ITEM 1. DESCRIPTION OF BUSINESS
Company background.
We were incorporated February 15, 2005 in the State of Delaware. Our principal executive offices are located at 15455 N. Greenway-Hayden Loop, Suites C4 and C12, Scottsdale, Arizona 85260. Our telephone number is 480.619.4747 and our facsimile number is 480.619.4740.
Effective June 30, 2008 we changed our name to “GWS Technologies, Inc.” to reflect our decision to focus more of our resources on providing wind turbines and other wind and solar products and alternative energy solutions to the government and consumer markets. We sell these products through direct marketing and also on an ecommerce portion of our website, www.greenwindsolar.com.
We provide wind turbines and other wind and solar products and alternative energy through direct marketing and also on an ecommerce portion of our website, www.greenwindsolar.com. During the past several quarters we have focused on the following two main areas to expand our business: (1) joint venturing with landowners to build solar farms; and (2) retrofitting commercial buildings with alternative energy equipment, concentrating on solar power installations in Arizona.
Solar Farms
We anticipate significant growth from construction of solar farms which generate electricity that can be sold to end-users and utility companies and which will allow us to participate in long-term power purchase agreement revenues (typically 20-25 year contracts). Our business model is to assist the landowner in the design, planning/zoning, and construction/installation of solar arrays on suitable properties throughout the Southwest, with the initial emphasis on projects in Arizona and Texas; we are also going to supply the materials (such as photovoltaic panels, inverters, racks, and tracking motors, as necessary) for these projects and thereby leverage our existing alternative energy product distribution relationships.
With new government incentives and enhanced tax credits for homes and businesses through the American Recovery and Reinvestment Act, Arizona is now poised to expand its solar power production dramatically. 28 states, including Arizona, have a Renewable Energy Standard which requires regulated utilities to buy a growing percentage of their electricity from renewable energy projects like solar farms and commercial retrofits.
We have partnered with Dominion Real Estate Partners, Inc. (DREP) to provide solutions and technology integration on alternative energy projects in Texas and Arizona. DREP is a real estate and development holding company; the principals of the company also are the Managing Partners and founders of Dominion Real Estate Partners LLS, a full service residential and commercial real estate company with over 160 associates in 15 offices in Arizona, Texas, and California.
DREP is currently planning a 118 acre solar farm in Lubbock, Texas which could provide power to a planned housing development and federal facilities continuous to Lubbock Airport. The initial project was designed in conjunction with Texas Tech University. The estimated cost of the entire project is approximately $250 million.
We are also submitting proposals to utilities in Arizona which are actively seeking renewable energy from small generation resources. Many of these proposals are subject to non-disclosure agreements.
Commercial Retrofitting for Solar Power
We have also partnered with building owners and managers to retrofit their commercial buildings with solar power. There are significant incentives from state and federal government and from utility companies for building owners to “go green”. There is also the threat of a “cap and trade” system to limit carbon production by businesses, which will force business owners to produce at least some of their own electricity through solar panel or wind turbine installations. We are currently working with the building owners and managers to obtain financing for these retrofits.
In addition to supply the solar panels and equipment to retrofit these buildings, we will assist the end-user to apply for certification under Arizona’s Commercial/Industrial Solar Energy Tax Credit Program. The primary goal of this program is to stimulate the production and use of solar energy in commercial and industrial applications by subsidizing the initial cost of solar energy devices. Tax credits can be used to offset Arizona income tax liability; any unused credit amounts can be carried forward for a five-year period.
Despite a new emphasis on solar farms and commercial retrofits, we are continuing to operate our alternative/renewable energy product distribution business. These product lines include both industrial and consumer products based on alternative energy technologies, including wind turbines and solar chargers ranging from handheld devices that can power an iPod to large vertical wind turbines that can power a building.
In the past we attempted entry into the carbon offset sector of the “green” industry by offering the public the ability to calculate their respective “carbon footprints” on our website, with the intent to ultimately offer and sell carbon offsets to both consumers and businesses; however, our entry into this market sector has been delayed, initially due to our lack of ability to finance the purchase of such carbon credits for inventory and sale, and now because (i) our existing staff is concentrating on the business areas specified above, and (ii) the market for these offsets has experienced significant volatility.
Market Analysis Summary
In the first days of his administration, President Obama announced that he would seek to raise the amount of electricity generated from renewable energy to 10% of total U.S. capacity by 2012 (currently this figure is about 3%).
Arizona is an Emerging Solar Producer. Until recently, the solar industry in Arizona has been stagnant. Arizona is approximately sixth among all 50 states in terms of solar installations per capita but has the highest solar exposure in the continental United States (in contrast, because of state tax incentives and rebates for commercial and residential solar installation, New Jersey ranks second after California in terms of solar capacity, but its solar exposure levels are among the bottom tier of US states). Until recently, Arizona has lacked any significant solar cell manufacturing and research and development. In the sunniest state in the country nearly 40% of the state’s energy is derived from coal. The solar industry in Arizona primarily consists of solar installers for homes and businesses, which are distributors of predominantly foreign photovoltaic (PV) or solar panels. With new government incentives and enhanced tax credits for homes and businesses adding solar components mandated by the U.S. Economic Recovery Act, Arizona is now poised to expand its solar power production dramatically.
On June 4, 2009 the Arizona Republic reported that “a modern-day land rush is under way in the deserts of Arizona and the Southwest as public utilities and speculators vie for vast tracts of public and private land on which to build massive solar-power plants.” The article went on to state that the “boom” is creating a market and boosting the price for outlying-subdivision land that had become seemingly unsalable after the housing market went bust. The land rush is being driven by rules in Arizona, California and other states that require utilities to generate more power from renewable resources: 15 percent in Arizona by 2025 and 33 percent in California by 2020.
Generous state and federal subsidies, plus billions in economic-stimulus money earmarked for solar power, create an additional incentive to tie up land. According to the National Renewable Energy Laboratory, Arizona has some of the richest solar land in the country, and the state has become a focal point for new solar farm development. Much of the prime land for solar use is along the Interstate 10 corridor between Buckeye and the California state line. Other hot spots can be found around Kingman and west of Wickenburg.
More than 40 solar projects have currently been proposed for Arizona. If built, they would tie up more than 725,000 acres and generate enough electricity to power 25 million homes, far more than Arizona needs. California has 60 applications that total 575,000 acres and Nevada 39 active applications for about 300,000 acres.
Solar manufacturing companies are expecting a combination of slowing demand and increasingly available supplies of both finished product and underlying manufacturing capacity, leading most analysts to predict solar panel prices to fall 10% to 20% in 2009. Additionally, prices for poly-silicon, a key solar panel component, could fall as supplies of this component improve. Some industry analysts claim that for a solar panel company to be successful over the long term, their products have to be able to create electricity in the range of 8 to 12 cents per kilowatt hour, without subsidies. This has created a condition in which landowners can cost-effectively build solar farms.
Recent Court Decision May Promote Solar Growth in Arizona. On September 2, 2009, a Maricopa County Superior Court judge ruled that the Arizona Corporation Commission (“ACC”) has the authority to set renewable energy standards and allow utilities to collect tariffs to meet them. The ACC instituted the standards in 2006 requiring all utilities that it oversees to provide 15 percent of their power from renewable sources by 2025. In order to do that, many of the utilities raised funds through special tariffs associated with renewable energy.
The ruling affirmed the ability of the ACC to set such standards, despite a lawsuit brought by the Goldwater Institute on behalf of several Arizona utility clients. The ruling is generally seen as a victory for the ACC and the state’s solar industry, as the pending lawsuit had been one of the roadblocks to the location of manufacturing and research facilities in the state. This was also an important ruling because it confirms that the renewable energy standards come under the ACC’s ratemaking authority, and that constitutional authority cannot be interfered with by the Legislature. The ruling was widely seen as a way to spur renewable energy development in Arizona.
The Growth of Wind Turbine Sales. Over the last decade worldwide wind turbine sales have an annual growth rate of approximately 29%. Renewable energy industry sources claim that wind power is the world's fastest growing source of energy, with expansion over the next two decades predicted at double-digit rates. The two main types of wind turbines currently dominating the market are the conventional, propeller-type "horizontal axis" wind turbines (HAWTs), and the new “vertical axis” wind turbines (VAWTs) that are touted as being more wildlife friendly and more efficient in lower wind speeds. At year end 2007, wind turbines producing over 90,000 megawatts of electrical power had been installed worldwide. This was forecast to increase by approximately 30% in 2008, a forecast which proved conservative according to recent figures.
The American Wind Energy Association (AWEA), a national trade association for the domestic wind power industry, recently announced that the U.S. wind energy industry had a record year in 2008 by installing 8,358 megawatts (MW) of new generating capacity, which is approximately enough energy to power 2 million homes. The significant growth in 2008 increased domestic wind power generating capacity by 50% and channeled an investment of approximately $17 billion into the economy. However, due to the current economic downturn, financing for new project and orders for wind turbine components slowed at year’s end and layoffs began affecting the wind turbine manufacturing sector.
The U.S. Dept. of Energy, the American Wind Energy Association and the National Renewable Energy Laboratory have all opined that 20% of the nation's electricity could come from renewable wind energy within the next twenty years. The growth in wind energy is being driven by several factors, including short supplies of fossil fuels like oil and natural gas. While nuclear power is an option that countries such as France have embraced, it is expensive, and disposing of radioactive byproducts is problematic and the source of widespread opposition to new nuclear plants.
The cost per kWh of energy produced by wind turbines is expected to be one of the cheapest sources of renewable energy. As costs increase for fossil fuel energy sources, wind energy will not need government subsidies to be competitive.
Green Companies Will Benefit From EPA Ruling, Proposed Climate Bill. A major focus of the new administration is energy independence and the expedited development of wind, solar, and other clean energy sources. We believe new legislation will have a significant impact on our industry and our business during the coming year. House Energy and Commerce Committee Chairman Henry Waxman has proposed a climate bill that would require businesses to reduce their greenhouse gas emissions by twenty percent by 2020. The bill began its opening round of debate in Congress during the week of April 21, 2009. The hearings followed the Environmental Protection Agency’s ruling on April 17, 2009 that greenhouse gases pose a danger to the public, a finding that opens the way for new regulation of cars, power plants and factories. Mr. Waxman also stated that he believes that most of the estimated $646 billion in revenue raised from carbon permits under the proposed cap-and-trade system should be spent on green technologies. The Company believes that the recent finding by the EPA, and the requirements for greener building standards, will create a tremendous demand for green industrial parks nationwide.
Domestic Wind Turbine Market Trends. A recent report published by veteran research market firm BCC Research and titled Wind Turbines: The US Market forecasts that the domestic United States’ market size for wind turbine components and systems will reach $60.9 billion US in 2013.
Wind power was second only to natural gas plants in new capacity from 2005 through 2007, and provided 35% of all new generation added domestically in 2007. According to AWEA, the new wind projects completed in 2008 account for about 42% of the entire new power-producing capacity added nationally last year, and will avoid nearly 44 million tons of carbon emissions, the equivalent of taking over 7 million cars off of the road. Current wind energy generating capacity in the U.S. is about 25,170 MW, producing enough electricity to power the equivalent of close to 7 million homes. The top five states in terms of capacity installed are now:
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Texas, with 7,116 MW
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Iowa, with 2,790 MW
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California, with 2,517 MW
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Minnesota, with 1,752 MW
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Washington, with 1,375 MW
Canadian Wind Turbine Market Trends. We have been actively pursuing the growing Canadian small wind turbine market. According to the Canadian Wind Energy Association (CanWEA), Canada has still only scratched the surface of its massive wind energy potential. Total spending on wind energy in North America is expected to double by 2010 to $7.5 billion annually, with microgeneration systems providing a significant portion of the overall electricity generated. The majority of small wind turbines installed in Canada originate from the United States.
