UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2014.
or
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______ to _______.
Commission File Number: 000-55154
INTELLIGENT HIGHWAY SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| Nevada | 30-0680119 | |
| (State or other jurisdiction of | (I.R.S. Employer | |
| incorporation or organization) | Identification No.) |
8 Light Sky Court
Sacramento, CA 95828
(Address of principal executive offices( Zip Code)
(916) 379-0324
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark 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 ¨ No x
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 x No o
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 ¨ (do not check if smaller reporting company) | 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
As of May 20, 2014, there were 12,699,138 shares of common stock, $0.00001 par value issued and outstanding.
INTELLIGENT HIGHWAY SOLUTIONS, INC.
TABLE OF CONTENTS
FORM 10-Q REPORT
MARCH 31, 2014
| Page | ||
| Number | ||
| PART I - FINANCIAL INFORMATION | ||
| Item 1. | Financial Statements. | 1 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. | 13 |
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. | 17 |
| Item 4. | Controls and Procedures. | 17 |
| PART II - OTHER INFORMATION | ||
| Item 1. | Legal Proceedings. | 18 |
| Item 1A. | Risk Factors. | 19 |
| Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds. | 19 |
| Item 3. | Defaults Upon Senior Securities. | 19 |
| Item 4. | Mine Safety Disclosures | 19 |
| Item 5. | Other Information. | 19 |
| Item 6. | Exhibits. | 19 |
| SIGNATURES | 20 | |
Explanatory Note
The accompanying financials and notes are prepared by the management of Intelligent Highway Solutions, Inc. (the “Company”) with belief and knowledge they are accurate though unaudited, and subject to correction, and management is in the process of obtaining a review of the financial statements by the Company’s independent registered public accounting firm. The Company will file an amended 10-Q/A once the review is complete.
PART I - FINANCIAL INFORMATION
| Item 1. | Financial Statements. |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
UNAUDITED CONDENSED FINANCIAL STATEMENTS
March 31, 2014
| 1 |
CONDENSED BALANCE SHEETS
| March 31, 2014 | December 31, 2013 | |||||||
| (Unaudited) | ||||||||
| ASSETS | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 28,931 | $ | 28,664 | ||||
| Accounts receivable, net of allowance of $0 | 64,153 | - | ||||||
| Prepaid expenses | 47,125 | 194,481 | ||||||
| Deferred loan costs, current | 197,389 | 182,324 | ||||||
| Total current assets | 337,598 | 405,469 | ||||||
| Property and equipment, net of accumulated depreciation of $1,878 and $1,607 | 6,544 | 1,752 | ||||||
| Deferred loan costs, net | 45,711 | 78,833 | ||||||
| Total assets | $ | 389,853 | $ | 486,054 | ||||
| LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
| Current liabilities | ||||||||
| Bank overdraft | $ | 40 | $ | 40 | ||||
| Accounts payable | 96,893 | 89,562 | ||||||
| Accrued expenses and other liabilities | 938,666 | 909,105 | ||||||
| Notes payable, current portion | 9,000 | 252,274 | ||||||
| Convertible notes payable, current portion | 369,026 | 30,000 | ||||||
| Derivative liability | 23,026 | 46,023 | ||||||
| Accrued interest | 74,706 | 113,599 | ||||||
| Total current liabilities | 1,511,357 | 1,440,603 | ||||||
| Convertible notes payable, net of discounts of $498,062 and $589,075 | 377,771 | 310,925 | ||||||
| Total liabilities | 1,889,128 | 1,751,528 | ||||||
| Stockholders' deficit | ||||||||
| Common stock, $0.00001 par value; 100,000,000 shares authorized; 16,073,163 and 11,933,666 issued; 12,573,163 and 11,933,666 outstanding at March 31, 2014 and December 31, 2013 | 126 | 119 | ||||||
| Additional paid-in capital | 2,362,295 | 2,071,274 | ||||||
| Accumulated deficit | (3,861,696 | ) | (3,336,867 | ) | ||||
| Total stockholders' deficit | (1,499,275 | ) | (1,265,474 | ) | ||||
| Total liabilities and stockholders' deficit | $ | 389,853 | $ | 486,054 | ||||
See accompanying notes to unaudited condensed financial statements.
| 2 |
CONDENSED STATEMENTS OF OPERATIONS (UNAUDITED)
| Three months ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| (Restated) | ||||||||
| Revenue | $ | 64,152 | $ | 620,245 | ||||
| Cost of sales | 58,015 | 598,782 | ||||||
| Gross profit | 6,137 | 21,463 | ||||||
| Operating expenses | ||||||||
| Salaries and wages | 53,752 | 67,361 | ||||||
| General and administrative | 372,920 | 173,414 | ||||||
| Total operating expenses | 426,672 | 240,775 | ||||||
| Loss from operations | (420,535 | ) | (219,312 | ) | ||||
| Other income (expense) | ||||||||
| Gain on extinguishment of debt | 84,073 | - | ||||||
| Gain on derivative fair value adjustment | 22,997 | - | ||||||
| Interest expense | (211,364 | ) | (15,785 | ) | ||||
| Total other expense | (104,294 | ) | (15,785 | ) | ||||
| Loss before income taxes | (524,829 | ) | (235,097 | ) | ||||
| Provision for income taxes | - | - | ||||||
| Net loss | $ | (524,829 | ) | $ | (235,097 | ) | ||
| Basic and diluted loss per common share | $ | (0.05 | ) | $ | (0.02 | ) | ||
| Basic and diluted weighted average shares outstanding | 11,056,661 | 10,404,666 | ||||||
See accompanying notes to unaudited condensed financial statements.
