GOOD GAMING, INC. - Annual Report: 2012 (Form 10-K)
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
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[X]
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 2012
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Commission File Number: 000-53949
HDS INTERNATIONAL CORP.
(Exact name of registrant as specified in its charter)
Nevada
(State or other jurisdiction of incorporation)
10 Dorrance Street, Suite 700
Providence, RI 02903
(Address of principal executive offices and Zip Code)
(401) 400-0028
(Registrant’s telephone number, including area code)
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Securities registered pursuant to Section 12(b) of the Act:
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Securities registered pursuant to section 12(g) of the Act:
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NONE
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COMMON STOCK
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Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES [ ] NO [X]
Indicate by check mark if the registrant is required to file reports pursuant to Section 13 or Section 15(d) of the Act: YES [X] NO [ ]
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES [ ] NO [X]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
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Large Accelerated Filer
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[ ]
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Accelerated Filer
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[ ]
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Non-accelerated Filer
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Smaller Reporting Company
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[X]
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(Do not check if a smaller reporting company)
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). YES [ ] NO [X]
State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of June 30, 2012: $808,254.
State the number of shares outstanding of each of the issuer’s classes of common equity, as of the latest practicable date:
377,203,078 as of March 26, 2013.
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Page
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Business.
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3
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Risk Factors.
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8
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Unresolved Staff Comments.
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8
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Properties.
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8
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Legal Proceedings.
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8
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Mine Safety Disclosures.
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8
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Market for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
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8
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Selected Financial Data.
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10
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Management’s Discussion and Analysis of Financial Condition and Results of Operation.
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10
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Quantitative and Qualitative Disclosures About Market Risk.
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13
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Consolidated Financial Statements and Supplementary Data.
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14
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Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.
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27
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Controls and Procedures.
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27
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Other Information.
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28
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Directors, Executive Officers and Corporate Governance.
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28
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Executive Compensation.
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30
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Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
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32
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Certain Relationships and Related Transactions, and Director Independence.
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32
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Principal Accountant Fees and Services.
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34
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Exhibits and Consolidated Financial Statement Schedules.
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35
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36
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General
HDS International, Inc. (the “Company”, “we”, or “us”) is a green technology company providing renewable energy and eco-sustainability solutions. We are a developmental stage business, have not generated any revenues to date and have a history of operating losses.
The Company was incorporated November 3, 2008 under the laws of the State of Nevada, to engage in providing certain business services.
On August 16, 2011, we entered into an Asset Acquisition Agreement (the “Agreement”) with Hillwinds Ocean Energy, LLC, a privately held consulting company (“HOEL”), under which we acquired from HOEL certain of HOEL’s assets, including a certain license relating to technologies for gas exchange, carbon dioxide capture and sequestration, algae biomass production and other renewable energy and eco-sustainability applications.
In exchange for the assets, we paid HOEL consideration of: (a) 7,500,000 shares of our Class A Preferred Stock, $0.001 par value per share; (b) 250,000,000 shares of our common stock, $0.001 par value per share, and (c) a twelve month, 10% promissory note in the sum of $325,000. HOEL is the majority owner of our issued and outstanding common stock and sole owner of all our issued and outstanding preferred stock.
Simultaneous with the Asset Acquisition Agreement, our former president, Mr. Mark Simon, returned for cancellation 440,820,000 shares of common stock, which were cancelled by us, and resigned from his positions as officer and director of the Company. Mr. Tassos D. Recachinas (“Mr. Recachinas”), president of HOEL, was appointed as our president and to our board of directors, becoming our sole officer and director. Mr. Recachinas continues to serve as president of both HOEL and of our Company, and as president and sole director of HOEL, exercises supermajority control over our Company.
We determined the consideration for the assets and the license through negotiation. There is no comparable product/license on the market, accordingly it could be said that the price for both was arbitrarily determined.
Pursuant to the terms of the license, we acquired the exclusive rights to develop, make, use, market and sell certain products and to practice certain processes within our licensed territory. Our licensed territory under the license consists of Back Bay, New Brunswick, Canada, and any geographical area within 50 miles from the center of Back Bay, with the boundary on the west being the border with the State of Maine in the United States. We believe our licensed territory offers favorable geological conditions conducive to the implementation of our underlying technologies.
On October 1, 2011, we reached a management consulting agreement with Alexander M. Chirkov, M.D., Ph.D., (“Dr. Chirkov”), whereby Dr. Chirkov became our Chief Scientific Officer. Our core technologies were developed by Dr. Chirkov and we believe we require his involvement to deploy, implement and commercialize our technologies.
On October 7, 2011, the Company expanded its intellectual property portfolio by entering into a certain new license agreement (the “October 2011 License”) with Hillwinds Energy Development Corp. (“HEDC”), which is controlled by our President and sole Director. The October 2011 License was identical in geographic territory as the August 16 License, but addressed newly developed technology.
On October 22, 2012, we formed a wholly-owned Canadian-based subsidiary, HDS Energy and Ecosystems NB, Ltd, headquartered in Saint John, New Brunswick, Canada, to be responsible for HDS International’s business and research and development interests in the Province of New Brunswick, Canada. The subsidiary was established to facilitate HDS International’s sales, marketing, grant application, and other business development efforts within the Province, as well as in response to certain potential customer requirements in the Province.
On November 30, 2012, we reached a seven year exclusivity agreement with the City of Saint John, NB, Canada for the installation of an anaerobic digester, beginning with a feasibility study. Under the terms of the agreement, HDS has received exclusive rights to pursue the installation of anaerobic digester waste-to-energy systems to operate in conjunction with the City of Saint John’s wastewater treatment infrastructure. We intend for the anaerobic digester project to incorporate HDS’ licensed carbon capture and algae biomass production technologies incremental to a traditional anaerobic digester’s functionality. Initially, HDS will be responsible for leading a feasibility study for an anaerobic digester facility that would incorporate its technologies at
the City of Saint John’s “Lancaster” Wastewater Treatment Facility site, at its own expense. The City will contribute staff support and other internal assistance to HDS during the study, and has agreed to team on any grant applications identified by HDS. The agreement was executed by HDS’ President and CEO, as well as Saint John’s City Manager after receiving approval by resolution of the City’s Common Council.
If the City of Saint John determines to proceed under our agreement to implement an anaerobic digester incorporating our licensed carbon capture and algae biomass production technologies project based on our feasibility study, we will seek to negotiate a new contract with the City of Saint John to earn revenues as general contractor of the project. We intend to seek to generate revenue through subcontracting the anaerobic digester installation to an experienced anaerobic digester manufacturer and installer, and generate additional revenues through the sale of our carbon capture and algae biomass production equipment required by the project. We are unable to accurately predict our potential for revenues from our contract until we complete our feasibility study.
On December 10, 2012, through our wholly-owned Canadian subsidiary, HDS Energy and Ecosystems NB, Ltd., we entered into a new technology license agreement with HEDC, which expands the geographic territory under our previous technology licenses. All previous license agreements between HDS and HEDC, including the license under asset acquisition agreement dated August 15, 2011, and the intellectual property agreement consummated October 7, 2011 (dated September 2, 2012) have been terminated and superseded in their entirety by the new license agreement (the “NB Provincial License”).
The NB Provincial License expands our exclusive geographic territory to cover the entire Province of New Brunswick, Canada, as compared to the previous exclusive geographic territory under our other licenses, which was defined as Back Bay, New Brunswick, Canada, and any geography within 50 miles from the center of Back Bay, with the boundary on the west being the border with the State of Maine in the United States. We intend to earn revenues from the license agreement by developing, marketing and selling products utilizing HEDC’s technologies within our licensed geographic territory.
The financial terms of the NB Provincial License transaction to expand our geographic territory were deemed immaterial, with no cash or securities paid or owed by the Company to HEDC. HEDC is controlled by the Company’s officers and directors, who also control the majority of the Company’s basic and fully diluted shares of common stock, and accordingly this transaction was classified as a related-party transaction and was not conducted at arm’s-length.
As of the date of this report, we have no contracted revenue stream and have taken only minimal steps toward the development of our business.
Technology
Our licensed technology and intellectual property portfolio consists of gas exchange technologies to capture, store, biosequester and reutilize carbon dioxide, and biomass production technologies for growth of algae (or other vegetation) for marketable purposes.
We believe that our carbon capture technologies can, among other things, be utilized to capture CO2 directly from flue gas streams, reducing emissions and pollution into the atmosphere. Conjointly, our biomass production technologies can be utilized for the controlled, high-rate production of algae, which in turn can be utilized as feedstock for energy production, including fuels and electricity, as well as for other bioproducts.
Carbon Capture, Storage, Biosequestration and Reutilization
Our technologies can be used to capture and store CO2. CO2 may be captured using a variety of techniques, and once captured, the CO2 can be permanently stored, or sequestered, to avoid future release into the atmosphere.
Primary existing pathways to carbon sequestration include existing geological, biological and chemical methods. Geological sequestration may be accomplished by storing CO2 in geological formations, including underground reservoirs. This method faces significant limitations and potential liabilities as storage capacity is limited and the non-trivial scenario of an accidental high pressure leak or rock penetration could be catastrophic.
Chemical sequestration is also problematic as it is expensive and the energy requirement to complete this process is enormous. Biological sequestration methods, which include the use of forests, plankton and other photosynthetic organisms to sequester CO2, have also for the most part been inefficient to date.
Biosequestration systems, however, offer the unique potential to overcome many of the independent hurdles faced by other sequestration methodologies and have emerged as a significant commercial opportunity.
We believe that a significant environmental benefit of algae biomass production is the potentially meaningfully contribution to the reduction of CO2 emissions through large-scale carbon dioxide biosequestration.
Algae Production
Algae are aquatic plants that reproduce rapidly during photosynthesis, requiring a significant input of carbon dioxide for growth, as well as light energy, water, and nutrients, and releasing oxygen in the process. Algae production can be used to sequester carbon dioxide on a large scale, reducing pollution and generating carbon credits where applicable.
Once cultivated, algae biomass can be utilized to produce energy and other bioproducts.
Algae contain vegetable oil, with the percentage of biomass dry weight, concentration, and quality depending on species. This oil can be extracted from algae using a variety of techniques and used as a feedstock in the production of biodiesel, gasoline, jet fuel, plastics and solvents, among other things. We believe that any CO2 released in the production of biofuels could be captured utilizing our capture technologies, for utilization in the production of new algae.
Residual algal biomass, following any extraction of vegetable oil, consists of protein and carbohydrates that can be utilized in the production of certain bioproducts, including as a certain fish, animal and/or poultry feed ingredient, fertilizer, and material for ethanol or methanol production, among other things.
Dry algae biomass, regardless of oil content, can also be used to produce electricity, through incineration or anaerobic digestion. Anaerobic digestion refers to the process by which organic waste is converted or digested into methane gas, which is then utilized to power turbines, thereby generating electricity.
Algae biomass could be utilized as a supplemental biodegradable waste to such a facility. We believe that any CO2 released in the burning of methane or production of electricity could be captured utilizing our capture technologies, for utilization in the production of new algae.
Algae energy systems provide the ability to produce renewable fuels while recycling carbon in a manner that is efficient, affordable and environmentally stable, addressing and overcoming significant challenges facing the United States and other industrialized countries.
To date, most existing commercial algae biomass production systems are centered on mechanized bioreactors or pond-based systems, and in addition to being costly and, in our view, inefficient, have faced the following three primary limitations:
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1.
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The efficient large-scale delivery of CO2. CO2 has limited physical solubility in water. This can be observed in carbonated beverages, where CO2 bubbles to the surface of the soft drink and escapes into the atmosphere.
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Existing bioreactor and pond technologies may attempt to increase the supply of CO2 available for algae consumption by boosting CO2 pressures in water. This is accomplished by pumping or bubbling CO2 through the nutritional media. This method typically results in low biosequestration efficiency, as the majority of gas pumped through the water cannot be absorbed fast enough by the algae and is released into the atmosphere.
