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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q/A

(Amendment No. 1)

 

(Mark One)

 

x  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2013. 

 

o  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______ to _______. 

 

Commission File Number: 333-181405

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

(Exact name of registrant as specified in its charter)

 

Nevada		30-0680119
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

 

8 Light Sky Court

Sacramento, CA 95828

(Address of principal executive offices) ( Zip Code)

 

(916) 379-0324

(Registrant’s telephone number, including area code)

 

N/A

 (Former name, former address and former fiscal year,

if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes o No x

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o No 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.

 

	Large accelerated filer o	Accelerated filer o
	Non-accelerated filer o   (do not check if smaller reporting company)	Smaller reporting company x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x

 

As of February 11, 2014, there were 10,429,666 shares of common stock, $0.0001 par value issued and outstanding.

 

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INTELLIGENT HIGHWAY SOLUTIONS, INC.

TABLE OF CONTENTS

FORM 10-Q/A REPORT

JUNE 30, 2013

 

		Page Number
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements.	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	15
Item 4.	Controls and Procedures.	19
PART II - OTHER INFORMATION
Item 6.	Exhibits.	21
SIGNATURES		22

 

 

Explanatory Note

 

This Quarterly Report on Form 10-Q/A of Intelligent Highway Solutions, Inc. (the “Company”) for the quarterly period ended June 30, 2013 includes restated condensed balance sheet as of June 30, 2013, condensed statement of operations for the three and six months ended June 30, 2013 and 2012 and condensed statement of cash flows for the six months ended June 30, 2013 and 2012 and restated notes to such condensed financial statements.  The restatement in the Company’s results for the three and six months ended June 30, 2013 is to appropriately reflect the accounts receivable and allowance for doubtful accounts balances as of and revenue for the three and six months ended June 30, 2013.   This restatement of the Company’s previously issued condensed financial statements to reflect its correction in accounting for the accounts receivable and allowance for doubtful accounts are referred to herein as the “Restatement.”

 

For further information regarding the Restatement, see the Company’s Current Report on Form 8-K filed with the Securities and Exchange Commission (the “SEC”) on January 3, 2014 (the “Restatement 8-K”), and for detailed financial information with respect to the Restatement, see Note 13 of the notes to condensed financial statements included in this Quarterly Report on Form 10-Q/A.

 

The following items of the Form 10-Q have been modified or revised in this Form 10-Q/A to reflect the Restatements:

 

Part I, Item 1.  Financial Statements;

Part I, Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations;

Part I, Item 4.  Controls and Procedures; and

Part II, Item 6.  Exhibits

 

PART I - FINANCIAL INFORMATION

 

Item 1.        Financial Statements.

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

 

UNAUDITED FINANCIAL STATEMENTS

 

June 30, 2013

 

Balance Sheets as of June 30, 2013 and December 31, 2012	4
Statement of Operations for the Three and Six Months Ended June 30, 2013 and 2012	5
Statement of Cash Flows for the Six Months Ended June 30, 2013 and 2012	6
Notes to Unaudited Financial Statements	7 - 14

 

 

INTELLIGENT HIGHWAY SOLUTIONS

BALANCE SHEETS

 

		June 30, 2013				December 31, 2012
		(Unaudited) (Restated)
ASSETS
Current assets
Cash and cash equivalents		$	92,123			$	-
Accounts receivable, net of allowance of $4,692 and $17,850			9,469				258,060
Other receivables			113,129				120
Other current assets			9,352				6,005
Total current assets			224,073				264,185
Property and equipment, net of accumulated depreciation of $16,050 and $8,325			61,204				68,929
Total assets		$	285,277			$	333,114
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Bank overdraft		$	-			$	1,678
Accounts payable			38,146				17,892
Notes payable, current portion			299,971				319,560
Derivative liability			86,283				-
Other payables			54,586				82,403
Capital lease, current portion			39,427				37,682
Accrued expenses and other liabilities			753,645				744,750
Total current liabilities			1,272,058				1,203,965
Convertible notes payable, net of discounts of $574,281 and $0			135,719				-
Capital lease, net of current portion			-				20,740
Total liabilities			1,407,777				1,224,705
Stockholders' deficit
Common stock, $0.00001 par value; 100,000,000 shares authorized; 10,429,666 and 10,404,666 issued and outstanding at June 30, 2013 and December 31, 2012			104				104
Additional paid-in capital			751,086				134,836
Accumulated deficit			(1,873,690	)			(1,026,531	)
Total stockholders' deficit			(1,122,500	)			(891,591	)
Total liabilities and stockholders' deficit		$	285,277			$	333,114

 

See accompanying notes to unaudited condensed financial statements.

