Attached files
file | filename |
---|---|
EX-32.1 - EXHIBIT 32.1 - Freedom Environmental Services, Inc. | ex321090809.htm |
EX-32.2 - EXHIBIT 32.2 - Freedom Environmental Services, Inc. | ex322090809.htm |
EX-31.1 - EXHIBIT 31.1 - Freedom Environmental Services, Inc. | ex311090809.htm |
EX-23.1 - EXHIBIT 23.1 - Freedom Environmental Services, Inc. | ex231090809.htm |
EX-31.2 - EXHIBIT 31.2 - Freedom Environmental Services, Inc. | ex312090809.htm |
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-K/A
Amendment
No. 2
[x]
ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
For
the fiscal year ended December 31, 2008
[
] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE
ACT OF 1934
Commission
File Number: 000-53388
Freedom
Environmental Services, Inc.
(Exact
name of registrant as specified in its charter)
Delaware
|
56-2291458
|
(State
or other jurisdiction of
|
(I.R.S.
Employer Identification No.)
|
incorporation
or organization)
|
7380
W Sand Lake Rd # 543
Orlando,
FL 32819
(Address of principal
executive offices)(Zip Code)
(407)
658-6100
(Registrant’s
telephone number, including area code)
Securities registered under
Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.001 par value per share
(Title
of Class)
Indicate by check mark if the
registrant is a well-known seasoned issuer, as defined in Rule 405 of the
Securities Act. Yes x No
Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act. Yes
x
No
Indicate
by check mark whether the registrant (1) has filed all reports required to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K.
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer. See definition of “accelerated
filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
(Check one):
Large accelerated filer
Non-accelerated filer
|
Accelerated filer
Small
Business Issuer x
|
Indicate
by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Act. Yes No x
The
registrant had 15,971,969 shares of Common Stock, par value $0.001, issued
and outstanding as of October 5, 2009.
The aggregate market value of voting
stock held by non-affiliates of the registrant on December 31, 2008 was
approximately $1,500,000. Solely for purposes of the foregoing
calculation, all of the registrant’s directors and officers as of December 31,
2008, are deemed to be affiliates. This determination of affiliate status for
this purpose does not reflect a determination that any persons are affiliates
for any other purposes.
Documents
Incorporated By Reference: None
1
EXPLANATORY
NOTE:
The Board
of Directors and officers of the Company have decided to revise and amend
certain disclosures in this Form 10-K/A for the year ended December 31, 2008.
Note 8 of the attached financial statements outlines the revisions that
have been made to the financial statements and we have revised “Item 7.
Management’s Discussion and Analysis of Financial Condition and Results of
Operation” to reflect those changes. In addition we have revised “Item 9A
(T). Controls and Procedures” to conform to the requirements of Item
308T(a)(1) of Regulation S-K. Other than these changes, the disclosures in this
amended report are as of the initial filing date of April 15, 2009 and this
report does not include subsequent events.
Further,
as required by Rule 12b-15 under the Securities Exchange Act of 1934, as amended
(the “Exchange Act”), new certifications by our principal executive officer and
principal financial officer are being filed as exhibits to this Form 10-K/A
under Item 15 of Part IV hereof.
2
Freedom
Environmental Services, Inc.
FORM
10-K/A ANNUAL REPORT
FOR
THE FISCAL YEAR ENDED DECEMBER 31, 2008
TABLE
OF CONTENTS
PART I
|
|
|||
ITEM 3.
|
|
LEGAL PROCEEDINGS
|
|
5
|
PART II
|
|
|||
ITEM 6.
|
|
SELECTED FINANCIAL DATA
|
|
5
|
ITEM 7.
|
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
|
|
5
|
ITEM 8.
|
|
CONSOLIDATED FINANCIAL STATEMENTS AND
SUPPLEMENTARY DATA
|
|
16
|
ITEM 9.
|
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
|
|
17
|
PART III | ||||
ITEM 10.
|
|
DIRECTORS
AND EXECUTIVE OFFICERS OF REGISTRANT
|
|
19
|
ITEM 11.
|
|
EXECUTIVE
COMPENSATION
|
|
20
|
ITEM 12.
|
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANGEMENT
|
|
32
|
ITEM 14.
|
|
PRINCIPAL ACCOUNTANT FEES AND
SERVICES
|
|
35
|
PART IV
|
|
|||
ITEM 15.
|
|
EXHIBITS AND FINANCIAL STATEMENT
SCHEDULES
|
|
37
|
|
SIGNATURES
|
|
38
|
|
CERTIFICATIONS | ||||
Exhibit 31 – Management certification | ||||
Exhibit 32 – Sarbanes-Oxley Act |
3
Forward
Looking Statements — Cautionary Language
Certain
statements made in these documents and in other written or oral statements made
by Freedom Environmental Services, Inc. or on Freedom Environmental Services,
Inc’s behalf are "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 ("PSLRA"). A forward-looking statement
is a statement that is not a historical fact and, without limitation, includes
any statement that may predict, forecast, indicate or imply future results,
performance or achievements, and may contain words like: "believe",
"anticipate", "expect", "estimate", "project", "will", "shall" and other words
or phrases with similar meaning in connection with a discussion of future
operating or financial performance. In particular, these include statements
relating to future actions, trends in our businesses, prospective products,
future performance or financial results. Freedom Environmental Services, Inc.
claims the protection afforded by the safe harbor for forward-looking statements
provided by the PSLRA. Forward-looking statements involve risks and
uncertainties that may cause actual results to differ materially from the
results contained in the forward-looking statements. Risks and uncertainties
that may cause actual results to vary materially, some of which are described in
this filing. The risks included herein are not exhaustive. This
annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on
Form 8-K and other documents filed with the SEC include additional factors which
could impact Freedom Environmental Services, Inc.'s business and financial
performance. Moreover, Freedom Environmental Services, Inc. operates in a
rapidly changing and competitive environment. New risk factors emerge from time
to time and it is not possible for management to predict all such risk factors.
Further, it is not possible to assess the impact of all risk factors on Freedom
Environmental Services, Inc's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
contained in any forward-looking statements. Given these risks and
uncertainties, investors should not place undue reliance on forward-looking
statements as a prediction of actual results. In addition, Freedom Environmental
Services, Inc. disclaims any obligation to update any forward-looking statements
to reflect events or circumstances that occur after the date of the
report.
Unless
otherwise noted, references in this Form 10-K to “Freedom” the “Company,” “we,”
“our” or “us” means Freedom Environmental Services, Inc., a Delaware
corporation.
We were
incorporated in the State of Delaware October 6, 1978 as United States
Aircraft Corp and have undergone numerous name changes, the most recent being on
June 11, 2008 when we amended our certificate of incorporation in order that we
may change our name from BMXP Holdings, Inc. to Freedom Environmental
Services, Inc.
4
PART
I
ITEM 3. LEGAL
PROCEEDINGS.
We are
currently not involved in any litigation that we believe could have a materially
adverse effect on our financial condition or results of
operations. There is no action, suit, proceeding, inquiry, or
investigation before or by any court, public board, government agency,
self-regulatory organization, or body pending or, to the knowledge of the
executive officers of our company or any of our subsidiaries, threatened against
or affecting our company, our common stock, any of our subsidiaries, or of our
company’s or our company’s subsidiaries’ officers or directors in their
capacities as such, in which an adverse decision could have a material adverse
effect.
On
April 30, 2009, Total Enviro Services, Inc. filed suit against William Lee and
Freedom Environmental Services, Inc. in the Ninth Judicial Circuit in Orange
County, Florida. The suit asserts claims for alleged breaches of a covenant not
to compete. The plaintiffs are seeking unspecified monetary damages and
injunctive relief. On June 2, 2009 there was filed Notice of
Voluntary Dismissal without prejudice as to Defendant, Freedom Environmental
Services, Inc.
PART II
ITEM
6. SELECTED FINANCIAL DATA.
Not
required for smaller reporting Companies.
ITEM
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OR PLAN OF OPERATION.
The
following is management’s discussion and analysis of certain significant factors
that have affected our financial position and operating results during the
periods included in the accompanying consolidated financial statements, as well
as information relating to the plans of our current management. This report
includes forward-looking statements. Generally, the words “believes,”
“anticipates,” “may,” “will,” “should,” “expect,” “intend,” “estimate,”
“continue,” and similar expressions or the negative thereof or comparable
terminology are intended to identify forward-looking statements. Such statements
are subject to certain risks and uncertainties, including the matters set forth
in this report or other reports or documents we file with the Securities and
Exchange Commission from time to time, which could cause actual results or
outcomes to differ materially from those projected. Undue reliance should not be
placed on these forward-looking statements which speak only as of the date
hereof. We undertake no obligation to update these forward-looking
statements.
The
following discussion and analysis should be read in conjunction with our
consolidated financial statements and the related notes thereto and other
financial information contained elsewhere in this Form 10-K.
We
prepare our consolidated financial statements in accordance with accounting
principles generally accepted in the United States of America. The preparation
of these financial statements requires the use of estimates and assumptions that
affect the reported amounts of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Our
management periodically evaluates the estimates and judgments made. Management
bases its estimates and judgments on historical experience and on various
factors that are believed to be reasonable under the circumstances. Actual
results may differ from these estimates as a result of different assumptions or
conditions.
Restatement
of Financial Statements
On May
13, 2009, Tarvaran, Askelson & Company, LLP ("TAC") was appointed as the
independent auditor for Freedom Environmental Services, Inc., commencing with
the quarter ending March 31, 2009. After TAC was engaged, TAC identified and
expressed concerns relating to control deficiencies (as disclosed
in our Form 10-Q for the quarter ended March 31, 2009). We were further advised
by TAC that there were errors in the original financial statements for the year
ended December 31, 2008 which was audited by Lawrence Scharfman & Co CPA
P.A. on April 14, 2009. Based on the oregoing, Mike Borish our Chief
Executive Officer and Chief Financial Officer, concluded on May 20, 2009, that
the Original financial statements should no longer be relied upon. TAC was
retained on July 20, 2009 to re-audit the financial statements of the Company
for the year ended December 31, 2008. During TAC’s audit of the Company’s
financial statements, TAC further identified that new information became
available subsequent to the issuance of our original financial statements for
the year ended December 31, 2007 which was audited by Kramer Weisman and
Associates, LLP. Kramer Weisman and Associates reissued their restated audit
report on October 27, 2009 as a result of such findings. On September 8, 2009
TAC issued a formal letter to the Company setting forth deficiencies which were
a primary concern of TAC, during TAC’s re-auditing of the Company financial
statements for the year ended December 31, 2008.
5
The
Company has adopted SFAS 154-Accounting Changes and Error Corrections as a
result we have determined that errors in the accounting treatment and reported
amounts in our previously filed financial statements. As a result, we determined
to restate our financial statements for the year ended December 31, 2008 and
2007.
In
connection with the restatement, we are designing internal procedures and
controls for purposes of the preparation and certification of our financial
statements going forward. In this process, we identified certain errors in
accounting determinations, which have been reflected in the restated financial
statements.
These
restated financial statements include adjustments related to the following for
the year ended December 31, 2008:
On June
30, 2008 the Company issued stock for consulting fees to the former chairman of
the Company and other former officers of the Company. The Company did not
consider the cost of these 12,746,444 shares. Accordingly $6,373,222
was added as compensation expense related to the issuance of the stock and are
reflected in the restated financial statements for the year ended December 31,
2008.
On
December 15, 2008 the Company entered into employment agreements with the
Company’s two officers for the annual amount of $185,000 and $165,000,
respectively. The employment agreements under the reference “Term” specifically
set forth that the agreements were to be retroactive to January 1, 2008 “this
agreement will be retroactive to January 1, 2008.” The Company did not accrue
any compensation expenses consistent with the provisions of the agreements.
Further the Company did not accrue related payroll tax liability which would
have also been required. Accordingly $350,000 was added as accrued compensation
liability and $15,606 was added as accrued payroll tax liability in the restated
financial statements for the year ended December 31, 2008.
The
Company entered into the $95,000 convertible promissory note as a result of a
related party company because it had a lack of sufficient capital to pay for its
employees and the related party entity; which was owned by the chief executive
officer, made direct payments to an employee of the Company for services the
employee was performing on behalf of the Company. During the year ended December
31, 2008 the Company did not record the compensation expense related to the
services performed by the employee and also did not record the liability which
the company was responsible for as a result of the convertible promissory note
in the amount of $95,000. The restated financial statement for the year ended
December 31, 2008 has taken into account the compensation expense and liability
to the related party in the amount of $95,000.
The
Company entered into a vehicle lease agreement with Ford Credit. During the year
ended December 31, 2008 the Company had incorrectly capitalized the vehicle
lease. The restated financial statement for the year ended December 31, 2008 has
reflected the adjustment in the amount of $21,540 to expense the asset
previously recorded incorrectly.
During
the year ended December 31, 2008 the Company incorrectly reflected accounts
receivable balances of $191,843 which took into account undeposited funds and
other trade receivables. The restated financial statements for the year ended
December 31, 2008 has reflected accounts receivable balance of $2,675 which took
into account expensing $189,168 in undeposited fund which could not be supported
and other write off and reserve of trade receivables which were deemed
uncollectible or at risk for uncollectibility.
During
the year ended December 31, 2008 the Company incorrectly reflected various other
transactions which would have reflected an additional cumulative amount of
approximately $38,554 in expenses related to properly recording depreciation
expense, booking of a capital lease for equipment with U.S. Bancorp Manifest
Funding Services and related correction of depreciation expense, as well as
property recording of consulting and compensation expense. The restated
financial statements for the year ended December 31, 2008 has reflected the
proper recording of the expenses set forth in the cumulative amount of
approximately $38,554.
On
December 11, 2008 the Company entered into two convertible promissory notes with
two related parties in the amount of $600,000 and $95,000 respectively. The two
agreements afforded the holder an option on the date of inception of the
agreement to convert the note into shares of the Company’s common stock equal to
50% of the market price of the corporation
common stock on the date of the conversion. The Company did not consider
beneficial conversion features of the convertible promissory note. Accordingly
$388,250 was added as interest expense related to the beneficial conversion
feature in the restated financial statements for the year ended December 31,
2008.
6
The
Company entered various convertible notes and advance agreements with the
Company’s officers and shareholders. During the year ended December 31, 2008 the
Company had not fully considered the interest expense related to the note and
advance agreements. The restated financial statement for the year ended December
31, 2008 has reflected additional interest expense in the amount of
$24,400.
During
the year ended December 31, 2008 the Company did not properly account for the
provision of income taxes. The restated financial statements for the year ended
December 31, 2008 has reflected a deferred benefit for income taxes for the year
ended December 31, 2008 in the amount of $3,109,000 for which the full amount
was a benefit to operating loss carryforward. As of December 31, 2008 the gross
deferred tax asset was $5,278,000 for which the Company provided a full
valuation allowance in the amount of $5,278,000.
