Item 1. Business
General
We are a Delaware Corporation founded in April 2008. We changed our name to Metha Energy Solutions Inc. (“Metha Energy” or “the Company” or “formerly Inscrutor”) on October 12, 2009. We focus our business on commercializing advanced fuel cell technology. We have secured the rights for such patent pending products and we represent these products in the North American market and within the global vehicle segment.
We were founded in April 2008 as Inscrutor, Inc. (“Inscrutor”), a development stage company. The technology that we owned was acquired via a Separation and Distribution Agreement on May 30, 2008 from Visator, Inc. (“Visator”), a Delaware corporation that specializes in on-line media monitoring. Prior to that time, Inscrutor was a wholly-owned subsidiary of Visator. Inscrutor was spun out from Visator with the purpose of ensuring optimal value-creation for the shareholders of both Inscrutor and Visator. According to the terms of the Separation Agreement, Visator decided to distribute the common stock of Inscrutor on a 1-for-1 basis to the holders of Visator’s common and preferred stock (“the Distribution”). On June 1, 2008 (the "Distribution Date"), Visator transferred its shares of Inscrutor to the shareholders of record of Visator common stock and preferred stock at the close of business on May 30, 2008 (the "Record Date"), without any consideration being paid by such holders. As of October 9, 2008, the stock certificates were delivered to shareholders (See Note 8). The Company derived revenue from a management services agreement with Visator. We no longer pursue any commercialization of software/technology nor do we invest in it.
From the end of August, 2009, in connection with entering the agreement with Serenergy the Company decided to cease any further activity in the area of sophisticated data-mining technology.
Marketing
Our products are sold to a number of different application areas where customers and research institutes are testing them for potential future implementation. We communicate mainly through our website www.methaenergy.com and direct customer communication via e-mail and phone.
Competition
There are multiple companies which offer different kinds of fuel cell technologies. These different kinds of fuel cells technologies vary in attractiveness regarding different features. The fuel cell segment is not a new segment/industry. This is a highly competitive market.
Item 1A.
Item 1A. Risk Factors
THIS REPORT CONTAINS CERTAIN STATEMENTS RELATING TO FUTURE EVENTS AND THE FUTURE FINANCIAL PERFORMANCE OF OUR COMPANY. PROSPECTIVE INVESTORS ARE CAUTIONED THAT SUCH STATEMENTS ARE ONLY PREDICTIONS, INVOLVE RISKS AND UNCERTAINTIES, AND THAT ACTUAL EVENTS OR RESULTS MAY DIFFER MATERIALLY. IN EVALUATING SUCH STATEMENTS, PROSPECTIVE INVESTORS SHOULD SPECIFICALLY CONSIDER THE VARIOUS FACTORS IDENTIFIED IN THIS REPORT, INCLUDING THE MATTERS SET FORTH BELOW, WHICH COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE INDICATED BY SUCH FORWARD-LOOKING STATEMENTS.
An investment in our common stock involves a high degree of risk. You should carefully consider the risks described below and the other information in this prospectus before investing in our common stock. If any of the following risks occur, our business, operating results and financial condition could be seriously harmed. Please note that throughout this prospectus, the words “we”, “our” or “us” refer to the Company and not to the selling stockholders.
WE HAVE A LIMITED OPERATING HISTORY THAT YOU CAN USE TO EVALUATE US, AND THE LIKELIHOOD OF OUR SUCCESS MUST BE CONSIDERED IN LIGHT OF THE PROBLEMS, EXPENSES, DIFFICULTIES, COMPLICATIONS AND DELAYS FREQUENTLY ENCOUNTERED BY A SMALL DEVELOPING COMPANY.
We were incorporated in Delaware in April 2008. We have no significant financial resources and only a small amount of revenues to date. The likelihood of our success must be considered in light of the problems, expenses, difficulties, complications and delays frequently encountered by a small developing company starting a new business enterprise and the highly competitive environment in which we will operate. Since we have a limited operating history, we cannot assure you that our business will be profitable or that we will ever generate sufficient revenues to meet our expenses and support our anticipated activities.
WE WILL REQUIRE FINANCING TO ACHIEVE OUR CURRENT BUSINESS STRATEGY AND OUR INABILITY TO OBTAIN SUCH FINANCING COULD PROHIBIT US FROM EXECUTING OUR BUSINESS PLAN AND CAUSE US TO SLOW DOWN OUR EXPANSION OF OPERATIONS.
We will need to raise additional funds through public or private debt or sale of equity to achieve our current business strategy. Such financing may not be available when needed. Even if such financing is available, it may be on terms that are materially adverse to your interests with respect to dilution of book value, dividend preferences, liquidation preferences, or other terms. Our capital requirements to implement our business strategy will be significant. Moreover, in addition to monies needed to continue operations over the next twelve months, we anticipate requiring additional funds in order to execute our plan of operations. No assurance can be given that such funds will be available or, if available, will be on commercially reasonable terms satisfactory to us. There can be no assurance that we will be able to obtain financing if and when it is needed on terms we deem acceptable.
If we are unable to obtain financing on reasonable terms, we could be forced to delay or scale back our plans for expansion. In addition, such inability to obtain financing on reasonable terms could have a material adverse effect on our business, operating results, or financial condition.
OUR AUDITOR HAS EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
Based on our financial history since inception, our auditor has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage company. If we cannot obtain sufficient funding, we may have to delay the implementation of our business strategy.
OUR FUTURE SUCCESS IS DEPENDENT, IN PART, ON THE PERFORMANCE AND CONTINUED SERVICE OF JESPER TOFT. WITHOUT HIS CONTINUED SERVICE, WE MAY BE FORCED TO INTERRUPT OR EVENTUALLY CEASE OUR OPERATIONS.
We are presently dependent to a great extent upon the experience, abilities and continued services of Jesper Toft. We currently have a consulting agreement with Mr. Toft. The loss of his services could have a material adverse effect on our business, financial condition or results of operation.
WE HAVE HAD TWO CUSTOMERS WHO HAVE ACCOUNTED FOR 81% AND 19%, RESPECTIVELY, OF OUR TOTAL REVENUES IN 2009.
We currently have two customers, who account for 81% and 19% of total revenues, respectively. One of those customers is Visator, a related party. The agreement with Visator expired on June 1, 2009 and was not renewed. While we believe our relationship with the other customer is stable, a significant decrease or interruption in business from our significant customer could have a material adverse effect on our business, financial condition and results of operations. We plan to greatly expand our customer base in the upcoming year to mitigate this risk.
OUR COMMON STOCK IS CONSIDERED A PENNY STOCK, WHICH IS SUBJECT TO RESTRICTIONS ON MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
If our common stock becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit their market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
Item 2.
