Attached files
U.S.
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
(Mark
one)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the
fiscal year ended October 31, 2009
[
] TRANSITION REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
Transition period from ________ to ____________
GWS
TECHNOLOGIES, INC.
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(Exact
name of registrant as specified in charter)
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DELAWARE
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000-52504
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20-2721447
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(State
or other jurisdiction
of
incorporation)
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(Commission
File Number)
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(IRS
Employer
Identification
No.)
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15455
N. Greenway-Hayden Loop, #C4, Scottsdale, Arizona, 85260
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(Address
of principal executive offices)
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(480)
619-4747
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(Registrant’s
Telephone Number, including Area Code)
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Securities
registered under Section 12(b) of the Exchange Act: NONE
Securities
registered under Section 12(g) of the Exchange Act:
COMMON
STOCK, $.001 PAR VALUE
(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 o No x
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 o No x
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Exchange Act during the past 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
o
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Website, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (Sec.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).
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K (Sec.229.405 of this chapter) 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 x
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting company. See
the definitions of “large accelerated filer,” “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
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Large
accelerated filer
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o
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Accelerated
filer o
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Non-Accelerated
Filer
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o
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Smaller
reporting
company x
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Indicated
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act) Yes o No x
State the
aggregate market value of the voting and non-voting common equity held by
non-affiliates computed by reference to the price at which the common equity was
last sold, or the average bid and asked price of such common equity, as of the
last business day of the registrant’s most recently completed second fiscal
quarter. Approximately $1,500,000.00
The
number of shares outstanding of the registrant’s classes of common stock, as of
February 8, 2010, was 10,683,497.
TABLE
OF CONTENTS
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Item
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Page
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PART
I
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03
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Item
1.
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Business
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03
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Item
2.
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Properties
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24
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Item
3.
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Legal
Proceedings
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24
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Item
4.
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Submission
of Matters to a Vote of Security Holders
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26
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PART
II
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26
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Item
5.
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Market
for Common Equity and Related Stockholder Matters
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27
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Item
6.
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Managements’
Discussion and Analysis
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28
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Item
8.
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Financial
Statements
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F-1
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Report
of Independent Registered Public Accounting Firm
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F-3
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Financial
Statements:
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Balance
Sheet at October 31, 2009
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F-4
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Statements
of Operations for the Years Ended
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October
31, 2009 and October 31, 2008
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F-5
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Statements
of Cash Flows for the Years Ended
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October
31, 2009 and October 31, 2008
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F-6
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Statements
of Stockholders’ Equity for the Years Ended
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October
31, 2009 and October 31, 2008
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F-7
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Notes
to Consolidated Financial Statements
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F-8
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Item
9.
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Changes
in and Disagreements with Accountants on Accounting and Financial
Disclosure
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31
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Item
9A.
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Controls
and Procedures
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31
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PART
III
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32
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Item
10.
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Directors
and Executive Officers of the Registrant
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32
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Item
11.
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Executive
Compensation
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35
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Item
12.
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Security
Ownership of Certain Beneficial Owners and Management and
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Related
Stockholder Matters
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37
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Item
13.
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Certain
Relationships and Related Transactions
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38
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Item
14.
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Exhibits,
List and Reports on Form 8-K
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40
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Item
15.
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Principal
Accountant Fees and Services
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41
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Signatures
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42
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-2-
PART
I
Forward-Looking
Statements
Part I of
this Annual Report on Form 10-K includes “forward-looking statements.”
Forward-looking statements look into the future and provide an opinion as to the
effect of certain events and trends on the business, and may include words such
as "plans," "intends," "anticipates," "should," "estimates," "expects,"
"believes," "indicates," "targeting," "suggests" and similar expressions, and do
not necessarily reflect historical facts. These "forward-looking" statements are
based on current expectations and entail various risks and uncertainties. This
Form 10-K contains forward-looking statements about our objectives, strategies,
financial condition and results. Our actual results may materially differ from
our expectations if known and unknown risks or uncertainties affect our
business, or if our estimates or assumptions prove inaccurate. Therefore we
cannot provide any assurance that forward-looking statements will materialize or
that the company's actual results in future periods will not differ materially
from results expressed or implied by forward-looking statements. You should
carefully consider the other risks and uncertainties identified in the section
below titled “Risk Factors.” Forward-looking statements speak only as of the
date the statement was made. We do not undertake and specifically decline
any obligation to update any forward-looking statements.
Company background.
We
were incorporated February 15, 2005 in the State of Delaware. Our
principal executive offices are located at 15455 N. Greenway-Hayden Loop, Suites
C4 and C12, Scottsdale, Arizona 85260. Our telephone number is 480.619.4747 and
our facsimile number is 480.619.4740.
Effective
June 30, 2008 we changed our name to “GWS Technologies, Inc.” to reflect our
decision to focus more of our resources on providing wind turbines and other
wind and solar products and alternative energy solutions to the government and
consumer markets. We sell these products through direct marketing and also on an
ecommerce portion of our website, www.greenwindsolar.com.
We
provide wind turbines and other wind and solar products and alternative energy
through direct marketing and also on an ecommerce portion of our website, www.greenwindsolar.com.
During the past several quarters we have focused on the following two main areas
to expand our business: (1) joint venturing with landowners to build solar
farms; and (2) retrofitting commercial buildings with alternative energy
equipment, concentrating on solar power installations in Arizona.
-3-
Solar
Farms
We
anticipate significant growth from construction of solar farms which generate
electricity that can be sold to end-users and utility companies and which will
allow us to participate in long-term power purchase agreement revenues
(typically 20-25 year contracts). Our business model is to assist the
landowner in the design, planning/zoning, and construction/installation of solar
arrays on suitable properties throughout the Southwest, with the initial
emphasis on projects in Arizona and Texas; we are also going to supply the
materials (such as photovoltaic panels, inverters, racks, and tracking motors,
as necessary) for these projects and thereby leverage our existing alternative
energy product distribution relationships.
With new
government incentives and enhanced tax credits for homes and businesses through
the American Recovery and Reinvestment Act, Arizona is now poised to expand its
solar power production dramatically. 28 states, including Arizona, have a
Renewable Energy Standard which requires regulated utilities to buy a growing
percentage of their electricity from renewable energy projects like solar farms
and commercial retrofits.
We have
partnered with Dominion Real Estate Partners, Inc. (DREP) to provide solutions
and technology integration on alternative energy projects in Texas and Arizona.
DREP is a real estate and development holding company; the principals of the
company also are the Managing Partners and founders of Dominion Real Estate
Partners LLS, a full service residential and commercial real estate company with
over 160 associates in 15 offices in Arizona, Texas, and
California.
DREP is
currently planning a 118 acre solar farm in Lubbock, Texas which could provide
power to a planned housing development and federal facilities continuous to
Lubbock Airport. The initial project was designed in conjunction with Texas Tech
University. The estimated cost of the entire project is approximately $250
million.
We are
also submitting proposals to utilities in Arizona which are actively seeking
renewable energy from small generation resources. Many of these proposals are
subject to non-disclosure agreements.
Commercial Retrofitting for Solar
Power
We have
also partnered with building owners and managers to retrofit their commercial
buildings with solar power. There are significant incentives from state and
federal government and from utility companies for building owners to “go green”.
There is also the threat of a “cap and trade” system to limit carbon production
by businesses, which will force business owners to produce at least some of
their own electricity through solar panel or wind turbine installations. We are
currently working with the building owners and managers to obtain financing for
these retrofits.
In
addition to supply the solar panels and equipment to retrofit these buildings,
we will assist the end-user to apply for certification under Arizona’s
Commercial/Industrial Solar Energy Tax Credit Program. The primary goal of this
program is to stimulate the production and use of solar energy in commercial and
industrial applications by subsidizing the initial cost of solar energy devices.
Tax credits can be used to offset Arizona income tax liability; any unused
credit amounts can be carried forward for a five-year period.
-4-
Despite a
new emphasis on solar farms and commercial retrofits, we are continuing to
operate our alternative/renewable energy product distribution business. These
product lines include both industrial and consumer products based on alternative
energy technologies, including wind turbines and solar chargers ranging from
handheld devices that can power an iPod to large vertical wind turbines that can
power a building.
In the
past we attempted entry into the carbon offset sector of the “green” industry by
offering the public the ability to calculate their respective “carbon
footprints” on our website, with the intent to ultimately offer and sell carbon
offsets to both consumers and businesses; however, our entry into this market
sector has been delayed, initially due to our lack of ability to finance the
purchase of such carbon credits for inventory and sale, and now because (i) our
existing staff is concentrating on the business areas specified above, and (ii)
the market for these offsets has experienced significant
volatility.
Market
Analysis Summary
In the
first days of his administration, President Obama announced that he would seek
to raise the amount of electricity generated from renewable energy to 10% of
total U.S. capacity by 2012 (currently this figure is about
3%).
Arizona is an Emerging Solar
Producer. Until recently, the solar industry in Arizona has been
stagnant. Arizona is approximately sixth among all 50 states in terms
of solar installations per capita but has the highest solar exposure in the
continental United States (in contrast, because of state tax incentives and
rebates for commercial and residential solar installation, New Jersey ranks
second after California in terms of solar capacity, but its solar exposure
levels are among the bottom tier of US states). Until recently, Arizona has
lacked any significant solar cell manufacturing and research and development. In
the sunniest state in the country nearly 40% of the state’s energy is derived
from coal. The solar industry in Arizona primarily consists of solar installers
for homes and businesses, which are distributors of predominantly foreign
photovoltaic (PV) or solar panels. With new government incentives and enhanced
tax credits for homes and businesses adding solar components mandated by the
U.S. Economic Recovery Act, Arizona is now poised to expand its solar power
production dramatically.
On June
4, 2009 the Arizona Republic reported that “a modern-day land rush is under way
in the deserts of Arizona and the Southwest as public utilities and speculators
vie for vast tracts of public and private land on which to build massive
solar-power plants.” The article went on to state that the “boom” is creating a
market and boosting the price for outlying-subdivision land that had become
seemingly unsalable after the housing market went bust. The land rush
is being driven by rules in Arizona, California and other states that require
utilities to generate more power from renewable resources: 15 percent in Arizona
by 2025 and 33 percent in California by 2020.
Generous
state and federal subsidies, plus billions in economic-stimulus money earmarked
for solar power, create an additional incentive to tie up land. According to the
National Renewable Energy Laboratory, Arizona has some of the richest solar land
in the country, and the state has become a focal point for new solar farm
development. Much of the prime land for solar use is along the Interstate 10
corridor between Buckeye and the California state line. Other hot spots can be
found around Kingman and west of Wickenburg.
-5-
More than
40 solar projects have currently been proposed for Arizona. If built, they would
tie up more than 725,000 acres and generate enough electricity to power 25
million homes, far more than Arizona needs. California has 60 applications that
total 575,000 acres and Nevada 39 active applications for about 300,000
acres.
Solar
manufacturing companies are expecting a combination of slowing demand and
increasingly available supplies of both finished product and underlying
manufacturing capacity, leading most analysts to predict solar panel prices to
fall 10% to 20% in 2009. Additionally, prices for poly-silicon, a key solar
panel component, could fall as supplies of this component improve. Some industry
analysts claim that for a solar panel company to be successful over the long
term, their products have to be able to create electricity in the range of 8 to
12 cents per kilowatt hour, without subsidies. This has created a condition in
which landowners can cost-effectively build solar farms.
Recent Court Decision May Promote
Solar Growth in Arizona. On September 2, 2009, a Maricopa County Superior
Court judge ruled that the Arizona Corporation Commission (“ACC”) has the
authority to set renewable energy standards and allow utilities to collect
tariffs to meet them. The ACC instituted the standards in 2006 requiring all
utilities that it oversees to provide 15 percent of their power from renewable
sources by 2025. In order to do that, many of the utilities raised funds through
special tariffs associated with renewable energy.
The
ruling affirmed the ability of the ACC to set such standards, despite a lawsuit
brought by the Goldwater Institute on behalf of several Arizona utility clients.
The ruling is generally seen as a victory for the ACC and the state’s solar
industry, as the pending lawsuit had been one of the roadblocks to the location
of manufacturing and research facilities in the state. This was also an
important ruling because it confirms that the renewable energy standards come
under the ACC’s ratemaking authority, and that constitutional authority cannot
be interfered with by the Legislature. The ruling was widely seen as a way to
spur renewable energy development in Arizona.
The Growth of Wind Turbine
Sales. Over the last decade worldwide wind turbine sales have an annual
growth rate of approximately 29%. Renewable energy industry sources claim that
wind power is the world's fastest growing source of energy, with expansion over
the next two decades predicted at double-digit rates. The two main types
of wind turbines currently dominating the market are the conventional,
propeller-type "horizontal axis" wind turbines (HAWTs), and the new “vertical
axis” wind turbines (VAWTs) that are touted as being more wildlife friendly and
more efficient in lower wind speeds. At year end 2007, wind turbines producing
over 90,000 megawatts of electrical power had been installed worldwide.
This was forecast to increase by approximately 30% in 2008, a forecast which
proved conservative according to recent figures.
-6-
The
American Wind Energy Association (AWEA), a national trade association for the
domestic wind power industry, recently announced that the U.S. wind energy
industry had a record year in 2008 by installing 8,358 megawatts (MW) of new
generating capacity, which is approximately enough energy to power 2 million
homes. The significant growth in 2008 increased domestic wind power generating
capacity by 50% and channeled an investment of approximately $17 billion into
the economy. However, due to the current economic downturn, financing for new
project and orders for wind turbine components slowed at year’s end and layoffs
began affecting the wind turbine manufacturing sector.
The U.S.
Dept. of Energy, the American Wind Energy Association and the National Renewable
Energy Laboratory have all opined that 20% of the nation's electricity could
come from renewable wind energy within the next twenty years. The growth
in wind energy is being driven by several factors, including short supplies of
fossil fuels like oil and natural gas. While nuclear power is an option that
countries such as France have embraced, it is expensive, and disposing of
radioactive byproducts is problematic and the source of widespread opposition to
new nuclear plants.
The cost
per kWh of energy produced by wind turbines is expected to be one of the
cheapest sources of renewable energy. As costs increase for fossil fuel energy
sources, wind energy will not need government subsidies to be
competitive.
Green Companies Will Benefit From EPA
Ruling, Proposed Climate Bill. A major focus of the new administration is
energy independence and the expedited development of wind, solar, and other
clean energy sources. We believe new legislation will have a significant impact
on our industry and our business during the coming year. House Energy and
Commerce Committee Chairman Henry Waxman has proposed a climate bill that would
require businesses to reduce their greenhouse gas emissions by twenty percent by
2020. The bill began its opening round of debate in Congress during the week of
April 21, 2009. The hearings followed the Environmental Protection Agency’s
ruling on April 17, 2009 that greenhouse gases pose a danger to the public, a
finding that opens the way for new regulation of cars, power plants and
factories. Mr. Waxman also stated that he believes that most of the estimated
$646 billion in revenue raised from carbon permits under the proposed
cap-and-trade system should be spent on green technologies. The Company believes
that the recent finding by the EPA, and the requirements for greener building
standards, will create a tremendous demand for green industrial parks
nationwide.
Domestic Wind Turbine Market
Trends. A recent report
published by veteran research market firm BCC Research and titled Wind Turbines:
The US Market forecasts that the domestic United States’ market size for wind
turbine components and systems will reach $60.9 billion US in 2013.
Wind
power was second only to natural gas plants in new capacity from 2005 through
2007, and provided 35% of all new generation added domestically in 2007.
According to AWEA, the new wind projects completed in 2008 account for about 42%
of the entire new power-producing capacity added nationally last year, and will
avoid nearly 44 million tons of carbon emissions, the equivalent of taking over
7 million cars off of the road. Current wind energy generating capacity in
the U.S. is about 25,170 MW, producing enough electricity to power the
equivalent of close to 7 million homes. The top five states in terms of capacity
installed are now:
-7-
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Texas,
with 7,116 MW
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Iowa,
with 2,790 MW
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California,
with 2,517 MW
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Minnesota,
with 1,752 MW
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Washington,
with 1,375 MW
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Canadian Wind Turbine Market
Trends. We have been actively pursuing the growing Canadian small wind
turbine market. According to the Canadian Wind Energy Association (CanWEA),
Canada has still only scratched the surface of its massive wind energy
potential. Total spending on wind energy in North America is expected to double
by 2010 to $7.5 billion annually, with microgeneration systems providing a
significant portion of the overall electricity generated. The majority of small
wind turbines installed in Canada originate from the United States.
In
January 2009 the Government of Ontario announced that it had signed long-term
contracts for six new wind energy projects in the province. The announcement
brings Ontario's installed wind energy capacity to 1,500 MW. Currently, the
province generates wind power with 782 MW of capacity, enough to power 230,000
homes. Canada's total installed capacity sits at 2,369 MW — Ontario is currently
the wind technology leader in the country, accounting for roughly one-third of
that number. CanWEA has set a goal of wind energy providing 20% of Canada's
electricity needs.
Domestic Solar Installation
Trends. A report issued by the California Public Utilities
Commission stated that residential and commercial rooftop installations more
than doubled in 2008 from the previous year to 158 megawatts of producing power.