In January 2009 the Government of Ontario announced that it had signed long-term contracts for six new wind energy projects in the province. The announcement brings Ontario's installed wind energy capacity to 1,500 MW. Currently, the province generates wind power with 782 MW of capacity, enough to power 230,000 homes. Canada's total installed capacity sits at 2,369 MW - Ontario is currently the wind technology leader in the country, accounting for roughly one-third of that number. CanWEA has set a goal of wind energy providing 20% of Canada's electricity needs.
Domestic Solar Installation Trends. A report issued by the California Public Utilities Commission stated that residential and commercial rooftop installations more than doubled in 2008 from the previous year to 158 megawatts of producing power. Reinforcing the perception that state and federal incentives have a major impact on new installations, the report noted that there was a surge in applications to participate in California’s $3 billion solar rebate program in the fourth quarter of 2008 after Congress lifted the $2,000 cap on the federal tax credit on solar arrays in October 2008 (allowing homeowners and businesses to take a 30% tax credit on systems installed after Dec. 31st), which, coupled with an additional California state rebate, cut the real cost of a solar system in California in half. The report concluded that, in addition to environmental benefits such as cutting greenhouse gas emissions and other pollutants, it appears that solar energy is benefiting California by serving as an economic bright spot in the economy.
California regulators caution that many homeowners and business owners may leave the program and cancel their applications if the economy continues to deteriorate rapidly this year. The current dropout rate is 15%, according to the report. Municipal programs also are expected to have an effect on new alternative energy installations. Berkeley, California has launched a program that pays for residential and business solar arrays and lets owners pay the cost back over twenty years through an annual assessment on their property taxes.
Alternative Energy Trends - Global. According to an article dated February 2, 2009 in Reuters, the United States overtook Germany as the biggest producer of wind power last year and will likely take the lead in solar power this year. The article cited an expected "Obama bounce" from a new President who has vowed to boost clean energy, and additional impetus from political and business leaders worldwide who have urged "green growth" spending on clean energy to fight both recession and climate change.
German wind power capacity reached nearly 24 GW, placing it second ahead of Spain and fourth-placed China, which doubled its installed wind power for the forth year running, said the Brussels-based Global Wind Energy Council. Spanish wind power business group AEE said that it expected similar growth in 2009 as last year.
Generally, the wind sector is now suffering from a financial crisis which has dried up project finance and a sharp fall in oil prices which has weakened its competitiveness compared to gas, but it is aided by subsidies such as a guaranteed price premium in Germany and Spain.
A February 4, 2009 article in the International Herald Tribune noted that the credit crisis and broad economic downturn was causing pronounced slowing of wind and power projects worldwide, except in some isolated markets, like China, which has shown no signs of a slowdown. Wind and solar developers have been left hunting for capital because the number of banks and financial institutions willing to help installation of wind turbines and solar arrays has dropped significantly. The effects of the banking crisis were also being felt in Europe, although industry groups said it was too soon to tell what effect the credit freeze would have on the fast-growing sector. Solar experts also report that demand in Europe has softened, a combination of a seasonal slowdown for winter and a recent cap on solar installations in Spain.
Despite current financial conditions, European Union leaders agreed that the bloc should get a fifth of all its energy from renewable sources by 2020 compared with about 10 percent now.
Effect of existing or probable governmental regulations on our business. Our business is affected by a wide range of municipal, county, state and federal regulations and may be influenced by the announcement of proposed regulations by the new administration and Congress. A major focus of the new administration is energy independence and the expedited development of wind, solar, and other clean energy sources.
On February 8, 2009, the Chicago Tribune reported that President Obama is planning to replace imported oil and other fossil fuels with a "clean-energy economy" powered by the wind, the sun and biofuels. Energy Secretary Steven Chu was quoted as saying that we need a second Industrial Revolution that can generate energy cleanly, cheaply and sustainably. According to the article, by the end of 2009, the Energy Department's spending on 35 years of clean-energy research will exceed the total inflation-adjusted cost of the Apollo program which sent men to the moon, and the Manhattan Project, which developed the nuclear bomb, an estimated $117 billion combined. That research, economists say, has made wind, solar and other alternative sources of energy cheaper, but still not as inexpensive as fossil fuels. Renewable sources make up about the same sliver of America's energy portfolio as they did three decades ago, about 7 percent, while the nation's reliance on imported oil has doubled. We believe new legislation will have a significant impact on our industry and our business during the coming year.
Domestic Legislation
The American Recovery and Reinvestment Act of 2009 contains provisions which support alternative energy production. The act includes a new grant program, a three-year extension of the production tax credit, several provisions to promote transmission for renewable energy, and key changes to benefit small wind systems.
President Obama has outlined a range of policies that would encourage investments in renewable energy, including:
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adjusting the federal production tax credit (PTC) to make it more effective in the current economic downturn and extending it for a longer term (it expires at the end of 2009);
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establishing a national renewable electricity standard (RES) with a target of generating at least 25% of the nation’s electricity from renewables by 2025, and a near-term target of 10% by 2012 (a Washington Post poll in early December found that 84% of Americans support such a standard);
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legislation and initiatives to develop a high-voltage interstate transmission “highway” for renewable energy; and
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national climate change legislation that would promote the use of wind and solar power.
Production Tax Credit (PTC) Extension
In October 2008, Congress acted to provide a one-year extension of the Production Tax Credit through December 31, 2009.
Description: Under present law, an income tax credit of 2.1 cents/kilowatt-hour is allowed for the production of electricity from utility-scale wind turbines. This incentive, the renewable energy Production Tax Credit (PTC), was created under the Energy Policy Act of 1992 (at the value of 1.5 cents/kilowatt-hour, which has since been adjusted annually for inflation).
Current Status: The PTC is scheduled to expire on December 31, 2009. Since its establishment in 1992, the PTC has undergone a series of short term extensions, and has been allowed to lapse in three different years: 1999, 2001 and 2003. Each time the PTC has been allowed to expire, the wind industry has seen a 73-93% drop in wind energy installations in the subsequent year.
Renewable Electricity Standard
Description: A national renewable electricity standard (RES) - also known as a renewable portfolio standard (RPS) - would, for the first time, mandate that public utilities in every state obtain a minimum percentage of their electricity from renewable sources by a certain date or be required to purchase tradable credits for renewable electricity produced elsewhere. Twenty-eight states already have renewable electricity standards, and these measures have proven effective incentives for the development of wind and other renewable energy sources. A national policy would streamline this uneven patchwork and drive greater investment in solar and wind industry manufacturing.
The Obama-Biden New Energy for America Plan calls for 10% of U.S. domestic electricity to be produced from renewable sources by 2012, and 25% by 2025. The President believes that this national requirement will spur significant private sector investment in renewable sources of energy and create thousands of new American jobs, especially in rural areas. Each large utility-scale wind turbine that goes on line generates over $1.5 million in economic activity. Each turbine also provides about $5,000 in lease payments per year for 20 years or more to a farmer, rancher or other landowner.
Current Status of National RES: Legislation to establish a national RES has been considered by the U.S. Congress since 1997. Since that time, the Senate has passed RES proposals on three separate occasions. In 2007, for the first time in history, the U.S. House of Representatives voted in favor of including an RES as part of its energy bill. This bill would have established a 15% RES by 2020 and allowed 4% of the standard to be met through efficiency improvements, should states so choose. The Senate energy bill did not include a RES due to the uncertainty that the 60 votes needed to overcome a likely filibuster would have been secured.
AWEA predicts that states will focus on RES, transmission for renewables: The American Wind Energy Association, which is the national trade association for the wind energy industry, expects one or more states to implement (Indiana) or strengthen (Wisconsin and New York) their RES, bringing the number of states with an RES from 28 to perhaps 30. The industry association also predicts that some states, including some without an RES (Oklahoma, Kansas, Nebraska) will develop a process to facilitate investment in transmission for electricity generated using renewables. Texas, Colorado, Minnesota, and California have already shown the way with pro-active transmission policies for renewable energy.
Increased incentives for “small wind”. Homeowners, farmers, and small-business owners now benefit from a federal incentive enacted in late 2008 for the purchase of small wind turbines for home, farm, or business use. Owners of small wind systems with 100 kilowatts (kW) of capacity and less can receive a credit for 30% of the total installed cost of the system, with no limit.
The Environmentally Preferable Purchasing Program. The Environmental Protection Agency's Environmentally Preferable Purchasing Program, or EPP, started in 1993 after the signing of Executive Order 12873, and continues today under Executive Order 13423. The program originally created by with the purpose of using the federal government's enormous buying power to stimulate market demand for green products and services. Environmentally preferable means "products or services that have a lesser or reduced effect on human health and the environment when compared with competing products or services that serve the same purpose.” This comparison applies to raw materials, manufacturing, packaging, distribution, use, reuse, operation, maintenance, and disposal.
The United States federal government is one of the world's largest consumers. Indeed, it is the single largest consumer of goods and services within the United States, with total spending estimated at $350 billion for goods and services each year. Therefore, the federal government’s purchasing power exerts a tremendous influence on which products and services are available in the national marketplace. The Environmentally Preferable Purchasing Program works to ensure that federal government's buying power is working to the greatest extent possible to increase availability of environmentally preferable products, which in turn minimizes environmental impacts.
Federal agencies are directed by federal laws, regulations and executive orders to make purchasing decisions with the environment in mind. Most recently, these requirements have included Executive Order 13423, titled “Strengthening Federal Environmental, Energy and Transportation Management”, which orders federal agencies to use sustainable practices when buying products and services. For the Federal government as a whole, the President's Office of Management and Budget has issued a series of scorecards to help track progress of Federal agencies in implementing this program. Green purchasing progress is measured in the Environmental Stewardship Scorecard. These scorecards are for internal government use.
Executive Order 13514. On October 5, 2009 President Obama signed Executive Order (E.O.) 13514, titled Federal Leadership in Environmental, Energy, and Economic Performance. It expanded upon the energy reduction and environmental performance requirements for federal agencies.
E.O. 13514 sets numerous Federal energy requirements in several areas, including:
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Accountability and Transparency
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Strategic Sustainability Performance Planning
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Greenhouse Gas Management
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Sustainable Buildings and Communities
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Electronic Products and Services
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Pollution Prevention and Waste Reduction
Accountability and Transparency
E.O. 13514 accountability, transparency, and reporting requirements include:
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Within 30 days, Federal agency heads must designate a senior management official to serve as Senior Sustainability Officer accountable for agency conformance. The Senior Sustainability Officer designation must be reported to the Chair of the Council on Environmental Quality (CEQ) and the Director of the Office of Management and Budget (OMB). The Senior Sustainability Officer shall:
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Prepare targets for agency-wide reductions in 2020 for greenhouse gas (GHG) emissions.
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Within 240 days, prepare and submit a multi-year Strategic Sustainability Performance Plan to the Chair of the Council on Environmental Quality (CEQ) and the Director of the Office of Management and Budget (OMB) for review and approval.
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Agency efforts and outcomes in implementing E.O. 13514 must be transparent and disclosed on publicly available Federal Web sites.
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OMB must prepare scorecards providing periodic evaluation of Federal agency performance. Scorecard results must be published on a publicly available Web site.
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The CEQ Chair must ensure that Federal agencies are held accountable for conforming to the requirements of E.O. 13514.
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Agency heads shall decide that this order applies in whole or in part with respect to the activities, personnel, resources, and facilities of the agency not located within the U.S. if determined that such application is in the interest of the U.S.
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Agency heads may submit to the President, through the CEQ Chair, an exemption request covering an agency activity and related personnel, resources, and facilities.
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The Director of National Intelligence may exempt an intelligence activity and related personnel, resources, and facilities when in the interest of national security.
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To the maximum extent practical and without compromising national security, each agency shall strive to comply with the purposes, goals, and implementation steps of E.O. 13514.
Strategic Sustainability Performance Planning
Federal agencies are required to develop, implement, and annually update a Strategic Sustainability Performance Plan that prioritizes agency actions based on life-cycle return on investment. Between fiscal years 2011 and 2021, each plan shall:
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Include a policy statement committing the agency to comply with environmental and energy statutes, regulations, and executive orders.