 

 

INTELLIGENT HIGHWAY SOLUTIONS

STATEMENTS OF OPERATIONS (unaudited)

 

		Three months ended June 30,								Six months ended June 30,
		2013				2012				2013				2012
		(Restated)				(Restated)				(Restated)				(Restated)
Revenue		$	49,323			$	477,679			$	670,553			$	943,800
Cost of sales			201,432				366,652				790,769				719,532
Gross profit			(152,109	)			111,027				(120,216	)			224,268
Operating expenses
Salaries and wages			59,856				61,114				127,217				98,985
General and administrative			261,041				160,827				441,899				352,610
Total operating expenses			320,897				221,940				569,116				451,595
Income (loss) from operations			(473,006	)			(110,913	)			(689,332	)			(227,327	)
Other income (expense)
Interest income			-				-				-				-
Loss on derivative fair value adjustment			(16,283	)			-				(16,283	)			-
Interest expense			(126,913	)			(9,955	)			(141,544	)			(20,552	)
Total other expense			(143,196	)			(9,955	)			(157,827	)			(20,552	)
Loss before income taxes			(616,202	)			(120,868	)			(847,159	)			(247,879	)
Provision for income taxes			-				-				-				-
Net loss		$	(616,202	)		$	(120,868	)		$	(847,159	)		$	(247,879	)
Basic and diluted loss per common share		$	(0.06	)		$	(0.01	)		$	(0.08	)		$	(0.03	)
Basic and diluted weighted average shares outstanding			10,404,666				10,351,047				10,404,666				9,899,425

 

See accompanying notes to unaudited condensed financial statements.

 

 

INTELLIGENT HIGHWAY SOLUTIONS

STATEMENT OF CASH FLOWS (unaudited)

 

		Six months ended June 30,
		2013				2012
		(Restated)				(Restated)
Cash flows from operating activities
Net loss		$	(847,159	)		$	(247,879	)
Adjustments to reconcile net loss to net cash used in operating activities
Common stock issued for services			-				3,440
Common stock issued as loan origination fee			6,250				-
Depreciation			7,725				336
Amortization of loan fee			-				1,221
Loss on derivative fair value adjustment			16,283				-
Excess derivative liability charged to interest			40,000				-
Amortization of debt discount			65,719				-
Allowance for doubtful accounts			(13,158	)			-
Changes in operating assets and liabilities
Accounts receivable			261,749				(44,830	)
Other receivables			(113,009	)			(19,906	)
Other current assets			(3,347	)			(36,057	)
Accounts payable			8,695				87,404
Other payables			(27,817	)			(2,026	)
Accrued expenses and other liabilities			8,895				186,014
Net cash used in operating activities			(589,174	)			(72,283	)
Cash flows from investing activities			-				-
Cash flows from financing activities
Proceeds from (repayment of) bank overdraft			(1,678	)			1,271
Repayment of related party notes payable			-				(6,792	)
Proceeds from convertible notes payable			710,000				-
Proceeds from notes payable			20,000				-
Repayments of notes payable			(28,030	)			-
Capital lease financing repayments			(18,995	)			-
Issuance of common stock for cash			-				42,000
Net cash provided by financing activities			681,297				36,479
Change in cash and cash equivalents			92,123				(35,804	)
Cash at beginning of period			-				35,804
Cash at end of period		$	92,123			$	-
Supplemental disclosures of cash flow information
Cash paid for interest		$	11,438			$	6,251
Cash paid for income taxes		$	-			$	-
Supplemental disclosure of non-cash financing activities:
Debt discount on convertible notes (beneficial conversion feature)		$	610,000			$	-
Derivative valuation			30,000

 

See accompanying notes to unaudited condensed financial statements.

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Condensed Financial Statements

June 30, 2013

 

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Organization, Nature of Business and Trade Name

 

Intelligent Highway Solutions, Inc.  (the “Company” or “IHS”) was formed in April 22, 2011; IHS is a technology based intelligent highway solutions contractor. The Company’s primarily focus is in the California transportation market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance services for the States transportation infrastructure. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.

 

NOTE 2 – CONDENSED FINANCIAL STATEMENTS

 

The accompanying financial statements have been prepared by the Company without audit.  In the opinion of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows as of June 30, 2013 and for all periods presented herein, have been made.

 

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted.  It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2012 audited financial statements.  The results of operations for the periods ended June 30, 2013 are not necessarily indicative of the operating results for the full year.

 

NOTE 3 – GOING CONCERN

 

The Company’s financial statements are prepared using generally accepted accounting principles 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. The Company has not yet established an ongoing source of revenues sufficient to cover its operating costs and allow it to continue as a going concern. The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to obtain adequate capital, it could be forced to cease operations.

 

In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management’s plan is to obtain such resources for the Company by obtaining capital from management and significant shareholders sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However management cannot provide any assurances that the Company will be successful in accomplishing any of its plans.

 

The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Condensed Financial Statements

June 30, 2013

 

NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES

 

Use of Estimates

 

The preparation of financial statements in 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. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred.

 

Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.

 

Cash and Cash Equivalents

 

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

 

Accounts Receivable

 

Accounts receivable are carried at the expected net realizable value. The allowance for doubtful accounts, is based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations.

 

Property, Plant and Equipment

 

Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

 

Depreciation is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:

 

		Estimated Useful Life
Furniture and fixtures		5 years
Machinery and equipment		5 years
Vehicles		5 years

 

For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements purposes, depreciation is computed under the straight-line method. Balances of each asset class as of June 30, 2013 and December 31, 2012 were:

 

		June 30, 2013				December 31, 2012
Machinery and equipment		$	2,149			$	2,149
Furniture and fixtures			1,210				1,210
Vehicles			73,895				73,895
Sub Total		$	77,254			$	77,254
Accumulated depreciation			(16,050	)			(8,325	)
Total		$	61,204			$	68,929

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Condensed Financial Statements

June 30, 2013

 

NOTE 4 - SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Other Payables

 

The Company had other payables consisting of the following at June 30, 2013 and December 31, 2012:

 

		June 30, 2013				December 31, 2012
Interest		$	23,710			$	48,681
Income tax			-				800
Sales Tax			-				2,046
Other			30,876				30,876
Total		$	54,586			$	82,403

 

Revenue Recognition

 

Service revenue is recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. The Company’s service revenue is largely attributable professional engineering services where the fee is based on the billable rate of the employees.

