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.
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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.
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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.
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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.
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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.
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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.
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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:
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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.
- On September 19, 2012, we 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, we 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.
- 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%), with all principal and interest due on or before November 30, 2013.
- Over the past year, we have advanced funds in the total amount of $77,307 to Installing Dealer Supply, Inc., a company owned by Bruce R. Knoblich, our former CEO and our current Chairman and member of the board of directors. These advances have been documented under a Note that bears interest at a rate of 8% and matures in 90 days.
Director Independence
We are not a “listed issuer” within the meaning of Item 407 of Regulation S-K and there are no applicable listing standards for determining the independence of our directors. Applying the definition of independence set forth in Rule 4200(a)(15) of The Nasdaq Stock Market, Inc., we believe that Anthony Hama is an independent director.
Item 14. Principal Accounting Fees and Services
Below is the table of Audit Fees (amounts in US$) 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 |