The
following were corrections made to the Company financial statements for the year
ended December 31, 2008:
Consolidated
Statement of Operations
|
||||||||
For
the year December 31, 2008
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Net
sales
|
293,584
|
(460)
|
293,124
|
|||||
Cost
of Sales
|
147,251
|
5,351
|
152,602
|
|||||
Gross
Profit
|
146,333
|
5,811
|
140,522
|
|||||
Selling
general and administrative
|
509,536
|
7,078,199
|
7,587,735
|
|||||
Net
loss before other income and expense
|
(363,203)
|
(7,084,010)
|
(7,447,213)
|
|||||
Interest
Expense
|
10,702
|
412,650
|
423,352
|
|||||
Net
Loss
|
(373,905)
|
(7,496,660)
|
(7,870,565)
|
|||||
Net
loss per share basic and fully diluted
|
(0.01)
|
(0.175)
|
(0.185)
|
|||||
Basic
and fully diluted weighted average
|
||||||||
number
of shares outstanding
|
27,931,258
|
14,716,123
|
42,647,381
|
|||||
7
Consolidated Balance
Sheet
|
||||||||
As
of December 31, 2008
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Current
assets:
|
||||||||
Accounts
receivable
|
191,843
|
(189,168)
|
2,675
|
|||||
Total
current assets
|
191,843
|
(189,168)
|
2,675
|
|||||
Property
and equipment, net
|
21,181
|
(10,116)
|
11,065
|
|||||
Other
assets
|
6,100
|
5,638
|
11,738
|
|||||
Total
assets
|
$
|
219,124
|
$
|
(193,646)
|
$
|
25,478
|
||
Current
liabilities:
|
||||||||
Bank
overdraft
|
$
|
-
|
20,471
|
$
|
20,471
|
|||
Accounts
payable and accrued expenses
|
81,800
|
367,239
|
449,039
|
|||||
Line
of credit
|
14,995
|
-
|
14,995
|
|||||
Notes
payable – current portion
|
-
|
4,997
|
4,997
|
|||||
Due
to related party
|
-
|
95,000
|
95,000
|
|||||
Shareholder
loan
|
508,410
|
40,647
|
549,057
|
|||||
Total
current liabilities
|
607,205
|
526,354
|
1,133,559
|
|||||
Notes
payable-noncurrent portion
|
-
|
4,997
|
4,997
|
|||||
Total
liabilities
|
607,205
|
531,351
|
1,138,556
|
|||||
Preferred
Stock
|
-
|
|||||||
Common
Stock
|
35,158
|
(1)
|
35,157
|
|||||
Additional
paid in capital
|
(35,158)
|
11,877,144
|
11,841,986
|
|||||
Accumulated
deficit
|
(378,081)
|
(12,612,140)
|
(12,990,221)
|
|||||
Total
stockholders deficit
|
(378,081)
|
(734,997)
|
(1,113,078)
|
|||||
Total
liabilities and stockholders deficit
|
$
|
229,124
|
$
|
(203,646)
|
$
|
25,478
|
||
8
Consolidated
Statement of Cashflows
|
||||||||
For
the year December 31, 2008
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Cashflow
from operating activities:
|
||||||||
Net
Loss
|
(373,905)
|
(7,496,660)
|
$
|
(7,870,565)
|
||||
Adjustments
to reconcile net loss to net
|
||||||||
loss
to net cash used in operating activities
|
||||||||
Depreciation
|
2,500
|
3,567
|
6,067
|
|||||
Common
stock issued for compensation
|
-
|
6,761,663
|
6,761,663
|
|||||
Change
in operating assets and liabilities
|
||||||||
Decrease
(Increase) in:
|
||||||||
Accounts
receivable
|
(10,000)
|
7,325
|
(2,675)
|
|||||
Other
assets
|
(6,100)
|
(5,638)
|
(11,738)
|
|||||
Bank
overdraft
|
-
|
20,471
|
20,471
|
|||||
Accounts
payable and accrued expenses
|
83,662
|
365,239
|
448,901
|
|||||
Net
cash provided by in operating activities
|
(303,843)
|
(344,033)
|
(647,876)
|
|||||
Cash
flow from investing activities:
|
||||||||
Fixed
assets purchased
|
(23,681)
|
6,549
|
(17,132)
|
|||||
Net
cash used in Investing activities
|
(23,681)
|
6,549
|
(17,132)
|
|||||
Cash
flow from financing activities:
|
||||||||
Proceeds
from related party
|
-
|
95,000
|
95,000
|
|||||
Proceeds
from line of credit
|
14,995
|
-
|
14,995
|
|||||
Proceeds
from note payable-net of payments
|
-
|
9,994
|
9,994
|
|||||
Proceeds
from shareholder loan
|
504,372
|
40,647
|
545,019
|
|||||
Net
cash provided in financing activities
|
519,367
|
145,641
|
665,008
|
|||||
Net
increase (decrease) in cash
|
191,843
|
(191,843)
|
-
|
|||||
Cash
beginning period
|
-
|
-
|
||||||
Cash,
ending period
|
191,843
|
(191,843)
|
$
|
-
|
9
Consolidated
Statement of Stockholders Deficit
|
|||||||||||||||||||||||||
For
the year December 31, 2008
|
|||||||||||||||||||||||||
Restatement
|
|||||||||||||||||||||||||
As
Originally Presented
|
Adjustment
|
As
Restated
|
|||||||||||||||||||||||
Additional
|
Total |
Additional
|
Total | ||||||||||||||||||||||
Paid-in
|
Retained
|
Stockholder’s
|
Paid-in
|
Retained
|
Stockholder’s
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
||||||||||||||||
Balance
December 31,2007
|
20,794,427
|
$
|
20,704
|
$
|
(20,704)
|
$
|
(4,176)
|
$
|
(4,176)
|
-
|
50,136,668
|
$
|
50,137
|
$
|
5,065,343
|
$
|
(5,119,656)
|
$
|
(4,176)
|
||||||
Net
Loss -2008
|
(373,905)
|
(373,905)
|
(7,496,660)
|
(7,870,565)
|
(7,870,565)
|
||||||||||||||||||||
Reverse
Stock Split 1:20
|
-
|
-
|
-
|
-
|
(47,629,631)
|
(47,630)
|
47,630
|
||||||||||||||||||
Shares
Issued for consulting fee @ $.50/share
|
-
|
-
|
-
|
-
|
6,373,222
|
12,746,444
|
12,746
|
6,360,476
|
6,373,222
|
||||||||||||||||
Recapitalization
as per Stock Purchase Agreement
|
14,453,481
|
14,453
|
(14,453)
|
-
|
-
|
20,704,427
|
20,704
|
(20,704)
|
-
|
||||||||||||||||
Shares
returned by former Chairman and cancelled
|
-
|
-
|
-
|
-
|
-
|
(800,000)
|
(800)
|
800
|
-
|
||||||||||||||||
Miscellaneous
Issuance
|
-
|
-
|
-
|
-
|
191
|
185
|
(1)
|
192
|
191
|
||||||||||||||||
Value
of beneficial conversion feature of convertible note
|
-
|
-
|
388,250
|
388,250
|
388,250
|
||||||||||||||||||||
Balance
December 31, 2008
|
35,247,908
|
$
|
35,157
|
$
|
(35,157)
|
$
|
(378,081)
|
$
|
(378,081)
|
(734,997)
|
35,158,093
|
$
|
35,157
|
$
|
11,841,986
|
$
|
(12,990,221)
|
$
|
(1,113,078)
|
||||||
10
These
restated financial statements include adjustments related to the following for
the year ended December 31, 2007:
On
September 26, 2007 the Company issued stock to the former chairman of the
Company and a former officer for an outstanding note payable of $345,553. The
Company did not consider the issuance of these 16,500,000
shares. Accordingly the note was converted related to the issuance of
the stock for the year ended December 31, 2007.
During
the year ended December 31, 2007 the Company did not include in the financial
statements, the disposal of certain assets held by the parent Company, which
resulted in an additional loss of $318,446. The restated financial statements
for the year ended December 31, 2007 has reflected the proper recording of the
loss from disposal of these assets.
During
the year ended December 31, 2007 the Company did not account for the common
stock, additional paid in capital and accumulated deficit from the parent
company at year end. The inclusion of these adjustments
resulted in no change to total stockholder’s equity as common stock and
additional paid in capital increased by $29,433 and $5,086,047, respectively,
while accumulated deficit decreased by $5,115,480 at December 31, 2007. The
restated financial statements for the year ended December 31, 2007 reflects the
proper recording of equity for the Company.
During
the year ended December 31, 2007 the Company did not properly account for the
provision of income taxes. The restated financial statements for the year ended
December 31, 2007 has reflected a deferred benefit for income taxes for the year
ended December 31, 2007 in the amount of $127,000 for which the full amount was
a benefit to operating loss carryforward. As of December 31, 2007 the deferred
tax asset was $2,169,000 for which the Company provided a full valuation
allowance in the amount of $2,169,000. This correction is only
reflected in the income tax footnote and is not reflected in the financial
statements.
The
following were corrections made to the Company financial statements for the year
ended December 31, 2007:
Consolidated
Statement of Operations
|
||||||||
For
the year December 31, 2007
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Net
Sales
|
-
|
-
|
-
|
|||||
Cost
of Sales
|
-
|
-
|
-
|
|||||
Gross
Profit
|
-
|
-
|
-
|
|||||
Selling
general and administrative
|
4,176
|
-
|
4,176
|
|||||
Net
loss before other income and expense
|
(4,176)
|
-
|
(4,176)
|
|||||
Interest
Expense
|
||||||||
Loss
from disposal of asset
|
-
|
(318,446)
|
(318,446)
|
|||||
Net
Loss
|
(4,176)
|
(318,446)
|
(322,622)
|
|||||
Net
loss per share basic and fully diluted
|
(0.0002)
|
(0.0088)
|
(0.0090)
|
|||||
Basic
and fully diluted weighted average
|
||||||||
number
of shares outstanding
|
20,704,427
|
17,057,241
|
37,761,668
|
11
Consolidated Balance
Sheet
|
||||||||
As
of December 31, 2007
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Current
assets:
|
||||||||
Accounts
receivable
|
-
|
-
|
-
|
|||||
Total
current assets
|
-
|
-
|
-
|
|||||
Property
and equipment, net
|
-
|
-
|
-
|
|||||
Other
assets
|
-
|
-
|
-
|
|||||
Total
assets
|
$
|
-
|
$
|
-
|
$
|
-
|
||
Current
liabilities:
|
||||||||
Accounts
payable
|
138
|
-
|
138
|
|||||
Credit
card payable
|
-
|
-
|
-
|
|||||
Line
of credit
|
-
|
-
|
-
|
|||||
Accrued
interest
|
-
|
-
|
-
|
|||||
Bank
overdraft
|
-
|
-
|
||||||
Shareholder
loan
|
4,038
|
-
|
4,038
|
|||||
Total
current liabilities
|
4,176
|
-
|
4,176
|
|||||
Total
liabilities
|
4,176
|
-
|
4,176
|
|||||
Preferred
Stock
|
-
|
|||||||
Common
Stock
|
20,704
|
29,433
|
50,137
|
|||||
Additional
paid in capital
|
(20,704)
|
5,086,047
|
5,065,343
|
|||||
Accumulated
deficit
|
(4,176)
|
(5,115,480)
|
(5,119,656)
|
|||||
Total
stockholders deficit
|
(4,176)
|
-
|
(4,176)
|
|||||
Total
liabilities and stockholders deficit
|
$
|
-
|
$
|
-
|
$
|
-
|
12
Consolidated
Statement of Cashflows
|
||||||||
For
the year December 31, 2007
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Cashflow
from operating activities:
|
||||||||
Net
Loss
|
(4,176)
|
(318,446)
|
$
|
(322,622)
|
||||
Adjustments
to reconcile net loss to net
|
||||||||
loss
to net cash used in operating activities
|
||||||||
Depreciation
|
-
|
-
|
-
|
|||||
Loss
on disposal of assets
|
-
|
318,446
|
318,446
|
|||||
Change
in operating assets and liabilities
|
||||||||
Decrease
(Increase) in:
|
||||||||
Accounts
receivable
|
-
|
-
|
-
|
|||||
Other
assets
|
-
|
-
|
-
|
|||||
Bank
overdraft
|
138
|
-
|
138
|
|||||
Accrued
interest
|
-
|
|||||||
Automotive
loan
|
-
|
-
|
-
|
|||||
Net
cash provided by in operating activities
|
(4,038)
|
-
|
(4,038)
|
|||||
Cashflow
from financing activities:
|
||||||||
Proceeds
from line of credit
|
-
|
-
|
||||||
Proceeds
from shareholder loan
|
4,038
|
-
|
4,038
|
|||||
Net
cash provided in financing activities
|
4,038
|
-
|
4,038
|
|||||
Net
increase (decrease) in cash
|
-
|
-
|
-
|
|||||
Cash
beginning period
|
-
|
-
|
||||||
Cash,
ending period
|
-
|
-
|
$
|
-
|
||||
13
Consolidated
Statement of Stockholders Deficit
|
|||||||||||||||||||||||||
For
the year December 31, 2007
|
|||||||||||||||||||||||||
Restatement
|
|||||||||||||||||||||||||
As
Originally Presented
|
Adjustment
|
As
Restated
|
|||||||||||||||||||||||
Additional
|
Total |
Additional
|
Total | ||||||||||||||||||||||
Paid-in
|
Retained
|
Stockholder’s
|
Paid-in
|
Retained
|
Stockholder’s
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
||||||||||||||||
Balance
December 31,2006
|
20,794,427
|
$
|
20,704
|
$
|
(20,704)
|
$
|
-
|
$
|
-
|
(27,107)
|
33,636,668
|
$
|
33,637
|
$
|
4,736,290
|
$
|
(4,797,037)
|
$
|
(27,107)
|
||||||
Net
Loss -2007
|
(4,176)
|
(4,176)
|
(318,446)
|
(322,622)
|
(322,622)
|
||||||||||||||||||||
Shares
issued for notes payable to chairman
|
-
|
-
|
-
|
-
|
-
|
345,553
|
16,500,000
|
16,500
|
329,053
|
345,553
|
|||||||||||||||
Balance
December 31, 2007
|
20,794,427
|
$
|
20,704
|
$
|
(20,704)
|
$
|
(4,176)
|
$
|
(4,176)
|
-
|
50,136,668
|
$
|
50,137
|
$
|
5,065,343
|
$
|
(5,119,659)
|
$
|
(4,176)
|
||||||
14
RESULTS
OF OPERATIONS
TWELVE MONTHS ENDED DECEMBER
31, 2008 COMPARED TO TWELVE MONTHS ENDED DECEMBER 31, 2007
We had
revenue of $293,124 during the year ended December 31, 2008 as compared to
no revenue for the comparable period in 2007. This is due to
the fact that we started operations December 27, 2007.
Our cost
of goods sold for the year ended December 31, 2008 was $152,602 as compared
to $0 for the same period ended 2007. The increase in cost of goods
sold is due to our starting operations December 27, 2007.
Gross
margins for the year ended December 31, 2008 was 48%. Selling,
general and administrative expenses were $7,587,735 for the year ended
December 31, 2008 as compared to $0 for the same period in
2007. This is due to the fact that we started operations
December 27, 2007. On June 24, 2008 the Company acquired 100% of the membership
interests in Freedom Environmental Services, LLC (“FELC”), which was established
December 27, 2007, for consideration consisting of 20,704,427 shares of the
common stock of the Company. This acquisition was a reverse acquisition by
Freedom Environmental Services, LLC.
Selling,
general and administrative expenses consisted of approximately $6,761,663 of
wages and consulting services that stock was issued for payment. In addition
there was approximately $224,000 of compensation expense paid and $100,000 of
professional fees.
Our net
loss for the year ended December 31, 2008 was $7,870,565 as compared to
$322,622 in net loss for the year ended December 31,
2007. The loss primarily reflects the costs associated
with starting up our business and factors as discussed above.
Liquidity
and Capital Resources
Our
financial statements have been prepared assuming that we will continue as a
going concern. For the years ended December 31, 2008 and
December 31, 2007 through December 31, 2008, we have had a net loss of
$7,870,565 and $322,622 respectively, and cash used by operations of $647,876
and $322,484 respectively, and negative working capital of $1,108,078 at
December 31, 2008.
Since the
predecessor operating company’s inception, we have financed its activities
principally from shareholder advances. We intend on financing our
future development activities and our working capital needs largely from the
sale of equity securities, debt financing and loans from our Chief Executive
Officer, until such time that funds provided by operations are sufficient to
fund working capital requirements. There can be no assurance that we
will be successful at achieving its financing goals at reasonably commercial
terms, if at all.
Unpredictability
of future revenues; Potential fluctuations in quarterly operating results;
Seasonality
As a
result of our limited operating history and the emerging nature of the markets
in which we compete, we are unable to accurately forecast future
revenues. Our current and future expense levels are based largely on
our investment plans and future revenues and are to a large extent fixed and
expected to increase.
Sales and
operating results generally depend on a number of factors which are difficult to
forecast. We may be unable to adjust spending in a timely manner to compensate
for any unexpected revenue shortfall. Accordingly, any significant
shortfall in revenues in relation to our planned expenditures would have an
immediate adverse effect on our business, prospects, financial condition and
results of operations. Further, as a strategic response to changes in
the competitive environment, we may from time to time make certain pricing,
service or marketing decisions which could have a material adverse effect on our
business, prospects, financial condition and results of operations.
We expect
to experience significant fluctuations in our future quarterly operating results
due to a variety of factors, many of which are outside our control.
Critical
Accounting Policies
Accounting
Policies and Estimates
The
preparation of our financial statements in conformity with accounting principles
generally accepted in the United States of America requires our management to
make certain 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. Our management periodically
evaluates the estimates and judgments made. Management bases its estimates and
judgments on historical experience and on various factors that are believed to
be reasonable under the circumstances. Actual results may differ from these
estimates as a result of different assumptions or conditions.
As such,
in accordance with the use of accounting principles generally accepted in the
United States of America, our actual realized results may differ from
management’s initial estimates as reported. A summary of significant
accounting policies are detailed in notes to the financial statements which are
an integral component of this filing.
15
Revenue
Recognition
Revenue
from product sales is recognized upon shipment to customers at which time such
customers are invoiced. Units are shipped under the terms of FOB
shipping point when determination is made that collectibility is
probable. Revenues for services are recognized upon completion of the
services. For consulting services and other fee-for-service
arrangements, revenue is recognized upon completion of the
services. The Company has adopted the Securities and Exchange
Commission’s Staff Accounting Bulletin (SAB) No. 104, which provides guidance on
the recognition, presentation and disclosure of revenue in financial
statements.