Reinforcing the perception that state and federal incentives have a major impact
on new installations, the report noted that there was a surge in applications to
participate in California’s $3 billion solar rebate program in the fourth
quarter of 2008 after Congress lifted the $2,000 cap on the federal tax credit
on solar arrays in October 2008 (allowing homeowners and businesses to take a
30% tax credit on systems installed after Dec. 31st),
which, coupled with an additional California state rebate, cut the real cost of
a solar system in California in half. The report concluded that, in addition to
environmental benefits such as cutting greenhouse gas emissions and other
pollutants, it appears that solar energy is benefiting California by serving as
an economic bright spot in the economy.
California
regulators caution that many homeowners and business owners may leave the
program and cancel their applications if the economy continues to deteriorate
rapidly this year. The current dropout rate is 15%, according to the report.
Municipal programs also are expected to have an effect on new alternative energy
installations. Berkeley, California has launched a program that pays for
residential and business solar arrays and lets owners pay the cost back over
twenty years through an annual assessment on their property taxes.
-8-
Alternative Energy Trends –
Global. According to an article dated February 2, 2009 in
Reuters, the United States overtook Germany as the biggest producer of wind
power last year and will likely take the lead in solar power this year. The
article cited an expected "Obama bounce" from a new President who has vowed to
boost clean energy, and additional impetus from political and business leaders
worldwide who have urged "green growth" spending on clean energy to fight both
recession and climate change.
German
wind power capacity reached nearly 24 GW, placing it second ahead of Spain and
fourth-placed China, which doubled its installed wind power for the forth year
running, said the Brussels-based Global Wind Energy Council. Spanish wind power
business group AEE said that it expected similar growth in 2009 as last
year.
Generally,
the wind sector is now suffering from a financial crisis which has dried up
project finance and a sharp fall in oil prices which has weakened its
competitiveness compared to gas, but it is aided by subsidies such as a
guaranteed price premium in Germany and Spain.
A
February 4, 2009 article in the International Herald Tribune noted that the
credit crisis and broad economic downturn was causing pronounced slowing of wind
and power projects worldwide, except in some isolated markets, like China, which
has shown no signs of a slowdown. Wind and solar developers have been left
hunting for capital because the number of banks and financial institutions
willing to help installation of wind turbines and solar arrays has dropped
significantly. The effects of the banking crisis were also being felt in Europe,
although industry groups said it was too soon to tell what effect the credit
freeze would have on the fast-growing sector. Solar experts also report
that demand in Europe has softened, a combination of a seasonal slowdown for
winter and a recent cap on solar installations in Spain.
Despite
current financial conditions, European Union leaders agreed that the bloc should
get a fifth of all its energy from renewable sources by 2020 compared with about
10 percent now.
Effect of existing or probable
governmental regulations on our business. Our business is
affected by a wide range of municipal, county, state and federal regulations and
may be influenced by the announcement of proposed regulations by the new
administration and Congress. A major focus of the new administration is energy
independence and the expedited development of wind, solar, and other clean
energy sources.
-9-
On
February 8, 2009, the Chicago Tribune reported that President Obama is planning
to replace imported oil and other fossil fuels with a "clean-energy economy"
powered by the wind, the sun and biofuels. Energy Secretary Steven Chu was
quoted as saying that we need a second Industrial Revolution that can generate
energy cleanly, cheaply and sustainably. According to the article, by the end of
2009, the Energy Department's spending on 35 years of clean-energy research will
exceed the total inflation-adjusted cost of the Apollo program which sent men to
the moon, and the Manhattan Project, which developed the nuclear bomb, an
estimated $117 billion combined. That research, economists say, has made wind,
solar and other alternative sources of energy cheaper, but still not as
inexpensive as fossil fuels. Renewable sources make up about the same sliver of
America's energy portfolio as they did three decades ago, about 7 percent, while
the nation's reliance on imported oil has doubled. We believe new legislation
will have a significant impact on our industry and our business during the
coming year.
Domestic
Legislation
The
American Recovery and Reinvestment Act of 2009 contains provisions which support
alternative energy production. The act includes a new grant program,
a three-year extension of the production tax credit, several provisions to
promote transmission for renewable energy, and key changes to benefit small wind
systems.
President
Obama has outlined a range of policies that would encourage investments in
renewable energy, including:
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adjusting
the federal production tax credit (PTC) to make it more effective in the
current economic downturn and extending it for a longer term (it expires
at the end of 2009);
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establishing
a national renewable electricity standard (RES) with a target of
generating at least 25% of the nation’s electricity from renewables by
2025, and a near-term target of 10% by 2012 (a Washington Post poll in
early December found that 84% of Americans support such a
standard);
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·
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legislation
and initiatives to develop a high-voltage interstate transmission
“highway” for renewable energy; and
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national
climate change legislation that would promote the use of wind and solar
power.
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Production
Tax Credit (PTC) Extension
In
October 2008, Congress acted to provide a one-year extension of the Production
Tax Credit through December 31, 2009.
Description: Under present
law, an income tax credit of 2.1 cents/kilowatt-hour is allowed for the
production of electricity from utility-scale wind turbines. This
incentive, the renewable energy Production Tax Credit (PTC), was created under
the Energy Policy Act of 1992 (at the value of 1.5 cents/kilowatt-hour, which
has since been adjusted annually for inflation).
Current Status: The PTC is
scheduled to expire on December 31, 2009. Since its establishment in 1992,
the PTC has undergone a series of short term extensions, and has been allowed to
lapse in three different years: 1999, 2001 and 2003. Each time the PTC has
been allowed to expire, the wind industry has seen a 73-93% drop in wind energy
installations in the subsequent year.
-10-
Renewable
Electricity Standard
Description: A national
renewable electricity standard (RES) – also known as a renewable portfolio
standard (RPS) – would, for the first time, mandate that public utilities in
every state obtain a minimum percentage of their electricity from renewable
sources by a certain date or be required to purchase tradable credits for
renewable electricity produced elsewhere. Twenty-eight states already have
renewable electricity standards, and these measures have proven effective
incentives for the development of wind and other renewable energy sources. A
national policy would streamline this uneven patchwork and drive greater
investment in solar and wind industry manufacturing.
The
Obama-Biden New Energy for America Plan calls for 10% of U.S. domestic
electricity to be produced from renewable sources by 2012, and 25% by 2025. The
President believes that this national requirement will spur significant private
sector investment in renewable sources of energy and create thousands of new
American jobs, especially in rural areas. Each large utility-scale wind turbine
that goes on line generates over $1.5 million in economic activity. Each turbine
also provides about $5,000 in lease payments per year for 20 years or more to a
farmer, rancher or other landowner.
Current
Status of National RES: Legislation to establish a national RES
has been considered by the U.S. Congress since 1997. Since that time, the
Senate has passed RES proposals on three separate occasions. In 2007, for
the first time in history, the U.S. House of Representatives voted in favor of
including an RES as part of its energy bill. This bill would have
established a 15% RES by 2020 and allowed 4% of the standard to be met through
efficiency improvements, should states so choose. The Senate energy bill did not
include a RES due to the uncertainty that the 60 votes needed to overcome a
likely filibuster would have been secured.
AWEA
predicts that states will focus on RES, transmission for renewables: The
American Wind Energy Association, which is the national trade association for
the wind energy industry, expects one or more states to implement (Indiana) or
strengthen (Wisconsin and New York) their RES, bringing the number of states
with an RES from 28 to perhaps 30. The industry association also predicts that
some states, including some without an RES (Oklahoma, Kansas, Nebraska) will
develop a process to facilitate investment in transmission for electricity
generated using renewables. Texas, Colorado, Minnesota, and California
have already shown the way with pro-active transmission policies for renewable
energy.
Increased incentives for “small
wind”. Homeowners, farmers, and small-business owners now benefit from a
federal incentive enacted in late 2008 for the purchase of small wind turbines
for home, farm, or business use. Owners of small wind systems with 100 kilowatts
(kW) of capacity and less can receive a credit for 30% of the total installed
cost of the system, with no limit.
-11-
The Environmentally Preferable
Purchasing Program. The Environmental Protection Agency's Environmentally
Preferable Purchasing Program, or EPP, started in 1993 after the signing of
Executive Order 12873, and continues today under Executive Order 13423. The
program originally created by with the purpose of using the federal government's
enormous buying power to stimulate market demand for green products and
services. Environmentally preferable means "products or services that have a
lesser or reduced effect on human health and the environment when compared with
competing products or services that serve the same purpose.” This comparison
applies to raw materials, manufacturing, packaging, distribution, use, reuse,
operation, maintenance, and disposal.
The
United States federal government is one of the world's largest consumers.
Indeed, it is the single largest consumer of goods and services within the
United States, with total spending estimated at $350 billion for goods and
services each year. Therefore, the federal government’s purchasing power exerts
a tremendous influence on which products and services are available in the
national marketplace. The Environmentally Preferable Purchasing Program works to
ensure that federal government's buying power is working to the greatest extent
possible to increase availability of environmentally preferable products, which
in turn minimizes environmental impacts.
Federal
agencies are directed by federal laws, regulations and executive orders to make
purchasing decisions with the environment in mind. Most recently, these
requirements have included Executive Order 13423, titled “Strengthening Federal
Environmental, Energy and Transportation Management”, which orders federal
agencies to use sustainable practices when buying products and services. For the
Federal government as a whole, the President's Office of Management and Budget
has issued a series of scorecards to help track progress of Federal agencies in
implementing this program. Green purchasing progress is measured in the
Environmental Stewardship Scorecard. These scorecards are for internal
government use.
Executive Order 13514. On
October 5, 2009 President Obama signed Executive Order (E.O.) 13514, titled
Federal Leadership in
Environmental, Energy, and Economic Performance. It expanded upon the
energy reduction and environmental performance requirements for federal
agencies.
E.O.
13514 sets numerous Federal energy requirements in several areas,
including:
·
|
Accountability
and Transparency
|
·
|
Strategic
Sustainability Performance Planning
|
·
|
Greenhouse
Gas Management
|
·
|
Sustainable
Buildings and Communities
|
·
|
Electronic
Products and Services
|
·
|
Pollution
Prevention and Waste Reduction
|
-12-
Accountability
and Transparency
E.O.
13514 accountability, transparency, and reporting requirements
include:
·
|
Within
30 days, Federal agency heads must designate a senior management official
to serve as Senior Sustainability Officer accountable for agency
conformance. The Senior Sustainability Officer designation must be
reported to the Chair of the Council on Environmental Quality (CEQ) and
the Director of the Office of Management and Budget (OMB). The Senior
Sustainability Officer shall:
|
o
|
Prepare
targets for agency-wide reductions in 2020 for greenhouse gas (GHG)
emissions.
|
o
|
Within
240 days, prepare and submit a multi-year Strategic Sustainability
Performance Plan to the Chair of the Council on Environmental Quality
(CEQ) and the Director of the Office of Management and Budget (OMB) for
review and approval.
|
·
|
Agency
efforts and outcomes in implementing E.O. 13514 must be transparent and
disclosed on publicly available Federal Web
sites.
|
·
|
OMB
must prepare scorecards providing periodic evaluation of Federal agency
performance. Scorecard results must be published on a publicly available
Web site.
|
·
|
The
CEQ Chair must ensure that Federal agencies are held accountable for
conforming to the requirements of E.O.
13514.
|
·
|
Agency
heads shall decide that this order applies in whole or in part with
respect to the activities, personnel, resources, and facilities of the
agency not located within the U.S. if determined that such application is
in the interest of the U.S.
|
·
|
Agency
heads may submit to the President, through the CEQ Chair, an exemption
request covering an agency activity and related personnel, resources, and
facilities.
|
·
|
The
Director of National Intelligence may exempt an intelligence activity and
related personnel, resources, and facilities when in the interest of
national security.
|
·
|
To
the maximum extent practical and without compromising national security,
each agency shall strive to comply with the purposes, goals, and
implementation steps of E.O. 13514.
|
Strategic
Sustainability Performance Planning
Federal
agencies are required to develop, implement, and annually update a Strategic
Sustainability Performance Plan that prioritizes agency actions based on
life-cycle return on investment. Between fiscal years 2011 and 2021, each plan
shall:
·
|
Include
a policy statement committing the agency to comply with environmental and
energy statutes, regulations, and executive
orders.
|
·
|
Achieve
established sustainability goals and targets, including greenhouse gas
reduction targets.
|
-13-
·
|
Be
integrated within each agency's strategic planning and budgeting
process.
|
·
|
Identify
agency activities, policies, plans, procedures, and practices relevant to
the implementation of E.O. 13514 and, where necessary, provide for
development and implementation of new or revised policies, plans,
procedures, and practices.
|
·
|
Identify
specific agency goals, schedules, milestones, and approaches for achieving
results and quantifiable metrics required by E.O.
13514.
|
·
|
Outline
planned actions to provide information about agency progress, performance,
and results on a publicly available Federal Web
site.
|
·
|
Incorporate
actions for achieving progress metrics identified by the CEQ Chair and OMB
Director.
|
·
|
Evaluate
agency climate change risks and vulnerabilities to manage the effects of
climate change on the agency's operations and mission in both the short
and long term.
|
·
|
Consider
environmental measures as well as economic benefits, social benefits, and
costs in evaluating projects and activities based on life-cycle return on
investment.
|
·
|
Annually
identify opportunities for improvement and evaluate past performance to
extend or expand projects that have net benefits as well as reassess or
discontinue under-performing
projects.
|
The CEQ
Chair and OMB Director are responsible for reviewing and approving each agency's
multi-year strategic sustainability performance plan.
Greenhouse
Gas Management
Greenhouse
gas management is imperative within E.O. 13514. Each Federal agency
must:
·
|
Within
90 days, establish and report to the CEQ Chair and OMB Director a fiscal
year 2020 percentage reduction target of agency-wide scope 1 and scope 2
GHG emissions in absolute terms relative to a fiscal year 2008
baseline.
|
o
|
In
establishing the target, agencies shall consider reductions associated
with:
|
§
|
Reducing
agency building energy intensity.
|
§
|
Increasing
agency renewable energy use and on-site
projects.
|
§
|
Reducing
agency use of fossil fuels by:
|
§
|
Using
low GHG emitting and alternative fuel
vehicles.
|
§
|
Optimizing
vehicle numbers across agency
fleets.
|
§
|
Reducing
petroleum consumption in agency fleets of 20 or more 2% annually through
fiscal year 2020 relative to a fiscal year 2005
baseline.
|
o
|
Where
appropriate, this target shall exclude direct emissions from excluded
vehicles and equipment as well as electric power produced and sold
commercially to other parties in the course of regular
business.
|
-14-
·
|
Within
240 days, establish and report to the CEQ Chair and OMB Director a fiscal
year 2020 percentage reduction target for agency-wide scope 3 GHG
emissions in absolute terms relative to a fiscal year 2008
baseline.
|
o
|
In
establishing the target, agencies shall consider reductions associated
with:
|
§
|
Pursuing
opportunities with vendors and contractors to address and incentivize GHG
emission reductions.
|
§
|
Implementing
strategies and accommodations for transit, travel, training, and
conferences that actively reduce carbon emissions associated with
commuting and travel by agency
staff.
|
§
|
Meeting
greenhouse gas emissions reductions associated with other Federal
Government sustainability goals.
|
§
|
Implementing
innovative policies and practices that address agency-specific scope 3 GHG
emissions.
|
·
|
Within
15 months, establish and report to the CEQ Chair and OMB Director a
comprehensive inventory of absolute GHG emissions across all three scopes
for fiscal year 2010. Comprehensive inventories shall be submitted
annually thereafter at the end of each
January.
|
Sustainable
Buildings and Communities
Federal
agencies must enhance efforts towards sustainable buildings and communities.
Specific requirements include:
·
|
Implement
high performance sustainable Federal building design, construction,
operation and management, maintenance, and deconstruction
by:
|
o
|
Ensuring
all new Federal buildings, entering the design phase in 2020 or later, are
designed to achieve zero net energy by
2030.
|
o
|
Ensuring
all new construction, major renovations, or repair or alteration of
Federal buildings comply with the Guiding Principles of Federal Leadership
in High Performance and Sustainable
Buildings
|
o
|
Ensuring
at least 15% of existing agency buildings and leases (above 5,000 gross
square feet) meet the Guiding Principles by fiscal year 2015 and that the
agency makes annual progress towards 100% compliance across its building
inventory.
|
o
|
Pursuing
cost-effective, innovative strategies (e.g., highly-reflective and
vegetated roofs) to minimize consumption of energy, water, and
materials.
|
o
|
Managing
existing building systems to reduce the consumption of energy, water, and
materials, and identifying alternatives to renovation that reduce existing
asset deferred maintenance costs.
|
o
|
When
adding assets to agency building inventories, identifying opportunities
to:
|
§
|
Consolidate
and eliminate existing assets.
|
§
|
Optimize
the performance of portfolio
property.
|
§
|
Reduce
associated environmental impacts.
|
-15-
o
|
Ensuring
rehabilitation of Federally-owned historic buildings utilizes best
practices and technologies in retrofitting to promote long-term viability
of the building.
|
·
|
Advance
regional and local integrated planning
by:
|
o
|
Participating
in regional transportation planning and recognizing existing community
transportation infrastructure.
|
o
|
Aligning
Federal policies to increase the effectiveness of local planning for
energy choices such as locally-generated renewable
energy.
|
o
|
Ensuring
that planning for new Federal facilities and leases consider sites that
are pedestrian friendly, near existing employment centers, and accessible
to public transport; and emphasize existing central cities and, in rural
communities, existing or planned town
centers.
|
o
|
Identify
and analyze impacts from energy usage and alternative energy sources in
all environmental impact statements and environmental assessments for
proposals covering new or expanded Federal facilities under the amended
National Environmental Policy Act (NEPA) of
1969.
|
Electronic
Products and Services
E.O.