Item 2. Property
Our business office is located at 410 Park Avenue, 15th Floor, New York, NY 10002.
Item 3.
Item 3. Legal Proceedings
We are currently not 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.
Item 4.
Item 4. Removed and Reserved
PART II
Item 5.
Item 5. Market for Common Equity and Related Stockholder Matters
Our common stock is quoted on the OTC Bulletin Board, a service provided by the Nasdaq Stock Market Inc., under the symbol “MGYS”. The following table sets forth the high and low bid prices for our common stock as reported each quarterly period since inception.
Holders of Our Common Stock
As of the date of this annual report, we had 60 shareholders of our common stock.
Stock Option Grants
To date, we have not granted any stock options.
Item 6.
Item 6. Selected Financial Data
Item 7.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion highlights the principal factors that have affected our financial condition and results of operations as well as our liquidity and capital resources for the periods described. This discussion contains forward-looking statements. Please see “Forward-Looking Statements” and "Risk Factors" for a discussion of the uncertainties, risks and assumptions associated with these forward-looking statements.
The following discussion and analysis of the Company’s financial condition and results of operations are based on the Company’s financial statements, which the Company has prepared in accordance with U.S. generally accepted accounting principles. You should read the discussion and analysis together with such financial statements and the related notes thereto.
Plan of Operation
We are in the process of acquiring financing. The proceeds from the financing will be invested in building two sales departments, one for the North-American auto industry and one for the international auto industry. This will create the basis for having a sales organization, which we have to comply with based on our agreements. We aim at having such financing in place before the end of the third quarter 2010.
The Company will in the future focus on business within the area of alternative energy technology and related opportunities. The agreement between the Company and Serenergy gives the Company the exclusive rights to commercialize Serenergy's patent-pending fuel cell technology to the global segment of vehicles, as well as exclusively in all segments of the US, Canada and Israeli markets, and to the United Nations organization, will be the starting-point of such activities. The Company plans to derive revenue from sales of these fuel cell products and related customized projects.
Results of Operations.
Year Ended December 31, 2009 and the Period from April 18, 2008 (Inception) to December 31, 2008
For the year ended December 31, 2009 and the period from April 18, 2008 (Inception) through December 31, 2008, we had revenue of $80,000 as compared to $21,000 for the period from April 18, 2008 (Inception) to December 31, 2008. The increase in revenue in 2009 versus 2008 was partially due to $65,000 sale of fuel cell technology in 2009 and also due to the agreement the Company had with Visator for $3,000 per month for services being outstanding for five months in 2009, versus seven months in 2008. The agreement began on June 1, 2008 and expired on June 1, 2009 and was not renewed. The cost of goods related to revenue was $61,750 for the year ended December 31, 2009 as compared to $8,050 for the period from April 18, 2008 (Inception) to December 31, 2008 due to consulting labor. The increase in 2009 versus 2008 was partially due to $56,000 of costs incurred related to the sale of the fuel cell technology in 2009 and also due to the consulting agreement the Company entered into with Jude Dixon to provide maintenance services being outstanding for five months in 2009 versus seven months in 2008. The agreement began from June 1, 2008 to May 31, 2009 and was not renewed.
For the year ended December 31, 2009, operating expenses totaled $290,903 compared to $142,879 for the period from April 18, 2008 (Inception) to December 31, 2008. The increase in operating expenses were mainly due to the accounting, audit, consulting, finance consulting and legal expenses of $180,730 that the Company incurred in 2009 versus $79,174 for the period from April 18, 2008 (inception) to December 31, 2008. The increase in selling, general and administrative expenses in 2009 versus 2008 is due to finance consulting expenses of $60,344 for the equity investment in Serenergy and board members fees of $3,158 for the new board members in 2009. The net loss was $279,701 for the year ended December 31, 2009 as compared to $131,198 for the period from April 18, 2008 (Inception) to December 31, 2008. The increase in net loss was mainly due to the Company operating for twelve months in 2009 versus eight and one-half months in 2008 since the Company incorporated on April 18, 2008.
For the year ended December 31, 2009 we also had interest expense of $2,701 related to in-kind contribution of interest on non-interest bearing loans payable-related party. For the period from April 18, 2008 (Inception) to December 31, 2008, we had interest expense of $1,269. The increase in interest expense in 2009 versus 2008 is due to the loans payable to related parties that were entered into in the third quarter of 2008.
Capital Resources and Liquidity
As of December 31, 2009, we had cash of $5,785. As of December 31, 2008, we had cash of $49. While we are attempting to commence operations and produce revenues, our cash position may not be significant enough to support our daily operations. Management intends to raise additional funds through debt or equity.
However, if we are unable to satisfy our cash requirements we may be unable to proceed with our plan of operations. We do not anticipate the purchase or sale of any significant equipment. We also do not expect any significant additions to the number of employees. The foregoing represents our best estimate of our cash needs based on current planning and business conditions. In the event we are not successful in reaching our initial revenue targets, additional funds may be required, and we may not be able to proceed with our business plan for the development and marketing of our core services. Should this occur, we will suspend or cease operations.
We anticipate that depending on market conditions and our plan of operations, we may incur operating losses in the foreseeable future. Therefore, our auditors have raised substantial doubt about our ability to continue as a going concern. We do not have enough cash to continue operations for twelve months without receiving additional debt or equity financing or increasing our revenues.
Operating Activities
Operating activities used $167,517, $46,015 and $213,532, respectively of cash during the year ended December 31, 2009 and for the period from April 18, 2008 (Inception) through December 31, 2008 and the period from April 18, 2008 (Inception) through December 31, 2009. We had a net loss of $279,701, $131,198 and $410,899 during the year ended December 31, 2009 and for the period from April 18, 2008 (Inception) through December 31, 2008 and the period from April 18, 2008 (Inception) through December 31, 2009, respectively. We had an increase in accounts receivable of $56,000, none and $65,000, in accounts receivable-related party of $7,000, $9,000 and $7,000 and in other assets of $0, $465 and $465, respectively offset by an increase in accounts and accrued expenses payable of $118,747, $17,618 and $136,365, and an increase in accounts and accrued expenses payable-related party of $26,743, $3,000 and $29,742, respectively. In addition, we had $0, $50,000 and $50,000 of series A convertible preferred stock issued for services - related party, $19,358, $22,500 and $41,858 of stock issued for consulting fees and services - related party, professional and board fees, in-kind contribution of interest for loans payable - related party of $2,701, $1,269 and $3,970, bad debt expense of $7,000, $0 and $7,000 and depreciation and amortization expense of $635, $261 and $896, respectively.