| 3 |
CONDENSED STATEMENT OF CASH FLOWS (UNAUDITED)
| Three months ended March 31, | ||||||||
| 2014 | 2013 | |||||||
| (Restated) | ||||||||
| Cash flows from operating activities | ||||||||
| Net loss | $ | (524,829 | ) | $ | (235,097 | ) | ||
| Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
| Common stock issued for services | 82,250 | - | ||||||
| Gain on forgiveness of debt | (50,000 | ) | - | |||||
| Depreciation | 271 | 168 | ||||||
| Amortization of deferred loan costs | 40,571 | - | ||||||
| Gain on derivative fair value adjustment | (22,997 | ) | - | |||||
| Excess derivative liability charged to interest | - | - | ||||||
| Amortization of debt discount | 146,013 | 1,154 | ||||||
| Changes in operating assets and liabilities | ||||||||
| Accounts receivable | (64,153 | ) | (13,471 | ) | ||||
| Other receivables | - | 120 | ||||||
| Prepaid expenses | 147,356 | 6,250 | ||||||
| Deferred loan costs | - | (10,000 | ) | |||||
| Accounts payable | 7,331 | 33,188 | ||||||
| Accrued interest | (16,044 | ) | (33,476 | ) | ||||
| Accrued expenses and other liabilities | 29,561 | 155,255 | ||||||
| Net cash used in operating activities | (224,670 | ) | (95,909 | ) | ||||
| Cash flows from investing activities | ||||||||
| Purchase of equipment | (5,063 | ) | - | |||||
| Cash flows from investing activities | (5,063 | ) | - | |||||
| Cash flows from financing activities | ||||||||
| Repayment of bank overdraft | - | (1,678 | ) | |||||
| Proceeds from convertible notes payable | 230,000 | 100,000 | ||||||
| Repayments of notes payable | - | (1,400 | ) | |||||
| Net cash provided by financing activities | 230,000 | 96,922 | ||||||
| Change in cash and cash equivalents | 267 | 1,013 | ||||||
| Cash at beginning of period | 28,664 | - | ||||||
| Cash at end of period | $ | 28,931 | $ | 1,013 | ||||
| Supplemental disclosures of cash flow information | ||||||||
| Cash paid for interest | $ | - | $ | 47,507 | ||||
| Cash paid for income taxes | $ | - | $ | - | ||||
| Supplemental disclosure of non-cash financing activities: | ||||||||
| Common stock issued as loan repayment | $ | 135,000 | $ | - | ||||
| Common stock issued as interest repayment | $ | 7,447 | $ | - | ||||
| Debt discount on convertible notes | $ | 55,000 | $ | - | ||||
| Increase in derivative liability | $ | 22,997 | $ | - | ||||
| Exchange of note payable and accrued interest for convertible note payable | $ | 212,526 | $ | - | ||||
See accompanying notes to unaudited condensed financial statements.
| 4 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization, Nature of Business and Trade Name
Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was formed in April 22, 2011; IHS is a technology based intelligent highway solutions contractor. The Company’s primarily focus is in the California transportation market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance services for the State’s transportation infrastructure. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.
NOTE 2 – CONDENSED FINANCIAL STATEMENTS
The accompanying financial statements have been prepared by the Company without audit. In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows for the three months ended March 31, 2014 and for all periods presented herein, have been made.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2013 audited financial statements. The results of operations for the periods ended March 31, 2014 are not necessarily indicative of the operating results for the full year.
NOTE 3 – GOING CONCERN
The Company’s financial statements are prepared using generally accepted accounting principles in the United States of America applicable to a going concern which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
| 5 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred.
Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.
Cash and Cash Equivalents
For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.
Accounts Receivable
Accounts receivable are carried at the expected net realizable value. The allowance for doubtful accounts, is based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations. The Company had bad debt expenses of $0 during the three months ended March 31, 2014 and 2013.
Property, Plant and Equipment
Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.
Depreciation is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
| Estimated Useful Life | ||
| Furniture and fixtures | 3 - 5 years | |
| Machinery and equipment | 5 years | |
| Vehicles | 5 years |
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements purposes, depreciation is computed under the straight-line method. Balances of each asset class as of March 31, 2014 and December 31, 2013 were:
| March 31, 2014 | December 31, 2013 | |||||||
| Machinery and equipment | $ | 2,149 | $ | 2,149 | ||||
| Furniture and fixtures | 6,273 | 1,210 | ||||||
| Sub Total | $ | 8,422 | $ | 3,359 | ||||
| Accumulated depreciation | (1,878 | ) | (1,607 | ) | ||||
| Total | $ | 6,544 | $ | 1,752 | ||||
Depreciation expense for the three months ended March 31, 2014 and 2013 was $271 and $168, respectively.
| 6 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consisted of the following at March 31, 2014 and December 31, 2013:
| March 31, 2014 | December 31, 2013 | |||||||
| Deferred rent payable | $ | 2,782 | $ | 2,673 | ||||
| Factoring advances | - | - | ||||||
| Payroll tax liabilities | 641,143 | 637,139 | ||||||
| Other payroll accruals | 58,210 | 51,711 | ||||||
| Other | 236,531 | 217,582 | ||||||
| Total | $ | 938,666 | $ | 909,105 | ||||
Revenue Recognition
Service revenue is recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. The Company’s service revenue is largely attributable professional engineering services where the fee is based on the billable rate of the employees.
Cost of Sales
Cost of sales comprises of costs associated with providing services related to the Company’s contracts including direct labor costs, job materials, automobile fuel, insurance, maintenance and operating leases. Cost of sales totaled $58,015 and 598,782 for the three months ended March 31, 2014 and 2013, respectively.
Reclassifications
Certain prior-year amounts have been reclassified in order to conform to the current-year presentation. These reclassifications related to notes payable where prior periods had incorrectly shown certain notes as being related party, when in fact they were not.