 

Fair Value Measurements

 

In January 2010, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports.  For the Company, this statement applies to certain investments and long-term debt.  Also, the FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.   

 

Various inputs are considered when determining the value of the Company’s investments and long-term debt.  The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in the three broad levels listed below.

 

●	Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
●	Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
●	Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

 

The Company’s adoption of FASB ASC Topic 825 effectively at the inception did not have a material impact on the Company’s financial statements.

 

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company does not have financial assets as an investment carried at fair value on a recurring basis as of June 30, 2013.

 

The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. As of June 30, 2013, the Company has assets and liabilities in cash, various receivables, property and equipment, and various payables. Management believes that they are being presented at their fair market value.

 

Recent Accounting Pronouncements

 

The Company has evaluated recent accounting pronouncements and their adoption has not had or is not expected to have a material impact on the Company’s financial position, or statements.

 

Reclassifications

 

Certain prior-year amounts have been reclassified in order to conform to the current-year presentation. These reclassifications related to notes payable where prior periods had incorrectly shown certain notes as being related party whereas they were not.

 

Net Loss Per Share

 

Net loss per share is computed by dividing net loss by the weighted average number of common shares outstanding during the specified period. Diluted earnings per common share is computed by dividing net income by the weighted average number of common shares and potential common shares during the specified period. For the six months ended June 30, 2013, potential common shares are not included in the diluted net loss per share calculation as their effect would be anti-dilutive.  Such potentially dilutive shares are excluded when the effect would be to reduce net loss per share.  There were 2,510,097 such potentially dilutive shares excluded as of June 30, 2013.

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Financial Statements

June 30, 2013

 

NOTE 5 - FAIR VALUE MEASUREMENTS

 

On a recurring basis, we measure certain financial assets and liabilities based upon the fair value hierarchy.  The following table presents information about the Company’s liabilities measured at fair value as of June 30, 2013 and December 31, 2012: 

 

		Level 1				Level 2				Level 3				Fair Value at June 30, 2013
Liabilities
Derivative Liability			-				-			$	86,283			$	86,283

 

Level 1

Level 2

Level 3

Fair Value at December 31, 2012

Liabilities

Derivative Liability

-

-

-

-

 

The fair value changes in the fair value of recurring fair value measurements using significant unobservable inputs (Level 3), relate solely to the derivative liability as follows: 

 

Balance at December 31, 2012		$	-
Derivative liability recorded			70,000
Fair value adjustment			16,283
Balance at June 30, 2013		$	86,283

 

NOTE 6 – NOTES PAYABLE

 

On June 17, 2011 the Company received a loan in the amount of $65,000 from Innovest, LLC (“Innovest”). The loan is unsecured and bears a simple interest of 1.5% per month to be paid monthly for the previous month’s outstanding principal. The loan was due on June 17, 2012; however, the Company obtained an extension to March 13, 2013 and is currently in negotiations to extend the maturity date.   Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed this loan. There was $62,042 and $65,000 in principal plus accrued interest of $1,377 and $4,383 due at June 30, 2013 and December 31, 2012.

 

On October 30, 2011 the Company received a loan in the amount of $130,000 from Kenneth K. Polk. The loan is unsecured and bears a simple interest of 2.5% per month to be paid monthly for previous month’s outstanding principal. The loan was originally due on March 30, 2012; however, the note’s maturity was extended until September 30, 2012.  The Company is negotiating to further extend its maturity date. There was $100,000 and $111,560 in principal plus accrued interest of $5,206 and $428 due at June 30, 2013 and December 31, 2012.

 

On November 21, 2011 the Company received a loan in the amount of $27,000 from Byrd & Company LLC, Emerging Markets Consulting LLC, and Douglas S. Hackett ($9,000 from each party). The loan is unsecured and bears a simple interest of 12% per annum to be amortized in 6 equal installments of principal and interest commencing January 1, 2012 through June 1, 2012. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed this loan.  On March 1, 2012, the Company issued Emerging Markets Consulting, LLC shares of common stock equivalent to $19,000, $10,000 for cash and $9,000 in satisfaction of the outstanding loan.  Accordingly, the loan from Emerging Markets Consulting, LLC is no longer outstanding.  Additionally, the Company is in negotiations to extend the maturity date of the note from Byrd & Company has been extended to November 1, 2012.  Also, the Company is negotiating to amend or extend the terms of the remaining amount of the note from Douglas S. Hackett. There was $9,000 and $13,000  in principal plus accrued interest of $1,377 and $4,383 due at June 30, 2013 and December 31, 2012.

 

On December 15, 2011 the Company received a loan in the amount of $100,000 from O.K. and B. The loan is unsecured and bears a simple interest of 5% per annum. The loan was originally due on March 15, 2012, however the note’s maturity was extended to September 17, 2012.  The Company is negotiating to further extend its maturity date. There was $78,929 and $100,000 in principal plus accrued interest of $335 with prepaid interest of $1,458 at June 30, 2013 and December 31, 2012.

 

On April 10, 2013, the Company received a loan totaling $20,000 from an unrelated party. The note bears no interest and has a maturity date of June 9, 2013. There was $20,000 and $0 in principal and no accrued interest due at June 30, 2013 and December 31, 2012. This note was repaid in full during August 2013.