Another CO2 delivery approach is to pressurize CO2 essentially attempting to force-feed CO2 to algae in an unnatural way through increase partial pressure. This method typically results in low biosequestration efficiency, as it creates condition where algae are unable to naturally ingest and utilize much of the CO2 for its growth.
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2.
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The availability of light energy. Algae require a reliable source of light energy, or photons, for growth. In door bioreactors and synthetic lighting systems are capital-intensive and costly.
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The deleterious presence of oxygen in the algae growth cycle. The presence of oxygen negatively affects algae growth, as oxygen is deleterious to algae growth. To stimulate optimal growth conditions, oxygen released by algae during photosynthesis must be displaced from the algae growth site. Certain existing mechanical displacement systems are capital-intensive and costly.
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Many of the limitations above can be addressed by open water algae production systems, which represent the most promising solution for scalable energy feedstock production while recycling carbon in a manner that is efficient, affordable and environmentally stable. In an open-water environment, nature can recycle water and nutrients required for algae growth through natural tidal exchange, while the sun provides light free of charge, keeping algae production costs low.
That said, competing algae production technologies have not been focused around open water production, a primary reason being the challenges associated with supplying CO2 to open-water platform algae efficiently and in a large scale.
We believe our technologies can enable industrial scale open water algae production, which we believe is a competitive advantage.
We believe our technologies can lower the cost of biomass production, boost the growth rate of biomass, and increase the efficiency of production.
We believe our technologies can be integrated with existing carbon emitters, energy producers, water treatment plants, anaerobic digestion facilities, manufacturers, and transportation companies, among others, depending on a variety of factors.
We have not established any commercial facilities to date.
Products and Customers
We plan to design and construct carbon dioxide capture and algae biomass production equipment sets to the specifications of clients.
Our primary target clients include existing anaerobic digestion facility manufacturers and operators. An anaerobic digestion facility, also known as an anaerobic digester, is a waste management facility that uses microorganisms to break down biodegradable material (such as manure, food processing waste and algae, among other biodegradable materials), producing a biogas that typically consists of a mixture of carbon dioxide and methane, among other gases. The methane can be combusted to release energy and generate electricity as a source of renewable energy.
A common problem that anaerobic digestion facilities often face is that excess biogas not used on-site for energy purposes is typically flared and wasted. The reason for this is that excess methane produced by an anaerobic digester that is unable to be utilized immediately for power purposes cannot be compressed and stored for future transport or use due to its mixture with other gases, including carbon dioxide.
We believe our proprietary carbon dioxide removal systems can be customized and installed to process biogas produced by existing anaerobic digester facilities and remove carbon dioxide from the biogas. Once carbon dioxide has been removed from the biogas, the mixture of methane can be more easily compressed and stored for future transport or use, providing anaerobic digestion facilities an increased source of revenue through the ability to potentially sell this storable methane which may previously have been flared and wasted.
We also offer proprietary algae biomass production systems designed to utilize captured or otherwise sourced carbon dioxide for the controlled, localized production of algae. We believe our proprietary algae biomass systems can be used to transfer carbon dioxide, captured using our carbon capture systems or otherwise, to algae. We believe our proprietary algae production systems can assist algae growth.
We intend to earn revenues by leasing our carbon dioxide removal and algae biomass production equipment through monthly and annual operating leases, as well as through the sale of such equipment to our customers. We also seek to generate revenues through training and maintenance services, or through sublicensing agreements. We are unable to accurately estimate the potential costs or revenues associated with our carbon capture systems or algae biomass production systems until we conduct our feasibility study.
Algae can also be supplied to anaerobic digesters as feedstock to increase biogas and energy production for an anaerobic digester facility accepting algae. As part of our product offering, we will also seek to oversee the installation of an anaerobic digestion facility by obtaining exclusivity agreements for digesters, and then subcontracting the installation to experience anaerobic digester manufacturers while ensuring that any such installation incorporates our technologies. Under this scenario, we intend to generate revenue through subcontracting the anaerobic digester installation while generating additional potential revenues through the sale of our carbon capture and algae biomass production equipment to the project. We are unable to accurately predict our potential for revenues under this model until we complete our feasibility study.
We believe that other waste management and renewable energy companies can be potential customers for our technologies, but have not established a specific business plan with respect to those customers at this time.
Benefits of Algae Fuels vs. Other Feedstock Sources
The need for the development of reliable, sustainable, environmentally-friendly alternatives to petroleum fuels is significant and immediate. Global demand for petroleum has been growing at a rate that exceeds improvements in production, and as a finite natural resource, the available supply of petroleum is depleted each day. Petroleum products are also harmful to the environment and introduce carbon dioxide (CO2) and other pollutants into the atmosphere when burned.
While numerous alternative energy solutions are being developed—including wind and solar, as well as other crop-based fuels (such as biofuel from corn or soybeans)—most face structural limitations and we believe none offer the scalability potential and promise for true energy independence as algae-based biofuels.
Algae is Renewable, Sustainable and Multiplies Rapidly
Algae reproduce by cellular division, can multiply rapidly and under the right conditions can double several times per day. These rapid growth rates enable production of feedstock on a scale impossible from other feedstock sources.
Algae Oil Does Not Require Arable Land or Compete with the Food Supply
Algae production does not compete with arable land, leaving farmland and rainforests free from adverse impact. The ethanol boom has diverted arable land and food supplies toward energy alternatives, which may have contributed to a rise in corn, soybean and consumer prices as well as unfavorable volatility in the commodity markets and food supplies globally. As algae are not presently a major human food source, producing it for biofuels does not take away from the food supply.
Algae can be Produced Close to End User
We believe that algae can be produced near heavily populated coastal areas, as opposed to the central United States, such as is the case with certain crop-based feedstock sources. The result is lower transportation costs for delivery to the end user. Coupled with algae’s general scalability, we believe algae-based oils can ultimately maintain a price advantage over food-based oils presently used in biodiesel production.
Algae Absorb CO2 While Simultaneously Releasing Oxygen during Growth
Algae grow through photosynthesis by absorbing CO2 as a nutrient and producing oxygen in exchange. Because algae absorbs CO2 rather than releases it during the production process, algae production is environmentally friendly, can meaningfully reduce carbon emissions and, where applicable, potentially generate carbon credits which may in the future serve as a source of revenue.
Algae Oil is Clean and Energy Efficient to Produce
Petroleum is a heavy pollutant that contains sulfur and other toxins. Petroleum drilling operations themselves can also be highly noxious, as refineries produce heavy pollutants and crude spills can become environmental catastrophes. By contrast, algae oil generates minimal greenhouse gases compared to conventional carbon fuels. Our algae production process itself is also believed to be environmentally friendly.
Algae Oil is Compatible with Existing Refineries and Distribution System
Unlike other alternatives to petroleum, which may bypass the existing refining infrastructure, algae oil technology is believed to enable the production of fuels fully compatible with existing infrastructure. The petroleum industry has demonstrated support for the refining of biofuels, and we believe algae oil can be used as a feedstock and petroleum substitute in the production of biodiesel, jet fuel and gasoline, among other fuels.
Algae is Flexible on Water Quality
Many species of algae thrive in seawater, water from saline aquifers or even wastewater from treatment plants. Because certain algae do not require fresh water to thrive, they do not compete for limited supplies of fresh water.
Algae Biomass Has Other Uses
The residual biomass following oil extraction, which consists of a protein and carbohydrates, can be used as a fish, animal and poultry feed ingredient, fertilizer, material for ethanol or methanol production, cosmetics, pharmaceuticals and dyes, among other “green” products.
Dry residual biomass (with or without oil content) can also be utilized for the production of electric energy, through incineration or anaerobic digestion, or both.
We believe there can be minimal waste from a biomass harvest, with different components of the total harvest utilized for various purposes, including the production of specific bioproducts.
Algae Stimulates Economic Development
As developed and developing nations continue to look for ways to spur economic development, algae-based industries and innovation can provide substantial, tangible benefits to an economy, including the creation of jobs, improvement in security and reduction in dependence on imported oil, a potential increase in local tax revenues, and other benefits.
Insurance Policies
We maintain insurance policies covering our officers and directors from liability. We do not maintain any other insurance. There can be no assurance that our insurance is sufficient, or that the policy coverage limits are adequate or sufficient in the event of an accident, negligence or an act of God.
Employees
We are a development stage company and currently have no full time employees. We have two part-time employees, which consist of our President and CEO (Mr. Recachinas) and our Chief Scientific Officer (Dr. Chirkov).
Offices
Our executive offices are located at 10 Dorrance Street, Suite 700, Providence, Rhode Island 02093. Our primary telephone number is 401-400-0028. We lease the foregoing offices from Regus Management Group, pursuant to a virtual office lease agreement dated August 12, 2012. Our monthly rent is $99, for which we receive access to certain workspace solutions and services.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
The only real or personal property we own are the intellectual property licenses and related assets we’ve acquired relating to carbon capture, carbon sequestration and industrial algae-for-biofuels technologies (Note 3).
We are not presently a party to any litigation.
Not Applicable.
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MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
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Our common stock commenced trading on the over-the-counter Bulletin Board on October 7, 2009. It currently trades under the symbol “HDSI”. Following is a table of the high bid price and the low bid price for each quarter during the last two years.
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2012
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High Bid
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Low Bid
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First Quarter, Ending March 31
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$
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0.149
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$
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0.01
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Second Quarter, Ending June 30
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$
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0.006
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$
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0.009
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Third Quarter, Ending September 30
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$
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0.01
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$
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0.0037
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Fourth Quarter, Ending December 31
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$
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0.008
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$
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0.0030
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2011
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High Bid
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Low bid
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First Quarter, Ending March 31
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$
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0.00
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$
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0.00
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Second Quarter, Ending June 30
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$
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0.00
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$
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0.00
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Third Quarter, Ending September 30
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$
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0.349
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$
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0.090
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Fourth Quarter, Ending December 31
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$
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0.168
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$
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0.029
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Holders
As of March 13, 2013, there were approximately 43 shareholders of record of our common stock.
Dividends
We have never paid any cash dividends and do not anticipate the payment of cash dividends in the foreseeable future.
Status of Our Public Offering
On February 14, 2013, our Form S-1 registration statement (SEC file no. 333-182573) was declared effective by the SEC. Pursuant to the Form S-1, we are offering no minimum, 50,000,000 shares of common stock maximum at an offering price of $0.005 per share in a direct public offering, without any involvement of underwriters or broker-dealers. As of March 20, 2013, we have not sold any shares in our public offering.
Section 15(g) of the Securities Exchange Act of 1934
Our shares are covered by section 15(g) of the Securities Exchange Act of 1934, as amended that imposes additional sales practice requirements on broker/dealers who sell such securities to persons other than established customers and accredited investors (generally institutions with assets in excess of $5,000,000 or individuals with net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouses). For transactions covered by the Rule, the broker/dealer must make a special suitability determination for the purchase and have received the purchaser’s written agreement to the transaction prior to the sale. Consequently, the Rule may affect the ability of broker/dealers to sell our securities and also may affect your ability to sell your shares in the secondary market.
Section 15(g) also imposes additional sales practice requirements on broker/dealers who sell penny securities. These rules require a one page summary of certain essential items. The items include the risk of investing in penny stocks in both public offerings and secondary marketing; terms important to in understanding of the function of the penny stock market, such as id and offer quotes, a dealers spread and broker/dealer compensation; the broker/dealer compensation, the broker/dealers’ duties to its customers, including the disclosures required by any other penny stock disclosure rules; the customers’ rights and remedies in cases of fraud in penny stock transactions; and, FINRA’s toll free telephone number and the central number of the North American Administrators Association, for information on the disciplinary history of broker/dealers and their associated persons.