Net
Loss Per Share
The
Company has adopted Statement of Financial Accounting Standards No. 128,
“Earnings Per Share” (“SFAS 128”), specifying the computation, presentation and
disclosure of earnings per share information. Basic and fully diluted loss per
share has been calculated based upon the weighted average number of shares
outstanding. There is no effect on earning per share for the year ended December
31, 2008 relating to the adoption of this standard
Stock
Based Compensation
In
December 2004, the FASB issued a revision of SFAS No. 123 ("SFAS No. 123(R)")
that requires compensation costs related to share-based payment transactions to
be recognized in the statement of operations. With limited exceptions, the
amount of compensation cost will be measured based on the grant-date fair value
of the equity or liability instruments issued. In addition, liability awards
will be re-measured each reporting period. Compensation cost will be recognized
over the period that an employee provides service in exchange for the award.
SFAS No. 123(R) replaces SFAS No. 123 and is effective as of the beginning of
January 1, 2006. Based on the number of shares and awards outstanding as of
December 31, 2008 (and without giving effect to any awards which may be granted
in 2009), we do not expect our adoption of SFAS No. 123(R) to have a material
impact on the financial statements.
ITEM
8. FINANCIAL STATEMENTS
TABLE OF
CONTENTS
|
Page
|
Report
of Independent Registered Public Accounting Firm:
|
F-2
|
Amended
and restated Consolidated Balance sheet
|
F-3
|
Amended
and restated Consolidated Statements of Operations
|
F-4
|
Amended
and restated Consolidated Statement of Stockholders’ Deficit
|
F-5
|
Amended
and restated Consolidated Statement of Cash Flows
|
F-6
|
Amended
and restated Notes to Consolidated Financial Statements
|
F-7
|
16
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
We
have no changes or disagreements with our auditors.
Evaluation of Disclosure
Controls and Procedures.
Our principal
executive officer and our principal financial officer evaluated the
effectiveness of the design and operation of our disclosure controls and
procedures as such term is defined under Rule 13a-15(e) promulgated under
the Securities Exchange Act of 1934, as amended (Exchange Act), as of the last
day of the fiscal period covered by this report, December 31, 2008. The term
disclosure controls and procedures means our controls and other procedures that
are designed to ensure that information required to be disclosed by us in the
reports that we file or submit under the Exchange Act is recorded, processed,
summarized and reported, within the time periods specified in the SEC’s rules
and forms. Disclosure controls and procedures include, without limitation,
controls and procedures designed to ensure that information required to be
disclosed by us in the reports that we file or submit under the Exchange Act is
accumulated and communicated to management, including our principal executive
and principal financial officer, or persons performing similar functions, as
appropriate to allow timely decisions regarding required
disclosure.
The
Company and its newly appointed independent registered public accounting
firm identified certain significant internal control deficiencies during their
financial audit for the twelve months ended December 31, 2008. This
determination was made on or about May 20, 2009, subsequent to the engagement of
the newly appointed independent registered public accounting firm.
Our principal executive officer and our principal financial officer, based
on information provided by the newly appointed independent registered public
accounting firm, began to re-examine the effectiveness of internal
controls and procedures and resulted in the Company amending its annual report
on Form 10-K for the years ended December 31, 2008 and December 31,
2007. We considered these weaknesses, in the aggregate, to be a
material weakness. The primary concerns were a) the employment agreements which
were entered into by our company with two of our officers during
the year ended December 31, 2008; and which we were required to accrue for
both compensation and related payroll taxes for these two officers, and for
which we did not properly accrue for such expenditures for the year
ended December 31, 2008; b) the convertible promissory notes agreements which
were entered into by us with two related parties during the year ended
December 31, 2008; and which we were required to account for the
beneficial conversion features of the promissory notes consistent with the
agreements, and for which we did not properly account for such
beneficial conversion features for the year ended December 31, 2008 and various
other accruals and audit adjustments required to present fairly, in all material
respects, the consolidated financial position of Freedom Environmental Services,
Inc. and subsidiary as of December 31, 2008 and the results of their operations
and their cash flows for the year then ended in conformity with accounting
principles generally accepted in the United States of America. Furthermore, The
Company and its newly appointed independent registered public accounting firm
also identified that the beginning balances of the statement of equity were also
not accurately stated. Specifically, the primary concern was information
disclosed in the financial statements, for the year ended December, 31 2007 set
forth that 35,157,908 common shares were issued and outstanding as of December
31, 2007. However, information discovered subsequent to the audit opinion date
of October 17, 2008 set forth that 50,136,668 common shares were issued and
outstanding. The prior year auditor report which was reissued on October 27,
2009 and which is set forth in this form 10-K/A has taken into account the
corrections required to present fairly, in all material respects, the
consolidated financial position of Freedom Environmental Services, Inc. and
subsidiary as of December 31, 2007 and the results of their operations and their
cash flows for the year then ended in conformity with accounting principles
generally accepted in the United States of America. Management intends to
rectify these deficiencies. Management plans to publish a Form 8K relating to
the restated financial statements for the year ended December 31,
2007.
17
Furthermore,
The Company and its newly appointed independent registered public
accounting firm identified additional significant internal control deficiencies
during their financial audit for the twelve months ended December 31, 2008. This
determination was made on or about October 5, 2009. We considered
these weaknesses, in the aggregate, to be a material weakness. The primary
concerns was that the Company staff presented a Report of Independent
Registered Public Accounting Firm to the Board of Directors and to the Company’s
independent auditors from the prior auditors for the financial statements for
the year ended December 31, 2007 which was incorporated in the Company’s filing
of Form 10K/A for the year ended December 31, 2008 and December 31, 2007 filed
on September 9, 2009. Subsequent to our filing on or about October 5,
2009, the Board of Directors learned that the Report of Independent Registered
Public Accounting Firm from the prior auditor was not filed with the approval of
the prior auditors as represented by the accounting staff. On October
16, 2009 upon further confirmation of such matter the Company filed Form 8-K
item 4.02 Non Reliance and withdrawing the filing dated September 9,
2009.
This
annual report on Form 10-K/A does not include an attestation report of
management’s assessment regarding internal control over financial reporting or
an attestation report of the Company’s registered public accounting firm due to
a transition period established by rules of the Securities and Exchange
Commission for newly public companies.
Our
principal executive officer and our principal financial officer have concluded
that our disclosure controls and procedures as of December 31, 2008 and December
31, 2007 were not be effective due to possible material weakness in our internal
controls over financial reporting described herein, and other factors related to
the Company’s financial reporting processes. The Company is in the process of
evaluating the internal controls and procedures to ensure that the internal
controls and procedures satisfy the criteria set forth by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control —
Integrated Framework.
Our
principal executive officer and our principal financial officer, are responsible
for establishing and maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act Rules 13a-15(f).
Management is required to base its assessment of the effectiveness of our
internal control over financial reporting on a suitable, recognized control
framework, such as the framework developed by the Committee of Sponsoring
Organizations (COSO). The COSO framework, published in Internal Control-Integrated
Framework, is known as the COSO Report. Our principal executive officer
and our principal financial officer, have has chosen the COSO framework on which
to base its assessment.
Management’s
Remediation Initiatives
In an
effort to remediate the identified material weaknesses and other deficiencies
and enhance our internal controls, we have initiated, or plan to initiate, the
following series of measures:
We will
create a position to segregate duties consistent with control objectives and
will increase our personnel resources and technical accounting expertise within
the accounting function when funds are available to us. And, we plan
to appoint one or more outside directors to our board of directors who shall be
appointed to an audit committee resulting in a fully functioning audit committee
who will undertake the oversight in the establishment and monitoring of required
internal controls and procedures such as reviewing and approving estimates and
assumptions made by management when funds are available to us.
We
anticipate that these initiatives will be at least partially, if not fully,
implemented prior to the filing of our annual report for the fiscal year ended
December 31, 2009.
It should
be noted that any system of controls, however well designed and operated, can
provide only reasonable and not absolute assurance that the objectives of the
system are met. In addition, the design of any control system is based in part
upon certain assumptions about the likelihood of certain events. Because of
these and other inherent limitations of control systems, there can be no
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote.
ITEM
9B. OTHER INFORMATION
None.
18
PART III
ITEM
10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set
forth below is information regarding the Company’s current directors and
executive officers. There are no family relationships between any of our
directors or executive officers. The directors are elected annually by
stockholders. The executive officers serve at the pleasure of the Board of
Directors.
Name
|
Age
|
Positions and Offices
Held
|
Michael
S. Borish
|
45
|
CEO,
Acting CFO, Director
|
Edmund
F. Curtis
|
55
|
COO,
President, Director
|
Directors
and Executive Officers.
Michael
S. Borish, Chairman of the Board of Directors,
Chief Executive Officer, Acting Chief Financial Officer:
Employment
History:
From
June 2008 to the date of this document Michael S. Borish has served as our
Chairman and Chief Executive Officer.
From
December, 2007 to June 2008 Michael S. Borish has served as Managing Member of
FELC, our wholly owned operating subsidiary.
From
2002 to the date of this document Michael S. Borish has served as President of
Resort Marketing Professionals.
Edmund
F. Curtis Director,
President, Chief Operating Officer:
Employment
History:
From June
2008 to the date of this document Edmund F. Curtis has served as our Director,
President and Chief Operating Officer.
From 2004
to 2008, Edmund F. Curtis was self employed and provided services consisting of
assistance to companies in matters related to corporate
restructuring.
From 2003
to 2004 Edmund F. Curtis served as Senior Vice President of sales and Marketing
for TRENDWEST RESORTS (a Division of Cendant Corporation). Mr. Curtis has
earned a Bachelor’s of Science Degree from the University of
Vermont.
During
the past five years, none of our officers or directors has:
Any
bankruptcy petition filed by or against any business of which such person was a
general partner or executive officer either at the time of the bankruptcy or
within two years prior to that time;
There are
no family relationships between our officers and directors.
Audit
Committee Financial Expert
The
Company does not have an audit committee or a compensation committee of its
board of directors. In addition, the Company’s board of directors has
determined that the Company does not have an audit committee financial expert
serving on the board. When the Company develops its operations, it
will create an audit and a compensation committee and will seek an audit
committee financial expert for its board and audit committee.
Conflicts
of Interest
Members
of our management are associated with other firms involved in a range of
business activities. Consequently, there are potential inherent
conflicts of interest in their acting as officers and directors of our
company. Although the officers and directors are engaged in
other business activities, we anticipate they will devote an important amount of
time to our affairs.
19
Our
officers and directors are now and may in the future become shareholders,
officers, or directors of other companies, which may be formed for the purpose
of engaging in business activities similar to ours. Accordingly,
additional direct conflicts of interest may arise in the future with respect to
such individuals acting on behalf of us or other entities. Moreover,
additional conflicts of interest may arise with respect to opportunities which
come to the attention of such individuals in the performance of their duties or
otherwise. Currently, we do not have a right of first refusal
pertaining to opportunities that come to their attention and may relate to our
business operations.
Our
officers and directors are, so long as they are our officers or directors,
subject to the restriction that all opportunities contemplated by our plan of
operation which come to their attention, either in the performance of their
duties or in any other manner, will be considered opportunities of, and be made
available to us and the companies that they are affiliated with on an equal
basis. A breach of this requirement will be a breach of the fiduciary
duties of the officer or director. If we or the companies with which
the officers and directors are affiliated both desire to take advantage of an
opportunity, then said officers and directors would abstain from negotiating and
voting upon the opportunity. However, all directors may still
individually take advantage of opportunities if we should decline to do
so. Except as set forth above, we have not adopted any other conflict
of interest policy with respect to such transactions.
Compliance
With Section 16(A) Of The Exchange Act 9.A. Directors And Executive Officers,
Promoters, And Control Persons:
Section
16(a) of the Securities Exchange Act of 1934, as amended, requires our executive
officers, directors, and persons who own more than 10% of a registered class of
our equity securities to file certain reports with the SEC regarding ownership
of, and transactions in, our securities. Such officers, directors,
and 10% shareholders are also required by the SEC to furnish us with all Section
16(a) forms that they file.
Based
solely on our review of such forms furnished to us and written representations
from certain reporting persons, we believe that all filing requirements
applicable to our executive officers, directors, and more than 10% stockholders
were not complied with during the fiscal YEAR ended December 31,
2008.
Code
of Ethics
We have
adopted a code of ethics that applies to all of our executive officers,
directors, and employees. Code of ethics codifies the business and
ethical principles that govern all aspects of our business. This
document will be made available in print, free of charge, to any shareholder
requesting a copy in writing from the Company and it is attached as Exhibit 14.1
to this annual report for December 31, 2008.
Indemnification
of Directors and Officers.
Section
145 of the DGCL provides that a corporation may indemnify directors and officers
as well as other employees and individuals against expenses including attorneys'
fees, judgments, fines and amounts paid in settlement in connection with various
actions, suits or proceedings, whether civil, criminal, administrative or
investigative other than an action by or in the right of the corporation, a
derivative action, if they acted in good faith and in a manner they reasonably
believed to be in or not opposed to the best interests of the corporation, and,
with respect to any criminal action or proceeding, if they had no reasonable
cause to believe their conduct was unlawful. A similar standard is applicable in
the case of derivative actions, except that indemnification only extends to
expenses including attorneys' fees incurred in connection with the defense or
settlement of such actions and the statute requires court approval before there
can be any indemnification where the person seeking indemnification has been
found liable to the corporation. The statute provides that it is not exclusive
of other indemnification that may be granted by a corporation's certificate of
incorporation, bylaws, agreement, a vote of stockholders or disinterested
directors or otherwise.
Pursuant
to the foregoing provisions, Freedom Environmental, Inc. has been informed 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.
ITEM 11
EXECUTIVE COMPENSATION.
The
following table sets forth for the years ended December 31, 2008 and 2007
compensation awarded to, paid to, or earned by, our Chief Executive
Officer, and our
other most highly compensated executive officers whose total compensation during
the last fiscal years exceeded $100,000, if any
20
2008 SUMMARY
COMPENSATION TABLE
Name
and Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|
Michael
S. Borish
Chairman
and Chief Executive Officer
|
||||||||||
2008
|
* $185,000
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
$185,000
|
||
Edmund
F. Curtis
President
and Chief Operating Officer
|
||||||||||
2008
|
** $82,500
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
12,500
|
$95,000
|
||
·
|
*
Salaries for executive were accrued in 2008. No salary was paid to
executive during the year. Effective in 2009 salaries will be paid.
Liabilities for salaries due will be paid back to executive or converted
to stock.
** Salaries for executive was paid by a note in 2008. Total
paid was $95,000 of which $12,500 is credited toward salary due in 2009.
