Emitting more light per watt than incandescent bulbs and capable to lasting up to 100,000 hours, LED lights are revolutionizing the lighting industry. LED lights contain no harmful ultraviolet rays, do not flicker, or contain toxic substances. Additionally, by using LED lighting, energy consumption can decrease up to 80%. SavWatt USA, Inc (also referred to as "the Company") distributes LED technology through a network of independent distributors. Operating nationwide, the Company has created partnerships with manufacturers to secure the best selection of LED street lights, tubes, spot, and floodlights. SavWatt supplies commercial businesses and retailers, as well as municipalities and state governments, with warranty-guaranteed lighting technology. The Company works closely with each of client find the best solution to its lighting needs.
We currently have 20 full-time employees. We believe that our relations with our employees are good. Our employees are not represented by a union or covered by a collective bargaining agreement.
The public may view and obtain copies of the Company's reports, as filed with the Securities and Exchange Commission, at the SEC's Public Reference Room at 100 F Street, NE, Room 1580, Washington, D.C. 20549. Information on the Public Reference Room is available by calling the SEC at 1-800-SEC-0330. Additionally, copies of the Company's reports are available and can be accessed and downloaded via the internet on the SEC's internet site at http://www.sec.gov.
*
payments made to replace recalled product;
*
a rise in warranty expense and costs associated with customer support;
*
the write down or destruction of existing inventory subject to the recall;
*
lost sales due to the unavailability of product for a period of time;
*
delays, cancellations or rescheduling of orders for our products; or
*
increased product returns.
We also may be the target of product liability lawsuits and could suffer losses from a significant product liability judgment against us if the use of our products at issue is determined to have caused injury. A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of customer confidence in our products.
THE MARKETS IN WHICH WE OPERATE ARE HIGHLY COMPETITIVE AND HAVE EVOLVING TECHNICAL REQUIREMENTS.
The markets for our products are highly competitive. In the LED market, we compete with companies that manufacture or sell nitride-based LED chips as well as those that sell LED components. Competitors are offering new blue, green and white LEDs with aggressive prices and improved performance. These competitors may reduce average sales prices faster than we are able to reduce costs, and competitive pricing pressures may accelerate the rate of decline of our average sales prices.
AS A RESULT OF OUR CONTINUED EXPANSION IN LED COMPONENTS AND LED LIGHTING PRODUCTS, OUR CUSTOMERS MAY REDUCE ORDERS.
Through acquisitions and organic growth, we intend to continue to expand in new markets for LED lighting products. In these new markets, some of our customers may perceive us as a competitor. In response, our customers may reduce their orders for our products. This reduction in orders could occur faster than our sales growth in these new markets, which could adversely affect our business, results of operations or financial condition.
OUR OPERATING RESULTS ARE SUBSTANTIALLY DEPENDENT ON THE DEVELOPMENT AND ACCEPTANCE OF NEW PRODUCTS.
Our future success may depend on our ability to develop new and lower cost solutions for existing and new markets and for customers to accept those solutions. We must introduce new products in a timely and cost-effective manner,
and we must secure production orders for those products from our customers. The development of new products is a highly complex process, and we historically have experienced delays in completing the development and introduction of new products. The successful development and introduction of these products depends on a number of factors, including the following:
*
achievement of technology breakthroughs required to make commercially viable devices;
*
the accuracy of our predictions for market requirements and evolving standards;
*
acceptance of our new product designs;
*
acceptance of new technology in certain markets;
*
the availability of qualified research and development personnel;
*
our timely completion of product designs and development;
*
our ability to expand sales and influence key customers to adopt our products;
*
our ability to develop repeatable processes to manufacture new products in sufficient quantities and at low enough costs for commercial sales;
WE ARE SUBJECT TO RISKS RELATED TO INTERNATIONAL PURCHASES AND SALES
.
We purchase our products from overseas sources. As a result, our international sales and purchases are subject to numerous U.S. and foreign laws and regulations, including, without limitation, tariffs, trade barriers, regulations relating to import-export control, technology transfer restrictions, the International Traffic in Arms Regulation promulgated under the Arms Export Control Act, the Foreign Corrupt Practices Act and the anti-boycott provisions of the U.S. Export Administration Act. If we fail to comply with these laws and regulations, we could be liable for administrative, civil or criminal liabilities, and in the extreme case, we could be suspended or debarred from government contracts or our export privileges could be suspended, which could have a material adverse effect on our business.
International sales and purchases are also subject to a variety of other risks, including risks arising from currency fluctuations, collection issues and taxes. Our international sales are subject to variability as our selling prices become less competitive in countries with currencies that are declining in value against the U.S. Dollar and more competitive in countries with currencies that are increasing in value against the U.S. Dollar. In addition, our international purchases can become more expensive if the U.S. Dollar weakens against the foreign currencies in which we are billed. We have not entered into any foreign currency derivative financial instruments; however, we may choose to do so in the future in an effort to manage or hedge our foreign exchange rate risk.
CHANGES IN OUR EFFECTIVE TAX RATE MAY HAVE AN ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
Our future effective tax rates may be adversely affected by a number of factors including:
|
*
|
changes in government administrations, such as the Presidency and Congress of the U.S. as well as in the states and countries in which we operate, including the highly predicted expiration of the so-called
"Bush Tax Cuts;"
|
|
*
|
changes in tax laws or interpretation of such tax laws and changes in generally accepted accounting principles;
|
|
*
|
the jurisdiction in which profits are determined to be earned and taxed;
|
|
*
|
the resolution of issues arising from tax audits with various authorities;
|
|
*
|
changes in the valuation of our deferred tax assets and liabilities;
|
|
*
|
adjustments to estimated taxes upon finalization of various tax returns;
|
|
*
|
increases in expenses not deductible for tax purposes, including write-offs of acquired in-process research and development and impairment of goodwill in connection with acquisitions;
|
|
*
|
changes in available tax credits;
|
|
*
|
the recognition and measurement of uncertain tax positions;
|
|
*
|
the lack of sufficient excess tax benefits (credits) in our additional paid in capital ("APIC") pool in situations where our realized tax deductions for certain stock-based compensation awards (such as non-qualified stock options and restricted stock) are less than those originally anticipated; and
|
|
*
|
the repatriation of non-U.S. earnings for which we have not previously provided for U.S. taxes, or any changes in legislation that may result in these earnings being taxed within the U.S., regardless of our decision regarding repatriation of funds.
|
For example, current proposals have been made by various U.S. governmental bodies to change the U.S. tax laws that include, among other things, limiting U.S. tax deductions for expenses related to un-repatriated foreign-source income and modifying the U.S. foreign tax credit rules. Although the scope of the proposed changes is unclear, it is possible that these or other changes in U.S. tax laws could increase our U.S. income tax liability and adversely affect our profitability. At this time, we cannot determine the timing that the proposed changes, if enacted, are to become effective.
Any significant increase in our future effective tax rates could adversely impact net income for future periods. In addition, the determination of our income tax provision requires complex estimations, significant judgments and significant knowledge and experience concerning the applicable tax laws. To the extent our income tax liability materially differs from our income tax provisions and accruals due to factors, including the above, which were not anticipated at the time we estimated our tax provision, our net income or cash flows could be adversely affected.
IN ORDER TO COMPETE, WE MUST ATTRACT, MOTIVATE AND RETAIN KEY EMPLOYEES, AND OUR
FAILURE TO DO SO COULD HARM OUR RESULTS OF OPERATIONS.
In order to compete, we must attract, motivate and retain executives and other key employees, including those in managerial, technical, sales, marketing and support positions. Hiring and retaining qualified executives, scientists, engineers, technical staff and sales personnel are critical to our business, and competition for experienced employees in our industry can be intense. To help attract, motivate and retain key employees, we may use stock-based compensation awards such as non-qualified stock options and restricted stock. If the value of such stock awards does not appreciate, as measured by the performance of the price of our common stock, or if our share-based compensation otherwise ceases to be viewed as a valuable benefit, our ability to attract, retain and motivate employees could be weakened, which could harm our business and results of operations.
OUR OPERATIONS IN FOREIGN COUNTRIES, INCLUDING CHINA AND OTHER ASIAN COUNTRIES, EXPOSE US TO CERTAIN RISKS INHERENT IN DOING BUSINESS INTERNATIONALLY, WHICH MAY ADVERSELY AFFECT OUR BUSINESS, RESULTS OF OPERATIONS OR FINANCIAL CONDITION.
As a result of our operations, manufacturing facilities and subcontract arrangements in foreign countries that expose us to certain risks. For example, fluctuations in exchange rates may affect our revenues, expenses and results of operations as well as the value of our assets and liabilities as reflected in our financial statements. We are also subject to other types of risks, including the following:
*
protection of intellectual property and trade secrets;
*
tariffs and other barriers;
*
timing and availability of export licenses;
*
rising labor costs;
*
disruptions in the infrastructure of the foreign countries where we operate;
*
difficulties in accounts receivable collections;
*
difficulties in staffing and managing international operations;
*
the burden of complying with foreign and international laws and treaties; and
*
the burden of complying with and changes in international taxation policies.
In addition, abrupt political change, terrorist activity and armed conflict pose a risk of general economic disruption in affected countries, which could result in an adverse effect on our business and results of operations.
CATASTROPHIC EVENTS MAY DISRUPT OUR BUSINESS.
A disruption or failure of our systems or operations in the event of a natural disaster or man-made catastrophic event could cause delays in completing sales, continuing production or performing other critical functions of our business, especially in the case of a single site for our operations and assembly. A catastrophic event that results in the destruction or disruption to our supply chain or any of our critical business or information technology systems could severely affect our ability to conduct normal business operations and, as a result, our operating results could be adversely affected.
OUR RESULTS OF OPERATIONS COULD VARY AS A RESULT OF THE METHODS, ESTIMATES AND JUDGMENTS THAT WE USE IN APPLYING OUR ACCOUNTING POLICIES, INCLUDING CHANGES IN THE ACCOUNTING REGULATIONS TO BE APPLIED.
The methods, estimates and judgments that we use in applying our accounting policies have a significant impact on our results of operations. Such methods, estimates and judgments are, by their nature, subject to substantial risks, uncertainties and assumptions, and factors may arise over time that lead us to
change our methods, estimates and judgments. Changes in those methods, estimates and judgments could significantly affect our results of operations.
Likewise, our results of operations may be impacted due to changes in the accounting rules to be applied, such as the increased use of fair value measurement rules and the potential requirement that U.S. registrants prepare financial statements in accordance with International Financial Reporting Standards.
RISK FACTORS RELATED TO OUR COMMON STOCK
THERE IS NO LIQUID MARKET FOR OUR COMMON STOCK.