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Achieve established sustainability goals and targets, including greenhouse gas reduction targets.
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Be integrated within each agency's strategic planning and budgeting process.
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Identify agency activities, policies, plans, procedures, and practices relevant to the implementation of E.O. 13514 and, where necessary, provide for development and implementation of new or revised policies, plans, procedures, and practices.
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Identify specific agency goals, schedules, milestones, and approaches for achieving results and quantifiable metrics required by E.O. 13514.
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Outline planned actions to provide information about agency progress, performance, and results on a publicly available Federal Web site.
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Incorporate actions for achieving progress metrics identified by the CEQ Chair and OMB Director.
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Evaluate agency climate change risks and vulnerabilities to manage the effects of climate change on the agency's operations and mission in both the short and long term.
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Consider environmental measures as well as economic benefits, social benefits, and costs in evaluating projects and activities based on life-cycle return on investment.
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Annually identify opportunities for improvement and evaluate past performance to extend or expand projects that have net benefits as well as reassess or discontinue under-performing projects.
The CEQ Chair and OMB Director are responsible for reviewing and approving each agency's multi-year strategic sustainability performance plan.
Greenhouse Gas Management
Greenhouse gas management is imperative within E.O. 13514. Each Federal agency must:
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Within 90 days, establish and report to the CEQ Chair and OMB Director a fiscal year 2020 percentage reduction target of agency-wide scope 1 and scope 2 GHG emissions in absolute terms relative to a fiscal year 2008 baseline.
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In establishing the target, agencies shall consider reductions associated with:
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Reducing agency building energy intensity.
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Increasing agency renewable energy use and on-site projects.
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Reducing agency use of fossil fuels by:
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Using low GHG emitting and alternative fuel vehicles.
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Optimizing vehicle numbers across agency fleets.
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Reducing petroleum consumption in agency fleets of 20 or more 2% annually through fiscal year 2020 relative to a fiscal year 2005 baseline.
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Where appropriate, this target shall exclude direct emissions from excluded vehicles and equipment as well as electric power produced and sold commercially to other parties in the course of regular business.
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Within 240 days, establish and report to the CEQ Chair and OMB Director a fiscal year 2020 percentage reduction target for agency-wide scope 3 GHG emissions in absolute terms relative to a fiscal year 2008 baseline.
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In establishing the target, agencies shall consider reductions associated with:
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Pursuing opportunities with vendors and contractors to address and incentivize GHG emission reductions.
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Implementing strategies and accommodations for transit, travel, training, and conferences that actively reduce carbon emissions associated with commuting and travel by agency staff.
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Meeting greenhouse gas emissions reductions associated with other Federal Government sustainability goals.
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Implementing innovative policies and practices that address agency-specific scope 3 GHG emissions.
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Within 15 months, establish and report to the CEQ Chair and OMB Director a comprehensive inventory of absolute GHG emissions across all three scopes for fiscal year 2010. Comprehensive inventories shall be submitted annually thereafter at the end of each January.
Sustainable Buildings and Communities
Federal agencies must enhance efforts towards sustainable buildings and communities. Specific requirements include:
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Implement high performance sustainable Federal building design, construction, operation and management, maintenance, and deconstruction by:
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Ensuring all new Federal buildings, entering the design phase in 2020 or later, are designed to achieve zero net energy by 2030.
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Ensuring all new construction, major renovations, or repair or alteration of Federal buildings comply with the Guiding Principles of Federal Leadership in High Performance and Sustainable Buildings
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Ensuring at least 15% of existing agency buildings and leases (above 5,000 gross square feet) meet the Guiding Principles by fiscal year 2015 and that the agency makes annual progress towards 100% compliance across its building inventory.
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Pursuing cost-effective, innovative strategies (e.g., highly-reflective and vegetated roofs) to minimize consumption of energy, water, and materials.
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Managing existing building systems to reduce the consumption of energy, water, and materials, and identifying alternatives to renovation that reduce existing asset deferred maintenance costs.
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When adding assets to agency building inventories, identifying opportunities to:
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Consolidate and eliminate existing assets.
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Optimize the performance of portfolio property.
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Reduce associated environmental impacts.
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Ensuring rehabilitation of Federally-owned historic buildings utilizes best practices and technologies in retrofitting to promote long-term viability of the building.
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Advance regional and local integrated planning by:
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Participating in regional transportation planning and recognizing existing community transportation infrastructure.
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Aligning Federal policies to increase the effectiveness of local planning for energy choices such as locally-generated renewable energy.
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Ensuring that planning for new Federal facilities and leases consider sites that are pedestrian friendly, near existing employment centers, and accessible to public transport; and emphasize existing central cities and, in rural communities, existing or planned town centers.
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Identify and analyze impacts from energy usage and alternative energy sources in all environmental impact statements and environmental assessments for proposals covering new or expanded Federal facilities under the amended National Environmental Policy Act (NEPA) of 1969.
Electronic Products and Services
E.O. 13514 includes product efficiency and stewardship. Federal agencies must:
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Ensure 95% of new contract actions, task orders, and delivery orders for products and services (excluding weapon systems) are energy efficient (ENERGY STAR® or FEMP-designated), water efficient, bio-based, environmentally preferable (Electronic Product Environmental Assessment Tool (EPEAT) certified), non-ozone depleting, contain recycled content, or are non-toxic or less-toxic alternatives where such products and services meet agency performance requirements.
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Implement best management practices for the energy-efficient management of servers and Federal data centers.
Pollution Prevention and Waste Reduction
E.O. 13514 includes the following pollution prevention and waste reduction requirements for Federal agencies:
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Minimize the generation of waste and pollutants through source reduction.
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Decrease agency use of chemicals where such decrease will assist the agency in achieving greenhouse gas reduction targets.
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Divert at least 50% of non-hazardous solid waste by the end of fiscal year 2013.
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Reduce printing paper use and acquiring uncoated printing and writing paper containing at least 30% post-consumer fiber.
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Increase the diversion of compostable and organic material from the waste stream.
This “green” movement has been spreading throughout all levels of government. For example, California law requires state government to practice EPP, and even the U.S. Army has its own 'green buying' initiative. We believe the adoption of EPP by states, counties and municipalities will result in increased opportunities for our “green” product lines.
Going Concern
Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States applicable to a going concern that contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Since the inception of the company, we have relied on loans from shareholders and officers, the sale of our equity securities, debt financing, and limited revenues to fund our operations. We have incurred losses since our inception and we continue to incur legal, accounting, and other business and administrative expenses. Our auditor has therefore recognized that there is substantial doubt about our ability to continue as a going concern.
Employees
We have significantly reduced our workforce due to financial constraints. We currently have three full-time employees. From time to time we also employ interns from a program we participate in with Arizona State University. In addition to our employees, we have consultants who currently provide website management, marketing, business development, media relations and other business advisory services similar to those which would be provided by part-time and full-time employees.
ITEM 1A.
ITEM 1A. RISK FACTORS
An investment in our common stock involves a substantial degree of risk. Before making an investment decision, you should give careful consideration to the following risk factors in addition to the other information contained in this report. The following risk factors, however, may not reflect all of the risks associated with our business or an investment in our common stock.
The following risk factors must be considered in light of the current worldwide financial crisis.
Despite passage of The American Recovery and Reinvestment Act of 2009, the U.S. Commerce Department announced that the U.S. economy shrank by 3.8 percent in the fourth quarter of 2009, the most since 1982, while consumer spending recorded the worst slide in the postwar era. The current financial crisis has been called the worst financial crisis since the Great Depression of the 1930s, and has contributed to the failure of key businesses, declines in consumer wealth estimated in the trillions of U.S. dollars, substantial financial commitments incurred by both domestic and foreign governments, and a significant decline in economic activity. It has severely negatively impacted our business. In light of the broad consensus that financial markets are in the worst turmoil of a generation, there can be no assurance that the current financial crisis will not continue, or get worse.
The global financial crisis has negatively impacted general economic conditions, including the alternative energy industry.
The current global financial crisis has had significant negative effects on a broad range of businesses, including our business. The credit crisis and broad economic downturn has caused pronounced slowing of wind and power projects worldwide, except in some isolated markets. Our customers, who are typically wind and solar installers and developers, have experienced financing problems because the number of banks and financial institutions willing to fund installation of wind turbines and solar arrays has dropped significantly. We have also experienced difficulties in getting our customers and purchase orders financed, and we are delinquent in paying many of our suppliers, some of whom have filed lawsuits for collection. All of these factors have had a significant negative impact on our operations, and should the current financial crisis continue, there can be no assurance we, or our customers, will be able to continue operations.
We will need significant infusions of additional capital.
During the last fiscal year we have relied primarily on loans and our limited revenues to obtain the funding necessary to operate the business. We are delinquent in paying many of our suppliers, resulting in several collection lawsuits. Our revenues from operations for the year ended October 31, 2009 would have been significantly higher if we had financing available to support our sales and competitive bidding activities and were further negatively impacted by our decision to allocate resources to developing solar and wind farms. We do not have any cash reserves and we will need to obtain additional outside funding in the future in order to further satisfy our cash requirements. Our need for additional capital to finance our business strategy, operations, and growth will be greater should, among other things, revenue or expense estimates prove to be incorrect. We cannot predict the timing or amount of our capital requirements at this time. If we fail to arrange for sufficient capital on a timely basis in the future, we may be required to reduce the scope of our business activities further until we can obtain adequate financing. Debt financing must be repaid regardless of whether or not we generate profits or cash flows from our business activities. Equity financing may result in dilution to existing stockholders and may involve securities that have rights, preferences, or privileges that are senior to our common stock. Therefore, we may not be able to obtain financing in sufficient amounts or on acceptable terms when needed, which could adversely affect our operating results and prospects and our ability to continue in business.
Many of our current and potential competitors have longer operating histories, larger customer or user bases, greater brand recognition, greater access to brand name suppliers, and significantly greater financial, marketing and other resources than we do.
Many of these current and potential competitors can devote substantially more resources to the development of their business operations than we can at present. In addition, larger, well-established and well-financed entities may acquire, invest in or form joint ventures with other established competitors or with specific product manufacturers, which will allow them pricing advantages due to economies of scale or pursuant to distribution agreements with suppliers. Some large product distributors may also have exclusive distribution agreements or protected territories in which they can sell specific brand name products at a significant discount, or territories in which they may seek to exclude us from selling a specific brand of product. These types of arrangements between our competitors and manufacturers and suppliers may limit our ability to distribute certain brand name products and could adversely affect our revenues.
We depend upon our executive officers and key personnel.
The rapid execution necessary for us to fully exploit the market for our products and services requires an effective planning and management process. We experienced rapid growth during 2007 and then rapid contraction in 2008 carrying into fiscal 2009, as we did not receive financing which we had been promised and on which we depended to fund our growth. There is currently a significant strain on our managerial, operational and financial resources and one person, Richard Reincke, currently serves as both our President/CEO and Chief Financial Officer. Mr. Reincke has not taken a salary for several fiscal quarters and there can be no guarantee that he will continue to work without compensation. We recognize that our ability to manage our business effectively will require us to attract, identify, train, integrate and retain additional qualified management and other key personnel, and that we currently do not have the financial resources to hire such personnel at this time. Additionally, due to financial constraints, we have cut back on our workforce, replacing full time employees with part-time consultants and with interns. The loss of services of Mr. Reincke or any of our remaining key personnel would have a material adverse effect on our business, revenues, results of operations and financial condition.
There can be no assurance that any new products we introduce will achieve significant market acceptance or will generate significant revenue.
The market for products in the renewable energy industry is characterized by rapid technological advances, evolving standards in technology and frequent new product and service introductions and enhancements. Possible short life cycles for products we sell may necessitate high levels of expenditures for continually selecting new products and discontinuing the sale of obsolete product lines. To obtain a competitive position, we must continue to introduce new products and new versions of existing products that will satisfy increasingly sophisticated customer requirements and achieve market acceptance. Our inability or failure to position and/or price our new or existing products competitively, in response to changes in evolving standards in technology, could have a material adverse effect on our business, results of operations or financial position.
