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EX-2.1 - EXHIBIT 2.1 - CUSTOM Q INC | ex2_1.htm |
EX-3.1 - EXHIBIT 3.1 - CUSTOM Q INC | ex3_1.htm |
EX-99.1 - EXHIBIT 99.1 - CUSTOM Q INC | ex99_1.htm |
EX-10.2 - EXHIBIT 10.2 - CUSTOM Q INC | ex10_2.htm |
EX-10.6 - EXHIBIT 10.6 - CUSTOM Q INC | ex10_6.htm |
EX-21.1 - EXHIBIT 21.1 - CUSTOM Q INC | ex21_1.htm |
EX-10.1 - EXHIBIT 10.1 - CUSTOM Q INC | ex10_1.htm |
EX-99.2 - EXHIBIT 99.2 - CUSTOM Q INC | ex99_2.htm |
EX-10.3 - EXHIBIT 10.3 - CUSTOM Q INC | ex10_3.htm |
EX-10.5 - EXHIBIT 10.5 - CUSTOM Q INC | ex10_5.htm |
EX-10.4 - EXHIBIT 10.4 - CUSTOM Q INC | ex10_4.htm |
UNITED
STATES SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of
the Securities and Exchange Act of
1934
Date of Report (date of earliest
event reported): January 7, 2010
GREENHOUSE
HOLDINGS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
333-156611
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26-2903011
|
(State
or other jurisdiction of incorporation)
|
(Commission
File Number)
|
(IRS
Employer Identification No.)
|
5171
Santa Fe Street, Suite I
San
Diego, California
|
92109
|
(Address
of principal executive offices)
|
(Zip
Code)
|
Registrant’s
telephone number, including area code: (858)
273-2626
1133 Old Bridge Place, Fort
Wayne, Indiana 46825 (317) 524-1551
(Former
name or former address, if changed since last report)
Copies
to:
Peter
Campitiello, Esq.
Tarter
Krinsky & Drogin LLP
1350
Broadway
New York,
New York 10018
Tel:
212-216-8085
Fax:
212-216-8001
Check the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions (see General
Instruction A.2. below):
¨
|
Written
communications pursuant to Rule 425 under the Securities Act (17 CFR
230.425)
|
¨
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
¨
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR
240.14d-2(b))
|
¨
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR
240.13e-4(c))
|
SAFE
HARBOR STATEMENT
This
Current Report on Form 8-K (this Report) contains “forward-looking statements”
within the meaning of Section 27A of the Securities Act of 1933 (the Securities
Act) and Section 21E of the Securities Exchange Act of 1934 (Exchange Act). The
forward-looking statements are only predictions and provide our current
expectations or forecasts of future events and financial performance and may be
identified by the use of forward-looking terminology, including the terms
“believes,” “estimates,” “anticipates,” “expects,” “plans,” “intends,” “may,”
“will” or “should” or, in each case, their negative, or other variations or
comparable terminology, though the absence of these words does not necessarily
mean that a statement is not forward-looking. The forward-looking statements are
based on current views with respect to future events and financial performance.
Actual results may differ materially from those projected in the forward-looking
statements.
Although
forward-looking statements in this report reflect the good faith judgment of
management, forward-looking statements are inherently subject to known and
unknown risks, business, economic and other risks and uncertainties that may
cause actual results to be materially different from those discussed in these
forward-looking statements. Readers are urged not to place undue reliance on
these forward-looking statements, which speak only as of the date of this
report. We assume no obligation to update any forward-looking statements in
order to reflect any event or circumstance that may arise after the date of this
report, other than as may be required by applicable law or regulation. Readers
are urged to carefully review and consider the various disclosures made by us in
our reports filed with the Securities and Exchange Commission (“SEC”) which
attempt to advise interested parties of the risks and factors that may affect
our business, financial condition, results of operation and cash flows. If one
or more of these risks or uncertainties materialize, or if the underlying
assumptions prove incorrect, our actual results may vary materially from those
expected or projected.
BACKGROUND
On
January 7, 2010, GreenHouse Holdings, Inc., f/k/a Custom Q, Inc. (the
“Registrant” or the “Company”) approved an amendment to its Articles of
Incorporation (the “Amendment”) to change its name to GreenHouse Holdings, Inc.
and to effect a forward-split such that five (5) shares of Common Stock were
issued for every 1 share of Common Stock issued and outstanding immediately
prior to filing of the amendment (the “Forward Split”). On January 7,
2010, the Registrant entered into an Agreement and Plan of Share Exchange (the
“Exchange Agreement”) with Green House Holdings, Inc., a Nevada corporation
(“GHH”), and the stockholders of GHH (the “GHH Stockholders”) whereby the
Registrant acquired all of the issued and outstanding capital stock of GHH in
exchange (the “Exchange”) for 19,800,000 newly issued shares of Common Stock
(the “Common Exchange Shares”) and options to purchase 784,000 shares of Common
Stock (after giving effect to the Forward Split). Immediately prior
thereto, GHH consummated a Stock Purchase Agreement with Cindy Kostoff, the
Registrant’s principal stockholder and officer and director, whereby GHH
acquired 4,000,000 of the Registrant’s 4,240,000 outstanding shares from Ms.
Kostoff for the purchase price of $250,000. Simultaneously therewith,
the Company accepted subscriptions in an offering (the “Offering”) of its Units
comprised of 16,667 shares of Common Stock and Warrants to purchase an
additional 5,500 shares Common Stock at an exercise price of $2.50 per share,
offered pursuant to Regulation D of the Securities Act of 1933, as amended (the
“Securities Act”). The Company sold an aggregate of 19 Units for
aggregate offering price of $475,000.
2
ITEM
1.01. ENTRY INTO A MATERIAL DEFINITIVE AGREEMENT.
On
January 7, 2010, the Company consummated the Exchange. For a description of the
Exchange and the material agreements entered into in connection therewith,
please see Item 2.01 of this Current Report on Form 8-K, which disclosure is
incorporated herein by reference.
ITEM 2.01 COMPLETION OF ACQUISITION OR
DISPOSITION OF ASSETS
Acquisition
Of Green House Holdings, Inc.
On
January 7, 2010, the Registrant acquired Green House Holdings, Inc. a privately
owned Nevada corporation (“GHH”), pursuant to an Agreement and Plan of Share
Exchange (the “Exchange”). GHH was organized under the laws of the
State of Nevada on September 18, 2009. GHH is a holding company whose
principal operating company, R-Squared Contracting, Inc., is an innovative green
solutions provider that provides energy efficiency services and products to
residential and industrial customers including the at-home E-Fuel Microfueler™
ethanol pump, the LifeVillage - a sustainable and eco-friendly infrastructure
and energy efficient home improvement products.
Pursuant
to the terms of the Exchange, the Registrant acquired GHH from the GHH
Stockholders in exchange for an aggregate of 19,800,000 newly issued shares of
Common Stock and options to acquire an additional 784,000 shares of Common Stock
(collectively, the “Exchange Shares”). As a result of the Exchange,
the GHH Stockholders surrendered all of their issued and outstanding capital
stock of GHH in consideration for the Exchange Shares and Green House Holdings,
Inc. became a wholly-owned subsidiary of the Registrant. The Exchange
Agreement contains customary representations, warranties and covenants of the
Registrant, GHH and the GHH Stockholders, for like transactions. Breaches of
representations and warranties are secured by customary indemnification
provisions.
At the
Closing, our board of directors was reconstituted by and the appointment of Russ
Earnshaw, John Galt, Chris Ursitti and Sean Entin as directors upon appointment
by Ms. Kostoff immediately prior to her resignation as sole principal officer
and director of the Company. Our executive management team also was
reconstituted following the resignation of Ms. Kostoff and new
officers were appointed in place of our former officers. See “Directors and Executive Officers,
Promoters and Control Persons” on page 23.
Prior to
the Exchange, the GreenHouse Holdings, Inc. 2010 Incentive Plan (the “Plan”) was
adopted by the Board and the Company’s Stockholders. Under the Plan,
2,000,000 shares of Common Stock are reserved for issuance as incentive awards
granted to executive officers, key employees, consultants and directors after
the closing of the transactions described herein.
The
parties have taken all actions necessary to ensure the Exchange is treated as a
“tax free exchange” under Section 368 of the Internal Revenue Code of 1986, as
amended.
The
Offering
Simultaneously
upon the Closing, the Company closed an offering (the “Offering”) of units (the
“Units”) comprised of 16,667 shares of Common Stock and warrants to purchase
5,500 shares of Common Stock at a price of $25,000 per Unit for a maximum of
200,000 Units (the “Maximum Offering”). The Company accepted
subscriptions for an aggregate of 19 Units for aggregate offering of
$475,000. The shares of Common Stock were offered and sold in
reliance upon exemptions from registration pursuant to Section 4(2) under the
Securities Act and Rule 506 of Regulation D promulgated thereunder. The
agreements executed in connection with this sale contain representations to
support the Registrant’s reasonable belief that the Investor had access to
information concerning the Registrant’s operations and financial condition, the
Investor acquired the securities for their own account and not with a view to
the distribution thereof in the absence of an effective registration statement
or an applicable exemption from registration, and that the Investor are
sophisticated within the meaning of Section 4(2) of the Securities Act and are
“accredited investors” (as defined by Rule 501 under the Securities Act). In
addition, the issuances did not involve any public offering; the Registrant made
no solicitation in connection with the sale other than communications with the
Investor; the Registrant obtained representations from the Investor regarding
their investment intent, experience and sophistication; and the Investor either
received or had access to adequate information about the Registrant in order to
make an informed investment decision.
3
GHH
Bridge Loan
From July
to December, 2009, R Squared Contracting, Inc., d/b/a Green House Builders, the
wholly-owned subsidiary of GHH (“R Squared”) issued an aggregate of $750,000 of
Convertible Notes in accordance with the provisions of Regulation D promulgated
under the Securities Act. The principal balance of the Convertible
Notes accrues interest at the rate of 8% and is due on the earlier of two years
or a financing resulting in gross proceeds in the minimum amount of
$3,000,000. The unpaid balance of the notes, together with all
accrued and unpaid interest, is convertible upon the completion of a financing
at a price equal to 85% of the purchase price of said financing. The
Company intends to honor conversion notices of the R Squared investors, which,
as a result of the Closing of the Company’s Offering, is convertible at the rate
of $1.275 into an aggregate of approximately 606,292 shares of the Company’s
Common Stock.
Pro
Forma Ownership
Following
the issuance of the Exchange Shares and the retirement of the shares acquired
from Ms. Kostoff by GHH in order to consummate the transaction, the former
stockholders of GHH now beneficially own approximately ninety-four percent (94%)
of the total outstanding shares of the Company’s Common Stock. For
financial accounting purposes, the acquisition was a reverse acquisition of
Custom Q, Inc. by Green House Holdings, Inc., under the purchase method of
accounting, and was treated as a recapitalization with Green House Holdings,
Inc. as the acquirer. Upon consummation of the Exchange, Custom Q,
Inc. adopted the business plan of Green House Holdings, Inc.
PART
I
1.
DESCRIPTION OF BUSINESS
Company
Overview
GreenHouse
Holdings, Inc. (“GreenHouse” “the Company”, “us”, “our” or “we”) was
incorporated in the State of Nevada as Custom Q, Inc. as a for-profit company on
June 20, 2008 and established a fiscal year end of September
30. Prior to the Exchange, the Company was a development-stage
company organized to sell customizable products on various web portal sites. The
first three sites are: MyCustomBlankets.com, offering embroidered and screen
printed blankets, towels and bathrobes; MyCustomBabyGifts.com, offering a wide
assortment of personalized, and non-personalized product for expecting mothers
and newborns; and MyCustomExpressions.com offering corporate and school
personalized products. As a result of the Exchange with Green House
Holdings, Inc., we have adopted the business plan of GreenHouse.
We are a
Green Solutions Provider with the goal of producing and selling ethanol, a
viable alternative to fossil fuel, thereby reducing our nation’s dependence on
foreign oil; and bringing to market alternative energy solutions that will
reduce our customers’ carbon footprints.