Our shares are traded Over the Counter and the trading volume has historically been very low. An active trading market for our shares may not develop or be sustained. We cannot predict at this time how actively our shares will trade in the public market or whether the price of our shares in the public market will reflect our actual financial performance.
OUR COMMON STOCK PRICE HAS FLUCTUATED CONSIDERABLY AND STOCKHOLDERS MAY NOT BE ABLE RESELL THEIR SHARES AT OR ABOVE THE PRICE AT WHICH SHARES WERE PURCHASED.
The market price of our common stock may fluctuate significantly. From July
2 007, the day we began trading publicly as LDVK, until our share
prices per share have fluctuated in dramatic fashion. Our share price has fluctuated in response to various factors. Speculation in the press or investment community about our strategic position, financial condition, results of operations, or significant transactions can also cause changes in our stock price. In particular, speculation around our market opportunities for energy efficient lighting may have dramatic effects on our stock price, especially as various government agencies announce their planned investments in energy efficient technology, including lighting.
OUR COMMON STOCK MAY BE CONSIDERED A "PENNY STOCK" AND MAY BE DIFFICULT TO SELL.
The SEC has adopted regulations which generally define "penny stock" to be an equity security that has a market price of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to specific exemptions. The market price of our common stock has been for much of its trading history since July 2007, and may continue to be less than $5.00 per share, and, therefore, may be designated as a "penny stock" according to SEC rules. This designation requires any broker or dealer selling these securities to disclose certain information concerning the transaction, obtain a written agreement from the purchaser and determine that the purchaser is reasonably suitable to purchase the securities. These rules may restrict the ability of brokers or dealers to sell our common stock and may affect the ability of investors to sell their shares.
COMPLIANCE AND CHANGING REGULATIONS AND PUBLIC DISCLOSURE MAY RESULT IN ADDITIONAL EXPENSE.
Changing laws, regulations and standards relating to corporate governance and public disclosure may create uncertainty regarding compliance matters. New or changed laws, regulations and standards are subject to varying interpretations in many cases. As a result, their application in practice may evolve over time. We are committed to maintaining high standards of corporate governance and public disclosure. Complying with evolving interpretations of new or changed legal requirements may cause us to incur higher costs as we revise current practices, policies and procedures, and may divert management time and attention from the achievement of revenue generating activities to compliance activities. If our efforts to comply with new or changed laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to uncertainties related to practice, our reputation might be harmed which would could have a significant impact on our stock price and our business. In addition, the ongoing maintenance of these procedures to be in compliance with these laws, regulations and standards could result in significant increase in costs.
OUR PRINCIPAL STOCKHOLDER HAS SIGNIFICANT VOTING POWER AND MAY TAKE ACTIONS THAT MAY NOT BE IN THE BEST INTERESTS OF ALL OTHER STOCKHOLDERS.
The Company's principal shareholder is Sutton Global Associates, Inc. ("Sutton Global"),
which own common and preferred stock which collectively give Sutton Global approximately 49.7% of the voting power of our shareholders.
Sutton
Global is beneficially owned and controlled by Isaac H. Sutton our Chairman and President. Mr. Sutton has voting and dispositive control of the shares held by Sutton Global. He may be able to exert significant control over our management and affairs requiring stockholder approval, including approval of significant corporate transactions. This concentration of ownership may expedite approvals of Company decisions, or have the effect of delaying or preventing a change in control, adversely affect the market price of our common stock, or be in the best interests of all our stockholders.
YOU COULD BE DILUTED FROM THE ISSUANCE OF ADDITIONAL COMMON STOCK.
As of April 10, 2012 there were 9,795,217,291 shares of common stock issued and outstanding and 25,000,000 shares of preferred stock outstanding. We are authorized to issue up to 9,800,000,000 shares of common stock and 200,000,000 shares of preferred stock. To the extent of such authorization, our Board of Directors will have the ability, without seeking stockholder approval, to issue additional shares of common stock or preferred stock in the future for such consideration as the Board of Directors may consider sufficient. The issuance of additional common stock or preferred stock in the future may reduce your proportionate ownership and voting power.
ITEM 2. PROPERTIES.
The Company does not own any real estate.
On February 11, 2011, the Company entered into a lease for approximately 24,561 square feet at 1100 Wicomico Street, Suite 700, Baltimore, Maryland, under a written lease for a term of ten years. This new facility will be the Company's new principal executive offices, as well as a manufacturing and assembly facility. We will not have to pay rent on this facility until February 1, 2012. Thereaftter, we will pay rent as follows:
|
February 1, 2012 - January 31, 2013
|
$ 9,926.74 per month
|
|
February 1, 2013 - January 31, 2016
|
$11,564.14 per month
|
|
February 1, 2016 - January 31, 2019
|
$12,526.11 per month
|
|
February 1, 2019 - January 31, 2021
|
$13,549.49 per month
|
In June 2011, the Company entered into a lease for approximately
1,000 square feet at 152 Maidison Avenue, New York, NY, under a written lease for a term of 2 years. Under the terms of the lease the annual base rent is approximately $74,000. This new facility will be the used as executive and sales offices.
In December 2011, the Company entered into a lease for approximately 2,886 square feet at 7927 Jones Branch Drive, Suite 3300, McClean, VA,
under a written lease for a term of 2 years. Under the terms of the lese the annual base rent is approximately $58,000. This new facility will be the used by the company for sales.
ITEM 3. LEGAL PROCEEDINGS.
The Company is currently involved in three lawsuits. The first lawsuit involves a former employee of the Company and is being resolved by the Company's insurance carrier and the other two involve breach of contract. The Company intends to defend itself vigoursly in these matters. At this time, the company is unable to ascertain the outcomes of these suits and has not made any provisons other than the amounts due and under dispute.
ITEM 4.
MINE SAFETY DISCLOSURES.
Note applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES.
As of the date of this Annual Report,the Company's Common Stock is quoted on the Pink Sheets under the symbol "SAVW.OB." The market for the Company's
Common Stock is limited, volatile and sporadic and the price of the Company's
Common Stock could be subject to wide fluctuations in response to quarterly
variations in operating results, news announcements, trading volume, sales of
Common Stock by officers, directors and principal shareholders of the Company,
general market trends, changes in the supply and demand for the Company's
shares, and other factors.
The following table sets forth the high and low sales prices for each quarter relating to the Company's Common Stock for the last two fiscal years. These quotations reflect inter-dealer prices without retail mark-up, markdown, or commissions, and may not reflect actual transactions.
|
|
|
High
|
|
|
Low
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2010
|
|
|
|
|
|
|
|
First
Quarter
(2)
|
|
$
|
.012
|
|
|
$
|
.0035
|
|
|
Second
Quarter
(1)
|
|
$
|
.04
|
|
|
$
|
.0035
|
|
|
Third
Quarter
(1)
|
|
$
|
.089
|
|
|
$
|
.0036
|
|
|
Fourth
Quarter
(1)
|
|
$
|
.095
|
|
|
$
|
.0125
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal
2011
|
|
|
|
|
|
|
|
|
|
First
Quarter
(2)
|
|
$
|
0.01
|
|
|
$
|
.0033
|
|
|
Second
Quarter
(1)
|
|
$
|
.
0069
|
|
|
$
|
.0011
|
|
|
Third Quarter (1)
|
|
$
|
0.01
|
|
|
$
|
.0011
|
|
|
Fourth Quarter (1)
|
|
$
|
0.00
|
|
|
$
|
.0005
|
|
___________
|
(1)
|
This represents the closing bid information for the stock on the Pink Sheets. The bid and ask quotations represent prices between dealers and do not include retail markup, markdown or commission. They do not represent actual transactions and have not been adjusted for stock dividends or splits.
|
|
(2)
|
This represents the closing price for the stock on the Pink Sheets.
|
Our common stock is considered a "penny stock." The application of the "penny stock" rules to our common stock could limit the trading and liquidity of the common stock, adversely affect the market price of our common stock and increase your transaction costs to sell those shares. The Commission has adopted regulations which generally define a "penny stock" to be any equity security that has a market price (as defined) of less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions.
Shareholders should be aware that, according to SEC Release No. 34-29093 dated April 17, 1991, the market for penny stocks has suffered in recent years from patterns of fraud and abuse. Such patterns include (1) control of the market for the security by one or a few broker-dealers that are often related to the promoter or issuer; (2) manipulation of prices through prearranged matching of purchases and sales and false and misleading press releases; (3) boiler room practices involving high-pressure sales tactics and unrealistic price projections by inexperienced sales persons; (4) excessive and undisclosed bid-ask differential and markups by selling broker dealers; and (5) 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. The occurrence of these patterns or practices could increase the volatility of our share price.
Our management is aware of the abuses that have occurred historically in the penny stock market.
HOLDERS
As of April 10, 2012 there were approximately 179 shareholders of record of the Company's Common Stock.
DIVIDENDS
The Company has not declared any cash dividends with respect to its common stock or preferred stock during the last two fiscal years and does not intend to declare dividends in the foreseeable future. There are no material restrictions limiting or that are likely to limit the Company's ability to pay dividends on its outstanding securities.
RECENT ISSUANCE OF UNREGISTERED SECURITIES
The Following table lists the shares issued for the year ended December 31, 2010 and 2011
The issuance of common stock from inception, October 20, 2006 through the year ended December 31, 2010 is summarized in the table below:
|
|
|
Number of shares of common stock
|
|
|
Fair Value at Issuance
|
|
|
Per Share Value at Issuance
|
|
|
Stock issued upon merger in accordance with Court Order
|
|
|
40,000,000
|
|
|
$
|
20,000
|
|
|
$
|
0.0005
|
|
|
Stock issued in connection with acquisition
|
|
|
24,196
|
|
|
|
-
|
|
|
|
-
|
|
|
Stock issued for services
|
|
|
38,905,710
|
|
|
|
13,061,326
|
|
|
|
.0395 - 5.52
|
|
|
Stock issued to retire debt - Shareholder loans
|
|
|
32,394,269
|
|
|
|
23,494,294
|
|
|
|
.040 - 1.01
|
|
|
Common stock issued for cash
|
|
|
37,333,333
|
|
|
|
315,000
|
|
|
|
.003 - .01
|
|
|
Fair value of common stock issued for interest
|
|
|
500,000
|
|
|
|
21,249
|
|
|
|
0.0425
|
|
|
Common stock issued pursuant to note holder debt conversion
|
|
|
18,374,278
|
|
|
|
173,469
|
|
|
|
.009 - .01
|
|
|
|
|
|
167,531,786
|
|
|
|
37,085,338
|
|
|
|
|
|
The issuance of common stock from January 1, 2011 through December 31, 2011 is summarized in the table below:
|
|
|
Number of shares of common stock
|
|
|
Fair Value at Issuance
|
|
|
Per Share Value at Issuance
|
|
|
Stock issued for related party debt settlement
|
|
|
2,500,000
|
|
|
$
|
35,000
|
|
|
$
|
0.014
|
|
|
Stock issued for services
|
|
|
203,238,683
|
|
|
|
306,871
|
|
|
|
0.0005 -0.014
|
|
|
Fair value of common stock issued for interest
|
|
|
1,000,000
|
|
|
|
14,000
|
|
|
|
0.014
|
|
|
Common stock issued pursuant to note holder debt conversion – principal
|
|
|
2,718,112,504
|
|
|
|
2,462,792
|
|
|
|
0.0001 - 0.01
|
|
|
Common stock issued pursuant to note holder debt conversion - interest
|
|
|
18,695,505
|
|
|
|
13,647
|
|
|
|
.00001-0.01
|
|
|
|
|
|
2,943,546,692
|
|
|
|
39,658,097
|
|
|
|
|
|
The Company did not utilize or engage a principal underwriter in connection with any of the above securities transactions.