Fair Value Measurements
The fair value of a financial instrument is the amount that could be received upon the sale of an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Financial assets are marked to bid prices and financial liabilities are marked to offer prices. Fair value measurements do not include transaction costs. A fair value hierarchy is used to prioritize the quality and reliability of the information used to determine fair values. Categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The fair value hierarchy is defined into the following three categories:
Level 1: Quoted market prices in active markets for identical assets or liabilities.
Level 2: Observable market-based inputs or inputs that are corroborated by market data.
Level 3: Unobservable inputs that are not corroborated by market data.
Convertible debt
The Company records a beneficial conversion feature related to the issuance of convertible debts that have conversion features at fixed or adjustable rates. The beneficial conversion feature for the convertible instruments is recognized and measured by allocating a portion of the proceeds as an increase in additional paid-in capital and as a reduction to the carrying amount of the convertible instrument equal to the intrinsic value of the conversion features. The beneficial conversion feature will be accreted by recording additional non-cash interest expense over the expected life of the convertible notes.
| 7 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
Net Loss Per Share
Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the three months ended March 31, 2014 and 2013, potential common shares are not included in the diluted net loss per share calculation as their effect would be anti-dilutive. Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share. There were 3,468,010 and 33,333 such potentially dilutive shares excluded for the three months ended March 31, 2014 and 2013, respectively.
Recent Accounting Pronouncements
The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.
NOTE 5 - FAIR VALUE MEASUREMENTS
On a recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy. The following table presents information about the Company’s liabilities measured at fair value as of March 31, 2014 and December 31, 2013:
| Level 1 | Level 2 | Level 3 | Fair Value at March 31, 2014 |
|||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liability | - | $ | 23,026 | - | $ | 23,026 | ||||||||||
| Level 1 | Level 2 | Level 3 | Fair Value at December 31, 2013 |
|||||||||||||
| Liabilities | ||||||||||||||||
| Derivative Liability | - | 46,023 | - | 46,023 | ||||||||||||
The changes in the fair value of recurring fair value measurements are measured using the Black Scholes valuation model, and relate solely to the derivative liability as follows:
| Balance at December 31, 2013 | $ | 46,023 | ||
| Derivative liability recorded | - | |||
| Fair value adjustment | (22,997 | ) | ||
| Balance at March 31, 2014 | $ | 23,026 |
| 8 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
NOTE 6 – NOTES PAYABLE
On November 21, 2011 the Company received a loan in the amount of $27,000 from Byrd & Company LLC, Emerging Markets Consulting LLC, and Douglas S. Hackett ($9,000 from each party). The loan is unsecured and bears a simple interest of 12% per annum to be amortized in 6 equal installments of principal and interest commencing January 1, 2012 through June 1, 2012. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed this loan. On March 1, 2012, the Company issued Emerging Markets Consulting, LLC shares of common stock equivalent to $19,000, $10,000 for cash and $9,000 in satisfaction of the outstanding loan. Accordingly, the loan from Emerging Markets Consulting, LLC is no longer outstanding. Byrd & Company was repaid $3,803 and $3,917 during the years ended December 31, 2013 and 2012 with the remaining balance of $1,200 being forgiven during the year ended December 31, 2013. Also, the Company is negotiating to amend or extend the terms of the remaining amount of the note from Douglas S. Hackett. There was $9,000 and $9,000 in principal plus accrued interest of $2,545 and $2,278 due at March 31, 2014 and December 31, 2013.
NOTE 7 – CONVERTIBLE NOTES PAYABLE
On October 26, 2012, the Company received a loan totaling $30,000 from an unrelated party. The note bears interest at 10% per annum and had an original maturity date of April 26, 2013; however, the Company is in negotiations to extend the maturity date. There was $30,000 in principal plus accrued interest of $5,367 and $4,627 at March 31, 2014 and December 31, 2013. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30.
On February 27, 2014, the Company received a loan totaling $339,026 from an unrelated party. The note bears interest at 10% per annum and matures February 27, 2015. Of the $339,026 total note, $212,526 was paid to former note holders on our behalf and $1,500 was withheld has debt issue costs resulting in net cash proceeds to the company of $125,000. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to a 35% discount from the lowest daily volume weighted average price in the five days prior to conversion, but not less than $0.00004. There was $339,026 in principal plus $928 in accrued interest due at March 31, 2014.
On January 30, 2014, the Company entered into a note with an unrelated party to borrow up to $300,000 which would carry $35,000 as an original issue discount bringing the total note to $335,000 if fully borrowed. Upon closing the agreement, the Company received a loan totaling $50,000 which carried a prorated original issue discount of $5,833 bringing the total note to $55,833. Additionally, the note may be converted to common stock at the option of the holder at a rate equal to the lesser of $0.65 or 60% of the lowest trade price in the twenty five (25) trading days prior to conversion. The note requires a minimum of two million five hundred thousand (2,500,0000) to be held in reserve in the instance of conversion. The note carried interest at 12% per annum and is due on January 30, 2016. There was $55,833 in principal plus $184 in interest due at March 31, 2014.