Securities Authorized for Issuance Under Equity Compensation Plans
Equity Compensation Plan
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Plan category
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Number of securities issued upon
exercise of outstanding options,
warrants and rights
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Weighted-average exercise
price of outstanding options,
warrants and rights
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Number of securities remaining
available for future issuance under
equity compensation plans (excluding
securities reflected in column (a))
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(a)
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(b)
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(c)
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Equity compensation plans
approved by security holders
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0
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0
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0
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Equity compensation plans not
approved by security holders
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0
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0
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30,000,000
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Total
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0
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0
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30,000,000
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On July 18, 2012 a Registration Statement on Form S-8 (the “Registration Statement”) was filed by us together with our 2012 Non-Qualified Stock Option Plan (the “Plan”) relating to 30,000,000 shares of our common stock, par value $0.001 per share, to be offered and sold to accounts of eligible persons.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
Forward Looking Statements
This Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.
We are considered a start-up corporation. Our auditors have issued a going concern opinion on the consolidated financial statements for the year ended December 31, 2012.
Our auditors have issued a going concern opinion. This means that our auditors believe there is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay our bills. This is because we have not generated any revenues and no revenues are anticipated until we complete the development of our website, source out suppliers for products to sell and source out customers to buy our products. We believe the technical aspects of our websites will be sufficiently developed to use for our operations 60 days from the completion of our offering. Accordingly, we must raise cash from sources other than operations. Our only other source for cash at this time is investments by others in our company. We must raise cash to implement our project and begin our operations. We will not begin operations until we raise money from our public offering.
To meet our need for cash we are attempting to raise money from our public offering. We believe that we will be able to raise enough money through our public offering to begin operations but we cannot guarantee that once we begin operations we will stay in business after operations have commenced. Regardless of the amount of money we raise in our public offering, we believe we will have sufficient cash to maintain operations during the next twelve months.
If we are unable to generate revenues as expected we believe we will be able to meet our cash requirements for the twelve months following the completion of our public offering, if we raise the maximum amount. If we fail to raise any funds and are unable to achieve revenues, as expected, we believe we will be able to meet our cash requirements for the next three month and we will need to find alternative sources, like a second public offering, a private placement of securities, or loans from our officers or others, in order for us to maintain our operations. At the present time, we have not made any arrangements to raise additional cash, other than through our public offering.
If we need additional cash and cannot raise it, we will either have to suspend operations until we do raise the cash, or cease operations entirely.
We will be responsible for the outstanding offering expenses regardless of the outcome of our public offering.
Hardware is comprised of office equipment and computers for desktop use, as well as materials needed to construct product prototypes. If we raise at least $50,000, we will purchase office communications equipment, including one computer. If the maximum is raised, we will purchase three desktop computers and materials to construct a carbon dioxide removal and reutilization platform prototype.
Assets will be purchased from unaffiliated third parties at the market price for the assets. As of the date hereof, we have not identified the persons from whom we will purchase the assets.
Website costs are related to developing our websites. Our corporate website will cost $2,000 to update. If $250,000 is raised, we will be able to incorporate additional functionality to the website for a total cost of $5,625.
Marketing and advertising is related to the design and purchase of various types of marketing materials and brochures which will promote our services to customers. If the maximum is raised, we can purchase large banners and other professional quality posters to display at trade shows and other similar functions.
If we raise $250,000 from our public offering, we intend to pay two business development personnel and two scientists/engineers.
Working capital is the cost related to operating our office. It is comprised of expenses for telecommunications, mail, stationary, accounting, acquisition of office equipment and supplies, expenses of filing reports with the SEC, travel, and general working capital.
If we do not raise any money in our public offering, we may not be able to maintain our operations during the next twelve months and our plan for growth will be hampered.
We will not receive any proceeds from the sale of the shares of common stock by the selling shareholders. All proceeds from the sale of shares of common stock by selling shareholders will be received by the selling shareholders.
Plan of Operation - Milestones
The Company is only in the beginning stages of being able to access the renewable energy and eco-sustainability marketplace.
Over the next twelve months, our primary target milestones include:
|
1.
|
Entering into employment agreements with our Chief Scientific Officer (Dr. Alexander Chirkov), our President (Tassos D. Recachinas), and at least one other senior executive. We plan to conduct an executive search to identify an experienced executive with relevant technology and business experience to join our team. We expect all three formal employment agreements to cost us approximately $800,000 in cash.
|
|
2.
|
Entering into a contract with at least one corporation to implement our carbon capture technology utilizing their infrastructure. We expect the business development and any subsequent implementation effort to cost us approximately $300,000.
|
|
3.
|
Applying for at least one grant opportunity per quarter, from a Federal or U.S. State-sponsored organization or entity. We expect grant writing expenses, including those associated with consultants, to total approximately $50,000.
|
Limited operating history; need for additional capital
There is no historical financial information about us upon which to base an evaluation of our performance. We are in a start-up stage operations and have not generated any revenues. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns due to price and cost increases in services and products.
RESULTS OF OPERATIONS - DECEMBER 31, 2012 COMPARED TO DECEMBER 31, 2011
Working Capital
|
December 31, 2012
$
|
December 31, 2011
$
|
|
|
Current Assets
|
12,650
|
327,753
|
|
Current Liabilities
|
476,951
|
318,646
|
|
Working Capital (Deficit)
|
(464,301)
|
9,107
|
Cash Flows
|
For the year ended
December 31, 2012
$
|
For the year ended
December 31, 2011
$
|
|
|
Cash Flows from (used in) Operating Activities
|
(402,528)
|
(239,007)
|
|
Cash Flows from (used in) Investing Activities
|
–
|
(10,000)
|
|
Cash Flows from (used in) Financing Activities
|
95,000
|
536,151
|
|
Net Increase (decrease) in Cash During Period
|
(307,528)
|
287,144
|
Operating Revenues
We have not generated any revenues since inception.
Operating Expenses and Net Loss
Operating expenses for the year ended December 31, 2012 were $543,922 compared with $220,559 for the year ended December 31, 2011. The increase in operating expenses was attributed to an increase in general and administrative expense of $25,114 for day-to-day operating costs, consulting expenses of $291,250 and professional fees of $29,798 due to an increase in legal expenses incurred during the current year offset by decrease in transfer agent fees of $2,799 and management fees of $20,000 as there was a change in management during the period.
During the year ended December 31, 2012, the Company recorded a net loss of $644,602 compared with a net loss of $319,180 for the year ended December 31, 2011. In addition to the above, the Company incurred an increase of $18,037 of interest expense relating to debt balances, accretion expense of $8,538 for the fair value of the beneficial conversion feature on the convertible note issued in August 2011, a net change in loss on settlement of debt of $68,022 relating to the settlement of outstanding obligations recorded during the current and prior fiscal years offset by a decrease in impairment of intangible assets of $92,538 incurred in the prior fiscal year.
Liquidity and Capital Resources
As at December 31, 2012, the Company’s cash balance and total assets consisted of $12,650 compared to cash balance and total assets of $327,753 as at December 31, 2011. The decrease in the cash balance was attributed the use of cash during the year for day-to-day activities offset by proceeds of $35,000 for the issuance of common stock and $60,000 for loans payable which were unsecured, due interest at 6% per annum and were converted into common stock on November 26, 2012. The decrease in total assets was attributed to the decrease in cash noted above in addition to $7,575 of prepaid expenses and deposits held in the prior fiscal year and expensed in the current year.
As at December 31, 2012, the Company had total liabilities of $476,951 compared with total liabilities of $805,977 as at December 31, 2011. The decrease in total liabilities is attributed to the conversion of $520,055 of the convertible debenture, consisting of principal of $500,000 and interest of $20,055, into common stock and was offset by increases in accounts payable and accrued liabilities of $158,305 and the accretion of the remaining balance of the discount on beneficial conversion of $12,669 on the convertible debenture.
As at December 31, 2012, the Company has a working capital deficit of $464,301 compared with a working capital $9,107 at December 31, 2011 with the decrease in the working capital attributed to decrease in cash used to fund day-to-day activities and an increase in accounts payable and accrued liabilities due to the low cash balance held at year end.
Cashflow from Operating Activities
During the year ended December 31, 2012, the Company used $402,528 of cash for operating activities compared to the use of $239,007 of cash for operating activities during the year ended December 31, 2011. The increase in the use of cash for operating activities was attributed to the fact that the Company paid for outstanding and current obligations with existing cash raised from debt financing.
Cashflow from Investing Activities
During the year ended December 31, 2012, the Company used $nil for investing activities compared with the use of $10,000 for investing activities during the year ended December 31, 2011. The decrease in the use of cash for investing activities was attributed to the purchase of an intangible asset for the rights to a license in the prior year compared to no acquisitions in the current year. During the year ended December 31, 2011, management reviewed the asset for indications of impairment and decided to fully impair the asset.
Cashflow from Financing Activities
During the year ended December 31, 2012, the Company received $95,000 of proceeds from financing activities compared to $825,000 during the year ended December 31, 2011. The decrease in proceeds from financing activities was due to receipt of $825,000 in short-term and long-term debt financing received during the prior year less repayments and settlements made during the period compared with only $95,000 received during the same period in the current year.
Subsequent Developments
On January 2, 2013, we entered into a consulting agreement (the “Agreement”) with The Holden Group, LLC, a Tennessee Limited Liability Company (the “Consultant”). Pursuant to the terms of the Agreement, we have agreed to pay to the Consultant $2,000 cash upon the execution of the Agreement, $500 on the first month anniversary of the Agreement; $500 on the second month anniversary of the Agreement; and, $500 on the third month anniversary of the Agreement. We have also delivered to the Consultant 600,000 restricted shares of our common stock as per the terms of the Agreement.
Going Concern
We have not attained profitable operations and are dependent upon obtaining financing to pursue any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited consolidated financial statements that they have substantial doubt that we will be able to continue as a going concern without further financing.
Off-Balance Sheet Arrangements
We have no significant 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 are material to stockholders.
Future Financings
We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.
Critical Accounting Policies
Our consolidated financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.