Management believes that all of above shares of common stock were issued pursuant to the exemption from registration under Section 4(2) of the Securities Act of 1933, as amended.
In May and December 2011, the Company filed two S-8 registrations for its Equity Plans,
registering 18,000,000 and 250,000,000 shares of its Common Stock.
The purpose of the Plans is to promote the long-term success of the Company and the creation of stockholder value by (a) encouraging Employees, Outside Directors and Consultants to focus on critical long-range objectives, (b) encouraging the attraction and retention of Employees, Outside Directors and Consultants with exceptional qualifications and (c) linking Employees, Outside Directors and Consultants directly to stockholder interests through increased stock ownership. The Plan seeks to achieve this purpose by providing for Awards in the form of Restricted Shares, Stock Units, Options (which may constitute ISOs or NSOs) or stock appreciation rights.
The following table sets forth the issuances under these plans.
|
Date of Issuance
|
|
Shares
|
|
|
Consideration
|
|
Reason for Issuance
|
|
May 13, 2011
|
|
|
2,500,000
|
|
|
$
|
7,500.00
|
|
Consulting
|
|
May 25, 2011
|
|
|
5,000,000
|
|
|
$
|
15,000.00
|
|
Consulting
|
|
December 12, 2011
|
|
|
25,000,000.00
|
|
|
$
|
17,500.00
|
|
Consulting
|
|
December 12, 2011
|
|
|
50,000,000.00
|
|
|
$
|
35,000.00
|
|
Consulting
|
|
December 27, 2011
|
|
|
50,000,000.00
|
|
|
$
|
25,000.00
|
|
Consulitng
|
ITEM 6. SELECTED FINANCIAL DATA.
Not applicable.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATION.
CAUTIONARY FORWARD - LOOKING STATEMENT
The following discussion should be read in conjunction with our financial
statements and related notes.
Certain matters discussed herein may contain forward-looking statements that are subject to risks and uncertainties. Such risks and uncertainties include, but are not limited to, the following:
*
the volatile and competitive nature of our industry,
*
the uncertainties surrounding the rapidly evolving markets in which we compete,
*
the uncertainties surrounding technological change of the industry,
*
our dependence on its intellectual property rights,
*
the success of marketing efforts by third parties,
*
the changing demands of customers and
*
the arrangements with present and future customers and third parties.
Should one or more of these risks or uncertainties materialize or should any of the underlying assumptions prove incorrect, actual results of current and future operations may vary materially from those anticipated. See also the disclosures under "Cautionary Statement" following the Table of Contents in this Annual Report.
RESULTS OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 2 011 AND 2010
The Company has not generated any significant revenues since its inception on October 20,2006.
The Company's operations for years ended December 31, 2011 and 2010 consist of general and administrative expenses incurred in the amount of $2,306,097 and $1,588,192
and other expenses amounting to $5,308,85 6 and $533,707 respectively. The significant increase in other expenses relates to the amortization of debt discount totaling $3,199,988 as compared to $0 in 2010 as well as the debt conversion expense in 2011 totaling $1,707,573 as compared to $51,556 in 2010.
LIQUIDITY AND CAPITAL RESOURCES
We had minimal cash on hand as of December 31, 2011 and a working capital deficiency of $ 2,750,888. We will continue to need additional cash during the following twelve months and these needs will coincide with the cash demands resulting from implementing our business plan and remaining current with our Securities and Exchange Commission filings. There is no assurance that we will be able to obtain additional capital as required, or obtain the capital on acceptable terms and conditions.
GOING CONCERN
The accompanying financial statements have been prepared in conformity with generally accepted accounting principles, which contemplate continuation of the Company as a going concern. The Company has not generatedany significant revenue, has experienced recurring net operating losses and had a net loss of $8,301,052 for the year ended December 31, 2011. These factors raise substantial doubt about the Company's ability to continue as a going concern.
These consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty. We will need to raise funds or implement our business plan to continue operations.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.
Not Applicable.
ITEM 8. FINANCIAL STATEMENTS.
Our financial statements and supplementary data may be found beginning at Page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS.
None
ITEM 9A. CONTROLS AND PROCEDURES.
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term "disclosure controls and procedures," as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act of 1934, as amended ("Exchange Act"), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms. Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011.
MANAGEMENT'S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
|
1.
|
pertain to the maintenance of records that in reasonable detail
accurately and fairly reflect the transactions and dispositions of our assets;
|
|
2.
|
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors; and
|
|
3.
|
provide reasonable assurance regarding prevention or timely detection
of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.
|
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011, and concluded that our internal control over financial reporting was effective. In making this assessment, management used the framework set forth in the report entitled Internal Control--Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission, or COSO. The COSO framework summarizes each of the components of a company's internal control system, including (i) the control environment, (ii) risk assessment, (iii) control activities, (iv) information and communication, and (v) monitoring. This annual report does not include an attestation report of our 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 permits us to provide only management's report in this annual report.
CHANGES IN INTERNAL CONTROLS
There has been no change in our internal control over financial reporting during our most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The Company's directors and executive officers are as follow:
|
Name
|
|
Period
|
|
Age
|
|
Position(s)
|
|
|
|
|
|
|
|
|
|
Isaac H. Sutton
|
|
3/31/2010 to Present
|
|
58
|
|
Chairman of the Board
of Directors President,
Chief Executive Officer, CFO,
Secretary and Treasurer
|
Mr. Sutton is Chief Executive Officer of SavWatt USA, Inc and sole director. He has served since April 2010. Mr. Sutton has been a successful entrepreneur ever since his involvement with the Sutton family business during his college years. Since the late 70's, Sutton has been a founding member and served in executive roles of many ventures including: Aprica Juvenile
Products, Inc. (1980 - 1982), Fusen Usagi, Inc. (1982 -1989), IHS Inc. (1990 - 1997), and CEO
of Starinvest Group (1997 - 2006). A world traveler for over 30 years, Mr. Sutton has lived in and conducted business in a variety of countries including Taiwan, Korea, the Philippines, Poland and Uzbekistan. Mr. Sutton has extensive experience in a variety of industries including import and export, telecommunications, information technology and capital markets.
Mr. Sutton holds Bachelor's Degree in Business Administration from Pace University. Mr. Sutton was born and raised in New York City and is 58 years old.
DIRECTORSHIPS
Mr. Sutton ia a director of GoIP Global, Inc.
EMPLOYMENT CONTRACTS
On July 1, 2010, the Company entered into an employment contract with
Michael Haug, the former Chief Executive Officer, for a one year term with a base salary of $84,000 per year. In addition, the Company agreed to issue 2,000,000
shares of common stock to Mr. Haug as a signing bonus and such shares vest at
the end of the term of the agreement. Mr. Haug will also be entitled to
participate in the Company's health care and bonus plans when implemented but
not later than December 31, 2010. This contract was not renewed and in August 2011, Mr Haug
was appointed to the position of Exeective Vice President and in March 2012 tendered his
resignation.
In February 2012, the Company entered into an employment agreement with the Company's CEO, Isaac H. Sutton, commencing on January 1, 2012 and expiring on December 31, 2012. The employment agreement provides for an annual salary of $240,000 together with annual increases of at least 10% per annum. In addition, Mr. Sutton shall receive as additional compensation .75% of the Company's gross revenues in excess of $20,000,000. The employment agreement provides that Mr. Sutton is eligible to receive incentive bonus compensation, at the discretion of the board of directors. The employment agreement provides for termination based on death, disability or other termination and for severance payments upon termination. The severance payments range from the compensation payable pursuant to the agreement or up to two times the annual compensation over sixty months in the event that Mr. Sutton is terminated in the event of a change in control as described in the agreement.
FAMILY RELATIONSHIPS
There are no family relationships between or among our officers and directors.
INVOLVEMENT IN CERTAIN LEGAL PROCEEDINGS
During the past ten years, no present director, executive officer or person nominated to become a director or an executive officer of the Company:
|
(1)
|
was a general partner or executive officer of any business against
which any bankruptcy petition was filed, either at the time of the bankruptcy or two years prior to that time;
|
|
(2)
|
was convicted in a criminal proceeding or named subject to a pending
criminal proceeding (excluding traffic violations and other minor offenses);
|
|
(3)
|
was subject to any order, judgment or decree, not subsequentlyreversed, suspended or vacated, of any court of competent jurisdiction, permanently or emporarily enjoining, barring, suspending or otherwise limiting his involvement in any type of business, securities or banking activities; or
|
|
(4)
|
was found by a court of competent jurisdiction (in a civil action),
the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a Federal or state securities or commodities law, and the judgment has not been reversed, suspended or vacated.
|
AUDIT COMMITTEE FINANCIAL EXPERT AND IDENTIFICATION OF AUDIT COMMITTEE
The Company has no separately designated standing audit committee or other committee performing similar functions. The Board of Directors acts as the audit committee. None of the directors qualifies as an Audit Committee Financial Expert.
MATERIAL CHANGES TO THE METHOD BY WHICH THE SHAREHOLDERS MAY RECOMMEND NOMINEES TO THE BOARD OF DIRECTORS
None.
SECTION 16(a) BENEFICIAL OWNERSHIP COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 requires the Company's executive officers, directors and persons who own more than ten percent of the Company's Common Stock, to file initial reports of beneficial ownership on Form 3, changes in beneficial ownership on Form 4 and an annual statement of beneficial ownership on Form 5, with the SEC. Such executive officers, directors and greater than ten percent shareholders are required by SEC rules to furnish the Company with copies of all such forms that they have filed. No one on the Company's management team was delinquent on such filings in 2011.
CODE OF BUSINESS CONDUCT AND ETHICS
The Company has adopted a Code of Business Conduct and Ethics applicable to its officers, including its principal executive officer, principal financial officer, principal accounting officer or controller and any other persons performing similar functions. The Code will be provided free of charge by the Company to interested parties upon request. Requests should be made in writing and directed to the Company at the following address: 1100 Wicomico Street, Suite 700, Baltimore, Maryland 21224
ITEM 11. EXECUTIVE COMPENSATION.