Historically,
our primary source of revenue has been from retrofitting residences with energy
efficient products. We have plans to add new products to this product offering,
as well as to expand this business into additional geographies.
We have
plans to provide the industrial market with water purification systems and
numerous other advanced systems. We have pilot agreements with some of the
largest breweries, wineries, distilleries, and beverage companies in the world
to provide us the liquid waste from their plants to condense onsite and return
clean water using the vapor compression system, and are actively working with
other large food and beverage companies on many sustainable fronts, from waste
reclamation to building efficiencies.
We will
serve the Ethanol market via the distribution of the E-Fuel MicroFueler, as well
as via larger capacity ethanol production systems. The MicroFueler allows
consumers and businesses to produce ethanol using sugar, algae or waste from
distilleries and breweries as feedstock, which we will source and deliver to the
customer. The scalable ethanol production systems feature production amounts
into the thousands of gallons per day, and give us the ability to pursue large
fleets whose needs exceed the capability of the MicroFueler. We have a Letter of
Intent with the City of Las Vegas to provide them with an ethanol recycling
solution which includes the construction of an ethanol production facility, and
are in advanced talks with several other municipalities across the country as
well as the State of California to provide the fleet vehicles (police, fire,
mechanical, sanitation, and government) with ethanol made from waste. We were
also recently invited by the tequila industry and the Mexican government to
discuss how we could help them convert their waste products into
ethanol.
We
provide a completely sufficient, aquaponic, vegetable and fish farm. This farm
will be marketed to residential customers and the food and restaurant industry
as a source of organic vegetable and fish.
To
alleviate growing global concerns about poverty, disaster recovery and energy
savings, we provide the innovative LifeVillage, a sustainable and eco-friendly
infrastructure that can be deployed quickly to almost any place in the world.
The system includes physical buildings fabricated onsite using light-gauge steel
framing, renewable power via solar panels and bio-waste ethanol,
state-of-the-art water purification, and aquaponic system.
4
Competition
The
Company currently faces competition from companies that provide a variety of
green products and solutions. Also, as seller of alternative fuels,
the Company competes with some of the largest and most successful companies in
the world. In general, we compete with both groups on the basis of
design, innovation, costs, sales and marketing, and selling price.
We
believe that we can compete favorably in our markets, based on the following
factors:
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•
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unique
and proprietary technologies;
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•
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wide
range of high-quality product
offerings;
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•
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recruitment
and retention of qualified
personnel.
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We expect
our markets to remain competitive and to reflect rapid technological evolution
and continuously evolving customer and regulatory requirements. Our
ability to remain competitive depends in part upon our success in developing new
and enhanced advanced wireless solutions and introducing these systems at
competitive prices on a timely basis.
Sales and
Marketing
We
believe our sales and marketing efforts have established our reputation for
providing innovative solutions that meet our customers’ needs in a unique,
cost-efficient manner. The sales and marketing of our products
largely depends upon the type of product, location and target
customer.
Manufacturing and
Suppliers
We
produce our products through outsourced manufacturing and assembly from
third-party manufacturers. Many of our core products, components and
sub-components are purchased from third party suppliers. We have selected
suppliers based on their ability to consistently produce these products per our
specifications, ensuring the best quality product at the most cost effective
price.
Research and Product
Development
The
general focus of our research and development team is the design and integration
of our products. Through these efforts, we seek to enhance our
existing products, design new products and develop solutions for customer
applications. We believe that our responsiveness to customer demands
differentiates us from many of our competitors, as we rapidly introduce new
products to address market
needs.
Employees
As of
January 13, 2010, we have approximately 30 employees. We believe we enjoy good
employee relations. None of our employees are members of any labor union, and we
are not a party to any collective bargaining agreement.
CORPORATE INFORMATION
The
Company's corporate headquarters are located at 5171 Santa Fe Street, Suite I,
San Diego, California.
5
RISK FACTORS
Investing
in the Company's common stock involves a high degree of risk. Prospective
investors should carefully consider the risks described below, together with all
of the other information included or referred to in this Current Report on Form
8-K, before purchasing shares of the Company's common stock. There are numerous
and varied risks, known and unknown, that may prevent the Company from achieving
its goals. The risks described below are not the only ones the Company will
face. If any of these risks actually occur, the Company's business, financial
condition or results of operation may be materially adversely affected. In such
case, the trading price of the Company's common stock could decline and
investors in the Company's common stock could lose all or part of their
investment.
Risks
Related to the Operations of GreenHouse
A
lawsuit commenced by a shareholder and former director could interrupt our
operations.
On
September 3, 2009, Keith A. Miles commenced an action against the GreenHouse’s
wholly-owned operating subsidiary R-Squared Contracting, Inc. (“R-Squared”) and
certain of its and GreenHouse’s officers and directors. The complaint
alleges that R Squared breached the terms of a Shareholders Agreement and
Management Agreement with the Plaintiff, causing the Plaintiff damages that
cannot be currently calculated and demands an accounting of all income, revenues
and receipts, attorney’s fees, cost and punitive damages. While we
intend to vigorously defend this action, litigation can be very expensive and
may expend the Company’s resources to oppose the lawsuit, rather than grow the
Company’s business. Moreover, if the Plaintiff in the action prevails
in the action, it could have adverse affect on the Company’s ability to
operate.
A
general economic downturn or sudden disruption in business conditions may affect
consumer purchases of discretionary items, which could adversely affect our
financial results.
The
general level of consumer spending is affected by a number of factors, including
general economic conditions, inflation, interest rates, energy costs, and
consumer confidence generally, all of which are beyond our
control. Consumer purchases of discretionary items tend to decline
during recessionary periods, when disposable income is lower, and may impact
sales of our products. Some commentators believe that the United
States economy currently is in a recessionary period. In addition,
sudden disruptions in business conditions, for example, as a consequence of the
recent decline in financial institutions and capital markets can have a short
and, sometimes, long-term impact on consumer spending.
A
downturn in the economies in which we sell our products or a sudden disruption
of business conditions in those economies could adversely affect our
sales.
Changes
in laws, regulations and policies that affect our business could adversely
affect our financial results.
Our
business is subject to numerous laws, regulations and
policies. Changes in the laws, regulations and policies, including
the interpretation or enforcement thereof, that affect, or will affect, our
business, including changes in the scope of regulation by the Food and Drug
Administration or other regulatory agencies, accounting standards, tax laws and
regulations, trade rules and customs regulations, and the outcome and expense of
legal or regulatory proceedings, and any action we may take as a result could
adversely affect our financial results.
Our
success depends, in part, on the quality and safety of our
products.
Our
success depends, in part, on the quality and safety of our
products. If our products are found to be unsafe, or if they
otherwise fail to meet our consumers’ standards, our relationships with
customers or consumers could suffer, the appeal of our brand could be
diminished, and we could lose sales and/or become subject to liability claims,
any of which could result in a material adverse effect on our business, results
of operations and financial condition.
Our
success depends, in part, on maintaining good relationships with our
distribution channels.
6
Our
success depends, in part, on our maintaining satisfactory relationships with our
distribution channels. We do not have long term supply or distribution
contracts. The vast majority of our sales are effected on a purchase order basis
which requires us to meet expectations of delivery, quality and pricing of our
products, at both the distribution channel level and at the level of the
ultimate consumer who uses our products. If we fail to meet expected standards,
our revenues would decline and this could result in a material adverse effect on
our business, results of operations and financial condition.
GreenHouse’s
liability insurance may not be adequate in a catastrophic
situation.
GreenHouse
currently maintains property damage insurance in the aggregate amount of
approximately $2,000,000, covering its inventory at such location. The Company
maintains liability insurance of up to $1,000,000 and products liability
insurance of up to $1,000,000. Material damage to, or the loss of,
the Company's facilities or equipment due to fire, severe weather, flood or
other catastrophe, even if insured against, could result in a significant loss
to the Company.
GreenHouse
may not be able to retain its key executives who it needs to succeed and new
qualified personnel are extremely difficult to attract.
GreenHouse
believes that its continued success will depend to a significant extent upon the
efforts and abilities of its senior management team. At the Closing,
the Company entered into employment agreements with each of Russ Earnshaw, John
Galt, Chris Ursitti and Sean Entin. Failure of the Company to retain
Messrs. Earnshaw, Galt, Ursitti and Entin and other senior officers, or to
attract and retain additional qualified personnel, could adversely affect the
Company’s operations. We may not be able to find appropriate replacements for
any of our key personnel. Any loss or interruption of the services of our key
personnel could adversely affect our ability to develop and execute our business
plan. It could also result in our failure to create and maintain
relationships with strategic partners that may be critical to our success. See
“Management and Board of Directors.”
Consumers
might not adopt our alternative energy solutions.
The power
generation solutions GreenHouse provides are relatively new alternative energy
means that consumers not adopt at levels sufficient to grow this part of our
business. We cannot assure you consumers will choose to our solutions
at levels sufficient to sustain our business in this area. This development may
be impacted by many factors which are out of our control,
including:
• market
acceptance of our products;
• the
cost competitiveness of these systems;
•
regulatory requirements; and
•the
emergence of newer, more competitive technologies and products.
Loss
of favorable tax benefits and other governmental incentives could substantially
harm our operating margins.
Many of
our products and services have been substantially aided by federal tax
incentives. Because alternative fuels have historically been more
expensive to produce than diesel or petroleum fuel, the biofuels industry has
depended on governmental incentives that have effectively brought the price of
biofuels more in line with the price of diesel fuel to the end user. These
incentives have supported a market for biofuels that might not exist without the
incentives.
The
reduction or termination of environmental regulations that favor the use of
biofuels in motor fuel blends would adversely affect the demand for alternative
fuels.
7
The
biofuels industry in the U.S. currently depends on the existence of federal
environmental regulations which favor the use of blended or alternative fuels.
For instance, under the Clean Air Act Amendment, the U.S. Environmental
Protection Agency, or the EPA, in an effort to regulate harmful air emissions,
promulgated regulations mandating a reduction in the amount of sulfur content in
diesel fuel. Similarly, the Energy Policy Act of 2005, or EPAct 2005,
mandates that covered entities, principally producers, distributors and
marketers of petroleum-based and alternative fuels, use specified amounts of
renewable fuels. Under EPAct 2005, however, the U.S. Department of Energy, in
consultation with the Secretary of Agriculture and the Secretary of Energy, may
waive the renewable fuels mandate with respect to one or more states if the
Administrator
of the EPA
determines that implementing the requirements would severely harm the economy or
the environment of a state, a region or the U.S., or that there is inadequate
supply to meet the requirement. Any repeal, substantial modification or waiver
of the renewable fuels mandate or other environmental regulations at the federal
or state level could reduce the demand for biofuels and have a material adverse
effect on our results of operations and financial condition.
We
face intense competition from other alternative fuel producers, some of which
have significantly distribution and financial resources than we do.
The
biofuels industry is extremely competitive and will continue to be in the future
as more production facilities are built and the industry expands. Our business
may face competitive challenges from other or larger facilities that can produce
a wider range and larger quantity of products than we can. In
addition, we compete directly with traditional petroleum-based fuel and major
integrated oil companies, which are among the largest and most successful
companies in the world. Producers of petroleum-based diesel have
substantially greater financial and other resources than we do and could offer
biofuels directly to distributors and users, which may be a significant
competitive advantage.
Risk
Related to the Company
The
Company’s articles of incorporation limits the liability of our directors for
monetary damages.
The
Company’s articles of incorporation limits the liability of our directors for
monetary damages for breach of fiduciary duties to the maximum extent permitted
by Nevada law. We will also be giving indemnification to our
directors and officers to the maximum extent provided by California law. We may
also have contractual indemnification obligations under future agreements with
our officers. The foregoing indemnification obligations could result in our
company incurring substantial expenditures to cover the cost of settlement or
damage awards against directors and officers, which we may be unable to recoup.