13514 includes product efficiency and stewardship. Federal agencies
must:
·
|
Ensure
95% of new contract actions, task orders, and delivery orders for products
and services (excluding weapon systems) are energy efficient (ENERGY STAR®
or FEMP-designated), water efficient, bio-based, environmentally
preferable (Electronic Product Environmental Assessment Tool (EPEAT)
certified), non-ozone depleting, contain recycled content, or are
non-toxic or less-toxic alternatives where such products and services meet
agency performance requirements.
|
·
|
Implement
best management practices for the energy-efficient management of servers
and Federal data centers.
|
Pollution
Prevention and Waste Reduction
E.O.
13514 includes the following pollution prevention and waste reduction
requirements for Federal agencies:
·
|
Minimize
the generation of waste and pollutants through source
reduction.
|
·
|
Decrease
agency use of chemicals where such decrease will assist the agency in
achieving greenhouse gas reduction
targets.
|
·
|
Divert
at least 50% of non-hazardous solid waste by the end of fiscal year
2013.
|
·
|
Reduce
printing paper use and acquiring uncoated printing and writing paper
containing at least 30% post-consumer
fiber.
|
·
|
Increase
the diversion of compostable and organic material from the waste
stream.
|
This
“green” movement has been spreading throughout all levels of government. For
example, California law requires state government to practice EPP, and even the
U.S. Army has its own 'green buying' initiative. We believe the adoption
of EPP by states, counties and municipalities will result in increased
opportunities for our “green” product lines.
-16-
Going
Concern
Our
financial statements have been prepared in accordance with accounting principles
generally accepted in the United States applicable to a going concern that
contemplates the realization of assets and the satisfaction of liabilities and
commitments in the normal course of business. Since the inception of
the company, we have relied on loans from shareholders and officers, the sale of
our equity securities, debt financing, and limited revenues to fund our
operations. We have incurred losses since our inception and we
continue to incur legal, accounting, and other business and administrative
expenses. Our auditor has therefore recognized that there is
substantial doubt about our ability to continue as a going concern.
Employees
We have
significantly reduced our workforce due to financial constraints. We currently
have three full-time employees. From time to time we also employ interns from a
program we participate in with Arizona State University. In addition to our
employees, we have consultants who currently provide website management,
marketing, business development, media relations and other business advisory
services similar to those which would be provided by part-time and full-time
employees.
ITEM
1A. RISK
FACTORS
An
investment in our common stock involves a substantial degree of risk.
Before making an investment decision, you should give careful
consideration to the following risk factors in addition to the other information
contained in this report. The following risk factors, however, may not
reflect all of the risks associated with our business or an investment in our
common stock.
The following risk factors must be
considered in light of the current worldwide financial
crisis.
Despite
passage of The American
Recovery and Reinvestment Act of 2009, the U.S. Commerce Department
announced that the U.S. economy shrank by 3.8 percent in the fourth quarter of
2009, the most since 1982, while consumer spending recorded the worst slide in
the postwar era. The current financial crisis has been called the worst
financial crisis since the Great Depression of the 1930s, and has contributed to
the failure of key businesses, declines in consumer wealth estimated in the
trillions of U.S. dollars, substantial financial commitments incurred by both
domestic and foreign governments, and a significant decline in economic
activity. It has severely negatively impacted our business. In light of the
broad consensus that financial markets are in the worst turmoil of a generation,
there can be no assurance that the current financial crisis will not continue,
or get worse.
-17-
The
global financial crisis has negatively impacted general economic conditions,
including the alternative energy industry.
The
current global financial crisis has had significant negative effects on a broad
range of businesses, including our business. The credit crisis and broad
economic downturn has caused pronounced slowing of wind and power projects
worldwide, except in some isolated markets. Our customers, who are typically
wind and solar installers and developers, have experienced financing problems
because the number of banks and financial institutions willing to fund
installation of wind turbines and solar arrays has dropped significantly. We
have also experienced difficulties in getting our customers and purchase orders
financed, and we are delinquent in paying many of our suppliers, some of whom
have filed lawsuits for collection. All of these factors have had a significant
negative impact on our operations, and should the current financial crisis
continue, there can be no assurance we, or our customers, will be able to
continue operations.
We
will need significant infusions of additional capital.
During
the last fiscal year we have relied primarily on loans and our limited revenues
to obtain the funding necessary to operate the business. We are delinquent in
paying many of our suppliers, resulting in several collection lawsuits. Our
revenues from operations for the year ended October 31, 2009 would have been
significantly higher if we had financing available to support our sales and
competitive bidding activities and were further negatively impacted by our
decision to allocate resources to developing solar and wind farms. We do not
have any cash reserves and we will need to obtain additional outside funding in
the future in order to further satisfy our cash requirements. Our need for
additional capital to finance our business strategy, operations, and growth will
be greater should, among other things, revenue or expense estimates prove to be
incorrect. We cannot predict the timing or amount of our capital requirements at
this time. If we fail to arrange for sufficient capital on a timely basis in the
future, we may be required to reduce the scope of our business activities
further until we can obtain adequate financing. Debt financing must be repaid
regardless of whether or not we generate profits or cash flows from our business
activities. Equity financing may result in dilution to existing stockholders and
may involve securities that have rights, preferences, or privileges that are
senior to our common stock. Therefore, we may not be able to obtain financing in
sufficient amounts or on acceptable terms when needed, which could adversely
affect our operating results and prospects and our ability to continue in
business.
-18-
Many
of our current and potential competitors have longer operating histories, larger
customer or user bases, greater brand recognition, greater access to brand name
suppliers, and significantly greater financial, marketing and other resources
than we do.
Many of
these current and potential competitors can devote substantially more resources
to the development of their business operations than we can at present. In
addition, larger, well-established and well-financed entities may acquire,
invest in or form joint ventures with other established competitors or with
specific product manufacturers, which will allow them pricing advantages due to
economies of scale or pursuant to distribution agreements with suppliers. Some
large product distributors may also have exclusive distribution agreements or
protected territories in which they can sell specific brand name products at a
significant discount, or territories in which they may seek to exclude us from
selling a specific brand of product. These types of arrangements between our
competitors and manufacturers and suppliers may limit our ability to distribute
certain brand name products and could adversely affect our
revenues.
We
depend upon our executive officers and key personnel.
The rapid
execution necessary for us to fully exploit the market for our products and
services requires an effective planning and management process. We experienced
rapid growth during 2007 and then rapid contraction in 2008 carrying into fiscal
2009, as we did not receive financing which we had been promised and on which we
depended to fund our growth. There is currently a significant strain on our
managerial, operational and financial resources and one person, Richard Reincke,
currently serves as both our President/CEO and Chief Financial Officer. Mr.
Reincke has not taken a salary for several fiscal quarters and there can be no
guarantee that he will continue to work without compensation. We recognize that
our ability to manage our business effectively will require us to attract,
identify, train, integrate and retain additional qualified management and other
key personnel, and that we currently do not have the financial resources to hire
such personnel at this time. Additionally, due to financial constraints, we have
cut back on our workforce, replacing full time employees with part-time
consultants and with interns. The loss of services of Mr. Reincke or any of our
remaining key personnel would have a material adverse effect on our business,
revenues, results of operations and financial condition.
There
can be no assurance that any new products we introduce will achieve significant
market acceptance or will generate significant revenue.
The
market for products in the renewable energy industry is characterized by rapid
technological advances, evolving standards in technology and frequent new
product and service introductions and enhancements. Possible short life cycles
for products we sell may necessitate high levels of expenditures for continually
selecting new products and discontinuing the sale of obsolete product lines. To
obtain a competitive position, we must continue to introduce new products and
new versions of existing products that will satisfy increasingly sophisticated
customer requirements and achieve market acceptance. Our inability or failure to
position and/or price our new or existing products competitively, in response to
changes in evolving standards in technology, could have a material adverse
effect on our business, results of operations or financial
position.
-19-
Although
we have implemented safeguards to prevent unauthorized access to our ecommerce
sites, there always exists certain security risks, which may cause
interruptions, delays or cessation in service.
Despite
the implementation of security measures, our network infrastructure may be
vulnerable to computer viruses or problems caused by third parties, which could
lead to interruptions, delays or cessation in service to our clients.
Inappropriate use of the Internet by third parties could also potentially
jeopardize the security or deter certain persons from using our services. Such
inappropriate use of the Internet would include attempting to gain unauthorized
access to information or systems - commonly known as "cracking" or "hacking."
Although we intend to continue to implement security measures, such measures
have been circumvented in the past, and there can be no assurance that measures
implemented will not be circumvented in the future. Alleviating problems caused
by computer viruses or other inappropriate uses or security breaches may require
interruptions, delays or cessation in service to our operations. There can be no
assurance that customers or others will not assert claims of liability against
us as a result of failures. Further, until more comprehensive security
technologies are developed, the security and privacy concerns of existing and
potential customers may inhibit the growth of the Internet service industry in
general and our customer base and revenues in particular.
There
is a risk of credit card fraud.
Although
we have encryption certificates, systems and software for the electronic
surveillance and monitoring of fraudulent credit card use, should our business
be subject to repeated fraudulent use of credit cards on our ecommerce sites, it
could effect the reputation of our ecommerce sites and the willingness of
customers to continue to use our sites.
Shares
of our common stock are "penny stocks”.
At all
times when the current market price per share of our common stock is less than
$5.00, our shares of common stock will be considered "penny stocks" as defined
in the Securities Exchange Act of 1934, as amended. As a result, an investor may
find it more difficult to dispose of or obtain accurate quotations as to the
price of the shares of our common stock being issued under this prospectus. In
addition, the penny stock rules adopted by the Securities and Exchange
Commission under the Exchange Act would subject the sale of shares of our common
stock to regulations which impose sales practice requirements on broker-dealers.
For example, broker-dealers selling penny stocks must, prior to effecting the
transaction, provide their customers with a document which discloses the risks
of investing in penny stocks.
Furthermore,
if the person purchasing penny stocks is someone other than an accredited
investor, as defined in the Securities Act, or an established customer of the
broker-dealer, the broker-dealer must also approve the potential customer's
account by obtaining information concerning the customer's financial situation,
investment experience and investment objectives. The broker-dealer must also
make a determination whether the transaction is suitable for the customer and
whether the customer has sufficient knowledge and experience in financial
matters to be reasonably expected to be capable of evaluating the risk of
transactions in penny stocks. Accordingly, the SEC's rules may limit the number
of potential purchasers of shares of our common stock. Moreover, various state
securities laws impose restrictions on transferring penny stocks, and, as a
result, investors in our common stock may have their ability to sell their
shares impaired.
-20-
The penny
stock rules require a broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from those rules, deliver a standardized risk disclosure
document prepared by the Commission, which (i) contains a description of the
nature and level of risk in the market for penny stocks in both public offerings
and secondary trading; (ii) contains a description of the broker's or dealer's
duties to the customer and of the rights and remedies available to the customer
with respect to violation to such duties or other requirements of Securities'
laws; (iii) contains a brief, clear, narrative description of a dealer market,
including "bid" and "ask" prices for penny stocks and significance of the spread
between the "bid" and "ask" price; (iv) contains a toll-free telephone number
for inquiries on disciplinary actions; (v) defines significant terms in the
disclosure document or in the conduct of trading in penny stocks; and (vi)
contains such other information and is in such form (including language, type,
size and format), as the Commission shall require by rule or regulation. The
broker-dealer also must provide, prior to effecting any transaction in penny
stock, the customer (i) with bid and offer quotations for the penny stock; (ii)
the compensation of the broker-dealer and its salesperson in the transaction;
(iii) the number of shares to which such bid and ask prices apply, or other
comparable information relating to the depth and liquidity of the market for
such stock; and (iv) monthly account statements showing the market value of each
penny stock held in the customer's account.
In
addition, the penny stock rules require that prior to a transaction in a penny
stock not otherwise exempt from those rules, the broker-dealer must make a
special written determination that the penny stock is a suitable investment for
the purchaser and receive the purchaser's written acknowledgment of the receipt
of a risk disclosure statement, a written agreement to transactions involving
penny stocks, and a signed and dated copy of a written suitably statement. These
disclosure requirements may have the effect of reducing the trading activity in
the secondary market for a stock that becomes subject to the penny stock rules.
If any of the Company's securities become subject to the penny stock rules,
holders of those securities may have difficulty selling those securities.
Stockholders should be aware that, according to Securities and Exchange
Commission Release No. 34-29093, dated April 17, 1991, the market for penny
stocks has suffered from patterns of fraud and abuse. Such patterns
include:
(i)
control of the market for the security by one or a few broker-dealers that are
often related to the promoter or issuer
(ii)
manipulation of prices through prearranged matching of purchases and sales and
false and misleading press releases
-21-
(iii)
boiler room practices involving high-pressure sales tactics and unrealistic
price projections by inexperienced sales persons
(iv)
excessive and undisclosed bid-ask differential and markups by selling
broker-dealers
(v) the
wholesale dumping of the same securities by promoters and broker-dealers after
prices have been manipulated to a desired level, along with the resulting
inevitable collapse of those prices and with consequent investor
losses.
This risk
factor is especially significant because we believe some of the conduct
mentioned above has occurred, which has prompted us to file complaints with
FINRA (the Financial Industry Regulatory Authority) and a federal complaint in
U.S. District Court, Central District of California, against the promoters,
broker-dealers, and others who we believe have engaged in such conduct with our
stock.
We
have not paid and do not currently plan to pay dividends on our common stock.
Some
investors favor companies that pay dividends on their common stock, particularly
in general downturns in the stock market. We have not declared or paid any cash
dividends on our common stock. We currently intend to retain any future earnings
for funding growth, and we do not currently anticipate paying cash dividends on
our common stock in the foreseeable future.
Provisions
in our corporate charter and under Delaware law are favorable to our
directors.
Pursuant
to our certificate of incorporation, members of our management and Board of
Directors will have no liability for violations of their fiduciary duty of care
as officers and directors, except in limited circumstances. This means that you
may be unable to prevail in a legal action against our officers or directors
even if you believe they have breached their fiduciary duty of care. In
addition, our certificate of incorporation allows us to indemnify our officers
and directors from and against any and all expenses or liabilities arising from
or in connection with their serving in such capacities with us. This means that
if you were able to enforce an action against our directors or officers, in all
likelihood we would be required to pay any expenses they incurred in defending
the lawsuit and any judgment or settlement they otherwise would be required to
pay.
Failure
to achieve and maintain effective internal controls in accordance with Section
404 of the Sarbanes-Oxley Act could have a material adverse effect on our
business and stock price.
Pursuant
to Section 404 of the Sarbanes-Oxley Act of 2002 (“Act”), we will be required to
furnish a report by our management on our internal control over financial
reporting. The internal control report must contain (i) a statement of
management's responsibility for establishing and maintaining adequate internal
control over financial reporting, (ii) a statement identifying the framework
used by management to conduct the required evaluation of the effectiveness of
our internal control over financial reporting, (iii) management's assessment of
the effectiveness of our internal control over financial reporting as of the end
of our most recent fiscal year, including a statement as to whether or not
internal control over financial reporting is effective, and (iv) a statement
that the Company's independent auditors have issued an attestation report on
management's assessment of internal control over financial
reporting.
-22-
In order
to achieve compliance with Section 404 of the Act within the prescribed period,
we will need to engage in a process to document and evaluate our internal
control over financial reporting, which will be both costly and challenging. In
this regard, management will need to dedicate internal resources, engage outside
consultants and adopt a detailed work plan to (i) assess and document the
adequacy of internal control over financial reporting, (ii) take steps to
improve control processes where appropriate, (iii) validate through testing that
controls are functioning as documented and (iv) implement a continuous reporting
and improvement process for internal control over financial reporting. We
can provide no assurance as to our, or our independent auditors’, conclusions at
the prescribed periods with respect to the effectiveness of our internal control
over financial reporting under Section 404 of the Act. There is a risk that
neither we nor our independent auditors will be able to conclude at the
prescribed period that our internal controls over financial reporting are
effective as required by Section 404 of the Act. Moreover, as our senior
management and board of directors is extremely limited, we may not be able to
adequately comply with these requirements unless we are able to augment both our
senior management and our board of directors, and there can be no assurance that
we will be able to do so in a timely manner, or at all.
During
the course of our testing we may identify deficiencies which we may not be able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we fail to
achieve and maintain the adequacy of our internal controls, as such standards
are modified, supplemented or amended from time to time, we may not be able to
ensure that we can conclude on an ongoing basis that we have effective internal
controls over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act. Moreover, effective internal controls, particularly those
related to revenue recognition, are necessary for us to produce reliable
financial reports and are important to helping prevent financial fraud. If we
cannot provide reliable financial reports or prevent fraud, our business and
operating results could be harmed, investors could lose confidence in our
reported financial information, and the trading price of our stock could drop
significantly.
ITEM
1B. UNRESOLVED STAFF COMMENTS
Not
applicable.
-23-
ITEM
2. DESCRIPTION
OF PROPERTY
Description
of Property
As
of the date specified in the following table, we held the following
property:
Property
|
October
31, 2009
|
|||
Cash
|
$ | 0.00 | ||
Property
and Equipment, Net
|
$ | 13,089.00 | ||
Inventory
|
$ | 0.00 | ||
Accounts
Receivable, Net
|
$ | 0.00 | ||
Total
Assets
|
$ | 13,089.00 |
Description
of Real Estate
Except
for the leasehold interests in the office and warehouse facilities we lease, we
do not presently own any interests in real estate.