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Financial Statements

June 30, 2013

 

NOTE 7 - CONVERTIBLE NOTES PAYABLE

 

On October 26, 2012, the Company received a loan totaling $30,000 from an unrelated party. The note bears interest at 10% per annum and had an original maturity date of April 26, 2013; however, the Company is in negotiations to extend the maturity date. There was $30,000  in principal plus accrued interest of $2,030 and $542 at June 30, 2013 and December 31, 2012. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30.

 

During the six months ended June 30, 2013, the Company entered into debt agreements with various individuals to borrow a total of $710,000. The notes accrue interest at 10% per annum and are due in are due in full between January and June 2015 with no repayments due before maturity. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30. The notes entered into after April 1, 2013 each had a beneficial conversion feature as the conversion rate in the note was less than the trading price of our common stock. The beneficial conversion features of each note created a debt discount which will be amortized to interest expense over the term of the note. In the instance a note is paid in full prior to the maturity date, the remaining debt discount will be recognized as interest expense on the repayment date.

 

		Maturity Date		Principal				Debt Discount				Carrying Amount				Accrued Interest
Note holder 1		1/24/2015		$	100,000			$	-			$	100,000			$	3,781
Note holder 2		4/26/2015			60,000				(54,658	)			5,342				1,101
Note holder 3		5/3/2015			25,000				(23,014	)			1,986				397
Note holder 4		5/9/2015			100,000				(92,055	)			7,945				1,589
Note holder 4		5/31/2015			50,000				(47,877	)			2,123				411
Note holder 5		5/17/2015			50,000				(46,986	)			3,014				712
Note holder 6		5/30/2015			100,000				(92,877	)			7,123				1,425
Note holder 7		5/9/2015			50,000				(46,438	)			3,562				712
Note holder 8		5/9/2013			50,000				(46,438	)			3,562				658
Note holder 10		6/7/2015			25,000				(24,212	)			788				158
Note holder 11		7/1/2015			100,000				(99,726	)			274				55
Note holder 12		4/26/14			30,000				-				30,000				2,030
Total				$	740,000			$	(574,281	)		$	135,719			$	13,029

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Financial Statements

June 30, 2013

 

NOTE 8– RELATED PARTYTRANSACTIONS

 

We have engaged an entity controlled by the director of the Company to perform consulting services related to the development of new technologies. Payments to this party totaled $9,775 and $21,971 during the six months ended June 30, 2013 and 2012. As of June 30, 2013, there is no balance due to these related parties.

 

NOTE 9 – COMMITMENTS AND CONTINGENCIES

 

The Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters.

 

As of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.

 

As of June 30, 2013 and December 31, 2012, the Company had accrued $488,157 and $488,557 in payroll tax liabilities.  The payment of these liabilities has not been made due to our limited profitability.  Due to the uncertainty regarding our future profitability, it is difficult to predict our ability to pay these liabilities.   As a result, a federal tax lien has been levied that will have to be satisfied.

 

Office and Warehouse Lease

 

The Company is required under the terms of the rental lease to make monthly lease payments.

 

The Company’s property lease is for an initial period of thirteen months from October 2011 and may be extended in thirteen-month increments for up to a total term of twenty-six months. The Company may not terminate this lease prior to the agreed upon termination date. The minimum future annual rental commitments are as follows:

 

2013			8,360
2014			18,720
Total annual lease commitments		$	27,080

 

Vehicle Leases

 

The Company entered into twenty-four month lease agreements to finance certain vehicles during the year of 2012 with a bargain purchase option of $1. As such, the Company has accounted for these transactions as capital leases, assuming an imputed 5% annual interest rate. The balance of the capital lease at June 30, 2013 and December 31, 2012 was as follows:

 

		June 30, 2013				December 31, 2012
Total rental payments		$	44,057			$	64,391
Less: Implied interest at 5%			(4,630	)			(5,969	)
Principal balance		$	39,427			$	58,422

 

Future discounted principal payments over the term of this lease are as follows;

 

2013		$	19,543
2014			19,884
Total annual lease commitments		$	39,247

 

Additionally, the Company has leases on a month to month basis which are cancelable at any time with payments totaling $6,654.

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Financial Statements

June 30, 2013

 

NOTE 10 - SIGNIFICANT TRANSACTIONS

 

On April 24, 2013, Intelligent Highway Solutions, Inc. (the “Company”) was informed that Mr. Michael Sullivan received notice on the same day from the Division of Procurement and Contracts of the California Department of Transportation (“Caltrans”) that Caltrans was terminating the nine Caltrans contracts (the “Agreements”), dated as of June 1, 2011, between Michael J. Sullivan Communications and Caltrans effective upon receipt of the notice pursuant to its right to terminate the Agreement upon thirty (30) days notice (the “Termination”).  On June 21, 2011, the Company purchased the Agreements from Mr. Sullivan.  Pursuant to Agreements, the Company provided on-call, as needed, maintenance and repair of Caltrans’ Traffic Operations System Network.

 

As a result of the Termination, the Company is negotiating with Caltrans to enter into a new agreement to perform the same services as agreed upon in the Agreements. However, as of the date hereof, the Company has not entered into an agreement and cannot make any assurance that an agreement will be executed. CalTrans accounted for 100% of our revenues during the six months ended June 30, 2013 and 2012 as well as the years ended December 31, 2012 and 2011.