We regularly evaluate the accounting policies and estimates that we use to prepare our consolidated financial statements. A complete summary of these policies is included in the notes to our consolidated financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
December 31, 2012 and 2011
|
F-1
|
|
|
F-2
|
|
|
F-3
|
|
|
F-4
|
|
|
F-5
|
|
|
F-6
|
To the Board of Directors
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
We have audited the accompanying consolidated balance sheets of HDS International Corp (a Development Stage Company) as of December 31, 2012 and 2011 and the related consolidated statements of operations, stockholders’ deficit and cash flows for the years then ended and for the period from November 3, 2008 (inception) through December 31, 2012. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with 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 consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the 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 consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of HDS International Corp. as of December 31, 2012 and 2011, and the results of its operations and cash flows for the periods described above in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company suffered a net loss from operations and has a working capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
M&K CPAS, PLLC
www.mkacpas.com
Houston, Texas
March 27, 2013
F-1
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
(expressed in U.S. dollars)
|
December 31,
2012
$
|
December 31,
2011
$
|
|
|
ASSETS
|
||
|
|
||
|
Current Assets
|
||
|
|
||
|
Cash
|
12,650
|
320,178
|
|
Prepaid expenses and deposits
|
-
|
7,575
|
|
|
||
|
Total Assets
|
12,650
|
327,753
|
|
|
||
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
||
|
|
||
|
Current Liabilities
|
||
|
|
||
|
Accounts payable and accrued liabilities
|
119,732
|
6,509
|
|
Accounts payable and accrued liabilities - related parties
|
57,219
|
12,137
|
|
Due to related parties
|
300,000
|
300,000
|
|
|
||
|
Total Current Liabilities
|
476,951
|
318,646
|
|
|
||
|
Convertible debentures, net of unamortized discount of $nil and $12,669, respectively
|
-
|
487,331
|
|
|
||
|
Total Liabilities
|
476,951
|
805,977
|
|
|
||
|
Stockholders’ Equity (Deficit)
|
||
|
|
||
|
Preferred Stock
Authorized: 25,000,000 preferred shares, with a par value of $0.001 per share
Issued and outstanding: nil preferred shares
|
-
|
-
|
|
|
||
|
Class A Preferred Stock
Authorized: 25,000,000 preferred shares, with a par value of $0.001 per share
Issued and outstanding: 7,500,000 shares
|
7,500
|
7,500
|
|
|
||
|
Common Stock
Authorized: 2,000,000,000 common shares, with a par value of $0.001 per share
Issued and outstanding: 376,603,078 and 347,380,000 shares, respectively
|
376,603
|
347,380
|
|
|
||
|
Additional paid-in capital
|
283,875
|
(345,427)
|
|
|
||
|
Equity (Deficit) accumulated during the development stage
|
(1,132,279)
|
(487,677)
|
|
|
||
|
Total Stockholders’ Equity (Deficit)
|
(464,301)
|
(478,224)
|
|
|
||
|
Total Liabilities and Stockholders’ Equity (Deficit)
|
12,650
|
327,753
|
(The accompanying notes are an integral part of these consolidated financial statements)
F-2
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
(expressed in U.S. dollars)
|
Year ended
December 31,
2012
$
|
Year ended
December 31,
2011
$
|
Accumulated from
November 3, 2008
(date of inception)
to December 31,
2012
$
|
|
|
|
|||
|
Revenue
|
-
|
-
|
-
|
|
|
|||
|
Operating Expenses
|
|||
|
|
|||
|
Consulting fees
|
411,750
|
120,500
|
592,250
|
|
General and administrative
|
60,648
|
35,534
|
97,735
|
|
Management fees
|
-
|
20,000
|
43,727
|
|
Professional fees
|
70,854
|
41,056
|
175,460
|
|
Transfer agent fees
|
670
|
3,469
|
18,608
|
|
|
|||
|
Total Operating Expenses
|
543,922
|
220,559
|
927,780
|
|
|
|||
|
Income (Loss) Before Other Expenses (Income)
|
(543,922)
|
(220,559)
|
(927,780)
|
|
|
|||
|
Other Expenses (Income)
|
|||
|
|
|||
|
Accretion expense
|
12,669
|
4,131
|
16,800
|
|
Loss (gain) on settlement of debt
|
43,470
|
(24,552)
|
18,918
|
|
Impairment of intangible assets
|
-
|
92,538
|
92,538
|
|
Interest expense
|
44,541
|
26,504
|
76,243
|
|
|
|||
|
Total Other Expenses (Income)
|
100,680
|
98,621
|
204,499
|
|
|
|||
|
Net Income (Loss) for the Period
|
(644,602)
|
(319,180)
|
(1,132,279)
|
|
|
|||
|
Net Income (Loss) Per Share, Basic and Diluted
|
-
|
-
|
|
|
|
|||
|
Weighted Average Shares Outstanding
|
350,207,767
|
466,054,356
|
(The accompanying notes are an integral part of these consolidated financial statements)
F-3
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
For the Period from November 3, 2008 (Date of Inception) to December 31, 2012
(expressed in U.S. dollars)
|
Deficit
|
||||||||
|
Accumulated
|
||||||||
|
Additional
|
Stock
|
During the
|
||||||
|
Preferred Stock
|
Common Stock
|
Paid-in
|
Subscriptions
|
Development
|
||||
|
Amount
|
Amount
|
Capital
|
Receivable
|
Stage
|
Total
|
|||
|
#
|
$
|
#
|
$
|
$
|
$
|
$
|
$
|
|
|
|
||||||||
|
Balance, November 3, 2008
(Date of Inception)
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
|
|
||||||||
|
Issuance of shares for cash
|
-
|
-
|
477,900,000
|
477,900
|
(477,900)
|
-
|
-
|
-
|
|
|
-
|
|||||||
|
Issuance of shares for cash
|
-
|
-
|
8,100,000
|
8,100
|
(5,850)
|
(23)
|
-
|
2,227
|
|
|
||||||||
|
Net loss for the period
|
-
|
-
|
-
|
-
|
-
|
-
|
(5,212)
|
(5,212)
|
|
|
||||||||
|
Balance, December 31, 2008
|
-
|
-
|
486,000,000
|
486,000
|
(483,750)
|
(23)
|
(5,212)
|
(2,985)
|
|
|
||||||||
|
Stock subscription receivable received
|
-
|
-
|
-
|
-
|
-
|
23
|
-
|
23
|
|
|
||||||||
|
Issuance of shares for cash
|
-
|
-
|
21,600,000
|
21,600
|
(15,600)
|
-
|
-
|
6,000
|
|
|
||||||||
|
Issuance of shares for cash
|
-
|
-
|
5,400,000
|
5,400
|
(3,900)
|
-
|
-
|
1,500
|
|
|
||||||||
|
Net loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
(18,191)
|
(18,191)
|
|
|
||||||||
|
Balance, December 31, 2009
|
-
|
-
|
513,000,000
|
513,000
|
(503,250)
|
-
|
(23,403)
|
(13,653)
|
|
|
||||||||
|
Issuance of shares for management fees
|
-
|
-
|
25,200,000
|
25,200
|
(18,200)
|
-
|
-
|
7,000
|
|
|
||||||||
|
Forgiveness of loan
|
-
|
-
|
-
|
-
|
2,649
|
-
|
-
|
2,649
|
|
|
||||||||
|
Net loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
(145,094)
|
(145,094)
|
|
|
||||||||
|
Balance, December 31, 2010
|
-
|
-
|
538,200,000
|
538,200
|
(518,801)
|
-
|
(168,497)
|
(149,098)
|
|
|
||||||||
|
Shares cancelled
|
-
|
-
|
(440,820,000)
|
(440,820)
|
440,820
|
-
|
-
|
-
|
|
|
||||||||
|
Shares issued for acquisition of assets
|
7,500,000
|
7,500
|
250,000,000
|
250,000
|
(499,962)
|
-
|
-
|
(242,462)
|
|
|
||||||||
|
Capital contribution
|
-
|
-
|
-
|
-
|
200,751
|
-
|
-
|
200,751
|
|
|
||||||||
|
Beneficial conversion feature
|
-
|
-
|
-
|
-
|
16,800
|
-
|
-
|
16,800
|
|
|
||||||||
|
Settlement of debt to related party
|
-
|
-
|
-
|
-
|
14,965
|
-
|
-
|
14,965
|
|
|
||||||||
|
Net loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
(319,180)
|
(319,180)
|
|
|
||||||||
|
Balance, December 31, 2011
|
7,500,000
|
7,500
|
347,380,000
|
347,380
|
(345,427)
|
-
|
(487,677)
|
(478,224)
|
|
|
||||||||
|
Conversion of debt
|
-
|
-
|
19,223,078
|
19,223
|
604,302
|
-
|
-
|
623,525
|
|
|
||||||||
|
Issuance of shares for cash
|
-
|
-
|
10,000,000
|
10,000
|
25,000
|
-
|
-
|
35,000
|
|
|
||||||||
|
Net loss for the year
|
-
|
-
|
-
|
-
|
-
|
-
|
(644,602)
|
(644,602)
|
|
|
||||||||
|
Balance, December 31, 2012
|
7,500,000
|
7,500
|
376,603,078
|
376,603
|
283,875
|
-
|
(1,132,279)
|
(464,301)
|
(The accompanying notes are an integral part of these consolidated financial statements)
F-4
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
(expressed in U.S. dollars)
|
Year ended
December 31,
2012
$
|
Year ended
December 31,
2011
$
|
Accumulated from
November 3, 2008
(date of inception)
to December 31,
2012
$
|
|
|
Operating Activities
|
|||
|
|
|||
|
Net loss
|
(644,602)
|
(319,180)
|
(1,132,279)
|
|
|
|||
|
Adjustment to reconcile net loss to cash used in operating activities:
|
|||
|
Accretion of debt discount
|
12,669
|
4,131
|
16,800
|
|
Loss (gain) on settlement of debt
|
43,470
|
(24,552)
|
18,918
|
|
Impairment of intangible assets
|
-
|
92,538
|
92,538
|
|
Stock-based compensation
|
-
|
-
|
2,227
|
|
Shares issued for management fees
|
-
|
-
|
7,000
|
|
|
|||
|
Changes in operating assets and liabilities:
|
|||
|
Prepaid expense and deposits
|
7,575
|
(7,575)
|
-
|
|
Accounts payable and accrued liabilities
|
133,278
|
3,494
|
167,339
|
|
Accounts payable and accrued liabilities - related
|
45,082
|
12,137
|
57,219
|
|
Due to related parties
|
-
|
-
|
11,965
|
|
|
|||
|
Net Cash Used in Operating Activities
|
(402,528)
|
(239,007)
|
(758,273)
|
|
|
|||
|
Investing activities
|
|||
|
Acquisition of intangible assets
|
-
|
(10,000)
|
(10,000)
|
|
|
|||
|
Net Cash Used by Investing Activities
|
-
|
(10,000)
|
(10,000)
|
|
|
|||
|
Financing activities
|
|||
|
Proceeds from loan payable
|
60,000
|
510,000
|
709,600
|
|
Repayments of loan payable
|
-
|
(149,449)
|
(149,449)
|
|
Proceeds from related parties
|
-
|
-
|
2,649
|
|
Repayments to related parties
|
-
|
(25,000)
|
(25,000)
|
|
Capital contribution
|
-
|
200,600
|
200,600
|
|
Proceeds from the issuance of common stock
|
35,000
|
-
|
42,523
|
|
|
|||
|
Net Cash Provided by Financing Activities
|
95,000
|
536,151
|
780,923
|
|
|
|||
|
Increase (Decrease) in Cash
|
(307,528)
|
287,144
|
12,650
|
|
|
|||
|
Cash, Beginning of Period
|
320,178
|
33,034
|
-
|
|
|
|||
|
Cash, End of Period
|
12,650
|
320,178
|
12,650
|
|
|
|||
|
Supplemental Disclosures
|
|||
|
Interest paid
|
-
|
-
|
-
|
|
Income tax paid
|
-
|
-
|
-
|
|
|
|||
|
Non-cash investing and financing activities
|
|||
|
Forgiveness of related party debt
|
-
|
-
|
2,649
|
|
Issuance of common shares to settle debt
|
580,055
|
-
|
580,055
|
|
Issuance of common shares for acquisition of assets
|
-
|
250,000
|
250,000
|
|
Issuance of preferred shares for acquisition of assets
|
-
|
7,500
|
7,500
|
|
Issuance of note payable for acquisition of assets
|
-
|
325,000
|
325,000
|
(The accompanying notes are an integral part of these consolidated financial statements)
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
(expressed in U.S. dollars)
1. Nature of Operations and Continuance of Business
HDS International Corp. (formerly GMV Wireless, Inc.) (the “Company”) was incorporated on November 3, 2008 under the laws of the State of Nevada. A substantial portion of the Company’s activities has involved developing a business plan and establishing contacts and visibility in the marketplace and the Company has not generated any revenue to date. The Company plans to engage in the business of providing wireless Internet services (“Wi-Fi”), primarily to the hospitality industry.
On June 11, 2012, HDS Energy and Ecosystems NB, Ltd., the Company’s wholly owned subsidiary, was incorporated in the Province of New Brunswick, Canada to manage the operations and other business development efforts in the Province of New Brunswick, Canada.
Going Concern
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company has generated no revenues to date and has never paid any dividends and is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. As of December 31, 2012, the Company had a working capital deficiency of $464,301 and an accumulated deficit of $1,132,279. The continuation of the Company as a going concern is dependent upon the continued financial support from its shareholders, the ability to raise equity or debt financing, and the attainment of profitable operations from the Company’s future business. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
2. Summary of Significant Accounting Policies
a) Principles of Consolidation
The consolidated financial statements for the years ending December 31, 2012 and 2011 include the accounts of HDS International Corp. and HDS Energy and Ecosystems NB, Ltd., the Company’s wholly owned subsidiary effective June 11, 2012. All intercompany transactions and balances have been eliminated in consolidation.
b) Basis of Presentation
These consolidated financial statements and related notes are presented in accordance with accounting principles generally accepted in the United States, and are expressed in US dollars. The Company’s fiscal year-end is December 31.
c) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to long-lived assets, convertible debentures, stock-based compensation and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
d) Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturity of three months or less at the time of issuance to be cash equivalents. As of December 31, 2012 and 2011, the Company had no cash equivalents.
e) Intangible Assets
Intangible assets are carried at the purchased cost less accumulated amortization. Amortization is computed over the estimated useful lives of the respective assets, generally from fifteen to twenty years.