Although we have implemented safeguards to prevent unauthorized access to our ecommerce sites, there always exists certain security risks, which may cause interruptions, delays or cessation in service.
Despite the implementation of security measures, our network infrastructure may be vulnerable to computer viruses or problems caused by third parties, which could lead to interruptions, delays or cessation in service to our clients. Inappropriate use of the Internet by third parties could also potentially jeopardize the security or deter certain persons from using our services. Such inappropriate use of the Internet would include attempting to gain unauthorized access to information or systems - commonly known as "cracking" or "hacking." Although we intend to continue to implement security measures, such measures have been circumvented in the past, and there can be no assurance that measures implemented will not be circumvented in the future. Alleviating problems caused by computer viruses or other inappropriate uses or security breaches may require interruptions, delays or cessation in service to our operations. There can be no assurance that customers or others will not assert claims of liability against us as a result of failures. Further, until more comprehensive security technologies are developed, the security and privacy concerns of existing and potential customers may inhibit the growth of the Internet service industry in general and our customer base and revenues in particular.
There is a risk of credit card fraud.
Although we have encryption certificates, systems and software for the electronic surveillance and monitoring of fraudulent credit card use, should our business be subject to repeated fraudulent use of credit cards on our ecommerce sites, it could effect the reputation of our ecommerce sites and the willingness of customers to continue to use our sites.
Shares of our common stock are "penny stocks”.
At all times when the current market price per share of our common stock is less than $5.00, our shares of common stock will be considered "penny stocks" as defined in the Securities Exchange Act of 1934, as amended. As a result, an investor may find it more difficult to dispose of or obtain accurate quotations as to the price of the shares of our common stock being issued under this prospectus. In addition, the penny stock rules adopted by the Securities and Exchange Commission under the Exchange Act would subject the sale of shares of our common stock to regulations which impose sales practice requirements on broker-dealers. For example, broker-dealers selling penny stocks must, prior to effecting the transaction, provide their customers with a document which discloses the risks of investing in penny stocks.
Furthermore, if the person purchasing penny stocks is someone other than an accredited investor, as defined in the Securities Act, or an established customer of the broker-dealer, the broker-dealer must also approve the potential customer's account by obtaining information concerning the customer's financial situation, investment experience and investment objectives. The broker-dealer must also make a determination whether the transaction is suitable for the customer and whether the customer has sufficient knowledge and experience in financial matters to be reasonably expected to be capable of evaluating the risk of transactions in penny stocks. Accordingly, the SEC's rules may limit the number of potential purchasers of shares of our common stock. Moreover, various state securities laws impose restrictions on transferring penny stocks, and, as a result, investors in our common stock may have their ability to sell their shares impaired.
The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from those rules, deliver a standardized risk disclosure document prepared by the Commission, which (i) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading; (ii) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to violation to such duties or other requirements of Securities' laws; (iii) contains a brief, clear, narrative description of a dealer market, including "bid" and "ask" prices for penny stocks and significance of the spread between the "bid" and "ask" price; (iv) contains a toll-free telephone number for inquiries on disciplinary actions; (v) defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and (vi) contains such other information and is in such form (including language, type, size and format), as the Commission shall require by rule or regulation. The broker-dealer also must provide, prior to effecting any transaction in penny stock, the customer (i) with bid and offer quotations for the penny stock; (ii) the compensation of the broker-dealer and its salesperson in the transaction; (iii) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock; and (iv) monthly account statements showing the market value of each penny stock held in the customer's account.
In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser's written acknowledgment of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement. These disclosure requirements may have the effect of reducing the trading activity in the secondary market for a stock that becomes subject to the penny stock rules. If any of the Company's securities become subject to the penny stock rules, holders of those securities may have difficulty selling those securities. Stockholders should be aware that, according to Securities and Exchange Commission Release No. 34-29093, dated April 17, 1991, the market for penny stocks has suffered from patterns of fraud and abuse. Such patterns include:
(i) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer
(ii) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases
(iii) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons
(iv) excessive and undisclosed bid-ask differential and markups by selling broker-dealers
(v) the wholesale dumping of the same securities by promoters and broker-dealers after prices have been manipulated to a desired level, along with the resulting inevitable collapse of those prices and with consequent investor losses.
This risk factor is especially significant because we believe some of the conduct mentioned above has occurred, which has prompted us to file complaints with FINRA (the Financial Industry Regulatory Authority) and a federal complaint in U.S. District Court, Central District of California, against the promoters, broker-dealers, and others who we believe have engaged in such conduct with our stock.
We have not paid and do not currently plan to pay dividends on our common stock.
Some investors favor companies that pay dividends on their common stock, particularly in general downturns in the stock market. We have not declared or paid any cash dividends on our common stock. We currently intend to retain any future earnings for funding growth, and we do not currently anticipate paying cash dividends on our common stock in the foreseeable future.
Provisions in our corporate charter and under Delaware law are favorable to our directors.
Pursuant to our certificate of incorporation, members of our management and Board of Directors will have no liability for violations of their fiduciary duty of care as officers and directors, except in limited circumstances. This means that you may be unable to prevail in a legal action against our officers or directors even if you believe they have breached their fiduciary duty of care. In addition, our certificate of incorporation allows us to indemnify our officers and directors from and against any and all expenses or liabilities arising from or in connection with their serving in such capacities with us. This means that if you were able to enforce an action against our directors or officers, in all likelihood we would be required to pay any expenses they incurred in defending the lawsuit and any judgment or settlement they otherwise would be required to pay.
Failure to achieve and maintain effective internal controls in accordance with Section 404 of the Sarbanes-Oxley Act could have a material adverse effect on our business and stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 (“Act”), we will be required to furnish a report by our management on our internal control over financial reporting. The internal control report must contain (i) a statement of management's responsibility for establishing and maintaining adequate internal control over financial reporting, (ii) a statement identifying the framework used by management to conduct the required evaluation of the effectiveness of our internal control over financial reporting, (iii) management's assessment of the effectiveness of our internal control over financial reporting as of the end of our most recent fiscal year, including a statement as to whether or not internal control over financial reporting is effective, and (iv) a statement that the Company's independent auditors have issued an attestation report on management's assessment of internal control over financial reporting.
In order to achieve compliance with Section 404 of the Act within the prescribed period, we will need to engage in a process to document and evaluate our internal control over financial reporting, which will be both costly and challenging. In this regard, management will need to dedicate internal resources, engage outside consultants and adopt a detailed work plan to (i) assess and document the adequacy of internal control over financial reporting, (ii) take steps to improve control processes where appropriate, (iii) validate through testing that controls are functioning as documented and (iv) implement a continuous reporting and improvement process for internal control over financial reporting. We can provide no assurance as to our, or our independent auditors’, conclusions at the prescribed periods with respect to the effectiveness of our internal control over financial reporting under Section 404 of the Act. There is a risk that neither we nor our independent auditors will be able to conclude at the prescribed period that our internal controls over financial reporting are effective as required by Section 404 of the Act. Moreover, as our senior management and board of directors is extremely limited, we may not be able to adequately comply with these requirements unless we are able to augment both our senior management and our board of directors, and there can be no assurance that we will be able to do so in a timely manner, or at all.
During the course of our testing we may identify deficiencies which we may not be able to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for compliance with the requirements of Section 404. In addition, if we fail to achieve and maintain the adequacy of our internal controls, as such standards are modified, supplemented or amended from time to time, we may not be able to ensure that we can conclude on an ongoing basis that we have effective internal controls over financial reporting in accordance with Section 404 of the Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those related to revenue recognition, are necessary for us to produce reliable financial reports and are important to helping prevent financial fraud. If we cannot provide reliable financial reports or prevent fraud, our business and operating results could be harmed, investors could lose confidence in our reported financial information, and the trading price of our stock could drop significantly.
ITEM 1B.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2.
ITEM 2. DESCRIPTION OF PROPERTY
Description of Property
As of the date specified in the following table, we held the following property:
Description of Real Estate
Except for the leasehold interests in the office and warehouse facilities we lease, we do not presently own any interests in real estate.
Our executive, administrative and operating offices are located at 15455 N. Greenway-Hayden Loop, Suite C4, Scottsdale, AZ 85260 and contain 2,637 square feet of office and warehouse space. Our annual lease payments are approximately $60,000.
Our office facilities are well maintained and we believe our facilities are adequate for our administrative, sales and marketing operations, and fulfillment operations.
ITEM 3.
ITEM 3. LEGAL PROCEEDINGS
At year end October 31, 2009, we had the following litigation matters:
On May 27, 2008 the Company filed a lawsuit in the United States District Court, Central District of California, Case No. SACV08-00586 CJC (PLAx) alleging securities law violations and fraud against Douglas G. Furth individually and allegedly dba Millennium Consulting Group, Inc., a defunct Ohio corporation; Mark Fixler; JAG Enterprises, LLC; Michel Attias; Brendon Attias; Timothy Garlin; and various DOE defendants for disgorgement of short-swing profits in violation of the Securities Exchange Act of 1934, Section 16(b) and for recovery of damages for fraud and deceit. On August 7, 2008 we filed a First Amended Complaint adding, among others, defendants Comprehensive Financial Services, LLC, an Ohio limited liability company; The Signature Fund, a purported Ohio limited partnership; Signature Management, LLC, an Ohio limited liability company; Marc J. Bernstein; Legent Clearing LLC, a Nebraska company; UBS Financial Services, Inc., a California company; and National Financial Services LLC aka Fidelity Investments National Financial Services, a Massachusetts company. Many of these defendants have answered and filed counterclaims, which we intend to vigorously contest. Our investigation into this matter is continuing and we anticipate moving the court for permission to file a Second Amended Complaint naming additional defendants and adding additional causes of action.
On March 11, 2008 we were sued in Maricopa County Superior Court by Sound Packaging, LLC for the sum of $2,221.60 for an unpaid invoice for shipping boxes. We did not contest the suit and on July 11, 2008 a judgment in the amount of $3,461.10 was entered against the company.
In April 2008 the Company borrowed a total of $22,000 from MyTightRide, Inc. in two tranches: $6,600 on April 3, 2008 and $15,400 on April 16, 2008. We repaid a total of $10,800 of that sum. Because we did not repay the full amount, on October 21, 2008 MyTightRide sued us for the balance (including court fees). We did not contest the lawsuit and on January 13, 2009 a judgment was entered against the company in Maricopa County Superior Court in the amount of $11,609.73, which represented the principal sum of $11,190.00 plus $419.73 in costs, with interest accruing on the total unpaid amount at 10% per annum. We are presently attempting to negotiate a payment plan for the outstanding judgment.
On August 20, 2008, Airgas Safety, Inc., one of our vendors, sued us (and Richard Reincke, personally, as a guarantor) in the McDowell Mountain Justice Court, Maricopa County, for an unpaid invoice in the amount of $8,959.21 and for $2,983.42 in attorneys’ fees and court costs. We did not contest the lawsuit and a judgment was entered against us and Mr. Reincke personally for those amounts in December 2008.
On or about April 14, 2009 a complaint was filed in Maricopa County Superior Court against the company on behalf of American Technology Network Corp., one of the Company’s vendors, for $21,704.24 for unpaid invoices. We did not contest the lawsuit.
On February 27, 2009 Morovision Night Vision, Inc., one of our vendors, sued us in Maricopa County Superior Court for the unpaid balance of $25,271.70 for products supplied to the company between May 15, 2008 and May 30, 2008. We did not contest the lawsuit and a judgment was entered against the company in May 2009.
On August 27, 2009 Worldwide Express, Inc., a shipping company, filed a complaint in Maricopa County Superior Court for unpaid shipping fees in the amount of $11,421.69 plus attorney’s fees and costs of $3,500.00. We did not contest the lawsuit and on September 28, 2009 Worldwide Express moved for a default judgment.