Our
executive, administrative and operating offices are located at 15455 N.
Greenway-Hayden Loop, Suite C4, Scottsdale, AZ 85260 and contain 2,637 square
feet of office and warehouse space. Our annual lease payments are approximately
$60,000.
Our
office facilities are well maintained and we believe our facilities are adequate
for our administrative, sales and marketing operations, and fulfillment
operations.
ITEM
3. LEGAL
PROCEEDINGS
At year
end October 31, 2009, we had the following litigation matters:
On
May 27, 2008 the Company filed a lawsuit in the United States District
Court, Central District of California, Case No. SACV08-00586 CJC (PLAx) alleging
securities law violations and fraud against Douglas G. Furth individually and
allegedly dba Millennium Consulting Group, Inc., a defunct Ohio corporation;
Mark Fixler; JAG Enterprises, LLC; Michel Attias; Brendon Attias; Timothy
Garlin; and various DOE defendants for disgorgement of short-swing profits in
violation of the Securities Exchange Act of 1934, Section 16(b) and for
recovery of damages for fraud and deceit. On August 7, 2008 we filed a First
Amended Complaint adding, among others, defendants Comprehensive Financial
Services, LLC, an Ohio limited liability company; The Signature Fund, a
purported Ohio limited partnership; Signature Management, LLC, an Ohio limited
liability company; Marc J. Bernstein; Legent Clearing LLC, a Nebraska company;
UBS Financial Services, Inc., a California company; and National Financial
Services LLC aka Fidelity Investments National Financial Services, a
Massachusetts company. Many of these defendants have answered and filed
counterclaims, which we intend to vigorously contest. Our investigation into
this matter is continuing and we anticipate moving the court for permission to
file a Second Amended Complaint naming additional defendants and adding
additional causes of action.
-24-
On March
11, 2008 we were sued in Maricopa County Superior Court by Sound Packaging, LLC
for the sum of $2,221.60 for an unpaid invoice for shipping boxes. We did not
contest the suit and on July 11, 2008 a judgment in the amount of $3,461.10 was
entered against the company.
In April
2008 the Company borrowed a total of $22,000 from MyTightRide, Inc. in two
tranches: $6,600 on April 3, 2008 and $15,400 on April 16, 2008. We repaid a
total of $10,800 of that sum. Because we did not repay the full amount, on
October 21, 2008 MyTightRide sued us for the balance (including court fees). We
did not contest the lawsuit and on January 13, 2009 a judgment was entered
against the company in Maricopa County Superior Court in the amount of
$11,609.73, which represented the principal sum of $11,190.00 plus $419.73 in
costs, with interest accruing on the total unpaid amount at 10% per annum. We
are presently attempting to negotiate a payment plan for the outstanding
judgment.
On August
20, 2008, Airgas Safety, Inc., one of our vendors, sued us (and Richard Reincke,
personally, as a guarantor) in the McDowell Mountain Justice Court, Maricopa
County, for an unpaid invoice in the amount of $8,959.21 and for $2,983.42 in
attorneys’ fees and court costs. We did not contest the lawsuit and a judgment
was entered against us and Mr. Reincke personally for those amounts in December
2008.
On or
about April 14, 2009 a complaint was filed in Maricopa County Superior Court
against the company on behalf of American Technology Network Corp., one of the
Company’s vendors, for $21,704.24 for unpaid invoices. We did not contest the
lawsuit.
On
February 27, 2009 Morovision Night Vision, Inc., one of our vendors, sued
us in Maricopa County Superior Court for the unpaid balance of
$25,271.70 for products supplied to the company between May 15, 2008 and May 30,
2008. We did not contest the lawsuit and a judgment was entered against the
company in May 2009.
On August
27, 2009 Worldwide Express, Inc., a shipping company, filed a complaint in
Maricopa County Superior Court for unpaid shipping fees in the amount of
$11,421.69 plus attorney’s fees and costs of $3,500.00. We did not contest the
lawsuit and on September 28, 2009 Worldwide Express moved for a default
judgment.
On
October 14, 2009 Golden Sheep Power, Inc., one of our customers, sued us in
Maricopa County Superior Court for $58,673.58 plus $2,000 in attorneys’ fees and
$387.20 in costs for a refund for equipment that was not delivered. We did not
contest the lawsuit.
-25-
Subsequent
events:
On
December 30, 2009 a judgment was entered in Maricopa County Superior Court
against the company on behalf of American Technology Network Corp., one of the
Company’s vendors, for $21,704.24, plus interest accruing on the unpaid
principal at 10% per annum from April 14, 2009 plus $541.00 in
costs.
On
February 2, 2010, Golden Sheep Power moved the Maricopa County Superior Court
for a judgment in the amount of $58,673.58 plus $2,000 in attorneys’ fees and
$387.20.
The
Company did not submit any matter to a vote of security holders during the
fiscal year ended October 31, 2009.
ITEM
5. MARKET FOR COMMON
EQUITY AND RELATED STOCKHOLDER MATTERS
Reports to security holders.
We are a reporting company with the Securities and Exchange Commission
and we file quarterly reports and annual reports that contain our financial
statements for each quarter and an audited financial statement at our fiscal
year end, which is October 31st. We also file reports on Form 8-K relating to
any information that is material to the Company. The public may read and copy
any materials filed with the Securities and Exchange Commission at the Security
and Exchange Commission’s Public Reference Room at 450 Fifth Street N.W.,
Washington, D.C. 20549. The public may also obtain information on the operation
of the Public Reference Room by calling the Securities and Exchange Commission
at 1-800-SEC-0330. The Securities and Exchange Commission maintains an Internet
site that contains reports, proxy and information statements, and other
information regarding issuers that file electronically with the Securities and
Exchange Commission. The address of that site is http://www.sec.gov. We maintain
a website at www.greenwindsolar.com
where we post updated news about the company’s activities.
Market information. Our
common stock trades publicly on the OTC Bulletin Board, or OTCBB, under the
symbol “GWSC.” The OTCBB is a regulated quotation service that displays
real-time quotes, last-sale prices and volume information in over-the-counter
equity securities. The OTCBB securities are traded by a community of market
makers that enter quotes and trade reports. This market is extremely limited and
any prices quoted are not a reliable indication of the value of our common
stock.
-26-
Our
common stock began trading on or about July 23, 2007 with an opening bid
quotation of $1.00 per share under the symbol “FRPD”; when we changed our name,
we were assigned a new symbol, “GWSI”. Effective October 31, 2008, we
completed a reverse stock split in a ratio of 1:20. Shortly
thereafter, the company’s common stock began trading on a post-split basis under
the new trading symbol GWSC.
As a
result of the reverse stock split, the company’s stockholders received one new
share of the company’s common stock in exchange for every twenty shares. Neither
the par value per share of the company’s common stock nor the total number of
authorized shares of the company’s common stock changed. No fractional shares of
common stock were issued in connection with the effectiveness of the reverse
stock split. Instead, the company rounded up and issued a whole share to each
affected stockholder.
The
following table sets forth the quarterly high and low bid prices per share of
our common stock by the National Quotation Bureau during the last two fiscal
years as cited on Yahoo!Finance. The quotations represent inter-dealer
quotations without adjustment for retail mark-ups, mark-downs or commissions and
may not represent actual transactions.
Fiscal
Year
|
Quarter
Ended
|
High
|
Low
|
||||||
Ended
Oct. 31, 2008
|
January
31, 2008
|
$
|
2.60
|
$
|
1.00
|
||||
April
30, 2008
|
$
|
1.25
|
$
|
0.10
|
|||||
July
31, 2008
|
$
|
0.15
|
$
|
0.06
|
|||||
October
31, 2008
|
$
|
0.36
|
$
|
0.03
|
|||||
Ended
Oct. 31, 2009
|
January
31, 2009
|
$
|
1.20
|
$
|
0.07
|
||||
April
30, 2009
|
$
|
0.40
|
$
|
0.10
|
|||||
July
31, 2009
|
$
|
3.87
|
$
|
0.18
|
|||||
October
31, 2009
|
$
|
1.51
|
$
|
0.61
|
Holders of record. On February
10, 2010, there were approximately 62 shareholders of record of our common
stock. We have no record of the number of shareholders who currently hold their
stock in “street” name with various brokers.
Dividend policy. We have
never declared or paid cash dividends on our common stock. We currently intend
to retain any future earnings to finance the growth and development of our
business and do not intend to pay any cash dividends on our common stock in the
foreseeable future. Payment of dividends in the future, if any, will be made at
the discretion of our board of directors. Such decisions will depend on a
number of factors, including our future earnings, capital requirements,
financial condition and future prospects and such other factors as our board of
directors may deem relevant.
Item
6. Selected Financial Data.
Not
applicable.
-27-
ITEM
7. MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Forward-Looking
Statements
This
portion of this Annual Report on Form 10-K, includes statements that constitute
“forward-looking statements.” These forward-looking statements are often
characterized by the terms “may,” “believes,” “projects,” “expects,” or
“anticipates,” and do not reflect historical facts. Forward-looking
statements speak only as of the date the statement was made. We do not
undertake and specifically decline any obligation to update any forward-looking
statements.
Results
of Operations
We
discontinued our emergency responder products operations with a loss of
$161,634. Because of these discontinued operations, revenues for the fiscal year
ended October 31, 2009 were $1,407 compared to no revenues for fiscal year ended
October 31, 2008. Our revenues did not grow because we were unable to finance
many of the sales contracts we acquired. Our cost of goods sold for the year
ended October 31, 2009 was $12,421, for a loss
of $11,014.
We had a
net loss of $6,600,946 in our operating activities for the fiscal year ended
October 31,2009, as compared to $2,072,263 for the fiscal year ended October 31,
2008. The worldwide economic crisis exacerbated our financial situation in 2009.
Because of our cash flow problems, during the fiscal years ended October 31,
2008 and October 31, 2009 we were delinquent in paying many of our existing
suppliers, and our credit rating declined. We also had several
delinquent accounts result in lawsuits and judgments. The domestic, and then
global, financial crisis which followed negatively affected our ability to
obtain any type of purchase order, accounts receivable, inventory financing, or
equity financing. We are continuing to negotiate for the necessary
financing, but the credit crisis and broad economic downturn has caused both
significant delays in our obtaining such financing, and much stricter
requirements for obtaining such financing, with financial institutions and
factors charging higher rates, demanding more comprehensive guarantees
(including, in most cases, personal guarantees from our senior management), and
requiring our customers’ end-users to qualify as credit worthy. This
has negatively affected our business operations.
-28-
We
continue to incur legal and accounting expenses and other expenses incidental to
our reporting obligations as a public company.
Our net
loss from continuing operations for the year ended October 31, 2009 was
$6,439,312, compared to a net loss from continuing operations at October 31,
2008 of $1,889,970.
Liquidity
and Capital Resources
At the
year ended October 31, 2009, we had no cash reserves, as compared to cash
resources at October 31, 2008 of $7,100. We currently do not have any
significant cash resources, and our need for capital is our most significant
business concern and the single most significant factor both limiting our growth
and creating an issue as to whether we can continue to operate our business. Our
accounts receivable, net at October 31, 2008, were $5,945, as compared to $0.00
at October 31, 2009. The significant decrease was caused by our
inability to finance our sales contracts in a timely manner.
Our
accounts payable and accrued expenses at October 31, 2009 were $474,326, as
compared to $375,958 at October 31, 2008. Our total current
liabilities at October 31, 2009 were $2,300,070, as compared to $1,567,148 at
October 31, 2008.
We held
property and equipment at October 31, 2009 which was valued, net of
depreciation, at $13,089, as compared with property and equipment with a net
valuation, net of depreciation, at $18,882 at October 31, 2008. Our total assets
at October 31, 2009 were $13,089 as compared with total assets of $158,971 at
October 31, 2008.
The
inventory is recorded at the lower of cost or market. The Company has no
inventory as of October 31, 2009 and 2008 and has recorded a reserve of $-0- and
$127,044 for slow moving inventory as of October 31, 2009 and
2008. All of these amounts are finished goods.
We are
struggling to satisfy our basic cash requirements and we need to raise
significant capital to continue as a going concern. We also have significant
outstanding invoices from suppliers, many of which are overdue and which are
negatively affecting our credit lines with our suppliers and which have resulted
in collection lawsuits and judgments. There can be no assurance that we
will raise sufficient funds to continue our business operations.
We do not
believe that the impact of inflation and changing prices has had any significant
effect on our net sales and revenues and on income from continuing operations.
However, the current global financial crisis has had significant negative
effects on our business. The credit crisis and broad economic downturn has
caused pronounced slowing of wind and power projects worldwide, except in some
isolated markets. Our customers, who are typically wind and solar installers and
developers, have experienced financing problems because the number of banks and
financial institutions willing to fund installation of wind turbines and solar
arrays has dropped significantly. We have also experienced difficulties in
getting our customers and purchase orders financed, and we are delinquent in
paying many of our suppliers, some of whom have filed lawsuits for collection.
All of these factors have had a significant negative impact on our operations,
and should the current financial crisis continue, there can be no assurance we,
or our customers, will be able to continue operations.
-29-
Going
Concern
Our
financial statements have been prepared in accordance with generally accepted
accounting principles applicable to a going concern which contemplates the
realization of assets and the satisfaction of liabilities and commitments in the
normal course of business. Our revenues have fluctuated from quarter to quarter,
as have our profit margins, and we have incurred losses since our inception. In
addition to our revenues, since inception we have also relied on loans from
shareholders and officers and the sale of our equity securities to fund our
operations. We continue to incur legal, accounting, and other business and
administrative expenses. Our auditor has therefore recognized that there is
substantial doubt about our ability to continue as a going concern.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
The
Company does not hold any “market risk sensitive instruments” as defined by Item
305 of Regulation S-K.
ITEM
8. FINANCIAL
STATEMENTS
The
information required by this item is set forth in the Consolidated Financial
Statements filed with this report.
GWS
Technologies Inc.
-30-
GWS
TECHNOLOGIES, INC.
FINANCIAL
STATEMENTS
October
31, 2009 and 2008
F-1
C
O N T E N T S
Independent
Auditors’ Report
|
F-3
|
Balance
Sheets
|
F-4
|
Statements of
Operations
|
F-5
|
Statements of
Stockholders’ Equity (Deficit)
|
F-6
|
Statements of
Cash Flows
|
F-7
|
Notes
to the Financial Statements
|
F-8
|
F-2
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board
of Directors and Shareholders
GWS
Technologies, Inc.
We have
audited the accompanying balance sheets of GWS Technologies, Inc. as of October
31, 2009 and 2008(as re-stated), and the related consolidated statements of
operations, cash flows, and stockholders’ equity (deficit), for
the years ended October 31, 2009 and 2008(as
re-stated) These financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.
We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether
the financial statements are free of material misstatement. The
Company has determined that it is not required to have, nor were we engaged to
perform, an audit of its internal control over financial
reporting. Our audit included consideration of internal control over
financial reporting as a basis for designing audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts
and disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audit
provides a reasonable basis for our opinion.
In our
opinion, the financial statements referred to above present fairly, in all
material respects, the financial position of GWS Technologies, Inc. as of
October 31, 2009 and 2008(as re-stated), and the results of
operations and cash flows for the years ended October 31, 2009 and
2008(as re-stated), in conformity with accounting principles generally accepted
in the United States of America.
The
Company has incurred significant losses, has a working capital deficit, and has
limited revenues which raise substantial doubt about its ability to continue as
a going concern. Management's plan to address these issues is
included in Note 3 to the financial statements. The financial
statements have been prepared on a going concern basis, which contemplates the
realization and settlement of liabilities and commitments in the normal course
of business. The financial statements do not include any adjustment
that might result from the outcome of this uncertainty.
/s/ Mantyla McReynolds
LLC
Mantyla
McReynolds LLC
Salt Lake
City, Utah
February
16, 2010
F-3
GWS
TECHNOLOGIES, INC.
|
||||||||
Balance
Sheets
|
||||||||
ASSETS
|
||||||||
October
31,
|
October
31,
|
|||||||
2009
|
2008
|
|||||||
|
(Restated)
|
|||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | - | $ | 7,100 | ||||
Accounts
receivable, net
|
- | 5,945 | ||||||
Inventory
|
- | 127,044 | ||||||
Total
Current Assets
|
- | 140,089 | ||||||
PROPERTY
AND EQUIPMENT, net
|
13,089 | 18,882 | ||||||
TOTAL
ASSETS
|
$ | 13,089 | $ | 158,971 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 474,326 | $ | 375,958 | ||||
Bank
overdraft
|
1,978 | - | ||||||
Accrued
interest payable
|
232,928 | 58,320 | ||||||
Note
payable-related parties
|
358,135 | 50,000 | ||||||
Note
payable
|
1,232,703 | 1,082,870 | ||||||
Total
Current Liabilities
|
2,300,070 | 1,567,148 | ||||||
LONG-TERM
DEBT
|
- | - | ||||||
TOTAL
LIABILITIES
|
2,300,070 | 1,567,148 | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Preferred
stock: $0.001 par value; 10,000,000 shares authorized;
|
||||||||
no
shares issued and outstanding
|
- | - | ||||||
Common
stock: $0.001 par value; 100,000,000 shares authorized;
|
||||||||
8,104,897
and 609,897 shares issued and outstanding, respectively
|
8,105 | 610 | ||||||
Additional
paid-in capital
|
10,537,118 | 4,446,683 | ||||||
Stock
subscription receivable
|
(375,788 | ) | - | |||||
Accumulated
deficit
|
(12,456,416 | ) | (5,855,470 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(2,286,981 | ) | (1,408,177 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 13,089 | $ | 158,971 | ||||
The
accompanying notes are an integral part of these condensed financial
statements.