The following table sets forth the aggregate compensation paid by the Company to officers or directors of the Company during the periods indicated:
SUMMARY COMPENSATION TABLE
|
Name and
Principal
Position
|
|
Year
|
|
Salary
($)
|
|
|
Bonus
($)
|
|
|
Stock
Awards
($)
|
|
|
Option
Awards
($)
|
|
|
Non-Equity
Incentive
Plan
Compensation
($)
|
|
|
Nonqualified
Deferred
Compensation
($)
|
|
|
All Other
Compensation
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Isaac H.
Sutton,
|
|
2011
|
|
$
|
95,334
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Chairman, CEO, CFO
|
|
2010
|
|
$
|
41,423
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael Haug,
|
|
2011
|
|
$
|
86,923
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Former CEO (1)
|
|
2010
|
|
$
|
16,154
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Former COO, CFO
|
|
2011
|
|
$
|
123,311
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Adam Kolodny (1)
|
|
2010
|
|
$
|
41,423
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
________
(1) Mr. Kolodny and Mr. Haug are no longer officers of the company
STOCK OPTIONS AND WARRANTS
There were no stock options or warrants outstanding on December 31, 2011
OPTION/SAR GRANTS TABLE
There were no stock options/SARS granted under the Company's stock option plans to executive officers and directors during fiscal 2011.
AGGREGATE OPTION/SAR EXERCISES AND FISCAL YEAR-END OPTION/SAR VALUE TABLE
There were no exercises of stock options/SAR by executive officers during fiscal 2011.
LONG-TERM INCENTIVE PLAN AWARDS
There were no long-term incentive plan awards made during fiscal 2011.
COMPENSATION OF DIRECTORS
The Company has no formal or standard compensation arrangement with the members of its Board of Directors or with committee members.
REPRICING OPTIONS
During the fiscal year ended December 31, 2011, the Company did not reprice any stock options.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth certain information concerning the ownership of the Company's Common Stock and Series A Preferred Stock as of April 11, 2012 with respect to: (i) each person known to the Company to be the beneficial owner of more than five percent of the Company's Common Stock; (ii) all directors and executive officers; and (iii) directors and executive officers of the Company as a group. To the knowledge of the Company, each shareholder listed below possesses sole voting and investment power with respect to the shares indicated.
|
Title of Class
|
|
Name and Address of
Beneficial Owner
|
|
Amount and Nature of
Beneficial Ownership
|
|
|
Percent
of
Class
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
Isaac H. Sutton
Sutton Global Associates, Inc.
152 Madison Ave, 23rd floor
New York, New York 10016
|
|
|
2,350,723,310
|
|
|
|
24
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred A
|
|
Isaac H. Sutton
Sutton Global Associates, Inc.
152 Madison Ave, 23rd floor
New York, New York 10016
|
|
|
25,000,000
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
All Executive Officers and
Directors as a Group (1 person)
|
|
|
2,350,773,310
|
|
|
|
24
|
%
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR
INDEPENDENCE.
Ludvik Nominees, Pty, Ltd. was the exclusive adviser to Company for the period October 10, 2006 through March 31, 2010. Ludvik Nominees Pty Ltd is 100% owned by Frank Kristan, our former President and Chief Executive Officer. During the period from inception to March 31, 2010 Ludvik Nominees was an advisor to the Company, fees were charged quarterly. A total of $2,017,417 including interest was billed. $484,250 was converted to 32,394,269 shares and $0 remains owing.
Mr Isaac H. Sutton, the Company's President and Sole Director, was also a shareholder in the now defunct
SavWatt Industries, LLC and a debtor of the Company. Mr Isaac H.
Sutton the Company's President and Sole Director is a beneficial owner in Sutton Global Associates, Inc and GoIP Global, Inc both companies which have provided at certain times, short term loans to the Company.
We do not have any independent directors or director committee members.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.
INDEPENDENT PUBLIC ACCOUNTANTS
On June 2, 2010, the Company engaged Sherb & Co. LLP, 805 Third Avenue, New York, New York as its certifying auditors to audit the Company's financial statements for the fiscal years ended December 31, 2010, 2009, 2008, 2007 and 2006. Prior to such engagement, the Company had not engaged a certifying audit firm.
(1) Audit Fees. For the fiscal years ended December 31, 2010 and 2011, the Company's
auditors charged us $12,000 and $20,000_respectively,
for services rendered for the audit of our annual financial statements.
(2) Audit-Related Fees. For the fiscal year ended December 31, 2011 and 2010, our
auditors charged us $9,000 and $6,000, respectively, for audit-related services (review).
(3) Tax Fees. Our auditors did not provide tax compliance, tax advice, or tax planning advice for the fiscal year ended December 31, 2011.
(4) All Other Fees. None.
(5) Audit Committee's Pre-Approval Policies and Procedures. The Company had no audit committee during the fiscal year ended December 31, 2011; hence, there were no pre-approval policies or procedures in effect during such fiscal year.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
See the Exhibits Index below for a list of exhibits attached hereto or incorporated by reference pursuant to Item 601 of Regulation S-K.
EXHIBIT INDEX
|
Exhibit
|
|
Description
|
|
|
|
|
|
3.1*****
|
|
Amended and Restated Certificate of Incorporation
|
|
|
|
|
|
3.2*****
|
|
Amended and Restated Bylaws
|
|
10.1**
|
|
Commercial Office Lease
|
|
|
|
|
|
10.2***
|
|
Employment Agreement for Isaac Sutton, Chief Executive Officer
and Chief
Financial Officer
|
|
|
|
|
|
14*
|
|
Code of Business Conduct Ethics
|
|
|
|
|
|
21**
|
|
Subsidiaries of the Company
|
|
|
|
|
|
31.1***
|
|
Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350
|
|
|
|
|
|
31.2***
|
|
Certification of Chiefl Financial Officer Pursuant to 18 U.S.C. Section 1350
|
|
|
|
|
|
32.1***
|
|
906 Certification of Chief Executive Officer and Chief Financial Officer
|
|
101.INS
****
|
|
XBRL Instance Document
|
|
|
|
|
|
101.SCH
****
|
|
XBRL Taxonomy Extension Schema Document
|
|
|
|
|
|
101.CAL
****
|
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
101.DEF
****
|
|
XBRL Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101.LAB
****
|
|
XBRL Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
101.PRE
****
|
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
_________
* Exhibits incorporated herein by reference to Company's Form 10-K for the fiscal Year Ended December 31, 2006, filed with the Commissionon A
ugust
17, 2010.
**
Incorporated by reference to 10-K filed April 15, 2011.
*** Filed herewith
**** Pursuant to Rule 406T of Regulation S-T, the Interactive Data Files on Exhibit 101 hereto are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, are deemed not filed for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, and otherwise are not subject to liability under those sections.
***** Incorporated by reference to 14C filed on April 13, 2011.
SIGNATURES
In accordance with Section 13 or 15(d) of the Securities 1934, the Registrant has duly caused this Annual Report
Exchange Act of
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
|
SaVWatt USA, Inc.
|
|
|
|
|
|
|
|
Dated: April 16, 2012
|
|
/s/ Isaac H. Sutton
|
|
|
|
By:
|
Isaac H. Sutton
|
|
|
|
Its:
|
Chief Executive Officer and Chief Financial Officer
|
|
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of SavWatt USA, Inc.
We have audited the accompanying balance sheet of SavWatt USA, Inc. as of December 31, 2011 and December 31, 2010, and the related statements of operations, stockholders' deficit, and cash flows for the years ended December 31, 2011 and 2010. 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 audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of SavWatt USA, Inc. at December 31, 2011 and 2010,and the results of operations and cash flows for the years ended December 31, 2011 and 2010, in conformity with accounting principles generally accepted in the United States of America.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has incurred significant losses from operations. These issues raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. These financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Sherb & Co., LLP
Certified Public Accountants
New York ,NY
April 16,2012
SavWatt USA, Inc.
BALANCE SHEETS
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
ASSETS
|
|
Current assets:
|
|
|
|
|
|
|
|
Cash
|
|
$
|
979
|
|
|
$
|
2,422
|
|
|
Accounts receivable
|
|
|
14,194
|
|
|
|
619
|
|
|
Inventory
|
|
|
53,502
|
|
|
|
42,853
|
|
|
Other current assets
|
|
|
80,830
|
|
|
|
32,200
|
|
|
Total current assets
|
|
|
149,504
|
|
|
|
78,094
|
|
|
|
|
|
|
|
|
|
|
|
|
Computer Equipment, net
|
|
|
161,207
|
|
|
|
10,803
|
|
|
Leasehold Improvements, net
|
|
|
432,391
|
|
|
|
-
|
|
|
Intangible
|
|
|
1,100,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,843,102
|
|
|
$
|
88,897
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities:
|
|
|
|
|
|
|
|
|
|
Accounts payable and accrued expenses
|
|
$
|
1,066,793
|
|
|
$
|
112,318
|
|
|
Due to related party, net
|
|
|
59,039
|
|
|
|
504,600
|
|
|
Stockholder loan payable
|
|
|
-
|
|
|
|
1,129,698
|
|
|
Accrued interest - stockholder
|
|
|
-
|
|
|
|
175,596
|
|
|
Derivative liability
|
|
|
300,312
|
|
|
|
-
|
|
|
Related party convertible loan payable, net
|
|
|
363,798
|
|
|
|
50,000
|
|
|
Convertible notes payable, net
|
|
|
1,110,450
|
|
|
|
200,000
|
|
|
Total current liabilities
|
|
|
2,900,392
|
|
|
|
2,172,212
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts payable, long term
|
|
|
800,000
|
|
|
|
-
|
|
|
Total liabilities
|
|
|
3,700,392
|
|
|
|
2,172,212
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit:
|
|
|
|
|
|
|
|
|
|
Common stock, $0.0001 par value, 4,800,000,000 shares
and 100,000,000 shares authorized,
3,109,078,478 and
167,531,786 shares issued and outstanding, respectively
|
|
|
310,907
|
|
|
|
16,752
|
|
|
Preferred stock, $.0001 par value, 200,000,000 authorized
10,000,000 issued and outstanding
|
|
|
1,000
|
|
|
|
-
|
|
|
Additional paid-in capital
|
|
|
45,335,120
|
|
|
|
37,120,142
|
|
|
Accumulated deficit
|
|
|
(47,504,317
|
)
|
|
|
(39,203,264
|
)
|
|
|
|
|
(1,857,290
|
)
|
|
|
(2,066,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Non controlling interest
|
|
|
-
|
|
|
|
(16,945
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders' deficit
|
|
|
(1,857,290
|
)
|
|
|
(2,083,315
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders' deficit
|
|
$
|
1,843,102
|
|
|
$
|
88,897
|
|
See accompanying notes to audited financial statements.