These provisions and resultant costs may also discourage our company from
bringing a lawsuit against directors and officers for breaches of their
fiduciary duties, and may similarly discourage the filing of derivative
litigation by our shareholders against our directors and officers even though
such actions, if successful, might otherwise benefit our company and
shareholders.
Our
company is substantially controlled by a limited number of parties.
The
executive officers, directors and principal stockholders of the Company
beneficially own approximately 34% of the outstanding shares of our Common
Stock, if the Maximum Amount is raised. Accordingly, and because there is no
cumulative voting for directors, these parties will be in a position to
influence the election of all the directors of the Company and to control
through their stock ownership the business of the Company.
These
shareholders, acting individually or as a group, could exert substantial
influence over matters such as electing directors and approving mergers or other
business combination transactions. In addition, because of the
percentage of ownership and voting concentration in these principal
shareholders, elections of our board of directors will generally be within the
control of these shareholders. While all of our shareholders are entitled to
vote on matters submitted to our shareholders for approval, the concentration of
shares and voting control presently lies with these principal
shareholders. As such, it would be difficult for shareholders to
propose and have approved proposals not supported by
management.
8
The
limitation of monetary liability against our directors, officers and employees
under our certificate of incorporation and the existence of indemnification
rights to our directors, officers and employees may result in substantial
expenditures by our company and may discourage lawsuits against our directors,
officers and employees.
Prior
to the Offering made hereby, GreenHouse has relied on, among other sources,
loans from its shareholders to fund its operations.
Shareholder
loans and advances to GreenHouse amounted to approximately $1,000,000 as of
September 30, 2009. Chris Ursitti, our CEO has advanced the sum of
$300,000 of the total shareholder loans of $1,000,000 to GreenHouse to help fund
its operations. While Mr. Ursitti has not yet demanded the repayment
of this obligation, the repayment of such advance would have a materially
adverse impact upon our ability to fund our operations.
The
Company will face immediate dilution if the investors in GreenHouse’s recent
bridge financing elect to convert their Notes.
GreenHouse
recently consummated an offering in the aggregate amount of $750,000 of
Convertible Notes (the “Notes”) pursuant to a private placement offered under
Rule 506 of the Securities Act of 1933, as amended. At the Closing of
the Exchange, the holders of the Notes are able to convert their notes into
approximately 606,292 shares of Common Stock at the price of $1.275 per
share.
There
is no public market for the Company’s Common Stock and prospective investors may
not be able to resell their shares at or above the offering price, if at
all.
There is
no market for the Company’s Common Stock and no assurance can be given that an
active trading market will develop for the Common Stock or, if one does develop,
that it will be maintained. In the absence of a public trading
market, an investor may be unable to liquidate his investment in the
Company. The offering price of this Offering is not indicative of
future market prices.
Even if a
trading market is developed, our common shares will likely only be sporadically
or “thinly-traded” on the “Over-the-Counter Bulletin Board”, meaning that the
number of persons interested in purchasing our common shares at or near bid
prices at any given time may be relatively small or
non-existent. This situation is attributable to a number of factors,
including the fact that we are a small company which is relatively unknown to
stock analysts, stock brokers, institutional investors and others in the
investment community that generate or influence sales volume, and that even if
we came to the attention of such persons, they tend to be risk-averse and would
be reluctant to follow company such as ours or purchase or recommend the
purchase of our shares until such time as we became more seasoned and
viable. As a consequence, there may be periods of several days or
more when trading activity in our shares is minimal or non-existent, as compared
to a seasoned issuer which has a large and steady volume of trading activity
that will generally support continuous sales without an adverse effect on share
price.
The stock
market in general may experience extreme price and volume
fluctuations. Continued market fluctuations could result in extreme
volatility in the price of the Common Stock, which could cause a decline in the
value of the Common Stock. Prospective investors should also be aware
that price volatility may be worse if the trading volume of the Common Stock is
low.
The
Company is subject to the periodic reporting requirements of the Exchange Act,
which will require us to incur audit fees and legal fees in connection with the
preparation of such reports. These additional costs will reduce or
might eliminate our profitability.
The
Company is required to file periodic reports with the Commission pursuant to the
Exchange Act and the rules and regulations promulgated thereunder. To
comply with these requirements, our independent registered auditors will have to
review our quarterly financial statements and audit our annual financial
statements. Moreover, our legal counsel will have to review and
assist in the preparation of such reports. The costs charged by these
professionals for such services cannot be accurately predicted at this time,
because factors such as the number and type of transactions that we engage in
and the complexity of our reports cannot be determined at this time and will
have a major affect on the amount of time to be spent by our auditors and
attorneys. However, the incurrence of such costs will obviously be an
expense to our operations and thus have a negative effect on our ability to meet
our overhead requirements and earn a profit. We may be exposed to
potential risks resulting from new requirements under Section 404 of the
Sarbanes-Oxley Act of 2002. If we cannot provide reliable financial
reports or prevent fraud, our business and operating results could be harmed,
investors could lose confidence in our reported financial information, the
trading price of our Common Stock, if a market ever develops, could drop
significantly, or we could become subject to Commission enforcement
proceedings.
9
As
currently required under Section 404 of the Sarbanes-Oxley Act of 2002, we will
be required to include in our annual report our assessment of the effectiveness
of our internal control over financial reporting. Furthermore, our
independent registered public accounting firm will be required to attest to
whether our assessment of the effectiveness of our internal control over
financial reporting is fairly stated in all material respects and separately
report on whether it believes we have maintained, in all material respects,
effective internal control over financial reporting as of December 31,
2009. We have not yet completed our assessment of the effectiveness
of our internal control over financial reporting. We expect to incur
additional expenses and diversion of management's time as a result of performing
the system and process evaluation, testing, and remediation required to comply
with the management certification and auditor attestation
requirements.
During
the course of our testing, we may identify deficiencies that we may not be able
to remediate in time to meet the deadline imposed by the Sarbanes-Oxley Act for
compliance with the requirements of Section 404. In addition, if we
fail to achieve and maintain the adequacy of our internal controls, as such
standards are modified, supplemented, or amended from time to time, we may not
be able to ensure that we can conclude on an ongoing basis that we have
effective internal controls over financial reporting in accordance with Section
404 of the Sarbanes-Oxley Act. Moreover, effective internal controls,
particularly those related to revenue recognition, are necessary for us to
produce reliable financial reports and are important to help prevent financial
fraud. If we cannot provide reliable financial reports or prevent
fraud, our business and operating results would be harmed, investors could lose
confidence in our reported financial information, the trading price of our
Common Stock, if a market ever develops, could drop significantly, or we could
become subject to the Commission’s enforcement proceedings.
The
Company has no history of compliance with United States securities laws and
accounting rules.
In order
to be able to comply with United States securities laws, GreenHouse recently had
its initial audit of its financial statements in accordance with U.S. generally
accepted auditing standards. As the management of GreenHouse does not
have a long term familiarity with the preparation of financial statements
prepared in accordance with generally accepted accounting principles or with the
preparation of periodic reports filed with the Commission, it may be more
difficult for such management, when they become managers of the Company
following the Share Exchange, to comply on a timely basis with Commission
reporting requirements than a comparable public company.
The
Common Stock may be considered a “penny stock” and may be difficult to
sell.
While
there can be no assurance that a public trading market will ever be developed,
or if developed that on will be maintained, it is likely that our Common Stock
will be considered a “penny stock” The Commission has adopted
regulations which generally define “penny stock” to be an equity security hat
has a market price of less than $5.00 per share or an exercise price of less
than $5.00 per share, subject to specific exemptions. Initially, the
market price of the Common Stock is likely to be less than $5.00 per share and
therefore may be designated as a “penny stock” according to Commission rules.
The “penny stock” rules impose additional sales practice requirements on
broker-dealers who sell securities to persons other than established customers
and accredited investors (generally those with assets in excess of $1,000,000 or
annual income exceeding $200,000 or $300,000 together with their spouse). For
transactions covered by these rules, the broker-dealer must make a special
suitability determination for the purchase of securities and have received the
purchaser's written consent to the transaction before the purchase.
Additionally, for any transaction involving a penny stock, unless exempt, the
broker-dealer must deliver, before the transaction, a disclosure schedule
prescribed by the Securities and Exchange Commission relating to the penny stock
market. The broker-dealer also must disclose the commissions payable to both the
broker-dealer and the registered representative and current quotations for the
securities. Finally, monthly statements must be sent disclosing recent price
information on the limited market in penny stocks. These additional burdens
imposed on broker-dealers may restrict the ability or decrease the willingness
of broker-dealers to sell our common shares, and may result in decreased
liquidity for our common shares and increased transaction costs for sales and
purchases of our common shares as compared to other securities. In
addition, since the Common Stock is currently traded on the NASD’s
Over-the-Counter Bulletin Board, investors may find it difficult to obtain
accurate quotations of the Common Stock and may experience a lack of buyers to
purchase such stock or a lack of market makers to support the stock
price.
10
There
is a risk of market fraud.
Shareholders
should be aware that, according to SEC Release No. 34-29093, the market for
penny stocks has suffered in recent years from patterns of fraud and
abuse. Such patterns include (1) control of the market for the
security by one or a few broker-dealers that are often related to the promoter
or issuer; (2) manipulation of prices through prearranged matching of purchases
and sales and false and misleading press releases; (3) boiler room practices
involving high-pressure sales tactics and unrealistic price projections by
inexperienced sales persons; (4) excessive and undisclosed bid-ask differential
and markups by selling broker-dealers; and (5) the wholesale dumping of the same
securities by promoters and broker-dealers after prices have been manipulated to
a desired level, along with the resulting inevitable collapse of those prices
and with consequent investor losses. We are aware of the abuses that have
occurred historically in the penny stock market. Although we do not expect to be
in a position to dictate the behavior of the market or of broker-dealers who
participate in the market, management will strive within the confines of
practical limitations to prevent the described patterns from being established
with respect to our securities. The occurrence of these patterns or practices
could increase the volatility of our share price.
There
is limited liquidity on the OTC Bulletin Board.
When
fewer shares of a security are being traded on the OTC Bulletin Board,
volatility of prices may increase and price movement may outpace the ability of
the OTC Bulletin Board to deliver accurate quote information. Due to lower
trading volumes in the Common Stock, there may be a lower likelihood of a
person’s orders for shares of the Common Stock being executed, and current
prices may differ significantly from prices quoted by the OTC Bulletin Board at
the time of order entry.
There
is a limitation in connection with the editing and canceling of orders on the
OTC Bulletin Board.
Orders
for OTC Bulletin Board securities may be canceled or edited like orders for
other securities. All requests to change or cancel an order must be submitted
to, received and processed by the OTC Bulletin Board. Due to the manual order
processing involved in handling OTC Bulletin Board trades, order processing and
reporting may be delayed. As a result, it may not be possible to edit
orders. Consequently, it may not be possible for the Company’s shareholders to
sell the Common Stock at optimum trading prices.
A
significant number of the Company’s shares will be eligible for sale, and their
sale could depress the market price of the Company’s stock.
Sales of
a significant number of shares of the Common Stock in the public market could
harm the market price of the Common Stock. As additional shares of
the Common Stock become gradually available for resale in the public market
pursuant to the availability of Rule 144, the supply of the Common Stock will
increase, which could decrease its price. The Company issued
19,800,000 post-Split shares of Common Stock in connection with the Exchange and
the Offering. Some or all of the shares of Common Stock may be
offered from time to time in the open market pursuant to Rule 144, and these
sales may have a depressive effect on the market for the shares of Common
Stock. In general, once the Common Stock may avail itself under Rule
144, assuming the availability of certain current public information about a
issuer, a person who is not an affiliate of the issuer and has not been
affiliated for a period of three (3) months private sale and, who has held
restricted shares for the applicable holding period which is generally six
months, may sell into the market an unlimited number of shares of Common
Stock.
If
we are unable to recruit and retain qualified personnel, our business could be
harmed.