F-4
GWS
TECHNOLOGIES, INC.
|
||||||||
Statements
of Operations
|
||||||||
For
the Year
|
||||||||
Ended
|
||||||||
October
31,
|
||||||||
2009
|
2008
|
|||||||
(Restated)
|
||||||||
REVENUES
|
$ | 1,407 | $ | - | ||||
COST
OF GOODS SOLD
|
12,421 | - | ||||||
GROSS
PROFIT (LOSS)
|
(11,014 | ) | - | |||||
OPERATING
EXPENSES
|
||||||||
Depreciation
and amortization
|
5,793 | 9,628 | ||||||
Bad
debt expense
|
- | - | ||||||
Consulting
fees
|
5,893,220 | 617,296 | ||||||
Professional
fees
|
28,796 | 63,072 | ||||||
Loss
on disposal of fixed assets
|
- | 13,821 | ||||||
General
and administrative
|
237,693 | 841,542 | ||||||
Total
Operating Expenses
|
6,165,502 | 1,545,359 | ||||||
LOSS
FROM CONTINUING OPERATIONS
|
(6,176,516 | ) | (1,545,359 | ) | ||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
expense
|
(262,843 | ) | (348,539 | ) | ||||
Other
income
|
- | 3,758 | ||||||
Interest
income
|
47 | 170 | ||||||
Total
Other Income (Expenses)
|
(262,796 | ) | (344,611 | ) | ||||
NET
LOSS BEFORE INCOME TAXES
|
(6,439,312 | ) | (1,889,970 | ) | ||||
INCOME
TAX EXPENSE
|
- | - | ||||||
NET
LOSS FROM CONTINUING OPERATIONS
|
$ | (6,439,312 | ) | $ | (1,889,970 | ) | ||
DISCONTINUED
OPERATIONS
|
||||||||
Loss
from discontinued operations
|
(161,634 | ) | (182,293 | ) | ||||
Income
tax benefit
|
- | - | ||||||
GAIN
(LOSS) ON DISCONTINUED OPERATIONS
|
(161,634 | ) | (182,293 | ) | ||||
NET
LOSS
|
$ | (6,600,946 | ) | $ | (2,072,263 | ) | ||
BASIC
AND DILUTED INCOME (LOSS) PER SHARE
|
||||||||
Continuing
operations
|
$ | (1.26 | ) | $ | (3.77 | ) | ||
Discontinued
operations
|
(0.03 | ) | (0.36 | ) | ||||
$ | (1.29 | ) | $ | (4.14 | ) | |||
BASIC
AND DILUTED WEIGHTED AVERAGE
|
||||||||
NUMBER
OF SHARES OUTSTANDING
|
5,122,719 | 500,848 | ||||||
The
accompanying notes are an integral part of these condensed financial
statements.
F-5
GWS
TECHNOLOGIES, INC.
|
||||||||||||||||||||||||
Statements
of Stockholders' Equity (Deficit)
|
||||||||||||||||||||||||
(Restated)
|
||||||||||||||||||||||||
Additional
|
Stock
|
|
||||||||||||||||||||||
Common
Stock
|
Paid-in
|
Subscription
|
Accumulated
|
|
||||||||||||||||||||
Shares
|
Amount
|
Capital
|
Receivable
|
Deficit
|
Total
|
|||||||||||||||||||
Balance,
October 31, 2007
|
463,807 | $ | 464 | $ | 3,688,172 | $ | (325,000 | ) | $ | (3,783,207 | ) | $ | (419,571 | ) | ||||||||||
Beneficial
conversion feature of
|
||||||||||||||||||||||||
convertible
debt
|
- | - | 200,000 | - | - | 200,000 | ||||||||||||||||||
Repricing
of options
|
- | - | 67,234 | - | - | 67,234 | ||||||||||||||||||
Options
granted as compensation
|
- | - | 239,923 | - | - | 239,923 | ||||||||||||||||||
Common
stock issued for
|
||||||||||||||||||||||||
debt
at $6.00 per share
|
8,333 | 8 | 49,992 | - | - | 50,000 | ||||||||||||||||||
Common
stock issued for
|
||||||||||||||||||||||||
cash
at $20.00 per share
|
2,750 | 3 | 54,997 | - | - | 55,000 | ||||||||||||||||||
Common
stock issued for
|
||||||||||||||||||||||||
services
at $2.40 per share
|
60,000 | 60 | 146,440 | - | - | 146,500 | ||||||||||||||||||
Fractional
shares issued
|
||||||||||||||||||||||||
pursuant
to reverse stock split
|
75,007 | 75 | (75 | ) | - | - | - | |||||||||||||||||
Write
off of stock subscription receivable
|
325,000 | |||||||||||||||||||||||
Net
loss for the year ended
|
||||||||||||||||||||||||
October
31, 2008
|
- | - | - | - | (2,072,263 | ) | (2,072,263 | ) | ||||||||||||||||
Balance,
October 31, 2008
|
609,897 | 610 | 4,446,683 | - | (5,855,470 | ) | (1,408,177 | ) | ||||||||||||||||
Common
stock issued for services
|
4,895,000 | 4,895 | 4,566,298 | (375,788 | ) | - | 4,195,405 | |||||||||||||||||
Options
exercised in exchange for services
|
2,250,000 | 2,250 | 360,250 | - | - | 362,500 | ||||||||||||||||||
Options
exercised for cash at $0.46 per share
|
300,000 | 300 | 137,200 | - | - | 137,500 | ||||||||||||||||||
Common
stock issued for
|
||||||||||||||||||||||||
debt
at $0.30 per share
|
50,000 | 50 | 14,950 | - | - | 15,000 | ||||||||||||||||||
Options
granted as compensation
|
- | - | 1,007,070 | - | - | 1,007,070 | ||||||||||||||||||
Beneficial
conversion feature of
|
||||||||||||||||||||||||
convertible
debt
|
- | - | 4,667 | - | - | 4,667 | ||||||||||||||||||
Net
loss for the year ended
|
||||||||||||||||||||||||
October
31, 2009
|
- | - | - | - | (6,600,946 | ) | (6,600,946 | ) | ||||||||||||||||
Balance,
October 31, 2009
|
8,104,897 | $ | 8,105 | $ | 10,537,118 | $ | (375,788 | ) | $ | (12,456,416 | ) | $ | (2,286,981 | ) | ||||||||||
The
accompanying notes are an integral part of these condensed financial
statements.
F-6
GWS
TECHNOLOGIES, INC.
|
||||||||
Statements
of Cash Flows
|
||||||||
|
||||||||
|
For
the Year
|
|||||||
Ended
|
||||||||
October
31,
|
||||||||
2009
|
2008
|
|||||||
(Restated)
|
||||||||
OPERATING
ACTIVITIES
|
||||||||
Net
loss
|
$ | (6,600,946 | ) | $ | (2,072,263 | ) | ||
Adjustments
to reconcile net loss to
|
||||||||
net
cash used by operating activities:
|
||||||||
Amortization
of discount on convertible debt
|
92,667 | 200,000 | ||||||
Common
stock issued for services
|
4,557,905 | 146,500 | ||||||
Common
stock purchase options granted for services
|
1,007,070 | 307,157 | ||||||
Depreciation
expense
|
5,793 | 9,628 | ||||||
Loss
on disposal of fixed assets
|
- | 13,821 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Accounts
payable and accrued expenses
|
184,975 | 171,257 | ||||||
Net
Cash Used in Continuing Operating Activities
|
(752,536 | ) | (1,223,900 | ) | ||||
Net
Cash Provided by Discontinued Operating Activities
|
132,990 | 411,779 | ||||||
Net
Cash Used in Operating Activities
|
(619,546 | ) | (812,121 | ) | ||||
|
||||||||
INVESTING
ACTIVITIES
|
||||||||
Property
and equipment purchased
|
- | (1,140 | ) | |||||
Net
Cash Used in Investing Activities
|
- | (1,140 | ) | |||||
Net
Cash Provided by Discontinued Operating Activities
|
- | - | ||||||
Net
Cash Used in Operating Activities
|
- | (1,140 | ) | |||||
FINANCING
ACTIVITIES
|
||||||||
Repayment
of related parties
|
(122,000 | ) | - | |||||
Proceeds
from related parties
|
430,135 | - | ||||||
Repayment
of notes payable
|
- | 691,203 | ||||||
Proceeds
from notes payable
|
164,833 | |||||||
Proceeds
from bank overdraft
|
1,978 | |||||||
Common
stock issued for cash
|
137,500 | 55,000 | ||||||
Net
Cash Provided by Financing Activities
|
612,446 | 746,203 | ||||||
Net
Cash Provided by Discontinued Operating Activities
|
- | - | ||||||
Net
Cash Used in Operating Activities
|
612,446 | 746,203 | ||||||
NET
INCREASE (DECREASE) IN CASH
|
(7,100 | ) | (67,058 | ) | ||||
CASH
AT BEGINNING OF PERIOD
|
7,100 | 74,158 | ||||||
CASH
AT END OF PERIOD
|
$ | - | $ | 7,100 | ||||
SUPPLEMENTAL
DISCLOSURES OF
|
||||||||
CASH
FLOW INFORMATION:
|
||||||||
Cash
Paid For:
|
||||||||
Interest
|
$ | 235 | $ | 90,475 | ||||
Income
taxes
|
- | - | ||||||
Non
Cash Financing Activities:
|
||||||||
Common
stock issued for debt
|
$ | 15,000 | $ | 50,000 | ||||
The
accompanying notes are an integral part of these condensed financial
statements.
F-7
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 1
- ORGANIZATION AND HISTORY
Aegis
Security Products, Inc., (the Company) a Delaware corporation, was incorporated
on February 15, 2005. Its name was changed to First Responder Products, Inc. on
April 21, 2005. The Company has changed its name from “First Responder Products,
Inc.” to “GWS Technologies, Inc.” The name change became effective June 30,
2008 by the filing of a Certificate of Amendment to the Company’s Certificate of
Incorporation with the Delaware Secretary of State.
The
Company provides wind turbines and other wind and solar products and alternative
energy through direct marketing and also on an ecommerce portion of our website,
www.greenwindsolar.com. During the past several quarters we have focused on the
following two main areas to expand our business: (1) joint venturing with
landowners to build solar farms; and (2) retrofitting commercial buildings with
alternative energy equipment, concentrating on solar power installations in
Arizona.
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES
a)
|
Accounting
Method
|
The
Company’s financial statements are prepared using the accrual method of
accounting. The Company has elected an October 31
year-end.
b)
|
Basic
Loss Per Share
|
For
the Year Ended
|
||||||||
10/31/2009
|
10/31/2008
|
|||||||
Loss
from continuing operations (Numerator)
|
$ | (6,439,312 | ) | $ | (1,899,970 | ) | ||
Loss
from discontinued operations (Numerator)
|
(161,634 | ) | (182,293 | ) | ||||
Shares
(Denominator)
|
5,122,719 | 500,848 | ||||||
Per
share (continuing)
|
(1.26 | ) | (3.77 | ) | ||||
Per
share (discontinued)
|
(0.03 | ) | (0.36 | ) | ||||
Per
share (total)
|
$ | (1.29 | ) | $ | (4.14 | ) |
The
computations of basic loss per share of common stock are based on the weighted
average number of shares outstanding at the date of the financial statements.
The computation of diluted loss per shares excludes the 950,000 and 1,350,000 of
options outstanding at October 31, 2009 and 2008 because they are
anti-dilutive.
c)
|
Advertising
|
The
Company expenses advertising costs in the period in which they are incurred. The
Company incurred advertising expense of $20,339 and $16,141 during the years
ended October 31, 2009 and 2008, respectively.
F-8
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
d)
|
Provision
for Taxes
|
The
Company applies SFAS No. 109 (ASC 740), which requires the asset and liability
method of accounting for income taxes. The asset and liability method
requires that the current or deferred tax consequences of all events recognized
in the financial statements are measured by applying the provisions of enacted
tax laws to determine the amount of taxes payable or refundable currently or in
future years. Deferred tax assets are reviewed for recoverability and the
Company records a valuation allowance to reduce its deferred tax assets when it
is more likely than not that all or some portion of the deferred tax assets will
not be recovered.
The
Company adopted FIN 48(ASC 740), at the beginning of fiscal year 2008. This
interpretation requires recognition and measurement of uncertain tax positions
using a “more-likely-than-not” approach, requiring the recognition and
measurement of uncertain tax positions. The adoption of FIN 48 (ASC 740) had no
material impact on the Company’s financial statements.
e)
|
Estimates
|
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
f)
|
Fair
Value of Financial Instruments
|
As at
October 31, 2009 and 2008, the fair value of cash and accounts and advances
payable, including amounts due to and from related
parties, approximate carrying values because of the short-term maturity of these
instruments.
g)
|
Recently
Issued Accounting Pronouncements
|
In
January 2010, the FASB issued Accounting Standards Update 2010-02, Consolidation
(Topic 810): Accounting and Reporting for Decreases in Ownership of a
Subsidiary. This amendment to Topic 810 clarifies, but does not change, the
scope of current US GAAP. It clarifies the decrease in ownership provisions of
Subtopic 810-10 and removes the potential conflict between guidance in that
Subtopic and asset derecognition and gain or loss recognition guidance that may
exist in other US GAAP. An entity will be required to follow the amended
guidance beginning in the period that it first adopts FAS 160 (now included in
Subtopic 810-10). For those entities that have already adopted FAS 160, the
amendments are effective at the beginning of the first interim or annual
reporting period ending on or after December 15, 2009. The amendments should be
applied retrospectively to the first period that an entity adopted FAS 160. The
Company does not expect the provisions of ASU 2010-02 to have a material effect
on the financial position, results of operations or cash flows of the
Company.
F-9
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h)
|
Recently
Issued Accounting Pronouncements
(continued)
|
In
January 2010, the FASB issued Accounting Standards Update 2010-01, Equity (Topic
505): Accounting for Distributions to Shareholders with Components of Stock and
Cash (A Consensus of the FASB Emerging Issues Task Force). This amendment to
Topic 505 clarifies the stock portion of a distribution to shareholders that
allows them to elect to receive cash or stock with a limit on the amount of cash
that will be distributed is not a stock dividend for purposes of applying Topics
505 and 260. Effective for interim and annual periods ending on or after
December 15, 2009, and would be applied on a retrospective basis. The Company
does not expect the provisions of ASU 2010-01 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
In
December 2009, the FASB issued Accounting Standards Update 2009-17,
Consolidations (Topic 810): Improvements to Financial Reporting by Enterprises
Involved with Variable Interest Entities. This Accounting Standards Update
amends the FASB Accounting Standards Codification for Statement 167. The Company
does not expect the provisions of ASU 2009-17 to have a material effect on the
financial position, results of operations or cash flows of the
Company.
In
December 2009, the FASB issued Accounting Standards Update 2009-16, Transfers
and Servicing (Topic 860): Accounting for Transfers of Financial Assets. This
Accounting Standards Update amends the FASB Accounting Standards Codification
for Statement 166. The Company does not expect the provisions of ASU 2009-16 to
have a material effect on the financial position, results of operations or cash
flows of the Company.
In
October 2009, the FASB issued Accounting Standards Update 2009-15, Accounting
for Own-Share Lending Arrangements in Contemplation of Convertible Debt Issuance
or Other Financing. This Accounting Standards Update amends the FASB Accounting
Standard Codification for EITF 09-1. The Company does not expect the provisions
of ASU 2009-15 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In
October 2009, the FASB issued Accounting Standards Update 2009-14, Software
(Topic 985): Certain Revenue Arrangements That Include Software Elements. This
update changed the accounting model for revenue arrangements that include both
tangible products and software elements. Effective prospectively for revenue
arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. Early adoption is permitted. The Company does not expect
the provisions of ASU 2009-14 to have a material effect on the financial
position, results of operations or cash flows of the Company.
F-10
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
h)
|
Recently
Issued Accounting Pronouncements
(continued)
|
In
October 2009, the FASB issued Accounting Standards Update 2009-13, Revenue
Recognition (Topic 605): Multiple-Deliverable Revenue Arrangements. This update
addressed the accounting for multiple-deliverable arrangements to enable vendors
to account for products or services (deliverables) separately rather than a
combined unit and will be separated in more circumstances that under existing US
GAAP. This amendment has eliminated that residual method of allocation.
Effective prospectively for revenue arrangements entered into or materially
modified in fiscal years beginning on or after June 15, 2010. Early adoption is
permitted. The Company does not expect the provisions of ASU 2009-13 to have a
material effect on the financial position, results of operations or cash flows
of the Company.
In
September 2009, the FASB issued Accounting Standards Update 2009-12, Fair Value
Measurements and Disclosures (Topic 820): Investments in Certain Entities That
Calculate Net Asset Value per Share (or Its Equivalent). This update provides
amendments to Topic 820 for the fair value measurement of investments in certain
entities that calculate net asset value per share (or its equivalent). It is
effective for interim and annual periods ending after December 15, 2009. Early
application is permitted in financial statements for earlier interim and annual
periods that have not been issued. The Company does not expect the provisions of
ASU 2009-12 to have a material effect on the financial position, results of
operations or cash flows of the Company.