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
2. Summary of Significant Accounting Policies (continued)
f) Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangible assets to be held and used are reviewed for impairment whenever events or changes in circumstance indicate that the carrying amount of such assets may not be recoverable. Determination of recoverability is based on an estimate of undiscounted future cash flows resulting from the use of the asset and its eventual disposition. Measurement of an impairment loss for long-lived assets and certain identifiable intangible assets that management expects to hold and use is based on the fair value of the asset. Long-lived assets and certain identifiable intangible assets to be disposed of are reported at the lower of carrying amount or fair value less costs to sell.
g) Beneficial Conversion Features
From time to time, the Company may issue convertible notes that may contain an imbedded beneficial conversion feature. A beneficial conversion feature exists on the date a convertible note is issued when the fair value of the underlying common stock to which the note is convertible into is in excess of the remaining unallocated proceeds of the note after first considering the allocation of a portion of the note proceeds to the fair value of the warrants, if related warrants have been granted. The intrinsic value of the beneficial conversion feature is recorded as a debt discount with a corresponding amount to additional paid in capital. The debt discount is amortized to interest expense over the life of the note using the effective interest method.
h) Development Stage Company
The Company is currently considered a development stage company as defined by ASC 915-10-05. As a development stage enterprise, the Company discloses the deficit accumulated during the development stage and the cumulative statements of operations and cash flows from inception to the current balance sheet date. An entity remains in the development stage until such time as, among other factors, revenues have been realized. To date, the development stage of the Company’s operations consists of developing the business model and marketing concepts.
i) Basic and Diluted Net Loss Per Share
The Company computes net loss per share in accordance with ASC 260, Earnings Per Share, which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
j) Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740, Income Taxes, as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
k) Comprehensive Loss
ASC 220, Comprehensive Income, establishes standards for the reporting and display of comprehensive loss and its components in the financial statements. As at December 31, 2011 and 2010, the Company has no items that represent comprehensive loss and, therefore, has not included a schedule of comprehensive loss in the financial statements.
l) Financial Instruments
ASC 820, “Fair Value Measurements” and ASC 825, Financial Instruments, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. It establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. It prioritizes the inputs into three levels that may be used to measure fair value:
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
2. Summary of Significant Accounting Policies (continued)
l) Financial Instruments (continued)
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
Assets and liabilities measured at fair value on a recurring basis were presented on the Company’s balance sheet as at December 31, 2012 as follows:
|
Fair Value Measurements Using
|
|||||
|
Quoted prices in
active markets for
identical instruments
(Level 1)
$
|
Significant other
observable
inputs
(Level 2)
$
|
Significant
unobservable
inputs
(Level 3)
$
|
Balance,
December 31,
2012
$
|
Balance,
December 31,
2011
$
|
|
|
Convertible debenture
|
--
|
-
|
-
|
-
|
487,331
|
The carrying values of all of our other financial instruments, which include accounts receivable, accounts payable and accrued liabilities, and due to related parties approximate their current fair values because of their nature and respective maturity dates or durations.
m) Recent Accounting Pronouncements
In October 2012, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2012-04, “Technical Corrections and Improvements” in Accounting Standards Update No. 2012-04. The amendments in this update cover a wide range of Topics in the Accounting Standards Codification. These amendments include technical corrections and improvements to the Accounting Standards Codification and conforming amendments related to fair value measurements. The amendments in this update will be effective for fiscal periods beginning after December 15, 2012. The adoption of ASU 2012-04 is not expected to have a material impact on our financial position or results of operations.
In August 2012, the FASB issued ASU 2012-03, “Technical Amendments and Corrections to SEC Sections: Amendments to SEC Paragraphs Pursuant to SEC Staff Accounting Bulletin (SAB) No. 114, Technical Amendments Pursuant to SEC Release No. 33-9250, and Corrections Related to FASB Accounting Standards Update 2010-22 (SEC Update)” in Accounting Standards Update No. 2012-03. This update amends various SEC paragraphs pursuant to the issuance of SAB No. 114. The adoption of ASU 2012-03 is not expected to have a material impact on our financial position or results of operations.
In July 2012, the FASB issued ASU 2012-02, “Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment” in Accounting Standards Update No. 2012-02. This update amends ASU 2011-08, Intangibles - Goodwill and Other (Topic 350): Testing Indefinite-Lived Intangible Assets for Impairment and permits an entity first to assess qualitative factors to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the quantitative impairment test in accordance with Subtopic 350-30, Intangibles - Goodwill and Other - General Intangibles Other than Goodwill. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning after September 15, 2012. Early adoption is permitted, including for annual and interim impairment tests performed as of a date before July 27, 2012, if a public entity’s financial statements for the most recent annual or interim period have not yet been issued or, for nonpublic entities, have not yet been made available for issuance. The adoption of ASU 2012-02 is not expected to have a material impact on our financial position or results of operations.
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
2. Summary of Significant Accounting Policies (continued)
m) Recent Accounting Pronouncements (continued)
In December 2011, the Financial Accounting Standards Board (“FASB”) issued ASU 2011-12, Comprehensive Income. ASU 2011-12 deferred the new presentation requirements outlined by ASU 2011-05 regarding reclassification of items out of accumulated other comprehensive income. This standard is effective for all annual period beginning after December 15, 2011. This standard is not expected to have a material impact on the Company’s financial statements.
In December 2011, the FASB issued ASU 2011-11, Balance Sheet: Disclosures about Offsetting Assets and Liabilities. ASU 2011-11 requires entities to disclose both the gross and net information about both instruments and transactions subject to an agreement similar to a master netting arrangement and includes derivatives, sale and repurchase agreements, and securities borrowing and securities lending arrangements. This standard is effective for all fiscal periods beginning on or after January 1, 2013. This standard is not expected to have a material impact on the Company’s financial statements.
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3. Intangible Assets
|
Cost
$
|
Accumulated Depreciation
$
|
Impairment
$
|
December 31,
2012
Net Carrying
Value
$
|
December 31,
2011
Net Carrying Value
$
|
|
|
License
|
92,538
|
-
|
92,538
|
-
|
-
|
|
|
|||||
|
92,538
|
-
|
92,538
|
-
|
-
|
On August 15, 2011, the Company acquired the rights to licenses in exchange for the issuance of a $325,000 note payable, which is unsecured, bearing interest at 3% per annum, and due on August 15, 2012, and the issuance of 250,000,000 common shares of the Company, and 7,500,000 Class A preferred shares of the Company. The assets were valued at cost totaling $82,538, based on certain historical costs incurred by the seller.
On October 7, 2011, the Company acquired the rights to a license in exchange for a cash payment of $10,000.
For the year ended December 31, 2011, management reviewed the intangible assets for indications of impairment and decided to fully impair these assets based on the difficulty to fairly value these assets.
4. Related Party Transactions
|
|
a)
|
As at December 31, 2012, the Company owes $342,219 (2011 - $312,137) to a company controlled by officers and directors of the Company. The amounts owing are unsecured, bears interest at 10% per annum, and are due on demand. As at December 31, 2012, the Company has recorded accrued interest of $42,219 included in accounts payable and accrued liabilities - related party.
|
|
|
b)
|
As of December 31, 2012, the Company has incurred $43,500 (2011 - $9,000) to the President and CEO of the Company for consulting services. As at December 31, 2012, the Company recorded a related party accounts payable of $15,000 (2011 - $nil), which has been included in accounts payable and accrued liabilities - related party.
|
|
|
c)
|
As at December 31, 2012, the Company paid $nil (2011 - $10,000) to a company controlled by officers and directors of the Company for the acquisition of the rights to a license.
|
|
|
d)
|
As of August 12, 2011, the former President of the Company was owed $24,965 for management fees. The amount owing is unsecured, non-interest bearing and due on demand. On August 12, 2011, the Company repaid $10,000 and the former President of the Company forgave the outstanding amount owing of $14,965, which was recorded as a gain on settlement of debt and included in additional paid in capital due to the transaction occurring with a related party.
|
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
5. Convertible Debentures
|
|
a)
|
In August 2011, the Company issued a convertible debenture to a non-related party for $500,000, comprised of payments of $100,000 on August 19, 2011, $150,000 on August 26, 2011, and $250,000 on September 6, 2011. Under the terms of the note, the amount owing is unsecured, due interest of 3% per annum, and due on or before February 19, 2013.
|
The convertible debenture also grants the right of the Company to convert its debt into common shares of the Company at any time at a conversion price of $0.25 per share. For the first payment of $100,000 on August 19, 2011, the Company recorded beneficial conversion of $16,800 relating to the number of convertible shares (400,000 shares) and the excess of the fair value of the share price and the conversion price. No beneficial conversion was recorded for the $150,000 and $250,000 payments, as the fair value of the Company’s share prices was less than the conversion price on the date of issuance.
On December 19, 2012, the Company exercised its right to convert the outstanding balance of the convertible debenture of $500,000 and accrued interest of $20,055 at an exercise price of $0.25 per share resulting in the Company issuing 2,080,220 common shares. For the year ended December 31, 2012, the Company recorded accretion expense of $12,669. As the loan was converted within the terms of the agreement no gain or loss on conversion was recorded.
|
|
b)
|
On June 29, 2012, the Company issued three separate convertible drawdown note payables of $50,000 each, with $20,000 of each note being received on June 29, 2012 and the remaining $30,000 for each note to be received on or before August 3, 2012. Under the terms of the note, the amount owing is unsecured, due interest of 6% per annum, and due on or before December 31, 2013.
|
The convertible debentures also grant the right of the Holder and the Company to convert its debt into common shares of the Company at any time at a conversion price of $0.01 per share. No beneficial conversion feature was recorded for the, as the fair value of the Company’s share prices was less than the conversion price on the date of issuance. As of August 3, 2012, the second instalments for each of the notes had not been received and were in default in accordance with the agreements.
On November 26, 2012, the Company and each of the holders (non-related parties) of the convertible debentures entered into settlement and general release agreements releasing the holders of their requirement to provide the additional $30,000 each of proceeds pursuant to the June 29, 2012 convertible drawdown notes. Per the terms of the settlement and general release agreements, all three of these convertible debentures were converted into common shares of the Company at an exercise price of $0.0035 per share resulting in the Company issuing 5,714,286 shares for each $20,000 debenture converted. As at December 31, 2012, the Company recorded a loss on conversion of debt of $43,470 for the loan principal of $60,000 and accrued interest of $1,473 recorded based on the original terms of the agreements was forgiven at the time of settlement.