Our
growth and success highly depend on qualified personnel. So we are inevitable to
make all efforts to recruit and retain skilled technical, sales, marketing,
managerial, manufacturing, and administrative personnel. Competitions among the
industry could cause us difficultly to recruit or retain a sufficient number of
qualified technical personnel, which could harm our ability to develop new
products. If we are unable to attract and retain necessary key talents, it
definitely will harm our ability to develop competitive product and keep good
customers and could adversely affect our business and operating
results.
11
Risks Related to the Securities
Markets and Investments in Our Common Stock
Because our
common stock is quoted on the "OTCBB," your ability to sell your shares in the
secondary trading market may be limited.
Our
common stock is currently quoted on the over-the-counter market on the OTC
Electronic Bulletin Board. Consequently, the liquidity of our common stock is
impaired, not only in the number of shares that are bought and sold, but also
through delays in the timing of transactions, and coverage by security analysts
and the news media, if any, of our company. As a result, prices for shares of
our common stock may be lower than might otherwise prevail if our common stock
was quoted and traded on Nasdaq or a national securities exchange.
Our stock price
may be volatile and our common stock could suffer a decline in value.
As of
January 13, 2010, there has been no trading activities in the Company’s common
stock. There can be no assurance that a market will ever develop in
the Company’s common stock in the future. Should a market develop,
the price may fluctuate significantly in response to a number of factors, many
of which are beyond our control. These factors include:
•
acceptance of our products in the industry;
•
announcements of technological innovations or new products by us or our
competitors;
|
•
government regulatory action affecting our products or our competitors'
products;
|
•
developments or disputes concerning patent or proprietary rights;
•
economic conditions in the United States or abroad;
• actual
or anticipated fluctuations in our operating results;
• broad
market fluctuations; and
• changes
in financial estimates by securities analysts.
A registration of
a significant amount of our outstanding restricted stock may have a negative
effect on the trading price of our stock.
At
January 13, 2010,shareholders of GHH had approximately 19,800,000 post-split
adjusted shares of restricted stock, or 93% of the outstanding common stock. If
we were to file a registration statement including all of these shares, and the
registration is allowed by the SEC, these shares would be freely tradable upon
the effectiveness of the planned registration statement. If investors holding a
significant number of freely tradable shares decide to sell them in a short
period of time following the effectiveness of a registration statement, such
sales could contribute to significant downward pressure on the price of our
stock.
We
do not intend to pay any cash dividends in the foreseeable future and,
therefore, any return on your investment in our capital stock must come from
increases in the fair market value and trading price of the capital
stock.
12
We have
not paid any cash dividends on our common stock and do not intend to pay cash
dividends on our common stock in the foreseeable future. We intend to
retain future earnings, if any, for reinvestment in the development and
expansion of our business. Any credit agreements, which we may enter
into with institutional lenders, may restrict our ability to pay
dividends. Whether we pay cash dividends in the future will be at the
discretion of our board of directors and will be dependent upon our financial
condition, results of operations, capital requirements and any other factors
that the board of directors decides is relevant. Therefore, any
return on your investment in our capital stock must come from increases in the
fair market value and trading price of the capital stock.
We
may issue additional equity shares to fund the Company's operational
requirements which would dilute your share ownership.
The
Company's continued viability depends on its ability to raise
capital. Changes in economic, regulatory or competitive conditions
may lead to cost increases. Management may also determine that it is
in the best interest of the Company to develop new services or products. In any
such case additional financing is required for the Company to meet its
operational requirements. There can be no assurances that the Company
will be able to obtain such financing on terms acceptable to the Company and at
times required by the Company, if at all. In such event, the Company
may be required to materially alter its business plan or curtail all or a part
of its operational plans as detailed further in Management's Discussion and
Analysis in this Form 8-K. While the Company currently has no offers to sell it
securities to obtain financing, sale or the proposed sale of substantial amounts
of our common stock in the public markets may adversely affect the market price
of our common stock and our stock price may decline substantially. In
the event that the Company is unable to raise or borrow additional funds, the
Company may be required to curtail significantly its operational plans as
further detailed in Requirements for Additional Capital in the Management
Discussion and Analysis of this Form 8-K.
The
Company’s Amended Articles of Incorporation authorize the issuance of up to
300,000,000 total shares of Common Stock without additional approval by
shareholders. As of January 13, 2010, we had 21,316,667 adjusted shares of
common stock outstanding and options to issue an additional 784,000 shares
issued and outstanding.
Large amounts of
our common stock will be eligible for resale under Rule 144.
As of
January 13, 2010, approximately 19,800,000 of the 21,316,667 issued and
outstanding shares of the Company's common stock are restricted securities as
defined under Rule 144 of the Securities Act of 1933, as amended (the “Act”) and
under certain circumstances may be resold without registration pursuant to Rule
144.
Approximately
14,092,829 shares of our restricted shares of common stock are held by
non-affiliates who may avail themselves of the public information requirements
and sell their shares in accordance with Rule 144. As a result, some or all of
these shares may be sold in accordance with Rule 144 potentially causing the
price of the Company's shares to decline.
In
general, under Rule 144, a person (or persons whose shares are aggregated) who
has satisfied a six month holding period may, under certain circumstances, sell
within any three-month period a number of securities which does not exceed the
greater of 1% of the then outstanding shares of common stock or the average
weekly trading volume of the class during the four calendar weeks prior to such
sale. Rule 144 also permits, under certain circumstances, the sale of
securities, without any limitation, by a person who is not an Affiliate, as such
term is defined in Rule 144(a)(1), of the Company and who has satisfied a one
year holding period. Any substantial sale of the Company's common stock pursuant
to Rule 144 may have an adverse effect on the market price of the Company's
shares. This filing will satisfy certain public information requirements
necessary for such shares to be sold under Rule 144. However,
since the Company has previously indicated in its filings with the Commission
that it is a shell company, as that term is defined under the Securities Act,
pursuant to Rule 144, shareholders must wait at least one year from the date of
the filing of this Form 8-K to avail themselves of Rule 144 unless we file a
registration statement for the sale of such shares prior thereto.
The requirements
of complying with the Sarbanes-Oxley act may strain our resources and distract
management
13
We are
subject to the reporting requirements of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”), and the Sarbanes-Oxley Act of 2002. the costs
associated with these requirements may place a strain on our systems and
resources. The Exchange Act requires that we file annual, quarterly and current
reports with respect to our business and financial condition. The Sarbanes-Oxley
Act requires that we maintain effective disclosure controls and procedures and
internal controls over financial reporting. Historically, as a private company
we have maintained a small accounting staff, but in order to maintain and
improve the effectiveness of our disclosure controls and procedures and internal
control over financial reporting, significant additional resources and
management oversight will be required. This includes, among other things,
retaining independent public accountants. This effort may divert management's
attention from other business concerns, which could have a material adverse
effect on our business, financial condition, results of operations and cash
flows. In addition, we may need to hire additional accounting and financial
persons with appropriate public company experience and technical accounting
knowledge, and we cannot assure you that we will be able to do so in a timely
fashion.
Sales of
additional equity securities may adversely affect the market price of our common
stock and your rights in the Company may be reduced.
We expect
to continue to incur research and development and selling, general and
administrative costs, and in order to satisfy our funding requirements, we may
need to sell additional equity securities. Our stockholders may
experience substantial dilution and a reduction in the price that they are able
to obtain upon sale of their shares. Also, any new securities issued
may have greater rights, preferences or privileges than our existing common
stock which may adversely affect the market price of our common stock and our
stock price may decline substantially.
14
2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF PLAN OF OPERATIONS
The
following discussion and plan of operations should read in conjunction with the
financial statements and the notes to those statements included in this 8-K.
This discussion includes forward-looking statements that involve risk and
uncertainties. As a result of many factors, such as those set forth under “Risk Factors,” actual results
may differ materially from those anticipated in these forward-looking
statements.
Acquisition and
Reorganization
On
January 7, 2010, the acquisition of GreenHouse was completed, and the business
of GreenHouse was adopted as our business. As such, the following Management
Discussion is focused on the current and historical operations of GreenHouse,
and excludes the prior operations of the Registrant.
BUSINESS
OVERVIEW
We are a
Green Solutions Provider with the goal of producing and selling ethanol, a
viable alternative to fossil fuel, thereby reducing our nation’s dependence on
foreign oil; and bringing to market alternative energy solutions that will
reduce our customers’ carbon footprints.
Historically,
our primary source of revenue has been from retrofitting residences with energy
efficient products. We have plans to add new products to this product offering,
as well as to expand this business into additional geographies.
We have
plans to provide the industrial market with water purification systems and
numerous other advanced systems. We have pilot agreements with some of the
largest breweries, wineries, distilleries, and beverage companies in the world
to provide us the liquid waste from their plants to condense onsite and return
clean water using the vapor compression system, and are actively working with
other large food and beverage companies on many sustainable fronts, from waste
reclamation to building efficiencies.
We will
serve the Ethanol market via the distribution of the E-Fuel MicroFueler, as well
as via larger capacity ethanol production systems. The MicroFueler allows
consumers and businesses to produce ethanol using sugar, algae or waste from
distilleries and breweries as feedstock, which we will source and deliver to the
customer. The scalable ethanol production systems feature production amounts
into the thousands of gallons per day, and give us the ability to pursue large
fleets whose needs exceed the capability of the MicroFueler. We have a Letter of
Intent with the City of Las Vegas to provide them with an ethanol recycling
solution which includes the construction of an ethanol production facility, and
are in advanced talks with several other municipalities across the country as
well as the State of California to provide the fleet vehicles (police, fire,
mechanical, sanitation, and government) with ethanol made from waste. We were
also recently invited by the tequila industry and the Mexican government to
discuss how we could help them convert their waste products into
ethanol.
We
provide a completely sufficient, aquaponic, vegetable and fish farm. This farm
will be marketed to residential customers and the food and restaurant industry
as a source of organic vegetable and fish.
To
alleviate growing global concerns about poverty, disaster recovery and energy
savings, we provide the innovative LifeVillage, a sustainable and eco-friendly
infrastructure that can be deployed quickly to almost any place in the world.
The system includes physical buildings fabricated onsite using light-gauge steel
framing, renewable power via solar panels and bio-waste ethanol,
state-of-the-art water purification, and the aquaponic system.
LIQUIDITY
AND CAPITAL RESOURCES
We have
funded our operations through financing activities consisting primarily of loans
from shareholders and private placements of debt with outside investors. Our
principal use of funds has been for the acquisition of the exclusive
distribution rights for E-Fuel Corporation’s MicroFueler in the San Diego,
Orange and Los Angeles Counties of the State of California; the ongoing
development of our projects for the efficient conversion of cellulosic and sugar
based waste streams into Ethanol; the ongoing development of relationships with
potential corporate and government customers for our energy saving solutions;
the expansion of our sales and marketing infrastructure to increase our revenue
from our energy saving solutions to residential customers; and general corporate
expenses.
15
Liquidity
and Capital Resources during the year ended December 31, 2008 compared to the
year ended December 31, 2007
During
the year ended December 31, 2008, the company issued 224,000 shares of common
stock for contributed property and equipment valued at $3,517 and 476,000 shares
of common stock for consulting services. During the twelve months ended December
31, 2008, the company received proceeds of $415,000 from the issuance of debt
securities to related parties. There were no proceeds received from the sale of
company debt or equity securities during the year ended December 31,
2007.
Liquidity
and Capital Resources during the nine months ended September 30, 2009 compared
to the nine months ended September 30, 2008.
During
the nine months ended September 30, 2009, the Company did not issue any equity
securities but issued $625,000 of convertible notes to outside investors. During
the nine months ended September 30, 2008, the Company received no proceeds
received from the sale of company debt or equity securities.