In July
2009, the FASB ratified the consensus reached by EITF (Emerging Issues Task
Force) issued EITF No. 09-1, (ASC Topic 470) "Accounting for Own-Share Lending
Arrangements in Contemplation of Convertible Debt Issuance" ("EITF 09-1"). The
provisions of EITF 09-1, clarifies the accounting treatment and disclosure of
share-lending arrangements that are classified as equity in the financial
statements of the share lender. An example of a share-lending arrangement is an
agreement between the Company (share lender) and an investment bank (share
borrower) which allows the investment bank to use the loaned shares to enter
into equity derivative contracts with investors. EITF 09-1 is effective for
fiscal years that beginning on or after December 15, 2009 and requires
retrospective application for all arrangements outstanding as of the beginning
of fiscal years beginning on or after December 15,2009. Share-lending
arrangements that have been terminated as a result of counterparty default prior
to December 15, 2009, but for which the entity has not reached a final
settlement as of December 15, 2009 are within the scope. Effective for
share-lending arrangements entered into on or after the beginning of the first
reporting period that begins on or after June 15, 2009. The Company does not
expect the provisions of EITF 09-1 to have a material effect on the financial
position, results of operations or cash flows of the Company.
i)
|
Long-lived
Assets-Technology
|
The
Company continually monitors events and changes in circumstances that could
indicate carrying amounts of long-lived assets may not be recoverable. When such
events or changes in circumstances are present, the Company assesses the
recoverability of long-lived assets by determining whether the carrying value of
such assets will be recovered through undiscounted expected future cash flows.
If the total of the future cash flows is less than the carrying amount of those
assets, the Company recognizes an impairment loss based on the excess of the
carrying amount over the fair value of the assets. Assets to be disposed of are
reported at the lower of the carrying amount or the fair value less costs to
sell.
F-11
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
j)
|
Concentration
of Risk
|
Cash -
The Company at times may maintain a cash balance in excess of insured
limits.
k)
|
Revenue
Recognition
|
The
Company applies the provisions of SEC Staff Accounting Bulletin No. 104,
"Revenue Recognition in Financial Statements" ("SAB 104"), which provides
guidance on the recognition, presentation and disclosure of revenue in financial
statements filed with the SEC. SAB 104 outlines the basic criteria that must be
met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. In general, the Company recognizes revenue related to the
sale of wind and solar products when (i) persuasive evidence of an arrangement
exists, (ii) delivery has occurred or services have been rendered, (iii) the fee
is fixed or determinable, and (iv) collectability is reasonably
assured.
l)
|
Cash
and Cash Equivalents
|
For
purposes of the Statement of Cash Flows, the Company considers all highly liquid
instruments purchased with a maturity of three months or less to be cash
equivalents to the extent the funds are not being held for investment
purposes.
m)
|
Accounts
Receivable
|
Accounts
receivable are carried at original invoice amount less an estimate made for
doubtful receivables based on a review of all outstanding amounts on a monthly
basis. Specific reserves are estimated by management based on certain
assumptions and variables, including the customer’s financial condition, age of
the customer’s receivables, and changes in payment histories. As of
October 31, 2009 and 2008, an allowance for doubtful receivables $-0- and $-0-,
respectively, was considered necessary. Trade receivables are written
off when deemed uncollectible. Recoveries of trade receivables
previously written off are recorded when received.
n)
|
Inventory
|
The
inventory is recorded at the lower of cost or market. The Company has no
inventory as of October 31, 2009 and 2008 and has recorded a reserve of $-0- and
$127,044 for slow moving inventory as of October 31, 2009 and
2008. All of these amounts are finished goods.
o)
|
Property
and equipment
|
Property
and equipment are stated at cost. Amortization is to be computed
using on a straight line basis over the estimated production life of the
assets.
F-12
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 2
- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
p)
|
Stock-based
compensation.
|
The
Company adopted SFAS No. 123-R effective January 1, 2006 using the
modified prospective method. Under this transition method, stock compensation
expense includes compensation expense for all stock-based compensation awards
granted on or after January 1, 2006, based on the grant-date fair value
estimated in accordance with the provisions of SFAS No. 123-R.
NOTE 3
- GOING CONCERN
The
Company’s financial statements are prepared using accounting principles
generally accepted in the United States of America applicable to a going concern
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business. However, the Company does not have
significant cash or other current assets, nor does it have an established source
of revenues sufficient to cover its operating costs and to allow it to continue
as a going concern which raises substantial doubt regarding its ability to
continue as a going concern. The Company plans to expand its
marketing program for its solar power electricity generating systems to provide
sufficient revenues to allow it to continue as a going concern. In the interim
the Company expects to raise operating capital through the private placement of
its common stock.
The
ability of the Company to continue as a going concern is dependent upon its
ability to successfully accomplish the plan described in the preceding paragraph
and eventually attain profitable operations. The accompanying
financial statements do not include any adjustments that may be necessary if the
Company is unable to continue as a going concern.
NOTE 3
- PROPERTY AND EQUIPMENT
The
Company’s property and equipment are comprised of the following October 31, 2009
and 2008:
2009
|
2008
|
|||||||
Furniture
& Office equipment
|
$ | 28,965 | $ | 28,965 | ||||
Accumulated
Depreciation
|
(15,877 | ) | (10,084 | ) | ||||
Net
property and equipment
|
$ | 13,089 | $ | 18,882 |
The
equipment is depreciated over its estimated useful life of 5 years under the
straight-line method. Leasehold improvements are depreciated over the lesser of
the lease term or the useful life of the asset. Depreciation expense for the
years ended October 31, 2009 and 2008 was $5,793 and $9,628,
respectively.
F-13
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 4
- NOTES PAYABLE
During
the years ended October 31, 2008 and 2007, the Company raised $600,500 and
$675,000 through the issuance of 12% unsecured debt. The debt is in default as
of October 31, 2008. The Company was unable to repay the 2007 debt on
the original due date, accordingly the holders thereof have the right to convert
the debt to equity. Per the convertible debt agreement the conversion
price is $0.30 per share.
The value
of the beneficial conversion feature was determined using the intrinsic value
method in accordance with ASC 815. The amount recorded as a discount
to the convertible debt for the notes issued during the fiscal year ended
October 31, 2009 and 2008 was $4,667 and $200,000 respectively. The
discount was amortized over the 6 month term of the debt for the 2009 notes and
the 12 month term of the 2008 notes. Accordingly, the Company
recorded $4,667 and $200,000 in interest expense for the accretion of the
discount during the years ended October 31, 2009 and 2008. During the years
ended October 31, 2009 and 2008, $15,000 and $50,000 of the debt was converted
to 50,000 and 8,333 shares of common stock, respectively.
The
Company has accrued $232,928 in accrued interest on the notes payable debt as of
October 31, 2009.
A summary
of the Notes Payable at October 31, 2009:
Unsecured
notes payable: 12% per annum due upon demand
|
$ | 112,203 | ||
Convertible
secured notes: 12% per annum in default
|
1,120,500 | |||
Net
convertible secured debentures
|
$ | 1,232,703 |
NOTE 5
- RELATED PARTY NOTES PAYABLE
During
the years ended October 31, 2009 and 2008, the Company had borrowed a total of
$358,135 and $50,000 from related parties. These notes bear interest
at 14%, are unsecured and are due on demand.
NOTE 6
- COMMON STOCK
During
the year ended October 31, 2008, the Company issued 2,750 shares of common stock
at $20.00 per share for cash of $55,000. The Company wrote off the stock
subscription receivable of $325,000 because it was unsuccessful in collecting it
during the year ended October 31, 2008. During the year ended October
31, 2008, the Company issued 8,333 shares of common stock upon the conversion of
$50,000 of debt at $6.00 per share. During the year ended October 31, 2008, the
Company issued 60,000 shares of common stock for services rendered at $2.40 for
a value of $146,500. The accompanying financial statements reflect the stock
split on a retroactive basis.
During
the year ended October 31, 2009, the Company issued 4,895,000 shares of common
stock at an average price of $0.86 per share for services. During the
same period, the Company issued 2,250,000 in conjunction with the exercise of
options. These options were exercised in exchange for services
provided the Company. Additionally, the Company issued 300,000 shares
of common stock in exchange for options for a total of $137,500 in
cash. During the year ended October 31, 2009, the Company issued
50,000 shares of common stock upon the conversion of $15,000 of debt at $0.30
per share. During the year ended October 31, 2008, the Company’s common stock
was reverse split on the basis of 1 share for 20 shares.
F-14
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 6
- COMMON STOCK (CONTINUED)
All
valuations of common stock issued for services were based upon value of the
services rendered, which did not differ materially from the fair value of the
Company’s common stock during the period the services were
rendered.
NOTE 7
- COMMON STOCK PURCHASE WARRANTS AND OPTIONS
The
Company has granted common stock purchase options to certain of its employees,
directors and consultants. The options vested immediately and the option price
is $0.25 per share.
During
the year ended October 31, 2009, the estimated value of the compensatory common
stock purchase options granted to non-employees in exchange for services and
financing expenses was determined using the Black-Scholes pricing model and the
following assumptions: expected term of 1 years, a risk free interest rate of
1.65%, a dividend yield of 0% and volatility of approximately 200%. The amount
of the expense charged to operations for compensatory options and warrants
granted in exchange for services during the fiscal year ended October 31, 2009
and 2008 was $1,367,320 and $307,157.
The
following table summarizes the changes in options outstanding and the related
prices for the shares of the Company’s common stock issued to employees and
non-employees of the Company. These options were granted in lieu of cash
compensation for services performed.
|
Number
of Shares
|
Weighted
Average Exercise Price
|
||||||
Outstanding
as of November 1, 2007
|
1,350,000 | $ | 1.00 | |||||
Granted
|
- | - | ||||||
Exercised
|
- | 0.10 | * | |||||
Cancelled
|
- | - | ||||||
Outstanding
at October 31, 2008
|
1,350,000 | 1.00 | ||||||
Granted
|
2,150,000 | 0.27 | ||||||
Exercised
|
2,550,000 | 0.27 | ||||||
Cancelled
|
- | - | ||||||
Outstanding
at October 31, 2009
|
950,000 | $ | 0.27 |
* The
original 1,350,000 options with an exercise price of $1.00 were re-priced on
June 10, 2008 to have an exercise price of $0.10. The Company
recognized an additional $67,234 in association with this
revaluation.
F-15
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 8
- INCOME TAXES
No
provision has been made in the financial statements for income taxes because the
Company has accumulated losses from operations since inception. Any
deferred tax benefit arising from the operating loss carried forward is offset
entirely by a valuation allowance since it is currently not likely that the
Company will be significantly profitable in the near future to take advantage of
the losses. The provision for income taxes consists of the
following:
Years
Ended October 31,
|
||||||||
2009
|
2008
|
|||||||
Current
Taxes
|
- | - | ||||||
Deferred
Tax Benefit
|
$ | (2,772,397 | ) | $ | (870,350 | ) | ||
Benefits
of operating loss carryforwards
|
2,772,397 | 870,350 | ||||||
Total
provision for income taxes
|
$ | - | $ | - |
The
following table shows the components of the Company’s deferred tax
assets.
Years
Ended October 31,
|
||||||||
2009
|
2008
|
|||||||
Deferred
Tax Assets
|
||||||||
Loss
Carryforwards (expire through 2029)
|
$ | 5,231,695 | $ | 2,459,297 | ||||
Common
Stock Warrants
|
737,099 | 161,880 | ||||||
Stock
Compensation Expense
|
2,386,400 | 624,330 | ||||||
Total
Gross Deferred Tax Asset
|
2,108,195 | 1,673,088 | ||||||
Valuation
Allowance
|
(2,108,195 | ) | (1,673,088 | ) | ||||
Net
Deferred Taxes
|
- | - | ||||||
Deferred
Tax Liabilities
|
- | - | ||||||
Net
Deferred Taxes
|
$ | - | $ | - |
The
valuation allowance has increased $435,108 from $1,673,088 to $2,108,195 during
the period ended October 31, 2009. Income tax expense differs from amounts
computed by applying the statutory Federal rate to pretax income as
follows:
Years
Ended September 30,
|
||||||||
2009
|
2008
|
|||||||
Federal
statutory rate
|
35.0 | % | 35.0 | % | ||||
Effect
of:
|
||||||||
State
income taxes
|
7.0 | % | 7.0 | % | ||||
Change
in valuation allowance,
|
||||||||
Federal
and State; and other
|
-42.0 | % | -42.0 | % | ||||
Effective
tax rate
|
0.0 | % | 0.0 | % |
F-16
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 8
- INCOME TAXES (CONTINUED)
The
Company adopted the provisions of FIN 48 (ASC 740) at the beginning of fiscal
year 2008. As a result of this adoption, the Company has not made any
adjustments to deferred tax assets or liabilities. The Company did not identify
any material uncertain tax positions on returns that have been filed or that
will be
filed. The Company has not had operations resulting in net income and is
carrying a large Net Operating Loss as disclosed above. Since it is not
thought that this Net Operating Loss will ever produce a tax benefit, even if
examined by taxing authorities and disallowed entirely, there would be no effect
on the financial statements. A reconciliation of our unrecognized tax benefits
is presented in the table below:
Years
Ended October 31,
|
||||||||
2009
|
2008
|
|||||||
Balance
as of November 1, 2008
|
$ | - | $ | - | ||||
Additions
based on tax positions related to the current year
|
- | - | ||||||
Additions
based on tax positions related to prior year
|
- | - | ||||||
Reductions
for tax positions of prior years
|
- | - | ||||||
Reductions
due to expiration of statute of limitations
|
- | - | ||||||
Settlements
with taxing authorities
|
- | - | ||||||
Balance
as of October 31, 2009
|
$ | - | $ | - |
The
Company’s policy is to recognize potential interest and penalties accrued
related to unrecognized tax benefits within income tax expense. For
the years ended October 31, 2009 and 2008, the Company did not recognize any
interest or penalties in the Statements of Operations, nor did the Company have
any interest or penalties accrued at October 31, 2009 and 2008 relating to
unrecognized benefits.
The
Company has filed income tax returns in the United States and (State). All tax
years prior to 2006 are closed by expiration of the statute of limitations.
The years ended October 31, 2009, 2008, and 2007 are open for
examination
NOTE 9 – COMMITMENTS AND CONTINGENCIES
a)
|
Legal
Proceedings
|
At year
end October 31, 2008, the Company had the following litigation
matters. All amounts have been accrued in the Company’s financial
statements.
On
May 27, 2008 the Company filed a lawsuit in the United States District
Court, Central District of California, Case No. SACV08-00586 CJC (PLAx) alleging
securities law violations and fraud against Douglas G. Furth individually and
allegedly dba Millennium Consulting Group, Inc., a defunct Ohio corporation;
Mark Fixler; JAG Enterprises, LLC; Michel Attias; Brendon Attias; Timothy
Garlin; and various DOE defendants for disgorgement of short-swing profits in
violation of the Securities Exchange Act of 1934, Section 16(b) and for
recovery of damages for fraud and deceit. On August 7, 2008 we
filed
F-17
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 9 –
COMMITMENTS AND CONTINGENCIES (CONTINUED)
a First
Amended Complaint adding, among others, defendants Comprehensive Financial
Services, LLC, an Ohio limited liability company; The Signature Fund, a
purported Ohio limited partnership; Signature Management, LLC, an Ohio limited
liability company; Marc J. Bernstein; Legent Clearing LLC, a Nebraska company;
UBS Financial Services, Inc., a California company; and National Financial
Services LLC aka Fidelity Investments National Financial Services, a
Massachusetts company. Many of these defendants have answered and filed
counterclaims, which we intend to vigorously contest. Our investigation into
this matter is continuing and we anticipate moving the court for permission to
file a Second Amended Complaint naming additional defendants and adding
additional causes of action.
On March
11, 2008 we were sued in Maricopa County Superior Court by Sound Packaging, LLC
for the sum of $2,221.60 for an unpaid invoice for shipping boxes. We did not
contest the suit and on July 11, 2008 a judgment in the amount of $3,461.10 was
entered against the company.
In April
2008 the Company borrowed a total of $22,000 from MyTightRide, Inc. in two
tranches: $6,600 on April 3, 2008 and $15,400 on April 16, 2008. We repaid a
total of $10,800 of that sum. Because we did not repay the full amount, on
October 21, 2008 MyTightRide sued us for the balance (including court fees). We
did not contest the lawsuit and on January 13, 2009 a judgment was entered
against the company in Maricopa County Superior Court in the amount of
$11,609.73, which represented the principal sum of $11,190.00 plus $419.73 in
costs, with interest accruing on the total unpaid amount at 10% per annum. We
are presently attempting to negotiate a payment plan for the outstanding
judgment.
On August
20, 2008, Airgas Safety, Inc., one of our vendors, sued us (and Richard Reincke,
personally, as a guarantor) in the McDowell Mountain Justice Court, Maricopa
County, for an unpaid invoice in the amount of $8,959.21 and for $2,983.42 in
attorneys’ fees and court costs. We did not contest the lawsuit and a judgment
was entered against us and Mr. Reincke personally for those amounts in December
2008.
In
addition to the matters specified above, at year end October 31, 2009, the
Company had the following litigation matters:
On or
about April 14, 2009 a complaint was filed in Maricopa County Superior Court
against the company on behalf of American Technology Network Corp., one of the
Company’s vendors, for $21,704.24 for unpaid invoices. We did not contest the
lawsuit.