Executive worked with Company starting June 30,
2008.
|
21
2008
GRANTS OF PLAN-BASED AWARDS TABLE
Name
|
Grant
Date
|
Approval
Date
|
Number
of
Non-Equity
Incentive Plan
Units
Granted
(#)
|
Estimated
Future Payouts Under Non-Equity Incentive Plan Awards
|
Estimated Future Payouts Under
Equity
Incentive Plan Awards
|
All Other
Stock Awards:
Number
of
Shares
of
Stock
or
Units
(#)
|
All
Other
Option Awards:
Number
of
Securities
Underlying
Options
(#)
|
Exercise or
Base
Price
of
Option
Awards
($ / Sh)
|
Closing
Price on
Grant
Date
($ / Sh)
|
||||
Threshold
($)
|
Target
($)
|
Maximum
($)
|
Threshold
(#)
|
Target
(#)
|
Maximum
(#)
|
||||||||
Michael
S. Borish
Chairman
and Chief Executive Officer
|
n/a
|
n/a
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
n/a
|
n/a
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
22
2008
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END TABLE
Option
Awards
|
Stock
Awards
|
||||||||
Number
of
Securities
Underlying
Unexercised
Options
(#)
|
Number
of
Securities
Underlying
Unexercised
Options
(#)
|
Equity
Incentive
Plan Awards:
Number
of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expiration
Date
|
Number of
Shares
or
Units
of
Stock That
Have
Not
Vested
(#)
|
Market
Value of
Shares or
Units
of
Stock That
Have
Not
Vested
($)
|
Equity Incentive
Plan
Awards:
Number
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
(#)
|
Equity
Incentive
Plan Awards:
Market
or
Payout
Value
of
Unearned
Shares,
Units
or
Other
Rights
That
Have
Not
Vested
($)
|
|
Name
|
Exercisable
|
Unexercisable
|
|||||||
Michael
S. Borish
Chairman
and Chief Executive Officer
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
23
2008 OPTION
EXERCISES AND STOCK VESTED TABLE
Name
|
Option
Awards
|
Stock
Awards
|
||
Number of Shares
Acquired on Exercise
(#)
|
Value Realized
on
Exercise
($)
|
Number of Shares
Acquired on Vesting
(#)
|
Value Realized
on
Vesting
($)
|
|
Michael
S. Borish
Chairman
and Chief Executive Officer
|
-0-
|
-0-
|
-0-
|
-0-
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
-0-
|
-0-
|
-0-
|
-0-
|
24
2008
PENSION BENEFITS TABLE
Name
|
Plan Name
|
Number of Years
Credited
Service
(#)
|
Present Value
of Accumulated
Benefit
($)
|
Payments During Last
Fiscal
Year
($)
|
Michael
S. Borish
Chairman
and Chief Executive
Officer
|
N/A
|
-0-
|
-0-
|
-0-
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
N/A
|
-0-
|
-0-
|
-0-
|
25
2008 NONQUALIFIED
DEFERRED COMPENSATION TABLE
Name
|
Executive Contributions
in
Last Fiscal Year
($)
|
Registrant
Contributions in Last
Fiscal
Year
($)
|
Aggregate Earnings
in
Last Fiscal Year
($)
|
Aggregate
Withdrawals /
Distributions
($)
|
Aggregate Balance at
Last
Fiscal Year-End
($)
|
Michael
S. Borish
Chairman
and Chief Executive Officer
|
-0- | -0- | -0- | -0- | -0- |
Edmund
F. Curtis
President
and Chief
Operating Officer
|
-0- | -0- | -0- | -0- | -0- |
26
2008 DIRECTOR
COMPENSATION TABLE
Name
|
Fees Earned or
Paid in Cash
($)
|
Stock Awards
($)
|
Option Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in
Pension
Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
Michael
S. Borish
Chairman
and Chief Executive Officer
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
27
2008 ALL
OTHER COMPENSATION TABLE
Name
|
Year
|
Perquisites
and
Other
Personal
Benefits
($)
|
Tax
Reimbursements
($)
|
Insurance
Premiums
($)
|
Company
Contributions
to Retirement and
401(k)
Plans
($)
|
Severance
Payments /
Accruals
($)
|
Change
in Control
Payments /
Accruals
($)
|
Total ($)
|
Michael
S. Borish
Chairman
and Chief
Executive
Officer
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
28
2008 PERQUISITES
TABLE
Name
|
Year
|
Personal Use of
Company
Car/Parking
|
Financial Planning/
Legal
Fees
|
Club Dues
|
Executive Relocation
|
Total Perquisites and
Other Personal Benefits
|
Michael
S. Borish
Chairman
and Chief
Executive
Officer
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
2008
|
-0-
|
-0-
|
-0-
|
-0-
|
-0-
|
29
2008
POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE IN CONTROL TABLE
Before Change in
Control
|
After Change in
Control
|
||||||
Name
|
Benefit
|
Termination
w/o Cause
or for
Good
Reason
|
Termination
w/o Cause
or
for Good Reason
|
Voluntary
Termination
|
Death
|
Disability
|
Change in
Control
|
Michael
S. Borish
Chairman
and Chief
Executive
Officer
|
Employment
Contract
to 12/31/10
|
$370,000
|
$370,000
|
-0-
|
-0-
|
-0-
|
$370,000
|
Edmund
F. Curtis
President
and Chief
Operating Officer
|
Employment
Contract
to 12/31/10
|
$330,000
|
$330,000
|
-0-
|
-0-
|
-0-
|
$330,000
|
Employment
Agreements
The
Company has employment agreements with two of its key officers. The agreements
are with Michael S. Borish, Chairman and Chief Executive Officer and Edmund F.
Curtis President and Chief Operating Officer.
Terms with Mr. Borish are for three years, effective January 1,
2008 and has a base yearly salary of $185,000 (One Hundred Eighty Five Thousand
Dollars per year). In addition as determined by the Board of Directors Mr.
Borish is eligible for a yearly bonus and stock options.
Terms
with Mr. Curtis are for three years, effective January 1, 2008 and has a base
yearly salary of $165,000 (One Hundred Sixty Five Thousand Dollars per year). In
addition as determined by the Board of Directors Mr. Borish is eligible for a
yearly bonus and stock options.
We have
not adopted a stock option plan, benefits plan, retirement plan or any long term
incentive plans and did not have any stock options outstanding as of the date of
this filing. We do not provide any Director's Compensation at this
time.
Audit
Committee and Audit Committee Financial Expert
None of
our Directors may be considered independent as all directors are also
officers. We are
not a "listed company" under Securities and Exchange Commission (“SEC”) rules
and are therefore not required to have an audit committee comprised of
independent directors. We do not currently have an audit committee, however, for
certain purposes of the rules and regulations of the SEC and in accordance with
the Sarbanes-Oxley Act of 2002, Our Board of Directors is deemed to be our audit
committee and as such functions as an audit committee and performs some of the
same functions as an audit committee including: (1) selection and oversight of
our independent accountant; (2) establishing procedures for the receipt,
retention and treatment of complaints regarding accounting, internal controls
and auditing matters; and (3) engaging outside advisors. Our Board of Directors
has determined that each of its members is able to read and understand
fundamental financial statements and has substantial business experience that
results in that member's financial sophistication. Accordingly, our Board of
Directors believes that each of its members have the sufficient knowledge and
experience necessary to fulfill the duties and obligations that an audit
committee would have.
30
Nominating
and Compensation Committees
We do not
have standing nominating or compensation committees, or committees performing
similar functions. Our board of directors believes that it is not necessary to
have a compensation committee at this time because the functions of such
committee are adequately performed by the board of directors. The board of
directors also is of the view that it is appropriate for us not to have a
standing nominating committee because the board of directors has performed and
will perform adequately the functions of a nominating committee. We are not a
"listed company" under SEC rules and are therefore not required to have a
compensation committee or a nominating committee.
Shareholder
Communications
There has
not been any defined policy or procedure requirements for stockholders to submit
recommendations or nomination for directors. There are no specific, minimum
qualifications that the board of directors believes must be met by a candidate
recommended by the board of directors. Currently, the entire board of directors
decides on nominees, on the recommendation of any member of the board of
directors followed by the board’s review of the candidates’ resumes and
interview of candidates. Based on the information gathered, the board of
directors then makes a decision on whether to recommend the candidates as
nominees for director. We do not pay any fee to any third party or parties to
identify or evaluate or assist in identifying or evaluating potential
nominee.
We do not
have any restrictions on shareholder nominations under its certificate of
incorporation or by-laws. The only restrictions are those applicable generally
under Delaware law and the federal proxy rules. The board of directors will
consider suggestions from individual shareholders, subject to evaluation of the
person's merits. Stockholders may communicate nominee suggestions directly to
the board of directors, accompanied by biographical details and a statement of
support for the nominees. The suggested nominee must also provide a statement of
consent to being considered for nomination. There are no formal criteria for
nominees.
Because
our management and directors are the same persons, the Board of Directors has
determined not to adopt a formal methodology for communications from
shareholders on the belief that any communication would be brought to the board
of directors’ attention by virtue of the co-extensive capacities served by
Messrs. Borish, Curtis and Holwell.
31
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The
following table lists stock ownership of our Common Stock as of December 31,
2008. The information includes beneficial ownership by (i) holders of more than
5% of our Common Stock, (ii) each of our directors and executive officers
and (iii) all of our directors and executive officers as a group. Beneficial
ownership is determined in accordance with Rule 13d-3(a) of the Exchange Act and
generally includes voting or investment power with respect to securities. Except
as noted below, to our knowledge, each person named in the table has sole voting
and investment power with respect to all shares of our Common Stock beneficially
owned by them.
Shareholder
|
Class
|
Amount
|
%
of shares outstanding
|
David
R. Koos
|
Common
|
5,767,504
|
16.40%
|
c/o
Bombardier Pacific Ventures Inc.
|
|||
1010
University Avenue #40
|
|||
San
Diego, CA 92103*
|
|||
Venture
Bridge Advisors Inc.
|
Common
|
3,206,072
|
9.20%
|
711
S. Carson Street, Suite 4
|
|||
Carson
City, NV 89701
|
|||
Diana Perlman |
Common
|
3,172,868 | 9.10% |
5459 Vineland Road | |||
Orlando, FL 32811 | |||
Michael
Borish***
|
Common
|
10,559,258
|
30.10%
|
C/o
Freedom Environmental Services, Inc.
|
|||
7395
Hoffner Avenue
|
|||
Orlando,
Florida 32822
|
|||
Edmund
F.Curtis****
|
Common
|
7,039,505
|
20.10%
|
C/o
Freedom Environmental Services, Inc.
|
|||
7395
Hoffner Avenue
|
|||
Orlando,
Florida 32822
|
|||
John
Holwell*****
|
Common
|
3,105,664
|
8.90%
|
C/o
Freedom Environmental Services, Inc.
|
|||
7395
Hoffner Avenue
|
|||
Orlando,
Florida 32822
|
|||
All
Executive Officers and Directors as a Group
|
Common
|
32,850,871
|
93.8%
|
*
Includes 2,859,960 common shares beneficially owned by Bio-Technology Partners
Busines Trust and and 2,907,544 common shares beneficially owned by Bombardier
Pacific Ventures, Inc. controlled by David Koos.. David R. Koos is
the
** Barbara Koos is the sole shareholder of Venture Bridge Advisors, Inc. and exercises voting and investment power over those shares held by Venture Bridge Advisors, Inc.
***Michael
S. Borish is the Chairman of our Board of Directors and our Chief Executive
Officer.
****Edmund
F. Curtis is a Director as well as our President and Chief Operating
Officer.
32
(1)
Pursuant to Rule 13-d-3 under the Securities Exchange Act of 1934, as amended,
beneficial ownership of a security consists of sole or shared voting power
(including the power to vote or direct the voting) and/or sole or shared
investment power (including the power to dispose or direct the disposition) with
respect to a security whether through a contract, arrangement, understanding,
relationship or otherwise. Unless otherwise indicated, each person indicated
above has sole power to vote, or dispose or direct the disposition of all shares
beneficially owned. We are unaware of any shareholders whose voting rights would
be affected by community property laws.
(2) This
table is based upon information obtained from the Company's stock records.
Unless otherwise indicated in the footnotes to the above tables and subject to
community property laws where applicable, the Company believes that each
shareholder named in the above table has sole or shared voting and investment
power with respect to the shares indicated as beneficially owned.
ITEM
12. Related Party Transactions:
The
Company entered into a convertible promissory note with a shareholder of the
Company and a related party on December 11, 2008 in the amount of $600,000. The
promissory note had convertible beneficial feature which allowed the holder on
the inception of the convertible promissory note into the company’s common stock
equal to 50% of the market price of the corporation’s common stock on the date
of conversion. The Company recorded a beneficial interest expense in the amount
of $293,250 in the year ended December 31, 2008. The notes have an annual
interest rate of 12%. As of December 31, 2008 the company has a due
to related party $299,658.
The
Company entered into a convertible promissory note with a related party company
(Resort Marketing) owned by the Company’s chief executive officer on December
22, 2008 in the amount of $95,000. The promissory note had convertible
beneficial feature which allowed the holder on the inception of the convertible
promissory note into the company’s common stock equal to 50% of the market price
of the corporation’s common stock on the date of conversion. The Company
recorded a beneficial interest expense in the amount of $95,000 in the year
ended December 31, 2008. The notes have an annual interest rate of 15%. As of
December 31, 2008 the Company has a due to related party relating to the
following promissory note in the amount of $95,000.
The
Company receives advances from its officers and related parties during the
regular course of business. The advances to its officers have an annual rate of
15%. As of December 31, 2008 the Company has a due to its officers and related
party members in the amount of $245,756.
The
Company receives advances from its director and vice president and a related
party during the regular course of business. The advances to its officers have
an annual rate of 15%. As of December 31, 2008 the Company has a due to its
officers and related party members in the amount of $3,643.
On
December 15, 2008 the Company entered into an employment agreements with the
Company’s two officers for the annual amount of $185,000 and $165,000,
respectively. The employment agreements under the reference “Term” specifically
set forth that the agreements were to be retroactive to January 1,
2008 “this agreement will be retroactive to January 1, 2008.” As
of December 31, 2008 the Company has an accrued compensation liability of
$350,000 and related payroll tax accrual in the amount of
$15,606.
33
ITEM
14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
Fiscal
2008
(1) Audit Fees
-------------------
The
aggregate fees billed by the independent accountants for the last fiscal
YEAR for professional services for the audit of the Company's annual
financial
statements and the review included
in the Company's Form 10-Q and services that are normally provided by the
accountants in connection with statutory and regulatory filings or engagements
for those fiscal year was $18,000.
(2) Audit-Related Fees
-----------------------------
The
aggregate fees billed in each of the last two fiscal years for assurance and
related services by the principal accountants that are reasonably related to the
performance of the audit or review of the Company’s financial statements and are
not reported under Item 9 (e)(1) of Schedule 14A was NIL.
(3) Tax Fees
--------------
The
aggregate fees billed in each of the last two fiscal years for professional
services rendered by the principal accountants for tax compliance, tax advice,
and tax planning was $3,000.
(4) All
Other Fees
----------------------
There were no
other fees charged by the
principal accountants other than those disclosed in (1) and (3)
above.
Audit
Committee’s Pre-approval Policies
-------------------------------------
At the
present time, there are not sufficient directors, officers and employees
involved with Freedom Environmental to make any pre-approval policies
meaningful. Once Freedom Environmental has elected more directors and
appointed directors and non-directors to the Audit Committee it will have
meetings and function in a meaningful manner.
34
Audit
Hours Incurred
---------------------------
The
principal accountants spent approximately 50 percent of the total hours spent on
the accounting. The hours were about equal to the hours spent by the
Company’s internal accountant.
The Board
of Directors has reviewed and discussed with the Company's management and
independent registered public accounting firm the audited consolidated
financial statements of the Company contained in the Company's Annual
Report on Form 10-K for the Company's 2008 fiscal YEAR. The Board has also
discussed with the auditors the matters required to be discussed pursuant to SAS
No. 61 (Codification of Statements on Auditing Standards, AU Section 380), which
includes, among other items, matters related to the conduct of the audit of the
Company's consolidated financial statements.
The Board
has received and reviewed the written disclosures and the letter from the
independent registered public accounting firm required by Independence Standards
Board Standard No. 1 (Independence Discussions with Audit Committees), and has
discussed with its auditors its independence from the Company. The Board has
considered whether the provision of services other than audit services is
compatible with maintaining auditor independence.
Based on
the review and discussions referred to above, the Board approved the inclusion
of the audited consolidated financial statements be included in the Company's
Annual Report on Form 10-K/A for its 2008fiscal YEAR for filing with the
SEC.
Pre-Approval
Policies
The
Board's policy is now to pre-approve all audit services and all permitted
non-audit services (including the fees and terms thereof) to be provided by the
Company's independent registered public accounting firm; provided, however,
pre-approval requirements for non-audit services are not required if all such
services (1) do not aggregate to more than five percent of total revenues paid
by the Company to its accountant in the fiscal YEAR when services are provided;
(2) were not recognized as non-audit services at the time of the engagement; and
(3) are promptly brought to the attention of the Board and approved prior to the
completion of the audit.
The Board
pre-approved all fees described above.
35
PART
IV
ITEM
15. EXHIBITS AND REPORTS.
Exhibits
3.1
|
Articles
of Incorporation (1)
|
|
3.2
|
Amendments
to Articles of Incorporation (1)
|
|
3.1
|
Bylaws
of the Corporation (1)
|
|
4.1
|
Employment
Agreement with Michael Borish
|
|
4.2
|
Employment
Agreement with Edmund Curtis
|
|
4.3
|
Convertible
Note with Diane Perlman
|
|
4.4
|
Funding
Addendum to Shareholder Loan
|
|
4.5
|
Loan
Agreement with Diane Perlman
|
|
4.6
|
Convertible
Note with Edmund Curtis
|
|
4.7
|
Note
Assignment with Edmund Curtis
|
|
4.8
|
Loan
Agreement with Resort Marketing Professionals
|
|
14,
21
23.1
31.1
|
Code
of Ethics
Subsidiaries
Consent
of Independent Registered Accounting Firm
Certification
of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley
Act. (2)
|
|
31.2
|
Certification
of Principal Financial and Accounting Officer Pursuant to Section 302 of
the Sarbanes-Oxley Act. (2)
|
|
32.1
|
Certification
of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act. (2)
|
|
32.2
|
Certification
of Chief Accounting Officer Pursuant to Section 906 of the Sarbanes-Oxley
Act. (2)
|
__________________________________________________
(1).
Incorporated by reference to the Company’s filing on Form 10, filed with the
Securities and Exchange Commission on August 26, 2008.
(2) Filed
herein.
36
Signatures
In
accordance with the requirements of the Securities Act of 1933, the registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements of filing on Form 10-K and authorized this registration statement
to be signed on its behalf by the undersigned, on the 14day of April,
2009
Date: October
28, 2009
By: /s/
Michael S. Borish
Name:
Michael S. Borish
Title: Chairman,
CEO and Acting CFO
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following person on behalf of the Registrant in the
capacities indicated, on October 28, 2009.