Investing Activities
We used $403,927, $1,789 and $405,716, respectively, of cash in our investing activities during the year ended December 31, 2009, and for the period from April 18, 2008 (Inception) through December 31, 2008 and the period from April 18, 2008 (Inception) through December 31, 2009. We used $402,780, $0 and $402,780, respectively, of cash for our Serenergy equity investment and $1,147, $1,789 and $2,936, respectively, for the purchase of property, plant and equipment during the year ended December 31 2009, and for the period from April 18, 2008 (Inception) through December 31, 2008 and the period from April 18, 2008 (Inception) through December 31, 2009.
Financing Activities
We had $577,180, $47,853 and $625,033, respectively, of cash provided by our financing activities during the year ended December 31, 2009, and the period from April 18, 2008 (Inception) through December 31, 2008 and the period from April 18, 2008 (Inception) through December 31, 2009. We had $575,400, $0 and $575,400, respectively, of proceeds from sale of common stock and series B preferred stock, $0, $2,853 and $2,853, respectively, of proceeds of loans payable to related party and $1,780, $45,000 and $46,780, respectively, of proceeds of notes payable to Toft Aps related party.
Off-Balance sheet arrangements
At December 31, 2009 and December 31, 2008, we had no off-balance sheet arrangements.
Spin Out
In May 2008, Visator, Inc. spun out, pro rata, all of its shares of our common stock held by it to their 42 shareholders. These shares were not registered under the Securities Act of 1933 and may not have been appropriately exempt from registration under the Act. Based upon same, if it is determined that the shares issued pursuant to this spin out do not qualify for this exemption we may be subject remedial sanctions. Such sanctions could include the payment of disgorgement, prejudgment interest and civil penalties. We may also be subject to prejudgment interest on such amount as well as civil penalties in amount that would have to be determined by the court.
We are not aware of any pending claims for sanctions against us based upon the failure to properly register such shares under the Securities Act of 1933. Nevertheless, it is possible that it could be determined that such shares may not have been exempt from registration and that we may be subject to sanctions and possible civil penalties. In the event that a shareholder brings a claim against us for failure to properly register these shares it could have an adverse affect on our results of operations and financial condition since we would need to pay fees to defend such claim or pay damages if the shareholder is successful in their claim against us.
Critical Accounting Policies
Going concern
The accompanying financial statements have been prepared under a going concern basis which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, we have incurred net losses from inception of $410,899. In addition at December 31, 2009 current liabilities exceed current assets by $144,956 and net cash used in operations is $167,517. These factors raise substantial doubt about our ability to continue as a going concern.
Management is pursuing other business relationships and believes that the actions presently being taken and the success of future operations will be sufficient to enable the Company to continue as a going concern.
In February 2010, we raised gross proceeds of $45,525 through the issuance of a note payable to IT Venture ApS for the purpose of funding operating expenses. We raised gross proceeds of $1,072 through the issuance of a note payable to Jesper Toft in January 2010 for the purpose of funding operating expenses.
However, there can be no assurance that the raising of debt or equity will be successful and that our anticipated financing will be available in the future, at terms satisfactory to the Company. Failure to achieve the equity and financing at satisfactory terms and amounts could have a material adverse effect on the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.
Revenue recognition
The Company’s revenues are derived from the sale of fuel cell technology The Company follows the guidance of the Securities and Exchange Commission’s FASB Accounting Standards Codification No. 605 for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price is fixed or determinable, the item has been shipped and collectability is reasonably assured.
The payment terms for the sale of fuel cell technology is 50% of the payment (“first payment”) is due when the order is placed. Items are shipped and revenue is recognized once the first payment is received. The remaining 50% is due 30 days after the delivery of the fuel cell technology.
Investments
Equity investments in companies over which the Company has no ability to exercise significant influence are accounted for under the cost method. The Company’s holds approximately 11% of Serenergy’s issued and outstanding shares as of December 31, 2009. The Company’s investment in Serenergy is accounted for based on the cost method.
Income taxes
The Company follows FASB Accounting Standards Codification No. 740, Income Taxes. Under the asset and liability method of FASB Accounting Standards Codification No. 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance can be provided for a net deferred tax asset, due to uncertainty of realization.
Net loss per common share
Net loss per common share is computed pursuant to FASB Accounting Standards Codification No. 260 , Earnings Per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. There were 100,000 Series A and 100,000 Series B convertible Preferred shares that were omitted from the calculation of diluted earnings per share as their inclusion is anti-dilutive as of December 30, 2009 and 2008.
Recently Issued Accounting Pronouncements
In June 2009, the FASB issued FASB Accounting Standards Codification No. 860 Transfers and Servicing. FASB Accounting Standards Codification No. 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. FASB Accounting Standards Codification No. 860 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No. 860 will have on its financial statements.
In June 2009, the FASB issued FASB Accounting Standards Codification No. 810, Consolidation. FASB Accounting Standards Codification No. 810 improves financial reporting by enterprises involved with variable interest entities. FASB Accounting Standards Codification No. 810 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No. 810 will have on its financial statements.
In June 2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP. The FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB Accounting Standards Codification No. 105 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in FASB Accounting Standards Codification No. 105. All other accounting literature not included in the Codification is nonauthoritative. The adoption of the Codification did not have on a significant impact on the Company’s financial statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Not required for smaller reporting companies.
Item 8.
Item 8. Financial Statements and Supplementary Data
The financial statements of the Company, together with the Reports of Independent Registered Public Accounting Firm thereon of Webb & Company, P.A., appear herein. See Index to Financial Statements, appearing on page.
Item 9.
Item 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure
There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.
Item 9A.
Item 9A. Controls and Procedures.
a) Evaluation of Disclosure Controls. Jesper Toft, our Chief Executive Officer and Principal Accounting Officer, evaluated the effectiveness of our disclosure controls and procedures as of the end of our fourth fiscal quarter 2009 pursuant to Rule 13a-15(b) of the Securities and Exchange Act. Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, as appropriate to allow timely decisions regarding required disclosure. Based on their evaluations, Jesper Toft concluded that our disclosure controls and procedures were effective as of December 31, 2009.
(b) Management’s Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statement for external purposes in accordance with U.S. generally accepted accounting principles. Internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Any system of internal control, no matter how well designed, has inherent limitations, including the possibility that a control can be circumvented or overridden and misstatements due to error or fraud may occur and not be detected in a timely manner. Also, because of changes in conditions, internal control effectiveness may vary over time. Accordingly, even an effective system of internal control will provide only reasonable assurance with respect to financial statement preparation. In addition, the design of any system of controls is based in part on 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, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Therefore, any current evaluation of controls can not and should not be projected to future periods.