SavWatt USA, Inc.
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
REVENUES
|
|
$
|
60,916
|
|
|
$
|
4,059
|
|
|
COST OF REVENUE
|
|
|
26,806
|
|
|
|
-
|
|
|
GROSS PROFIT
|
|
|
34,111
|
|
|
|
4,059
|
|
|
|
|
|
|
|
|
|
|
|
|
EXPENSES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
2,306,097
|
|
|
|
1,588,192
|
|
|
Selling expenses
|
|
|
168,476
|
|
|
|
|
|
|
Professional fees
|
|
|
534,790
|
|
|
|
484,606
|
|
|
Bad debt expense-related party
|
|
|
-
|
|
|
|
218,636
|
|
|
Total Expenses
|
|
|
3,009,362
|
|
|
|
2,291,434
|
|
|
|
|
|
|
|
|
|
|
|
|
LOSS FROM OPERATIONS
|
|
|
(2,975,251
|
)
|
|
|
(2,287,375
|
)
|
|
|
|
|
|
|
|
|
|
|
|
OTHER INCOME (EXPENSE)
|
|
|
|
|
|
|
|
|
|
Other income
|
|
|
-
|
|
|
|
5,000
|
|
|
Interest expense
|
|
|
(101,501
|
)
|
|
|
(33,220
|
)
|
|
Interest expense - stockholder
|
|
|
(219,944
|
)
|
|
|
(473,931
|
)
|
|
Derivative expense
|
|
|
(86,400
|
)
|
|
|
-
|
|
|
Gain on settlement of debt
|
|
|
6,550
|
|
|
|
-
|
|
|
Amortization of debt discount
|
|
|
(3,199,988
|
)
|
|
|
-
|
|
|
Debt Conversion Expense
|
|
|
(1,707,573
|
)
|
|
|
(51,556
|
)
|
|
Total Other Income (Expense)
|
|
|
(5,308,856
|
)
|
|
|
(553,707
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS
|
|
|
(8,284,107
|
)
|
|
|
(2,841,082
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET INCOME (LOSS) ATTRIBUTABLE TO
NONCONTROLLING INTERESTS
|
|
|
(16,945
|
)
|
|
|
16,945
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS ATTRIBUTABLE TO SAVWATT USA, INC.
|
|
$
|
(8,301,052
|
)
|
|
$
|
(2,824,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER SHARE, BASIC AND DILUTED
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES OUTSTANDING, BASIC AND DILUTED
|
|
|
1,229,594,863
|
|
|
|
105,307,057
|
|
See accompanying notes to financial statements.
SavWatt USA, Inc.
STATEMENT OF STOCKHOLDERS' DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional
|
|
|
During
|
|
|
Total
|
|
|
|
|
Common Stock
|
|
|
Preferred A
|
|
|
Paid-in
|
|
|
Development
|
|
|
Stockholders'
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Capital
|
|
|
Stage
|
|
|
Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
79,474,175
|
|
|
$
|
7,947
|
|
|
|
|
|
$
|
|
|
|
$
|
35,256,348
|
|
|
$
|
(36,379,127
|
)
|
|
$
|
(1,114,832
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued for cash
|
|
|
37,333,333
|
|
|
|
3,733
|
|
|
|
-
|
|
|
|
-
|
|
|
|
311,267
|
|
|
|
-
|
|
|
|
315,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services
|
|
|
31,850,000
|
|
|
|
3,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,308,140
|
|
|
|
-
|
|
|
|
1,311,325
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for interest
|
|
|
500,000
|
|
|
|
50
|
|
|
|
-
|
|
|
|
-
|
|
|
|
21,199
|
|
|
|
-
|
|
|
|
21,249
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to noteholder debt conversion
|
|
|
18,374,278
|
|
|
|
1,837
|
|
|
|
-
|
|
|
|
-
|
|
|
|
171,632
|
|
|
|
-
|
|
|
|
173,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification expense related to conversion of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
51,556
|
|
|
|
-
|
|
|
|
51,556
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended December 31, 2010
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,824,137
|
)
|
|
|
(2,824,137
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
167,531,786
|
|
|
|
16,752
|
|
|
|
-
|
|
|
|
-
|
|
|
|
37,120,142
|
|
|
|
(39,203,264
|
)
|
|
|
(2,066,370
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for services
|
|
|
201,238,683
|
|
|
|
20,124
|
|
|
|
-
|
|
|
|
-
|
|
|
|
286,547
|
|
|
|
-
|
|
|
|
306,671
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for interest
|
|
|
1,000,000
|
|
|
|
100
|
|
|
|
-
|
|
|
|
-
|
|
|
|
13,900
|
|
|
|
-
|
|
|
|
14,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value of common stock issued for related party debt
|
|
|
2,500,000
|
|
|
|
250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
34,750
|
|
|
|
-
|
|
|
|
35,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature related to convertible debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
3,470,250
|
|
|
|
-
|
|
|
|
3,470,250
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to noteholder debt conversion - principal
|
|
|
2,718,112,504
|
|
|
|
271,811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,190,981
|
|
|
|
-
|
|
|
|
2,462,792
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued pursuant to noteholder debt conversion - accrued interest
|
|
|
18,695,505
|
|
|
|
1,870
|
|
|
|
-
|
|
|
|
-
|
|
|
|
11,777
|
|
|
|
-
|
|
|
|
13,647
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modification expense related to conversion of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,707,573
|
|
|
|
-
|
|
|
|
1,707,573
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Conversion of debt into Preferred A shares ( par .0001)
|
|
|
-
|
|
|
|
-
|
|
|
|
10,000,000
|
|
|
|
1,000
|
|
|
|
499,000
|
|
|
|
-
|
|
|
|
500,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss for the year ended December 31, 2011
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(8,301,052
|
)
|
|
|
(8,301,052
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2011
|
|
|
3,109,078,478
|
|
|
$
|
310,907
|
|
|
|
10,000,000
|
|
|
$
|
1,000
|
|
|
$
|
45,334,920
|
|
|
$
|
(47,504,317
|
)
|
|
$
|
(1,857,490
|
)
|
See accompanying notes to financial statements.
|
|
|
For the years ended
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM OPERATING ACTIVITIES:
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(8,301,052
|
)
|
|
$
|
(2,824,137
|
)
|
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
|
Net loss attributable to non controlling interest
|
|
|
16,945
|
|
|
|
(16,945
|
)
|
|
Stock issued for services
|
|
|
306,871
|
|
|
|
1,311,325
|
|
|
Stock issued for interest
|
|
|
14,000
|
|
|
|
21,249
|
|
|
Bad debt expense - related party
|
|
|
-
|
|
|
|
218,636.00
|
|
|
Debt modification expense
|
|
|
1,707,573
|
|
|
|
51,556.00
|
|
|
Gain on settlement of related party debt
|
|
|
(6,550
|
)
|
|
|
-
|
|
|
Depreciation
|
|
|
30,703
|
|
|
|
-
|
|
|
Amortization expense
|
|
|
3,199,988
|
|
|
|
-
|
|
|
Loss on fair value of derivative
|
|
|
86,399
|
|
|
|
-
|
|
|
Increase (decrease) in cash flows as a result of
changes in asset and liability account balances:
|
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(13,575
|
)
|
|
|
(621.00
|
)
|
|
Inventory
|
|
|
(10,649
|
)
|
|
|
(42,852
|
)
|
|
Other current assets
|
|
|
(48,630
|
)
|
|
|
(32,200
|
)
|
|
Accounts payable and accrued expenses
|
|
|
2,020,093
|
|
|
|
112,318
|
|
|
Related party payable
|
|
|
979,438
|
|
|
|
285,965
|
|
|
Stockholder loan payable
|
|
|
-
|
|
|
|
90,000
|
|
|
Accrued interest-stockholder
|
|
|
-
|
|
|
|
473,931
|
|
|
Total adjustments
|
|
|
8,282,606
|
|
|
|
2,472,362
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(18,446
|
)
|
|
|
(351,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Purchases of computer equipmnet
|
|
|
-
|
|
|
|
(10,803
|
)
|
|
Purchases of machinery
|
|
|
(153,775
|
)
|
|
|
-
|
|
|
Purchase of leasehold improvements
|
|
|
(459,722
|
)
|
|
|
-
|
|
|
Purchase of intangible
|
|
|
(1,100,000
|
)
|
|
|
-
|
|
|
Net cash used in investing activities
|
|
|
(1,713,497
|
)
|
|
|
(10,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
-
|
|
|
|
315,000
|
|
|
Proceeds from issuance of loan payable
|
|
|
1,755,500
|
|
|
|
50,000
|
|
|
Payments of convertible notes payable
|
|
|
(25,000
|
)
|
|
|
-
|
|
|
|
|
|
-
|
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
|
1,730,500
|
|
|
|
365,000
|
|
|
|
|
|
|
|
|
|
|
|
|
NET INCREASE (DECREASE) IN CASH
|
|
|
(1,443
|
)
|
|
|
2,422
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF YEAR
|
|
|
2,422
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH, END OF YEAR
|
|
$
|
979
|
|
|
$
|
2,422
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Preferred stock issued for repayment of shareholder loan
|
|
$
|
500,000
|
|
|
$
|
-
|
|
|
Accounts payable converted to convertible debt instruments
|
|
$
|
80,445
|
|
|
$
|
-
|
|
|
Beneficial conversion feature related to convertible debt
|
|
$
|
3,470,250
|
|
|
$
|
-
|
|
|
Loan assignments to convertible note holders
|
|
$
|
1,994,565
|
|
|
$
|
373,469
|
|
|
Related party debt settled for common stock
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
Related party debt converted to a convertible loan
|
|
$
|
600,000
|
|
|
$
|
-
|
|
|
Loan payable assigned to shareholder
|
|
$
|
50,000
|
|
|
$
|
-
|
|
|
Common stock issued for accrued interest
|
|
$
|
13,647
|
|
|
$
|
-
|
|
|
Accrued interest assigned to convertible noteholders
|
|
$
|
171,526
|
|
|
$
|
-
|
|
|
Common stock issued as a result of debt conversion
|
|
$
|
2,462,792
|
|
|
$
|
173,469
|
|
|
Initial valuation of derivative liability
|
|
$
|
213,913
|
|
|
$
|
-
|
|
|
Stockholder loan and accrued interest exchanged
for a short term convertible note
|
|
$
|
-
|
|
|
$
|
1,503,167
|
|
See accompanying notes to financial statements.
SavWatt USA, Inc.