On
February 27, 2009 Morovision Night Vision, Inc., one of our vendors, sued
us in Maricopa County Superior Court for the unpaid balance of
$25,271.70 for products supplied to the company between May 15, 2008 and May 30,
2008. We did not contest the lawsuit and a judgment was entered against the
company in May 2009.
On August
27, 2009 Worldwide Express, Inc., a shipping company, filed a complaint in
Maricopa County Superior Court for unpaid shipping fees in the amount of
$11,421.69 plus attorney’s fees and costs of $3,500.00. We did not contest the
lawsuit and on September 28, 2009 Worldwide Express moved for a default
judgment.
F-18
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 9 –
COMMITMENTS AND CONTINGENCIES (CONTINUED)
On
October 14, 2009 Golden Sheep Power, Inc., one of our customers, sued us in
Maricopa County Superior Court for $58,673.58 plus $2,000 in attorneys’ fees and
$387.20 in costs for a refund for equipment that was not delivered. We did not
contest the lawsuit.
b)
|
Lease
obligation
|
On
September 1, 2007 the Company entered into a three year lease to rent its
current principle offices and warehouse space. The total annual rent
obligation remaining on the lease is $26,664.
NOTE 10 –
DISCONTINUED OPERATIONS
In
accordance with ASC 205-20, the Company has classified all results from
operations of its former business of providing supplies and materials to
providers of emergency response services into discontinued operations line items
within the Company’s statements of operations and statements of cash
flow.
Net loss
from discontinued operations for the year ended October 31, 2009 and 2008
consisted of the following:
2009
|
2008
|
|||||||
Revenue
|
$ | 32,891 | $ | 400,794 | ||||
Cost
of Goods Sold
|
115,607 | 254,191 | ||||||
Operating
Expenses
|
78,918 | 328,896 | ||||||
Net
Loss from Discontinued Operations
|
$ | (161,634 | ) | $ | (182,293 | ) |
NOTE 11 –
SUBSEQUENT EVENTS
Subsequent
to this filing, the Company has issued 2,576,100 shares of common stock for
services.
In
accordance with ASC 855-10, Company management reviewed all material events
through February 16, 2010, and there are no material subsequent events to report
other than those reported.
F-19
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 12 -
RESTATED FINANCIAL STATEMENTS
On August
27, 2009 the Company was informed that the Public Company Accounting Oversight
Board ("PCAOB") revoked the registration of Moore & Associates who was
serving as the Company’s independent registered public accounting
firm. The revocation was a result of Moore’s violation of PCAOB rules
and auditing standards. This revocation of Moore’s registration
required the Company to have the financial statements previously issued
reaudited for the fiscal years ended October 31, 2008.
This
reaudit produced material differences from the previously filed
versions. The main areas requiring misstatements were related to
improper valuation of beneficial conversion, improper valuation of common stock
and common stock purchase warrants issued for services, and the failure to write
off fixed assets that had been disposed of during the period. Included in this
filing are the restated 2008 fiscal year financial statements. For
comparative purposes, the table below presents the reaudited balance sheets,
income statements and statements of cash flows compared to the original
filing.
F-20
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 12 -
RESTATED FINANCIAL STATEMENTS (CONTINUED)
Balance
Sheets
|
||||||||
ASSETS
|
||||||||
October
31,
|
October
31,
|
|||||||
2008
|
2008
|
|||||||
(Original)
|
(Restated)
|
|||||||
CURRENT
ASSETS
|
||||||||
Cash
|
$ | 7,101 | $ | 7,100 | ||||
Accounts
receivable, net
|
5,945 | 5,945 | ||||||
Inventory
|
127,044 | 127,044 | ||||||
Total
Current Assets
|
140,090 | 140,089 | ||||||
PROPERTY
AND EQUIPMENT, net
|
32,702 | 18,882 | ||||||
TOTAL
ASSETS
|
$ | 172,792 | $ | 158,971 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 384,411 | $ | 375,958 | ||||
Bank
overdraft
|
- | - | ||||||
Accrued
interest payable
|
- | 58,320 | ||||||
Note
payable-related parties
|
- | 50,000 | ||||||
Note
payable
|
1,225,500 | 1,082,870 | ||||||
Total
Current Liabilities
|
1,670,381 | 1,567,148 | ||||||
LONG-TERM
DEBT
|
- | - | ||||||
TOTAL
LIABILITIES
|
1,670,381 | 1,567,148 | ||||||
STOCKHOLDERS'
EQUITY (DEFICIT)
|
||||||||
Preferred
stock: $0.001 par value; 10,000,000 shares authorized;
|
||||||||
no
shares issued and outstanding
|
- | - | ||||||
Common
stock: $0.001 par value; 100,000,000 shares authorized;
|
||||||||
8,104,897
and 609,897 shares issued and outstanding, respectively
|
10,698 | 610 | ||||||
Additional
paid-in capital
|
3,944,835 | 4,446,683 | ||||||
Stock
subscription payable
|
- | - | ||||||
Stock
subscription receivable
|
- | - | ||||||
Deficit
accumulated during the development stage
|
(5,453,122 | ) | (5,855,470 | ) | ||||
Total
Stockholders' Equity (Deficit)
|
(1,497,589 | ) | (1,408,177 | ) | ||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
|
$ | 172,792 | $ | 158,971 |
F-21
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 12 -
RESTATED FINANCIAL STATEMENTS (CONTINUED)
Statements
of Operations
|
||||||||
For
the Year Ended
|
||||||||
October
31,
|
||||||||
2008
|
2008
|
|||||||
(Original)
|
(Restated)
|
|||||||
REVENUES
|
$ | 400,794 | $ | - | ||||
COST
OF GOODS SOLD
|
253,602 | - | ||||||
GROSS
PROFIT (LOSS)
|
147,192 | - | ||||||
OPERATING
EXPENSES
|
||||||||
Depreciation
and amortization
|
9,628 | 9,628 | ||||||
Bad
debt expense
|
328,896 | - | ||||||
Consulting
fees
|
268,987 | 617,296 | ||||||
Professional
fees
|
63,072 | 63,072 | ||||||
General
and administrative
|
924,822 | 841,542 | ||||||
Total
Operating Expenses
|
1,595,405 | 1,531,538 | ||||||
LOSS
FROM OPERATIONS
|
(1,448,213 | ) | (1,531,538 | ) | ||||
OTHER
INCOME (EXPENSES)
|
||||||||
Interest
expense
|
(162,734 | ) | (348,539 | ) | ||||
Other
income
|
- | 3,758 | ||||||
Loss
on disposal of fixed assets
|
- | (13,821 | ) | |||||
Interest
income
|
170 | 170 | ||||||
Total
Other Income (Expenses)
|
(162,564 | ) | (358,432 | ) | ||||
NET
LOSS BEFORE INCOME TAXES
|
(1,610,777 | ) | (1,889,970 | ) | ||||
INCOME
TAX EXPENSE
|
- | - | ||||||
NET
LOSS FROM CONTINUING OPERATIONS
|
$ | (1,610,777 | ) | $ | (1,889,970 | ) | ||
DISCONTINUED
OPERATIONS
|
||||||||
Loss
from discontinued
|
- | (182,293 | ) | |||||
Income
tax benefit
|
- | - | ||||||
GAIN
(LOSS) ON DISCONTINUED OPERATIONS
|
- | (182,293 | ) | |||||
NET
LOSS
|
$ | (1,610,777 | ) | $ | (2,072,263 | ) | ||
BASIC
AND DILUTED INCOME (LOSS) PER SHARE
|
||||||||
Continuing
operations
|
$ | (0.16 | ) | $ | (3.77 | ) | ||
Discontinued
operations
|
0.00 | (0.36 | ) | |||||
$ | (0.16 | ) | $ | (4.14 | ) | |||
BASIC
WEIGHTED AVERAGE NUMBER OF
|
||||||||
SHARES
OUTSTANDING
|
10,016,967 | 500,848 |
F-22
GWS
TECHNOLOGIES, INC.
Notes to
the Financial Statements
October
31, 2009 and 2008
NOTE 12 -
RESTATED FINANCIAL STATEMENTS (CONTINUED)
Statements
of Cash Flows
|
||||||||
|
For
the Year
|
|||||||
Ended
|
||||||||
October
31,
|
||||||||
2008
|
2008
|
|||||||
(Original)
|
(Restated)
|
|||||||
OPERATING
ACTIVITIES
|
||||||||
Net
loss
|
$ | (1,610,777 | ) | $ | (2,072,263 | ) | ||
Adjustments
to reconcile net loss to
|
||||||||
net
cash used by operating activities:
|
||||||||
Amortization
of discount on convertible debt
|
14,664 | 200,000 | ||||||
Common
stock issued for services
|
146,500 | 146,500 | ||||||
Common
stock purchase options granted for services
|
15,397 | 307,157 | ||||||
Depreciation
expense
|
9,628 | 9,628 | ||||||
Write
off of stock subscription receivable
|
325,000 | 325,000 | ||||||
Loss
on disposal of fixed assets
|
- | 13,821 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
Increase
in inventory
|
(87,053 | ) | - | |||||
Increase
in accounts receivable
|
173,454 | - | ||||||
Increase
in accounts payable
|
- | - | ||||||
and
accrued expenses
|
200,264 | 171,257 | ||||||
Net
Cash Used in Continuing Operating Activities
|
(812,923 | ) | (898,900 | ) | ||||
Net
Cash Provided by Discontinued Operating Activities
|
- | 86,779 | ||||||
Net
Cash Used in Operating Activities
|
(812,923 | ) | (812,121 | ) | ||||
|
||||||||
INVESTING
ACTIVITIES
|
||||||||
Property
and equipment purchased
|
(1,139 | ) | (1,140 | ) | ||||
Net
Cash Used in Investing Activities
|
(1,139 | ) | (1,140 | ) | ||||
FINANCING
ACTIVITIES
|
||||||||
Repayment
of related parties
|
(50,000 | ) | - | |||||
Proceeds
from related parties
|
750,500 | - | ||||||
Repayment
of notes payable
|
- | 691,203 | ||||||
Proceeds
from notes payable
|
- | |||||||
Proceeds
from bank overdraft
|
- | |||||||
Common
stock issued for cash
|
55,000 | 55,000 | ||||||
Net
Cash Provided by Financing Activities
|
755,500 | 746,203 | ||||||
NET
INCREASE (DECREASE) IN CASH
|
(58,562 | ) | (67,058 | ) | ||||
CASH
AT BEGINNING OF PERIOD
|
65,663 | 74,158 | ||||||
CASH
AT END OF PERIOD
|
$ | 7,101 | $ | 7,100 | ||||
F-23
ITEM 9. CHANGES IN AND DISAGREEMENTS
WITH ACCOUNTANTS.
There
disclosure has been previously reported on Form 8-K filed August 7, 2009; Form
8-K/A filed September 4, 2009; Form 8-K/A filed September 15, 2009; Form 8-K/A
filed September 23, 2009; Form 8-K/A filed September 25, 2009; Form 8-K/A filed
October 6, 2009; Form 8-K/A filed December 4, 2009; and Form 8-K/A filed
December 10, 2009.
Disclosure
controls and procedures are designed with an objective of ensuring that
information required to be disclosed in our periodic reports filed with the
Securities and Exchange Commission, such as this Annual Report on Form 10-K, is
recorded, processed, summarized and reported within the time periods specified
by the Securities and Exchange Commission. Disclosure controls are also designed
with an objective of ensuring that such information is accumulated and
communicated to our management, including our chief executive officer and chief
financial officer, in order to allow timely consideration regarding required
disclosures.
The
evaluation of our disclosure controls by our principal executive officer,
Richard Reincke, who also serves as our principal financial officer, included a
review of the controls’ objectives and design, the operation of the controls,
and the effect of the controls on the information presented in this Annual
Report. Because most of the senior management functions relating to the
operation of our business are performed by Mr. Reincke, he does not expect that
disclosure controls can or will prevent or detect all errors and all fraud, if
any. A control system, no matter how well designed and operated, can provide
only reasonable, not absolute, assurance that the objectives of the control
system are met. Also, projections of any evaluation of the disclosure controls
and procedures to future periods are subject to the risk that the disclosure
controls and procedures may become inadequate because of changes in conditions,
or that the degree of compliance with the policies or procedures may
deteriorate.
We
presently have only two directors, one of whom, Mr. Reincke, is both our
President/CEO and our Chief Financial Officer. Mr. Johnson, our Chairman of the
Board, has not been an officer of the company since March, 2008, but is still a
10% shareholder. Therefore, the entire board performs audit and compensation
matters, and we do not have an audit or compensation committee which includes
independent, outside directors. We are currently reviewing potential candidates
for our board of directors but believe we will need to obtain D&O insurance
for any new directors as a precondition to their appointment or election.
The
matters involving internal controls and procedures that our management
considered to be material weaknesses under the standards of the Public Company
Accounting Oversight Board were: (1) lack of a functioning audit committee and
lack of a majority of outside directors on our company’s board of directors; (2)
inadequate segregation of duties consistent with control objectives; and (3)
insufficient written policies and procedures for accounting and financial
reporting with respect to the requirements and application of US GAAP and SEC
disclosure requirements.
-31-
Management
believes that the material weaknesses set forth above have not yet had an affect
on our company’s financial results. However, management believes that the lack
of a functioning audit committee, and small board of directors which does not
contain a majority of outside directors, may result in ineffective oversight of
the establishment, maintenance, and monitoring of required internal controls and
procedures in the future. We have a goal of appointing one or more outside
directors to our board of directors to establish a fully functioning audit
committee; however, our lack of D&O insurance at present, and our inability
to fund such insurance at present, have prevented us from accomplishing this
goal. If and when sufficient funds become available, we plan to hire
a full-time Chief Financial Officer and segregate duties consistent with control
objectives. We also plan to increase our personnel resources and technical
accounting expertise within the accounting function when sufficient funds are
available. Part of the proposed CFO’s duties will be to assist in the
preparation and implementation of sufficient written policies and checklists
which will set forth procedures for accounting and financial reporting with
respect to the requirements and application of US GAAP and SEC disclosure
requirements.
Management
believes that the steps outlined above will remedy the lack of a functioning
audit committee and the lack of a majority of outside directors on our company’s
Board. Hiring of additional personnel who have the technical expertise and
knowledge will result in proper segregation of duties and provide more checks
and balances in our financial reporting procedures.
A
material weakness is a deficiency, or a combination of deficiencies, in internal
control over financial reporting, such that there is a reasonable possibility
that a material misstatement of our annual or interim financial statements will
not be prevented or detected on a timely basis. Our management assessed
the effectiveness of our internal control over financial reporting as of
December 31, 2008. In making this assessment, our management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal Control-Integrated Framework. Based on
this assessment, management has identified the following three material
weaknesses that have caused management to conclude that, as of December 31,
2008, our disclosure controls and procedures, and our internal control over
financial reporting, were not effective at the reasonable assurance
level:
1. We
do not have written documentation of our internal control policies and
procedures. Written documentation of key internal controls over
financial reporting is a requirement of Section 404 of the Sarbanes-Oxley Act as
of the year ending December 31, 2008. Management evaluated the impact
of our failure to have written documentation of our internal controls and
procedures on our assessment of our disclosure controls and procedures and has
concluded that the control deficiency that resulted represented a material
weakness.
2. We
do not have sufficient segregation of duties within accounting functions, which
is a basic internal control. Due to our size and nature, segregation
of all conflicting duties may not always be possible and may not be economically
feasible. However, to the extent possible, the initiation of
transactions, the custody of assets and the recording of transactions should be
performed by separate individuals. Management evaluated the impact of
our failure to have segregation of duties on our assessment of our disclosure
controls and procedures and has concluded that the control deficiency that
resulted represented a material weakness.
3. We
had a significant number of audit adjustments this fiscal year. Audit
adjustments are the result of a failure of the internal controls to prevent or
detect misstatements of accounting information. The failure could be
due to inadequate design of the internal controls or to a misapplication or
override
Auditor’s Attestation Report
on Internal Control over Financial Reporting
This
annual report does not include an attestation report of the company’s registered
public accounting firm regarding internal control over financial reporting.
Management’s report was not subject to attestation by our registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit us to provide only management’s report in this
annual report.
In
accordance with current SEC guidelines, our external auditors are required to
provide their initial attestation in our Annual Report on Form 10-K for the
fiscal year ending December 31, 2009.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE
OFFICERS AND CORPORATE GOVERNANCE
Our
directors will serve until the next annual meeting of stockholders. Our
executive officer and key employees and consultants are appointed by our board
of directors and serve at its discretion.
-32-
Directors
and Executive Officers
Our board
of directors currently consists of only two members. There are no
arrangements or understandings between any of the directors or any other persons
pursuant to which any of the directors have been selected as directors, other
than as described below. There are no “family relationships” among the
directors, as that term is defined by the Securities and Exchange Commission.
Set forth on the table below is a list of our current executive officers and our
current Board of Directors, including each member’s age and position with the
Company.
Name
|
Age
|
Position
|
||
Eric
D. Johnson
|
45
|
Chairman,
Board of Directors
|
||
Richard
C. Reincke
|
52
|
President/CEO,
CFO and Director
|
||
Michael
Coskun
|
26
|
Vice
President
|
Eric
D. Johnson
Chairman
Eric
Johnson has held senior management positions with early stage companies focusing
on technology and software. He was our Chief Executive Officer from February
2005 through March 2008 and continues to serve as our Chairman of the
Board. Mr. Johnson's experience includes six years in U.S. Army
Military Intelligence. He attended the Defense Language Institute in Monterey,
California and is fluent in German. After receiving his Top Secret Security
Clearance-SCI, Mr. Johnson worked with the U.S. Army Intelligence and Security
Command (INSCOM) and the National Security Agency (NSA) and was stationed in
Europe, where he worked on several classified Counter Terrorism and Military
Intelligence projects. Mr. Johnson received an honorable discharge in 1990.
