, the Company shall provide to the Executive the Accrued Obligations, and shall have no other severance obligations under this agreement. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination.
(e) Without Cause; With Good Reason. If the Executive's employment is terminated By the Company Without Cause or By the Executive With Good Reason during the Employment Period, the Company shall provide to the Executive the Accrued Obligations and the Severance Benefits as described above. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of the Date of Termination and all Severance Benefits shall be payable in substantially equal monthly installments for a period of 12 months (the "Severance Period") in accordance with the Company's regular payroll practices.
(f) Death, Disability or Retirement. If Executive s employment is terminated by reason of Executive’s death, Disability or Retirement, the Company shall pay to the Executive (or the Executive’s estate or beneficiaries) the Accrued Obligations. In such case, all Accrued Obligations shall be paid to the Executive in a lump sum in cash within 30 days of Executive’s death, Disability or Retirement.
8 |
(g) Nature of Payments. Any amounts due under this Section are in the nature of severance payments considered to be reasonable by the Company and are not in the nature of a penalty.
16. Indemnification. The Company shall indemnify the Executive, to the maximum extent permitted by applicable law and by its certificate of incorporation, against all costs, charges and expenses incurred or sustained by the Executive in connection with any action, suit or proceeding to which he may be made a party by reason of being an officer, director or employee of the Company or of any subsidiary or affiliate of the Company or any other corporation for which the Executive serves in good faith as an officer, director, or employee at the Company's request.
17. General Provisions
(a) Entire Agreement. This Agreement constitutes the entire agreement between the parties, and supersedes all prior
agreements, representations and understandings of the parties, written or oral.
(b) Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of which, taken together, shall constitute one and the same agreement.
(c) Amendment. This Agreement may be amended only by written agreement of the parties.
(d) Notices. All notices permitted or required under this Agreement shall be in writing and shall be delivered in person or mailed by first class, registered or certified mail, postage prepaid, to the address of the party specified in this Agreement or such other address as either party may specify in writing. Such notice shall be deemed to have been given upon receipt.
(e) Assignment. This Agreement shall not be assigned by either party without the consent of the other party.
(f) Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of California, without regard to its conflict of laws rules.
(g) No Waiver of Rights. A failure or delay in exercising any right, power or privilege in respect of this Agreement will not be presumed to operate as a waiver, and a single or partial exercise of any right, power or privilege will not be presumed to preclude any subsequent or further exercise, of that right, power or privilege or the exercise of any other right, power or privilege.
IDS Industries, Inc.
By: /s/ Scott Plantinga
Print name: Scott Plantinga
Title:Chief Executive Officer
/s/ Scott Plantinga
Scott
Plantinga
9 |
SUBSEQUENT EVENTS
|
12 Months Ended |
---|---|
Aug. 31, 2013
|
|
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS |
Subsequent to August 31, 2013, the Company executed a convertible promissory note for $10,000. The note bears interest at 10% per annum and is due within one year.
In accordance with ASC 855-10, the Company has analyzed its operations subsequent August 31, 2013 through the date these financial statements were issued and has determined that it does not have any material subsequent events to disclose in these financial statements other than the events described above. |
D2O3^NO[^5-6E6>0>"N.1?NC
M$U65,EN%^U-5IV]'Z/=W8J;9H-U]&,F715973;5K)R"GL8:.^[S4EAHHO;YL
M"^@!#;M2Y[NU^H6L$F*IVNM+%Z!_B_RCN7FO-(?JPZ^+;5*< U[?="S`M0.B;(ZYI*Y%
M%\I(^I^`+.Y4)6)_BT!-?8M8=L^UO?[@&97@6P6^*Y7.+E@0.;$0I_;Z\TY8
M[DT'?MS<"#KK&"*\9;9F(0LGHX)<->@`""#-0]Y/UI#;N.5)1+7*W.\2!\'F
M*B]<9JQ#G"$G%(KM8^)X]LCX@`J)OIG7-B,1TS;A2,A,(/!9&9*(MS8AB\S;
MB"2R:!.RR+*-2"*K-N%X;C,HZP>,)+-I(Q*Q;1..YS<-[1XPDLR^C=P)`^JE
M*AKHJT;1/&[J6VUPFM<&[TQ>+*_RP%0>F(D!\.>>92=H+NBM`S-_P+AF4V?1
M@5FV&<=SFCJK#LRZ`[-YQ'A-6]L.S*X#LW_$]"M;C9S#]O5$SCD]UD&^2J#C
M#2IA40:"\ @<>%=C_K7%FO%NBT&)8
MQG-F[G:>#S?FQ:$.9\I+N'XB"N;IQNRJLV.R(+Q30K"V45DP>NA]
MY5_A9O9F]]UX`-\,J:#FN\Y]U_LO()O6X6E/,9#/M:B>;\$*+"C2)/EH0^@.
