Attached files
| file | filename |
|---|---|
| EX-32 - Blue Earth Solutions, Inc. | ex32.htm |
| EX-31.2 - Blue Earth Solutions, Inc. | ex31-2.htm |
| EX-31.1 - Blue Earth Solutions, Inc. | ex31-1.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x Quarterly Report
pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934
For the quarterly period ended September 30,
2009
o Transition Report
pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
For
the transition period __________ to __________
Commission File Number: 333-140438
Blue
Earth Solutions, Inc.
(Exact
name of small business issuer as specified in its charter)
|
Nevada
|
26-1909139
|
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
|
13511 Granville Ave., Clermont,
Florida, 34711
|
|
(Address
of principal executive offices)
|
|
352-729-0150
|
|
(Issuer’s
telephone number)
|
|
_______________________________________________________________
|
|
(Former
name, former address and former fiscal year, if changed since last
report)
|
Check
whether the issuer (1) 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 issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days x Yes o No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). o Yes o No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
|
o Large
accelerated filer Accelerated filer
|
o Non-accelerated
filer
|
|
x Smaller
reporting company
|
o Accelerated
filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o
Yes x No
State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 33,032,602 common shares as of December
5, 2009.
|
Page
|
||
|
PART I – FINANCIAL INFORMATION
|
||
|
Item 1:
|
3
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|
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Item 2:
|
4
|
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Item 4T:
|
7
|
|
|
PART II – OTHER
INFORMATION
|
||
|
Item 1:
|
8
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|
Item 2:
|
8
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Item 3:
|
9
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Item 4:
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9
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Item 5:
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9
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Item 6:
|
9
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PART
I - FINANCIAL INFORMATION
|
Our
unaudited financial statements included in this Form 10-Q are as
follows:
|
|
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-5
|
|
These
unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and the SEC instructions to Form 10-Q. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the interim
period ended September 30, 2009 are not necessarily indicative of the results
that can be expected for the full year.
Balance
Sheets
|
ASSETS
|
||||||||||||
|
September
30,
|
March
31,
|
|||||||||||
|
2009
|
2008
|
2009
|
||||||||||
|
(unaudited)
|
(unaudited)
|
(unaudited)
|
||||||||||
|
CURRENT
ASSETS
|
||||||||||||
|
Cash
and cash equivalents
|
$ | 340,457 | $ | 2,637,702 | $ | 50,695 | ||||||
|
Accounts
receivable 2009 net of $17,000 allowance
|
912,213 | 1,503 | 10,907 | |||||||||
|
Prepaid
expenses
|
19,211 | 103,967 | 41,421 | |||||||||
|
Inventory
|
273,886 | 62,917 | 231,153 | |||||||||
|
Investments
|
144,204 | - | - | |||||||||
|
Total
Current Assets
|
1,689,971 | 2,806,089 | 334,176 | |||||||||
|
PROPERTY
AND EQUIPMENT, net
|
5,268,808 | 2,460,916 | 4,098,283 | |||||||||
|
OTHER
ASSETS
|
||||||||||||
|
Investments
|
1,447,269 | - | - | |||||||||
|
Depository
funds
|
8,234,332 | 8,538,958 | 8,206,990 | |||||||||
|
Goodwill
|
339,514 | - | - | |||||||||
|
Deposits
& deposits on equipment
|
2,828,680 | 2,813,619 | 2,877,619 | |||||||||
|
TOTAL
ASSETS
|
$ | 19,808,574 | $ | 16,619,582 | $ | 15,517,068 | ||||||
|
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||||||
|
CURRENT
LIABILITIES
|
||||||||||||
|
Accounts
payable and accrued expenses
|
$ | 2,761,457 | $ | 1,344,797 | $ | 1,399,145 | ||||||
|
Accounts
payable and accrued expenses - Related Parties
|
627,653 | 6,897 | 152,508 | |||||||||
|
Notes
payable
|
35,729 | - | - | |||||||||
|
Notes
payable - related parties
|
5,382,171 | 20,000 | 462,500 | |||||||||
|
Total
Current Liabilities
|
8,807,009 | 1,371,694 | 2,014,153 | |||||||||
|
LONG-TERM
LIABILITIES
|
||||||||||||
|
Notes
payable
|
1,238,199 | 1,049,000 | 1,049,000 | |||||||||
|
Total
Liabilities
|
10,045,208 | 2,420,694 | 3,063,153 | |||||||||
|
STOCKHOLDERS'
EQUITY
|
||||||||||||
|
Preferred
stock, Series A, $0.001 par value, 10,000,000
|
||||||||||||
|
shares
authorized, -0- shares issued and outstanding
|
- | 400 | - | |||||||||
|
Preferred
stock, Series B, $0.001 par value, 5,000,000
|
||||||||||||
|
shares
authorized, -0- shares issued and outstanding
|
||||||||||||
|
Preferred
stock, Series C, $0.001 par value, 5,000,000
|
||||||||||||
|
shares
authorized, 14,130 shares
|
||||||||||||
|
issued
and outstanding
|
14 | 14 | 14 | |||||||||
|
Common
stock, $0.001 par value, 100,000,000 shares
|
||||||||||||
|
authorized,
33,532,602 and 32,025,300 shares
|
||||||||||||
|
issued
and outstanding, respectively
|
33,082 | 26,013 | 32,025 | |||||||||
|
Unrealized
(Loss) on Available For Sales Securities
|
(1,308,527 | ) | - | - | ||||||||
|
Additional
paid-in capital
|
15,275,865 | 14,739,807 | 15,052,300 | |||||||||
|
Accumulated
deficit
|
(4,237,067 | ) | (567,346 | ) | (2,630,424 | ) | ||||||
|
Total
Stockholders' Equity
|
9,763,366 | 14,198,888 | 12,453,915 | |||||||||
|
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 19,808,574 | $ | 16,619,582 | $ | 15,517,068 | ||||||
| - | - | - | ||||||||||
The
accompanying notes are an integral part of these financial
statements.
BLUE
EARTH SOLUTIONS, INC.
(unaudited)
|
For
the Three Months Ended
|
For
the Six Months Ended
|
|||||||||||||||
|
September,
30
|
September,
30
|
|||||||||||||||
| 2009 | 2008 | 2009 |
2008
|
|||||||||||||
|
REVENUES
|
$ | 1,997,095 | $ | 4,282 | $ | 2,020,995 | $ | 14,516 | ||||||||
|
COST
OF SALES
|
1,737,576 | 2,592 | 1,828,769 | 3,935 | ||||||||||||
|
Gross
Profit
|
259,519 | 1,690 | 192,226 | 10,581 | ||||||||||||
|
OPERATING
EXPENSES
|
||||||||||||||||
|
Depreciation
expense
|
7,899 | 13,750 | 8,348 | 32,083 | ||||||||||||
|
General
and administrative
|
1,046,606 | 435,014 | 1,522,689 | 575,896 | ||||||||||||
|
Total
Operating Expenses
|
1,054,505 | 448,764 | 1,531,037 | 607,979 | ||||||||||||
|
LOSS
FROM OPERATIONS
|
(794,986 | ) | (447,074 | ) | (1,338,811 | ) | (597,398 | ) | ||||||||
|
OTHER
INCOME (EXPENSES)
|
||||||||||||||||
|
Interest
income
|
23,894 | 50,075 | 91,248 | 50,075 | ||||||||||||
|
Loss
on sales of assets
|
(132,815 | ) | - | (137,957 | ) | - | ||||||||||
|
Interest
(expense) Related Party
|
(151,500 | ) | (3,000 | ) | (161,404 | ) | (3,000 | ) | ||||||||
|
Interest
(expense)
|
(19,696 | ) | (12,440 | ) | (39,902 | ) | (12,440 | ) | ||||||||
|
Total
Other Income (Expenses)
|
(280,116 | ) | 34,635 | (248,014 | ) | 34,635 | ||||||||||
|
NET
(LOSS) BEFORE INCOME TAXES
|
(1,075,102 | ) | (412,439 | ) | (1,586,825 | ) | (562,763 | ) | ||||||||
|
Income
taxes
|
- | - | 19,817 | - | ||||||||||||
|
NET
(LOSS)
|
$ | (1,075,102 | ) | $ | (412,439 | ) | $ | (1,606,642 | ) | $ | (562,763 | ) | ||||
|
BASIC
AND DILUTED (LOSS) PER COMMON SHARE
|
(0.03 | ) | $ | (0.02 | ) | $ | (0.05 | ) | $ | (0.03 | ) | |||||
|
WEIGHTED
AVERAGE NUMBER OF
|
||||||||||||||||
|
COMMON
SHARES OUTSTANDING
|
31,850,986 | 25,286,300 | 32,091,252 | 19,190,867 | ||||||||||||
The
accompanying notes are an integral part of these financial
statements
BLUE
EARTH SOLUTIONS, INC.