On October 14, 2009 Golden Sheep Power, Inc., one of our customers, sued us in Maricopa County Superior Court for $58,673.58 plus $2,000 in attorneys’ fees and $387.20 in costs for a refund for equipment that was not delivered. We did not contest the lawsuit.
Subsequent events:
On December 30, 2009 a judgment was entered in Maricopa County Superior Court against the company on behalf of American Technology Network Corp., one of the Company’s vendors, for $21,704.24, plus interest accruing on the unpaid principal at 10% per annum from April 14, 2009 plus $541.00 in costs.
On February 2, 2010, Golden Sheep Power moved the Maricopa County Superior Court for a judgment in the amount of $58,673.58 plus $2,000 in attorneys’ fees and $387.20.
ITEM 4.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matter to a vote of security holders during the fiscal year ended October 31, 2009.
PART II
ITEM 5.
ITEM 5. MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Reports to security holders. We are a reporting company with the Securities and Exchange Commission and we file quarterly reports and annual reports that contain our financial statements for each quarter and an audited financial statement at our fiscal year end, which is October 31st. We also file reports on Form 8-K relating to any information that is material to the Company. The public may read and copy any materials filed with the Securities and Exchange Commission at the Security and Exchange Commission’s Public Reference Room at 450 Fifth Street N.W., Washington, D.C. 20549. The public may also obtain information on the operation of the Public Reference Room by calling the Securities and Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Securities and Exchange Commission. The address of that site is http://www.sec.gov. We maintain a website at www.greenwindsolar.com where we post updated news about the company’s activities.
Market information. Our common stock trades publicly on the OTC Bulletin Board, or OTCBB, under the symbol “GWSC.” The OTCBB is a regulated quotation service that displays real-time quotes, last-sale prices and volume information in over-the-counter equity securities. The OTCBB securities are traded by a community of market makers that enter quotes and trade reports. This market is extremely limited and any prices quoted are not a reliable indication of the value of our common stock.
Our common stock began trading on or about July 23, 2007 with an opening bid quotation of $1.00 per share under the symbol “FRPD”; when we changed our name, we were assigned a new symbol, “GWSI”. Effective October 31, 2008, we completed a reverse stock split in a ratio of 1:20. Shortly thereafter, the company’s common stock began trading on a post-split basis under the new trading symbol GWSC.
As a result of the reverse stock split, the company’s stockholders received one new share of the company’s common stock in exchange for every twenty shares. Neither the par value per share of the company’s common stock nor the total number of authorized shares of the company’s common stock changed. No fractional shares of common stock were issued in connection with the effectiveness of the reverse stock split. Instead, the company rounded up and issued a whole share to each affected stockholder.
The following table sets forth the quarterly high and low bid prices per share of our common stock by the National Quotation Bureau during the last two fiscal years as cited on Yahoo!Finance. The quotations represent inter-dealer quotations without adjustment for retail mark-ups, mark-downs or commissions and may not represent actual transactions.
Holders of record. On February 10, 2010, there were approximately 62 shareholders of record of our common stock. We have no record of the number of shareholders who currently hold their stock in “street” name with various brokers.
Dividend policy. We have never declared or paid cash dividends on our common stock. We currently intend to retain any future earnings to finance the growth and development of our business and do not intend to pay any cash dividends on our common stock in the foreseeable future. Payment of dividends in the future, if any, will be made at the discretion of our board of directors. Such decisions will depend on a number of factors, including our future earnings, capital requirements, financial condition and future prospects and such other factors as our board of directors may deem relevant.
Item 6.
Item 6. Selected Financial Data.
Not applicable.
ITEM 7.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This portion of this Annual Report on Form 10-K, includes statements that constitute “forward-looking statements.” These forward-looking statements are often characterized by the terms “may,” “believes,” “projects,” “expects,” or “anticipates,” and do not reflect historical facts. Forward-looking statements speak only as of the date the statement was made. We do not undertake and specifically decline any obligation to update any forward-looking statements.
Results of Operations
We discontinued our emergency responder products operations with a loss of $161,634. Because of these discontinued operations, revenues for the fiscal year ended October 31, 2009 were $1,407 compared to no revenues for fiscal year ended October 31, 2008. Our revenues did not grow because we were unable to finance many of the sales contracts we acquired. Our cost of goods sold for the year ended October 31, 2009 was $12,421, for a loss of $11,014.
We had a net loss of $6,600,946 in our operating activities for the fiscal year ended October 31,2009, as compared to $2,072,263 for the fiscal year ended October 31, 2008. The worldwide economic crisis exacerbated our financial situation in 2009. Because of our cash flow problems, during the fiscal years ended October 31, 2008 and October 31, 2009 we were delinquent in paying many of our existing suppliers, and our credit rating declined. We also had several delinquent accounts result in lawsuits and judgments. The domestic, and then global, financial crisis which followed negatively affected our ability to obtain any type of purchase order, accounts receivable, inventory financing, or equity financing. We are continuing to negotiate for the necessary financing, but the credit crisis and broad economic downturn has caused both significant delays in our obtaining such financing, and much stricter requirements for obtaining such financing, with financial institutions and factors charging higher rates, demanding more comprehensive guarantees (including, in most cases, personal guarantees from our senior management), and requiring our customers’ end-users to qualify as credit worthy. This has negatively affected our business operations.
We continue to incur legal and accounting expenses and other expenses incidental to our reporting obligations as a public company.
Our net loss from continuing operations for the year ended October 31, 2009 was $6,439,312, compared to a net loss from continuing operations at October 31, 2008 of $1,889,970.
Liquidity and Capital Resources
At the year ended October 31, 2009, we had no cash reserves, as compared to cash resources at October 31, 2008 of $7,100. We currently do not have any significant cash resources, and our need for capital is our most significant business concern and the single most significant factor both limiting our growth and creating an issue as to whether we can continue to operate our business. Our accounts receivable, net at October 31, 2008, were $5,945, as compared to $0.00 at October 31, 2009. The significant decrease was caused by our inability to finance our sales contracts in a timely manner.
Our accounts payable and accrued expenses at October 31, 2009 were $474,326, as compared to $375,958 at October 31, 2008. Our total current liabilities at October 31, 2009 were $2,300,070, as compared to $1,567,148 at October 31, 2008.
We held property and equipment at October 31, 2009 which was valued, net of depreciation, at $13,089, as compared with property and equipment with a net valuation, net of depreciation, at $18,882 at October 31, 2008. Our total assets at October 31, 2009 were $13,089 as compared with total assets of $158,971 at October 31, 2008.
The inventory is recorded at the lower of cost or market. The Company has no inventory as of October 31, 2009 and 2008 and has recorded a reserve of $-0- and $127,044 for slow moving inventory as of October 31, 2009 and 2008. All of these amounts are finished goods.
We are struggling to satisfy our basic cash requirements and we need to raise significant capital to continue as a going concern. We also have significant outstanding invoices from suppliers, many of which are overdue and which are negatively affecting our credit lines with our suppliers and which have resulted in collection lawsuits and judgments. There can be no assurance that we will raise sufficient funds to continue our business operations.
We do not believe that the impact of inflation and changing prices has had any significant effect on our net sales and revenues and on income from continuing operations. However, the current global financial crisis has had significant negative effects on our business. The credit crisis and broad economic downturn has caused pronounced slowing of wind and power projects worldwide, except in some isolated markets. Our customers, who are typically wind and solar installers and developers, have experienced financing problems because the number of banks and financial institutions willing to fund installation of wind turbines and solar arrays has dropped significantly. We have also experienced difficulties in getting our customers and purchase orders financed, and we are delinquent in paying many of our suppliers, some of whom have filed lawsuits for collection. All of these factors have had a significant negative impact on our operations, and should the current financial crisis continue, there can be no assurance we, or our customers, will be able to continue operations.
Going Concern
Our financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our revenues have fluctuated from quarter to quarter, as have our profit margins, and we have incurred losses since our inception. In addition to our revenues, since inception we have also relied on loans from shareholders and officers and the sale of our equity securities to fund our operations. We continue to incur legal, accounting, and other business and administrative expenses. Our auditor has therefore recognized that there is substantial doubt about our ability to continue as a going concern.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
The Company does not hold any “market risk sensitive instruments” as defined by Item 305 of Regulation S-K.
ITEM 8.
ITEM 8. FINANCIAL STATEMENTS
The information required by this item is set forth in the Consolidated Financial Statements filed with this report.
GWS Technologies Inc.
GWS TECHNOLOGIES, INC.
FINANCIAL STATEMENTS
October 31, 2009 and 2008
C O N T E N T S
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders
GWS Technologies, Inc.
We have audited the accompanying balance sheets of GWS Technologies, Inc. as of October 31, 2009 and 2008(as re-stated), and the related consolidated statements of operations, cash flows, and stockholders’ equity (deficit), for the years ended October 31, 2009 and 2008(as re-stated) 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 audit.
We conducted our audit 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. The Company has determined that it is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 GWS Technologies, Inc. as of October 31, 2009 and 2008(as re-stated), and the results of operations and cash flows for the years ended October 31, 2009 and 2008(as re-stated), in conformity with accounting principles generally accepted in the United States of America.
The Company has incurred significant losses, has a working capital deficit, and has limited revenues which raise substantial doubt about its ability to continue as a going concern. Management's plan to address these issues is included in Note 3 to the financial statements. The financial statements have been prepared on a going concern basis, which contemplates the realization and settlement of liabilities and commitments in the normal course of business. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
/s/ Mantyla McReynolds LLC
Mantyla McReynolds LLC
Salt Lake City, Utah
February 16, 2010
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
The accompanying notes are an integral part of these condensed financial statements.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 1 - ORGANIZATION AND HISTORY
Aegis Security Products, Inc., (the Company) a Delaware corporation, was incorporated on February 15, 2005. Its name was changed to First Responder Products, Inc. on April 21, 2005. The Company has changed its name from “First Responder Products, Inc.” to “GWS Technologies, Inc.” The name change became effective June 30, 2008 by the filing of a Certificate of Amendment to the Company’s Certificate of Incorporation with the Delaware Secretary of State.
The Company provides wind turbines and other wind and solar products and alternative energy through direct marketing and also on an ecommerce portion of our website, www.greenwindsolar.com. During the past several quarters we have focused on the following two main areas to expand our business: (1) joint venturing with landowners to build solar farms; and (2) retrofitting commercial buildings with alternative energy equipment, concentrating on solar power installations in Arizona.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
a)
Accounting Method
The Company’s financial statements are prepared using the accrual method of accounting. The Company has elected an October 31 year-end.
b)
Basic Loss Per Share
The computations of basic loss per share of common stock are based on the weighted average number of shares outstanding at the date of the financial statements. The computation of diluted loss per shares excludes the 950,000 and 1,350,000 of options outstanding at October 31, 2009 and 2008 because they are anti-dilutive.
c)
Advertising
The Company expenses advertising costs in the period in which they are incurred. The Company incurred advertising expense of $20,339 and $16,141 during the years ended October 31, 2009 and 2008, respectively.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d)
Provision for Taxes
The Company applies SFAS No. 109 (ASC 740), which requires the asset and liability method of accounting for income taxes. The asset and liability method requires that the current or deferred tax consequences of all events recognized in the financial statements are measured by applying the provisions of enacted tax laws to determine the amount of taxes payable or refundable currently or in future years. Deferred tax assets are reviewed for recoverability and the Company records a valuation allowance to reduce its deferred tax assets when it is more likely than not that all or some portion of the deferred tax assets will not be recovered.