By:
|
/s/ Michael
S. Borish
|
|
Michael
S. Borish, Chairman, CEO and Acting
CFO
and Director
|
By:
|
/s/ Edmund
F. Curtis
|
|
Edmund
F. Curtis, COO, President and Director
|
37
PART
F/S. FINANCIAL STATEMENTS.
FREEDOM
ENVIRONMENTAL SERVICES, INC.
AND
SUBSIDIARY
CONSOLIDATED
FINANCIAL STATEMENTS
FOR
THE YEARS ENDED
DECEMBER
31, 2008 AND 2007
TABLE OF
CONTENTS
|
Page
|
Report
of Independent Registered Public Accounting Firm:
|
F-2
|
Amended
and restated Consolidated Balance sheet
|
F-3
|
Amended
and restated Consolidated Statements of Operations
|
F-4
|
Amended
and restated Consolidated Statement of Stockholders’ Deficit
|
F-5
|
Amended
and restated Consolidated Statement of Cash Flows
|
F-6
|
Amended
and restated Notes to Consolidated Financial Statements
|
F-7
|
F-1
REPORT OF INDEPENDENT
REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
of
Freedom Environmental Services, Inc.
Orlando,
Florida
We have
audited the accompanying consolidated balance sheets of Freedom Environmental
Services, Inc. (Company) and subsidiary as of December 31, 2008, and the related
consolidated statements of income, stockholders' equity (deficit), and cash
flows for the year then ended. These consolidated 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. The financial
statements of Freedom Environmental Services, Inc. as
of December 31, 2007 were audited by another auditor, whose report dated
October 17, 2008, except for Note 2, 3, 13, 14 as to which the date is October
27, 2009, on those statements included an explanatory paragraph describing
conditions that raised substantial doubt as to the Company's ability to continue
as a going concern as discussed in Note 2 to the financial
statements.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company
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 includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our
opinion, the consolidated financial statements referred to above present fairly,
in all material respects, the consolidated financial position of Freedom
Environmental Services, Inc. and subsidiary as of December 31, 2008 and the
results of their operations and their cash flows for the year then ended in
conformity with accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. As discussed further in Note 3, the
Company has incurred significant losses. The Company's viability is
dependent upon its ability to obtain future financing and the success of its
future operations. These factors raise substantial doubt about the
Company's ability to continue as a going concern. Management's plan
in regard to these matters is also described in Note 3. The consolidated
financial statements do not include any
adjustments that might result from the outcome of
this uncertainty.
As
discussed in Note 2 to the consolidated financial statements for the year ended
December 31, 2008, and 2007 have been restated.
/s/ Tarvaran Askelson &
Company, LLP
Laguna
Niguel, California
September
8, 2009
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the
Board of Directors and Stockholders
Freedom
Environmental Services, Inc.
Orlando,
Florida
We have
audited the accompanying balance sheets of Freedom Environmental Services, Inc.
("the Company") as of December 31, 2007, and the related statements of
operations, stockholders' equity and cash flows for the year then ended. These
financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. The company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting. Our audits included consideration of internal
control over financial reporting as a basis for designing audit procedures that
are appropriate in the circumstances, but not for the purposes of expressing an
opinion on the effectiveness of the company’s internal control over financial
reporting. Accordingly, we express no such opinion. An audit also includes
examining, on a test
basis, evidence supporting the amounts
and disclosures in the financial statements assessing the
accounting principles used and significant estimates made
by management, as well as evaluating the
overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of Freedom Environmental Services,
Inc. as of December 31, 2007, and the related statements of operations,
stockholders' equity and cash flows for the year then ended in conformity with
accounting principles generally accepted in the United States of
America.
The
accompanying consolidated financial statements have been prepared assuming the
Company will continue as a going concern. The Company had an accumulated deficit
of $5,119,656 and a working capital deficit of $4,176 at December 31, 2007.
These conditions raise substantial doubt about the Company’s ability to continue
as a going concern. Management’s plans in regard to these matters are described
in Note 3. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
Kramer
Weisman and Associates. LLP
Davie,
Florida
October
17, 2008, except for note 2, 3, 13, 14 as to
which the
date is October 27, 2009.
F-2
Freedom
Environmental Services, Inc.
|
|||||||||
Amended
and Restated Consolidated Balance Sheet
|
|||||||||
December
31,
|
|||||||||
2008
|
2007
|
||||||||
(Restated)
|
(Restated)
|
||||||||
ASSETS
|
|||||||||
Current
assets:
|
|||||||||
Accounts
receivable
|
2,675 | - | |||||||
Total
current assets
|
2,675 | - | |||||||
Property
and equipment, net
|
11,065 | - | |||||||
Other
assets
|
11,738 | - | |||||||
Total
assets
|
$ | 25,478 | $ | - | |||||
LIABILITIES AND STOCKHOLDERS'
DEFICIT
|
|||||||||
Current
liabilities:
|
|||||||||
Bank
overdraft
|
$ | 20,471 | $ | - | |||||
Accounts
payable and accrued expenses
|
449,039 | 138 | |||||||
Line
of credit
|
14,995 | ||||||||
Note
payable-current portion
|
4,997 | ||||||||
Due
to related party
|
95,000 | ||||||||
Shareholder
loan
|
549,057 | 4,038 | |||||||
Total
current liabilities
|
1,133,559 | 4,176 | |||||||
Note
payable-noncurrent portion
|
4,997 | ||||||||
Total
liabilities
|
1,138,556 | 4,176 | |||||||
Stockholders'
deficit:
|
|||||||||
Preferred
stock, $.001 par value, 75,000,000 share authorized; none
issued
|
- | - | |||||||
Common
Stock, par value $.001 per share, 100,000,000 shares
authorized; 50,136,668 and 35,158,093 shares issued and
outstanding at December 31, 2007 and 2008, respectively
|
35,157 | 50,137 | |||||||
Additional
paid in capital
|
11,841,986 | 5,065,343 | |||||||
Accumulated
deficit
|
(12,990,221 | ) | (5,119,656 | ) | |||||
Total
Stockholders' deficit
|
(1,113,078 | ) | (4,176 | ) | |||||
Total
liabilities and stockholders' deficit
|
$ | 25,478 | $ | - | |||||
|
|||||||||
The accompanying notes are an integral part of these financial statements |
F-3
Freedom
Environmental Services, Inc.
|
|||||||||
Amended
and Restated Consolidated Statement of Operations
|
|||||||||
For
the years ended
|
|||||||||
December
31,
|
|||||||||
2008
|
2007 |
|
|||||||
Net
sales
|
$ | 293,124 | $ | - | |||||
Cost
of sales
|
152,602 | - | |||||||
Gross
Profit
|
$ | 140,522 | $ | - | |||||
General
and administrative
|
7,587,735 | 4,176 | |||||||
Loss
from operations
|
(7,447,213 | ) | (4,176 | ) | |||||
Other
income (expense)
|
|||||||||
Interest
expense
|
(423,352 | ) | - | ||||||
Loss
from disposal of assets
|
- | (318,446 | ) | ||||||
Total
other income (expense)
|
(423,352 | ) | (318,446 | ) | |||||
Loss
before income taxes
|
(7,870,565 | ) | (322,622 | ) | |||||
Provision
for income taxes
|
- | - | |||||||
Net
Loss
|
(7,870,565 | ) | (322,622 | ) | |||||
Net
loss per share basic and fully diluted
|
(0.185 | ) | (0.009 | ) | |||||
Basic
and fully diluted weighted average
|
|||||||||
number
of shares outstanding
|
42,647,381 | 37,761,668 | |||||||
The
accompanying notes are an integral part of these financial
statements
|
F-4
Freedom Environmental Services, Inc. | ||||||||||||||||||||
Amended an Restated Consolidated Statement of Stockholders' Deficit | ||||||||||||||||||||
Additional
|
Total | |||||||||||||||||||
Paid-in
|
Retained
|
Stockholder’s
|
||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
||||||||||||||||
Balance
December 31,2006
|
33,636,668
|
$
|
33,637
|
$
|
4,736,290
|
$
|
(4,797,034)
|
$
|
(27,107)
|
|||||||||||
Net
Loss
|
(322,622)
|
(322,622)
|
||||||||||||||||||
Shares
issued for Notes Payable to Chairman
|
16,500,000
|
16,500
|
329,053
|
345,553
|
||||||||||||||||
Balance
December 31,2007
|
50,136,668
|
$
|
50,137
|
$
|
5,065,343
|
$
|
(5,119,656)
|
$
|
(4,176)
|
|||||||||||
Net
Loss -2008
|
(7,870,565)
|
(7,870,565)
|
||||||||||||||||||
Reverse
Stock Split 1:20
|
(47,629,631)
|
(47,630)
|
47,630
|
|||||||||||||||||
Shares
Issued for consulting fee @ $.50/share
|
12,746,444
|
12,746
|
6,360,476
|
6,373,222
|
||||||||||||||||
Recapitalization
as per Stock Purchase Agreement
|
20,704,427
|
20,704
|
(20,704)
|
0
|
||||||||||||||||
Shares
returned by former Chairman and cancelled
|
(800,000)
|
(800)
|
800
|
-
|
||||||||||||||||
Miscellaneous
Issuance
|
185
|
-
|
191
|
191
|
||||||||||||||||
Value
of beneficial conversion feature of convertible note
|
388,250
|
388,250
|
||||||||||||||||||
Balance
December 31, 2008
|
35,158,093
|
$
|
35,157
|
$
|
11,841,986
|
$
|
(12,990,221)
|
$
|
(1,113,078)
|
|||||||||||
|
||||||||||||||||||||
The
accompanying notes are an integral part of these financial
statements
|
F-5
Freedom
Environmental Services, Inc.
|
||||||||
Amended
and Restated Consolidated Statement of Operations
|
||||||||
For
the years ended
|
||||||||
December
31,
|
||||||||
2008
|
2007
|
|||||||
Cash
flows from operating activities:
|
||||||||
Net
loss
|
$ | (7,870,565 | ) | (322,622 | ) | |||
Adjustments
to reconcile net loss to net cash used in operating
activities:
|
||||||||
Depreciation
|
6,067 | - | ||||||
Loss on disposal of assets | 318,466 | |||||||
Common
stock issued for compensation
|
6,761,663 | - | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Decrease
(Increase) in:
|
||||||||
Accounts
receivable
|
(2,675 | ) | - | |||||
Other
assets
|
(11,738 | ) | - | |||||
Bank
overdraft
|
20,471 | |||||||
Accounts
payable and accrued expenses
|
448,901 | 138 | ||||||
Net
cash provided by in operating activities
|
(647,876 | ) | (4,038 | ) | ||||
Cash
flows from investing activities:
|
||||||||
Fixed
assets purchased
|
(17,132 | ) | - | |||||
Net
Cash Used In Investing Activities
|
(17,132 | ) | 318,446 | |||||
Cash
flows from financing activities:
|
||||||||
Proceeds
from related party
|
95,000 | |||||||
Proceeds
from line of credit
|
14,995 | |||||||
Proceeds
from note payable-net of payments
|
9,994 | - | ||||||
Proceeds
from shareholder loan
|
545,019 | 4,038 | ||||||
Net
cash provided by financing activities
|
665,008 | 4,038 | ||||||
Net
increase (decrease) in cash
|
- | - | ||||||
Cash,
beginning period
|
- | - | ||||||
Cash,
ending period
|
$ | - | - | |||||
Supplemental
disclosure of cash flows information:
|
||||||||
Interest
paid during the period
|
$ | 941 | - | |||||
Income
taxes paid during the period
|
$ | - | - | |||||
The
accompanying notes are an integral part of these financial
statements
|
F-6
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED DECEMBER 31, 2007 AND 2008
NOTE 1 – GENERAL
ORGANIZATION AND BUSINESS
Freedom
Environmental Services, Inc. (“Company”) was incorporated under the laws of the
State of Delaware on October 6, 1978 as United States Aircraft Corp and has
undergone numerous name changes, the most recent being on June 11, 2008 when the
Company amended its certificate of incorporation in order that it may change its
name from BMXP Holdings, Inc. to Freedom Environmental Services,
Inc.
Freedom
Environmental Services, Inc., formerly known as BMXP Holdings, Inc. from August
2006 to June 2008 ("the Company"), a Delaware corporation, was formerly
organized as Neo-vision Corp during the years 2001-2002 and subsequently was
Storage Suites America, Inc. from November 2002 to December 2004 and Bio-Matrix
Scientific Group, Inc. from December 2004 to August 2006.
On June
24, 2008 the Company acquired 100% of the membership interests in Freedom
Environmental Services, LLC (“FELC”), a Florida Limited Liability Company
established December 27, 2007, for consideration consisting of 20,704,427 shares
of the common stock of the Company. This acquisition was a reverse acquisition
by Freedom Environmental Services, LLC. In the share exchange, the
former shareholders of Freedom Environmental, LLC received he common shares in
the Company. As a result of this transaction, the former members of
FELC hold approximately 59% of the voting capital stock of the Company
immediately after the transaction and the composition of the senior management
of the Company became the senior management of FELC. For financial accounting
purposes, this acquisition was a reverse acquisition of the Company by FELC
under the purchase method of accounting, and was treated as a recapitalization
with FELC as the acquirer in accordance with Paragraph 17 of SFAS 141.
Accordingly, the historical financial statements presented are those of
FELC. The reasons for
the share exchange are as follows:
·
|
The
share exchange allows for the shareholders of Freedom Environmental
Services, LLC. to receive shares of common stock with increased liquidity
and stronger market value;
|
·
|
The
ability of the combined companies to utilize publicly-traded securities in
capital raising transactions and as consideration in connection with
future potential mergers or
acquisitions.
|
On June
24, 2008 the former management and directors of the company resigned and the
former members of FELC were appointed as follows:
Michael
S. Borish was named Chairman of the Board of Directors and was appointed Chief
Executive Officer.
Edmund F.
Curtis joined the Board of Directors and was appointed President and Chief
Operating Officer of the Company.
John
Holwell joined the Board of Directors and was appointed Vice President of the
Company.
COMMON STOCK
OUTSTANDING
The
stockholders' equity section of the Company contains the following classes of
capital stock as of December 31, 2007 and December 31, 2008,
respectively:
*
Preferred stock, $ 0.001 par value; 75,000,000 shares authorized: -0- shares
issued and outstanding.
* Common stock, $ 0.001 par value; 100,000,000
shares authorized: 50,136,668 and 35,158,093 shares issued and outstanding at
December 31, 2007 and December 31, 2008 respectively.
F-7
The
Company, through its wholly owned subsidiary FELC, is in the business of
providing Wastewater and Storm-water System Management, Grease and Organics
Collection and Disposition and Commercial Plumbing and Water System Management
to commercial customers and wastewater management services to residential
customers. The Company also intends to develop and produce fuels and natural
bio-organic products (such as fertilizer) derived from waste and
by-products
The
Company’s plans in this area consist of attempting to develop Vertical
Organic Collection System platforms within regional and super-regional
metropolitan areas by acquiring market leading operators as platforms and
utilizing this business model in building regional facilities to produce high
grade fuel and bio-organic nutrient products converted from commercial,
industrial and residential waste products in the southeast and nationwide. There
can be no assurance given that such leading operators will be
acquired.
On June
24, 2008 the Company purchased 100% of the membership interests in FELC or
consideration consisting of 20,704,427 newly issued shares of common stock
representing 59.20% of the issued and outstanding share capital of the Company.
On June 24, 2008 the former management and directors of the company resigned and
the former members of FELC were appointed as follows:
Michael
S. Borish was named Chairman of the Board of Directors and was appointed Chief
Executive Officer.
Edmund F.
Curtis joined the Board of Directors and was appointed President and Chief
Operating Officer of the Company.
John
Holwell joined the Board of Directors and was appointed Vice President of the
Company.
NOTE 2-
ACCOUNTING CHANGES AND ERROR CORRECTIONS
The
Company has adopted SFAS 154-Accounting Changes and Error Corrections as a
result we have determined that errors in the accounting treatment and reported
amounts in our previously filed financial statements. As a result, we determined
to restate our financial statements for the year ended December 31, 2008 and
2007.
In
connection with the restatement, we are designing internal procedures and
controls for purposes of the preparation and certification of our financial
statements going forward. In this process, we identified certain errors in
accounting determinations, which have been reflected in the restated financial
statements.
These
restated financial statements include adjustments related to the following for
the year ended December 31, 2008:
On June
30, 2008 the Company issued stock for consulting fees to the former chairman of
the Company and other former officers of the Company. The Company did not
consider the cost of these 12,746,444 shares. Accordingly $6,373,222
was added as compensation expense related to the issuance of the stock and are
reflected in the restated financial statements for the year ended December 31,
2008.