6. Notes Payable
|
|
a)
|
On June 16, 2011, the Company issued a demand note to a non-related party for $10,000. Under the terms of the note, the amount owing is unsecured, due interest at 10% per annum, and due on demand. On August 11, 2011, the Company repaid a note payable of $10,000 and forgave the accrued interest of $151, which was recorded as a gain on settlement of debt.
|
|
|
b)
|
In August 2011, the Company issued a note payable to a non-related party for proceeds of $200,600. Under the terms of the notes, the amounts owing are unsecured, due interest of 10% per annum, and due on demand. On August 12, 2011, the Company recorded accrued interest of $151, and the note was forgiven resulting in a gain on settlement of debt of $200,751. The note was forgiven to facilitate the Agreement with HOEL, as a closing condition to the Agreement required the Company have no debt, obligations or liabilities of any kind whatsoever totaling in excess of $1,000.
|
7. Debt Settlement
|
|
a)
|
On November 26, 2012, the Company and each of the holders (non-related parties) of the convertible debentures entered into settlement and general release agreements releasing the holders of their requirement to provide the additional $30,000 each of proceeds pursuant to the June 29, 2012 convertible drawdown notes. Per the terms of the settlement and general release agreements, all three of these convertible debentures were converted into common shares of the Company at an exercise price of $0.0035 per share resulting in the Company issuing 5,714,286 shares for each $20,000 debenture converted. As at December 31, 2012, the Company recorded a loss on conversion of debt of $43,570 for the loan principal of $60,000 and accrued interest of $1,473 recorded based on the original terms of the agreements was forgiven at the time of settlement.
|
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
7. Debt Settlement (continued)
|
|
b)
|
During the year ended December 31, 2011, the company entered into debt settlement agreements with various parties. Debts settled with non-related parties are included in gain on settlement of debt which consists of a gain recorded for the interest accrued on a loan payable of $10,000 of $151, amounts for legal fees of $40,000 settled for $15,000 offset with a loss on settlement of debt of $599 from the settlement of a loan balance of $105,000 plus interest of $9,178 which was settled for $114,777 with a non-related party. Debts settled with related parties have been included in additional paid in capital and consist of $14,965 gain on settlement of debt to the former President and CEO of the Company for unpaid management fees of $24,965 settled for $10,000. Included in additional paid in capital was an amount of $200,751 related to the gain on settlement of debt for settlement for the full balance of $200,600 plus accrued interest of $151 for a note payable to a non-related party which was forgiven to facilitate the Agreement with HOEL (note 5).
|
8. Common Stock
Share Transactions for the Year Ended December 31, 2012:
|
|
a)
|
On December 19, 2012, the Company issued 2,080,220 common shares for the conversion of a convertible debenture with a non-related party, as noted in Note 5(a), with a book value of $520,055.
|
|
|
b)
|
On November 26, 2012, the Company issued 17,142,855 common shares for convertible debentures entered into settlement and general release agreements with non-related parties, as noted in Note 5(b), with a book value of $60,000. The conversion resulted in a loss on settlement of debt of $43,470.
|
|
|
c)
|
On November 20, 2012, the Company issued 10,000,000 common shares at $0.0035 per share for total cash proceeds of $35,000.
|
Share Transactions for the Year Ended December 31, 2011:
|
|
a)
|
On August 16, 2011, the Company entered into an Acquisition Agreement whereby the Company issued 250,000,000 common stock with a par value of $0.001 per share and 7,500,000 Class A preferred stock with a par value of $0.001 per share in exchange for a certain intellectual property license agreement from Hillwinds Ocean Energy, LLC (the “Asset Acquisition Agreement”).
|
|
|
b)
|
On August 16, 2011, pursuant to the Acquisition Agreement noted above, the former President of the Company cancelled 440,820,000 shares of common stock, representing all of the Company’s stock that was held and owned by him.
|
|
|
c)
|
On August 15, 2011, the Company filed a Certificate of Amendment to its Articles of Incorporation (the “Amendment”) with the Nevada Secretary of State. As a result of the Amendment, the Company increased the number of authorized shares of common stock to 2,000,000,000 and the authorized shares of preferred stock to 50,000,000, each with a par value of $0.001 per share.
|
|
|
d)
|
On June 6, 2011, the Company effectuated a forward split of its issued and outstanding common shares, whereby every one old share of common stock was exchanged for twelve new shares of the Company’s common stock. As a result, the issued and outstanding shares of common stock increased from 44,850,000 prior to the forward split to 538,200,000 following the forward split and has been applied on a retroactive basis to the Company’s inception.
|
|
|
e)
|
On March 9, 2011, the Company effectuated a forward split of its issued and outstanding common shares, whereby every one old share of common stock was exchanged for thirty new shares of the Company’s common stock. As a result, the issued and outstanding shares of common stock increased from 1,495,000 prior to the forward split to 44,850,000 following the forward split.
|
9. Commitments
|
|
a)
|
On October 12, 2011, the Company entered into a verbal consulting agreement with a non-related party whereby the Company will pay a monthly consulting fee for services provided in the amounts of $3,000. The agreement is for a one month term automatically renewing in each successive month unless earlier terminated. On July 18, 2012, the Board of Directors reviewed the consulting agreement and authorized an increase to the monthly consulting fee from $3,000 to $3,750 per month beginning July 2012. On October 1, 2012, the Board of Directors reviewed the consulting agreement and adjusted the consulting fee from $3,750 to $3,000 per month beginning October 2012. During the year ended December 31, 2012, the Company incurred $38,250 (2011 - $9,000) in consulting fees relating to this agreement of which $6,000 is recorded in the account payable balance as at December 31, 2012.
|
HDS International Corp.
(formerly GMV Wireless, Inc.)
(A Development Stage Company)
Notes to the Consolidated Financial Statements
(expressed in U.S. dollars)
9. Commitments (continued)
|
|
b)
|
On October 12, 2011, the Company entered into a consulting agreement with a non-related party whereby the Company will pay a monthly consulting fee for services provided in the amounts of $27,500. The agreement is for a one month term automatically renewing in each successive month unless earlier terminated. During the year ended December 31, 2012, the Company incurred $330,000 (2011 - $82,500) in consulting fees relating to this agreement of which $91,000 is recorded in the account payable balance as at December 31, 2012.
|
|
|
c)
|
On October 12, 2011, the Company entered into a consulting agreement with the President and CEO of the Company whereby the Company will pay a monthly consulting fee for services provided in the amounts of $3,000. The agreement is for a one month term automatically renewing in each successive month unless earlier terminated. On June 10, 2012, the Board of Directors authorized an increase to the monthly consulting fee from $3,000 to $6,000 per month beginning June 2012. On July 18, 2012, the Board of Directors reviewed the consulting agreement and adjusted the monthly consulting fee to $3,750 beginning July 2012. During the year ended December 31, 2012, the Company incurred $43,500 (2011 - $9,000) in consulting fees relating to this agreement of which $15,000 is recorded in the account payable - related party balance as at December 31, 2012.
|
10. Income Taxes
The Company has a net operating loss carried forward of $869,110 available to offset taxable income in future years which commence expiring in fiscal 2028.
The income tax benefit has been computed by applying the weighted average income tax rates of Canada (federal and provincial statutory rates) and of the United States (federal and state rates) of 25% and 34%, respectively, to the net loss before income taxes calculated for each jurisdiction. The tax effect of the significant temporary differences, which comprise future tax assets and liabilities, are as follows:
|
(a)
|
2012
$
|
2011
$
|
||
|
|
||||
|
Income tax recovery at statutory rate
|
199,965
|
41,670
|
||
|
Valuation allowance change
|
(199,965)
|
(41,670)
|
||
|
|
||||
|
Provision for income taxes
|
-
|
-
|
The significant components of deferred income tax assets and liabilities at December 31, 2012 and 2011 are as follows:
|
(b)
|
2012
$
|
2011
$
|
||
|
|
||||
|
Net operating loss carried forward
|
295,385
|
95,420
|
||
|
Valuation allowance
|
(295,385)
|
(95,420)
|
||
|
|
||||
|
Net deferred income tax asset
|
-
|
-
|
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations. When a change in ownership occurs, net operating loss carry forwards may be limited as to use in future years.
11. Subsequent Event
On January 2, 2013, the Company entered into a consulting agreement with The Holden Group, LLC (the “Consultant”) whereby the Company has agreed to pay the Consultant $2,000 (paid) and issue 600,000 restricted common shares (issued) of the Company upon the execution of the agreement as well as pay $500 on each of the first, second and third month anniversaries of the agreement.
None.
Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
We carried out 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 as of December 31, 2012. Based on the evaluation of these disclosure controls and procedures, and in light of the material weaknesses found in our internal controls over financial reporting, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were not effective.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as defined in Exchange Act Rule 13a-15(f). The Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.
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.
Under the supervision and with the participation of management, including the Chief Executive Officer and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2012 using the criteria established in “ Internal Control - Integrated Framework “ issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”).
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company’s annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of December 31, 2012, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
|
1.
|
We do not have an Audit Committee – While not being legally obligated to have an audit committee, it is the management’s view that such a committee, including a financial expert member, is an utmost important entity level control over the Company’s financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and does not include a member that is considered to be independent of management to provide the necessary oversight over management’s activities.
|
|
2.
|
We did not maintain appropriate cash controls – As of December 31, 2012, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company’s bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.
|
|
3.
|
We did not implement appropriate information technology controls – As at December 31, 2012, the Company retains copies of all financial data and material agreements; however there is no formal procedure or evidence of normal backup of the Company’s data or off-site storage of the data in the event of theft, misplacement, or loss due to unmitigated factors.
|
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company’s internal controls.
As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of December 31, 2012 based on criteria established in Internal Control—Integrated Framework issued by COSO.
Continuing Remediation Efforts to address deficiencies in Company’s Internal Control over Financial Reporting
Once the Company is engaged in a business of merit and has sufficient personnel available, then our Board of Directors, in particular and in connection with the aforementioned deficiencies, will establish the following remediation measures:
|
1.
|
Our Board of Directors will nominate an audit committee or a financial expert on our Board of Directors.
|
|
2.
|
We will appoint additional personnel to assist with the preparation of the Company’s monthly financial reporting, including preparation of the monthly bank reconciliations.
|
Changes in Internal Control over Financial Reporting
During the period ended September 30, 2012, there has been no change in internal control over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting. During the period ended December 31, 2012, there was a structural change in the Company’s management, however, there was no change in internal control.
None.
Our directors will serve until their successor is elected and qualified. Our officers are elected by the board of directors to a term of one (1) year and serves until his or his successor is duly elected and qualified, or until he or she is removed from office. The board of directors has no nominating, auditing or compensation committees.
The following table provides the names, positions and ages of our directors and officers:
|
Name
|
Age
|
Position
|
|
Tassos Recachinas
|
30
|
President, Principal Executive Officer, Secretary, Treasurer, Principal Financial Officer, Principal Accounting Officer and sole Director
|
We have no knowledge of any arrangements, including any pledge by any person of our securities, the operation of which may at a subsequent date result in a change in our control. We are not, to the best of our knowledge, directly or indirectly owned or controlled by another corporation or foreign government.
Set forth below is a brief description of the background and business experience of each of Tassos Recachinas, our sole officer and director. He is expected to hold their offices/positions until the next annual meeting of our stockholders.
Tassos Recachinas
Mr. Tassos D. Recachinas became our sole officer, director and controlling shareholder on August 16, 2011, in connection with the purchase Agreement with HOEL, pursuant to which we acquired a certain technology license from HOEL. Mr. Recachinas, directly and through his affiliates, is the beneficial owner of the majority of the issued and outstanding common stock of the Company, and beneficial owner of all of the issued preferred stock of the Company, making Mr. Recachinas our controlling shareholder. Mr. Recachinas is Managing Member of Sophis Investments LLC (“Sophis”) since June 2008. Sophis is an investment advisor that manages funds investing in special situations and value-oriented opportunities across asset classes. From January 2007 to March 2008, Mr. Recachinas served as an Investment Analyst at Pirate Capital LLC, an activist and event-driven hedge fund manager. From 2005 to 2006, Mr. Recachinas served as Equity Research Associate at Raymond James & Associates,
where he provided institutional equity research coverage on technology and defense companies. Mr. Recachinas received a Bachelor of Science summa cum laude Mechanical Engineering from The George Washington University, including one year of engineering and economics studies at Oxford University. Mr. Recachinas previously served as a member of the Board of Directors and member of the Compensation and Strategic Review Committees of The Allied Defense Group, a multinational defense and security company. Based on the foregoing, the Company determined that Mr. Recachinas was duly qualified to serve as the sole member of the Company’s board of directors.
Involvement in Certain Legal Proceedings
During the past ten years, Mr. Recachinas has not been the subjects of the following events:
|
1.
|
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
|
|
|
2.
|
Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
|
|
|
3.
|
The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;
|
|
|
i)
|
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
|
|
|
ii)
|
Engaging in any type of business practice; or
|
|
|
iii)
|
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
|
|
|
4.
|
The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;
|
|
|
5.
|
Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
|
|
|
6.
|
Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
|
|
|
7.
|
Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
|
|
|
i)
|
Any Federal or State securities or commodities law or regulation; or
|
|
|
ii)
|
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or
|
|
|
iii)
|
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
|
|
|
8.
|
Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
|
|
Audit Committee Financial Expert
We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Further, because we are only beginning our commercial operations, at the present time, we believe the services of a financial expert are not warranted.