The Company adopted FIN 48(ASC 740), at the beginning of fiscal year 2008. This interpretation requires recognition and measurement of uncertain tax positions using a “more-likely-than-not” approach, requiring the recognition and measurement of uncertain tax positions. The adoption of FIN 48 (ASC 740) had no material impact on the Company’s financial statements.
e)
Estimates
The preparation of financial statements in conformity with 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. Actual results could differ from those estimates.
f)
Fair Value of Financial Instruments
As at October 31, 2009 and 2008, the fair value of cash and accounts and advances payable, including amounts due to and from related parties, approximate carrying values because of the short-term maturity of these instruments.
g)
Recently Issued Accounting Pronouncements
In January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810): Accounting and Reporting for Decreases in Ownership of a Subsidiary. This amendment to Topic 810 clarifies, but does not change, the scope of current US GAAP. It clarifies the decrease in ownership provisions of Subtopic 810-10 and removes the potential conflict between guidance in that Subtopic and asset derecognition and gain or loss recognition guidance that may exist in other US GAAP. An entity will be required to follow the amended guidance beginning in the period that it first adopts FAS 160 (now included in Subtopic 810-10). For those entities that have already adopted FAS 160, the amendments are effective at the beginning of the first interim or annual reporting period ending on or after December 15, 2009. The amendments should be applied retrospectively to the first period that an entity adopted FAS 160. The Company does not expect the provisions of ASU 2010-02 to have a material effect on the financial position, results of operations or cash flows of the Company.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h)
Recently Issued Accounting Pronouncements (continued)
In January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic 505): Accounting for Distributions to Shareholders with Components of Stock and Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to Topic 505 clarifies the stock portion of a distribution to shareholders that allows them to elect to receive cash or stock with a limit on the amount of cash that will be distributed is not a stock dividend for purposes of applying Topics 505 and 260. Effective for interim and annual periods ending on or after December 15, 2009, and would be applied on a retrospective basis. The Company does not expect the provisions of ASU 2010-01 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-17, Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises Involved with Variable Interest Entities. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 167. The Company does not expect the provisions of ASU 2009-17 to have a material effect on the financial position, results of operations or cash flows of the Company.
In December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This Accounting Standards Update amends the FASB Accounting Standards Codification for Statement 166. The Company does not expect the provisions of ASU 2009-16 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance or Other Financing. This Accounting Standards Update amends the FASB Accounting Standard Codification for EITF 09-1. The Company does not expect the provisions of ASU 2009-15 to have a material effect on the financial position, results of operations or cash flows of the Company.
In October 2009, the FASB issued Accounting Standards Update 2009-14, Software (Topic 985): Certain Revenue Arrangements That Include Software Elements. This update changed the accounting model for revenue arrangements that include both tangible products and software elements. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-14 to have a material effect on the financial position, results of operations or cash flows of the Company.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h)
Recently Issued Accounting Pronouncements (continued)
In October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update addressed the accounting for multiple-deliverable arrangements to enable vendors to account for products or services (deliverables) separately rather than a combined unit and will be separated in more circumstances that under existing US GAAP. This amendment has eliminated that residual method of allocation. Effective prospectively for revenue arrangements entered into or materially modified in fiscal years beginning on or after June 15, 2010. Early adoption is permitted. The Company does not expect the provisions of ASU 2009-13 to have a material effect on the financial position, results of operations or cash flows of the Company.
In September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value Measurements and Disclosures (Topic 820): Investments in Certain Entities That Calculate Net Asset Value per Share (or Its Equivalent). This update provides amendments to Topic 820 for the fair value measurement of investments in certain entities that calculate net asset value per share (or its equivalent). It is effective for interim and annual periods ending after December 15, 2009. Early application is permitted in financial statements for earlier interim and annual periods that have not been issued. The Company does not expect the provisions of ASU 2009-12 to have a material effect on the financial position, results of operations or cash flows of the Company.
In July 2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The provisions of EITF 09-1, clarifies the accounting treatment and disclosure of share-lending arrangements that are classified as equity in the financial statements of the share lender. An example of a share-lending arrangement is an agreement between the Company (share lender) and an investment bank (share borrower) which allows the investment bank to use the loaned shares to enter into equity derivative contracts with investors. EITF 09-1 is effective for fiscal years that beginning on or after December 15, 2009 and requires retrospective application for all arrangements outstanding as of the beginning of fiscal years beginning on or after December 15,2009. Share-lending arrangements that have been terminated as a result of counterparty default prior to December 15, 2009, but for which the entity has not reached a final settlement as of December 15, 2009 are within the scope. Effective for share-lending arrangements entered into on or after the beginning of the first reporting period that begins on or after June 15, 2009. The Company does not expect the provisions of EITF 09-1 to have a material effect on the financial position, results of operations or cash flows of the Company.
i)
Long-lived Assets-Technology
The Company continually monitors events and changes in circumstances that could indicate carrying amounts of long-lived assets may not be recoverable. When such events or changes in circumstances are present, the Company assesses the recoverability of long-lived assets by determining whether the carrying value of such assets will be recovered through undiscounted expected future cash flows. If the total of the future cash flows is less than the carrying amount of those assets, the Company recognizes an impairment loss based on the excess of the carrying amount over the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or the fair value less costs to sell.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j)
Concentration of Risk
Cash - The Company at times may maintain a cash balance in excess of insured limits.
k)
Revenue Recognition
The Company applies the provisions of SEC Staff Accounting Bulletin No. 104, "Revenue Recognition in Financial Statements" ("SAB 104"), which provides guidance on the recognition, presentation and disclosure of revenue in financial statements filed with the SEC. SAB 104 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue recognition policies. In general, the Company recognizes revenue related to the sale of wind and solar products when (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred or services have been rendered, (iii) the fee is fixed or determinable, and (iv) collectability is reasonably assured.
l)
Cash and Cash Equivalents
For purposes of the Statement of Cash Flows, the Company considers all highly liquid instruments purchased with a maturity of three months or less to be cash equivalents to the extent the funds are not being held for investment purposes.
m)
Accounts Receivable
Accounts receivable are carried at original invoice amount less an estimate made for doubtful receivables based on a review of all outstanding amounts on a monthly basis. Specific reserves are estimated by management based on certain assumptions and variables, including the customer’s financial condition, age of the customer’s receivables, and changes in payment histories. As of October 31, 2009 and 2008, an allowance for doubtful receivables $-0- and $-0-, respectively, was considered necessary. Trade receivables are written off when deemed uncollectible. Recoveries of trade receivables previously written off are recorded when received.
n)
Inventory
The inventory is recorded at the lower of cost or market. The Company has no inventory as of October 31, 2009 and 2008 and has recorded a reserve of $-0- and $127,044 for slow moving inventory as of October 31, 2009 and 2008. All of these amounts are finished goods.
o)
Property and equipment
Property and equipment are stated at cost. Amortization is to be computed using on a straight line basis over the estimated production life of the assets.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
p)
Stock-based compensation.
The Company adopted SFAS No. 123-R effective January 1, 2006 using the modified prospective method. Under this transition method, stock compensation expense includes compensation expense for all stock-based compensation awards granted on or after January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS No. 123-R.
NOTE 3 - GOING CONCERN
The Company’s financial statements are prepared using accounting principles generally accepted 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. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern which raises substantial doubt regarding its ability to continue as a going concern. The Company plans to expand its marketing program for its solar power electricity generating systems to provide sufficient revenues to allow it to continue as a going concern. In the interim the Company expects to raise operating capital through the private placement of its common stock.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.
NOTE 3 - PROPERTY AND EQUIPMENT
The Company’s property and equipment are comprised of the following October 31, 2009 and 2008:
The equipment is depreciated over its estimated useful life of 5 years under the straight-line method. Leasehold improvements are depreciated over the lesser of the lease term or the useful life of the asset. Depreciation expense for the years ended October 31, 2009 and 2008 was $5,793 and $9,628, respectively.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 4 - NOTES PAYABLE
During the years ended October 31, 2008 and 2007, the Company raised $600,500 and $675,000 through the issuance of 12% unsecured debt. The debt is in default as of October 31, 2008. The Company was unable to repay the 2007 debt on the original due date, accordingly the holders thereof have the right to convert the debt to equity. Per the convertible debt agreement the conversion price is $0.30 per share.
The value of the beneficial conversion feature was determined using the intrinsic value method in accordance with ASC 815. The amount recorded as a discount to the convertible debt for the notes issued during the fiscal year ended October 31, 2009 and 2008 was $4,667 and $200,000 respectively. The discount was amortized over the 6 month term of the debt for the 2009 notes and the 12 month term of the 2008 notes. Accordingly, the Company recorded $4,667 and $200,000 in interest expense for the accretion of the discount during the years ended October 31, 2009 and 2008. During the years ended October 31, 2009 and 2008, $15,000 and $50,000 of the debt was converted to 50,000 and 8,333 shares of common stock, respectively.
The Company has accrued $232,928 in accrued interest on the notes payable debt as of October 31, 2009.
A summary of the Notes Payable at October 31, 2009:
NOTE 5 - RELATED PARTY NOTES PAYABLE
During the years ended October 31, 2009 and 2008, the Company had borrowed a total of $358,135 and $50,000 from related parties. These notes bear interest at 14%, are unsecured and are due on demand.
NOTE 6 - COMMON STOCK
During the year ended October 31, 2008, the Company issued 2,750 shares of common stock at $20.00 per share for cash of $55,000. The Company wrote off the stock subscription receivable of $325,000 because it was unsuccessful in collecting it during the year ended October 31, 2008. During the year ended October 31, 2008, the Company issued 8,333 shares of common stock upon the conversion of $50,000 of debt at $6.00 per share. During the year ended October 31, 2008, the Company issued 60,000 shares of common stock for services rendered at $2.40 for a value of $146,500. The accompanying financial statements reflect the stock split on a retroactive basis.
During the year ended October 31, 2009, the Company issued 4,895,000 shares of common stock at an average price of $0.86 per share for services. During the same period, the Company issued 2,250,000 in conjunction with the exercise of options. These options were exercised in exchange for services provided the Company. Additionally, the Company issued 300,000 shares of common stock in exchange for options for a total of $137,500 in cash. During the year ended October 31, 2009, the Company issued 50,000 shares of common stock upon the conversion of $15,000 of debt at $0.30 per share. During the year ended October 31, 2008, the Company’s common stock was reverse split on the basis of 1 share for 20 shares.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 6 - COMMON STOCK (CONTINUED)
All valuations of common stock issued for services were based upon value of the services rendered, which did not differ materially from the fair value of the Company’s common stock during the period the services were rendered.
NOTE 7 - COMMON STOCK PURCHASE WARRANTS AND OPTIONS
The Company has granted common stock purchase options to certain of its employees, directors and consultants. The options vested immediately and the option price is $0.25 per share.
During the year ended October 31, 2009, the estimated value of the compensatory common stock purchase options granted to non-employees in exchange for services and financing expenses was determined using the Black-Scholes pricing model and the following assumptions: expected term of 1 years, a risk free interest rate of 1.65%, a dividend yield of 0% and volatility of approximately 200%. The amount of the expense charged to operations for compensatory options and warrants granted in exchange for services during the fiscal year ended October 31, 2009 and 2008 was $1,367,320 and $307,157.
The following table summarizes the changes in options outstanding and the related prices for the shares of the Company’s common stock issued to employees and non-employees of the Company. These options were granted in lieu of cash compensation for services performed.
* The original 1,350,000 options with an exercise price of $1.00 were re-priced on June 10, 2008 to have an exercise price of $0.10. The Company recognized an additional $67,234 in association with this revaluation.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 8 - INCOME TAXES
No provision has been made in the financial statements for income taxes because the Company has accumulated losses from operations since inception. Any deferred tax benefit arising from the operating loss carried forward is offset entirely by a valuation allowance since it is currently not likely that the Company will be significantly profitable in the near future to take advantage of the losses. The provision for income taxes consists of the following:
The following table shows the components of the Company’s deferred tax assets.