Notes to Financial Statements
NOTE 1 - ORGANIZATION AND BASIS OF PRESENTATION
SavWatt USA, Inc. (“SavWatt”) formerly known as Ludvik Capital, Inc. (“Ludvik Capital”) (hereinafter "the Company") was incorporated on October 20, 2006 under the laws of the State of Delaware for the purpose of becoming a successor corporation by way of merger with Patriot Advisors, Inc. (“Patriot”) and Templar Corporation (“Templar”), pursuant to a plan of reorganization and merger approved by the United States Bankruptcy Court, District of Maine in Case No. 04-20328 whereby Ludvik Capital is the continuing entity. Hereinafter, SavWatt, Ludvik Capital, Patriot and Templar are referred to as the “Company” unless specific reference is made to one of these entities.
The Company's business plan consisted of investing in public and private companies, providing long term equity and debt investment capital to fund growth and acquisitions and recapitalizations of small and middle market companies in a variety of industries primarily located in the United States.
Since inception, the Company has had minimal operations and no revenues earned. On April 5, 2010, the Company amended its articles of incorporation and changed its name to SavWatt USA, Inc.
The Company plans to capitalize on the largely unaddressed commercial and consumer market for energy-efficient LED lighting by investing in product and corporate marketing. With public relations and advertising throughout the media, a recognized, popular consumer LED brand will be cultivated, spearheading and establishing a leading market share in the growing energy-efficient bulb sector during the next three to five years. SavWatt has the exclusive marketing rights in the United States to sell LED street lighting for a number of Asian companies.
The Company's year end is December 31st
.
The Company's corporate headquarters were originally located in Virginia but are currently located in Baltimore MD.
GOING CONCERN AND BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As reflected in the financial statements, the Company incurred net losses of $8,301,052 for the year ended December 31, 2011. In addition, the Company has incurred a net loss from inception (October 20, 2006) through December 31, 2011 and accumulated deficit amounting to $47,504,316 its inception, the Company has generated minimal revenues and has minimal cash resources.
These circumstances raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Management's efforts have been directed towards the development and implementation of a plan to generate sufficient revenues to cover all of its present and future costs and expenses.
Management is taking steps to address this situation. The Company has determined that it cannot continue with its business operations as outlined in its original business plan because of a lack of financial resources; therefore, management has redirected their focus towards identifying and pursuing options regarding the development of a new business plan and direction. The Company intends to explore various business opportunities that have the potential to generate positive revenue, profits and cash flow in order to financially accommodate the costs of being a publicly held company. The Company is in the process of raising capital by implementing its business plan in LED lighting and expects to generate sufficient revenue by the 3rd quarter of 2012 with a positive cash flow. Until then, the Company the Company will not have the required capital resources or credit lines available that are sufficient to fund operations.
The Company has minimal operating costs and expenses at the present time due to its limited business activities. The Company, however, will be required to raise additional capital over the next twelve months to meet its current administrative expenses, and it may do so in connection with or in anticipation of possible acquisition transactions. This financing may take the form of additional sales of its equity securities and/or loans from its directors. There is no assurance that additional financing will be available, if required, or on terms favorable to the Company.
The financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classification of liabilities that might be necessary in the event the Company cannot continue in existence.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
This summary of significant accounting policies is presented to assist in understanding the accompanying financial statements. The financial statements and notes are representations of the Company's management, which is responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.
ACCOUNTING METHOD
The Company's financial statements are prepared using the accrual basis of accounting in accordance with accounting principles generally accepted in the United States of America.
DEVELOPMENT STAGE ACTIVITIES
For all periods prior to December 31, 2011, the Company considered itself a development stage enterprise. During the year ended December 31, 2011, the Company has generated approximately $61,000 in revenue and made significant progress toward achieving its intended business plan of producing, marketing and selling Light Emitting Diode ("LED") lighting. As a result of the generation of revenue as well as a result of the Company development we no longer consider ourselves a development stage enterprise.
CASH AND CASH EQUIVALENTS
For purposes of the statement of cash flows, the Company considers all short-term debt with original maturities of three months or less to be cash equivalents.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments may include cash, accounts receivable, inventory, other assets, loans payable and related accrued interest, and accounts payable. All such instruments are accounted for on a historical cost basis, which, due to the short maturity of these financial instruments, approximates fair value at December 31, 2011 and December 31, 2010.
ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are stated at the amount the Company expects to collect. The Company provides an allowance for doubtful accounts equal to the estimated uncollectible amounts. The Company's estimate is based on historical collection experience and a review of the current status of trade accounts receivable. It is reasonably possible that the Company's estimate of the allowance for doubtful accounts will change.
As of December 31, 2011 accounts receivable are presented net of an allowance for doubtful accounts of $9,032.
As of December 31, 2010 the Company wrote off a related party receivable amounting to $218,636 and recorded a bad debt expense, based on management's evaluation of the balance and certainty that the balance would not be collectible in the future.
PROPERTY AND EQUIPMENT AND LEASEHOLD IMPROVEMENTS
Property and equipment are recorded at cost. Expenditures for major additions and improvements are capitalized and minor replacements, maintenance, and repairs are charged to expense as incurred. When property and equipment are disposed of, the cost and accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations for the respective period.
Depreciation is provided for over the estimated useful lives of the related asset using the straight-line method. As of December 31, 2011 property and equipment consists of primarily computer equipment.
Included in leasehold improvements are costs related to the construction of the manufacturing facility in Baltimore Maryland. The leasehold improvements are being amortized using the straight-line method.
The estimated useful lives for significant equipment categories are from 3 to 5 years and for leasehold improvements the useful life is 10 years.
INVENTORY
The Company's inventory consists of entirely of finished goods, and is valued at lower of cost or market price. Cost is determined on a first-in, first-out ("FIFO") basis. To ensure inventory is carried at the lower of cost or market, the Company periodically evaluates the carrying value and also periodically performs an evaluation of inventory for excess and obsolete items. Such evaluations are based on management's judgment and use of estimates. Such estimates incorporate inventory quantities on-hand, aging of the inventory, sales forecasts for particular product groupings, planned dispositions of product lines and overall industry trends.
REVENUE RECOGNITION
Revenue is recognized when all of the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery has occurred or services have been rendered; (3) the seller's price to the buyer is fixed and determinable; and, (4) collectability is reasonably assured. The Company has earned minimal revenue since inception.
USE OF ESTIMATES
The process of preparing financial statements in conformity with accounting principles generally accepted in the United States of America requires the use of estimates and assumptions regarding certain types of assets, liabilities, revenues, and expenses. Such estimates primarily relate to unsettled transactions and events as of the date of the financial statements. Accordingly, upon settlement, actual results may differ from estimated amounts.
PROVISION FOR TAXES
Income taxes are provided based upon the liability method of accounting. Under this approach, deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against the deferred tax asset if management does not believe the Company has met the "more likely than not" standard to allow recognition of such an asset.
BASIC AND DILUTED EARNINGS (LOSS) PER SHARE
The Company utilizes the guidance per FASB Codification “ASC 260 "Earnings Per Share". Basic earnings per share is calculated on the weighted effect of all common shares issued and outstanding, and is calculated by dividing net income available to common stockholders by the weighted average shares outstanding during the period. Diluted earnings per share, which is calculated by dividing net income available to common stockholders by the weighted average number of common shares used in the basic earnings per share calculation, plus the number of common shares that would be issued assuming conversion of all potentially dilutive securities outstanding, is not presented separately as it is anti-dilutive. Such securities, shown below, presented on a common share equivalent basis and outstanding as of December 31, 2011 has been excluded from the per share computations as their effect would be anti-dilutive:
|
|
|
|
2011
|
|
|
Convertible Preferred Stock
|
|
|
100,000,000
|
|
|
Convertible Bridge Notes and Notes Payable
|
|
|
4,300,754,667
|
|
The average number of common shares outstanding for the period from Inception ( October 20, 2006) through December 31, 2011 has been retroactively adjusted for the 2:1 forward stock split effective August 17, 2007.
STOCK BASED COMPENSATION
The Company accounts for stock based compensation transactions with employees under the provisions of ASC Topic No. 718, "Compensation, Stock Compensation" ("Topic No. 718"). Topic No. 718 requires the recognition of the fair value of equity-based compensation in net income. The fair value of the Company's equity instruments are estimated using a Black-Scholes option valuation model. This model requires the input of highly subjective assumptions and elections including expected stock price volatility and the estimated life of each award. In addition, the calculation of equity-based compensation costs requires that the Company estimate the number of awards that will be forfeited during the vesting period. The fair value of equity-based awards granted to employees is amortized over the vesting period of the award and the Company elected to use the straight-line method for awards granted after the adoption of Topic No. 718.
The Company accounts for equity based transactions with non-employees under the provisions of ASC Topic No. 505-50, "Equity-Based Payments to Non-Employees" ("Topic No. 505-50"). Topic No. 505-50 establishes that equity-based payment transactions with non-employees shall be measured at the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. When the equity instrument is utilized for measurement the fair value of the equity instrument is estimated using the Black- Scholes option valuation model. In general, the Company recognizes an asset or expense in the same manner as if it was to receive cash for the goods or services instead of paying with or using the equity instrument.
FORWARD STOCK SPLIT
All references to the Company's outstanding shares, and options, have been adjusted to give effect to the 2 for 1 forward stock split effective August 17, 2007.
Derivative Liabilities
The Company assessed the classification of its derivative financial instruments as of December 31, 2011, which consist of convertible instruments and rights to shares of the Company’s common stock, and determined that such derivatives meet the criteria for liability classification under ASC 815.
ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument subject to the requirements of ASC 815. ASC 815 also provides an exception to this rule when the host instrument is deemed to be conventional, as described.
The Company believes that certain conversion features embedded in its convertible notes payable and rights to the Company’s common stock are not clearly and closely related to the economic characteristics of the Company’s stock price. The Company does not have a sufficient amount of authorized shares to satisfy its obligations under the convertible notes payable and rights to the shares of common stock. Accordingly, the Company has recognized derivative liabilities in connection with such instruments. The Company uses judgment in determining the fair value of derivative liabilities at the date of issuance at every balance sheet thereafter. The Company uses judgment in determining which valuation is most appropriate for the instrument (e.g., Black Scholes), the expected volatility, the implied risk free interest rate, as well as the expected dividend rate. Upon issuance the fair value was calculated using the Black-Scholes option pricing model with the following factors, assumptions, and methodologies:
|
|
|
2011
|
|
|
|
|
|
|
|
Fair value of Company’s common stock
|
|
$
|
0.0005
|
|
|
Volatility
|
|
|
171%-250
|
%
|
|
Exercise price
|
|
$
|
0.0003-0.0005
|
|
|
Estimated life
|
|
|
1 year
|
|
|
Risk free interest rate (based on 1-year treasury rate)
|
|
|
.15
|
%
|
The fair value of our financial instruments at December 31, 2011 and 2010 are as follows:
|
|
|
Fair Value Measurements at Reporting Date Using
|
|
|
|
|
Quoted Prices
in Active
Markets for
Identical Assets
(Level 1)
|
|
|
Significant Other
Observable
Inputs
(Level 2)
|
|
|
Significant
Unobservable
Inputs
(Level 3)
|
|
|
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilty
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
300,312
|
|
Fair Value of Financial Instruments
Effective January 1, 2008, the Company adopted FASB ASC 820-Fair Value Measurements and Disclosures, or ASC 820, for assets and liabilities measured at fair value on a recurring basis. ASC 820 establishes a common definition for fair value to be applied to existing generally accepted accounting principles that require the use of fair value measurements establishes a framework for measuring fair value and expands disclosure about such fair value measurements. The adoption of ASC 820 did not have an impact on the Company’s financial position or operating results, but did expand certain disclosures.