On
December 15, 2008 the Company entered into employment agreements with the
Company’s two officers for the annual amount of $185,000 and $165,000,
respectively. The employment agreements under the reference “Term” specifically
set forth that the agreements were to be retroactive to January 1, 2008 “this
agreement will be retroactive to January 1, 2008.” The Company did not accrue
any compensation expenses consistent with the provisions of the agreements.
Further the Company did not accrue related payroll tax liability which would
have also been required. Accordingly $350,000 was added as accrued compensation
liability and $15,606 was added as accrued payroll tax liability in the restated
financial statements for the year ended December 31, 2008.
F-8
The
Company entered into the $95,000 convertible promissory note as a result of a
related party company because it had a lack of sufficient capital to pay for its
employees and the related party entity; which was owned by the chief executive
officer, made direct payments to an employee of the Company for services the
employee was performing on behalf of the Company. During the year ended December
31, 2008 the Company did not record the compensation expense related to the
services performed by the employee and also did not record the liability which
the company was responsible for as a result of the convertible promissory note
in the amount of $95,000. The restated financial statement for the year ended
December 31, 2008 has taken into account the compensation expense and liability
to the related party in the amount of $95,000.
The
Company entered into a vehicle lease agreement with Ford Credit. During the year
ended December 31, 2008 the Company had incorrectly capitalized the vehicle
lease. The restated financial statement for the year ended December 31, 2008 has
reflected the adjustment in the amount of $21,540 to expense the asset
previously recorded incorrectly.
During
the year ended December 31, 2008 the Company incorrectly reflected accounts
receivable balances of $191,843 which took into account undeposited funds and
other trade receivables. The restated financial statements for the year ended
December 31, 2008 has reflected accounts receivable balance of $2,675 which took
into account expensing $189,168 in undeposited fund which could not be supported
and other write off and reserve of trade receivables which were deemed
uncollectible or at risk for uncollectibility.
During
the year ended December 31, 2008 the Company incorrectly reflected various other
transactions which would have reflected an additional cumulative amount of
approximately $38,554 in expenses related to properly recording depreciation
expense, booking of a capital lease for equipment with U.S. Bancorp Manifest
Funding Services and related correction of depreciation expense, as well as
property recording of consulting and compensation expense. The restated
financial statements for the year ended December 31, 2008 has reflected the
proper recording of the expenses set forth in the cumulative amount of
approximately $38,554.
On
December 11, 2008 the Company entered into two convertible promissory notes with
two related parties in the amount of $600,000 and $95,000 respectively. The two
agreements afforded the holder an option on the date of inception of the
agreement to convert the note into shares of the Company’s common stock equal to
50% of the market price of the corporation common stock on the date of the
conversion. The Company did not consider beneficial conversion features of the
convertible promissory note. Accordingly $388,250 was added as interest expense
related to the beneficial conversion feature in the restated financial
statements for the year ended December 31, 2008.
The
Company entered various convertible notes and advance agreements with the
Company’s officers and shareholders. During the year ended December 31, 2008 the
Company had not fully considered the interest expense related to the note and
advance agreements. The restated financial statement for the year ended December
31, 2008 has reflected additional interest expense in the amount of
$24,400.
During
the year ended December 31, 2008 the Company did not properly account for the
provision of income taxes. The restated financial statements for the year ended
December 31, 2008 has reflected a deferred benefit for income taxes for the year
ended December 31, 2008 in the amount of $3,109,000 for which the full amount
was a benefit to operating loss carryforward. As of December 31, 2008 the gross
deferred tax asset was $5,278,000 for which the Company provided a full
valuation allowance in the amount of $5,278,000.
The
following were corrections made to the Company financial statements for the year
ended December 31, 2008:
F-9
Consolidated Balance
Sheet
|
||||||||
As
of December 31, 2008
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Current
assets:
|
||||||||
Accounts
receivable
|
191,843
|
(189,168)
|
2,675
|
|||||
Total
current assets
|
191,843
|
(189,168)
|
2,675
|
|||||
Property
and equipment, net
|
21,181
|
(10,116)
|
11,065
|
|||||
Other
assets
|
6,100
|
5,638
|
11,738
|
|||||
Total
assets
|
$
|
219,124
|
$
|
(193,646)
|
$
|
25,478
|
||
Current
liabilities:
|
||||||||
Bank
overdraft
|
$
|
-
|
20,471
|
$
|
20,471
|
|||
Accounts
payable and accrued expenses
|
81,800
|
367,239
|
449,039
|
|||||
Line
of credit
|
14,995
|
-
|
14,995
|
|||||
Notes
payable – current portion
|
-
|
4,997
|
4,997
|
|||||
Due
to related party
|
-
|
95,000
|
95,000
|
|||||
Shareholder
loan
|
508,410
|
40,647
|
549,057
|
|||||
Total
current liabilities
|
607,205
|
526,354
|
1,133,559
|
|||||
Notes
payable-noncurrent portion
|
-
|
4,997
|
4,997
|
|||||
Total
liabilities
|
607,205
|
531,351
|
1,138,556
|
|||||
Preferred
Stock
|
-
|
|||||||
Common
Stock
|
35,158
|
(1)
|
35,157
|
|||||
Additional
paid in capital
|
(35,158)
|
11,877,144
|
11,841,986
|
|||||
Accumulated
deficit
|
(378,081)
|
(12,612,140)
|
(12,990,221)
|
|||||
Total
stockholders deficit
|
(378,081)
|
(734,997)
|
(1,113,078)
|
|||||
Total
liabilities and stockholders deficit
|
$
|
229,124
|
$
|
(203,646)
|
$
|
25,478
|
||
F-10
Consolidated
Statement of Operations
|
||||||||
For
the year December 31, 2008
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Net
sales
|
293,584
|
(460)
|
293,124
|
|||||
Cost
of Sales
|
147,251
|
5,351
|
152,602
|
|||||
Gross
Profit
|
146,333
|
5,811
|
140,522
|
|||||
Selling
general and administrative
|
509,536
|
7,078,199
|
7,587,735
|
|||||
Net
loss before other income and expense
|
(363,203)
|
(7,084,010)
|
(7,447,213)
|
|||||
Interest
Expense
|
10,702
|
412,650
|
423,352
|
|||||
Net
Loss
|
(373,905)
|
(7,496,660)
|
(7,870,565)
|
|||||
Net
loss per share basic and fully diluted
|
(0.01)
|
(0.175)
|
(0.185)
|
|||||
Basic
and fully diluted weighted average
|
||||||||
number
of shares outstanding
|
27,931,258
|
14,716,123
|
42,647,381
|
|||||
F-11
Consolidated
Statement of Cashflows
|
||||||||
For
the year December 31, 2008
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Cashflow
from operating activities:
|
||||||||
Net
Loss
|
(373,905)
|
(7,496,660)
|
$
|
(7,870,565)
|
||||
Adjustments
to reconcile net loss to net
|
||||||||
loss
to net cash used in operating activities
|
||||||||
Depreciation
|
2,500
|
3,567
|
6,067
|
|||||
Common
stock issued for compensation
|
-
|
6,761,663
|
6,761,663
|
|||||
Change
in operating assets and liabilities
|
||||||||
Decrease
(Increase) in:
|
||||||||
Accounts
receivable
|
(10,000)
|
7,325
|
(2,675)
|
|||||
Other
assets
|
(6,100)
|
(5,638)
|
(11,738)
|
|||||
Bank
overdraft
|
-
|
20,471
|
20,471
|
|||||
Accounts
payable and accrued expenses
|
83,662
|
365,239
|
448,901
|
|||||
Net
cash provided by in operating activities
|
(303,843)
|
(344,033)
|
(647,876)
|
|||||
Cashflow
from investing activities:
|
||||||||
Fixed
assets purchased
|
(23,681)
|
6,549
|
(17,132)
|
|||||
Net
cash used in Investing activities
|
(23,681)
|
6,549
|
(17,132)
|
|||||
Cashflow
from financing activities:
|
||||||||
Proceeds
from related party
|
-
|
95,000
|
95,000
|
|||||
Proceeds
from line of credit
|
14,995
|
-
|
14,995
|
|||||
Proceeds
from note payable-net of payments
|
-
|
9,994
|
9,994
|
|||||
Proceeds
from shareholder loan
|
504,372
|
40,647
|
545,019
|
|||||
Net
cash provided in financing activities
|
519,367
|
145,641
|
665,008
|
|||||
Net
increase (decrease) in cash
|
191,843
|
(191,843)
|
-
|
|||||
Cash
beginning period
|
-
|
-
|
||||||
Cash,
ending period
|
191,843
|
(191,843)
|
$
|
-
|
F-12
Consolidated
Statement of Stockholders Deficit
|
|||||||||||||||||||||||||
For
the year December 31, 2008
|
|||||||||||||||||||||||||
Restatement
|
|||||||||||||||||||||||||
As
Originally Presented
|
Adjustment
|
As
Restated
|
|||||||||||||||||||||||
Additional
|
Total |
Additional
|
Total | ||||||||||||||||||||||
Paid-in
|
Retained
|
Stockholder’s
|
Paid-in
|
Retained
|
Stockholder’s
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
||||||||||||||||
Balance
December 31,2007
|
20,794,427
|
$
|
20,704
|
$
|
(20,704)
|
$
|
(4,176)
|
$
|
(4,176)
|
-
|
50,136,668
|
$
|
50,137
|
$
|
5,065,343
|
$
|
(5,119,656)
|
$
|
(4,176)
|
||||||
Net
Loss -2008
|
(373,905)
|
(373,905)
|
(7,496,660)
|
(7,870,565)
|
(7,870,565)
|
||||||||||||||||||||
Reverse
Stock Split 1:20
|
-
|
-
|
-
|
-
|
(47,629,631)
|
(47,630)
|
47,630
|
||||||||||||||||||
Shares
Issued for consulting fee @ $.50/share
|
-
|
-
|
-
|
-
|
6,373,222
|
12,746,444
|
12,746
|
6,360,476
|
6,373,222
|
||||||||||||||||
Recapitalization
as per Stock Purchase Agreement
|
14,453,481
|
14,453
|
(14,453)
|
-
|
-
|
20,704,427
|
20,704
|
(20,704)
|
-
|
||||||||||||||||
Shares
returned by former Chairman and cancelled
|
-
|
-
|
-
|
-
|
-
|
(800,000)
|
(800)
|
800
|
-
|
||||||||||||||||
Miscellaneous
Issuance
|
-
|
-
|
-
|
-
|
191
|
185
|
(1)
|
192
|
191
|
||||||||||||||||
Value
of beneficial conversion feature of convertible note
|
-
|
-
|
388,250
|
388,250
|
388,250
|
||||||||||||||||||||
Balance
December 31, 2008
|
35,247,908
|
$
|
35,157
|
$
|
(35,157)
|
$
|
(378,081)
|
$
|
(378,081)
|
(734,997)
|
35,158,093
|
$
|
35,157
|
$
|
11,841,986
|
$
|
(12,990,221)
|
$
|
(1,113,078)
|
||||||
F-13
These
restated financial statements include adjustments related to the following for
the year ended December 31, 2007:
On
September 26, 2007 the Company issued stock to the former chairman of the
Company and a former officer for an outstanding note payable of $345,553. The
Company did not consider the issuance of these 16,500,000
shares. Accordingly the note was converted related to the issuance of
the stock for the year ended December 31, 2007.
During
the year ended December 31, 2007 the Company did not include in the financial
statements, the disposal of certain assets held by the parent Company, which
resulted in an additional loss of $318,446. The restated financial statements
for the year ended December 31, 2007 has reflected the proper recording of the
loss from disposal of these assets.
During
the year ended December 31, 2007 the Company did not account for the common
stock, additional paid in capital and accumulated deficit from the parent
company at year end. The inclusion of these adjustments
resulted in no change to total stockholder’s equity as common stock and
additional paid in capital increased by $29,433 and $5,086,047, respectively,
while accumulated deficit decreased by $5,115,480 at December 31, 2007. The
restated financial statements for the year ended December 31, 2007 reflects the
proper recording of equity for the Company.
During
the year ended December 31, 2007 the Company did not properly account for the
provision of income taxes. The restated financial statements for the year ended
December 31, 2007 has reflected a deferred benefit for income taxes for the year
ended December 31, 2007 in the amount of $127,000 for which the full amount was
a benefit to operating loss carryforward. As of December 31, 2007 the deferred
tax asset was $2,169,000 for which the Company provided a full valuation
allowance in the amount of $2,169,000. This correction is only
reflected in the income tax footnote and is not reflected in the financial
statements.
The
following were corrections
made to the Company financial statements for the year ended December 31,
2007:
F-14
Consolidated Balance
Sheet
|
||||||||
As
of December 31, 2007
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Current
assets:
|
||||||||
Accounts
receivable
|
-
|
-
|
-
|
|||||
Total
current assets
|
-
|
-
|
-
|
|||||
Property
and equipment, net
|
-
|
-
|
-
|
|||||
Other
assets
|
-
|
-
|
-
|
|||||
Total
assets
|
$
|
-
|
$
|
-
|
$
|
-
|
||
Current
liabilities:
|
||||||||
Accounts
payable
|
138
|
-
|
138
|
|||||
Credit
card payable
|
-
|
-
|
-
|
|||||
Line
of credit
|
-
|
-
|
-
|
|||||
Accrued
interest
|
-
|
-
|
-
|
|||||
Bank
overdraft
|
-
|
-
|
||||||
Shareholder
loan
|
4,038
|
-
|
4,038
|
|||||
Total
current liabilities
|
4,176
|
-
|
4,176
|
|||||
Total
liabilities
|
4,176
|
-
|
4,176
|
|||||
Preferred
Stock
|
-
|
|||||||
Common
Stock
|
20,704
|
29,433
|
50,137
|
|||||
Additional
paid in capital
|
(20,704)
|
5,086,047
|
5,065,343
|
|||||
Accumulated
deficit
|
(4,176)
|
(5,115,480)
|
(5,119,656)
|
|||||
Total
stockholders deficit
|
(4,176)
|
-
|
(4,176)
|
|||||
Total
liabilities and stockholders deficit
|
$
|
-
|
$
|
-
|
$
|
-
|
||
F-15
Consolidated
Statement of Operations
|
||||||||
For
the year December 31, 2007
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Net
Sales
|
-
|
-
|
-
|
|||||
Cost
of Sales
|
-
|
-
|
-
|
|||||
Gross
Profit
|
-
|
-
|
-
|
|||||
Selling
general and administrative
|
4,176
|
-
|
4,176
|
|||||
Net
loss before other income and expense
|
(4,176)
|
-
|
(4,176)
|
|||||
Interest
Expense
|
||||||||
Loss
from disposal of asset
|
-
|
(318,446)
|
(318,446)
|
|||||
Net
Loss
|
(4,176)
|
(318,446)
|
(322,622)
|
|||||
Net
loss per share basic and fully diluted
|
(0.0002)
|
(0.0088)
|
(0.0090)
|
|||||
Basic
and fully diluted weighted average
|
||||||||
number
of shares outstanding
|
20,704,427
|
17,057,241
|
37,761,668
|
F-16
Consolidated
Statement of Cashflows
|
||||||||
For
the year December 31, 2007
|
||||||||
As
|
Restatement
|
As
|
||||||
Originally
Presented
|
Adjustment
|
Restated
|
||||||
Cashflow
from operating activities:
|
||||||||
Net
Loss
|
(4,176)
|
(318,446)
|
$
|
(322,622)
|
||||
Adjustments
to reconcile net loss to net
|
||||||||
loss
to net cash used in operating activities
|
||||||||
Depreciation
|
-
|
-
|
-
|
|||||
Loss
on disposal of assets
|
-
|
318,446
|
318,446
|
|||||
Change
in operating assets and liabilities
|
||||||||
Decrease
(Increase) in:
|
||||||||
Accounts
receivable
|
-
|
-
|
-
|
|||||
Other
assets
|
-
|
-
|
-
|
|||||
Bank
overdraft
|
138
|
-
|
138
|
|||||
Accrued
interest
|
-
|
|||||||
Automotive
loan
|
-
|
-
|
-
|
|||||
Net
cash provided by in operating activities
|
(4,038)
|
-
|
(4,038)
|
|||||
Cashflow
from financing activities:
|
||||||||
Proceeds
from line of credit
|
-
|
-
|
||||||
Proceeds
from shareholder loan
|
4,038
|
-
|
4,038
|
|||||
Net
cash provided in financing activities
|
4,038
|
-
|
4,038
|
|||||
Net
increase (decrease) in cash
|
-
|
-
|
-
|
|||||
Cash
beginning period
|
-
|
-
|
||||||
Cash,
ending period
|
-
|
-
|
$
|
-
|
||||
F-17
Consolidated
Statement of Stockholders Deficit
|
|||||||||||||||||||||||||
For
the year December 31, 2007
|
|||||||||||||||||||||||||
Restatement
|
|||||||||||||||||||||||||
As
Originally Presented
|
Adjustment
|
As
Restated
|
|||||||||||||||||||||||
Additional
|
Total |
Additional
|
Total | ||||||||||||||||||||||
Paid-in
|
Retained
|
Stockholder’s
|
Paid-in
|
Retained
|
Stockholder’s
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
Shares
|
Amount
|
Capital
|
Earnings
|
Equity
|
||||||||||||||||
Balance
December 31,2006
|
20,794,427
|
$
|
20,704
|
$
|
(20,704)
|
$
|
-
|
$
|
-
|
(27,107)
|
33,636,668
|
$
|
33,637
|
$
|
4,736,290
|
$
|
(4,797,037)
|
$
|
(27,107)
|
||||||
Net
Loss -2007
|
(4,176)
|
(4,176)
|
(318,446)
|
(322,622)
|
(322,622)
|
||||||||||||||||||||
Shares
issued for notes payable to chairman
|
-
|
-
|
-
|
-
|
-
|
345,553
|
16,500,000
|
16,500
|
329,053
|
345,553
|
|||||||||||||||
Balance
December 31, 2007
|
20,794,427
|
$
|
20,704
|
$
|
(20,704)
|
$
|
(4,176)
|
$
|
(4,176)
|
-
|
50,136,668
|
$
|
50,137
|
$
|
5,065,343
|
$
|
(5,119,659)
|
$
|
(4,176)
|
||||||
F-18
NOTE 3 – GOING
CONCERN
The
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the satisfaction
of liabilities in the normal course of business. As shown in the
accompanying financial statements during the years ended December 30, 2008 and
2007, the Company incurred losses from continuing operations of $7,447,213
million and $4,176, respectively. The Company has a net loss of $7,870,565 and
$322,622 for the year ended December 31, 2008 and 2007
respectively.