Based on management's assessment, management has concluded that the Company's internal control over financial reporting was effective as of December 31, 2009 to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external reporting purposes in accordance with U.S. generally accepted accounting principles.
This Report does not include an attestation report of registered public accounting firm, regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this Report.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control systems, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(c) Changes in internal control over financial reporting. There have been no changes in our internal control over financial reporting that occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting. Our management team will continue to evaluate our internal control over financial reporting in 2010 as we implement our Sarbanes Oxley Act testing.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance
Our executive officer’s and director’s and their respective ages as of March 22, 2010 are as follows:
Set forth below is a brief description of the background and business experience of our sole executive officer and our directors for the past five years.
Jesper Toft, Chairman, CEO, CFO
Mr. Toft has been the owner of Toft ApS since May 2003, a Denmark-based company, which provides business development for companies. Mr. Toft has extensive management experience from several start-up companies. His core competence is business development, strategy, building sales and marketing and financing. Mr. Toft has been advising large enterprises regarding strategic development and participated in contract negotiations since 1997.
Term of Office
Our sole executive officer and one of our directors, Jesper Toft, was appointed to the offices of Chief Executive Officer, Chief Financial Officer and Chairman on April 18, 2008 until the first board meeting of the board of directors ensuing after the next annual meeting of shareholders and until their respective successors in said offices are duly elected and qualified or until his earlier resignation or removal by the board.
David J.P. Meachin, Member of the Board of Directors
Mr. Meachin has has served on public company boards for over 15 years, during which time he has been a member of the executive committee, chairman of the audit committee, and member of the compensation and governance committees. Mr. Meachin is founder, chairman, and CEO of Cross Border Enterprises, L.L.C., a New York based internationally-oriented boutique investment bank focused on the needs of technology companies. Prior to founding the firm he spent 20 years on Wall Street as a Managing Director in Investment Banking at Merrill Lynch and previously at Salomon Brothers, during which time he lived and worked in New York, London and Tokyo. David Meachin received his MBA with Distinction from Harvard Business School.
Term of Office
One of our directors, David J.P. Meachin, was appointed to the office of board member on October 30, 2009 for a three year term.
Robert J. Lynch, Jr., Member of the Board of Directors
Mr. Lynch has developed strong and lasting business relationships and experience over more than thirty years covering the U.S., Europe and Latin America - particularly in the fields of business development, M&A, finance and marketing. He has served on public and private corporate boards and their special committees. Robert Lynch has also acted as advisor/ strategist for many of the boards he has served on. Among these boards have been prominent engineering and contracting firms in the US and Europe as well as the boards of industrial development banks in Latin America and in Washington, DC.
Term of Office
One of our directors, Robert J. Lynch, Jr., was appointed to the office of board member on October 30, 2009 for a three year term.
Item 11.
Item 11. Executive Compensation
Summary Compensation Table; Compensation of Executive Officers
The following summary compensation table sets forth all compensation awarded to, earned by, or paid to the named executive officers earned by us during the period from April 18, 2008 (Inception) to December 31, 2009 in all capacities for the accounts of our executives, including the Chief Executive Officer (CEO) and Chief Financial Officer (CFO):
SUMMARY COMPENSATION TABLE
Option Grants Table. There were no individual grants of stock options to purchase our common stock made to the executive officers named in the Summary Compensation Table through December 31, 2009.
Aggregated Option Exercises and Fiscal Year-End Option Value Table. There were no stock options exercised during the years ended December 31, 2009 and 2008 by the executive officers named in the Summary Compensation Table.
Long-Term Incentive Plan (“LTIP”) Awards Table. There were no awards made to the named executive officer in the last two completed fiscal years under any LTIP.
Compensation of Directors
Directors are permitted to receive fixed fees and other compensation for their services as directors. The Board of Directors has the authority to fix the compensation of directors. The directors were paid a total of $3,158 and none in the year ending December 31, 2009 and the period from April 18, 2008 (Inception) to December 31, 2008.
Employment Agreements
As of December 31, 2009, we do not have an employment agreement in place with our sole officer and chairman of our board of directors.
Board of Director Agreements
On October 30, 2009, the Company entered into two Board of Director Agreements, with Robert J. Lynch Jr. and David J.P. Meachin, respectively, that lasts until December 31, 2012. During October 2009, the Company issued 1,000,000 in total to these two Board of Directors for services through December 31, 2012. The common stock has a fair value of $60,000 based on the fair value on the date of grant and will be amortized over the life of the services ($0.06 per share). For the year ended December 31, 2009, the Company has recognized board compensation expense of $3,158 under the agreement.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management
The following table provides the names and addresses of each person known to us to own more than 5% of our shares to be issued of common stock as of March 30, 2010 and by the officers and directors, individually and as a group. Except as otherwise indicated, all shares are owned directly.
(1) Based upon 22,620,030 common shares issued and outstanding as of March 30, 2010.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence
The agreement with Visator regarding the Separation and Distribution Agreement is no longer relevant as our prior activities have been stopped. On May 30, 2008, pursuant to a Separation and Distribution Agreement, we were spun out from Visator, Inc., ceasing to be their wholly owned subsidiary. Visator was one of two customers. The agreement with Visator expired on June 1, 2009 and was not renewed.
Our sole officer and director, Jesper Toft, is also the sole officer and director of Visator, Inc.
On June 30, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,000 to pay for incorporation filing fees of the Company.
On July 24, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,789 to pay for the Company’s website and design.
On July 23, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $64 to pay for incorporation filing fees of the Company.
On July 2, 2008, we executed a $35,000 promissory note to Toft ApS, a wholly owned company of Jesper Toft, the Chief Executive Officer, President and Director of the Company, in exchange for $35,000 cash. The note is due on demand and bears no interest.
On July 16, 2008, we authorized the issuance of 100,000 Series A Convertible Preferred Stock to Jesper Toft, the Chief Executive Officer, at its par value of $0.001. This compensation was for services rendered in relation to the filing of the Company’s registration statement. As of December 31, 2008, the Company had recorded the fair value of $50,000 as a consulting fee to Jesper Toft.
On August 18, 2008, the Company received a loan from Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $10,000 for funding the Company’s operating expenses. The note is due on demand, unsecured and bears no interest.
On June 8, 2009, the Company received a loan from Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $627 for funding the Company’s tax expense. The loan is due on demand, unsecured and bears no interest.
During 2009, the Company received a loan from Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,153 for funding the Company’s operating expenses. The loan is due on demand, unsecured and bears no interest.
Item 14.