Liquidity
and Capital Resource Plan for the year ended December 31, 2010
During
2010, the Company intends to fund its operations with the proceeds from the PIPE
financing which will enable it to expand its revenue-generating Home Improvement
product offering in the current markets it serves, as well as in new markets it
will start to operate in. It is anticipated that this will generate additional
working capital for the Company. In addition to the PIPE financing, the Company
is pursuing additional equity financing as well as project-specific debt
financing to develop its Alternative Energy projects for sale or lease to
customers. However, we cannot assure you that such financing will be available
to us on favorable terms, if at all, and this may delay the development of our
Alternative Energy projects until additional funds are received by the
Company.
RESULTS
OF OPERATIONS
Results
of Operations for the Year Ended December 31, 2008 compared to the Year Ended
December 31, 2007
Revenues
for the year ended December 31, 2007 were $1,089,392 and were primarily
generated from three large, residential construction development projects. These
projects were completed during the year ended December 31, 2008, but the
residential housing market was suffering from a severe slowdown and the company
was unable to secure new residential construction development projects,
resulting in a decrease in revenue to $357,546 for the year ended December 31,
2008, a decrease of approximately $700,000 from the year ended December 31,
2007.
However,
during the year ended December 31, 2008, the Company identified a growing
opportunity in the profitable Home Improvement market, especially for a company
offering Energy Efficient products, and this resulted in an increase in Gross
Profit percentage from 19% for the year ended December 31, 2007 to 29% for the
year ended December 31, 2008. This also resulted in an increase in operating
expenses from $188,363 for the year ended December 31, 2007 to $533,712 for the
year ended December 31, 2008 as the Company invested in the infrastructure to
support its planned growth in this new market.
As a
result, Net loss for year ended December 31, 2008 was $(429,154) compared to Net
income of $7,873 for the year ended December 31, 2007.
16
Results
of Operations for the Nine Months Ended September 30, 2009 Compared to the Nine
Months Ended September 30, 2008
Revenues
for the nine months ended September 30, 2009 were $3,486,217 compared to
$238,609 for the nine months ended September 30, 2008, an increase of
approximately $3,200,000. This increase was due to the infrastructure expenses
described above during the year ended December 31, 2008, as well as an increase
in sales and marketing expenses during the nine months ended September 30,
2009.
As the
Company was expanding its presence in the Home Improvement Energy Efficiency
market, new opportunities and technologies in the Alternative Energy market,
particularly surrounding Ethanol and Ethanol production, presented themselves to
the Company. Realizing the growth potential that these potential new markets
could hold, the Company decided to invest its resources in researching these new
opportunities and technologies, and developing relationships with strategic
suppliers that would enable the Company to commercialize them to not only its
existing residential customer base, but to the commercial, industrial,
governmental and non-governmental markets as well. The Company also invested
heavily in sales and marketing expenses to identify and develop relationships
with potential customers in these markets.
Operating
expenses for the nine months ended September 30, 2009 were $2,267,377 compared
to $389,077 for the nine months ended September 30, 2008, an increase of
approximately $1,878,000. This increase was due to increased sales and marketing
expenses that resulted in the increase in revenues in the Home Improvement
Energy Efficiency market described above, as well as the increase in expenses in
the Alternative Energy market described above.
As a
result, Net loss was $(1,018,792) for the nine months ended September 30, 2009,
compared with a Net Loss of $(227,280) for the nine months ended September 30,
2008.
CRITICAL ACCOUNTING POLICIES
AND ESTIMATES
Basis of
presentation
The
Company’s financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“U.S.
GAAP”).
Use of
estimates
The
preparation of financial statements in conformity with accounting principles
generally accepted in the United States of America requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reporting amounts of revenues and expenses
during the reported period. Significant estimates include the
estimated useful lives of property and equipment. Actual results
could differ from those estimates.
Cash
equivalents
The
Company considers highly liquid, temporary cash investments with an original
maturity period of three months or less to be cash equivalents.
Accounts
receivable
Accounts
receivable are recorded at the invoiced amount, net of an allowance for doubtful
accounts. The allowance for doubtful accounts is the Company’s best
estimate of the amount of probable credit losses in the Company’s existing
accounts receivable. The Company determines the allowance based on historical
write-off experience, customer specific facts and economic conditions. Bad debt
expense is included in general and administrative expenses, if any.
Outstanding
account balances are reviewed individually for
collectability. Account balances are charged off against the
allowance after all means of collection have been exhausted and the potential
for recovery is considered remote.
17
The
Company does not have any off-balance-sheet credit exposure to its
customers.
Property and
equipment
Property
and equipment are recorded at cost. Expenditures for major additions
and betterments are capitalized. Maintenance and repairs are charged
to operations as incurred. Depreciation of property and equipment is
computed by the straight-line method (after taking into account their respective
estimated residual values) over the assets estimated useful lives ranging from
three (3) years to five (5) years. Upon sale or retirement of
property and equipment, the related cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in the statements of
operations. Leasehold improvements, if any, are amortized on a
straight-line basis over the term of the lease or the estimated useful lives,
whichever is shorter. Upon becoming fully amortized, the related cost
and accumulated amortization are removed from the accounts.
Impairment of long-lived
assets
The
Company follows Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or
Disposal of Long-Lived Assets” (“SFAS No. 144”) for its long-lived
assets. The Company’s long-lived assets, which include property and equipment,
are reviewed for impairment whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable.
The
Company assesses the recoverability of its long-lived assets by comparing the
projected undiscounted net cash flows associated with the related long-lived
asset or group of long-lived assets over their remaining estimated useful lives
against their respective carrying amounts. Impairment, if any, is based on the
excess of the carrying amount over the fair value of those
assets. Fair value is generally determined using the asset’s expected
future discounted cash flows or market value, if readily
determinable. If long-lived assets are determined to be recoverable,
but the newly determined remaining estimated useful lives are shorter than
originally estimated, the net book values of the long-lived assets are
depreciated over the newly determined remaining estimated useful
lives. The Company determined that there were no impairments of
long-lived assets as of December 31, 2008 or 2007.
Fair value of financial
instruments
The
Company follows Statement of Financial Accounting Standards No. 107 “Disclosures about fair value of
Financial Instruments” (“SFAS No. 107”) for disclosures about fair value
of its financial instruments and has adopted Financial Accounting Standards
Board (“FASB”) No. 157 “Fair
Value Measurements” (“SFAS No. 157”) to measure the fair value of its
financial instruments. SFAS No. 157 establishes a framework for
measuring fair value in generally accepted accounting principles (GAAP), and
expands disclosures about fair value measurements. To increase consistency and
comparability in fair value measurements and related disclosures, SFAS No. 157
establishes a fair value hierarchy which prioritizes the inputs to valuation
techniques used to measure fair value into three (3) broad
levels. The fair value hierarchy gives the highest priority to quoted
prices (unadjusted) in active markets for identical assets or liabilities and
the lowest priority to unobservable inputs. The three (3) levels of
fair value hierarchy defined by SFAS No. 157 are described below:
Level
1
|
Quoted
market prices available in active markets for identical assets or
liabilities as of the reporting date.
|
|
Level
2
|
Pricing
inputs other than quoted prices in active markets included in Level 1,
which are either directly or indirectly observable as of the reporting
date.
|
|
Level
3
|
Pricing
inputs that are generally observable inputs and not corroborated by market
data.
|
18
The
carrying amounts of the Company’s financial assets and liabilities, such as cash
and accrued expenses, approximate their fair values because of the short
maturity of these instruments. The Company’s notes payable approximate the fair
value of such instruments based upon management’s best estimate of interest
rates that would be available to the Company for similar financial arrangements
at December 31, 2008 and 2007.
The
Company does not have any assets or liabilities measured at fair value on a
recurring or a non-recurring basis, consequently, the Company did not have any
fair value adjustments for assets and liabilities measured at fair value at
December 31, 2008 or 2007, nor gains or losses are reported in the statement of
operations that are attributable to the change in unrealized gains or losses
relating to those assets and liabilities still held at the reporting date for
the interim period ended December 31, 2008 or 2007.
Revenue
recognition
In
accordance with SEC Staff Accounting Bulletin No. 101 — “Revenue
Recognition in Financial Statements” (“SAB”), which was superseded by SAB 104,
contract revenues are recognized using the percentage of completion method. The
percentage of completion is calculated by dividing the direct labor and other
direct costs incurred by the total estimated direct costs of the project.
Contract value is defined as the total value of the contract, plus the value of
approved change orders. Estimates of costs to complete are reviewed periodically
and modified as required.
Revenue
from the sale of materials is recognized when delivery occurs and risk of
ownership passes to the customer.
Stock-based
compensation
The
Company accounted for its stock based compensation under the recognition and
measurement principles of the fair value recognition provisions of Statement of
Financial Accounting Standards No. 123 (revised 2004) “Share-Based Payment” (“SFAS
No. 123R”) and the Financial Accounting Standards Board Emerging Issues Task
Force Issue No. 96-18
“Accounting For Equity Instruments That Are Issued To Other Than Employees For
Acquiring, Or In Conjunction With Selling Goods Or Services” (“EITF No.
96-18”) using the modified prospective method. All transactions in
which goods or services are the consideration received for the issuance of
equity instruments are accounted for based on the fair value of the
consideration received or the fair value of the equity instrument issued,
whichever is more reliably measurable. The measurement date used to
determine the fair value of the equity instrument issued is the earlier of the
date on which the third-party performance is complete or the date on which it is
probable that performance will occur.
Income
taxes
The
Company accounts for income taxes under Statement of Financial Accounting
Standards No. 109, “Accounting for Income Taxes”. Under Statement No.
109, the asset and liability method is used in accounting for income
taxes. Deferred taxes are recognized for temporary differences
between the bases of assets and liabilities for financial statement and income
tax purposes. The temporary differences relate primarily to net
operating loss carryforwards. A valuation allowance is recorded for
deferred tax assets when it is more likely than not that some or all of the
deferred tax assets will not be realized through future operations.
In
addition, the Company follows the provisions of FASB Interpretation No.
48,"Accounting for Uncertainty in Income Taxes," an interpretation of FASB
Statement No.109 ("FIN 48"). FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of
a tax position taken or expected to be taken in a tax return. A company must
determine whether it is "more-likely-than-not" that a tax position will be
sustained upon examination, including resolution of any related appeals or
litigation procedures, based on the technical merits of the
position. Once it is determined that a position meets the
more-likely-than-not recognition threshold, the position is measured to
determine the amount of benefit to recognize in the financial statements. Review
of the Company’s possible tax for 2008 and 2007 did not result in any positions
requiring disclosure. Should the Company need to record interest
and/or penalties related to uncertain tax positions, or other tax authority
assessments, it would classify such expenses as part of the income tax
provision.
19
Net income (loss) per common
share
Basic net
income (loss) per common share has been calculated by dividing the net loss for
the period by the basic weighted average number of common shares outstanding.
Diluted net loss per share is computed by dividing net loss by the weighted
average number of shares of common stock and potentially outstanding shares of
common stock during the period. There were no potentially dilutive shares outstanding as of December 31, 2008
or 2007.
In June
2003, the United States Securities and Exchange Commission (“SEC”) adopted final
rules under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”), as
amended by SEC Release No. 33-9072 on October 13, 2009. Under the
provisions of Section 404 of the Sarbanes-Oxley Act, public companies and their
independent auditors are each required to report to the public on the
effectiveness of a company’s internal controls. The smallest public
companies with a public float below $75 million have been given extra time to
design, implement and document these internal controls before their auditors are
required to attest to the effectiveness of these controls. This
extension of time will expire beginning with the annual reports of companies
with fiscal years ending on or after June 15, 2010. . Commencing with
the Company’s Annual Report for the year ended December 31, 2010, the Company
will be required to include a report of management on its internal control over
financial reporting. The internal control report must include a
statement
Of
management’s responsibility for establishing and maintaining adequate internal
control over its financial reporting;
Of
management’s assessment of the effectiveness of its internal control over
financial reporting as of fiscal year end; and
Of the
framework used by management to evaluate the effectiveness of the Company’s
internal control over financial reporting.
Furthermore,
it is required to file the auditor’s attestation report separately on the
Company’s internal control over financial reporting on whether it believes that
the Company has maintained, in all material respects, effective internal control
over financial reporting.