The valuation allowance has increased $435,108 from $1,673,088 to $2,108,195 during the period ended October 31, 2009. Income tax expense differs from amounts computed by applying the statutory Federal rate to pretax income as follows:
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 8 - INCOME TAXES (CONTINUED)
The Company adopted the provisions of FIN 48 (ASC 740) at the beginning of fiscal year 2008. As a result of this adoption, the Company has not made any adjustments to deferred tax assets or liabilities. The Company did not identify any material uncertain tax positions on returns that have been filed or that will be filed. The Company has not had operations resulting in net income and is carrying a large Net Operating Loss as disclosed above. Since it is not thought that this Net Operating Loss will ever produce a tax benefit, even if examined by taxing authorities and disallowed entirely, there would be no effect on the financial statements. A reconciliation of our unrecognized tax benefits is presented in the table below:
The Company’s policy is to recognize potential interest and penalties accrued related to unrecognized tax benefits within income tax expense. For the years ended October 31, 2009 and 2008, the Company did not recognize any interest or penalties in the Statements of Operations, nor did the Company have any interest or penalties accrued at October 31, 2009 and 2008 relating to unrecognized benefits.
The Company has filed income tax returns in the United States and (State). All tax years prior to 2006 are closed by expiration of the statute of limitations. The years ended October 31, 2009, 2008, and 2007 are open for examination
NOTE 9 - COMMITMENTS AND CONTINGENCIES
a)
Legal Proceedings
At year end October 31, 2008, the Company had the following litigation matters. All amounts have been accrued in the Company’s financial statements.
On May 27, 2008 the Company filed a lawsuit in the United States District Court, Central District of California, Case No. SACV08-00586 CJC (PLAx) alleging securities law violations and fraud against Douglas G. Furth individually and allegedly dba Millennium Consulting Group, Inc., a defunct Ohio corporation; Mark Fixler; JAG Enterprises, LLC; Michel Attias; Brendon Attias; Timothy Garlin; and various DOE defendants for disgorgement of short-swing profits in violation of the Securities Exchange Act of 1934, Section 16(b) and for recovery of damages for fraud and deceit. On August 7, 2008 we filed
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
a First Amended Complaint adding, among others, defendants Comprehensive Financial Services, LLC, an Ohio limited liability company; The Signature Fund, a purported Ohio limited partnership; Signature Management, LLC, an Ohio limited liability company; Marc J. Bernstein; Legent Clearing LLC, a Nebraska company; UBS Financial Services, Inc., a California company; and National Financial Services LLC aka Fidelity Investments National Financial Services, a Massachusetts company. Many of these defendants have answered and filed counterclaims, which we intend to vigorously contest. Our investigation into this matter is continuing and we anticipate moving the court for permission to file a Second Amended Complaint naming additional defendants and adding additional causes of action.
On March 11, 2008 we were sued in Maricopa County Superior Court by Sound Packaging, LLC for the sum of $2,221.60 for an unpaid invoice for shipping boxes. We did not contest the suit and on July 11, 2008 a judgment in the amount of $3,461.10 was entered against the company.
In April 2008 the Company borrowed a total of $22,000 from MyTightRide, Inc. in two tranches: $6,600 on April 3, 2008 and $15,400 on April 16, 2008. We repaid a total of $10,800 of that sum. Because we did not repay the full amount, on October 21, 2008 MyTightRide sued us for the balance (including court fees). We did not contest the lawsuit and on January 13, 2009 a judgment was entered against the company in Maricopa County Superior Court in the amount of $11,609.73, which represented the principal sum of $11,190.00 plus $419.73 in costs, with interest accruing on the total unpaid amount at 10% per annum. We are presently attempting to negotiate a payment plan for the outstanding judgment.
On August 20, 2008, Airgas Safety, Inc., one of our vendors, sued us (and Richard Reincke, personally, as a guarantor) in the McDowell Mountain Justice Court, Maricopa County, for an unpaid invoice in the amount of $8,959.21 and for $2,983.42 in attorneys’ fees and court costs. We did not contest the lawsuit and a judgment was entered against us and Mr. Reincke personally for those amounts in December 2008.
In addition to the matters specified above, at year end October 31, 2009, the Company had the following litigation matters:
On or about April 14, 2009 a complaint was filed in Maricopa County Superior Court against the company on behalf of American Technology Network Corp., one of the Company’s vendors, for $21,704.24 for unpaid invoices. We did not contest the lawsuit.
On February 27, 2009 Morovision Night Vision, Inc., one of our vendors, sued us in Maricopa County Superior Court for the unpaid balance of $25,271.70 for products supplied to the company between May 15, 2008 and May 30, 2008. We did not contest the lawsuit and a judgment was entered against the company in May 2009.
On August 27, 2009 Worldwide Express, Inc., a shipping company, filed a complaint in Maricopa County Superior Court for unpaid shipping fees in the amount of $11,421.69 plus attorney’s fees and costs of $3,500.00. We did not contest the lawsuit and on September 28, 2009 Worldwide Express moved for a default judgment.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 9 - COMMITMENTS AND CONTINGENCIES (CONTINUED)
On October 14, 2009 Golden Sheep Power, Inc., one of our customers, sued us in Maricopa County Superior Court for $58,673.58 plus $2,000 in attorneys’ fees and $387.20 in costs for a refund for equipment that was not delivered. We did not contest the lawsuit.
b)
Lease obligation
On September 1, 2007 the Company entered into a three year lease to rent its current principle offices and warehouse space. The total annual rent obligation remaining on the lease is $26,664.
NOTE 10 - DISCONTINUED OPERATIONS
In accordance with ASC 205-20, the Company has classified all results from operations of its former business of providing supplies and materials to providers of emergency response services into discontinued operations line items within the Company’s statements of operations and statements of cash flow.
Net loss from discontinued operations for the year ended October 31, 2009 and 2008 consisted of the following:
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to this filing, the Company has issued 2,576,100 shares of common stock for services.
In accordance with ASC 855-10, Company management reviewed all material events through February 16, 2010, and there are no material subsequent events to report other than those reported.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 12 - RESTATED FINANCIAL STATEMENTS
On August 27, 2009 the Company was informed that the Public Company Accounting Oversight Board ("PCAOB") revoked the registration of Moore & Associates who was serving as the Company’s independent registered public accounting firm. The revocation was a result of Moore’s violation of PCAOB rules and auditing standards. This revocation of Moore’s registration required the Company to have the financial statements previously issued reaudited for the fiscal years ended October 31, 2008.
This reaudit produced material differences from the previously filed versions. The main areas requiring misstatements were related to improper valuation of beneficial conversion, improper valuation of common stock and common stock purchase warrants issued for services, and the failure to write off fixed assets that had been disposed of during the period. Included in this filing are the restated 2008 fiscal year financial statements. For comparative purposes, the table below presents the reaudited balance sheets, income statements and statements of cash flows compared to the original filing.
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 12 - RESTATED FINANCIAL STATEMENTS (CONTINUED)
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 12 - RESTATED FINANCIAL STATEMENTS (CONTINUED)
GWS TECHNOLOGIES, INC.
Notes to the Financial Statements
October 31, 2009 and 2008
NOTE 12 - RESTATED FINANCIAL STATEMENTS (CONTINUED)
ITEM 9.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
There disclosure has been previously reported on Form 8-K filed August 7, 2009; Form 8-K/A filed September 4, 2009; Form 8-K/A filed September 15, 2009; Form 8-K/A filed September 23, 2009; Form 8-K/A filed September 25, 2009; Form 8-K/A filed October 6, 2009; Form 8-K/A filed December 4, 2009; and Form 8-K/A filed December 10, 2009.
ITEM 9A(T).
ITEM 9A(T). CONTROLS AND PROCEDURES
Disclosure controls and procedures are designed with an objective of ensuring that information required to be disclosed in our periodic reports filed with the Securities and Exchange Commission, such as this Annual Report on Form 10-K, is recorded, processed, summarized and reported within the time periods specified by the Securities and Exchange Commission. Disclosure controls are also designed with an objective of ensuring that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, in order to allow timely consideration regarding required disclosures.
The evaluation of our disclosure controls by our principal executive officer, Richard Reincke, who also serves as our principal financial officer, included a review of the controls’ objectives and design, the operation of the controls, and the effect of the controls on the information presented in this Annual Report. Because most of the senior management functions relating to the operation of our business are performed by Mr. Reincke, he does not expect that disclosure controls can or will prevent or detect all errors and all fraud, if any. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Also, projections of any evaluation of the disclosure controls and procedures to future periods are subject to the risk that the disclosure controls and procedures may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
We presently have only two directors, one of whom, Mr. Reincke, is both our President/CEO and our Chief Financial Officer. Mr. Johnson, our Chairman of the Board, has not been an officer of the company since March, 2008, but is still a 10% shareholder. Therefore, the entire board performs audit and compensation matters, and we do not have an audit or compensation committee which includes independent, outside directors. We are currently reviewing potential candidates for our board of directors but believe we will need to obtain D&O insurance for any new directors as a precondition to their appointment or election.
The matters involving internal controls and procedures that our management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board were: (1) lack of a functioning audit committee and lack of a majority of outside directors on our company’s board of directors; (2) inadequate segregation of duties consistent with control objectives; and (3) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
Management believes that the material weaknesses set forth above have not yet had an affect on our company’s financial results. However, management believes that the lack of a functioning audit committee, and small board of directors which does not contain a majority of outside directors, may result in ineffective oversight of the establishment, maintenance, and monitoring of required internal controls and procedures in the future. We have a goal of appointing one or more outside directors to our board of directors to establish a fully functioning audit committee; however, our lack of D&O insurance at present, and our inability to fund such insurance at present, have prevented us from accomplishing this goal. If and when sufficient funds become available, we plan to hire a full-time Chief Financial Officer and segregate duties consistent with control objectives. We also plan to increase our personnel resources and technical accounting expertise within the accounting function when sufficient funds are available. Part of the proposed CFO’s duties will be to assist in the preparation and implementation of sufficient written policies and checklists which will set forth procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements.
Management believes that the steps outlined above will remedy the lack of a functioning audit committee and the lack of a majority of outside directors on our company’s Board. Hiring of additional personnel who have the technical expertise and knowledge will result in proper segregation of duties and provide more checks and balances in our financial reporting procedures.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2008. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on this assessment, management has identified the following three material weaknesses that have caused management to conclude that, as of December 31, 2008, our disclosure controls and procedures, and our internal control over financial reporting, 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 as of the year ending December 31, 2008. 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.
3. We had a significant number of audit adjustments this fiscal year. Audit adjustments are the result of a failure of the internal controls to prevent or detect misstatements of accounting information. The failure could be due to inadequate design of the internal controls or to a misapplication or override
Auditor’s Attestation Report on Internal Control over Financial Reporting
This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management’s report in this annual report.
In accordance with current SEC guidelines, our external auditors are required to provide their initial attestation in our Annual Report on Form 10-K for the fiscal year ending December 31, 2009.
PART III
ITEM 10.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Our directors will serve until the next annual meeting of stockholders. Our executive officer and key employees and consultants are appointed by our board of directors and serve at its discretion.
Directors and Executive Officers
Our board of directors currently consists of only two members. There are no arrangements or understandings between any of the directors or any other persons pursuant to which any of the directors have been selected as directors, other than as described below. There are no “family relationships” among the directors, as that term is defined by the Securities and Exchange Commission. Set forth on the table below is a list of our current executive officers and our current Board of Directors, including each member’s age and position with the Company.
Eric D. Johnson
Chairman
Eric Johnson has held senior management positions with early stage companies focusing on technology and software. He was our Chief Executive Officer from February 2005 through March 2008 and continues to serve as our Chairman of the Board. Mr. Johnson's experience includes six years in U.S. Army Military Intelligence. He attended the Defense Language Institute in Monterey, California and is fluent in German. After receiving his Top Secret Security Clearance-SCI, Mr. Johnson worked with the U.S. Army Intelligence and Security Command (INSCOM) and the National Security Agency (NSA) and was stationed in Europe, where he worked on several classified Counter Terrorism and Military Intelligence projects. Mr. Johnson received an honorable discharge in 1990. After leaving the military, Mr. Johnson joined Equity Services, Inc., a national full service broker-dealer as a registered representative, where he provided financial planning and investment advisory services to high net worth individuals and closely held businesses. Mr. Johnson received his Bachelor's Degree from the University of New York.