 

No material relationship exists between the Company and Caltrans, except in connection with the Agreements.

 

NOTE 11 – COMMON STOCK ISSUANCES

 

During the six months ended June 30, 2013, the Company resolved to issue 25,000 shares of our common stock valued at $6,250,  to a note holder as debt issue costs agreed to in the debt agreement.

 

NOTE 12 – DERIVATIVE LIABILITY

 

As of June 30, 2013 the Company had an $86,283 derivative liability balance on the balance sheet, and for the six months ended June 30, 2013, the Company recorded a $16,283 loss from derivative liability fair value adjustment.  The derivative liability activity comes from convertible notes payable as follows:

 

As discussed in Note 5 – “Notes Payable”, during 2012, the Company issued an aggregate of $30,000 Convertible Promissory Notes to an unrelated party that matured on April 26, 2013. The Company is currently negotiating an extension of the maturity date and anticipates to successfully do so. The note bears interest at a rate of 10% per annum and can be convertible into the Company’s common shares, at the holder’s option, at the conversion rates of $0.30 per share.  The Company analyzed the conversion feature of the agreement for derivative accounting consideration under ASC 815-15 “Derivatives and Hedging” and determined that the embedded conversion features should be classified as a derivative because the exercise price of these convertible notes are subject to “reset” provisions in the event the Company subsequently issues common stock, stock warrants, stock options or convertible debt with a stock price, exercise price or conversion price lower than conversion price of these notes. If these provisions are triggered, the conversion price of the note will be reduced.  The Company has determined that the conversion feature is not considered to be solely indexed to the Company’s own stock and is therefore not afforded equity treatment. In accordance with AC 815, the Company has bifurcated the conversion feature of the note and recorded a derivative liability.

 

The embedded derivative for the note is carried on the Company’s balance sheet at fair value.  The derivative liability is marked-to-market each measurement period and any unrealized change in fair value is recorded as a component of the income statement and the associated fair value carrying amount on the balance sheet is adjusted by the change.  The Company fair values the embedded derivative using the Black-Scholes option pricing model.  The aggregate fair value of the derivative at the inception dates of the note was $70,000.  Of the total, $30,000 was recorded as a debt discount, which is up to but not more than the net proceeds of the notes.  $40,000 was charged to operations as non-cash interest expense. The fair value of $70,000 was recorded as a derivative liability on the balance sheet.

 

The debt discount for the note was amortized over the term of our stock’s opening trading day to the original maturity, or two days. On June 30, 2013, the Company marked-to-market the fair value of the derivative liabilities related to note and determined an aggregate fair value of $86,283 and recorded a $16,283 loss from change in fair value of derivatives for the six months ended June 30, 2013. The fair value of the embedded derivatives for the notes was determined using the Black-Scholes option pricing model based on the following assumptions: (1) dividend yield of 0%, (2) expected volatility of 253%, (3) risk-free interest rate of 0.13%, (4) expected life of 0.82 of a year, and (5) estimated fair value of the Company’s common stock of $1.14 per share.

 

 

INTELLIGENT HIGHWAY SOLUTIONS, INC.

Notes to Unaudited Financial Statements

June 30, 2013

 

NOTE 13 - RESTATEMENT

 

Three and Six Months Ended June 30, 2012

 

The Company has restated its results for the three and six months ended June 30, 2012 to appropriately reflect additional accrued compensation due to our officers as of June 30, 2012. The net effect on the revised statements of operations for June 30, 2012 are:

 

		As Reported				Adjustments				As Restated
Three months ended June 30, 2012:
Salaries and wages		$	36,569			$	24,545			$	61,114
General and administrative			137,888				22,939				160,827
Net loss		$	(73,384	)		$	(47,484	)		$	(120,869	)
Six months ended June 30, 2012:
Salaries and wages		$	57,279			$	41,706			$	98,985
General and administrative			319,015				33,675				352,690
Net loss		$	(172,498	)		$	(75,381	)		$	(247,879	)

 

Three and Six Months Ended June 30, 2013

 

The Company has restated its results for the three and six months ended June 30, 2013 to appropriately reflect the accounts receivable and allowance for doubtful accounts balances as of and revenue for the three and six months ended June 30, 2013. The net effect on the revised statements of operations for June 30, 2013 are:

 

		As Reported				Adjustments				As Restated
Three months ended June 30, 2013:
Revenue		$	291,247			$	(241,924	)		$	49,323
General and administrative			274,199				(13,158	)			261,041
Net loss		$	(387,436	)		$	(228,766	)		$	(616,202	)
Six months ended June 30, 2013:
Revenue		$	912,477			$	(241,924	)		$	670,553
General and administrative			455,057				(13,158	)			441,899
Net loss		$	(618,393	)		$	(228,766	)		$	(847,159	)

 

NOTE 14 – SUBSEQUENT EVENTS

 

On July 15, 2013, the Company entered into a convertible debt agreement with an unrelated party to borrow $50,000. The note accrues interest at 10% per annum and is due on July 15, 2015 with no payments due prior to maturity. The principal and accrued interest may be converted at the option of the holder to common stock at $0.30.

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations.

 

Cautionary Notice Regarding Forward Looking Statements

 

The information contained in Item 2 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the forward-looking statements as a result of certain risks and uncertainties set forth in this report. Although management believes that the assumptions made and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed in this report.