During the year ended December 31, 2013 and three months ended March 31, 2014, the Company entered into debt agreements with various individuals to borrow a total of $955,000, of which $55,664 went directly to third parties to pay off amounts owed by the Company, $83,500 went to the placement agent and were recorded as debt issuance costs to be amortized over the life of the note, leaving the Company with net proceeds of $815,836. The notes accrue interest at 10% per annum and are due in are due in full between January 2015 and March 2016 with no repayments due before maturity. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30. The intrinsic value of the conversion feature in these notes resulted in debt discounts totaling $855,000 which will be amortized over the lives of the notes. $210,925 of the debt discounts were recognized in interest expense during the year ended December 31, 2013 leaving an unamortized discount of $589,075 at December 31, 2013. An additional $146,014 of the debt discounts were recognized as interest expense during the three months ended March 31, 2014 leaving an unamortized discount of $498,062 at March 31, 2014. Also, during the three months ended March 31, 2014, the Company accepted the full conversion of two notes plus a partial conversion of a third to common stock at $0.30 per share. The following table depicts the amounts due for each note as of December 31, 2013:
| 9 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
NOTE 7 – CONVERTIBLE NOTES PAYABLE (CONTINUED)
| Maturity Date | Principal | Debt Discount | Carrying Amount | Accrued Interest | ||||||||||||||
| Note holder 1 | 1/24/2015 | $ | 100,000 | $ | - | $ | 100,000 | $ | 8,795 | |||||||||
| Note holder 2 | 4/26/2015 | 60,000 | (39,370 | ) | 20,630 | 4,126 | ||||||||||||
| Note holder 3 | 5/3/2015 | 25,000 | (16,712 | ) | 8,288 | 1,658 | ||||||||||||
| Note holder 4 | 5/9/2015 | 100,000 | (67,671 | ) | 32,329 | 6,466 | ||||||||||||
| Note holder 4 | 5/31/2015 | 50,000 | (35,342 | ) | 14,658 | 2,932 | ||||||||||||
| Note holder 5 | 5/17/2015 | 50,000 | (33,836 | ) | 16,164 | 3,233 | ||||||||||||
| Note holder 6 | 5/30/2015 | 100,000 | (66,849 | ) | 33,151 | 6,630 | ||||||||||||
| Note holder 7 | 5/9/2015 | 50,000 | (33,836 | ) | 16,164 | 3,233 | ||||||||||||
| Note holder 8 | 5/9/2015 | 50,000 | (34,315 | ) | 15,685 | 3,137 | ||||||||||||
| Note holder 9 | 6/7/2015 | 25,000 | (17,911 | ) | 7,089 | 1,418 | ||||||||||||
| Note holder 10 | 7/1/2015 | 100,000 | (74,932 | ) | 25,068 | 5,014 | ||||||||||||
| Note holder 10 | 10/29/2015 | 25,000 | (23,048 | ) | 1,952 | 390 | ||||||||||||
| Note holder 11 | 7/15/2024 | 50,000 | (38,425 | ) | 11,575 | 2,315 | ||||||||||||
| Note holder 12 | 8/20/2015 | 25,000 | (20,925 | ) | 4,075 | 815 | ||||||||||||
| Note holder 12 | 10/18/2015 | 25,000 | (22,911 | ) | 2,089 | 418 | ||||||||||||
| Note holder 13 | 10/23/2015 | 20,000 | (18,055 | ) | 1,945 | 389 | ||||||||||||
| Note holder 16 | 12/30/2015 | 45,000 | (44,939 | ) | 63 | 12 | ||||||||||||
| Total | $ | 900,000 | $ | (589,075 | ) | $ | 310,925 | $ | 50,981 | |||||||||
The following table depicts the amounts due for each note as of March 31, 2014:
| Maturity Date |
Principal | Debt Discount | Carrying Amount |
Accrued Interest | |||||||||
| Note holder 1 | 1/24/2015 | $ | 50,000 | $ | - | $ | 50,000 | $ | 11,260 | ||||
| Note holder 2 | 4/26/2015 | - | - | - | - | ||||||||
| Note holder 3 | 5/3/2015 | 25,000 | (13,630) | 11,370 | 2,274 | ||||||||
| Note holder 4 | 5/9/2015 | 100,000 | (29,178) | 70,822 | 8,932 | ||||||||
| Note holder 4 | 5/31/2015 | 50,000 | (55,342) | (5,342) | 4,164 | ||||||||
| Note holder 4 | 3/21/2016 | 30,000 | (29,589) | 411 | 82 | ||||||||
| Note holder 5 | 5/17/2015 | 50,000 | (27,671) | 22,329 | 4,466 | ||||||||
| Note holder 6 | 5/30/2015 | 100,000 | (54,521) | 45,479 | 9,096 | ||||||||
| Note holder 7 | 5/9/2015 | 50,000 | (27,671) | 22,329 | 4,466 | ||||||||
| Note holder 8 | 5/9/2015 | 50,000 | (28,151) | 21,849 | 4,370 | ||||||||
| Note holder 9 | 6/7/2015 | - | - | - | - | ||||||||
| Note holder 10 | 7/1/2015 | 100,000 | (62,602) | 37,398 | 7,479 | ||||||||
| Note holder 10 | 10/29/2015 | 25,000 | (19,966) | 5,034 | 1,007 | ||||||||
| Note holder 11 | 7/15/2024 | 50,000 | (32,260) | 17,740 | 3,548 | ||||||||
| Note holder 12 | 8/20/2015 | 25,000 | (17,842) | 7,158 | 1,432 | ||||||||
| Note holder 12 | 10/18/2015 | 25,000 | (19,829) | 5,171 | 1,034 | ||||||||
| Note holder 13 | 10/23/2015 | 20,000 | (15,589) | 4,411 | 882 | ||||||||
| Note holder 16 | 12/30/2015 | 45,000 | (39,390) | 5,610 | 1,122 | ||||||||
| Note holder 17 | 3/26/2016 | 25,000 | (24,827) | 173 | 68 | ||||||||
| Total | $ | 820,000 | $ | (498,058) | $ | 321,942 | $ | 65,682 | |||||
NOTE 8 – RELATED PARTYTRANSACTIONS
We have engaged an entity controlled by the director of the Company to perform consulting services related to the development of new technologies. Payments to this party totaled $1,850 and $1,775 during the three months ended March 31, 2014 and 2013.
| 10 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters.
As of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.
As of March 31, 2014 and December 31, 2013 and 2012, the Company had accrued $641,143 and $637,139 and in payroll tax liabilities. The payment of these liabilities has not been made due to our limited profitability. Due to the uncertainty regarding our future profitability, it is difficult to predict our ability to pay these liabilities. As a result, a federal tax lien has been levied that will have to be satisfied.