Richard C. Reincke
President, Chief Executive Officer, Chief Financial Officer and Director
Richard Reincke was our Chief Operating Officer, Chief Financial Officer, and a director from February 2005 through March 2008, at which time he was appointed President and Chief Executive Officer. He is currently still a director. From 2002 through September 2004 he was the Chief Operating Officer of Aegis Assessments, Inc., a wireless technology company specializing in communications products for first responders, and from September 2004 through May 2008 he served as the acting President of that company. Mr. Reincke is a former member of the Association of Public Safety Communications Officials (APCO) and was also a member of ComCARE, a national advocacy organization for first responders. Mr. Reincke was a National Merit Scholar in 1975.
Michael C. Coskun
Vice President
Mr. Coskun graduated Magna Cum Laude from Arizona State University with a B.A. in political science in 2007 and began working for the company in July 2007. Prior to that, he worked for the Leadership at the Arizona House of Representatives in Phoenix. His experience includes working for and interacting with various Congressmen, Senators, and State Representatives. As our vice president, Mr. Coskun oversees finding new products for the company to distribute, as well as competitive bidding and marketing of our wind turbines and other alternative energy product lines. Several of his initiatives are “green” initiatives targeted at the federal government and state government agencies, specifically California, relying on Executive orders and Federal Trade Commission Guidelines that require governments to make major purchases of “green” products. He has also been active in developing the private wind turbine market in Canada.
Limitation of liability and indemnification of directors. The right of the stockholders to sue any director for misconduct in conducting the affairs of the company is limited by the company’s Certificate of Incorporation, Bylaws and applicable statutory law relating to cases for damages resulting from breaches of fiduciary duties involving acts or omissions involving intentional misconduct, fraud, knowing violations of the law or the unlawful payment of dividends. Ordinary negligence is not a ground for such a suit. The statute does not limit the liability of directors or officers for monetary damages under the Federal securities laws.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers or persons controlling the company pursuant to the foregoing provisions, the company has been informed that in the opinion of the United States Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is therefore unenforceable.
Section 16(a) Beneficial Ownership Reporting Compliance. Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers, directors, and persons who own more than ten percent of a registered class of our equity securities to file reports of ownership and changes in ownership with the Securities and Exchange Commission, or SEC. Executive officers, directors, and greater than 10% stockholders are required by SEC regulation to furnish us with copies of all Section 16(a) forms they file. We did not receive copies of any such forms for our review during the year ended October 31, 2009 and therefore we cannot opine as to whether any executive officers, directors or greater than 10% shareholders complied with these requirements, except as follows: our President and CEO, Richard Reincke, and our Chairman, Eric Johnson, received stock compensation during the last fiscal year but have not yet filed their updated Form 4 ownership reports. They have asked the Company to assist them in filing these reports and intend to become current in their reporting obligations.
Code of Ethics
In order to participate in competitive bidding activities we are required to certify, from time to time, that we will not engage in fraud, collusion, or other dishonest or unethical conduct. In addition to these periodic certifications, we have adopted written standards designed to promote honest and ethical conduct by our officers, directors and employees, including but not limited to our principal executive officer, principal financial officer, principal accounting officer, and persons performing similar functions. This was accomplished by resolution of our board of directors on January 15, 2008. We believe that our current Code of Ethics substantially complies with the rules promulgated under the Sarbanes-Oxley Act of 2002. We will provide any person, upon request to our corporate secretary and without charge, a copy of our written standards.
Since we currently have only two directors, we do not have any outside directors to provide oversight of these functions; however, we are investigating the costs for D&O insurance (which we cannot presently afford), which we believe will be necessary to obtain outside directors.
We do not currently have standing audit, nominating and compensation committees of the board of directors; the entire board currently consists of only two directors, who perform those functions. We do not currently have procedures in place by which security holders may recommend nominees to our board of directors, but we plan to adopt such procedures at our next annual shareholders’ meeting.
ITEM 11.
ITEM 11. EXECUTIVE COMPENSATION
Executive Compensation Summary
There are the only two members of the Board of Directors, Richard Reincke and Eric Johnson, who are also control shareholders of the Company. Mr. Reincke is also both the President/CEO and Chief Financial Officer. Therefore, there are no outside directors or an independent compensation committee.
The following table sets forth the total compensation for the fiscal years ended October 31, 2009, 2008 and 2007, paid to or accrued for our chief executive officer and our other executive officers who provided services to us at October 31, 2009, 2008 and 2007.
Option Grants in Last Fiscal Year
Compensation of Directors
ITEM 12.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
Security ownership of certain beneficial owners and management
The following table specifies the capital stock ownership of our officers, directors and key employees and consultants. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. In accordance with Securities and Exchange Commission rules, shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or which become exercisable within 60 days of the date of the table are deemed beneficially owned by the optionee, and the percent of class owned in the table below is calculated assuming the exercise of all options exercisable within 60 days. Subject to community property laws, where applicable, the persons or entities named in the table below have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them.
A person is deemed to be the beneficial owner of securities that can be acquired within 60 days from the date set forth above through the exercise of any option, warrant or right. Shares of common stock subject to options, warrants or rights that are currently exercisable or exercisable within 60 days are deemed outstanding for computing the percentage of the person holding such options, warrants or rights, but are not deemed outstanding for computing the percentage of any other person.
Changes in control
Our management is not aware of any arrangements which may result in "changes in control" as that term is defined by the provisions of Item 403(c) of Regulation S-B, other than as follows: we are presently negotiating with certain bondholders to convert the bond debt into a combination of common and preferred stock, with designated privileges and preferences, including voting rights, which designations and terms are still being negotiated. Depending on conversion ratios and those privileges and preferences, such a transaction could result in a change of control of the company.
Equity Compensation Plan Information
We maintain the First Responder Products, Inc. 2007 Stock Option Plan (“First Responder Products, Inc.” is the former name of the company) pursuant to which we may grant equity awards to eligible persons. The following table gives information about equity awards under the Plan.
(a)
(b)
(c)
Plan category
Number of securities to be issued upon exercise of outstanding options, warrants and rights
Weighted-average exercise price of outstanding options, warrants and rights
Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders (1)
950,000
$0.27
3,115,000
Equity compensation plans not approved by security holders
None
N/A
N/A
Total
950,000
$0.27
3,115,000
The Plan was approved by written consent of a majority of the Company’s stockholders on March 12, 2007 by an action by written consent in lieu of a meeting.
ITEM 13.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Agreements with Executive Officers and Directors
We have only two directors; one, Richard Reincke, serves as both our President/CEO and CFO; he is also a 10% shareholder. The other, Eric Johnson, is our Chairman of the Board and a 10% shareholder. Therefore, we do not have any independent directors.
During the last fiscal year we held seven (7) board meetings. Both directors attended all board meetings. We did not hold an annual meeting of shareholders during the fiscal year ended October 31, 2009.
We do not have written employment agreements with our executive officers or directors. Our primary executive officer, Richard Reincke, has not received a monthly salary for a significant period of time and is suffering financial hardship due to not receiving a salary. There can be no assurance that he will continue to perform services without being compensated. The loss of Mr. Reincke’s services would be extremely adverse to the operation of the company.
The Company has received significant loans from related parties. Specifically, at the fiscal year ended October 31, 2009 Eric Johnson, Chairman of our Board of Directors, had an outstanding loan to the Company in the principal amount of $272,134.88 at 12% per annum interest on the unpaid principal. A&Z Investments, LLC had an outstanding loan to the Company in the principal amount of $945,500 at 12% per annum interest on the unpaid principal. A&Z Investments, LLC is a shareholder of the Company.
Indemnification Agreements
We will enter into indemnification agreements with each of our executive officers. We will agree to indemnify each such person for all expenses and liabilities, including criminal monetary judgments, penalties and fines, incurred by such person in connection with any criminal or civil action brought or threatened against such person by reason of such person being or having been our officer or director or employee. In order to be entitled to indemnification by us, such person must have acted in good faith and in a manner such person believed to be in our best interests. With respect to criminal actions, such person must have had no reasonable cause to believe his or her conduct was unlawful.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in that act and is, therefore, unenforceable.
Organization within last five years
Transactions with promoters
In February 2005, we issued 5,450,000 shares of our common stock in exchange for services related to our incorporation and initial business activities. The founders' shares were valued at par value, or $.001 per share, which represented the fair market value of our stock on the date of issuance.
The following individuals were issued founders' shares for the services indicated:
·
Eric Johnson, our president, chief executive officer and chairman, received 3,550,000 shares of our common stock for initial capitalization and services related to our incorporation. Specifically, Mr. Johnson assisted in the initial incorporation and helped formulate our business plan. His shares were valued at $.001 per share.
·
Mr. Reincke received 1,000,000 shares of our common stock for services related to our initial incorporation including assisting in the preparation and filing of documents related to our incorporation, general office duties, market research, and formulation of our business and marketing plans. His shares were valued at $.001 per share.
·
Steve Stubblefield, a consultant, received 900,000 shares of our common stock for software development services related to designing our e-commerce website, assisting in the formulation of our business plan and product identification and acquisition. His shares were valued at $.001 per share.
ITEM 14.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Audit Fees
We received aggregate billings from our former auditor, Moore & Associates, for the audit of our annual financial statements for the fiscal year ending October 31, 2008 and for review of our quarterly statements through July 31, 2008. We incurred fees of approximately $10,625 from Moore & Associates for review of our quarterly statements for 2008 and of approximately $7,500.00 for the audit of our annual financial statements for the fiscal year ending October 31, 2008. We have been required to re-audit the balance sheet of the Company as of October 31, 2008, and the related statements of operations, stockholders’ equity and comprehensive income, and cash flows for the year then ended due to the revocation of the registration of Moore and Associates Chartered. We retained Mantyla McReynolds LLC to re-audit those financial statements for the fiscal year ended October 31, 2008 and incurred fees of approximately $9,100 for that review, and an additional $15,000 for the audit of our annual financial statements for the fiscal year ending October 31, 2009.
Audit Related Fees
There were no fees billed by our auditors in our last two fiscal years for professional services rendered in connection with assurance and related services that are reasonably related to the performance of an audit or review of our financial statements.
Tax Fees
There were no fees billed by our auditors in our last two fiscal years for tax compliance, tax advice, or any tax planning.
All Other Fees
There were no fees billed by our auditors in our last two fiscal years for products and services other than those reported above.
PART IV
ITEM 15.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The following exhibits are either attached hereto or incorporated herein by reference as indicated:
Independent Auditors’ Report
Balance Sheets
Statements of Operations
Statements of Stockholders’ Equity (Deficit)
Statements of Cash Flows
Notes to the Financial Statements
(b)
Exhibit
Number
Description
Exhibit
3.1
Certificate of Incorporation dated February 15, 2005 *
3.2
Certificate of Amendment of Certificate of Incorporation dated April 21, 2005 *
3.3
Amended and Restated Certificate of Incorporation dated October 26, 2005*
3.4
Certificate of Amendment of Certificate of Incorporation of GWS Technologies dated June 30, 2008
Filed herewith
3.5
Certificate of Amendment of Certificate of Incorporation of GWS Technologies dated October 13, 2008
Filed herewith
3.6
Bylaws*
10.1
Amendment No. 1 to Lease with Camidor Properties**
10.2
Consulting Agreement with Cota LLC dated May 19, 2009
Code of Ethics**
Consent of Mantyla McReynolds LLC
Filed herewith
Certification pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Filed herewith
Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Filed herewith
* Previously filed as exhibits to our registration statement on Form SB-2, file number 3333-139751, filed December 29, 2006.
** Previously filed as exhibits to our Annual Report on Form 10-KSB filed February 12, 2008.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Dated: February 16, 2010
By:
/s/ Richard Reincke
Richard Reincke
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.