(unaudited)
|
For
the Six Months Ended
|
||||||||
|
September
30,
|
||||||||
|
2009
|
2008
|
|||||||
|
OPERATING
ACTIVITIES
|
||||||||
|
Net
loss
|
$ | (1,606,642 | ) | $ | (562,763 | ) | ||
|
Adjustments
to Reconcile Net Loss to Net Cash Used in Operating
Activities
|
||||||||
|
Write
off of discontinued inventory
|
176,325 | - | ||||||
|
Cash
Used in Operating Activities:
|
||||||||
|
Depreciation
expense
|
215,204 | 32,083 | ||||||
|
Shares
issued for services
|
(14,736 | ) | 30,650 | |||||
|
Loss
on sale of assets
|
||||||||
|
Unrealized
(Loss) on Available For Sale Securities
|
(1,308,527 | ) | - | |||||
|
Changes
in operating assets and liabilities:
|
||||||||
|
(Increase)
decrease in prepaid expenses
|
22,210 | (105,522 | ) | |||||
|
(Increase)
decrease in accounts receivable
|
(2,034,306 | ) | (1,503 | ) | ||||
|
(Increase)
decrease in depository accounts
|
(27,342 | ) | (8,538,958 | ) | ||||
|
(Increase)
decrease in inventory
|
(411,058 | ) | (62,917 | ) | ||||
|
(Increase)
decrease in deposits
|
48,939 | - | ||||||
|
Increase
(decrease) in accounts payable
|
||||||||
|
and
accrued expenses
|
2,631,462 | 1,152,128 | ||||||
|
Net
Cash Used in Operating Activities
|
(2,308,471 | ) | (8,056,802 | ) | ||||
|
INVESTING
ACTIVITIES
|
||||||||
|
Sale
of Equipment
|
261,145 | - | ||||||
|
Purchase
of property and equipment, net
|
(3,341,874 | ) | (3,710,646 | ) | ||||
|
Investments
in avaiable for sale securities
|
(144,204 | ) | - | |||||
|
Accrued
Dividends
|
(565,200 | ) | - | |||||
|
Acquisition
of American Marketing
|
6,719,060 | - | ||||||
|
Investment
in securities
|
(1,200,000 | ) | - | |||||
|
Net
Cash Provided by Investing Activities
|
1,728,927 | (3,710,646 | ) | |||||
|
FINANCING
ACTIVITIES
|
||||||||
|
Repayment
of notes payable
|
- | (200,000 | ) | |||||
|
Settlement
of contract Net
|
214,950 | - | ||||||
|
Borrowings
of notes payable
|
654,356 | 20,000 | ||||||
|
Issuance
of preferred shares for cash
|
- | 14,570,000 | ||||||
|
Net
Cash Provided by Financing Activities
|
869,306 | 14,390,000 | ||||||
|
NET
DECREASE IN CASH
|
289,762 | 2,622,552 | ||||||
|
CASH
AT BEGINNING OF PERIOD
|
50,695 | 15,150 | ||||||
|
CASH
AT END OF PERIOD
|
$ | 340,457 | $ | 2,637,702 | ||||
|
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
|
CASH
PAID FOR:
|
||||||||
|
Interest
|
$ | 39,258 | $ | - | ||||
|
Income
taxes
|
$ | 19,817 | $ | - | ||||
|
NON
CASH FINANCING & INVESTING ACTIVITIES:
|
||||||||
|
Stock
issued for the purchase of AMS
|
$ | 630,000 | ||||||
|
Goodwill
|
||||||||
|
Settlement
of contract Net
|
||||||||
The
accompanying notes are an integral part of these financial
statements.
BLUE
EARTH SOLUTIONS, INC.
(unaudited)
|
Deficit
|
||||||||||||||||
|
Accumulated
|
||||||||||||||||
|
Unrealized
|
Additional
|
During
the
|
||||||||||||||
|
Preferred
Stock
|
Common
Stock
|
Gain
or loss
|
Paid-In
|
Development
|
||||||||||||
|
Shares
|
Amount
|
Shares
|
Amount
|
Capital
|
Stage
|
Total
|
||||||||||
|
Balance,
February 5, 2008
|
-
|
$
|
-
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
$
|
-
|
||
|
Common
shares issued to founders
|
-
|
-
|
7,000,000
|
7,000
|
(6,850)
|
-
|
150
|
|||||||||
|
Series
A preferred shares
|
||||||||||||||||
|
issued
to founders
|
400,000
|
400
|
-
|
-
|
(400)
|
-
|
-
|
|||||||||
|
Series
B preferred shares issued in a
|
||||||||||||||||
|
private
placement at $10 per share
|
36,500
|
37
|
-
|
-
|
364,963
|
-
|
365,000
|
|||||||||
|
Net
loss from inception
|
||||||||||||||||
|
through
March 31, 2008
|
-
|
-
|
-
|
-
|
-
|
(4,583)
|
(4,583)
|
|||||||||
|
Balance,
March 31, 2008
|
436,500
|
|
437
|
7,000,000
|
|
7,000
|
-
|
|
357,713
|
|
(4,583)
|
|
360,567
|
|||
|
Recapitalization
|
-
|
-
|
20,759,300
|
20,759
|
-
|
7,099
|
-
|
27,858
|
||||||||
|
Common
shares returned and cancelled
|
-
|
-
|
(3,200,000)
|
(3,200)
|
-
|
3,200
|
-
|
-
|
||||||||
|
Series
B preferred shares issued in a
|
||||||||||||||||
|
private
placement at $10 per share
|
44,000
|
44
|
-
|
-
|
-
|
439,956
|
-
|
440,000
|
||||||||
|
Series
B preferred shares
|
||||||||||||||||
|
converted
to common
|
(80,500)
|
(81)
|
1,449,000
|
1,449
|
-
|
(1,368)
|
-
|
-
|
||||||||
|
Common
shares issued for services
|
||||||||||||||||
|
at
$6.13 per share
|
-
|
-
|
17,000
|
17
|
-
|
80,733
|
-
|
80,750
|
||||||||
|
Series
C preferred shares issued in a
|
||||||||||||||||
|
private
placement at $1,000 per share
|
14,130
|
14
|
-
|
-
|
-
|
14,129,986
|
-
|
14,130,000
|
||||||||
|
Dividends
on preferred stock
|
-
|
-
|
-
|
-
|
-
|
(945,355)
|
-
|
(945,355)
|
||||||||
|
Series
A preferred shares converted to common stock
|
(400,000)
|
(400)
|
6,000,000
|
6,000
|
-
|
(5,600)
|
-
|
-
|
||||||||
|
Fair
value of warrants granted
|
-
|
-
|
-
|
-
|
-
|
985,936
|
-
|
985,936
|
||||||||
|
Net
loss for the twelve months ended
|
||||||||||||||||
|
through
March 31, 2009
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,625,841)
|
(2,625,841)
|
||||||||
|
Balance,
March 31, 2009
|
14,130
|
|
14
|
32,025,300
|
|
32,025
|
-
|
|
15,052,300
|
|
(2,630,424)
|
|
12,453,915
|
|||
|
Common
shares returned and cancelled
|
-
|
-
|
(425,000)
|
(425)
|
-
|
425
|
-
|
-
|
||||||||
|
Cash-less
exercise of warrant
|
-
|
-
|
49,302
|
49
|
-
|
65,523
|
-
|
65,572
|
||||||||
|
Dividends
on preferred stock
|
-
|
-
|
-
|
-
|
-
|
(565,200)
|
-
|
(565,200)
|
||||||||
|
Canceled
Common shares issued for
|
||||||||||||||||
|
services
at $6.13 per share
|
-
|
-
|
(17,000)
|
(17)
|
-
|
(80,733)
|
-
|
(80,750)
|
||||||||
|
Acquisition
of American Marketing & Sales (AMS)
|
-
|
-
|
1,000,000
|
1,000
|
-
|
449,000
|
-
|
450,000
|
||||||||
|
Shares
issued to AMS shareholders
|
-
|
-
|
400,000
|
400
|
-
|
179,600
|
-
|
180,000
|
||||||||
|
Settlement
of contract
|
500,000
|
50
|
-
|
174,950
|
175,000
|
|||||||||||
|
Unrealized
Loss on investments held for resale
|
(1,308,527)
|
|||||||||||||||
|
Net
loss for the nine months ended
|
||||||||||||||||
|
through
Septmber 30, 2009
|
-
|
-
|
-
|
-
|
-
|
-
|
(1,606,642)
|
(1,606,642)
|
||||||||
|
Balance,
September 30, 2009
|
14,130
|
$
|
14
|
33,532,602
|
$
|
33,082
|
$
|
(1,308,527)
|
$
|
15,275,865
|
$
|
(4,237,066)
|
$
|
11,071,894
|
||
The
accompanying notes are an integral part of these financial
statements.
BLUE
EARTH SOLUTIONS, INC & SUBSIDIARY
Notes
to the Financial Statements
For
The Nine Months Ended September 30, 2009
The accompanying financial statements have been