Item 14. Principal Accountant Fees and Services
Audit Fees
Audit fees for 2009 were $13,238. Audit fees for 2008 were $8,933. All services provided by independent accountants were approved by the audit committee. Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s registration and annual statements, for review of interim financial statements included in quarterly reports and services that are normally provided by Webb & Company P.A. in connection with statutory and regulatory filings or engagements.
Audit Related Fees
The Company did not incur non audit related fees from Webb & Company P.A. in 2009 or 2008. Audit-Related Fees consist of fees billed for assurance and related services that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under “Audit Fees.”
Tax Fees
The Company did not incur tax fees from Webb & Company P.A. in 2009 or 2008. Tax Fees consist of fees billed for professional services rendered for tax compliance. These services include assistance regarding federal, state and local tax compliance.
All Other Fees
The Company did not incur any other fees from Webb & Company P.A. in 2009 or 2008.
Effective May 6, 2003, the Securities and Exchange Commission adopted rules that require that before our auditor is engaged by us to render any auditing or permitted non-audit related service, the engagement be:
-approved by our audit committee; or
-entered into pursuant to pre-approval policies and procedures established by the audit committee, provided the policies and procedures are detailed as to the particular service, the audit committee is informed of each service, and such policies and procedures do not include delegation of the audit committee's responsibilities to management.
We do not have an audit committee. Our entire board of directors pre-approves all services provided by our independent auditors.
The pre-approval process has just been implemented in response to the new rules. Therefore, our board of directors does not have records of what percentage of the above fees were pre-approved. However, all of the above services and fees were reviewed and approved by the entire board of directors either before or after the respective services were rendered.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules
(a) Exhibits and Financial Statements
(1) Financial Statements. See Index to Financial Statements
(2) Financial Statement Schedules. See pages 15 through 27, attached
(3) Exhibits
METHA ENERGY SOLUTIONS INC.
(FORMERLY INSCRUTOR, INC.)
(A DEVELOPMENT STAGE COMPANY)
FORM 10-K
YEAR ENDED DECEMBER 31, 2009
Webb & Company, PA.
Certified Public Accountants
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of:
Metha Energy Solutions Inc.(f/k/a Inscrutor, Inc.)
(A Development Stage Company)
We have audited the accompanying balance sheets of Metha Energy Solutions Inc. (f/k/a Inscrutor Inc.) (a Development Stage Company) (the “Company”) as of December 31, 2009 and 2008 and the related statements of operations, changes in stockholders’ equity (deficit) and cash flows for the year ended December 31, 2009, the period April 18, 2008 (Inception) to December 31, 2008 and the period April 18, 2008 (Inception) to December 31, 2009. 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 audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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 Metha Energy Solutions Inc. (f/k/a Inscrutor Inc.) (a Development Stage Company) as of December 31, 2009 and 2008 and the related statement of operations and cash flows for the year ended December 31, 2009, the period April 18, 2008 (Inception) to December 31, 2008 and the period April 18, 2008 (Inception) to December 31, 2009, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company is in the development stage with a net loss since inception of $410,899, a working capital deficiency of $144,956 and net cash used in operations since inception of $213,532. These factors raise substantial doubt about the Company's ability to continue as a going concern. Management's plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
WEBB & COMPANY, P.A.
Certified Public Accountants
Boynton Beach, Florida
March 16,
METHA ENERGY SOLUTIONS INC. (FORMERLY INSCRUTOR, INC.)
(A DEVELOPMENT STAGE COMPANY)
Balance Sheet at December 31, 2009 and December 31, 2008
See accompanying notes to the financial statements.
METHA ENERGY SOLUTIONS INC. (FORMERLY INSCRUTOR, INC.)
(A DEVELOPMENT STAGE COMPANY)
Statements of Operations
For the Year ended December 31, 2009 and the Period from April 18, 2008 (Inception) through December 31, 2008 and
Period from April 18, 2008 (Inception) through December 31, 2009
See accompanying notes to the financial statements.
METHA ENERGY SOLUTIONS INC. (FORMERLY INSCRUTOR, INC.)
(A DEVELOPMENT STAGE COMPANY)
Statement of Changes in Stockholders' Equity (Deficit)
For the Period from April 18, 2008 (Inception) through December 31,
See accompanying notes to the financial statements.
METHA ENERGY SOLUTIONS INC. (FORMERLY INSCRUTOR, INC.)
(A DEVELOPMENT STAGE COMPANY)
Statements of Cash Flows
For the Year ended December 31, 2009, the Period from April 18, 2008 (Inception) through December 31, 2008 and the
Period from April 18, 2008 (Inception) through December 31, 2009
See accompanying notes to the financial statements.
METHA ENERGY SOLUTIONS INC. (FORMERLY INSCRUTOR, INC.)
(A DEVELOPMENT STAGE COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 - ORGANIZATION
Effective October 12, 2009, the Company changed their name to Metha Energy Solutions Inc. (“Metha Energy” or “the Company” or “formerly Inscrutor”) (OTCBB: MGYS). Metha Energy focuses the business on commercializing advanced fuel cell technology. The Company has secured the rights to distribute for such patent pending products and represent these products in the North American market and within the global vehicle segment. Activities during the development stage involve developing the business plan and raising capital.
The Company was founded as Inscrutor, Inc. (“Inscrutor”), a development stage company, that was incorporated on April 18, 2008 under the laws of the State of Delaware. The technology that the Company owned was acquired via a Separation and Distribution Agreement on May 30, 2008 from Visator, Inc. (“Visator”), a Delaware corporation that specializes in on-line media monitoring. Prior to that time, Inscrutor was a wholly-owned subsidiary of Visator. Inscrutor was spun out from Visator with the purpose of ensuring optimal value-creation for the shareholders of both Inscrutor and Visator. According to the terms of the Separation Agreement, Visator decided to distribute the common stock of Inscrutor on a 1-for-1 basis to the holders of Visator’s common and preferred stock (“the Distribution”). On June 1, 2008 (the "Distribution Date"), Visator transferred its shares of Inscrutor to the shareholders of record of Visator common stock and preferred stock at the close of business on May 30, 2008 (the "Record Date"), without any consideration being paid by such holders. As of October 9, 2008, the stock certificates were delivered to shareholders. The Company derived revenue from a management services agreement with Visator. The agreement with Visator expired on June 1, 2009 and was not renewed. As of September 30, 2009 the Company wrote off the $7,000 receivable balance from Visator as the balance was deemed uncollectible. We no longer pursue any commercialization of software/technology nor do we invest in what we acquired from the Separation and Distribution agreement on May 30, 2008.