Vehicle Leases
The Company has entered into twelve separate month to month leases on various vehicles. The leases do not qualify as capital leases and are accounted for as operating leases as a result. Monthly payments total $3,971 for these leases.
Office and Warehouse Lease
The Company is required under the terms of the rental lease to make monthly lease payments.
The Company’s property lease is for an initial period of thirteen months from October 2011 and may be extended in two separate thirteen-month increments for up to a total term of 39 months. The Company may not terminate this lease prior to the agreed upon termination date. The minimum future annual rental commitments are as follows:
| 2014 | 32,643 | |||
| 2015 | 1,053 | |||
| Total annual lease commitments | $ | 33,696 |
NOTE 10 – DERIVATIVE LIABILITY
As of March 31m 2014 the Company had a $23,026 derivative liability balance on the balance sheet, and for the three months ended March 31, 2014, the Company recorded a $22,997 gain from derivative liability fair value adjustment. The derivative liability activity comes from convertible notes payable as follows:
As discussed in Note 7 – “Convertible Notes Payable”, during 2012, the Company issued an aggregate of $30,000 Convertible Promissory Notes to an unrelated party that matured on April 26, 2013. The Company is currently negotiating an extension of the maturity date and anticipates to successfully do so. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rates of $0.30 per share. The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced. The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.
| 11 |
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Condensed Financial Statements
March 31, 2014
NOTE 10 – DERIVATIVE LIABILITY (CONTINUED)
The embedded derivative for the note is carried on the Company’s balance sheet at fair value. The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change. The Company fair values the embedded derivative using the Black-Scholes option pricing model. The aggregate fair value of the derivative at the inception date of the note was $73,451. Of the total, $30,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes. $43,451 was charged to operations as non-cash interest expense. The fair value of $73,451 was recorded as a derivative liability on the balance sheet.
The debt discount for the note was amortized over the term of our stock’s opening trading day to the original maturity, or two days. On March 31, 2014, the Company marked-to-market the fair value of the derivative liabilities related to note and determined an aggregate fair value of $23,026 and recorded a $22,997 gain from change in fair value of derivatives for three months ended March 31, 2014. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 60%, (3) risk-free interest rate of 7%, (4) expected life of 0.07 of a year, and (5) estimated fair value of the Company’s common stock of $0.50 per share.
NOTE 11 - RESTATEMENT
The Company has restated its results for the three months ended March 31, 2013 to appropriately reflect the issuance of options as part of debt issue costs, the amortization of those issue costs, the recognition of prepaid expenses associated with common stock grants during the year ended December 31, 2012 and the treatment of previously capitalized leases as operating leases. The net effect on the revised balance sheet and statements of operations for March 31, 2013 are:
| Balance Sheet: | ||||||||||||
| Original | Adjustments | As Restated | ||||||||||
| Total assets | $ | 344,601 | $ | 204,545 | $ | 549,146 | ||||||
| Total current liabilities | 1,355,854 | 508,786 | 1,864,640 | |||||||||
| Common stock | 104 | 3 | 107 | |||||||||
| Additional paid in capital | 134,836 | 35,010 | 169,846 | |||||||||
| Accumulated deficit | (1,257,488 | ) | (327,959 | ) | (1,585,447 | ) | ||||||
| Statement of Operations: | ||||||||||||
| Original | Adjustments | As Restated | ||||||||||
| Revenue | $ | 621,230 | $ | (985 | ) | $ | 620,245 | |||||
| Cost of sales | 589,337 | 9,445 | 598,782 | |||||||||
| Operating expenses | 248,219 | (7,444 | ) | 240,775 | ||||||||
| Other income (expense) | (14,631 | ) | (1,154 | ) | (15,785 | ) | ||||||
| Provision for income taxes | - | - | - | |||||||||
| Net loss | (230,957 | ) | (4,140 | ) | (235,097 | ) | ||||||
| Net loss per common share | (0.02 | ) | - | (0.02 | ) | |||||||
| Weighted average shares outstanding | 10,404,666 | 325,000 | 10,729,666 | |||||||||
NOTE 12 – SUBSEQUENT EVENTS
None.
| 12 |
| Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations. |
Cautionary Notice Regarding Forward Looking Statements
The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.
This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.
Overview
Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was formed in April 22, 2011; IHS is a technology based intelligent highway solutions contractor. The Company’s primarily focus is in the California transportation market and plans to provide services that range from providing labor, materials, and related equipment for corrective service and maintenance services for the State’s transportation infrastructure. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.
Plan of Operations
The Company plans to provide service and maintenance for California’s transportation sector. The Company plans to seek further contracts in counties and municipalities throughout California and expand to neighboring states.
Additionally, the Company intends to expand to provide full service turn-key electrical services for the expanding intelligent highway services market sector. These contracts are typically bid on through the State and municipal entities. Typically, they involve the installation and purchase of materials and labor to provide a complete, operational system. Our primary focus will be in systems that are related to the intelligent highway sector, such as, but not limited to: (1) installation and materials for the installation of fiber optic cables; (2) installation and distribution of materials for the video monitoring systems deployed on the highway corridors; and (3) the distribution and installation of monitor devices and signage used in conjunction with the transportation network.
| 13 |
As an additional step, the Company, building off its experience in the service and maintenance of traffic monitoring systems, intends to develop wireless systems to replace existing hardwire loop detection systems, video monitoring systems, etc. The Company, in the fourth quarter of 2014, intends to introduce a wireless/battery-less loop detection system. The Company has received the approval of two service districts in California to deploy the new technology in a real-time, real-world application. The application of this new technology can be used on any freeway entrance ramps; freeway lanes to monitor traffic flow; at intersections to monitor traffic and send information to traffic signals and alert management of congestion.