prepared by the Company without audit. In the opinion of management,
all adjustments (which include only normal recurring adjustments) necessary to
present fairly the financial position, results
of operations and cash flows at September 30, 2009 and for all periods presented
have been made. The company acquired American Marketing and Sales (AMS) on July
1, 2009 (see Note 9). The numbers in the Company’s Statement of Operations
includes only AMS operations since July 1, 2009. None of the historical numbers
have been restated with AMS activity.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's March 31, 2009 financial
statements. The results of operations for the period ended September
30, 2009 are not necessarily indicative of the operating results for the full
years.
NOTE
2 - GOING CONCERN
The
Company’s financial statements are prepared using generally accepted accounting
principles applicable to a going concern which contemplates the realization of
assets and liquidation of liabilities in the normal course of
business. The Company has limited revenues and has generated losses
from operations.
In
order to continue as a going concern and achieve a profitable level of
operations, the Company will need, among other things, additional capital
resources and to develop a consistent source of
revenues. Management’s plans include developing and marketing a
practical, economical, and environmentally safe means of disposing of and
recycling certain polystyrene and expended polystyrene products.
The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plan described in the preceding paragraph
and eventually attain profitable operations. The accompanying
financial statements do not include any adjustments that might be necessary if
the Company is unable to continue as a going concern.
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES
Principles
of Consolidation:
The
accompanying consolidated financial statements present the consolidation of the
financial statements of Blue Earth Solutions, Inc and its wholly owned
subsidiary American Sales and Marketing, Inc. Intercompany transactions or
balances have been eliminated.
Use of
Estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts of
revenue and expenses during the reporting period. Actual results could differ
from those estimates.
Cash
and Cash Equivalents:
Cash
and cash equivalents consists principally of currency on hand, demand deposits
at commercial banks, and liquid investment funds having a maturity of three
months or less at the time of purchase.
Inventory:
The
Company’s inventory is stated at the lower of cost or market value. Cost is
determined using the first in, first out method. Unusual losses resulting from
lower of cost or market adjustments or losses on firm purchase commitments, if
any, are disclosed, and if material, separately stated from cost of goods sold
in the statement of operations.
BLUE
EARTH SOLUTIONS, INC & SUBSIDIARY
Notes
to the Financial Statements
For
The Nine Months Ended September 30, 2009
Investments
At
September 30, 2009, the Company has invested $1,591,473 (after adjustment for
market value at September 30, 2009.. The funds are invested as
follows;
|
·
|
$1,450,899
in stocks.
|
|
·
|
$14,228
in a money market account,
|
|
·
|
$25,688
in municipal bonds that yield 5.5% interest and mature on July 1,
2010.
|
|
·
|
$100,658
in a long term-certificate of deposit (CD) yields interest of 1.85% and
matures on July 27, 2010.
|
The Company has not
determined yet whether it will hold the bonds, stocks and certificate of deposit
to maturity, and has therefore classified them as available-for-sale securities
and has valued them to current market prices at September 30, 2009. The unrealized loss totaled
$1,380,527 net and is classified in the Stockholders’ Equity section of the
balance sheet.
Property
and Equipment:
Property
and equipment are stated at cost. Depreciation and amortization are determined
using the straight-line method over estimated useful lives ranging from three to
twenty five years.
Fair
Value of Financial Instruments:
In
September 2006, the Financial Accounting Standards Board (FASB) introduced a
framework for measuring fair value and expanded required disclosure about fair
value measurements of assets and liabilities. The Company adopted the standard
for those financial assets and liabilities as of the beginning of the 2008
fiscal year and the impact of adoption was not significant. FASB Accounting
Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures” (ASC
820) defines fair value as the exchange price that would be received for an
asset or paid to transfer a liability (an exit price) in the principal or most
advantageous market for the asset or liability in an orderly transaction between
market participants on the measurement date. ASC 820 also establishes a fair
value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value.
The standard describes three levels of inputs that may be used to measure fair
value:
Level
1 - Quoted prices in active markets for identical assets or
liabilities.
Level
2 - Inputs other than quoted prices included within Level 1 that are either
directly or indirectly observable.
Level
3 - Unobservable inputs that are supported by little or no market activity,
therefore requiring an entity to develop its own assumptions about the
assumptions that market participants would use in pricing.
Fair
value estimates discussed herein are based upon certain market assumptions and
pertinent information available to management as of September 30,
2009. The Company uses the market approach to measure fair value for its
Level 1 financial assets and liabilities, which includes cash equivalents of
$340,357 at September 30, 2009. The market approach uses prices and
other relevant information generated by market transactions involving identical
or comparable assets or liabilities. The respective carrying value of
certain on-balance-sheet financial instruments approximated their fair
values. These financial instruments include cash, trade receivables, and
related party payables, accounts payable and accrued liabilities. Fair
values were assumed to approximate carrying values for these financial
instruments since they are short term in nature and their carrying amounts
approximate fair values or they are receivable or payable on
demand.