 

This filing contains a number of forward-looking statements which reflect management’s current views and expectations with respect to our business, strategies, products, future results and events, and financial performance. All statements made in this filing other than statements of historical fact, including statements addressing operating performance, events, or developments which management expects or anticipates will or may occur in the future, including statements related to distributor channels, volume growth, revenues, profitability, new products, adequacy of funds from operations, statements expressing general optimism about future operating results, and non-historical information, are forward looking statements. In particular, the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “may,” variations of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect any future events or circumstances.

 

Overview

 

Intelligent Highway Solutions, Inc.  (the “Company” or “IHS”) was formed in April 22, 2011; IHS is a technology based intelligent highway solutions contractor. The Company’s primarily focus is in the California transportation market providing services that range from providing labor, materials, and related equipment for corrective service and maintenance services for the States transportation infrastructure. Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.

 

Plan of Operations

 

The Company plans to provide service and maintenance for California’s transportation sector. The Company plans to seek further contracts in counties and municipalities throughout California and expand to neighboring states.

 

Additionally, the Company intends to expand to provide full service turn-key electrical services for the expanding intelligent highway services market sector. These contracts are typically bid on through the State and municipal entities. Typically, they involve the installation and purchase of materials and labor to provide a complete, operational system. Our primary focus will be in systems that are related to the intelligent highway sector, such as, but not limited to: (1) installation and materials for the installation of fiber optic cables; (2) installation and distribution of materials for the video monitoring systems deployed on the highway corridors; and (3) the distribution and installation of monitor devices and signage used in conjunction with the transportation network.

 

As an additional step, the Company, building off its experience in the service and maintenance of traffic monitoring systems, intends to develop wireless systems to replace existing hardwire loop detection systems, video monitoring systems, etc. The Company, in late 2013, intends to introduce a wireless/battery-less loop detection system. The Company has received the approval of two service districts in California to deploy the new technology in a real-time, real-world application. The application of this new technology can be used on any freeway entrance ramps; freeway lanes to monitor traffic flow; at intersections to monitor traffic and send information to traffic signals and alert management of congestion. 

  

Recent Developments

 

On April 24, 2013, the Company was informed that Mr. Michael Sullivan received notice on the same day from the Division of Procurement and Contracts of the California Department of Transportation (“Caltrans”) that Caltrans is terminating the nine Caltrans contracts (the “Agreements”), dated as of June 1, 2011, between Michael J. Sullivan Communications and Caltrans effective upon receipt of the notice pursuant to its right to terminate the Agreement upon thirty (30) days notice (the “Termination”).  On June 21, 2011, the Company purchased the Agreements from Mr. Sullivan.  Pursuant to Agreements, the Company provided on-call, as needed, maintenance and repair of Caltrans’ Traffic Operations System Network.

 

As a result of the Termination, the Company is negotiating with Caltrans to enter into a new agreement to perform the same services as agreed upon in the Agreements. However, as of the date hereof, the Company has not entered into an agreement and cannot make any assurance that an agreement will be executed.

 

No material relationship exists between the Company and Caltrans, except in connection with the Agreements.

 

 

Results of Operations

 

Revenue

 

We generate revenue through servicing contracts with CalTrans for the maintenance of the Tosnet system within certain areas of California. The contracts with CalTrans accounted for 100% of revenue during the three and six months ended June 30, 2013 and 2012.

 

Three months ended June 30, 2013 and 2012

 

		Three months ended June 30,
		2013				2012				Change
Revenue		$	49,323			$	477,679			$	(428,356	)

 

Revenues for the three months ended June 30, 2013 were $49,323 compared to $477,679 for the same period in 2012. The decrease of approximately 90% is the result of the Company no longer servicing the contracts to maintain the Tosnet systems. The contracts with CalTrans to maintain the Tosnet systems comprised 100% of our revenues during the three months ended June 30, 2013 and 2012. The loss of these contracts during the three months ended June 30, 2013 eliminated our revenue from the termination date forward.

 

Six months ended June 30, 2013 and 2012

 

		Six months ended June 30,
		2013				2012				Change
Revenue		$	670,553			$	943,800			$	(273,247	)

 

Revenues for the six months ended June 30, 2013 were $670,553 compared to $943,800 for the same period in 2012. The decrease of approximately 29% is the result of the Company no longer servicing the contracts to maintain the Tosnet systems. The contracts with CalTrans to maintain the Tosnet systems comprised 100% of our revenues during the three months ended June 30, 2013 and 2012. The loss of these contracts during the three months ended June 30, 2013 eliminated our revenue from the termination date forward. The decrease in revenue during the six months ended June 30, 2013 as compared to the same period in 2012 as a percentage when compared to the decrease in revenue as a percentage for the three month periods is the result of our $428,356 decrease during the three month period ended June 30 being offset by the $155,109 increase we experienced during the three months ended March 31, 2013 compared to the same period in 2012.

 

Cost of Goods Sold

 

Cost of goods sold consist of the costs associated with maintaining the Tosnet systems. Such costs consist of direct labor and vehicle related costs including maintenance, rental, fuel, insurance and depreciation.

 

Three months ended June 30, 2013 and 2012

 

		Three months ended June 30,
		2013				2012				Change
Labor		$	142,745			$	316,223			$	(173,478	)
Fuel			21,771				31,920				(10,149	)
Vehicle Lease			26,768				16,690				10,078
Other			10,148				1,819				8,329
Total		$	201,432			$	366,652			$	(165,220	)

 

Cost of goods sold for the three months ended June 30, 2013 were $201,432 compared to $366,652 for the same period in 2012. The decrease of $165,220 or approximately 45% is the result of the loss of our contracts with CalTrans to maintain the Tosnet system. As a result of the loss of these contracts, we terminated the employment of the employees previously maintaining the system and incurred fewer costs related to vehicle operation, namely fuel.