From the end of August, 2009, in connection with entering the agreement with Serenergy the Company decided to cease any further activity in the area of sophisticated data-mining technology.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going concern
The accompanying financial statements have been prepared under a going concern basis which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company is in the development stage with a net loss since inception of $410,899, a working capital deficiency of $144,956 and net cash used in operations since inception of $213,532. These factors raise substantial doubt about the Company’s ability to continue as a going concern. The Company does not have enough cash to continue operations for twelve months without receiving additional debt or equity financing or increasing our revenues.
Management believes that the actions presently being taken and the success of future operations will be sufficient to enable the Company to continue as a going concern.
However, there can be no assurance that the raising of equity will be successful and that the Company’s anticipated financing will be available in the future, at terms satisfactory to the Company. Failure to achieve the equity and financing at satisfactory terms and amounts could have a material adverse effect on the Company’s ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.
Revenue recognition
The Company’s revenues are derived from sales of fuel cell technology. The Company follows the guidance of the Securities and Exchange Commission’s Commission’s FASB Accounting Standards Codification No. 605 for revenue recognition. The Company will recognize revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when it has persuasive evidence of an arrangement that the services have been rendered to the customer, the sales price is fixed or determinable, the item has been shipped and collectability is reasonably assured.
The payment terms for the sale of fuel cell technology is 50% of the payment (“first payment”) is due when the order is placed. Items are shipped and revenue is recognized once the first payment is received. The remaining 50% is due 30 days after the delivery of the fuel cell technology.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Cash and cash equivalents
For purposes of the cash flow statements, the Company considers all highly liquid investments with original maturities of three months or less at the time of purchase to be cash equivalents.
Website Development Costs
The Company has adopted the provisions of FASB Accounting Standards Codification No. 350 Intangible-Goodwills and Other. Costs incurred in the planning stage of a website are expensed, while costs incurred in the development state are capitalized and amortized over the estimated three year life of the asset. For the year ended December 31, 2009 and the period ended December 31, 2008, the Company paid $0 and $1,789, respectively to develop its website.
Investments
Equity investments in companies over which the Company has no ability to exercise significant influence are accounted for under the cost method. The Company’s holds approximately 11% of Serenergy’s issued and outstanding shares as of December 31, 2009. The Company’s investment in Serenergy is accounted for based on the cost method.
Income taxes
The Company follows FASB Accounting Standards Codification No. 740, Income Taxes. Under the asset and liability method of FASB Accounting Standards Codification No. 740, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. A valuation allowance can be provided for a net deferred tax asset, due to uncertainty of realization. As of December 31, 2009, the Company has a net operating loss carryforward of approximately $406,000 available to offset future taxable income through 2029. The valuation allowance at December 31, 2008 was approximately $44,000. The net change in valuation allowance for the year ending December 31, 2009 was an increase of approximately $94,000.
The components of deferred income taxes are as follows:
Net loss per common share
Net loss per common share is computed pursuant to FASB Accounting Standards Codification No. 260, Earnings Per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding during the period. Diluted net loss per share is computed by dividing net loss by the weighted average number of shares of common stock and potentially outstanding shares of common stock during each period. 100,000 Series A convertible and 100,000 Series B convertible preferred shares were omitted from the calculation of earnings per share- diluted as their inclusion is anti-dilutive as of December 31, 2009 and 2008.
Fair Value of Financial Instruments
The carrying amounts reported in the balance sheet for the accounts receivable, accounts receivable-related party, accounts payable and accrued expenses, accrued expenses - related party, loans payable - related party and notes payable - related party approximate fair value based on the short-term maturity of these instruments.
Recently Issued Accounting Pronouncements
In June 2009, the FASB issued FASB Accounting Standards Codification No. 860, Transfers and Servicing. FASB Accounting Standards Codification No. 860 improves the relevance, representational faithfulness, and comparability of the information that a reporting entity provides in its financial statements about a transfer of financial assets; the effects of a transfer on its financial position, financial performance, and cash flows; and a transferor’s continuing involvement, if any, in transferred financial assets. FASB Accounting Standards Codification No. 860 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No. 860 will have on its financial statements.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES CONTINUED
Recently Issued Accounting Pronouncements continued
In June 2009, the FASB issued FASB Accounting Standards Codification No. 810, Consolidation. FASB Accounting Standards Codification No. 810 improves financial reporting by enterprises involved with variable interest entities. FASB Accounting Standards Codification No. 810 is effective as of the beginning of each reporting entity’s first annual reporting period that begins after November 15, 2009, for interim periods within that first annual reporting period, and for interim and annual reporting periods thereafter. The Company is evaluating the impact the adoption of FASB Accounting Standards Codification No. 810 will have on its financial statements.
In June 2009, the FASB issued FASB Accounting Standards Codification No. 105, GAAP. The FASB Accounting Standards Codification (“Codification”) will be the single source of authoritative nongovernmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. FASB Accounting Standards Codification No. 105 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in FASB Accounting Standards Codification No. 105. All other accounting literature not included in the Codification is nonauthoritative. The adoption of the Codification did not have on a significant impact on the Company’s financial statements.
NOTE 3 - PROPERTY AND EQUIPMENT
At December 31, 2009 and December 31, 2008, property and equipment is as follows:
Depreciation and Amortization expense for the year ended December 31, 2009, the period from April 18, 2008 (inception) to December 31, 2008 and for the period April 18, 2008 (inception) to December 31, 2009 was $635, $261 and $896, respectively.
NOTE 4 - INVESTMENT AGREEMENT
On August 27, 2009, the Company entered into an exclusive distribution agreement (the “Agreement”) with Serenergy A/S (“Serenergy”) where the Company was appointed by Serenergy as its exclusive distributor of Serenergy’s products in the United States, Canada, Israel and the United Nations (“The Territory”) for 72 months. The exclusivity period was amended and will lapse in August 2010 if the Company has not raised $1,500,000 of additional capital. As of December 31, 2009, the Company has not raised any money under this agreement.
On August 27, 2009 the Company entered into an exclusive distribution and manufacturing license agreement - vehicles (the “License Agreement”) with Serenergy where the Company was appointed by Serenergy as its exclusive distributor of Serenergy’s fuel cell related products to the segment of vehicles (the “Segment”) for 72 months. The exclusivity period was amended and will lapse in August 2010 if the Company has not raised $1,500,000 of additional capital. As of December 31, 2009, the Company has not raised any money under this agreement.
In connection with both agreements, the Company will set up a sales office in the United States which will provide the base of operation in order to develop potential customers within the Territory and within the Segment.
On August 27, 2009 the Company made an investment in Serenergy for 84,000 shares of Serenergy stock, or approximately 11% of the issued and outstanding shares, for approximately $402,000. The Company recognized the investment under the cost method of accounting. As of December 31, 2009, the Company owns approximately 11% of the issued and outstanding shares of Serenergy.