The
Company’s investments are categorized as $1,341,473 in Level 1 and $250,000 in
Level 3.
On
July 1, 2009, the Company entered into a Convertible Note Agreement as part of
the AMS purchase Agreement (Note 6).
On April 1,
2009, the Company applied ASC 820 for all non-financial assets and liabilities
measured at fair value on a non-recurring basis. The application did not have an
impact on the Company’s financial position or results of operations. The
Company’s non-financial assets measured at fair value on a non-recurring basis
include goodwill and other intangible assets. In a business combination, the
non-financial assets and liabilities of the acquired company would be measured
at fair value in accordance with ASC 820. The requirements of ASC 820 include
using an exit price based on an orderly transaction between market participants
at the measurement date assuming the highest and best use of the asset by market
participants. The Company would use a market, income or cost approach valuation
technique to perform the valuations. Since the Company performs its annual
impairment analyses of goodwill and indefinite-lived intangible assets in the
fourth quarter of each fiscal year and since no impairment trigger event
occurred during the first quarter of 2009, the application of ASC 820 for all
non-financial assets and liabilities measured at fair value on a non-recurring
basis did not have an impact on the Company’s financial position or results of
operations. However, there may be an impact during 2009 on the Company’s
financial position and results of operations when the Company performs an
impairment analysis of goodwill and indefinite-lived intangible assets due to
the difference in fair value methodology required under ASC 820. The
carrying value of cash, accounts receivable, accounts payable and accrued
expenses, and notes payable are assumed to approximate fair value because of the
relatively short maturity of these instruments. However, since the Company has
been unable to pay its liabilities as they became due, significant discounts
that cannot be estimated may be appropriate for
liabilities
.
BLUE
EARTH SOLUTIONS, INC & SUBSIDIARY
Notes
to the Financial Statements
For
The Nine Months Ended September 30, 2009
Concentrations
of Credit Risk:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash. The Company maintains its cash accounts with
several commercial banks. Cash balances are insured by the Federal Deposit
Insurance Corporation, up to $250,000 per financial institution.
Revenue
Recognition:
Blue
Earth Solutions, Inc.
The
Company recognizes revenue upon the rendering of services and shipment of
finished goods to customers.
American
Market & Sales, Inc.
The
Company recognizes revenue from product sales in accordance with Staff
Accounting Bulletin No. 104, which requires recognition when persuasive evidence
of an arrangement exists, the price is fixed or determinable, delivery has
occurred, and payment is reasonably assured. The Company has
determined that these criteria have been met upon shipment, and recognizes
revenue at that point. Pursuant to SFAS No. 5, “Accounting for
Contingencies,” the Company has examined collection history, financial
conditions of clients, and general economic conditions and determined that an
allowance of $17,000 would be adequate.
Cost
of Revenue:
Subsequent
Events
In
preparing these financial statements, the Company has evaluated events and
transactions for potential recognition or disclosure through December 24, 2009,
the date the financial statements were issued.
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes
to the Financial Statements
For
The Nine Months Ended September 30, 2009
NOTE
3 – SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements
Statement
of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855), "Subsequent
Events," SFAS No. 166 (ASC Topic 810), "Accounting for
Transfers of Financial Assets-an Amendment of FASB Statement No. 140,"
SFAS No. 167 (ASC Topic 810), "Amendments to
FASB Interpretation No. 46(R)," and SFAS No. 168 (ASC Topic 105), "The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted
Accounting Principles-a replacement of FASB Statement No. 162," were
recently issued. SFAS No. 165, 166, 167, and 168 have no current applicability
to the Company or their effect on the financial statements would not have been
significant.
Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU's No. 2009-2 through ASU No. 2009-15 which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
Segment
Information:
ASC
Topic 280 (SFAS No. 131) requires public enterprises to report certain
information about operating segments, including products and services,
geographic areas of operations, and major customers. American Marketing and
Sales, Inc. (AMS) is considered a separately reportable business segment that
meets the ’Single Industry Dominance’ test, which eliminates the segment
disclosure requirements if the segment accounts for 90% or more of the combined
revenue, reported profit, and assets. The revenues, profits, and assets reported
in the consolidated financial statements are primarily those of
AMS.
NOTE
4 – INVENTORY
Blue
Earth Solutions, Florida inventory is comprised of chemicals for the recycling
of polystyrene and finished pellets awaiting shipment, and is comprised of the
following:
|
|
September
30, 2009
|
March
31, 2009
|
||||||
|
Raw
materials
|
$ | 11,209 | $ | 231,153 | ||||
|
Finished
goods
|
8,672 | - | ||||||
|
Work
in process
|
- | - | ||||||
|
Total
|
$ | 19,881 | $ | 231,153 | ||||
AMS
produces caterware for the food service industry via an intense heat injection
molding process using Polystyrene/Polypropylene recycled resins. The
raw materials and finished goods are produced and held by two third-party
manufacturing plants, from where they are shipped to customers across the
nation. AMS does not enter into long-term contracts and generally
experiences a high inventory turnover ratio while maintaining minimal quantities
on-hand in the warehouses. AMS ‘s inventory is as follows:
|
|
September
30, 2009
|
March
31, 2009*
|
||||||
|
Raw
materials
|
$ | 2,100 | $ | 4,560 | ||||
|
Finished
goods
|
186,935 | 587,033 | ||||||
|
Work
in process
|
64,970 | 176,309 | ||||||
|
Total
|
$ | 254,005 | $ | 767,902 | ||||
*
For information purposes only not included in March 31, 2009
BLUE
EARTH SOLUTIONS, INC & SUBSIDIARY
Notes
to the Financial Statements
For
The Nine Months Ended September 30, 2009
NOTE
5 – SERIES C PREFERRED STOCK AND DEPOSITORY FUNDS
On
August 29, 2008, the Company completed and closed a private offering of
newly-created Series C Preferred Stock at an offering price of $1,000 per share
in a private placement. The Company sold a total of 14,130 shares for
total gross proceeds of $14,130,000, including $13,430,000 in cash and the
cancelation of the $700,000 promissory note (see Form 8K filed August 13, 2008).
Of the proceeds, $8,500,000 was deposited in a fund in an offshore
account. There is a dispute as to the control and dispositions of
the Funds which management is currently exploring. The Agreement details the
investment return that the Company will earn on the
Funds. Additionally, pursuant to the Agreement, the Company agreed to
wait to withdraw $8,000,000 of the Funds until one of several stated conditions
were met. The Company was and is entitled to withdraw the earnings,
less the investment fees, generated by the Funds without
restriction.
The
Funds were classified as a current asset at March 31, 2009 because they were
considered by management to be a liquid asset. During the quarter
ended March 31, 2009, the Company was unsuccessful issuing bonds in a depressed
bond market, which put a strain on the Company to meet its operating expenses.
During the quarter ended June 30, 2009, the Company attempted to withdraw some
of the Funds, but met resistance from the fund management with respect to the
release of the Funds. The Company is taking steps to get the Funds
released. In the interim, the Company is re-classifying the Funds as
a non-current asset in all periods until such time that the Funds are
released.
NOTE
6 – NOTES PAYABLE RELATED PARTIES
At
March 31, 2009, the Company had a total of $462,500 in related party notes
payable. During the six months ended September 30, 2009, the Company
received an additional $220,167 in advances, resulting in a balance of $682,657
at September 30, 2009. The notes payable are interests bearing,
secured by the assets of the Company and are due and payable upon demand. The
notes bear interest at 8% to 12% per annum.