In
June 2009, the FASB approved the “FASB Accounting Standards Codification”
(the “Codification”) as the single source of authoritative nongovernmental U.S.
GAAP to be launched on July 1, 2009. The Codification does not
change current U.S. GAAP, but is intended to simplify user access to all
authoritative U.S. GAAP by providing all the authoritative literature related to
a particular topic in one place. All existing accounting standard
documents will be superseded and all other accounting literature not included in
the Codification will be considered non-authoritative. The Codification is
effective for interim and annual periods ending after September 15,
2009.
In
August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-04 “Accounting for
Redeemable Equity Instruments - Amendment to Section 480-10-S99” which
represents an update to section 480-10-S99, distinguishing liabilities from
equity, per EITF Topic D-98, Classification and Measurement of
Redeemable Securities. The Company does not expect the
adoption of this update to have a material impact on its consolidated financial
position, results of operations or cash flows.
In
August 2009, the FASB issued the FASB Accounting Standards Update No.
2009-05 “Fair Value
Measurement and Disclosures Topic 820 – Measuring Liabilities at Fair
Value”, which provides amendments to subtopic 820-10, Fair Value
Measurements and Disclosures – Overall, for the fair value measurement of
liabilities. This update provides clarification that in circumstances
in which a quoted price in an active market for the identical liability is not
available, a reporting entity is required to measure fair value using one or
more of the following techniques: 1. A valuation technique that uses: a. The
quoted price of the identical liability when traded as an asset b. Quoted prices
for similar liabilities or similar liabilities when traded as assets. 2. Another
valuation technique that is consistent with the principles of topic 820; two
examples would be an income approach, such as a present value technique, or a
market approach, such as a technique that is based on the amount at the
measurement date that the reporting entity would pay to transfer the identical
liability or would receive to enter into the identical liability. The amendments
in this update also clarify that when estimating the fair value of a liability,
a reporting entity is not required to include a separate input or adjustment to
other inputs relating to the existence of a restriction that prevents the
transfer of the liability. The amendments in this update also clarify that both
a quoted price in an active market for the identical liability when traded as an
asset in an active market when no adjustments to the quoted price of the asset
are required are Level 1 fair value measurements. The Company does
not expect the adoption of this update to have a material impact on its
consolidated financial position, results of operations or cash
flows.
20
In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-08 “Earnings Per Share –
Amendments to Section 260-10-S99”,which represents technical corrections
to topic 260-10-S99, Earnings per share, based on EITF Topic D-53, Computation of Earnings Per Share
for a Period that includes a Redemption or an Induced Conversion of a Portion of
a Class of Preferred Stock and EITF Topic D-42, The Effect of the Calculation of
Earnings per Share for the Redemption or Induced Conversion of Preferred
Stock. The Company does not expect the adoption of this update to have a
material impact on its consolidated financial position, results of operations or
cash flows.
In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-09 “Accounting for
Investments-Equity Method and Joint Ventures and Accounting for Equity-Based
Payments to Non-Employees”. This update represents a
correction to Section 323-10-S99-4, Accounting by an Investor for
Stock-Based Compensation Granted to Employees of an Equity Method
Investee. Additionally, it adds observer comment Accounting Recognition for Certain
Transactions Involving Equity Instruments Granted to Other Than Employees
to the Codification. The Company does not expect the adoption to have a material
impact on its consolidated financial position, results of operations or cash
flows.
In
September 2009, the FASB issued the FASB Accounting Standards Update No.
2009-12 “Fair Value
Measurements and Disclosures Topic 820 – Investment in Certain Entities That
Calculate Net Assets Value Per Share (or Its Equivalent)”, which provides
amendments to Subtopic 820-10, Fair Value Measurements and Disclosures-Overall,
for the fair value measurement of investments in certain entities that calculate
net asset value per share (or its equivalent). The amendments in this update
permit, as a practical expedient, a reporting entity to measure the fair value
of an investment that is within the scope of the amendments in this update on
the basis of the net asset value per share of the investment (or its equivalent)
if the net asset value of the investment (or its equivalent) is calculated in a
manner consistent with the measurement principles of Topic 946 as of the
reporting entity’s measurement date, including measurement of all or
substantially all of the underlying investments of the investee in accordance
with Topic 820. The amendments in this update also require disclosures by major
category of investment about the attributes of investments within the scope of
the amendments in this update, such as the nature of any restrictions on the
investor’s ability to redeem its investments a the measurement date, any
unfunded commitments (for example, a contractual commitment by the investor to
invest a specified amount of additional capital at a future date to fund
investments that will be make by the investee), and the investment strategies of
the investees. The major category of investment is required to be determined on
the basis of the nature and risks of the investment in a manner consistent with
the guidance for major security types in U.S. GAAP on investments in debt and
equity securities in paragraph 320-10-50-1B. The disclosures are required for
all investments within the scope of the amendments in this update regardless of
whether the fair value of the investment is measured using the practical
expedient. The Company does not expect the adoption to have a material impact on
its consolidated financial position, results of operations or cash
flows.
Management
does not believe that any other recently issued, but not yet effective
accounting pronouncements, if adopted, would have a material effect on the
accompanying financial statements.
21
OFF-BALANCE SHEET
ARRANGEMENTS
We do not
have any off-balance sheet arrangements that have or are reasonably likely to
have a current or future effect on our financial condition, changes in financial
condition, revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to our
investors.
3. DESCRIPTION OF PROPERTY
Following
the Exchange, our address will be 5171 Santa Fe Street, Suite I, San Diego, California 92109,
comprised of 4,428 square feet under a lease which expires on July 31, 2013 at a
monthly rental of $5,701, with 3% annual increases on each August
1st.
4. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The
following table summarizes certain information regarding the beneficial
ownership (as such term is defined in Rule 13d-3 under the Securities Exchange
Act of 1934) of outstanding Common Stock as of January 7, 2010 (after giving
effect to the Exchange) by (i) each person known by us to be the beneficial
owner of more than 5% of the outstanding Common Stock, (ii) each of our
directors, (iii) each of our named executive officers (as defined in Item 403(a)
of Regulation S-K under the Securities Act), and (iv) all executive officers and
directors as a group. Except as indicated in the footnotes below, the security
and stockholders listed below possess sole voting and investment power with
respect to their shares.
Name
and Address of Beneficial Owner
|
Amount
and Nature of Beneficial Owner (1)
|
Percent
of Class (2)
|
||||||
John
Galt
|
1,899,298 | 8.91 | % | |||||
Robert
Russ Earnshaw
|
1,798,271 | 8.44 | % | |||||
Chris
Ursitti
|
1,737,655 | 8.15 | % | |||||
Sean
Entin (3)
|
1,733,614 | 8.13 | % | |||||
Justin
Farry
|
55,000 | 0.26 | % | |||||
Roy
Pharis
|
2,404,430 | 11.28 | % | |||||
Keith
Miles
|
2,404,430 | 11.28 | % | |||||
Emissary
Capital Group, LLC (4)
|
1,000,000 | 4.7 | % | |||||
All
Directors and Executive Officers as a Group (5 persons)
|
7,223,838 | 33.89 | % |
(1)
"Beneficial Owner" means having or sharing, directly or indirectly (i) voting
power, which includes the power to vote or to direct the voting, or (ii)
investment power, which includes the power to dispose or to direct the
disposition, of shares of the common stock of an issuer. The definition of
beneficial ownership includes shares, underlying options or warrants to purchase
common stock, or other securities convertible into common stock, that currently
are exercisable or convertible or that will become exercisable or convertible
within 60 days. Unless otherwise indicated, the beneficial owner has sole voting
and investment power. The mailing address for all officers and
directors is 5171 Santa Fe Street, Suite I, San Diego, California
92109.
(2) For
each shareholder, the calculation of percentage of beneficial ownership is based
upon 21,316,667 shares of Common Stock outstanding as of January 7, 2010, and
shares of Common Stock subject to options, warrants and/or conversion rights
held by the shareholder that are currently exercisable or exercisable within 60
days, which are deemed to be outstanding and to be beneficially owned by the
shareholder holding such options, warrants, or conversion rights. The percentage
ownership of any shareholder is determined by assuming that the shareholder has
exercised all options, warrants and conversion rights to obtain additional
securities and that no other shareholder has exercised such
rights.
22
(3)
Includes 50,000 shares held by Mr. Entin’s minor daughter, Savannah Entin, of
which he has voting and dispositive power.
(4) Does
not include 285,000 shares held by Amit Tandon and 285,000 shares held by Ajay
Tandon who share voting and dispositive voting power over Emissary Capital
Group, LLC. The address for Emissary Capital Group, LLC is 420
Lexington Avenue, Suite 300 New York, New York 10170
5.
DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS.
The
following table sets forth information regarding the members of the Company’s
board of directors and its executive officers. All of the Company’s executive
officers and directors were appointed on January 7, 2009, the effective date of
the Acquisition. All directors hold office until the first annual meeting of the
stockholders of the Company and until the election and qualification of their
successors or their earlier removal or retirement.
Officers
are elected annually by the board of directors and serve at the discretion of
the board.
Name
(1)
|
Age
|
Title
|
John
Galt
|
38
|
Executive
Chairman
|
Robert
Russ Earnshaw
|
41
|
President,
Director
|
Chris
Ursitti
|
48
|
Chief
Executive Officer, Director
|
Sean
Entin
|
38
|
Chief
Marketing Officer, Director
|
Justin
Farry
|
38
|
Chief
Financial Officer
|
John Galt, Executive Chairman,
founded GreenHouse with Russ Earnshaw in 2007 as an organization originally
focused on providing green building solutions for homeowners. Prior
thereto and from 2004, Mr. Galt was the founder of Galt Corporation, a real
estate investment and construction services company.
Robert Russ Earnshaw, President,
Director, co-founded GreenHouse with John Galt in 2007, and is
responsible for overseeing its daily operations. Prior thereto, Mr.
Earnshaw was a Senior Project Manager for Gafcon, Inc., an ENR Top 100
Construction Management firm. Mr. Earnshaw is a licensed general
contractor and his experience includes developing planned residential
communities and commercial developments as well as working in the custom home
field. Mr. Earnshaw has a Bachelor of Science degree in Construction
Management from Colorado State University.
Chris Ursitti, Chief Executive
Officer, Director, is responsible for the overall management of
GreenHouse. Prior thereto and since 1997, Mr. Ursitti has served as
the managing partner of the Los Angeles Center Studio, a full service
independent film studio with 450,000 square feet of Class A
production and office space on a 20-acre campus in downton Los
Angeles. Mr. Ursitti was instrumental in revitalizing downtown Los
Angeles’ west side by using green building standards to repurpose the UNOCAL
building into a multi-million dollar multi-use facility. Mr. Ursitti
also has executive experience at the Hollywood Location Co., and he developed
multi-million dollar homes for celebrities and other high net worth clients as a
high-end residential real estate developer. Mr. Ursitti is on the
Board of Directors of Opportunity Green and the Calvary Christian School
Foundation. He is a graduate of Westminster College where he earned a Bachelor
of Fine Arts degree, and has been nominated to receive a lifetime alumni
achievement award.
Sean Entin, Chief Marketing
Officer, Director, is responsible for developing and implementing
marketing strategies at GreenHouse to support the deployment of its eco-friendly
products and services. Prior thereto and since 1998, Mr. Entin was the founder
of Zen Management, a film, distribution and commercial media
company. Mr. Entin also played an integral role in the development of
Los Angeles Center Studio, and assisted in raising capital for the multi-use
office and production facility that has revitalized the west side of downtown
Los Angeles. Mr. Entin attended the University of Southern
California, where he pursued a Bachelor of Arts degree in
Entrepreneurship/Business Administration.