As of
December 31, 2008, the Company has negative working capital of $1,113,078, an
accumulated deficit of $12,990,221, and notes payable to related parties of
$644,057, and accounts payable and accrued expenses of $449,039.
While the
Company is continuing to increase sales, other sources of revenue will be
necessary for the current year. Management may attempt to raise
additional funds by way of a public or private offering. While the
Company believes in the viability of its strategy to improve sales volume and in
its ability to raise additional funds, there can be no assurances to that
effect. The Company shareholders have continued to advance funds to the
Company but there can be no assurance that future advances will be made
available.
These
factors raise substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include any
adjustments that might result from the outcome of this uncertainty. The
Company’s existence is dependent upon management’s ability to develop profitable
operations and to resolve its liquidity problems. Management anticipates the
Company will attain profitable status and improve its liquidity through the
continued effort to grow its sales channels.
NOTE 4 – SUMMARY OF
SIGNIFICANT ACCOUNTING POLICIES AND PRACTICES
Basis
of Accounting
The
Company prepares its financial statements in conformity with accounting
principles generally accepted in the United States of
America. Revenues and expenses are reported on the accrual basis,
which means that income is recognized as it is earned and expenses are
recognized as they are incurred.
Use
of Estimates
The
Company’s significant estimates include allowance for doubtful accounts and
accrued expenses. These estimates and assumptions affect the reported amounts of
assets and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting period. While the Company
believes that such estimates are fair when considered in conjunction with the
financial statements taken as a whole, the actual amounts of such estimates,
when known, will vary from these estimates. If actual results significantly
differ from the Company’s estimates, the Company’s financial condition and
results of operations could be materially impacted.
Cash
and Cash Equivalents
Cash and
cash equivalents include all interest-bearing deposits or investments with
original maturities of three months or less.
Concentration
Of Credit Risk
Financial instruments that potentially subject the Company
to concentrations of credit risk consist principally of cash. The Company
maintains cash balances at one financial institution, of which is insured by the
Federal Deposit Insurance Corporation (“FDIC”). The FDIC insured institution
insures up to $250,000 on account balances. The company has not experienced any
losses in such accounts.
Fair
value of financial instruments
The
Company's financial instruments consist primarily of cash,
accounts payable and accrued expenses, and
debt. The carrying amounts of
such financial instruments approximate their
respective estimated fair value due to the short-term maturities and
approximate market interest rates of these instruments. The
estimated fair value is not necessarily indicative of the amounts the Company
would realize in a current market exchange or from future earnings or
cash flows.
F-19
The
Company adopted Statement of Financial Accounting Standards No. 157, Fair Value
Measurements (“SFAS 157”), which defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value
measurements. The standard provides a consistent definition of fair
value which focuses on an exit price that would be received upon sale of an
asset or paid to transfer a liability in an orderly transaction between market
participants at the measurement date. The standard also prioritizes,
within the measurement of fair value, the use of market-based information over
entity specific information and establishes a three-level hierarchy for fair
value measurements based on the nature of inputs used in the valuation of an
asset or liability as of the measurement date.
The
three-level hierarchy for fair value measurements is defined as
follows:
·
|
Level
1 – inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or
liabilities
in active markets;
|
|
·
|
Level
2 – inputs to the valuation methodology include quoted prices for similar
assets and liabilities in
active
markets, and inputs that are observable or the asset or liability other
than quoted prices, either
directly
or indirectly including inputs in markets that are not considered to be
active;
|
|
·
|
Level
3 – inputs to the valuation methodology are unobservable and significant
to the fair value measurement
|
Income
Taxes
The
Company accounts for income taxes using SFAS No. 109, "Accounting
for Income Taxes," which requires recognition of deferred tax
liabilities and assets
for expected future tax consequences of
events that have been included in the
financial statements or tax returns. Under this
method, deferred tax liabilities and assets are determined based on the
difference between the financial statement and tax bases of
assets and liabilities using enacted tax rates in effect for
the year in which the differences are expected to
reverse. A valuation allowance is recorded for deferred tax
assets if it is more likely than not that some portion or all of
the deferred tax assets will not be realized.
The
Company adopted Financial Accounting Standards Board (“FASB”) Interpretation No.
(FIN) 48, “Accounting for Uncertainty in Income Taxes.” FIN 48 clarifies the
accounting for uncertainty in income taxes recognized in financial statements in
accordance with SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a
recognition threshold and measurement attribute for the financial statement
recognition and measurement of a tax position taken or expected to be taken in a
tax return. FIN 48 requires that the Company determine whether the benefits of
the Company’s tax positions are more likely than not of being sustained upon
audit based on the technical merits of the tax position. The provisions of FIN
48 also provide guidance on de-recognition, classification, interest and
penalties, accounting in interim periods, and disclosure. The Company did not
have any unrecognized tax benefits and there was no effect on the financial
condition or results of operations as a result of implementing FIN 48. The
Company does not have any interest and penalties in the statement of operations
for the years ended December 31, 2007 and 2008.
In May
2007, the FASB issued FASB Staff Position No. FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48 (“the FSP”). The FSP provides
guidance about how an enterprise should determine whether a tax position is
effectively settled for the purpose of recognizing previously unrecognized tax
benefits. Under the FSP, a tax position could be effectively settled on
completion of examination by a taxing authority if the entity does not intend to
appeal or litigate the result and it is remote that the taxing authority would
examine or re-examine the tax position. The Company does not expect that this
interpretation will have a material impact on its financial position, results of
operations, or cash flows.
Accounts
Receivable
The
Company extends credit to its customers in the normal course of business.
Further, the Company regularly reviews outstanding receivables, and provides
estimated losses through an allowance for doubtful accounts. In evaluating the
level of established loss reserves, the Company makes judgments regarding its
customers’ ability to make required payments, economic events and other factors.
As the financial condition of these parties change, circumstances develop or
additional information becomes available, adjustments to the allowance for
doubtful accounts may be required. The Company also performs ongoing credit
evaluations of customers’ financial condition. The Company maintains reserves
for potential credit losses, and such losses traditionally have been within its
expectations.
F-20
Property
and Equipment
Property
and equipment are stated at cost, less accumulated depreciation. Depreciation is
computed using the straight-line method over the estimated useful lives of the
related assets. Machinery and equipment are depreciated over 10 years.
Furniture and fixtures are depreciated over 10 years. Accelerated methods
of depreciation are generally used for income tax purposes. Leasehold
improvements are amortized on a straight-line basis over the shorter of the
useful life of the improvement or the term of the lease. The Company performs
ongoing evaluations of the estimated useful lives of the property and equipment
for depreciation purposes. The estimated useful lives are determined and
continually evaluated based on the period over which services are expected to be
rendered by the asset. Maintenance and repairs are expensed as
incurred.
Impairment
of Long-Lived Assets
In
accordance with Statement of Financial Accounting Standards (SFAS) No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets," The Company
periodically reviews its long-lived assets for impairment whenever events or
changes in circumstances indicate that the carrying amount of the assets may not
be fully recoverable. The Company recognizes an impairment loss when the sum of
expected undiscounted future cash flows is less than the carrying amount of the
asset. The amount of impairment is measured as the difference between the
asset’s estimated fair value and its book value.
Other
Intangible Assets
Acquired
intangible assets are separately recognized if the benefit of the intangible
asset is obtained through contractual or other legal rights, or if the
intangible asset can be sold, transferred, licensed, rented or exchanged,
regardless of the Company’s intent to do so.
Revenue
Recognition
The
Company recognizes revenue in accordance with the Securities and Exchange
Commission, Staff Accounting Bulletin (SAB) No. 104, “Revenue Recognition” (“SAB
No. 104”). SAB 104 clarifies application of generally accepted accounting
principles related to revenue transactions. The Company also follows the
guidance in EITF Issue No. 00-21, Revenue Arrangements with Multiple
Deliverables ("EITF Issue No. 00-21"), in arrangements with multiple
deliverables.
The
Company recognizes revenues when all of the following criteria are met: (1)
persuasive evidence of an arrangement exists, (2) delivery of products and
services has occurred, (3) the fee is fixed or determinable and (4)
collectability is reasonably assured.
The
Company receives revenue for services and maintenance agreements. Milestone
payments are recognized as revenue upon achievement of contract-specified events
and when there are no remaining performance obligations. Revenues from monthly
video streaming agreements, as well as equipment maintenance, are recorded when
earned. Operating equipment lease revenues are recorded as they become due from
customers. Revenues from equipment sales and installation are
recognized when equipment delivery and installation have occurred, and when
collectability is reasonably assured.
In
certain cases, the Company enters into agreements with customers that involve
the delivery of more than one product or service. Revenue for such
arrangements is allocated to the separate units of accounting using the relative
fair value method in accordance with EITF Issue No. 00-21. The delivered item(s)
is considered a separate unit of accounting if all of the following criteria are
met: (1) the delivered item(s) has value to the customer on a standalone basis,
(2) there is objective and reliable evidence of the fair value of the
undelivered item(s) and (3) if the arrangement includes a general right of
return, delivery or performance of the undelivered item(s) is considered
probable and substantially in the control of the vendor. If all the conditions
above are met and there is objective and reliable evidence of fair value for all
units of accounting in an arrangement, the arrangement consideration is
allocated to the separate units of accounting based on their relative fair
values.
Explicit
return rights are not offered to customers; however, the Company may accept
returns in limited circumstances.
F-21
There
have been no returns through December 31, 2008. Therefore, a
sales return allowance has not been established since management believes
returns will be insignificant.
Advertising
Expense
The
Company follows the provisions of Statement of Position (SOP) 93-7, “Reporting
on Advertising Costs,” in accounting for advertising
costs. Advertising costs are charged to expense as incurred and are
included in sales and marketing expenses in the accompanying financial
statements.
Income
taxes
The
Company accounts for income taxes under the liability method in accordance with
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes". Under this method, deferred income tax assets and
liabilities are determined based on differences between the financial
reporting and tax bases of assets and liabilities and are
measured using the enacted tax rates and laws that will be in
effect when
the differences are expected to
reverse.
Had
income taxes been determined based on an effective tax rate of 37.6% consistent
with the method of SFAS 109, the Company's net losses for all periods presented
would not materially change.
Earnings
(Loss) Per Share
Earnings
(loss) per share is computed in accordance with SFAS No. 128, "Earnings per
Share". Basic earnings (loss) per share is computed by dividing net income
(loss), after deducting preferred stock dividends accumulated during the period,
by the weighted-average number of shares of common stock outstanding during each
period. Diluted earnings per share is computed by dividing net income by the
weighted-average number of shares of common stock, common stock equivalents and
other potentially dilutive securities outstanding during the period. The
outstanding warrants at December 31, 2007 and 2008 and 2007 respectively are
anti-dilutive and therefore are not included in earnings (loss) per
share.
Fair
Value Of Financial Instruments
The
Company’s financial instruments consist primarily of cash, accounts payable and
accrued expenses, and debt. The carrying amounts of such financial
instruments approximate their respective estimated fair value due to the
short-term maturities and approximate market interest rates of these
instruments. The estimated fair value is not necessarily
indicative of the amounts the Company would realize in a current market
exchange or from future earnings or cash flows.
Accounting
For Stock-Based Compensation
The
Company adopted SFAS No. 123R, "Accounting for Stock-Based Compensation". This
statement requires a public entity to measure the cost of employee services
received in exchange for an award of equity instruments based on the grant-date
fair value of the award (with limited exceptions). That cost will be recognized
over the period during which an employee is required to provide
service.
In
addition, a public entity is required to measure the cost of employee services
received in exchange for an award of liability instruments based on its current
fair value. The fair value of that award has been remeasured subsequently at
each reporting date through the settlement date. Changes in fair value during
the requisite service period will be recognized as compensation cost over that
period.
Non-Employee
Stock Based Compensation
The cost
of stock based compensation awards issued to non-employees for services are
recorded at either the fair value of the services rendered or the instruments
issued in exchange for such services, whichever is more readily determinable,
using the measurement date guidelines enumerated in Emerging Issues Task Force
Issue (“EITF”) 96-18, “Accounting for Equity Instruments That Are Issued to
Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or
Services” (“EITF 96-18”).
F-22
Common
Stock Purchase Warrants
The
Company accounts for common stock purchase warrants in accordance with the
provisions of Emerging Issues Tack Force Issue (“EITF”) issue No. 00-19
“Accounting for Derivative Financial Instruments Indexed to, and Potentially
Settled in, a Company’s Own Stock” (“EITF 00-19”). Based on the
provisions of EITF 00-19, the Company classifies as equity any contracts that
(i) require physical settlement or net-share settlement, or (ii) gives the
company a choice of net-cash settlement or settlement in its own shares
(physical settlement or net-share settlement). The Company classifies
as assets or liabilities any contracts that (i) require net-cash settlement
(including a requirement to net cash settle the contract if an event occurs and
if that event is outside the control of the company), or (ii) give the
counterparty a choice of net-cash settlement or settlement in shares (physical
settlement or net-share settlement).
NOTE 5 - RECENT ACCOUNTING
PRONOUNCEMENTS
In
December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business
Combinations” (SFAS 141(R)), which replaces SFAS No. 141, “Business
Combinations” (SFAS 141). SFAS 141(R) retains the underlying concepts of SFAS
141 in that all business combinations are still required to be accounted for at
fair value under the acquisition method of accounting but SFAS 141(R) changed
the method of applying the acquisition method in a number of significant
aspects. Acquisition costs will generally be expensed as incurred;
noncontrolling interests will be valued at fair value at the acquisition date;
in-process research and development will be recorded at fair value as an
indefinite-lived intangible asset at the acquisition date, until either
abandoned or completed, at which point the useful lives will be determined;
restructuring costs associated with a business combination will generally be
expensed subsequent to the acquisition date; and changes in deferred tax asset
valuation allowances and income tax uncertainties after the acquisition date
generally will affect income tax expense. SFAS 141(R) is effective on a
prospective basis for all business combinations for which the acquisition date
is on or after the beginning of the first annual period subsequent to
December 15, 2008, with the exception of the accounting for valuation
allowances on deferred taxes and acquired tax contingencies. SFAS 141(R) amends
SFAS No. 109, “Accounting for Income Taxes” (SFAS 109) such that
adjustments made to valuation allowances on deferred taxes and acquired tax
contingencies associated with acquisitions that closed prior to the effective
date of SFAS 141(R) would also apply the provisions of SFAS 141(R). Early
adoption is not permitted. Upon adoption, SFAS 141(R) will not have a
significant impact on our consolidated financial position and results of
operations; however, any business combination entered into after the adoption
may significantly impact our financial position and results of operations when
compared to acquisitions accounted for under existing U.S. Generally Accepted
Accounting Principles (GAAP).
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements—an amendment of ARB No. 51.” This
statement is effective for fiscal years, and interim periods within those fiscal
years, beginning on or after December 15, 2008, with earlier adoption
prohibited. This statement requires the recognition of a noncontrolling interest
(minority interest) as equity in the consolidated financial statements and
separate from the parent’s equity. The amount of net income attributable to the
noncontrolling interest will be included in consolidated net income on the face
of the income statement. It also amends certain of ARB No. 51’s
consolidation procedures for consistency with the requirements of SFAS 141(R).