ASC 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Additionally, ASC 820 requires the use of valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. These inputs are prioritized below:
|
Level 1:
|
Observable inputs such as quoted market prices in active markets for identical assets or liabilities
|
|
Level 2:
|
Observable market-based inputs or unobservable inputs that are corroborated by market data
|
|
Level 3:
|
Unobservable inputs for which there is little or no market data, which require the use of the reporting entity’s own assumptions.
|
The Company did not have any Level 2 or Level 3 assets or liabilities as of December 31, 2011, with the exception of its convertible notes payable and derivative liability. The carrying amounts of these liabilities at December 31, 2011, approximate their respective fair value based on the Company’s incremental borrowing rate.
Cash is considered to be highly liquid and easily tradable as of December 31, 2011, and therefore classified as Level 1 within our fair value hierarchy.
In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments.
RECLASSIFICATIONS
Certain reclassifications have been made to the prior periods’ financial statements to conform to the current year presentation. These reclassifications had no effect on previously reported results of operations or the sum of stockholders’ deficit.
INTANGIBLE ASSETS
License Agreements
License agreements acquired by the Company are reported at acquisition value less accumulated amortization and impairments.
Amortization
Amortization is reported in the income statement straight-line over the estimated useful life of the intangible assets, unless the useful life is indefinite. Amortizable intangible assets are amortized from the date that they are available for use. The estimated useful life of the license agreement is five years which is the term of the underlying license agreement. The license is not yet in use as such the Company has not yet begun amortizing the asset.
Assessment of an intangible asset’s residual value and useful life is performed annually.
As stated in FASB 142 paragraph 11, the accounting for a recognized intangible asset is based on its useful life to the reporting entity. The Company has yet to use the license and as such has not begun amortizing the asset. When the Company does begin the amortization it will be over a 5 year period at $220,000 per year.
Customer Concentration
Two of the Company's customers accounted for approximately 17% and 19% respectively of its revenues during the year ending December 31, 2011.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In May 2011, the FASB issued ASU No. 2011-04, “Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRSs,” which is not expected to have a material impact on the financial statements upon adoption.
In June 2011, the FASB issued ASU No. 2011-05, “Presentation of Comprehensive Income.” Under the amendments in this ASU, an entity has two options for presenting its total comprehensive income: to present total comprehensive income and its components along with the components of net income in a single continuous statement, or in two separate but consecutive statements. The amendments in this ASU are required to be applied retrospectively and are effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The adoption of ASU No. 2011-05 will not have any material impact on the Company’s financial position and results of operations.
In September 2011, the FASB issued Accounting Standards Update (“ASU”) No. 2011-08, Intangibles — Goodwill and Other (Topic 350). This Accounting Standards Update amends FASB ASC Topic 350. This amendment specifies the change in method for determining the potential impairment of goodwill. It includes examples of circumstances and events that the entity should consider in evaluating whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The amendments are effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011. The adoption does not have any material impact on the Company’s financial position and results of operations.
Accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption.
NOTE 3 - STOCKHOLDER LOANS
On December 14th 2006, the Company entered into an Advisory Agreement (“Advisory Agreement”) with Ludvik Nominees Pty Ltd (“Ludvik Nominees”) (a Company 100% owned by Frank Kristan) for services to be rendered which were payable based on 3% assets under management and 20% of net profits of Ludvik Capital. The term of the agreement was for approximately 11 years, concluding on December 31, 2017.
Frank Kristan served as President and Chief Executive Officer of the Company from inception, October 20, 2006 through March 31, 2010 and is also the President of Ludvik Nominees. On March 31, 2010, Frank Kristan resigned as President and Director of the Company.
On March 31, 2010 the original 2006 agreement was terminated and a settlement agreement was created to resolve any outstanding obligations with respect to the 2006 agreement. In accordance with the settlement agreement both parties agreed that since advisory fees under the December 14th 2006 Agreement were based on assets under management that had no value, the Advisor had the option to get paid a fee of $30,000 per month starting October 2006 including interest. Furthermore, the remaining principal balance plus accrued interest as of September 30, 2010 was rolled over into a Secured Convertible Note amounting to $1,503,167.
From the period from the Company’s inception, October 20, 2006 through the termination of the Advisory Agreement on September 30, 2010, the Company issued its advisors 32,394,269 shares of common stock as payment for services amounting to $484,250.
This note was payable on September 30, 2010 and bears an interest rate of 12% per annum payable at the end of the term. Upon default, the unpaid principal balance of this note and any accrued and unpaid interest bear interest at the rate of 18%. The outstanding balance and accrued interest, all or in part, is convertible at the option of the holder into the Company's common stock at a conversion price of 50% of the stock price, with a minimum of $.01 per share. As of December 31, 2010 this note was in default. In April 2011, the Company received a waiver of the default and extended the due date of the note to December 31, 2011, at an interest rate of 18%. The note, plus accrued interest, was assignable
In the 3rd and 4th quarter of 2010 this stockholder assigned $373,469 of the convertible loan payable to investors (as discussed in Note 5)
In 2011, entities related to the Company’s current President and sole director assigned $300,000 in payables to Ludvik Nominees.
In 2011, this stockholder assigned $1,759,893 of the convertible loan payable to investors and converted $66,927 into 29,692,700 shares of common stock.
NOTE 4 – PROPERTY AND EQUIPMENT
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2011
|
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
Computer Equipment
|
|
$
|
12,985
|
|
|
$
|
10,803
|
|
|
Leasehold Improvements
|
|
|
459,722
|
|
|
|
-
|
|
|
Machinery
|
|
|
151,593
|
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(30,703
|
)
|
|
|
-
|
|
|
Total
|
|
$
|
593,598
|
|
|
$
|
13,839
|
|
In 2011 the Company purchased machinery for $151,593 which is not yet in use. Therefore the Company has yet to depreciate the machine.
Depreciation expense amounted to $30,703 and $0 for the years ended December 31, 2011 and 2010 respectively.
NOTE 5 - RELATED PARTY TRANSACTIONS
On September 30, 2010, Isaac H. Sutton was elected to the Board of Directors and currently serves as the Company's new President and sole director.
As of December 31, 2010, the Company recorded $30,000 expense related to consulting fees earned by the Company's President for 6 months.
During the Period of April 1, 2010 - December 31, 2010, the Company received short term funding from Sutton Global Associates, Inc., which is a related party since this company is controlled by Isaac H. Sutton the Company's President and Sole Director. As of December 31, 2010, the Company owes $479,600 to Sutton Global Associates, Inc.
During 2010, the Company advanced certain monies to GoIP Global, a related party controlled by Isaac H. Sutton the Company's President and Sole Director, to fund its operations. In addition, the Company entered into a one year agreement with GoIP where as GoIP provided messaging services to the Company. As of December 31, 2010, the Company's payable related to these services amounted to $25,000. In 2011, the Company issued 2,500, 000 shares of common stock pursuant to the conversion of this payable.
In December 2010, the Company wrote off $218,636 due from another affiliated company SavWatt Industries, LLC, a company later controlled by Isaac H. Sutton. The original owners are now employees of the Company. The Company determined that this amount would not be collectible and therefore recorded this amount as bad debt expense.
During the year ending December 31, 2011, the Company received approximately $1,372,507 in short term funding from Sutton Global Associates, Inc.
In 2011, Sutton Global Associates converted $600,000 of its short term funding in to into two Notes. The Notes bear interest at a rate of 6 % per annum and are convertible into common stock of the Company at the discretion of the holder. The notes are due in April and June of 2012. The Company recorded a $600,000 discount on these convertible notes, related to their beneficial conversion features, and amortized $463,798 for the year ended December 31, 2011. The net note payable, inclusive of unamortized discount was $136,202 as of December 31, 2011. The note has accrued interest of $21,107 included in accrued expenses, at December 31, 2011.
In April 2011, Sutton Global Associates assigned $300,000 of amounts owed to them to stockholders associated with Ludvik Nominees a stockholder of the Company.
In January 2011 Sutton Global Associates converted $250,000 of amounts owed to them into 5,000,000 shares of Preferred A shares.
In July 2011, Sutton Global Associates converted $250,000 of amounts owed to them into 5,000,000 shares of Preferred A shares.
As of December 31, 2011, the Company owes to Sutton Global Associates a total of $59,039 in unsecured advances included in due to related party, which was has not been converted into a convertible note, assigned to stockholders, or have not been converted into equity
NOTE 6 – DEBT
Short term Convertible Debt
In August 2010 through December 2010 a stockholder assigned $373,469 of his loan payable to investors transferring all the rights and interests of the original note (as disclosed in Note 3). As of December 31, 2010 the assignee debt holders have converted $173,469 of their outstanding debt into 18,374,278 shares of the Company's common stock resulting in the loan payable balance of $200,000.
In 2011, entities related to the Company’s current President and sole director assigned $300,000 in payables to a shareholder in the form of convertible debt.
In 2011, this stockholder assigned $1,759,893 of the convertible loan payable to investors and converted $66,927 into 29,692,700 shares of common stock.
In 2011 the Company converted $251,971 in accrued expenses and accounts payable into debt. During this period this liability was assigned to other debt holders
With respect to some of these assigned convertible notes, some of the terms conversion were modified thereby resulting in the Company recording a beneficial conversion with respect to the modifications.
During the year ended December 31, 2011, the Company entered into several short-term convertible notes with a total face amount of $1,755,500. These notes bear interest rates ranging from 5% to 18% payable in full in twelve months or less and which were convertible into shares of Company's common stock at discounts to market on their dates of conversion ranging from 30% to 70% from the market price. These notes have a minimum conversion floors ranging from $0.01 to $0.0001 per share.