Audit Committee
We do not have a separately designated audit committee. Accordingly, our board of directors is deemed our audit committee as provided for under the Sarbanes-Oxley Act of 2002.
Code of Ethics
We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the code of ethics is filed as Exhibit 14.1 to our Form 10-K for the period ended December 31, 2009.
Disclosure Committee
We do not have a disclosure committee or disclosure committee charter. Our disclosure committee is effectively comprised of our sole director, Mr. Tassos Recachinas.
Section 16(a) of the Securities Exchange Act of 1934
Section 16(a) of the Securities Exchange Act of 1934 requires our executive officers and directors, and persons who beneficially own more than 10% of our equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than 10% shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on our review of the copies of such forms we received, we believe that during the fiscal year ended December 31, 2012, all such filing requirements applicable to our officers and directors were complied with.
Director Independence
We have no independent directors.
Family Relationships
There are no family relationships between any of the officers, directors, or consultants.
Conflicts of Interest
Our officers and directors will devote time to projects that do not involve us.
Tassos Recachinas, our sole officer and director controls Hillwinds Ocean Energy, LLC and certain of its affiliates, which may compete with us outside of our licensed territory.
The following table sets forth the compensation paid by us for the last two fiscal years ending December 31, 2012 for each of our officers. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid or named executive officers.
Executive Officer Compensation Table
|
Nonqualified
|
|||||||||
|
Non-Equity
|
Deferred
|
||||||||
|
Stock
|
Option
|
Incentive Plan
|
Compensation
|
All Other
|
|||||
|
Name and
|
Salary
|
Bonus
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
|
|
Principal Position
|
Year
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
(i)
|
(j)
|
|
|
|||||||||
|
Tassos Recachinas
|
2012
|
0
|
0
|
0
|
0
|
0
|
0
|
43,500[1]
|
43,500
|
|
President/CEO/CFO
|
2011
|
0
|
0
|
0
|
0
|
0
|
0
|
9,000[1]
|
9,000
|
|
Mark Simon [2]
|
2012
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
|
President/CEO/CFO
|
2011
|
0
|
0
|
0
|
0
|
0
|
0
|
20,000[3]
|
20,000
|
|
(resigned 2/16/2011)
|
|
[1]
|
Represents cash consideration in connection with consulting services.
|
|
[2]
|
Mark Simon resigned from all positions with the Company, including Chief Executive Officer/President, Chief Financial Officer/Treasurer, Secretary and Director on August 16, 2011. For this reason, we have not included compensation data for Mr. Simon for the 2012 fiscal year, as he was not employed by us during that time.
|
|
[3]
|
Represents cash consideration in connection with consulting services at a rate of $2,500 cash per calendar month from January 2011 through August 2011.
|
We have not entered into any written employment agreements with any of our officers. We may enter into employment agreements in the future.
The compensation discussed herein addresses all compensation awarded to, earned by, or paid to our named executive officers.
There are no other stock option plans, retirement, pension, or profit sharing plans for the benefit of our officers and directors other than as described herein.
Compensation of Directors
The members of our board of directors are not compensated for their services as directors. The board has not implemented a plan to award options to any directors. There are no contractual arrangements with any member of the board of directors. We have no director’s service contracts. The following table sets forth compensation paid to our directors from inception to our year end on December 31, 2012. Since that time, we have not paid any compensation to any director.
Director’s Compensation Table
|
Fees
|
|||||||
|
Earned
|
Nonqualified
|
||||||
|
or
|
Non-Equity
|
Deferred
|
|||||
|
Paid in
|
Stock
|
Option
|
Incentive Plan
|
Compensation
|
All Other
|
||
|
Cash
|
Awards
|
Awards
|
Compensation
|
Earnings
|
Compensation
|
Total
|
|
|
Name
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
(US$)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
(g)
|
(h)
|
|
Tassos Recachinas
|
0
|
0
|
0
|
0
|
0
|
0
|
0
|
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance.
Indemnification
Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a lawsuit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney’s fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against public policy, as expressed in the Act and is, therefore, unenforceable.
|
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
|
The following table sets forth, as of the date of this report, the total number of shares owned beneficially by our officers, directors, both individually and as a group, and the beneficial owners of 5% or more of our total outstanding shares. The stockholder listed below has direct ownership of his/her shares and possess voting and dispositive power with respect to the shares, unless otherwise noted.
|
Name and Address
|
Number of
|
Percentage of
|
Number of
|
Percentage of
|
|
Beneficial Owner
|
Common Shares
|
Ownership
|
Preferred Shares
|
Ownership
|
|
Tassos Recachinas
|
179,450,000[1]
|
47.57%[3]
|
7,500,000[2]
|
100.00%
|
|
10 Dorrance Street, Suite 700
|
||||
|
Providence, RI 02093
|
||||
|
|
||||
|
All officers and directors as a group
(1 individual)
|
179,450,000
|
47.57%
|
7,500,000
|
100.00%
|
|
[1]
|
Of the 179,450,000 shares of common stock for which Mr. Recachinas is listed as beneficial owner, all are registered in the name of Hillwinds Ocean Energy, LLC, which is controlled by Mr. Recachinas.
|
|
[2]
|
Of the 7,500,000 preferred shares, all 7,500,000 shares are Class A Preferred Stock, and all are registered in the name of Hillwinds Ocean Energy, LLC, which is controlled by Mr. Recachinas.
|
|
[3]
|
Each share of Class A preferred stock is convertible into shares of common stock at a rate of 20 shares of common stock for each share of Class A Preferred Stock. Assuming the conversion of all shares of Class A Preferred Stock into shares of common stock, Mr. Recachinas’ beneficial ownership of our fully diluted common stock would be 62.49%.
|
Mr. Recachinas is our only organizer.
Future sales by existing stockholders
Currently, Rule 144 of the Securities Act of 1933, as amended, (the “Act”) is unavailable for the resale of our shares of common stock because we were categorized as a “shell company” as that term is defined in Reg. 405 of the Act. A “shell company” is a corporation with no or nominal assets or its assets consist solely of cash, and no or nominal operations. One year from the date, March 1, 2012 when we filed a Form 8-K, Rule 144 will then be available for the resale of our restricted securities. Rule 144 will be available for resale of our shares of common stock on March 1, 2013.
On November 4, 2008 we issued 39,850,000 shares of common stock to Shares were issued to our founders as follows: (1) Don Calabria 510,000 shares; (2) Alan Collier 105,000 shares; (3) Michael Dimento 37,500 shares; (4) C2 Capital, LLC (a company controlled by Mr. Calabria and Mr. Collier); 675,000 shares; (5) and (6) Frank J. Hariton Esq., Company counsel, 22,500 shares. Such shares were issued for their par value of $0.001 per share. The aggregate consideration we received was $1,350. All of such transactions with the Company’s founders were exempt from registration by reason of Section 4(2) of the Securities Act of 1933, as amended (the “Act”) as transactions by an issuer not involving any public offering. All of the shares issued in such transactions bear an appropriate restrictive legend.
In March 2010, Mark Simon, our former president, forgave all outstanding amounts owing him in consideration of $2,649. The amount has been recorded against the amounts due to related party with a corresponding credit to additional paid-in capital.
During the year ended December 31, 2010, we issued 25,200,000 split-adjusted common shares to settle management fees of $7,000, valued at $0.0003, the last price at which we sold shares of common stock for cash.
On August 12, 2011, the Company owed $24,965 to the former President of the Company for management fees, the amount owing was unsecured, non-interest bearing and due on demand. On August 12, 2011, the Company repaid $10,000 and the former President of the Company forgave the outstanding amount owing of $14,965, which was recorded as a gain on settlement of debt and included in additional paid in capital due to the transaction occurring with a related party.
On October 7, 2011, the Company paid $10,000 to Hillwinds Energy Development Corp, a corporation controlled by our President, Tassos Recachinas, pursuant to an intellectual property license agreement dated September 2, 2011, under which HEDC licensed us certain intellectual property in consideration of $10,000.
The intellectual property licensed to us relates to the reutilization of carbon dioxide using genetically modified algae as an active agent in a biological reactor converting carbon dioxide into methane. The technology licensed to us is the subject matter of a recent Provisional Patent Application #61/575,935 filed with the United States Patent and Trademark Office. The licensed territory consists of Back Bay, New Brunswick, Canada, and any geographical area within 50 miles from the center of Back Bay, with the boundary on the west being the border with the State of Maine in the United States.
In determining the consideration for the license, we considered the following factors: the status of the underlying patent application, the stage of development of the intellectual property, the business application potential of the intellectual property by us, the duration of the license, and the other terms of the license. Based upon those factors, we determined that the consideration for the patent was more favorable to us than could be obtained from and independent third party, however, we did not obtain any independent opinion as to the appropriateness of the consideration paid to HEDC.
On December 10, 2012, through our wholly-owned Canadian subsidiary, HDS Energy and Ecosystems NB, Ltd., we entered into a new technology license agreement with HEDC, which expands the geographic territory under our previous technology licenses. All previous license agreements between HDS and HEDC, including the license under asset acquisition agreement dated August 15, 2011, and the intellectual property agreement consummated October 7, 2011 (dated September 2, 2012) have been terminated and superseded in their entirety by the new license agreement (the “NB Provincial License”).
The NB Provincial License expands our exclusive geographic territory to cover the entire Province of New Brunswick, Canada, as compared to the previous exclusive geographic territory under our other licenses, which was defined as Back Bay, New Brunswick, Canada, and any geography within 50 miles from the center of Back Bay, with the boundary on the west being the border with the State of Maine in the United States.
The financial terms of the NB Provincial License transaction to expand our geographic territory were deemed immaterial, with no cash or securities paid or owed by the Company to HEDC. HEDC is controlled by the Company’s officers and directors, who also control the majority of the Company’s basic and fully diluted shares of common stock, and accordingly this transaction was classified as a related-party transaction and was not conducted at arm’s-length.
In determining the consideration for the NB Provincial License, we considered the expanded geographic coverage of the license and new license term. Based upon those factors, we determined that the consideration for the NB Provincial License was more favorable to us than could be obtained from and independent third party, however, we did not obtain any independent opinion as to the appropriateness of the consideration paid to HEDC.
As at December 31, 2012, the Company owed $342,219 to Hillwinds Ocean Energy, LLC (“HOEL”), a company controlled by our President, the amounts owing unsecured, bearing interest at 10% per annum, and due August 16, 2012. During 2012, the Company repaid $0 of accrued interest and $0 of principal under the obligation. As at December 31, 2012, the Company has recorded accrued interest of $42,219.
Tassos Recachinas is our only promoter. In addition to the transactions described herein this Item 3, Mr. Recachinas received $9,000 from us during 2011 (nil, 2012) for management consulting services. Mr. Recachinas has not received anything else of value (including money, property, contracts, options or rights of any kind) from us other than we paid HOEL, a corporation owned and controlled by Mr. Recachinas (a) 7,500,000 shares of our Class A Preferred Stock, $0.001 par value per share; (b) 250,000,000 shares of our common stock, $0.001 par value per share, and (c) a twelve month, 10% promissory note in the sum of $325,000, in connection with the purchase of certain assets from HOEL, including a certain license relating to technologies for gas exchange, carbon dioxide capture and sequestration, algae biomass production and other renewable energy and eco-sustainability
applications, as described in the Asset Acquisition Agreement dated August 16, 2011. HOEL is the majority owner of our issued and outstanding common stock and sole owner of all our issued and outstanding preferred stock. The foregoing was an arm’s length transaction negotiated between our former management and Tassos Recachinas on behalf of himself and HOEL. Mr. Recachinas believed we had no appreciative value as a “shell company” and accordingly was only willing to transfer the assets to us in consideration of absolute control of us. The precise amount of securities transferred to Mr. Recachinas was acceptable to him and us.