As
part of the purchase of AMS, the Company entered into a $5,450,000 note secured
by the assets and stock of AMS and payable to the former stockholders of AMS.
The note accrues interest at 6% and the entire note balance, including accrued
interest, is due and payable on December 7, 2010. During the term of the
extended Note, the former stockholders shall have the right to convert the
principal and interest then due, into Blue Earth (restricted with piggy-back
registration rights) common shares at the price of $6 per share. The note is
subject to a market interest rate-discount of $750,486 which will be amortized
over the life of the note. Accrued interest totaled $82,422 and the amortized
discount totaled $215,713 for the three months ended September 30, 2009 both
are included in accounts payable and accrued
expenses.
NOTE
7 – LONG-TERM NOTES PAYABLE
On August 6, 2008,
the Company purchased real property and improvements it uses as its headquarters
for a total purchase price of $1.7 million. The Company executed a mortgage,
backed in favor of the seller of that property, in the principal amount of
$1,049,000, due in three years, with interest only payments due monthly until
maturity in the amount of $6,119. The mortgage was personally
guaranteed by the Company’s Chief Executive Officer and her
spouse.
In
May 2007, The Company entered into a note payable with Flagship Bank of
Leominster, MA for $400,000. The note accrues interest at prime less
.75% (approximately 6.5%), carries monthly payments that annually total of
$93,918, and matures in May 2012. The Company is current on its payments, so
there was no accrued interest at September 30, 2009 or 2008. Future
maturities as of September 30, 2009 are as follows:
|
Dec.
31,
|
Payments
|
Principal
|
Interest
|
|||||||||
|
2009
|
49,110 | 35,729 | 13,381 | |||||||||
|
2010
|
93,918 | 83,183 | 10,735 | |||||||||
|
2011
|
93,918 | 88,754 | 5,164 | |||||||||
|
2012
|
37,979 | 37,560 | 419 | |||||||||
|
Totals
|
274,925 | 245,226 | 29,699 | |||||||||
NOTE
8 – STOCKHOLDERS’ EQUITY
During
the six months ended September 30, 2009, the Company accrued Preferred Series C
cumulative dividends of $565,200, which was recorded as a reduction in
additional paid-in capital. The Company also issued 49,302 common
shares pursuant to warrants exercised via $65,572 in services
rendered. Also during the quarter, 442,000 common shares were
returned to the Company and cancelled pursuant to the cancellation of the
underlying contract. The company also issued 500,000 shares to settle a contract
with a vendor. The AMS acquisition (see note 9) had an effect on Common Stock of
1,400,000 shares and a net increase in Common stock and Paid in Capital of
$747,711.
BLUE
EARTH SOLUTIONS, INC & SUBSIDIARY
Notes
to the Financial Statements
For
The Nine Months Ended September 30, 2009
NOTE
9 –ACQUISITION
On
July 1, 2009, the Company completed the purchase of AMS., which is in the
plastic injection molding business. The company has not completed its financial
evaluation of all the assets of AMS, we are still evaluating the value of the
revenue stream (existing customers), this evaluation is expected to be completed
in the next six months. AMS’s operations complement the Company’s business plan,
which is the recycling of expended polystyrene products back into
plastic pellets that can be used in the injection molding
industry. The acquisition was made pursuant to the following
terms:
|
·
|
On
March 18, 2009, Datameg Corporation, a Delaware corporation ("Seller")
entered into a Stock Purchase Agreement and purchase money promissory note
Assignment and Assumption Agreement incident to its proposed sale of its
wholly owned subsidiary, American Marketing & Sales, Inc., a
Massachusetts corporation. The sale was subject to the consent of a
majority of Datameg’s shareholders, which consent was
obtained.
|
|
·
|
Assets
acquired were $4,116,000 including:
|
|
o
|
$689,000
Cash
|
|
o
|
$1,133,000 Net
Trade Receivables
|
|
o
|
$192,000 Inventory
|
|
o
|
$1,695,000 Property
Plant & Equipment
|
|
o
|
$400,000 Investments
|
|
o
|
$7,000 Other
|
|
·
|
Liabilities
acquired were $1,438,000
|
|
o
|
$1,193,000 Accounts
Payable & Accrued Expenses
|
|
o
|
$245,000 Bank
Loan
|
|
·
|
Leonard
J. Tocci is the representative of the Principal Shareholders (Leonard J.
Tocci, Lynel J. Tocci, Leanne J. Whitney, and Linnea J. Clary) who are the
former AMS owners and are now owners of the 150,000 Datameg shares in
escrow from their sale of American Marketing to Datameg Corporation in
December 2007. The Principal Shareholders also hold a purchase money note
("Note") secured by all of the assets of American Marketing concerning an
election to return the 150,000 Datameg shares in favor of full payment of
the purchase money note. As of September 30, 2009, the principal and
interest due on the Note is approximately $5.600,000 consisting of
$5.400,000 in principal and $200,000 of
interest.
|
BLUE
EARTH SOLUTIONS, INC & SUBSIDIARY
Notes
to the Financial Statements
For
The Nine Months Ended September 30, 2009
NOTE
9 – ACQUSITION (CONTINUED)
|
·
|
The
purchase of American Marketing & Sales, Inc. was made pursuant to a
Stock Purchase Agreement. The Stock Purchase Agreement contained, among
other things, representations and warranties of the aforementioned Parties
and covenants of the Companies. Blue Earth
Solutions is allowed to make additional draws from available cash of AMS
for the purpose of meeting additional operating capital with respect to
new customers secured by the Company for AMS after the closing of the
Agreement.
|
|
·
|
Among
other terms, Datameg received 1 million (restricted with piggy-back
registration rights) common shares of the Company in exchange for the
transfer of American Marketing shares to the Company. Datameg delivered to
the Principal Shareholders from escrow 150,000 Datameg common shares in
exchange for (1) a complete release of Datameg and its directors and
officers, etc. from further liability upon the Note and otherwise (2) the
Principal Shareholders’ written consent to the assumption of the Note by
the Company (3) the Company's written assumption of the Note and (4) the
Principal Shareholder’s and the Company’s agreement to extend the term of
the Note for one year.
|
|
·
|
For
their assumption of the additional loans from American Marketing &
Sales, Inc. on the Note, the Company was issued 500,000
unregistered Datameg common shares at the
Closing.
|
|
·
|
The
Principal Shareholders released their security interest in NetSymphony
Corporation stock and returned the stock certificate to
Datameg.
|
|
·
|
In
consideration of their aforementioned acts and consents, the
Company delivered to the Principal Shareholders 400,000 (restricted
with piggy-back registration rights) common shares of the
Company common shares.
|
The
500,000 shares of Datameg’s common stock issued to the Company had a
value of $4.50 per share ($2,250,000 total value). Just prior to the sale, the
Datameg also issued to AMS an additional 120,000 shares of common stock at $4.70
for total value of $564,000. The 1,000,000 shares issued by the
Company to Datameg had a fair market value of $450,000 on the closing date,
and represent a 3% ownership in the Company.
Blue
Earth Solutions, Inc. is hereafter referred to as “we”, “our” or
“us”.
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates,
projections, statements relating to our business plans, objectives, and expected
operating results, and the assumptions upon which those statements are based,
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements generally are identified
by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will
continue,” “will likely result,” and similar expressions. We intend
such forward-looking statements to be covered by the safe-harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and are including this statement for purposes of complying with
those safe-harbor provisions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking
statements. Our ability to predict results or the actual effect of future plans
or strategies is inherently uncertain. Factors which could have a
material adverse affect on our operations and future prospects on a consolidated
basis include, but are not limited to: changes in economic conditions,
legislative/regulatory changes, availability of capital, interest rates,
competition, and generally accepted accounting principles. These risks and
uncertainties should also be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements. We
undertake no obligation to update or revise publicly any forward-looking
statements, whether as a result of new information, future events or
otherwise. Further information concerning our business, including
additional factors that could materially affect our financial results, is
included herein and in our other filings with the SEC.