23
Justin Farry, Chief Financial
Officer, Treasurer. Prior to his appointment at GreenHouse, Mr. Farry was
employed at Brinderson L.P. as the Director of Project Business
Services. Immediately prior thereto Mr. Farry was a Regional
Financial Controller for Bureau Veritas North America, Inc. Mr. Farry
is a Certified Public Accountant (Inactive), licensed by the California State
Board of Accountancy, and a CA(SA), licensed by the South African Institute of
Chartered Accountants. Mr. Farry earned a Bachelor of Commerce degree
from the University of the Witwatersrand in Johannesburg, and an Hons BCompt
degree from the University of South Africa.
AUDIT
COMMITTEE. The Company intends to establish an audit committee, which will
consist of independent directors. The audit committee's duties would be to
recommend to the Company's board of directors the engagement of independent
auditors to audit the Company's financial statements and to review its
accounting and auditing principles. The audit committee would review the scope,
timing and fees for the annual audit and the results of audit examinations
performed by the internal auditors and independent public accountants, including
their recommendations to improve the system of accounting and internal controls.
The audit committee would at all times be composed exclusively of directors who
are, in the opinion of the Company's board of directors, free from
any relationship which would interfere with the exercise of independent judgment
as a committee member and who possess an understanding of financial statements
and generally accepted accounting principles.
COMPENSATION
COMMITTEE. Our board of directors does not have a standing compensation
committee responsible for determining executive and director
compensation. Instead, the entire board of directors fulfills this
function, and each member of the Board participates in the
determination. Given the small size of the Company and its Board and
the Company's limited resources, locating, obtaining and retaining additional
independent directors is extremely difficult. In the absence of
independent directors, the Board does not believe that creating a separate
compensation committee would result in any improvement in the compensation
determination process. Accordingly, the board of directors has
concluded that the Company and its stockholders would be best served by having
the entire board of directors act in place of a compensation
committee. When acting in this capacity, the Board does not have a
charter.
In
considering and determining executive and director compensation, our board of
directors reviews compensation that is paid by other similar public companies to
its officers and takes that into consideration in determining the compensation
to be paid to the Company’s officers. The board of directors also
determines and approves any non-cash compensation to any
employee. The Company does not engage any compensation consultants to
assist in determining or recommending the compensation to the Company’s officers
or employees.
6. EXECUTIVE
COMPENSATION
Summary
Compensation Table
The
following table sets forth all of the compensation awarded to, earned by or paid
to (i) each individual serving as our principal executive officer during our
last completed fiscal year; and (ii) each other individual that served as an
executive officer at the conclusion of the fiscal year ended December 31, 2008
and who received in excess of $100,000 in the form of salary and bonus during
such fiscal year (collectively, the Named Executives).
Name
and Principal Position
|
Year
|
Salary
|
Bonus
|
Option
Awards
|
Non-Equity
Incentive Plan Compensation
|
All
Other Compensation
|
Total
|
|||||||||||||||||||||
John
Galt (1)
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||||
Russ
Earnshaw (2)
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||||
Chris
Ursitti (3)
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||||
Sean
Entin (4)
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||||
Justin
Farry (5)
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||||
Cindy
Kostoff
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||||
2008
|
- | - | - | - | - | - | ||||||||||||||||||||||
2007
|
- | - | - | - | - | - | ||||||||||||||||||||||
Mary
Ann Nester
|
2009
|
- | - | - | - | - | - | |||||||||||||||||||||
2008
|
- | - | - | - | - | - | ||||||||||||||||||||||
2007
|
- | - | - | - | - | - |
24
Compensation
Policy. Our Company’s executive compensation plan is based on attracting
and retaining qualified professionals who possess the skills and leadership
necessary to enable our Company to achieve earnings and profitability growth to
satisfy our stockholders. We must, therefore, create incentives for these
executives to achieve both Company and individual performance objectives through
the use of performance-based compensation programs. No one component is
considered by itself, but all forms of the compensation package are considered
in total. Wherever possible, objective measurements will be utilized to quantify
performance, but many subjective factors still come into play when determining
performance.
Compensation
Components. As an early-stage development company, the main elements of
our compensation package consist of base salary, stock options and
bonus.
Base
Salary. As we continue to grow and financial conditions improve, these
base salaries, bonuses and incentive compensation will be reviewed for possible
adjustments. Base salary adjustments will be based on both individual and
Company performance and will include both objective and subjective criteria
specific to each executive’s role and responsibility with the
Company.
COMPENSATION
OF DIRECTORS
At this
time, directors receive no remuneration for their services as directors of the
Company, nor does the Company reimburse directors for expenses incurred in their
service to the Board of Directors. The Company does not expect to pay
any fees to its directors for the 2010 fiscal year.
EMPLOYMENT AGREEMENTS, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
On
January 4, 2010, the Company entered into employment agreements with its
executive officers, John Galt, Russ Earnshaw, Chris Ursitti, Sean Entin and
Justin Farry.
Each
employment agreement provides for a four year term with minimum annual base
salary of $150,000, with the exception of Mr. Farry’s which provided a minimum
annual salary of $160,000. Under the agreements, the executives will
be subject to traditional non-competition and employee non-solicitation
restrictions while they are employed by the Company and for a period of one year
thereafter, or two years if the executive resigns. If the Company
terminates the employment agreement without Cause prior to the expiration of its
term, or the Executive terminates the agreement for “Good Reason” (as that term
is defined in the employment agreement) the Executive shall be entitled to
receive any earned but unpaid compensation due to them under the
agreement. Upon a change-in-control of the Company, the executives
employment agreements will have been terminated for “Good Reason”. A
copy of the form of Employment Agreement is attached hereto as Exhibit
10.1.
25
2010
Equity Plan
Immediately
prior to the Closing, our Board and Stockholders approved and adopted the 2010
Equity Incentive Plan (the “2010 Plan”). A copy of the 2010 Plan is
attached as Exhibit 10.2 to this Current Report on Form 8-K.
The 2010
Plan is intended to promote the interests of the Company by attracting and
retaining exceptional employees, consultants, directors, officers and
independent contractors (collectively referred to as the “Participants”), and
enabling such Participants to participate in the long-term growth and financial
success of the Company. Under the 2010 Plan, the Company may grant
stock options, which are intended to qualify as “incentive stock options” under
Section 422 of the Internal Revenue Code of 1986, as amended (the “Incentive
Stock Options”), non-qualified stock options (the “Nonqualified Stock Options”),
stock appreciation rights (“SARs”) and restricted stock awards (the “Restricted
Stock Awards”), which are restricted shares of Common Stock (the Incentive Stock
Options, the Nonqualified Stock Options, the SARs and the Restricted Stock
Awards are collectively referred to as “Incentive Awards”). Incentive Awards may
be granted pursuant to the 2010 Plan for 10 years from the Effective
Date.
From time
to time, we may issue Incentive Awards pursuant to the 2010 Plan. Each of the
awards will be evidenced by and issued under a written agreement.
The Board
reserved a total of 2,000,000 shares of our Common Stock for issuance under the
2010 Plan. If an incentive award granted under the 2010 Plan expires,
terminates, is unexercised or is forfeited, or if any shares are surrendered to
us in connection with an incentive award, the shares subject to such award and
the surrendered shares will become available for further awards under the
Plan.
The
number of shares subject to the 2010 Plan, any number of shares subject to any
numerical limit in the 2010 Plan, and the number of shares and terms of any
Incentive Award may be adjusted in the event of any change in our outstanding
Common Stock by reason of any stock dividend, spin-off, stock split, reverse
stock split, recapitalization, reclassification, merger, consolidation,
liquidation, business combination or exchange of shares, or similar
transaction.
Employee
Options
At the
Closing we granted an aggregate of 240,000 options to Mr. Farry. The
options vest and are exercisable on the following terms:
#
OF SHARES
|
EXERCISE
PRICE
|
VESTING
SCHEDULE
|
EXPIRATION
|
||||
40,000
|
$1.50 |
January
7, 2010
|
January
7, 2020
|
||||
40,000
|
$1.50 |
January
1, 2011
|
January
7, 2020
|
||||
40,000
|
$1.50 |
June
30, 2011
|
January
7, 2020
|
||||
40,000
|
$1.50 |
January
1, 2012
|
January
7, 2020
|
||||
40,000
|
$1.50 |
June
30, 2012
|
January
7, 2020
|
||||
40,000
|
$1.50 |
January
1, 2013
|
January
7, 2020
|
26
At the
Closing we granted an aggregate of 76,000 options to one of our key
consultants. The options vest and are exercisable on the following
terms:
#
OF SHARES
|
EXERCISE
PRICE
|
VESTING
SCHEDULE
|
EXPIRATION
|
||||
12,000
|
$1.50 |
January
7, 2010
|
January
7, 2020
|
||||
19,000
|
$2.50 |
January
7, 2010
|
January
7, 2020
|
||||
10,000
|
$1.50 |
January
1, 2011
|
January
7, 2020
|
||||
15,000
|
$1.50 |
January
1, 2012
|
January
7, 2020
|
||||
20,000
|
$1.50 |
January
1, 2013
|
January
7, 2020
|
On the
Closing Date, pursuant to the terms of the Exchange, we issued an aggregate of
468,000 options to employees and consultants who were previously granted options
to acquire common stock of GHH. The first 25% of these options vest
on January 1, 2011, the next 35% of these options vest on January 1, 2012 and
the balance vest on January 1, 2013. All of these options are
exercisable at the price of $1.50 per share and expire after 10
years.
7. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS
Currently,
we have no independent directors on our Board of Directors, and therefore have
no formal procedures in effect for reviewing and pre-approving any transactions
between us, our directors, officers and other affiliates. We will use our best
efforts to insure that all transactions are on terms at least as favorable to
the Company as we would negotiate with unrelated third parties.
8. DESCRIPTION OF
SECURITIES
Common Stock
Number
of Authorized and Outstanding Shares.
27
The
Company's Amended and Restated Articles of Incorporation authorizes the issuance
of 300,000,000 shares of Common Stock, $.001 par value per share, of which
21,316,667 shares were outstanding on January 7, 2010. January 7,
2010 the Company’s Board of Directors authorized an amendment to the Articles of
Incorporation to increase the number of authorized shares of common stock from
100,000,000 to 300,000,000 and concurrently affected a five (5) for 1
forward-split of the Company’s issued and outstanding shares of Common
Stock.
Voting
Rights.
Holders
of shares of Common Stock are entitled to one vote for each share on all matters
to be voted on by the stockholders. Holders of Common Stock have no cumulative
voting rights. Accordingly, the holders of in excess of 50% of the aggregate
number of shares of Common Stock outstanding will be able to elect all of the
directors of the Company and to approve or disapprove any other matter submitted
to a vote of all stockholders.
Other.
No
shareholder has any preemptive right or other similar right to purchase or
subscribe for any additional securities issued by the Company, and no
shareholder has any right to convert the common stock into other securities. No
shares of common stock are subject to redemption or any sinking fund provisions.
All the outstanding shares of the Company's common stock are fully paid and
non-assessable. Subject to the rights of the holders of the preferred stock, if
any, the Company's shareholders of common stock are entitled to dividends when,
as and if declared by the Board from funds legally available therefore and, upon
liquidation, to a pro-rata share in any distribution to shareholders. The
Company does not anticipate declaring or paying any cash dividends on the common
stock in the foreseeable future.
Preferred
Stock
The
Company's Amended Articles of Incorporation authorizes the issuance of
10,000,000 shares of “Blank Check” Preferred Stock, par value $0.001 per share,
subject to any limitations prescribed by law, without further vote or action by
the stockholders, to issue from time to time shares of preferred stock in one or
more series. Each such series of Preferred Stock shall have such number of
shares, designations, preferences, voting powers, qualifications, and special or
relative rights or privileges as shall be determined by the Company's board of
directors, which may include, among others, dividend rights, voting rights,
liquidation preferences, conversion rights and preemptive rights.
Options
As of the
Closing Date, there were options outstanding to purchase 765,000 shares of
Common Stock at a purchase price of $1.50 per share and options to
purchase19,000 at a purchase price of $2.50 per share
outstanding. Under the terms of the 2010 Plan, the Company may issue
incentive awards that may include the issuance of an additional 2,000,000 shares
of Common Stock. The 2010 Plan was adopted by the Board and Company’s
Stockholders before the Exchange.