Recent Developments
On April 24, 2013, the Company was informed that Mr. Michael Sullivan received notice on the same day from the Division of Procurement and Contracts of the California Department of Transportation (“Caltrans”) that Caltrans is terminating the nine Caltrans contracts (the “Caltrans Agreements”), dated as of June 1, 2011, between Michael J. Sullivan Communications and Caltrans effective upon receipt of the notice pursuant to its right to terminate the Caltrans Agreements upon thirty (30) days notice (the “Termination”). On June 21, 2011, the Company purchased the Caltrans Agreements from Mr. Sullivan. Pursuant to the Caltrans Agreements, the Company provided on-call, as needed, maintenance and repair of Caltrans’ Traffic Operations System Network.
As a result of the Termination, the Company is negotiating with Caltrans to enter into a new agreement to perform the same services as agreed upon in the CaltTrans Agreements. However, as of the date hereof, the Company has not entered into an agreement and cannot make any assurance that an agreement will be executed.
On August 22, 2013 (the “Effective Date”), the Company entered into a distribution agreement (the “Distribution Agreement”) with SCS Lighting Solutions Inc. (“SCS”), whereby SCS appointed the Company as its exclusive distributer of SCS products in Sacramento, California and other locations, as determined by both parties in the future. The SCS products include standard lighting solutions, as well as custom lighting products for indoor and outdoor applications. If the Company does not make sales in the first year with revenues to SCS in the amount of Three Million dollars ($3,000,000), then the Distribution Agreement will become non-exclusive.
The Distribution Agreement’s initial term is for one (1) year from the Effective Date and will automatically renew for additional one (1) year increments, unless either party elects to terminate the Agreement by giving not less than sixty (60) days notice prior to the end of the current term.
Results of Operations
Revenue
Through the second quarter of 2013, we generated revenue through servicing contracts with CalTrans for the maintenance of the Tosnet system within certain areas of California. The contracts with CalTrans accounted for 100% of revenue during the three months ended March 31, 2013. During the first quarter of 2014, we entered into an agreement with Honeywell Building Solutions (“Honeywell”) to provide electrical contracting services in connection with ongoing construction projects. This agreement accounted for 100% of our revenues during the three months ended March 31, 2014.
Three months ended March 31, 2014 and 2013
| Three months ended March 31, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| Revenue | $ | 64,152 | $ | 620,245 | $ | (556,093 | ) | |||||
Revenues for the three months ended March 31, 2014 were $64,152 compared to $620,245 during the same period in 2013. The decrease of $556,093 or 90% is the result of the Company no longer servicing the contracts to maintain the Tosnet systems and instead engaging Honeywell Building Solutions on a much smaller scale project.
Cost of Goods Sold
Cost of goods sold consist of the costs associated with direct labor, truck leases and job materials associated with servicing the Honeywell contract in 2014 and maintaining the Tosnet systems during 2013. Such costs consist of direct labor and vehicle related costs including maintenance, rental, fuel, and insurance.
| 14 |
Three months ended March 31, 2014 and 2013
| Three months ended March 31, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| Labor | $ | 21,847 | $ | 518,879 | $ | (497,032 | ) | |||||
| Fuel | 891 | 42,427 | (41,536 | ) | ||||||||
| Vehicle Lease | 9,382 | 25,272 | (15,890 | ) | ||||||||
| Other | 25,895 | 12,204 | 13,691 | |||||||||
| Total | $ | 58,015 | $ | 598,782 | $ | (540,767 | ) | |||||
Cost of goods sold for the three months ended March 31, 2014 were $58,015 compared to $598,782 during the same period in 2013. The decrease of $540,767 or 90% is the result of the loss of our contracts with CalTrans to maintain the Tosnet system. As a result of the loss of these contracts, we terminated the employment of the employees previously maintaining the system and incurred no other costs to maintain these contracts as we were no longer servicing them. During the three months ended March 31, 2014, we entered into an agreement with Honeywell as described previously which is a much smaller scale project. We require fewer employees to service this contract as well as lesser overall vehicle related expenses.
Operating Expenses
Three months ended March 31, 2014 and 2013
| Three months ended March 31, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| Salaries and wages | $ | 53,752 | $ | 67,361 | $ | (13,609 | ) | |||||
| Professional services | 341,728 | 119,023 | 222,705 | |||||||||
| Accounts receivable factoring fees | - | 29,175 | (29,175 | ) | ||||||||
| Other | 31,192 | 25,216 | 5,976 | |||||||||
| Total | $ | 426,672 | $ | 240,775 | $ | 185,897 | ||||||
Operating expenses for the three months ended March 31, 2014 were $426,672 compared to $240,775 during the same period in 2013. The increase of approximately 77% is the result of additional non-cash professional fees related to the recognition of stock based expenses that occurred in 2014 and were not existent in 2013. These fees were incremental to those incurred during the three months ended March 31, 2013.
Other Income and Expenses
Other income and expenses consist of interest expense on our notes payable net of interest income, gain on the forgiveness of debt and fair value adjustments to our derivative liability.