Plan
of Operation
Overview
As of
September 30, 2009, we conduct our operations from our facility at
13511 Granville Ave., Clermont, Florida, utilizing our Blue Line
system, which primarily uses established recycling technologies and
methods. Compared to our Styrosolve™ system, the Blue Line creates
less waste, converts a higher percentage of expanded polystyrene, (otherwise
known as EPS) into useable crystal polystyrene pellets, reduces energy
consumption, requires no chemical inputs, occupies less square footage, and is
less labor intensive. The Blue Line system is presently operating and
producing pellets that are being sold on a commercial basis.
Although
we anticipated beginning recycling operations on a full commercial
scale during the quarter ended September 30, 2008, we have
experienced unexpected delays due to our abandonment and dismantling
of the Styrosolve™ system that we previously used to process pellets
and replacing it with the Blue Line system. During the quarter ended September
30, 2009, we began dismantling the Styrosolve™ operation, but we not
know when that dismantling process will be
completed. Some equipment from this dismantling process
may be utilized in our operations, as accounted for in the necessary reserves
and adjustments in our financial statements.
We
have received a third-party claim alleging that the seller of
the Styrosolve™ patents did not have the legal right to sell them to
us; however, we believe that we have clear title to the
patents and we are presently investigating this claim.
American
Marketing and Sales, Inc. D/B/A INNOVATIVE DESIGNS, our Wholly Owned
Subsidiary
AMS has
developed and introduced a line of environmentally friendly, injection-molded
Green Line food-packaging/cater ware products. We have twenty-five (25) Green
Line products, including various size trays, party platters, and serving bowls
with lids. These non-toxic products qualify for the Green label
because they are manufactured from Federal Food and Drug
Administration approved polypropylene and polystyrene resins that contain up to
40 percent recycled plastic content. . American
Marketing also produces office products, including desk top
organizers, letter trays, legal letter trays, pencil holders, paper clip and
card holders, magazine holders, and telephone and draw organizers.
Plan
for other Products and Services
Assuming
we obtain sufficient funding or generate sufficient revenues, we plan to expand
American Marketing’s sales operations, particularly in its office
product line.
In
addition to our recycling operations, we produce, market and distribute six
other products on a limited basis, including Tire Muscle®, Dumpster
Ease, Diaper Ease, Nu-silver, Nu-Brass, and Nu-Chrome, which represent products
such as a tire fix, odor eliminator in commercial dumpsters,
and polish enhancing formulas. We intend to continue
producing small amounts of these products for existing customers while seeking
other companies or individuals that may wish to purchase the rights to these
products.
Marketing
Plan & Sales Strategy
Our goal
is to become an industry leader in polystyrene
recycling. We have become involved in other types of
materials, such as other plastics, carpet, cardboard, and
fabrics. Our initial marketing efforts will focus on
acquiring EPS for recycling and re-sale as pellets, which are used for producing
plastic products that are labeled “produced with recycled materials.” We will
attempt to develop an infrastructure that will enable us acquire scrap EPS from
the construction and packaging industries, local and state governments, military
bases and vessels, and the food services industry. Our management
will be responsible
for presenting the fiscal and environmental
benefits of utilizing our products and services to decision makers in the
foregoing industries. .
We intend
to use Internet-based and traditional media to increase public awareness of our
brand name and processes and our attempted sales to large
organizations. We also intend to introduce our technologies and
processes in the recycling industry through our attendance at trade groups and
meetings, promotional events, seminars, national conferences and other
organizations, including the International Expanded Polystyrene Recycling
Association (“INEPSA”) and the Alliance of Foam Packaging Recyclers (“AFPRA”)
and those events attended by organizations that
generate a large amount of scrap EPS and other materials that will be in need of
our products and services.
We intend
to work with landfills serving the areas around our processing center and
transfer stations. By intercepting EPS bound for the landfill, our goal is
to extend the landfill’s life by reducing BPS’s environmental impact.
Similarly, we will attempt to provide EPS recycling on a residential
level in communities where there is an existing residential recycling
pick-up program. We will attempt to partner with those companies that are
already collecting paper, aluminum, and glass products, which
allow them to add EPS to their list of recyclable material and
providing additional scrap EPS for us to process.
In
addition to acquiring scrap EPS to recycle into Pellets, we sell
those Pellets. Our executive management will
attempt to establish contacts within the industry by establishing
relationships, arrangements and agreements with companies that manufacture
products from polystyrene. As such, we will promote a
mutual public relations arrangement, where these companies will be
able to promote their products as both recycled and recyclable and
we will promote sale of our pellets.
With American
Marketing, we will continue to sell our catering and food service products to
large user stores and big box markets. We also have started to begin
marketing our recycled office product line into big box settings, as well as develop
relationships with sales and marketing representatives who will sell our
products on a commission only basis.
Sales
Personnel
As of
September 30, 2009, we have hired and deployed one sales person to focus on foam
collection in the Central Florida area. We have contracted with
independent marketing representatives to sell and distribute Tire Muscle,
Dumpster Ease and other proprietary formulas and polishes. In addition, we
will continue to use the services of our executive management to sell our
services and products. Should our services and
products expand and sales increase, we plan to employ additional
regional sales representatives to promote and sell our recycling services to
governments, companies, and the general public. Each sales
representative will be responsible for soliciting, selecting and securing
accounts on a regional territorial basis. We
intend to provide service and support to our sales representatives,
including advertising and sales materials. American Marketing
currently deals with twelve (12) manufacturing sales representatives, which are
divided into a food packaging and services and retail house ware table and party
ware groups.
Governmental
Regulation
We
are unaware of and do not anticipate having to expend significant
resources to comply with any non-environmental governmental regulations. We are
subject to applicable laws and regulations in the jurisdictions
where we will sell our products, which are generally
applicable to business operations, such as business licensing requirements,
income taxes and payroll taxes. In general, the collection, recycling, and sale
of polystyrene in the United States are not subject to special
non-environmentally related regulatory and/or supervisory
requirements.
Compliance
with Environmental Laws
Our
business is subject to supervision and regulation by state and
federal governmental environmental authorities, including the U.S.
Environmental Protection Agency (“EPA”) and state counterparts. We will comply
with all EPA and other requirements, including those pertaining to receiving and
mixing chemicals.
Critical
Accounting Policies
Our
significant accounting policies are described in Note 1 of the Financial
Statements.
Results
of Operations for the Six Months Ended September 30, 2009, 2008
We
acquired American Marketing on July 1, 2009, which accounts for the increases
noted below.
We had
revenues of $2,020,995 and $14,516 for the six month
periods ending September 30, 2009 and 2008, respectively, representing an
increase of $2,006,479. Sales for the six months ended September 30,
2009 were primarily generated from our newly acquired company,
American Marketing. We sold pellets, densified logs, and
transportation charges; other sales were from sales of our
non-recycling related products, primarily Dumpster Ease.
Costs of
Sales for the same comparable periods were $1,828,769 and $3,935, representing
an increase of $1,824,834. This increase is primarily attributable to
American Marketing’s costs associated with its sales. American
Marketing contributes a positive gross margin while Blue Earth
Solutions Florida (“BES
Florida”, a wholly owned subsidiary of the Company) is producing a negative
gross margin (costs exceed revenue).