NOTE 5 - CONCENTRATION RISK
Cash
The Company maintains cash balances at several financial institutions. Accounts at these institutions are insured by the Federal Deposit Insurance Corporation in the aggregate up to $250,000 at December 31, 2009 and 2008. The Company also maintains cash balances at financial institutions in Denmark and accounts at these institutions are not insured by the Federal Deposit Insurance Corporation. At December 31, 2009, the Company had a cash balance of approximately $5,715 at a financial institution in Denmark.
Major Customers
For the year ended December 31, 2009, the period from April 18, 2008 (inception) to December 31, 2008 and the period from April 18, 2008 (inception) to December 31, 2009, the Company had two customers, who accounted for 100% of total revenues in the amount of $80,000, $21,000 and $101,000, respectively. One customer, Visator contributed $15,000, $21,000 and $36,000, respectively. This customer is a related party. The agreement with Visator expired on June 1, 2009 and was not renewed. The other customer, contributed $65,000, none, and $65,000, respectively. The Company plans to greatly expand their customer base in the upcoming year to mitigate this risk (See Note 11).
Accounts Receivable
As of December 31, 2009, the Company has an accounts receivable balance of $65,000 from a customer that represented 100% of accounts receivable and as of December 31, 2008 an accounts receivable balance of $9,000 from a customer Visator, a related party, which also represented 100% of the account balance.
NOTE 6 - LOANS PAYABLE - RELATED PARTY
On June 30, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,000 to pay for incorporation filing fees of the Company. The loan is due on demand, unsecured and bears no interest (See Note 11).
On July 24, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,789 to pay for the Company’s website and design. The loan is due on demand, unsecured and bears no interest (See Note 11).
On July 23, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $64 to pay for incorporation filing fees of the Company. The loan is due on demand, unsecured and bears no interest (See Note 11).
On June 8, 2009, the Company received a loan from Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $627 for funding the Company’s tax expense. The loan is due on demand, unsecured and bears no interest (See Notes 8 and 11).
During the year ended December 31, 2009, the Company received a loan from Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,153 for funding the Company’s operating expenses. The loan is due on demand, unsecured and bears no interest (See Notes 8 and 11).
NOTE 7 - NOTES PAYABLE - RELATED PARTY
On July 2, 2008, the Company executed a $35,000 promissory note to Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in exchange for $35,000 cash. The note is due on demand, unsecured and bears no interest (See Notes 8 and 11).
On August 18, 2008, the Company issued a promissory note to Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $10,000 for funding the Company’s operating expenses. The note is due on demand, unsecured and bears no interest (See Notes 8 and 11).
NOTE 8 - STOCKHOLDERS’ EQUITY
The Company was incorporated on April 18, 2008. The Company authorized 100,000,000 shares of common stock with a par value of $.001 and 10,000,000 shares of preferred stock with a par value of $.001, of which 100,000 shares are designated as Series A Convertible Preferred Stock. Per the Distribution agreement, as of June 1, 2008, the Company is committed to issuing 11,305,030 shares of common stock, par value $.001, to the shareholders of Visator. As of October 9, 2008, the shares were issued (See Note 1).
On July 2, 2008, the Company authorized the issuance of 20,000 shares of common stock to Anslow & Jaclin LLP for legal services related to the registration of the Company. As of December 31, 2008, the Company has recorded the fair value of $10,000 in legal fees for the share issuance.
On July 2, 2008, the Company authorized the issuance of 25,000 shares of common stock to Profit Planners, Inc. for accounting services related to the registration of the Company. As of December 31, 2008, the Company has recorded the fair value of $12,500 in consulting fees.
On July 16, 2008, the Company authorized the issuance of 100,000 Series A Convertible Preferred Stock to Jesper Toft, the Chief Executive Officer. This compensation for services is contingent upon the filing of the Company’s registration statement, which became effective on October 21, 2008. As of December 31, 2008, the Company has recorded the fair value of $50,000 in consulting fees to Jesper Toft.
The Series A Convertible Preferred stockholders are entitled to receive, when and if declared by the Board of Directors out of funds readily available for the purpose, dividends payable in cash (the “dividend payment date”). The aggregate amount of dividends paid to Series A Convertible Preferred stock shall be capped at $1,000,000. After the Series A Convertible Preferred stock dividends have been paid out, they will have no preference on dividends, but they will maintain their voting rights. The Series A Convertible Preferred stockholders are entitled to 1,000 votes per each share they hold on all matters submitted to a vote of the stockholders of the Company. At any time on or after the issuance date, the holders of Series A Convertible Preferred shares may convert a portion or all of their shares into Common stock only on a one to one basis.
On August 27, 2009, of the 10,000,000 shares of preferred stock authorized with a par value of $.001, the Company designated 100,000 shares as Series B Convertible Preferred Stock (See Note 4).
The Series B Convertible Preferred stockholders are entitled to receive, when and if declared by the Board of Directors out of funds readily available for the purpose, dividends payable in cash (the “dividend payment date”). The aggregate amount of dividends paid to Series B Convertible Preferred stock shall be capped at $570,000. The Series B Convertible Preferred stockholders are entitled to 1 vote per each share they hold on all matters submitted to a vote of the stockholders of the Company. At any time on or after the issuance date, the holders of Series B Convertible Preferred shares may convert a portion or all of their shares into Common stock only on a one to one basis.
On August 27, 2009 the Company sold an investor 10,000,000 shares of common stock with a par value of $.001 and 100,000 shares of Series B Convertible Preferred stock with a par value of $.001, for approximately $575,000 ($0.06 per share).
On August 27, 2009, the Company authorized the issuance of 40,000 shares of common stock to Soren Bansholt from IT Ventures for finance consulting services. For the period from April 18, 2008 (inception) to December 31, 2009, the Company has recorded the fair value of $2,400 in consulting fees ($0.06 per share).
On August 27, 2009, the Company authorized the issuance of 210,000 shares of common stock to a consultant for consulting services. For the period from April 18, 2008 (inception) to December 31, 2009, the Company has recorded the fair value of $12,600 in consulting fees ($0.06 per share).
On October 29, 2009, the Company authorized the issuance of 20,000 shares of common stock to a consultant for consulting services performed for the Company. For the period from April 18, 2008 (inception) to December 31, 2009 the Company has recorded the fair value of $1,200 in consulting fees ($0.06 per share).
During October 2009, the Company authorized the issuance of 1,000,000 shares of common stock (500,000 each respectively) to two members of the Board of Directors for services through December 31, 2012. The common stock has a fair value of $60,000 based on the fair value on the date of grant and will be amortized over the life of the services ($0.06 per share). For the year ended December 31, 2009, the Company has recognized board compensation expense of $3,158 under the agreement.