This statement also includes expanded disclosure requirements regarding the
interests of the parent and its noncontrolling interest. We have evaluated this
new statement and have determined that the statement will not have a significant
impact on the reporting of our financial position and results of
operations.
In
December 2007, the Securities and Exchange Commission (SEC) issued
Staff Accounting Bulletin (SAB) No. 110. This guidance allows
companies, in certain circumstances, to utilize a simplified method in
determining the expected term of stock option grants when calculating the
compensation expense to be recorded under Statement of Financial Accounting
Standards (SFAS) No. 123(R), Share-Based
Payment. The simplified method can be used after December 31, 2007
only if a company’s stock option exercise experience does not provide a
reasonable basis upon which to estimate the expected option term. Through 2007,
we utilized the simplified method to determine the expected option term, based
upon the vesting and original contractual terms of the option. On
January 1, 2008, we began calculating the expected option term based on our
historical option exercise data. This change did not have a significant impact
on the compensation expense recognized for stock options granted in
2008.
In March
2008, the FASB issued SFAS No. 161, “Disclosures about Derivative
Instruments and Hedging Activities, an amendment of FASB Statement No. 133”
(SFAS 161). This statement is intended to improve transparency in financial
reporting by requiring enhanced disclosures of an entity’s derivative
instruments and hedging activities and their effects on the entity’s financial
position, financial performance, and cash flows. SFAS 161 applies to all
derivative instruments within the scope of SFAS 133, “Accounting for Derivative
Instruments and Hedging Activities” (SFAS 133) as well as related hedged items,
bifurcated derivatives, and nonderivative instruments that are designated and
qualify as hedging instruments. Entities with instruments subject to SFAS 161
must provide more robust qualitative disclosures and expanded quantitative
disclosures. SFAS 161 is effective prospectively for financial statements issued
for fiscal years and interim periods beginning after November 15, 2008,
with early application permitted. We are currently evaluating the disclosure
implications of this statement; however, the new statement will not have an
impact on the determination of our financial results.
In April
2008, the FASB issued FSP No. FAS 142-3, “Determination of the Useful Life of
Intangible Assets.” This FSP amends the factors that should be considered in
developing renewal or extension assumptions used to determine the useful life of
a recognized intangible asset under SFAS No. 142, “Goodwill and Other
Intangible Assets” (SFAS 142). The objective of this FSP is to improve the
consistency between the useful life of a recognized intangible asset under SFAS
142 and the period of expected cash flows used to measure the fair value of the
asset under SFAS 141(R), and other principles of GAAP. This FSP applies to all
intangible assets, whether acquired in a business combination or otherwise, and
shall be effective for financial statements issued for fiscal years beginning
after December 15, 2008, and interim periods within those fiscal years and
applied prospectively to intangible assets acquired after the effective date.
Early adoption is prohibited. We have evaluated the new statement and have
determined that it will not have a significant impact on the determination or
reporting of our financial results.
In May
2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted
Accounting Principles” (SFAS 162). This statement identifies the sources of
accounting principles and the framework for selecting the principles used in the
preparation of financial statements of nongovernmental entities that are
presented in accordance with GAAP. With the issuance of this statement, the FASB
concluded that the GAAP hierarchy should be directed toward the entity and not
its auditor, and reside in the accounting literature established by the FASB as
opposed to the American Institute of Certified Public Accountants (AICPA)
Statement on Auditing Standards No. 69, “The Meaning of Present Fairly in
Conformity With Generally Accepted Accounting Principles.” This statement is
effective 60 days following the SEC’s approval of the Public Company Accounting
Oversight Board amendments to AU Section 411, “The Meaning of Present
Fairly in Conformity With Generally Accepted Accounting Principles.” We have
evaluated the new statement and have determined that it will not have a
significant impact on the determination or reporting of our financial
results.
In May
2008 the FASB issued FASB Staff Position (FSP) APB 14-1, “Accounting for Convertible Debt
Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash
Settlement). ” APB 14-1 requires the issuer to separately
account for the liability and equity components of convertible debt instruments
in a manner that reflects the issuer’s nonconvertible debt borrowing rate. The
guidance will result in companies recognizing higher interest expense in the
statement of operations due to amortization of the discount that results from
separating the liability and equity components. APB 14-1 will be effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. The Company is currently
evaluating the impact of adopting APB 14-1 on its consolidated financial
statements.
In June
2008, the FASB issued FSP No. EITF 03-6-1, "Determining Whether Instruments
Granted in Share-Based Payment Transactions Are Participating Securities". This
FASB Staff Position (FSP) addresses whether instruments granted in share-based
payment transactions are participating securities prior to vesting and,
therefore, need to be included in the earnings allocation in computing earnings
per share (EPS) under the two-class method described in paragraphs 60 and 61 of
FASB Statement No. 128, Earnings per Share. This FSP provides that unvested
share-based payment awards that contain non forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of EPS pursuant to the two-class method.
The provisions of FSP No. 03-6-1 shall be effective for financial statements
issued for fiscal years beginning after December 15, 2008, and interim periods
within those years. All prior-period EPS data presented shall be adjusted
retrospectively (including interim financial statements, summaries of earnings,
and selected financial data) to conform with the provisions of this FSP. Early
application is not permitted. The provisions of FSP No. 03-6-1 are effective for
the Company retroactively in the first quarter ended March 31, 2009. The Company
is currently assessing the impact of FSP No. EITF 03-6-1 on the calculation and
presentation of earnings per share in its’ consolidated financial
statements.
Other
accounting standards that have been issued or proposed by the FASB or other
standards-setting bodies that do not require adoption until a future date are
not expected to have a material impact on the consolidated financial statements
upon adoption.
F-23
Reclassifications
Certain
prior periods' balances have been reclassified to conform to the current
period's financial statement presentation. These reclassifications had no impact
on previously reported results of operations or stockholders'
equity.
NOTE 6 –
LINE OF CREDIT
The
Company has a line of credit with Royal Bank of Canada. The line is for one year
and carries an interest rate of LIBOR +3%. The balance outstanding as of
December 31, 2008 is $14,995.
NOTE 7 – FIXED
ASSETS
Major
classes of property and equipment at December 31, consist of the
following:
|
2008
|
2007
|
|||||||
Furniture
and equipment
|
$ | 16,241 | $ | - | ||||
Leasehold
improvements
|
890 | |||||||
Total
Notes Payable
|
$ | 17,131 | $ | - | ||||
Less:
accumulated depreciation
|
(6,066 | ) | - | |||||
Net
property and equipment
|
$ | 11,065 | $ | - | ||||
Depreciation
expense totaled $6,066 and $0 for the periods ended December 31, 2008 and
2007, respectively.
|
NOTE 8 –NOTES / ADVANCES
PAYABLE – RELATED PARTY
2008
|
2007
|
||||||||
Notes
Payable with Diana Perlman
|
$ | 299,658 | $ | - | |||||
Notes
payable with Resort Marketing.
|
95,000 | - | |||||||
Advance
payable with Mike Borish CEO
|
243,579 | - | |||||||
Advance
payable with Edmund Curtis COO
|
2,177 | - | |||||||
Advance
payable with John Holwel, Director and Vice President
|
3,643 | - | |||||||
Total
Notes Payable
|
$ | 644,057 | $ | - | |||||
less: Current
Portion
|
(644,057 | ) | - | ||||||
Long
Term Portion
|
$ | - | $ | - |
F-24
The
Company entered into a convertible promissory note with a shareholder of the
Company and a related party on December 11, 2008 in the amount of $600,000. The
promissory note had convertible beneficial feature which allowed the holder on
the inception of the convertible promissory note into the company’s common stock
equal to 50% of the market price of the corporation’s common stock on the date
of conversion. The Company recorded a beneficial interest expense in the amount
of $293,250 in the year ended December 31, 2008. The notes have an annual
interest rate of 12%. As of December 31, 2008 the company has a due
to related party $299,658.
The
Company entered into a convertible promissory note with a related party company
(Resort Marketing) owned by the Company’s chief executive officer on December
22, 2008 in the amount of $95,000. The promissory note had convertible
beneficial feature which allowed the holder on the inception of the convertible
promissory note into the company’s common stock equal to 50% of the market price
of the corporation’s common stock on the date of conversion. The Company
recorded a beneficial interest expense in the amount of $95,000 in the year
ended December 31, 2008. The notes have an annual interest rate of 15%. As of
December 31, 2008 the Company has a due to related party relating to the
following promissory note in the amount of $95,000.
The
Company receives advances from its officers and related parties during the
regular course of business. The advances to its officers have an annual rate of
15%. As of December 31, 2008 the Company has a due to its officers and related
party members in the amount of $245,756.
The
Company receives advances from its director and vice president and a related
party during the regular course of business. The advances to its officers have
an annual rate of 15%. As of December 31, 2008 the Company has a due to its
officers and related party members in the amount of $3,643.
NOTE 9 –NOTES PAYABLE -
OTHER
The
Company entered into a notes payable with US Bancorp Manifest Funding Services
for the capital lease of equipment. As of December 31, 2008 the Company has a
notes payable in the amount of $9,994 of which $4,997 is due by December 31,
2009.
NOTE 10 – OTHER RELATED
PARTY TRANSACTIONS
On
December 15, 2008 the Company entered into an employment agreements with the
Company’s two officers for the annual amount of $185,000 and $165,000,
respectively. The employment agreements under the reference “Term” specifically
set forth that the agreements were to be retroactive to January 1,
2008 “this agreement will be retroactive to January 1, 2008.” As
of December 31, 2008 the Company has an accrued compensation liability of
$350,000 and related payroll tax accrual in the amount of $15,606.
NOTE 11 – PREFERRED
STOCK
As of
December 31, 2008 the company had 75,000,000 shares of preferred stock
authorized with a par value of $.001. As of December 31, 2008 no shares were
issued and outstanding.
NOTE 12 – COMMON
STOCK
On June
11, 2008, the Company entered into a 1:20 reverse stock split. As of June 11,
2008 the Company had 2,507,037 common shared issued and outstanding after the
completion of the reverse stock split.
On June
12, 2008, the Company issued 12,746,444 common shares for services received by
the Company. The value of the services was based on the fair market value of the
shares on the date of issue. The Company recorded consulting service fees in the
amount of $6,373,222.
On June
27, 2008, The Company issued 20,704,427 as a result of a recapitalization in
accordance to a stock purchase agreement. Furthermore on June 27, 2008 the
Company cancelled 800,000 shares held by a previous executive.
On July
7, 2008, the Company issued 97 common shares for services received by the
Company. The value of the services was based on the fair market value of the
shares on the date of issue. The Company recorded consulting service fees in the
amount of $102.
On July
10, 2008, the Company issued 88 common shares for services received by the
Company. The value of the services was based on the fair market value of the
shares on the date of issue. The Company recorded consulting service fees in the
amount of $89
F-25
NOTE 13 – INCOME
TAXES
The
Company adopted Financial Accounting Standard No. 109 which requires the
recognition of deferred tax liabilities and assets for the expected future tax
consequences of events that have been included in the financial statement or tax
returns. Under this method, deferred tax liabilities and assets are determined
based on the difference between financial statements and tax bases of assets and
liabilities using enacted tax rates in effect for the year in which the
differences are expected to reverse. Temporary differences between taxable
income reported for financial reporting purposes and income tax purposes are
insignificant.
For
income tax reporting purposes, the Company’s aggregate unused net operating
losses approximate $12,990,000 which expire in various years through 2028,
subject to limitations of Section 382 of the Internal Revenue Code, as amended.
The Company has provided a valuation reserve against the full amount of the net
operating loss benefit, because in the opinion of management based upon the
earning history of the Company, it is more likely than not that the benefits
will not be realized.
Under the
Tax Reform Act of 1986, the benefits from net operating losses carried forward
may be impaired or limited on certain circumstances. Events which may cause
limitations in the amount of net operating losses that the Company may utilize
in any one year include, but are not limited to, a cumulative ownership change
of more than 50% over a three-year period. The impact of any limitations that
may be imposed for future issuances of equity securities, including issuances
with respect to acquisitions have not been determined.
The
provision (benefit) for income taxes from continued operations for the years
ended December 31, 2008 and 2007 consist of the
following:
December
31,
2008
|
December 31,
2007
|
||||||
Current:
|
|||||||
Federal
|
$
|
-
|
$
|
-
|
|||
State
|
|||||||
Deferred:
|
|||||||
Federal
|
$
|
2,676,000
|
$
|
109,000
|
|||
State
|
433,000
|
18,000
|
|||||
3,109,000
|
127,000
|
||||||
Benefit
from the operating loss carryforward
|
(3,109,000
|
)
|
(127,000
|
)
|
|||
(Benefit)
provision for income taxes, net
|
$
|
-
|
$
|
-
|
F-26
The
difference between income tax expense computed by applying the federal statutory
corporate tax rate and actual income tax expense is as
follows:
December
31,
2008
|
December 31,
2007
|
||||||
Statutory
federal income tax rate
|
34.0%
|
34.0%
|
|||||
State
income taxes and other
|
5.5%
|
5.5%
|
|||||
Valuation
allowance
|
(39.5%)
|
(39.5%)
|
|||||
Effective
tax rate
|
-
|
-
|
Deferred
income taxes result from temporary differences in the recognition of income and
expenses for the financial reporting purposes and for tax purposes. The tax
effect of these temporary differences representing deferred tax asset and
liabilities result principally from the following:
December
31,
2008
|
December 31,
2007
|
||||||
Net
operating loss carryforward
|
5,132,000
|
2,169,000
|
|||||
Accrued
liabilities
|
146,000
|
-
|
|||||
Valuation
allowance
|
(5,278,000
|
)
|
(2,169,000
|
)
|
|||
Deferred income tax asset
|
$
|
-
|
$
|
-
|
In
assessing the amount of deferred tax asset to be recognized,
management considers whether it is more likely than not that some of
the losses will be used in the future. Management expects that they
will not have benefit in the future. Accordingly, a full
valuation allowance has been established.
NOTE
14 –
LOSSES PER SHARE
|
||||||||
The
following table represents the computation of basic and diluted losses per
share at December 31:
|
2008
|
2007
|
|||||||
Losses
available for common shareholders
|
(7,870,565 | ) | (322,622 | ) | ||||
Weighted
average common shares outstanding
|
(0.185 | ) | (0.009 | ) | ||||
Basic
and fully diluted loss per share
|
42,647,381 | 37,761,668 | ||||||
Net
loss per share is based upon the weighted average shares of common stock
outstanding
|
NOTE 15 – COMMITMENT AND
CONTINGENCIES
On
January 1, 2008, FELC entered into an agreement to lease a 6,000 square foot
facility and seventy feet of additional land at a rate of $3,700 per month. The
lease is for a period of one years commencing on January 1, 2008 and expired on
January 1, 2009. On January 1, 2009 the company entered into a month to month
lease with Regus at a rate of $1,200 per month.
On May
15, 2009 the Company entered into a lease agreement for office space. The term
of the agreement set forth that a monthly rent is $1,927 with lease term is
through June 1, 2011.
On
October 7,
2008, a Complaint (“Complaint”) was
filed in the District Court of Clark County Nevada against the
Company, the Company’s Chairman, and Freedom
Environmental Services, Inc. (collectively “Defendants”) by Princeton Research,
Inc. (“Princeton”) seeking to recover unspecified General damages in excess of
$10,000, unspecified specific damages, an order from the court declaring that
the defendants fraudulently conveyed assets from BMXP to the Company, attorney’s
fees and cost of suit based on allegations that the sale of Bio
Matrix Scientific Group, Inc., a Nevada
corporation, to the Company as well as the name change and cessation
of operations of Freedom Environmental Services, Inc constitute a breach of
contract by , fraudulent conveyance by, and unjust enrichment of the
Defendants. On November 11, 2008 the company filed a Motion to Dismiss or in the
Alternative an Order requiring Princeton to provide a more definitive statement
of the allegations contained in the Complaint. The Company believes that the
allegations in the complaint are without merit and intends to vigorously defend
its interests in this matter. At this time, it is not possible to
predict the ultimate outcome of these matters. Accordingly, the Company has not
recorded any expense or liability for potential amounts associated with these
claims.
F-27
NOTE 16 – SUBSEQUENT
EVENTS
On April
30, 2009, Total Enviro Services, Inc. filed suit against William Lee and Freedom
Environmental Services, Inc. in the Ninth Judicial Circuit in Orange County,
Florida. The suit asserts claims for alleged breaches of a covenant not to
compete. The plaintiffs are seeking unspecified monetary damages and injunctive
relief. On June 2, 2009 there was filed Notice of Voluntary Dismissal
without prejudice as to Defendant, Freedom Environmental Services, Inc.
* * * * *
* * * *
F-28