 

Six months ended June 30, 2013 and 2012

 

		Six months ended June 30,
		2013				2012				Change
Labor		$	661,624			$	625,024			$	36,600
Fuel			54,753				54,270				483
Vehicle Lease			52,040				36,859				15,181
Other			22,352				3,379				18,973
Total		$	790,769			$	719,532			$	71,237

 

Cost of goods sold for the six months ended June 30, 2013 were $790,769 compared to $719,237 for the same period in 2012. The increase of $71,237 or approximately 10% is the result of increased labor costs during the three months ended March 31, 2013 as we required additional employees to service the CalTrans contracts and additional operating lease and other short term vehicle rental payments.  

 

 

Operating Expenses

 

Three months ended June 30, 2013 and 2012

 

		Three months ended June 30,
		2013				2012				Change
Salaries and wages		$	59,856			$	61,114			$	(1,258	)
Professional services			200,108				77,321				122,787
Accounts receivable factoring fees			26,509				27,648				(1,139	)
Other			34.424				55,858				(21,434	)
Total		$	320,897			$	221,941			$	98,956

 

Operating expenses for the three months ended June 30, 2013 were $320,897 compared to $221,941 for the same period in 2012. The increase of approximately 45% is the result of additional professional fees incurred in connection with securing $610,000 of convertible notes during the three months ended June 30, 2013. These legal fees were incremental to those incurred during the three months ended June 30, 2012 as there were no such loan agreements entered into during the prior period.

 

Six months ended June 30, 2013

 

		Six months ended June 30,
		2013				2012				Change
Salaries and wages		$	127,217			$	98,985			$	28,232
Professional services			366,613				193,846				172,767
Accounts receivable factoring fees			55,684				73,893				(18,209	)
Other			19,602				84,871				(65,269	)
Total		$	569,116			$	451,595			$	117,521

 

Operating expenses for the six months ended June 30, 2013 were $569,116 compared to $451,595 for the same period in 2012. The increase of approximately 26% is the result of additional professional fees incurred in connection with securing $710,000 of convertible notes during the six months ended June 30, 2013. These legal fees were incremental to those incurred during the six months ended June 30, 2012 as there were no such loan agreements entered into during the prior period. We also experienced a decrease in accounts receivable factoring fees as the result of engaging a new factoring agent between the six months ended June 30, 2012 and the six months ended June 30, 2013.

 

Other Expenses

 

Other expenses consist of interest expense on our notes payable and fair value adjustments to our derivative liability.

 

Three months ended June 30, 2013 and 2012

 

		Three months ended June 30,
		2013				2012				Change
Interest expense		$	126,913			$	9,955			$	116,958
Loss on derivative fair value adjustment			16,283				-				16,283
Total		$	143,196			$	9,955			$	133,241

 

Other expenses during the three months ended June 30, 2013 were $143,196 compared to $9,955 for the same period in 2012, The increase of $133,241 or approximately 1,338% was the result of additional non-cash interest expense recognized on the amortization of debt discounts totaling $65,719 during the three months ended June 30, 2013 compared to $0 during the same period in 2012. We also charged a total of $40,000 to interest expense from an excess derivative liability incurred on a convertible note which was not present in the prior period. The $16,283 increase in loss on derivative fair value adjustment during the three months ended  is the result of the change in the fair value of the derivative associated with a convertible note that was not present in 2012.

 

Six months ended June 30, 2013 and 2012

 

		Six months ended June 30,
		2013				2012				Change
Interest expense		$	141,544			$	20,552			$	120,992
Loss on derivative fair value adjustment			16,283				-				16,283
Total		$	157,827			$	20,552			$	137,275

 

Other expenses during the six months ended June 30, 2013 were $157,827 compared to $20,552 for the same period in 2012, The increase of $137,275 or approximately 668% was the result of additional non-cash interest expense recognized on the amortization of debt discounts totaling $65,719 during the six months ended June 30, 2013 compared to $0 during the same period in 2012. We also charged a total of $40,000 to interest expense from an excess derivative liability incurred on a convertible note which was not present in the prior period. The $16,283 increase in loss on derivative fair value adjustment during the six months ended  is the result of the change in the fair value of the derivative associated with a convertible note that was not present in 2012.

 

 

Net loss

 

Three months ended June 30, 2013 and 2012

 

		Three months ended June 30,
		2013				2012				Change
Net loss		$	(616,202	)		$	(120,869	)		$	(495,334	)
As a percentage of revenue			-1,249	%			-25	%			-1,224	%

 

Net loss for the three months ended June 30, 2013 was $616,202 compared to $120,869 for the same period in 2012. The decrease of $495,334 is the result of reduced revenues from the loss of the Tosnet systems maintenance contracts, increased professional fees as described above and the recognition of non-cash operating and interest expenses associated with debt discounts and derivative liability on certain convertible notes.