We are
attempting to lower our operating costs. Operating Expenses were
$1,531,037 and $607,979 for the six month periods ending September 30, 2009 and
2008, respectively, representing an increase of
$923,058. This increase is attributable to the increased
expenses we have assumed from American Marketing’s operations. For
each period, Operating Expenses consists of Depreciation, and General and
Administrative Expenses.
Other
Income (Expenses) was $(248,014) of expense and income of $34,635 ,
representing an expense increase of $282,649 in the six
months ended September 30, 2009 compared to the six months ended September 30,
2008. This was primarily attributable to accrued interest
expense on the assumed note we acquired as part of the American
Marketing acquisition.
We
recorded a net loss of $1,606,642 and $562,763 for the six months ended
September 30, 2009 and 2008, respectively. The loss in 2009 is
primarily attributable to our overall six (6) months of activities,
whereas American Marketing as our wholly owned subsidiary has
conducted operations for only three
months.
We
anticipate our operating expenses will increase as we undertake our plan of
operations. The increase will be attributable to the continued development of
our products and services and professional fees associated with our being a
Securities and Exchange Commission reporting company..
Results
of Operations for the Three Months Ended September 30, 2009, 2008
We generated
revenue of $1,997,095 and $4,282 for the three months ended September
30, 2009 and September 30, 2008, respectively, representing a $1,992,813
increase. Revenues in the three months ended September 30, 2009 were primarily
generated from our newly acquired company, American Marketing. BES Florida sold pellets,
densified logs, transportation charges, and non-recycling related products,
primarily Dumpster Ease.
Cost of
Sales for the same three (3) month comparable time periods are $1,737,576 and
$2,592, an increase of $1,734,984. The Cost of Sales is primarily attributable
to American Marketing’s costs associated with their sales. The Gross
Profit for the three months ended September 30, 2009 and 2008 was $259,519 and
$1,690, respectively, representing a $257,829 increase. This profit
increase is attributable to American Marketing’s operations. Blue Earth Solutions
Florida continues to attempt to lower its costs.
Operating
Expenses were $1,054,505 and $448764 for the three months ended September 30,
2009 and 2008, respectively, representing a $605,741 increase, which is
attributable to the increased expenses from American
Marketing’s operations. For each period, Operating Expenses consisted
of Depreciation, and General and Administrative
Expenses. Other Income (Expenses) was $280,116 of expense and $34,635 of income
for the three months ended September 30, 2009, representing an
increase of $314,751 over the earlier September 30, 2008 three month
period. This increase is primarily attributable to accrued
interest expense on the assumed note we acquired as part of the
American Marketing acquisition.
We recorded
a net loss of $1,075,102 and $412,439 for the three months ended September 30,
2009 and 2008, respectively, representing an increased loss of
$662,663. This loss is primarily attributable
to BES Florida. We anticipate
our operating expenses will increase as we undertake our plan of operations,
which will be primarily attributable to the continued development of our
products and services and the professional fees associated with our being a
Securities and Exchange Commission reporting company.
Liquidity
and Capital Resources
As of
September 30, 2009, we have a working capital deficit of $7,117,038,
which is composed of $1,689,971 in current assets less $8,807,009 of current
liabilities.
Operating
activities used:
|
·
|
$2,409,259
and $8,056.802 for the six months ended September 30, 2009 and 2008
respectively.
|
|
o
|
The
primary uses in Operating Activities
were:
|
|
§
|
Net
losses of $1,606,642 and $562,763,
respectively
|
|
§
|
Unrealized
loss of $1,450,000
|
|
§
|
A
decrease in Accounts Receivable of $233,976 and an increase of $1,503,
respectively
|
|
§
|
Depository
Accounts increased $27,342 and $8,538,958,
respectively
|
.
Investing
activities provided;
|
·
|
$1,484,356
and $3,710,646 for the six months ended September 30, 2009 and 2008,
respectively
|
|
o
|
The
primary uses in Investing of Activities
were:
|
|
§
|
Assumption
of notes $5,229,114, offset by;
|
|
·
|
Investment
in AMS $2,111,000
|
|
·
|
Goodwill
of $329,514
|
|
·
|
Investment
in securities of $800,000
|
Financing
Activities provided:
|
§
|
$408,133
and $14,390,000 for the six months ended September 30, 2009 and 2008,
respectively.
|
On August
29, 2008, we completed and closed a private offering of newly-created Series C
Preferred Stock at an offering price of $1,000 per share.. We
sold 14,130 shares for total gross proceeds of $14,130,000, including
$13,430,000 in cash and the cancelation of the $700,000 promissory note that we
disclosed in our Form 8K filed with the Securities and
Exchange Commission on August 13, 2008. From the $14,130,000
total gross proceeds, $8,500,000 was deposited in an offshore fund account that
details an investment return to be earned upon the funds. As a result, there
remains a dispute about the control and dispositions of these funds, which
management is currently investigating. Additionally, the Agreement
provides that we agree to wait to withdraw $8,000,000 of the funds until one of
several stated conditions are met. We are entitled to
withdraw the earnings, less the investment fees, generated by these funds
without restriction. During the quarter ended September 30, 2009, we attempted
to withdraw some of the funds, but the fund management refused to release
them. We are taking steps to get these funds released and negotiations to
sell the fund and its related dividend debts are ongoing, although there is no
assurance whatsoever that we will be successful in that proposed
sale. These funds were classified as a current asset at March 31,
2009 because management considered them to be a liquid asset. We
have re-classified the funds as a non-current asset until such time
that they are released, if ever. Should we encounter any of the
following pertaining to the above-described investment, our financial condition
will be negatively affected: (a) difficulties pertaining to the control and
disposition of those funds; (b) incurring substantial losses from the investment
of the funds; (c) the fund administrator refusing to return our funds; (d)
incurring substantial litigation costs associated with litigating a matter in an
overseas jurisdiction; and (e) difficulties associated with litigating and
enforcing claims in a foreign jurisdiction..
During
the quarter ended March 31, 2009, we attempted to issue
bonds, the proceeds of which we were going to use for expansion purposes;
however, the bond market collapsed and we were unable to successfully
sell these bonds, which put a strain on our ability to meet our working capital
and halted our expansion plans.
As of
September 30, 2009, we had minimal cash resource. Our continued
operations and possible future success is contingent upon our obtaining
additional financing and establishing a consistent source of revenues. We intend
to fund operations through debt and/or equity financing arrangements, which may
be insufficient to fund our capital expenditures, working capital, or other cash
requirements. We do not have any formal commitments or arrangements for the
sales of stock or the advancement or loan of funds at this time. There can be no
assurance that such additional financing will be available to us on acceptable
terms, or at all. If our attempts to raise additional capital
are unsuccessful, then implementation of our business plan may be
delayed.
Off
Balance Sheet Arrangements
As of
September 30, 2009, there were no off balance sheet arrangements.
Going
Concern
Our
financial statements are prepared using generally accepted accounting principles
applicable to a going concern which contemplates the realization of assets and
liquidation of liabilities in the normal course of business. We have
limited revenues and have generated losses from operations.
In order
to continue as a going concern and achieve a profitable level of operations, we
will need, among other things, additional capital resources and to develop a
consistent source of revenues. Management’s plans include developing
and marketing a practical, economical and environmentally safe means of
disposing of and recycling certain polystyrene and expended polystyrene
products.
Our
auditors have indicated that our ability to continue as a going concern is
dependent upon our ability to successfully accomplish the plan described in the
preceding paragraph and eventually attain profitable operations. The
accompanying financial statements do not include any adjustments that might be
necessary if we are unable to continue as a going concern.