Three months ended March 31, 2014 and 2013
| Three months ended March 31, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| Interest expense, net | $ | (211,364 | ) | $ | (15,785 | ) | $ | (195,579 | ) | |||
| Gain on extinguishment of debt | 84,073 | - | 84,073 | |||||||||
| Gain on derivative fair value adjustment | 22,997 | - | 22,997 | |||||||||
| Total | $ | (104,294 | ) | $ | (15,785 | ) | $ | (88,509 | ) | |||
Other income and expenses during the three months ended March 31, 2014 were a net expense of $104,294 compared to $15,785 for the same period in 2013, The increase of $88,509 or approximately 561% was the result of additional non-cash interest expense recognized on the amortization of debt discounts and original debt issue costs totaling $192,085 during the three months ended March 31, 2014 compared to $,1154 during the same period in 2013. The $22,997 increase in gain on derivative fair value adjustment during the three months ended March 31, 2014 is the result of the change in the fair value of the derivative associated with a convertible note that was not present in 2013.
| 15 |
Net Loss
Three months ended March 31, 2014 and 2013
| Three months ended March 31, | ||||||||||||
| 2014 | 2013 | Change | ||||||||||
| Net loss | $ | (524,829 | ) | $ | (235,097 | ) | $ | (289,732 | ) | |||
| As a percentage of revenue | -818 | % | -38 | % | -780 | % | ||||||
Net loss for the three months ended March 31, 2014 was $524,829 compared to $235,097 during the same period in 2013. The decrease of $289,732 is the result of reduced revenues from the loss of the Tosnet systems maintenance contracts, increased professional fees as described above and the recognition of non-cash operating and interest expenses associated with debt discounts and derivative liability on certain convertible notes.
Liquidity and Capital Resources
As of March 31, 2014, we had cash of $28,931, total current assets of $337,598 and total current liabilities of $1,511,357 creating a working capital deficit of $1,173,759. Current assets consisted of $28,931 in cash, $64,153 of accounts receivable, $47,125 of prepaid expenses and current deferred loan costs of $197,389. Current liabilities consisted of a bank overdraft of $40, accounts payable $96,893, current notes payable of $9,000, current convertible notes payable of $369,026, a derivative liability of $23,026, accrued interest of $74,706 and accrued expenses and other liabilities of $938,666.
Cash Flows from Operating Activities
Cash flows used in operating activities during the three months ended March 31, 2014 was $224,670 which consisted of a net loss of $524,829, non-cash expenses and gains of $196,108 and positive changes in working capital of $104,051. Net cash used in operating activities during the same period in 2013 was $95,909 which consisted of a net loss of $235,097, non-cash expenses of $1,322 and positive changes in working capital of $137,866. The change in net cash used in operating activities was primarily due to an increase in net loss of $289,732, a significantly greater amount of non-cash expenses and gains, a greater change in prepaid expenses and a lesser change in accounts payable and accrued expenses.
We expect our cash used in operating activities will increase over the next twelve months as we are uncertain of our opportunities to generate revenue in the near term while we will still recognize significant non-cash expenses.
Cash Flows from Investing Activities
During the three months ended March 31, 2014, we used $5,063 of cash in investing activities for the purchase of equipment compared to $0 during the three months ended March 31, 2013.
Cash Flows from Financing Activities
Cash flows from financing activities during the three months ended March 31, 2014 were $230,000 compared to $96,922 during the same period in 2013. Cash provided by financing activities during the three months ended March 31, 2014 consisted of proceeds from convertible notes payable of $230,000. Cash provided by financing activities during the same period in 2013 consisted of repayments of a bank overdraft totaling $1,678, proceeds from convertible notes payable of $100,000 and repayments of notes payable of $1,400.
| 16 |
During the next twelve months, we anticipate generating additional cash from financing activities from entering into additional debt agreements and the additional issuance of common stock for cash as these activities will be required to fund operations.
Going Concern
Based on our financial history since inception, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage company that has generated very little revenue and have limited tangible assets. Our company has a limited operating history and must be considered in the development stage. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to on a profitable basis. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
Recent Accounting Pronouncements
Critical Accounting Policies
There have been no changes in the Company's significant accounting policies for the three months ended March 31, 2014 as compared to those disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2013.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements.
| Item 3. | Quantitative and Qualitative Disclosures About Market Risk. |
We are a Smaller Reporting Company and are not required to provide the information under this item.
| Item 4. | Controls and Procedures. |
Disclosure of controls and procedures.
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below.
| 17 |
In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles. Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.
A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected. Management has identified the following two material weaknesses which have caused management to conclude that as of March 31, 2014 our disclosure controls and procedures were not effective at the reasonable assurance level:
| 1. | We do not have written documentation of our internal control policies and procedures. Written documentation of key internal controls over financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act which is applicable to us for the quarter ended March 31, 2014. Management evaluated the impact of our failure to have written documentation of our internal controls and procedures on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
| 2. | We do not have sufficient segregation of duties within accounting functions, which is a basic internal control. Due to our size and nature, segregation of all conflicting duties may not always be possible and may not be economically feasible. However, to the extent possible, the initiation of transactions, the custody of assets and the recording of transactions should be performed by separate individuals. Management evaluated the impact of our failure to have segregation of duties on our assessment of our disclosure controls and procedures and has concluded that the control deficiency that resulted represented a material weakness. |
To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.
Changes in internal controls over financial reporting.
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We are not currently involved in any litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
| 18 |
We are a Smaller Reporting Company and are not required to provide the information under this item.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
None.
Item 3. Defaults Upon Senior Securities.
None
Item 4. Mine Safety Disclosures.
Not applicable
On March 19, 2014, the Company issued a press release announcing the receipt of a purchase order from Honeywell for the installation of a temperature control system and associated sensors in a state owned office building in Alameda, California. A copy of the release is furnished herewith as Exhibit 99.1.
| Exhibit | ||
| Number | Exhibit Title | |
| 31.1 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Principal Financial Office pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
| 31.2 | Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 32.2 | Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
| 99.1 | Press Release, dated March 19, 2014. | |
| 101.INS * | XBRL Instance Document | |
| 101.SCH * | XBRL Taxonomy Schema | |
| 101.CAL * | XBRL Taxonomy Calculation Linkbase | |
| 101.DEF * | XBRL Taxonomy Definition Linkbase | |
| 101.LAB * | XBRL Taxonomy Label Linkbase | |
| 101.PRE * | XBRL Taxonomy Presentation Linkbase |
| 19 |
In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.
* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| INTELLIGENT HIGHWAY SOLUTIONS, INC. | ||
| Date: May 20, 2014 | By: | /s/ Devon Jones |
| Devon Jones | ||
| Chief Executive Officer | ||
| (Principal Executive Officer) | ||
| Date: May 20, 2014 | By: | /s/ Philip Kirkland |
| Philip Kirkland | ||
| Chief Financial Officer | ||
| (Principal Financial and Accounting Officer) | ||
| 20 |
Exhibit 31.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Devon Jones, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intelligent Highway Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Dated: May 20, 2014 | By: | /s/ Devon Jones | |
| Devon Jones | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) |
Exhibit 31.2
CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO SECTION 302
OF THE SARBANES-OXLEY ACT OF 2002
I, Philip Kirkland, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Intelligent Highway Solutions, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal controls over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
| a) | designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this quarterly report is being prepared; |
| b) | designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
| c) | evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; |
| d) | disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an quarterly report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; |
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):
| a) | all significant deficiencies and material weaknesses in the design or operation of internal controls over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and |
| b) | any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls over financial reporting. |
| Dated: May 20, 2014 | By: | /s/ Philip Kirkland | |
| Devon Jones | |||
| Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) |
Exhibit 32.1
CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Intelligent Highway Solutions, Inc., (the “Company”) on Form 10-Q for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Devon Jones, Chief Executive Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 20, 2014 | By: | /s/ Devon Jones | |
| Devon Jones | |||
| Chief Executive Officer | |||
| (Principal Executive Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 32.2
CERTIFICATION OF PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER
PURSUANT TO 18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report of Intelligent Highway Solutions, Inc., (the “Company”) on Form 10-Q for the period ended March 31, 2014 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), Philip Kirkland, Chief Financial Officer of the Company, certifies, pursuant to 18 U.S.C. section 1350 of the Sarbanes-Oxley Act of 2002, that:
| (1) | The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and |
| (2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
| Date: May 20, 2014 | By: | /s/ Philip Kirkland | |
| Philip Kirkland | |||
| Chief Financial Officer | |||
| (Principal Financial and Accounting Officer) |
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.
Exhibit 99.1
Intelligent Highway Solutions Announces Significant Purchase Order From Tech Giant Honeywell
March 19, 2014 07:01 | Source: Intelligent Highway Solutions, Inc.
SACRAMENTO, Calif., March 19, 2014
(GLOBE NEWSWIRE) — Intelligent Highway Solutions, Inc. (OTCQB:IHSI), announced it has received a significant purchase order
from Honeywell for the installation of a temperature control system and associated sensors in a state owned office building in
Alameda, California. The initial purchase order has been received and there are three others that are expected within the course
of the calendar year. Upon receipt and completion, the total orders will represent approximately $1,000,000 in revenues for Intelligent
Highway Solutions. This office building is one of many office buildings in the State of California that are expected to install
new systems to be in compliance with the California Title 24 Energy Standards.
The goal of the California Title 24 Energy Standards is to reduce energy use. Commercial buildings are one of the major contributors
to the energy demand within the state. Since the California Energy Crisis of the 2000/2001 time frame, one of the major initiatives
of the State of California has been to reduce energy demand. In the State of California, there are over 365 state-owned office
buildings. Each one of the office buildings is mandated by law to be in compliance with Title 24 which was created in 1978 by the
California Building Standards Commission in a legislative mandate to reduce California's energy consumption. The installed temperature
control system and associated sensors are integral to an efficient building control system which ultimately saves energy and financial
resources for the state.
In December 2013, Intelligent Highway Solutions signed a vendor agreement with Honeywell. This purchase order will be released in four phases and is expected to be completed in the next 9-12 months.
Devon Jones, Chief Executive Officer of Intelligent Highway Solutions stated, "We look forward to completing the work related to this purchase order before the end of this calendar year and we look forward to a long and profitable relationship with Honeywell. This work is in a 15 story state owned building in Alameda and as a company, we are perfectly positioned to receive a lot of additional orders similar to this one over the next 24-36 months."
About Honeywell
Honeywell (www.honeywell.com) is a Fortune 100 diversified technology and manufacturing leader, serving customers worldwide with aerospace products and services; control technologies for buildings, homes and industry; automotive products; turbochargers; and performance materials. Honeywell Scanning & Mobility (HSM) is part of the Automation and Control Solutions (ACS) business group of Honeywell. HSM is a leading manufacturer of high-performance image- and laser-based data collection hardware, including rugged mobile computers and bar code scanners. With one of the broadest product portfolios in the automatic identification and data collection industry, HSM provides data collection hardware for retail, healthcare, and transportation and logistics companies seeking to improve operations and enhance customer service. Additionally, HSM provides advanced software; service and professional solutions that help customers effectively manage data and assets. HSM products are sold worldwide through a network of distributor and reseller partners. For more information on Honeywell Scanning & Mobility, please visitwww.honeywellaidc.com.
About Intelligent Highway Solutions, Inc.
Intelligent Highway Solutions, Inc. was formed in April, 2011; IHS is a technology based intelligent highway solutions contractor. The Company's primarily focus is in the California transportation market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance services for the States transportation infrastructure. The Company's plans are to expand its services to provide cutting edge wireless technologies for transportation market. As well as expand our service, maintenance and technology services to neighboring states and nationwide.
Forward Looking Statements: Any statements contained herein that are not historical facts are forward looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended These forward-looking statements are made subject to certain risks and uncertainties, which could cause actual results to differ materially from those presented. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only to the date such information was released. The Company undertakes no obligation to publicly revise these forward-looking statements to reflect events or circumstances that arise after release of this information.
Devon Jones
www.IntelligentHighwaySolutions.com
8 Light Sky Court
Sacramento, CA 95828
Tel.: (916) 379-0324