With respect to the convertibility feature of the assigned convertible notes and the convertible notes entered into during the year ended December 31, 2011 the Company recorded a total beneficial conversion of $2,784,162 (which includes $213,913 resulting from transactions that required derivative accounting). Total amortization amounted to $2,436,190, recorded as other expense during the year ended December 31, 2011.
During the year ended December 31, 2011 the Company has converted a total of $2,395,865 of debt and $13,647 in accrued interest into 2,688,419,804 shares of common stock. In addition to debt the Company has recorded $1,707,573 of modification expense with respect to the conversion.
As of December 31, 2011 the balance of the Company’s short term convertible notes amounted to $1,110,449. The interest on these debentures is accrued and due at the end of the notes term. As of December 31, 2011 the accrued interest amounted to approximately $95,886 and is included in accounts payable and accrued expenses.
Other Debt
In October 2010, the Company entered into a secured promissory note for $50,000. The note was payable within 90 days and bears an interest rate of 5%. In connection with this note the Company issued 500,000 shares of its common stock as additional consideration valued at $21,249, and accounted for as interest expense during the year ended December 31, 2010. This note was fully satisfied as of December 31, 2011.
NOTE 7 - EQUITY TRANSACTIONS
In Apri12010, the Company amended its Articles of Incorporation changing the name of the Company to SavWatt USA, Inc. and increasing their authorized capital shares from 100,000,000 shares to 2,200,000,000 shares designating 2,000,000,000 as common stock and 200,000,000 shares as preferred stock. In September 2011 the Company increased the total capital to 5,000,000,000 shares authorized designating 4,800,000,000 as common stock and 200,000,000 shares as preferred stock. In 2011 the Company designated 25,000,000 shares of the preferred shares to be Series A Cumulative Preferred Stock ("Preferred Series A"). The Preferred Series A is convertible a one share of preferred into ten shares of common stock. The Preferred Series A shares are entitled to two hundred votes for each share of Preferred Series A shares as preferred stock. In 2011 the Company designated 25,000,000 shares of the preferred shares to be Series A Cumulative Preferred Stock ("Preferred Series A"). The Preferred Series A is convertible a one share of preferred into ten shares of common stock. The Preferred Series A shares are entitled to two hundred votes for each share of Preferred Series A.
In 2011 the Company designated 25,000,000 shares of the preferred shares to be Series A Cumulative Preferred Stock (“Preferred Series A”). The Preferred Series A is convertible a one share of preferred into ten shares of common stock. The Preferred Series A shares are entitled to two hundred votes for each share of Preferred Series A.
In January 2011, Sutton Global converted $250,000 of debt into 5,000,000 shares of Preferred Series A stock.
In July 2011, Sutton Global converted $250,000 of debt into 5,000,000 shares of Preferred Series A stock.
The issuance of common stock from January 1, 2010 through December 31, 2010 is summarized in the table below:
|
|
|
Number of shares of common stock
|
|
|
Fair Value
at Issuance
|
|
|
Per Share Value at Issuance
|
|
|
Stock issued for services
|
|
|
31,850,000
|
|
|
$
|
1,311,325
|
|
|
$
|
0.04
|
|
|
Common stock issued for cash
|
|
|
37,333,333
|
|
|
|
315,000
|
|
|
|
0.008
|
|
|
Fair value of common stock issued for interest
|
|
|
500,000
|
|
|
|
21,249
|
|
|
|
0.04
|
|
|
Common stock issued pursuant to note holder debt conversion
|
|
|
18,374,278
|
|
|
|
173,469
|
|
|
|
0.009
|
|
|
|
|
|
88,057,611
|
|
|
|
1,872,599
|
|
|
|
|
|
The issuance of common stock from January 1, 2011 through December 31, 2011 is summarized in the table below:
|
|
|
Number of shares of common stock
|
|
|
Fair Value
at Issuance
|
|
|
Per Share Value at Issuance
|
|
|
|
|
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Stock issued for related party debt settlement
|
|
|
2,500,000
|
|
|
|
35,000
|
|
|
|
0.014
|
|
|
Stock issued for services
|
|
|
203,238,683
|
|
|
|
306,871
|
|
|
|
0.0005 -0.014
|
|
|
Fair value of common stock issued for interest
|
|
|
1,000,000
|
|
|
|
14,000
|
|
|
|
0.014
|
|
|
Common stock issued pursuant to note holder debt conversion – principal
|
|
|
2,718,112,504
|
|
|
|
2,462,792
|
|
|
|
0.0001 - 0.01
|
|
|
Common stock issued pursuant to note holder debt conversion - interest
|
|
|
18,695,505
|
|
|
|
13,647
|
|
|
|
.00001-0.01
|
|
|
|
|
|
2,943,546,692
|
|
|
|
39,658,097
|
|
|
|
|
|
NOTE 8 - COMMITMENTS AND CONTINGENCIES
On July 1, 2010, the Company entered into an employment agreement with Michael Haug, as the Company's CEO, which responsibilities include running the daily operations of SavWatt USA, Inc. The term of the agreement is for one year at a salary of $84,000, and may be renewed upon mutual agreement by the Company and the employee.
The employment agreement with Michael Haug was not renewed and in October 2011, Mr. Haug was appointed Executive Vice President of Sale. Mr. Haug tendered his resignation in March 2012.
On February 11, 2011, the Company entered into a lease for approximately 24,561 square feet at 1100 Wicomico Street, Suite 700, Baltimore, Maryland, under a written lease for a term of ten years. This new facility will be the Company's new principal executive offices, as well as a manufacturing and assembly facility. We will not have to pay rent on this facility until February 1, 2012. In accordance with ASC 840 Leases, the Company has recorded a $74,280 liability in recognition of this rent holiday as of September 30, 2011. Thereafter, the Company will pay rent as follows:
|
February 1, 2012 - January 31, 2013
|
$ 9,926.74 per month
|
|
February 1, 2013 - January 31, 2016
|
$ 11,564.14 per month
|
|
February 1, 2016 - January 31, 2019
|
$ 12,526.11 per month
|
|
February 1, 2019 - January 31, 2021
|
$ 13,549.49 per month
|
In June 2011, the Company entered in to a lease for approximately 1000 square Feet at 152 Madison Avenue, New York, NY, under a written lease for a term of 2 years. Under the terms of the lease the annual base rent is approximately $ 74,000. This New facility will be used as executive and sales office.
In December 2011, The Company enteral n to a new lease for approximately 2,886 square feet at 7927 Jonas Brench Drive, Suite 3300, McClean, VA, under a written lease for a term of 2 years. Under the terms of the lease the annual base rent is approximately $ 58,000. This new facility will be used by the Company for sales.
The Company has entered into an exclusive worldwide license for LED lights with P2i Limited (“P2i”), a company incorporated in England, utilizing P2i's liquid repellent nano-coating technology.
Under the terms of The Technology Exclusivity Agreement (“P2i Agreement”) with P2i, the Company is granted an exclusive worldwide license to P2i patents for liquid repellent nano-coating technology (“repellent technology”) with respect to its application for LED lighting. The term of the P2i Agreement is for five years commencing July 14, 2011. The payment due under the agreement is $1,100,00, within an initial payment and additional payments on each of the four subsequent anniversary dates of the agreement. The P2i Agreement will be amortized over the life of the agreement.
In addition to the P2i Agreement, the Company also entered into an Equipment Purchase and Technology License Agreement (“P2i Equipment Agreement”) with P2i. This agreement runs a concurrent term with that of the p2i Agreement. Under the P2i Equipment Agreement, the Company is obligated to purchase an initial machine, during the first year, from P2i, that applies their repellent technology. The Company is also required to pay P2i a royalty for product made using their technology under the P2i Equipment Agreement.
The Company plans to initially perform this process in its Baltimore facility with future facilities to be established worldwide. In addition, the Company has the right to sub-license this technology to its worldwide partners.
NOTE 9 - INCOME TAXES
At December 31, 2011 and December 31, 2010 the Company had a deferred tax asset of approximately $2,113,000 and $978,000, respectively, calculated at a combined federal and state expected rate of 38%. As management of the Company cannot determine that it is more likely than not that the Company will realize the benefit of the net deferred tax asset, a valuation allowance equal to the net deferred tax asset has been recorded.
The significant components of the deferred tax assets at December 31, 2011 and December 31, 2010 are as follows:
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Deferred tax asset-net operating losses
|
|
$
|
2,102,000
|
|
|
$
|
973,000
|
|
|
Accrued compensation
|
|
|
11,000
|
|
|
|
5,000
|
|
|
Deferred tax asset valuation allowance
|
|
|
(2,113,000
|
)
|
|
|
(978,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
--
|
|
|
$
|
--
|
|
The reconciliation between the statutory federal income tax rate of 35% to the actual rate is as follows:
|
|
|
December 31,
2011
|
|
|
December 31,
2010
|
|
|
|
|
|
|
|
|
|
|
Expected Federal tax (benefit)
|
|
$
|
(2,822,000
|
)
|
|
$
|
(960,000
|
)
|
|
Expected State tax (benefit), net of
federal
|
|
|
(332,000
|
)
|
|
|
(113,000
|
)
|
|
Permanent differences
|
|
|
2,019,000
|
|
|
|
527,000
|
|
|
Change in valuation allowance
|
|
|
1,135,000
|
|
|
|
546,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
$
|
--
|
|
|
$
|
--
|
|
At December 31, 2011 and December 31, 2010, the Company had a net operating loss carry forward of $5,531,000 and $2,560,000, respectively, which expire in the year 2031 and 2030, respectively.
NOTE 10 – SUBSEQUENT EVENTS
During 2012, the Company recorded the following transactions:
|
-
|
Issued 4,085,638,811 shares of common stock pursuant to the conversion of $443,472 in short term loans
|
|
-
|
Issued 2,300,000, 000 shares of common stock pursuant to the conversion of $ 115,000 in short term loans from a related party.
|
|
-
|
Issued 15, 000,000 shares of preferred stock pursuant to the conversion of $ 390,000 in short term loans from a related party.
|
|
-
|
Received proceeds amounting to $160,000 related to the issuance of short term loans.
|
In February 2012, the Company entered into an employment agreement with the Company's CEO, Isaac H. Sutton, commencing on January 1, 2012 and expiring on December 31, 2012. The employment agreement provides for an annual salary of $240,000 together with annual increases of at least 10% per annum. In addition, Mr. Sutton shall receive as additional compensation 75% of the company’s gross revenues in excess of $20,000,000. The employment agreement provides that Mr. Sutton is eligible to receive incentive bonus compensation, at the discretion of the board of directors. The employment agreement provides for termination based on death, disability or other termination and for severance payments upon termination. The severance payments range from the compensation payable pursuant to the agreement or up to two times the annual compensation over sixty months in the event that Mr. Sutton is terminated in the event of a change in control as described in the agreement.
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