Other than the foregoing transaction, none of our directors or executive officers, nor any person who owned of record or was known to own beneficially more than 5% of our outstanding shares of common stock, nor any associate or affiliate of such persons or companies, have any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect us.
With regard to any future related party transaction, we plan to fully disclose any and all related party transactions in the following manor:
- Disclosing such transactions in reports where required;
- Disclosing in any and all filings with the SEC, where required;
- Obtaining disinterested directors consent; and
- Obtaining shareholder consent where required.
(1) Audit and Audit Related Fees
The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:
|
2012
|
$
|
14,000
|
M&K CPAS, PLLC
|
|
2011
|
$
|
10,000
|
M&K CPAS, PLLC
|
(2) Tax Fees
The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:
|
2012
|
$
|
0
|
M&K CPAS, PLLC
|
|
2011
|
$
|
0
|
M&K CPAS, PLLC
|
(3) All Other Fees
The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:
|
2012
|
$
|
0
|
M&K CPAS, PLLC
|
|
2011
|
$
|
0
|
M&K CPAS, PLLC
|
(4) Our audit committee’s pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approved all accounting related activities prior to the performance of any services by any accountant or auditor.
(5) The percentage of hours expended on the principal accountant’s engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant’s full time, permanent employees was 0%.
|
Exhibit
|
Incorporated by reference
|
Filed
|
|||
|
Number
|
Description of Exhibit
|
Form
|
Date
|
Number
|
herewith
|
|
3.1
|
Articles of Incorporation.
|
S-1
|
3/24/09
|
3.1
|
|
|
3.2
|
Bylaws.
|
S-1
|
3/24/09
|
3.2
|
|
|
3.3
|
Amended and Restated Articles of Incorporation.
|
8-K
|
6/14/11
|
3.1a
|
|
|
3.4
|
Amended and Restated Articles of Incorporation.
|
8-K
|
8/17/11
|
3.1
|
|
|
5.1
|
Opinion of The Law Office of Conrad C. Lysiak, P.S., regarding the legality of the securities being registered.
|
S-1/A-1
|
1/17/13
|
5.1
|
|
|
10.1
|
Management Agreement between the Company and Mr. Mark Simon dated March 23, 2010.
|
10-K
|
4/07/10
|
10.1
|
|
|
10.2
|
Promissory Note issued to Newton Management Ltd. dated September 28, 2010.
|
8-K
|
10/08/10
|
10.1
|
|
|
10.3
|
Amended Management Agreement between the Company and Mr. Mark Simon dated October 1, 2010.
|
8-K
|
11/10/10
|
10.1
|
|
|
10.4
|
Investors Relations Services Agreement with Blue Chip IR dated October 1, 2010.
|
10-Q
|
11/15/10
|
10.3
|
|
|
10.5
|
Share Exchange Agreement with AmeriSure Pharmaceuticals LLC dated May 13, 2011.
|
8-K
|
5/16/11
|
10.1
|
|
|
10.6
|
Promissory Note to Amerisure Pharmaceuticals, LLC dated June 20, 2011.
|
8-K
|
6/29/11
|
10.1
|
|
|
10.7
|
Promissory Note to Serik Enterprises, Inc.
|
8-K
|
8/12/11
|
10.1
|
|
|
10.8
|
Settlement Agreement with Vail International Ltd.
|
8-K
|
8/12/11
|
10.2
|
|
|
10.9
|
Settlement Agreement with Newton Management Ltd.
|
8-K
|
8/12/11
|
10.3
|
|
|
10.10
|
Settlement Agreement with Mark Simon.
|
8-K
|
8/12/11
|
10.4
|
|
|
10.11
|
Settlement Agreement with Carrillo Huettel, LLC.
|
8-K
|
8/12/11
|
10.5
|
|
|
10.12
|
Asset Acquisition Agreement.
|
8-K
|
8/17/11
|
10.1
|
|
|
10.13
|
Promissory Note with Hillwinds Ocean Energy, LLC.
|
8-K
|
8/17/11
|
10.2
|
|
|
10.14
|
Settlement Agreement and General Mutual Release with Serik Enterprises, Inc.
|
10-Q
|
11/21/11
|
10.14
|
|
|
10.15
|
Draw Down Convertible Promissory Note.
|
10-Q
|
11/21/11
|
10.15
|
|
|
10.16
|
Intellectual Property License Agreement with Hillwinds Energy Development Corporation.
|
10-K
|
4/16/12
|
10.1
|
|
|
10.17
|
Exclusivity and Feasibility Study Agreement with City of Saint John.
|
8-K
|
12/05/12
|
10.1
|
|
|
10.18
|
Intellectual Property License Agreement with Hillwinds Energy Development Corporation dated December 10, 2012.
|
8-K
|
12/12/12
|
10.1
|
|
|
10.19
|
Consulting Agreement with The Holden Group.
|
8-K
|
1/03/13
|
10.1
|
|
|
10.20
|
Restructuring Agreement with Dennis Holden.
|
8-K/A
|
2/14/13
|
10.1
|
|
|
10.21
|
Restructuring Agreement with Stephen Walker.
|
8-K/A
|
2/14/13
|
10.2
|
|
|
10.22
|
Restructuring Agreement with Lance Warren.
|
8-K/A
|
2/14/13
|
10.3
|
|
|
14.1
|
Code of Ethics.
|
10-K
|
3/29/11
|
14.1
|
|
|
21.1
|
List of Subsidiaries.
|
S-1/A-1
|
1/17/13
|
21.1
|
|
|
31.1
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
|||
|
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
X
|
|||
|
99.1
|
Subscription Agreement.
|
S-1/A-1
|
1/17/13
|
99.1
|
|
|
101.INS
|
XBRL Instance Document.
|
X
|
|||
|
101.SCH
|
XBRL Taxonomy Extension – Schema.
|
X
|
|||
|
101.CAL
|
XBRL Taxonomy Extension – Calculations.
|
X
|
|||
|
101.LAB
|
XBRL Taxonomy Extension – Labels.
|
X
|
|||
|
101.PRE
|
XBRL Taxonomy Extension – Presentation.
|
X
|
|||
|
101.DEF
|
XBRL Taxonomy Extension – Definition.
|
X
|
|||
Pursuant to the requirements of the Securities Act of 1933, the registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing of this Form 10-K and has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized on this 28th day of March, 2013.
|
HDS INTERNATIONAL CORP.
|
||
|
(the “Registrant”)
|
||
|
BY:
|
TASSOS RECACHINAS
|
|
|
Tassos Recachinas
|
||
|
President, Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Secretary/Treasurer and sole member of the Board of Directors
|
||
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant and in the capacities.
|
Signature
|
Title
|
Date
|
|
TASSOS RECACHINAS
|
President, Principal Executive Officer, Principal
|
March 28, 2013
|
|
Tassos Recachinas
|
Financial Officer, Principal Accounting Officer,
|
|
|
Secretary/Treasurer and sole member of the Board
|
||
|
of Directors
|
|
Exhibit
|
Incorporated by reference
|
Filed
|
|||
|
Number
|
Description of Exhibit
|
Form
|
Date
|
Number
|
herewith
|
|
3.1
|
Articles of Incorporation.
|
S-1
|
3/24/09
|
3.1
|
|
|
3.2
|
Bylaws.
|
S-1
|
3/24/09
|
3.2
|
|
|
3.3
|
Amended and Restated Articles of Incorporation.
|
8-K
|
6/14/11
|
3.1a
|
|
|
3.4
|
Amended and Restated Articles of Incorporation.
|
8-K
|
8/17/11
|
3.1
|
|
|
5.1
|
Opinion of The Law Office of Conrad C. Lysiak, P.S., regarding the legality of the securities being registered.
|
S-1/A-1
|
1/17/13
|
5.1
|
|
|
10.1
|
Management Agreement between the Company and Mr. Mark Simon dated March 23, 2010.
|
10-K
|
4/07/10
|
10.1
|
|
|
10.2
|
Promissory Note issued to Newton Management Ltd. dated September 28, 2010.
|
8-K
|
10/08/10
|
10.1
|
|
|
10.3
|
Amended Management Agreement between the Company and Mr. Mark Simon dated October 1, 2010.
|
8-K
|
11/10/10
|
10.1
|
|
|
10.4
|
Investors Relations Services Agreement with Blue Chip IR dated October 1, 2010.
|
10-Q
|
11/15/10
|
10.3
|
|
|
10.5
|
Share Exchange Agreement with AmeriSure Pharmaceuticals LLC dated May 13, 2011.
|
8-K
|
5/16/11
|
10.1
|
|
|
10.6
|
Promissory Note to Amerisure Pharmaceuticals, LLC dated June 20, 2011.
|
8-K
|
6/29/11
|
10.1
|
|
|
10.7
|
Promissory Note to Serik Enterprises, Inc.
|
8-K
|
8/12/11
|
10.1
|
|
|
10.8
|
Settlement Agreement with Vail International Ltd.
|
8-K
|
8/12/11
|
10.2
|
|
|
10.9
|
Settlement Agreement with Newton Management Ltd.
|
8-K
|
8/12/11
|
10.3
|
|
|
10.10
|
Settlement Agreement with Mark Simon.
|
8-K
|
8/12/11
|
10.4
|
|
|
10.11
|
Settlement Agreement with Carrillo Huettel, LLC.
|
8-K
|
8/12/11
|
10.5
|
|
|
10.12
|
Asset Acquisition Agreement.
|
8-K
|
8/17/11
|
10.1
|
|
|
10.13
|
Promissory Note with Hillwinds Ocean Energy, LLC.
|
8-K
|
8/17/11
|
10.2
|
|
|
10.14
|
Settlement Agreement and General Mutual Release with Serik Enterprises, Inc.
|
10-Q
|
11/21/11
|
10.14
|
|
|
10.15
|
Draw Down Convertible Promissory Note.
|
10-Q
|
11/21/11
|
10.15
|
|
|
10.16
|
Intellectual Property License Agreement with Hillwinds Energy Development Corporation.
|
10-K
|
4/16/12
|
10.1
|
|
|
10.17
|
Exclusivity and Feasibility Study Agreement with City of Saint John.
|
8-K
|
12/05/12
|
10.1
|
|
|
10.18
|
Intellectual Property License Agreement with Hillwinds Energy Development Corporation dated December 10, 2012.
|
8-K
|
12/12/12
|
10.1
|
|
|
10.19
|
Consulting Agreement with The Holden Group.
|
8-K
|
1/03/13
|
10.1
|
|
|
10.20
|
Restructuring Agreement with Dennis Holden.
|
8-K/A
|
2/14/13
|
10.1
|
|
|
10.21
|
Restructuring Agreement with Stephen Walker.
|
8-K/A
|
2/14/13
|
10.2
|
|
|
10.22
|
Restructuring Agreement with Lance Warren.
|
8-K/A
|
2/14/13
|
10.3
|
|
|
14.1
|
Code of Ethics.
|
10-K
|
3/29/11
|
14.1
|
|
|
21.1
|
List of Subsidiaries.
|
S-1/A-1
|
1/17/13
|
21.1
|
|
|
31.1
|
Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
|
X
|
|||
|
32.1
|
Certification of Chief Executive Officer and Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
|
X
|
|||
|
99.1
|
Subscription Agreement.
|
S-1/A-1
|
1/17/13
|
99.1
|
|
|
101.INS
|
XBRL Instance Document.
|
X
|
|||
|
101.SCH
|
XBRL Taxonomy Extension – Schema.
|
X
|
|||
|
101.CAL
|
XBRL Taxonomy Extension – Calculations.
|
X
|
|||
|
101.LAB
|
XBRL Taxonomy Extension – Labels.
|
X
|
|||
|
101.PRE
|
XBRL Taxonomy Extension – Presentation.
|
X
|
|||
|
101.DEF
|
XBRL Taxonomy Extension – Definition.
|
X
|
|||
-37-