For the twelve months ended December 31, 2009, for the period April 18, 2008 (inception) to December 31, 2008, and for the period April 18, 2008 (inception) to December 31 2009, $2,701,$1,269 and $3,970, respectively were recorded as an in kind contribution of interest on related party notes (See Notes 6 and 7).
NOTE 9 - MANAGEMENT AGREEMENT
As part of the terms of the Separation Agreement described in Note 1, on June 1, 2008, Visator entered into a twelve month Management Services Agreement with the Company for consulting services pertaining to software maintenance provided to Visator’s management. The agreement provides for a management fee of $3,000 per month to be paid to the Company. For the year ended December 31, 2009, period from April 18, 2008 (Inception) to December 31, 2008 and the period from April 18, 2008 (Inception) to December 31, 2009, the Company has recorded revenue of $15,000, $21,000 and $36,000, respectively to reflect five, seven and twelve months worth of services, respectively. The agreement expired on June 1, 2009 and was not renewed (See Notes 9 and 10).
NOTE 10 - COMMITMENTS AND CONTINGENCIES
Operating lease
The Company does not currently have an operating lease for their office located in New York City. Office expense fees of approximately $200 are paid on a month to month basis for basic office services.
Consulting agreement- Related party
Effective May 1, 2008, the Company entered into a consulting agreement with Jesper Toft, CEO, to provide consulting services from May 2008 to August 2009 at a rate of $1,000 per month. On September 1, 2009, the Company amended the consulting agreement starting in September 2009 to a rate of $12,000 per month on a month to month basis. As of December 31, 2009, the Company has recorded a related party liability of $29,743 under these agreements and for the period April 18, 2008 (Inception) to December 31, 2009 expenses of $64,000. (See Note 11)
Consulting agreement
On June 1, 2008, the Company entered into a consulting agreement with a consultant to provide maintenance services from June 1, 2008 to May 31, 2009 at a rate of $1,150 per month. As of December 31, 2009, the Company has recorded a liability, net of repayment, of $6,772 and for the period April 18, 2008 (Inception) to December 31, 2009 an expense of $13,800 based on this agreement and the agreement was not renewed.
On September 1, 2009, the Company entered into a consulting agreement with a consultant to provide maintenance services from September 1, 2009 to February 28, 2010 at a rate of approximately $5,000 per month. As of December 31, 2009, the Company has recorded a liability of approximately $5,700 and an expense of approximately $20,000 based on this agreement.
During October 2009, the Company entered into agreements with its two members of the Board of Directors to pay directors fees of $60,000 per year beginning the first period after the Company receives $2,000,000 in funding. As of December 31, 2009, the Company has not received $2,000,000 in funding and no fees have been paid. In addition, the agreement calls for the payment of additional directors fees of 1% per director based on the total capital up to $50,000,000 each upon receiving the additional financing.
NOTE 11 - RELATED PARTY TRANSACTIONS
For the period from April 18, 2008 (inception) to December 31, 2009, the Company had two customers, one of which was, Visator, who individually accounted for 19% of total revenues in the amount of $15,000 for the year ended December 31, 2009. This customer was also a related party. The agreement with Visator expired on June 1, 2009 and was not renewed. (See Note 5).
As of December 31, 2009 and December 31, 2008, the Company has an accounts receivable balance of $65,000 and $9,000, respectively. These amounts were owed by two different customers, one of which, Visator is a related party (See Note 5). As of December 31, 2009, the Company wrote off the $7,000 receivable balance from Visator as the balance was deemed uncollectible and the relationship between the Company and Visator was terminated.
Effective May 1, 2008, the Company entered into a consulting agreement with Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, to provide consulting services from May 2008 to August 2009 at a rate of $1,000 per month. On September 1, 2009, the Company amended the consulting agreement starting in September 2009 to a rate of $12,000 per month. As of December 31, 2009, the Company has recorded a related party liability of $29,743 based on this agreement (See Note 10) and for the period from April 18, 2008 (Inception) to December 31, 2009, expenses of $64,000.
On June 30, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,000 to pay for incorporation filing fees of the Company. The loan is due on demand, unsecured and bears no interest (See Note 6).
On July 24, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,789 to pay for the Company’s website and design. The loan is due on demand, unsecured and bears no interest (See Note 6).
On July 23, 2008, the Company received a loan from Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $64 to pay for incorporation filing fees of the Company. The loan is due on demand, unsecured and bears no interest (See Note 6).
NOTE 11 - RELATED PARTY TRANSACTIONS CONTINUED
On July 2, 2008, the Company executed a $35,000 promissory note to Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in exchange for $35,000 cash. The note is due on demand, unsecured and bears no interest (See Note 7).
On August 18, 2008, the Company executed a promissory note to Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in exchange for $10,000 for funding the Company’s operating expenses. The note is due on demand, unsecured and bears no interest (See Note 7).
On June 8, 2009, the Company received a loan from Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $627 for funding the Company’s tax expense. The note is due on demand, unsecured and bears no interest (See Note 6).
During the year ended December 31, 2009, the Company received a loan from Toft ApS, a wholly owned company of Jesper Toft, the Chairman of the Board of Directors, Chief Executive Officer and Chief Financial Officer of the Company, in the amount of $1,153 for funding the Company’s operating expenses. The loan is due on demand, unsecured and bears no interest (See Note 6).
For the twelve months ended December 31, 2009, for the period April 18, 2008 (inception) to December 31, 2008, and for the period April 18, 2008 (inception) to December 31, 2009, $2,701, $1,269 and $3,970, respectively were recorded as an in kind contribution of interest on related party notes (See Notes 6 and 7).
NOTE 12 - SUBSEQUENT EVENTS
In January 13, 2010, the Company received a loan of $1,072 from Jesper Toft for the purpose of funding operating expenses.
In February 2010, the Company executed a note payable to IT Ventures Aps in exchange for $45,525 for funding the Company’s operating expenses. The note is due on August 31, 2010 and bears monthly interest of 2.5%. The Company has the option to extend the note up to four months, with an interest rate of 3% for each additional month.
Exhibits
Exhibit No.
14.1
Code of Ethics
31.1
Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer
31.2
Rule 13a-14(a)/15d-14(a) Certification of the Principal Accounting Officer
32.1
Certification Pursuant to 18 U.S.C. §1350 of Chief Executive Officer
32.2
Certification Pursuant to 18 U.S.C. §1350 of the Principal Accounting Officer
SIGNATURES
In accordance with Section 13(a) or 15(d) of the Exchange Act, the registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.