M#>"5*.D[`PO"G\;[7E:N+>EDEDPOTTF&<+(!Z^ZDIZ1$[*S3ZG<`9=Y4),D/
M)'@_D&2SI,BGEU=GL+#@:`QXRQU?+8W>$VP:U+0#]RV8+9#YF"SXB%G_%17M
M>9(;SU)2['9,8?%X'E=%,5^R1ZRI.`8/7B,DB@J&;:`EMG%IZO\A'90_V
MRKY2WLHZO#B5R=^7F;R6\&FZ./',AV:"_^U=,PE&EWS;PTX3`P1#Z`->,
MR?V%.E3??NPL_@,``/__`P!02P,$%``&``@````A`,[&S\F(.@``",4``!0`
M``!X;"]S:&%R9613=')I;F=S+GAM;.R=VVY;V9GG[P>8=]@P7&,9H&21E&0K
M5:D&K4-%B2UI+#F9PF`N*'%+8A=%,CQ85J[R#M,W`\P`_19SGWF3/,G\_M^W
MUCY3DBM5U0D0=%>WS+WV.GSGT_KV-__R^7:4?$IG\^%D_.MG[8W-9TDZOIP,
MAN/K7S_[>'ZX_N99,E_TQX/^:#).?_WL/IT_^Y=O__-_^F8^7R2\.Y[_^MG-
M8C']U:M7\\N;]+8_WYA,TS%/KB:SV_Z"?\ZN7\VGL[0_F-^DZ>)V]*JSN;GS
MZK8_'#]++B?+\>+7SSJ;G>ZS9#D>_G&9[OE/6SN=9]]^,Q]^^\WBV_W)Y?(V
M'2\2]I$LB]
M/W@'C*.BUT=R&XT4W%JX&2(^*)J[-VCG!S"=4MC];0X$9I+N'5-I@8='0`
MA$-*LK4^0AB&G5B47IEEH2(`()1+0*)<6+:1>9!Q#0Z`@;)#L$@I."88F
M4@2[!"G&>QG0"M1L;\O\D,[5M3/S/B)U!]3!,/GN452DR+`Q(EZ-=8)+9+]A
MV#*&$%T(\'`W@AHGAS&8-_NRN@7.R2J2QYIEBU!9
MQ@(.8%"LQ(.#I$\)XB(@IKKRGF<%7$%'1G(`9E:A7#*"]H3*%&F'WOFWM+.5
MD*A/P$KZ]JI;]A`!&?TB2*-@?A]YMO2\Z7)I>&;7=3SL#YWI3FA!6'EL7^>.
M3I"L0\][$&?WR!M,7:S76_T.4D(^M7=-8%VY=6[YY+.#CP+VS;K(LBA72\)N
MQ.-X,[52-DAPX97?,E:%$DAC2D''3+E#55XK>R6)K]`B$3_F4S40QK>$2U!M
M"L!(!&9;@V"58\YV:&'7+)2*.=8OZ)TLX@JA
M>`(FCF6@?LCZ,E8W;[C`KB)BJC00L1*]4!V5@?@#J*L^?"];21$/S55]^.)T
M=W._^F-9H*Q'-I$Y6!(=V3E7`D8%W>_4KJE&9)1;0('A$F5U`]EKM3I<_"]>
M"P'ZZFOES9VKVJHF&TIC".:,LS8=U=D@B=@U\1B8J[!):.#"T0I2K$R]
TF=IW5%G<*_-ZPWS_O!8X7FJF$RV`I(B1PXL?=YFP9!1LG\>X\WTN>
MF2S3"):7'^[#*';N?(#Z-+"<92Z;?=@3'WC+.-I&Z^0MB.M%Z[6W=/=13GO3
M'DBZO@IW@1TD6V,9[<)D9@Z+34;ZS8?5S#PWC=3D1;0"$+_[]RY*OOU-^N?-
M']Z\Z?_KFV__\8.[^N>/O]__[L=OS%ZNAL@$'QR7^;9_5"Q\G4KN919<7ZVC
ML#1D-`2:D*W+QS#Z&MKX'00#F(<_N[[:_FQ\<7S8,D!XR\B/8B,!+X-];$OH
M!&[ZBX7C>W>QAS];.X'G/Z>;A[B!!4;VN\`#-^'&7JKAM'KN$$UNTP1A<#:-
M<`NU*0"3'-QXW";GIP,V<;K&];K:\,?I8E82!=(.SB"QLD.VF#2I*QIT]9)6RW;K"^X
MT\WYGC"VENPL_CZGL?/FS&7GY.)%&CNUL&-K.[;2U.#9DRD*0Y/L(&,<8[Z4
M%3]F\=%]0.?#:8,25-,,&G*H&AAQZ8/(#DMQS-TJV_````__\#`%!+`P04
M``8`"````"$`X-!'>DL"``"+!0``&0```'AL+W=O
/+B5I3B0F1<&