We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of September 30, 2009. This evaluation
was carried out under the supervision and with the participation of our Chief
Executive Officer, Patricia Cohen, and our Chief Financial Officer, Paul
Slusarczyk. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that, as of September 30, 2009, our
disclosure controls and procedures are not effective. Do to expansion and lack
of sufficient personnel certain controls and procedures have not been adequate
and we have taken immediate action to rectify the matter. We have
hired one new person in our accounting department so that we can have
the checks and balances necessary to provide adequate control
procedures.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are 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 in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Limitations on the
Effectiveness of Internal Controls
Our
management does not expect that our disclosure controls and procedures or our
internal control over financial reporting will necessarily prevent all fraud and
material error. Our disclosure controls and procedures are designed to provide
reasonable assurance of achieving our objectives and our Chief Executive Officer
and Chief Financial Officer concluded that our disclosure controls and
procedures are effective at that reasonable assurance level. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances
of fraud, if any, have been detected. These inherent limitations
include the realities that judgments in decision-making can be faulty, and that
breakdowns can occur because of simple error or mistake. Additionally, controls
can be circumvented by the individual acts of some persons, by collusion of two
or more people, or by management override of the internal control. The design of
any system of controls also is based in part upon certain assumptions about the
likelihood of future events, and there can be no assurance that any design will
succeed in achieving its stated goals under all potential future conditions.
Over time, control may become inadequate because of changes in conditions, or
the degree of compliance with the policies or procedures may
deteriorate.
PART II – OTHER INFORMATION
Except as
described below, we are not a party to any pending legal proceeding, nor are we
aware of any pending legal proceeding to which any of our officers, directors,
or any beneficial holders of 5% or more of our voting securities are adverse to
us or have a material interest adverse to us.
Katz
and Iovino v. Blue Earth Solutions, Inc.
On
December 22, 2008, we filed an action in the Eighth Judicial District Court in
and for Clark County, Nevada (Case no. 08-A-578406-B) against several persons,
including a former director and 5% shareholder, Harvey Katz, and former employee
Claudia Iovino, Iovino’s husband, a shareholder Caicedo Resources LLC, and
brokerage firms Glendale Securities, Citigroup Global Markets, Smith Barney, and
Penson Financial Services. Our complaint alleged multiple causes of
action arising out of the conversion of our Series A Preferred Stock
by Harvey Katz and Claudia Iovino into common stock in or about October 2008,
and the later public resale by Katz, Iovino, and Caicedo of some of
those shares and / or other common stock held by the
defendants. The complaint alleges that the
shares of common stock held by the Defendants, including the shares resulting
from the conversion of the Series A Preferred Stock, could not be publicly
resold by the Defendants. Our complaint seeks
both damages and injunctive relief. We moved for both a
temporary restraining order and a preliminary injunction enjoining further sales
of the securities and freezing the proceeds of all sales consummated thus
far.
On
December 22, 2008, the court issued a temporary restraining order which, among
other things, barred further sales of those shares by all defendants and
temporarily freezing all proceeds of sales already
consummated. Defendants Katz and Iovino responded and objected to the
TRO and any preliminary injunction on several grounds, including that SEC Rule
144 permitted the public resale of the securities in question. On
January 12, 2008, the court held a hearing on our preliminary
injunction motion. On January 16, 2009, the court entered a
preliminary injunction which, among other things, enjoined any further sale of
the securities until the earlier of a full trial on the merits or May 20, 2009,
but returned the proceeds of prior sales of the securities at issue to the
defendants.
Defendants
Katz and Iovino filed an Answer and Counterclaim on January 29, 2009, an Answer
and Amended Counterclaim on February 9, 2009 and a Second Amended Counterclaim
on March 17, 2009 seeking unspecified damages. The defendants have
not appeared at court dates and as far as we know do not have council
representing them. We continue to vigorously prosecute our claims and
defend against Katz and Iovino’s counterclaims.
Food
Control Solutions, Inc. v. Blue Earth Solutions, Inc.
On July
9, 2009, Food Control Solutions, Inc. (“Food Control”) filed an action against
us for a breach of contract against us regarding the fabrication,
installation, and start up of our Polystyrene Processing Plant. This action was
filed in the Circuit Court of the Fifth Judicial Court in Lake County, Florida.
Food Control and sought damages of $86,549 plus interest of
$50,320. On October 29, 2009, we settled the action with
Food Control and gave them some of the assets that were purchased in return for
the payables that were still owed to them. We have reserved a loss
for this transaction of $132,314 at September 30, 2009. There are some assets
left pertaining to this transaction that we are attempting to sell to help
offset some of this loss.
We issued
1,000,000 shares of our common stock to Datameg Corporation, a
Delaware corporation (“Datameg”), in exchange for our receipt of all
of the American Marketing’s issued and outstanding stock, a then subsidiary of
Datameg. In the acquisition, we also assumed a promissory note in the
amount of $5,450,000 between American Marketing and Datameg’s former
shareholders stemming from Datameg’s purchase of American
Marketing. In exchange for the note assignment to us, , we issued
various share amounts totaling 400,000 shares to
the following note holders:
|
a.
|
Lynel J. Tocci |
100,
000 shares
|
|
b.
|
\Leanne J. Whitney |
100,000
shares
|
|
c.
|
Linnea J. Clary |
100,000
shares
|
|
d.
|
John Roncone, Sr |
20,000
shares
|
|
e.
|
Leonard J. Tocci |
80,000
shares
|
We issued
the above shares in reliance upon the exemption from registration provided by
Securities Act Section 4(2). These provisions exempt transactions by an issuer
not involving any public offering.
We have
a related party loan with the General
Partner of JEC Family LP, JEC Corp. James Cohen, Sr., is
the President and , our Chief Executive Officer’s spouse as well as the father
of James Cohen, Jr., our Vice President and Director. From August
2008 to September 2009, JEC Family LP loaned us $627,657, which
accrues interest at 8% annually. The loan is collateralized by the
building we own at 13511 Granville Ave, Clermont, Florida 34711. As
of September 30, 2009, the accrued interest on the loan is $25,711, $21,677 of
which represents delinquent payments. We have not made any
interest or principal payments on the $627,657. Additionally, as of
September 30, 2009, we may owe late fee penalties of $500
because we failed to make required interest payments. We are
obligated to make interest and principle payments from May
15, 2009 until April 15, 2011. We are technically in default under
the note terms, although we have received no default notice from the related
party note holder.
No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the quarterly period ended
September 30, 2009.
Purchase of American
Marketing & Sales, Inc.
On March
17, 2009, we entered into a Stock Purchase Agreement (the “Agreement”) with
Datameg Corporation, a Delaware corporation (“Datameg”) to purchase American
Marketing,, a Massachusetts corporation (“AMS”) from Datameg providing for the
purchase of all of AMS’s outstanding securities, as reported in
our March 31, 2009 Form 8-K filing with the Securities and Exchange
Commission.
On June
24, 2009, our Board of Directors consented to
satisfying all of our remaining obligations under the Agreement, and
on June 30, 2009, we completed the AMS purchase, which
is now our wholly-owned subsidiary.
|
Exhibit Number
|
Description of Exhibit
|
|
31.1
|
|
|
31.2
|
|
|
32.1
|
In
accordance with the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
|
Blue
Earth Solutions, Inc.
|
|
|
Date:
|
December
24, 2009
|
|
By: /S/ Patricia
Cohen
Patricia
Cohen
Title: Chief
Executive Officer and
Director
|