 

Six months ended June 30, 2013 and 2012

 

		Six months ended June 30,
		2013				2012				Change
Net loss		$	(847,159	)		$	(247,879	)		$	(599,281	)
As a percentage of revenue			-126	%			-26	%			-100	%

 

Net loss for the three months ended June 30, 2013 was $847,159 compared to $247,879 for the same period in 2012. The decrease of $599,281 is the result of reduced revenues from the loss of the Tosnet systems maintenance contracts, increased cost of goods sold, increased professional fees as described above and the recognition of non-cash operating and interest expenses associated with debt discounts and derivative liability on certain convertible notes.

 

Liquidity and Capital Resources

 

As of June 30, 2013, we had cash of $92,123, total current assets of $224,073 and total current liabilities of $1,272,058 creating a working capital deficit of $1,047,985. Current assets consisted of $92,123 in cash, net accounts receivable of $9,469, other receivables of $113,129 and other current assets totaling $9,352. Current liabilities consisted of accounts payable $38,146, current notes payable of $299,971, a derivative liability of $86,283, other payables of $54,586, current capital lease obligation of $39,427 and accrued expenses and other liabilities of $753,645.

 

Cash Flows from Operating Activities

 

Cash flows used in operating activities during the six months ended June 30, 2013 was $589,174 which consisted of a net loss of $847,159, non-cash expenses of $122,819 and negative changes in working capital of $135,166. Net cash used in operating activities during the same period in 2012 was $72,283 which consisted of a net loss of $247879, non-cash expenses of $4,997 and changes in working capital of $170,599. The change in net cash used in operating activities was primarily due to a decrease in net loss of $599,281, a greater change in other receivables and a lesser change in accounts payable and accrued expenses.

 

We expect our cash used in operating activities will increase over the next twelve months as we are uncertain of our opportunities to generate revenue in the near term while we will still recognize significant non-cash expenses.

 

Cash Flows from Investing Activities

 

We did not use, nor were provided, any cash from investing activities during the six months ended June 30, 2013 or 2012. We expect this to continue during the next twelve months.

 

Cash Flows from Financing Activities

 

Cash flows from financing activities during the six months ended June 30, 2013 were $681,297 compared to $36,479 during the same period in 2012. Cash provided by financing activities during the six months ended June 30, 2013 consisted of net proceeds from notes payable of $701,970, the repayment of a bank overdraft of $1,678 and capital lease repayments of $18,995. Cash provided by financing activities during the same period in 2012 consisted of $1,271 in proceeds from a bank overdraft, $6,792 of repayments made on related party notes and cash proceeds from the issuance of common stock totaling $42,000.

 

During the next twelve months, we anticipate generating additional cash from financing activities from entering into additional debt agreements and the additional issuance of common stock for cash as these activities will be required to fund operations.

 

Going Concern

 

Based on our financial history since inception, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage company that has generated very little revenue and have limited tangible assets. Our company has a limited operating history and must be considered in the development stage. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to on a profitable basis. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

 

 

Recent Accounting Pronouncements

 

Critical Accounting Policies

 

There have been no changes in the Company's significant accounting policies for the three months ended June 30, 2013 as compared to those disclosed in the Company's Annual Report on Form 10-K for the year ended December 31, 2012.

 

Off-Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

Item 4.  Controls and Procedures.

 

Disclosure of controls and procedures.

 

We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports, filed under the Securities Exchange Act of 1934, is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable and not absolute assurance of achieving the desired control objectives. In reaching a reasonable level of assurance, management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures. In addition, the design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, a control may become inadequate because of changes in conditions or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

As required by the SEC Rule 13a-15(b), we carried out an evaluation under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this report. Based on the foregoing, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses described below. 

 

In light of the material weaknesses described below, we performed additional analysis and other post-closing procedures to ensure our financial statements were prepared in accordance with generally accepted accounting principles.  Accordingly, we believe that the financial statements included in this report fairly present, in all material respects, our financial condition, results of operations and cash flows for the periods presented.

 

 

A material weakness is a control deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) Auditing Standard No. 2) or combination of control deficiencies that result in more than a remote likelihood that a material misstatement of the annual or interim financial statements will not be prevented or detected.  Management has identified the following two material weaknesses which have caused management to conclude that as of June 30, 2013 our disclosure controls and procedures 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 which is applicable to us for the quarter ended June 30, 2013.  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.

 

To address these material weaknesses, management performed additional analyses and other procedures to ensure that the financial statements included herein fairly present, in all material respects, our financial position, results of operations and cash flows for the periods presented.

 

Changes in internal controls over financial reporting.

 

There has been no change in our internal control over financial reporting that occurred during the fiscal quarter covered by this Quarterly Report on Form 10-Q that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II - OTHER INFORMATION

 

Item 6.       Exhibits.

 

Exhibit Number		Exhibit Title
31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS *		XBRL Instance Document
101.SCH *		XBRL Taxonomy Schema
101.CAL *		XBRL Taxonomy Calculation Linkbase
101.DEF *		XBRL Taxonomy Definition Linkbase
101.LAB *		XBRL Taxonomy Label Linkbase
101.PRE *		XBRL Taxonomy Presentation Linkbase

  

In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

 

* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 

SIGNATURES

 

Pursuant to the requirements 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.

 

	INTELLIGENT HIGHWAY SOLUTIONS, INC.
Date: February 21, 2014	By:	/s/ Devon Jones
		Devon Jones
		Chief Executive Officer (Principal Executive Officer)
Date: February 21, 2014	By:	/s/ Philip Kirkland
		Philip Kirkland
		Chief Financial Officer (Principal Financial and Accounting Officer)