After leaving the military, Mr. Johnson joined Equity Services, Inc., a national
full service broker-dealer as a registered representative, where he provided
financial planning and investment advisory services to high net worth
individuals and closely held businesses. Mr. Johnson received his Bachelor's
Degree from the University of New York.
Richard
C. Reincke
President,
Chief Executive Officer, Chief Financial Officer and Director
Richard
Reincke was our Chief Operating Officer, Chief Financial Officer, and a director
from February 2005 through March 2008, at which time he was appointed President
and Chief Executive Officer. He is currently still a director. From 2002 through
September 2004 he was the Chief Operating Officer of Aegis Assessments, Inc., a
wireless technology company specializing in communications products for first
responders, and from September 2004 through May 2008 he served as the acting
President of that company. Mr. Reincke is a former member of the Association of
Public Safety Communications Officials (APCO) and was also a member of ComCARE,
a national advocacy organization for first responders. Mr. Reincke was a
National Merit Scholar in 1975.
-33-
Michael
C. Coskun
Vice
President
Mr.
Coskun graduated Magna Cum Laude from Arizona State University with a B.A. in
political science in 2007 and began working for the company in July 2007. Prior
to that, he worked for the Leadership at the Arizona House of Representatives in
Phoenix. His experience includes working for and interacting with various
Congressmen, Senators, and State Representatives. As our vice president, Mr.
Coskun oversees finding new products for the company to distribute, as well as
competitive bidding and marketing of our wind turbines and other alternative
energy product lines. Several of his initiatives are “green” initiatives
targeted at the federal government and state government agencies, specifically
California, relying on Executive orders and Federal Trade Commission Guidelines
that require governments to make major purchases of “green”
products. He has also been active in developing the private wind
turbine market in Canada.
Limitation of liability and
indemnification of directors. The right of the stockholders to sue any
director for misconduct in conducting the affairs of the company is limited by
the company’s Certificate of Incorporation, Bylaws and applicable statutory law
relating to cases for damages resulting from breaches of fiduciary duties
involving acts or omissions involving intentional misconduct, fraud, knowing
violations of the law or the unlawful payment of dividends. Ordinary
negligence is not a ground for such a suit. The statute does not limit the
liability of directors or officers for monetary damages under the Federal
securities laws.
Insofar
as indemnification for liabilities arising under the Securities Act may be
permitted to directors, officers or persons controlling the company pursuant to
the foregoing provisions, the company has been informed that in the opinion of
the United States Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is therefore
unenforceable.
Section 16(a) Beneficial Ownership
Reporting Compliance. Section 16(a) of the Securities Exchange Act of
1934, as amended, requires our executive officers, directors, and persons who
own more than ten percent of a registered class of our equity securities to file
reports of ownership and changes in ownership with the Securities and Exchange
Commission, or SEC. Executive officers, directors, and greater than 10%
stockholders are required by SEC regulation to furnish us with copies of all
Section 16(a) forms they file. We did not receive copies of any such forms for
our review during the year ended October 31, 2009 and therefore we cannot opine
as to whether any executive officers, directors or greater than 10% shareholders
complied with these requirements, except as follows: our President and CEO,
Richard Reincke, and our Chairman, Eric Johnson, received stock compensation
during the last fiscal year but have not yet filed their updated Form 4
ownership reports. They have asked the Company to assist them in filing these
reports and intend to become current in their reporting
obligations.
-34-
Code
of Ethics
In order
to participate in competitive bidding activities we are required to certify,
from time to time, that we will not engage in fraud, collusion, or other
dishonest or unethical conduct. In addition to these periodic certifications, we
have adopted written standards designed to promote honest and ethical conduct by
our officers, directors and employees, including but not limited to our
principal executive officer, principal financial officer, principal accounting
officer, and persons performing similar functions. This was accomplished by
resolution of our board of directors on January 15, 2008. We believe that our
current Code of Ethics substantially complies with the rules promulgated under
the Sarbanes-Oxley Act of 2002. We will provide any person, upon request to our
corporate secretary and without charge, a copy of our written standards.
Since we
currently have only two directors, we do not have any outside directors to
provide oversight of these functions; however, we are investigating the costs
for D&O insurance (which we cannot presently afford), which we believe will
be necessary to obtain outside directors.
We do not
currently have standing audit, nominating and compensation committees of the
board of directors; the entire board currently consists of only two directors,
who perform those functions. We do not currently have procedures in place by
which security holders may recommend nominees to our board of directors, but we
plan to adopt such procedures at our next annual shareholders’
meeting.
ITEM
11. EXECUTIVE
COMPENSATION
Executive
Compensation Summary
There are
the only two members of the Board of Directors, Richard Reincke and Eric
Johnson, who are also control shareholders of the Company. Mr. Reincke is also
both the President/CEO and Chief Financial Officer. Therefore, there are no
outside directors or an independent compensation committee.
The
following table sets forth the total compensation for the fiscal years ended
October 31, 2009, 2008 and 2007, paid to or accrued for our chief executive
officer and our other executive officers who provided services to us at October
31, 2009, 2008 and 2007.
-35-
Annual Compensation
|
Long Term
Compensation
|
|||||||||
Name and
Principal Position
|
Year
|
Salary ($)
|
Bonus ($)
|
Other Annual
Compensation
|
Securities
Underlying
Options/SARs (#)
|
|||||
Eric
Johnson, CEO (until March, 2008)
|
2008
|
43,600
|
—
|
—
|
||||||
2007
|
84,000
|
—
|
500,000
common
|
|||||||
2006
|
0.00
|
—
|
—
|
—
|
||||||
Richard
Reincke, CEO (from March 2008); CFO
|
2009
|
0
|
—
|
500,000
options
|
500,000
|
|||||
COO |
2008
|
37,880
|
—
|
(see
below)
|
—
|
|||||
2007
|
55,000
|
—
|
—
|
500,000
common
|
||||||
|
2006
|
0.00
|
—
|
—
|
—
|
|||||
Steven
Stubblefield
|
2008
|
75,000
|
—
|
—
|
—
|
|||||
CTO
|
2007
|
75,000
|
—
|
150,000
common
|
||||||
Michael
Coskun
|
2009
|
100,000
|
||||||||
Vice
President
|
2008
|
75,000
|
—
|
—
|
—
|
|||||
2007
|
75,000
|
—
|
—
|
200,000
common
|
Option
Grants in Last Fiscal Year
Individual Grants
|
||||||
Number of Securities
|
Percent of Total Options
|
Exercise Price
|
||||
Name
|
Underlying Options
|
Granted to Employees in Fiscal Year
|
($/Share)
|
|||
Richard
Reincke
|
500,000
|
100%
|
0.23
|
Compensation
of Directors
DIRECTOR
COMPENSATION
|
||||||||||||||||||||||
Name
|
Fees
Earned or Paid in Cash ($)
|
Stock
Awards ($)
|
Option
Awards
($)
|
Non-Equity
Incentive
Plan
Compensation
($)
|
Change
in Pension Value and Nonqualified
Deferred
Compensation
Earnings
($)
|
All
Other
Compensation
($)
|
Total
($)
|
|||||||||||||||
Eric
Johnson
|
0 |
500,000
(valued at $0.21 per share)
|
0 | 0 | 0 | $ | 105,000 |
-36-
ITEM
12. SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS
Security
ownership of certain beneficial owners and management
The
following table specifies the capital stock ownership of our officers, directors
and key employees and consultants. Beneficial ownership is determined in
accordance with the rules of the Securities and Exchange Commission and
generally includes voting or investment power with respect to securities. In
accordance with Securities and Exchange Commission rules, shares of our common
stock which may be acquired upon exercise of stock options or warrants which are
currently exercisable or which become exercisable within 60 days of the date of
the table are deemed beneficially owned by the optionee, and the percent of
class owned in the table below is calculated assuming the exercise of all
options exercisable within 60 days. Subject to community property laws, where
applicable, the persons or entities named in the table below have sole voting
and investment power with respect to all shares of our common stock indicated as
beneficially owned by them.
Name
of Beneficial Owner
|
Title
of Class and Number of Shares Owned
|
Approximate
Percent of Class
|
||
Eric
Johnson; Chairman
|
Common
|
1,050,000
|
12.9%
|
|
Richard
Reincke, President/CEO; Chief Financial Officer; Secretary;
Director
|
Common
|
1,050,000
|
12.9%
|
|
Michael
Coskun; Vice President
|
Common
|
400,000
|
4.9%
|
|
John
Haytol; Corporate Counsel
|
Common
|
1,042,000
|
12.9%
|
|
All
officers, directors and key employees
|
Common
|
3,542,000
|
43.7%
|
A person
is deemed to be the beneficial owner of securities that can be acquired within
60 days from the date set forth above through the exercise of any option,
warrant or right. Shares of common stock subject to options, warrants or rights
that are currently exercisable or exercisable within 60 days are deemed
outstanding for computing the percentage of the person holding such options,
warrants or rights, but are not deemed outstanding for computing the percentage
of any other person.
Changes
in control
Our
management is not aware of any arrangements which may result in "changes in
control" as that term is defined by the provisions of Item 403(c) of Regulation
S-B, other than as follows: we are presently negotiating with certain
bondholders to convert the bond debt into a combination of common and preferred
stock, with designated privileges and preferences, including voting rights,
which designations and terms are still being negotiated. Depending on conversion
ratios and those privileges and preferences, such a transaction could result in
a change of control of the company.
-37-
Equity
Compensation Plan Information
We
maintain the First Responder Products, Inc. 2007 Stock Option Plan (“First
Responder Products, Inc.” is the former name of the company) pursuant to which
we may grant equity awards to eligible persons. The following table gives
information about equity awards under the Plan.
(a)
|
(b)
|
(c)
|
||||
Plan
category
|
Number
of securities to be issued upon exercise of outstanding options, warrants
and rights
|
Weighted-average
exercise price of outstanding options, warrants and rights
|
Number
of securities remaining available for future issuance under equity
compensation plans (excluding securities reflected in column
(a))
|
|||
Equity
compensation plans approved by security holders (1)
|
950,000
|
$0.27
|
3,115,000
|
|||
Equity
compensation plans not approved by security holders
|
None
|
N/A
|
N/A
|
|||
Total
|
950,000
|
$0.27
|
3,115,000
|
The Plan
was approved by written consent of a majority of the Company’s stockholders on
March 12, 2007 by an action by written consent in lieu of a
meeting.
Agreements
with Executive Officers and Directors
We have
only two directors; one, Richard Reincke, serves as both our President/CEO and
CFO; he is also a 10% shareholder. The other, Eric Johnson, is our Chairman of
the Board and a 10% shareholder. Therefore, we do not have any independent
directors.
During
the last fiscal year we held seven (7) board meetings. Both directors attended
all board meetings. We did not hold an annual meeting of shareholders during the
fiscal year ended October 31, 2009.
We do not
have written employment agreements with our executive officers or directors. Our
primary executive officer, Richard Reincke, has not received a monthly salary
for a significant period of time and is suffering financial hardship due to not
receiving a salary. There can be no assurance that he will continue to perform
services without being compensated. The loss of Mr. Reincke’s services would be
extremely adverse to the operation of the company.
-38-
The
Company has received significant loans from related parties. Specifically, at
the fiscal year ended October 31, 2009 Eric Johnson, Chairman of our Board of
Directors, had an outstanding loan to the Company in the principal amount of
$272,134.88 at 12% per annum interest on the unpaid principal. A&Z
Investments, LLC had an outstanding loan to the Company in the principal amount
of $945,500 at 12% per annum interest on the unpaid
principal. A&Z Investments, LLC is a shareholder of the
Company.
Indemnification
Agreements
We will
enter into indemnification agreements with each of our executive officers. We
will agree to indemnify each such person for all expenses and liabilities,
including criminal monetary judgments, penalties and fines, incurred by such
person in connection with any criminal or civil action brought or threatened
against such person by reason of such person being or having been our officer or
director or employee. In order to be entitled to indemnification by us, such
person must have acted in good faith and in a manner such person believed to be
in our best interests. With respect to criminal actions, such person must have
had no reasonable cause to believe his or her conduct was unlawful.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may
be permitted to our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that in the opinion of
the Securities and Exchange Commission such indemnification is against public
policy as expressed in that act and is, therefore, unenforceable.
Organization
within last five years
Transactions
with promoters
In
February 2005, we issued 5,450,000 shares of our common stock in exchange for
services related to our incorporation and initial business activities. The
founders' shares were valued at par value, or $.001 per share, which represented
the fair market value of our stock on the date of issuance.
The
following individuals were issued founders' shares for the services
indicated:
·
|
Eric
Johnson, our president, chief executive officer and chairman, received
3,550,000 shares of our common stock for initial capitalization and
services related to our incorporation. Specifically, Mr. Johnson assisted
in the initial incorporation and helped formulate our business plan. His
shares were valued at $.001 per
share.
|
·
|
Mr.
Reincke received 1,000,000 shares of our common stock for services related
to our initial incorporation including assisting in the preparation and
filing of documents related to our incorporation, general office duties,
market research, and formulation of our business and marketing plans. His
shares were valued at $.001 per
share.
|
-39-
·
|
Steve
Stubblefield, a consultant, received 900,000 shares of our common stock
for software development services related to designing our e-commerce
website, assisting in the formulation of our business plan and product
identification and acquisition. His shares were valued at $.001 per
share.
|
ITEM
14. PRINCIPAL
ACCOUNTANT FEES AND SERVICES
Audit
Fees
We
received aggregate billings from our former auditor, Moore & Associates, for
the audit of our annual financial statements for the fiscal year ending October
31, 2008 and for review of our quarterly statements through July 31, 2008. We
incurred fees of approximately $10,625 from Moore & Associates for review of
our quarterly statements for 2008 and of approximately $7,500.00 for the audit
of our annual financial statements for the fiscal year ending October 31, 2008.
We have been required to re-audit the balance sheet of the Company as of October
31, 2008, and the related statements of operations, stockholders’ equity and
comprehensive income, and cash flows for the year then ended due to the
revocation of the registration of Moore and Associates Chartered. We retained
Mantyla McReynolds LLC to re-audit those financial statements for the fiscal
year ended October 31, 2008 and incurred fees of approximately $9,100 for that
review, and an additional $15,000 for the audit of our annual financial
statements for the fiscal year ending October 31, 2009.
Audit
Related Fees
There
were no fees billed by our auditors in our last two fiscal years for
professional services rendered in connection with assurance and related services
that are reasonably related to the performance of an audit or review of our
financial statements.
Tax
Fees
There
were no fees billed by our auditors in our last two fiscal years for tax
compliance, tax advice, or any tax planning.
All
Other Fees
There
were no fees billed by our auditors in our last two fiscal years for products
and services other than those reported above.
-40-
PART
IV
(a) The following
exhibits are either attached hereto or incorporated herein by reference as
indicated:
Independent Auditors’
Report
|
F-3
|
Balance Sheets
|
F-4
|
Statements of Operations
|
F-5
|
Statements of Stockholders’ Equity
(Deficit)
|
F-6
|
Statements of Cash Flows
|
F-7
|
Notes to the Financial
Statements
|
F-8
|
(b)
Exhibit
Number
|
Description
|
Exhibit
|
||
3.1
|
Certificate
of Incorporation dated February 15, 2005 *
|
|||
3.2
|
Certificate
of Amendment of Certificate of Incorporation dated April 21, 2005
*
|
|||
3.3
|
Amended
and Restated Certificate of Incorporation dated October 26,
2005*
|
|||
3.4
|
Certificate
of Amendment of Certificate of Incorporation of GWS Technologies dated
June 30, 2008
|
Filed
herewith
|
||
3.5
|
Certificate
of Amendment of Certificate of Incorporation of GWS Technologies dated
October 13, 2008
|
Filed
herewith
|
||
3.6
|
Bylaws*
|
|||
10.1
|
Amendment
No. 1 to Lease with Camidor Properties**
|
|||
10.2
|
Consulting
Agreement with Cota LLC dated May 19, 2009
|
|||
14
|
Code
of Ethics**
|
|||
23
|
Consent
of Mantyla McReynolds LLC
|
Filed
herewith
|
||
31
|
Certification
pursuant to SEC Release No. 33-8238, as adopted pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
||
32
|
Certification
pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002
|
Filed
herewith
|
* Previously filed as
exhibits to our registration statement on Form SB-2, file number 3333-139751,
filed December 29, 2006.
**
Previously filed as exhibits to our Annual Report on Form 10-KSB filed February
12, 2008.
-41-
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.
Dated:
February 16, 2010
|
By:
|
/s/
Richard Reincke
|
||
Richard
Reincke
|
||||
Chief
Executive Officer
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the registrant and in the
capacities and on the dates indicated.
Signature
|
Title
|
Date
|
||
/s/
Eric Johnson
|
Chairman
of the Board of Directors
|
February
16, 2010
|
||
Eric
Johnson
|
||||
/s/
Richard Reincke
|
President,
Chief Financial Officer and Director
|
February
16, 2010
|
||
ichard
Reincke
|
(Principal Executive Officer, Principal Financial Officer and Principal Accounting Officer) | |||
-42-