Transfer
Agent
Shares of
Common Stock are registered at the transfer agent and are transferable at such
office by the registered holder (or duly authorized attorney) upon surrender of
the Common Stock certificate, properly endorsed. No transfer shall be registered
unless the Company is satisfied that such transfer will not result in a
violation of any applicable federal or state securities laws. The Company's
transfer agent for its Common Stock is Action Stock Transfer Corporation, 7069
S. Highland Drive, Suite 300 Salt Lake City, Utah 84121, (801)
274-1088.
Penny Stock
The
Commission has adopted rules that define a “penny stock” as equity securities
under $5.00 per share which are not listed for trading on Nasdaq (unless the
issuer (i) has a net worth of $2,000,000 if in business for more than three
years or $5,000,000 if in business for less than three years or (ii) has had
average annual revenue of $6,000,000 for the prior three years). The
Company's securities are characterized as penny stock, and therefore
broker-dealers dealings in the securities are subject to the disclosure rules of
transactions involving penny stock which require the broker-dealer, among other
things, to (i) determine the suitability of purchasers of the securities and
obtain the written consent of purchasers to purchase such securities and (ii)
disclose the best (inside) bid and offer prices for such securities and the
price at which the broker-dealer last purchased or sold the securities. The
additional requirements imposed upon broker-dealers discourage them from
engaging in transactions in penny stocks, which reduces the liquidity of the
Company's securities. The Company's4 common stock is currently quoted on the OTC
Bulletin Board under the symbol CTMQ.OB.
28
PART II.
1. MARKET
INFORMATION
Currently
the Company’s common shares are listed on the Over-the-Counter Bulletin Board
(OTCBB) under the ticker symbol “CTMQ”. However, as of the date of
this report there has been limited trading activities in the Company’s common
stock. There can be no assurance that a market will ever develop in
the Company’s common stock in the future. If a market does not
develop then investors would be unable to sell any of the Company’s common stock
likely resulting in a complete loss of any funds therein invested.
Since our
inception, we have not paid any dividends on our Common Stock, and we do not
anticipate that we will pay any dividends in the foreseeable future. We intend
to retain any future earnings for use in our business. At January 13,
2010, we had approximately 113 shareholders of record.
2. LEGAL
PROCEEDINGS
On
September 3, 2009, Keith A. Miles, a shareholder and former employee of the
Registrant commenced an action entitled Keith Miles v. R Squared
Contracting, Inc., dba Greenhouse Builders; Robert Russell Earnshaw; John Galt;
Galt Corp.; and Does 1 through 25, San Diego Superior Court case number
37-2009-00097598-CU-BC-CTL. The matter is brought by Mr. Miles, in
connection with his termination and removal from the Company’s former operating
subsidiary R-Squared Contracting, Inc., on or about June 22, 2009. The
litigation alleges that the manner and procedures used to terminate Mr. Miles
were not in accordance with a Management Agreement and Shareholder Agreement
executed among the. The Company disputes the allegations and intends
to vigorously defend the action.
Except as
set forth above, no director, officer, or affiliate of the Company and no owner
of record or beneficial owner of more than 5.0% of the securities of the
Company, or any associate of any such director, officer or security holder is a
party adverse to the Company or has a material interest adverse to the Company
in reference to pending litigation.
3. CHANGES IN AND DISAGREEMENT WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not
applicable.
4. RECENT ISSUANCES OF
UNREGISTERED SECURITIES BY THE REGISTRANT
Since
inception of the Registrant in June 20, 2008, we have sold unregistered
securities to the following shareholders:
On
January 7, 2010, the Registrant authorized the issuance of 19,800,000 of Common
Stock and options to purchase an aggregate of 784,000 shares of Common Stock in
connection with the execution of an Agreement and Plan of Share Exchange with
the equityholders of Green House Holdings, Inc. (the
“Exchange”).
29
On
January 7, 2010, the Registrant sold accepted subscriptions for
an aggregate of 19 Units comprised of 316,667 shares of Common Stock
and warrants to purchase 104,500 shares of Common Stock an exercise price of
$2.50 per share and expiring in 3 years, at the price of $25,000 per Unit for an
aggregate offering of $475,000.
In or
about June 2008, the Registrant issued 4,000,000 shares of common stock issued
to our founder Cindy Kostoff issued at $0.001 per share.
In August
through December of 2008, we issued 240,000 shares of common stock to 24 U.S.
investors and 8 non-U.S. investors at $.10 per share in a private placement
raising an aggregate of $24,000 cash.
Except as
noted above, the sales of the securities identified above were made pursuant to
privately negotiated transactions that did not involve a public offering of
securities and, accordingly, we believe that these transactions were exempt from
the registration requirements of the Securities Act pursuant to Section 4(2) of
the Securities Act and Rule 506 of Regulation D and Regulation S promulgated
thereunder. The agreements executed in connection with this sale contain
representations to support the Registrant’s reasonable belief that the Investor
had access to information concerning the Registrant’s operations and financial
condition, the Investor acquired the securities for their own account and not
with a view to the distribution thereof in the absence of an effective
registration statement or an applicable exemption from registration, and that
the Investor are sophisticated within the meaning of Section 4(2) of the
Securities Act and are “accredited investors” (as defined by Rule 501 under the
Securities Act). In addition, the issuances did not involve any public offering;
the Registrant made no solicitation in connection with the sale other than
communications with the Investor; the Registrant obtained representations from
the Investor regarding their investment intent, experience and sophistication;
and the Investor either received or had access to adequate information about the
Registrant in order to make an informed investment decision. All of
the foregoing securities are deemed restricted securities for purposes of the
Securities Act.
5. INDEMNIFICATION OF OFFICERS AND
DIRECTORS
Nevada
Revised Statutes (“NRS”) Sections 78.7502 and 78.751 provide the Company with
the power to indemnify any of our directors and officers. The director or
officer must have conducted himself/herself in good faith and reasonably believe
that his/her conduct was in, or not opposed to our best interests. In a criminal
action, the director, officer, employee or agent must not have had reasonable
cause to believe his/her conduct was unlawful.
Under NRS
Section 78.751, advances for expenses may be made by agreement if the director
or officer affirms in writing that he/she believes he/she has met the standards
and will personally repay the expenses if it is determined such officer or
director did not meet the standards.
Pursuant
to the Company’s Amended and Restated Articles of Incorporation and bylaws, we
may indemnify an officer or director who is made a party to any proceeding,
because of his position as such, to the fullest extent authorized by Nevada
Revised Statutes, as the same exists or may hereafter be amended. In certain
cases, we may advance expenses incurred in defending any such
proceeding.
To the
extent that indemnification for liabilities arising under the Securities Act may
be permitted to directors, officers or persons controlling our company pursuant
to the foregoing provisions, we have been informed that, in the opinion of the
SEC, such indemnification is against public policy as expressed in the
Securities Act and is therefore unenforceable. If a claim for indemnification
against such liabilities (other than the payment by us of expenses incurred or
paid by a director, officer or controlling person of our company in the
successful defense of any action, suit or proceeding) is asserted by any of our
directors, officers or controlling persons in connection with the securities
being registered, we will, unless in the opinion of our counsel the matter has
been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by us is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of that issue.
30
Anti-Takeover
Effects of Provisions of Nevada State Law
We may be
or in the future we may become subject to Nevada's control share
law. A corporation is subject to Nevada's control share law if it has
more than 200 stockholders, at least 100 of whom are stockholders of record and
residents of Nevada, and if the corporation does business in Nevada or through
an affiliated corporation.
The law
focuses on the acquisition of a “controlling interest” which means the ownership
of outstanding voting shares is sufficient, but for the control share law, to
enable the acquiring person to exercise the following proportions of the voting
power of the corporation in the election of directors: (1) one-fifth or more but
less than one-third, (2) one-third or more but less than a majority, or (3) a
majority or more. The ability to exercise such voting power may be direct or
indirect, as well as individual or in association with others.
The
effect of the control share law is that the acquiring person, and those acting
in association with that person, obtain only such voting rights in the control
shares as are conferred by a resolution of the stockholders of the corporation,
approved at a special or annual meeting of stockholders. The control share law
contemplates that voting rights will be considered only once by the other
stockholders. Thus, there is no authority to take away voting rights from the
control shares of an acquiring person once those rights have been approved. If
the stockholders do not grant voting rights to the control shares acquired by an
acquiring person, those shares do not become permanent non-voting shares. The
acquiring person is free to sell its shares to others. If the buyers of those
shares themselves do not acquire a controlling interest, their shares do not
become governed by the control share law.
If
control shares are accorded full voting rights and the acquiring person has
acquired control shares with a majority or more of the voting power, any
stockholder of record, other than an acquiring person, who has not voted in
favor of approval of voting rights is entitled to demand fair value for such
stockholder's shares.
Nevada's
control share law may have the effect of discouraging corporate
takeovers.
In
addition to the control share law, Nevada has a business combination law, which
prohibits certain business combinations between Nevada corporations and
"interested stockholders" for three years after the "interested stockholder"
first becomes an "interested stockholder" unless the corporation's board of
directors approves the combination in advance. For purposes of Nevada law, an
"interested stockholder" is any person who is (1) the beneficial owner, directly
or indirectly, of ten percent or more of the voting power of the outstanding
voting shares of the corporation, or (2) an affiliate or associate of the
corporation and at any time within the three previous years was the beneficial
owner, directly or indirectly, of ten percent or more of the voting power of the
then outstanding shares of the corporation. The definition of the term "business
combination" is sufficiently broad to cover virtually any kind of transaction
that would allow a potential acquirer to use the corporation's assets to finance
the acquisition or otherwise to benefit its own interests rather than the
interests of the corporation and its other stockholders.
The
effect of Nevada's business combination law is to potentially discourage parties
interested in taking control of the Company from doing so if it cannot obtain
the approval of our Board of Directors.
ITEM
5.01 CHANGES IN CONTROL OF REGISTRANT.
For a
description of the change of control and the material agreements entered into in
connection therewith, please see Item 2.01 of this Current Report on Form 8-K,
which discussion is incorporated herein by reference.
ITEM 5.02 DEPARTURE OF DIRECTORS OR
PRINCIPAL OFFICERS; ELECTION OF DIRECTORS; APPOINTMENT OF PRINCIPAL
OFFICERS.
On
January 7, 2010, Ms. Cindy Kostoff resigned from her role as the Registrant’s
Director, Chief Executive Officer and principal accounting officer and Mary Ann
Nester resigned as director of the Registrant. John Galt was elected
as the Registrant’s Executive Chairman, Robert Russ Earnshaw as President and
Director, Chris Ursitti as Chief Executive Officer and Director, Sean Entin as
Director and Justin Farry as Chief Financial Officer and
Treasurer..
31
PART III.
ITEM 9.01
FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements: As a
result of the Exchange described in Item 2.01, the registrant is filing the
audited financial statement information of Green House Holdings, Inc. as Exhibit
99.1 to this Current Report on Form 8-K.
(b) Pro forma financial information:
The unaudited pro forma consolidated financial information regarding the
registrant and Green House Holdings, Inc. is attached to this Current Report as
Exhibit 99.2.
(d) Exhibits:
Exhibit
|
|
Description
|
Agreement and Plan of Share
Exchange, by and among Custom Q, Inc., Green House Holdings, Inc., and the
Shareholders of Green House Holdings, Inc. dated as of January 7,
2010.
|
||
|
Amended
and Restated Articles of Incorporation of GreenHouse Holdings,
Inc.
|
|
4.1
|
Form
of Subscription Agreement of GreenHouse Holdings, Inc.
|
|
|
Form
of Employment Agreement
|
|
2010
Equity Incentive Plan
|
||
Share
Exchange Agreement between Green House Holdings, Inc. and. R. Squared
Contracting, Inc., d/b/a GreenHouse dated September 20,
2009.
|
||
Form
of R-Squared Contracting Bridge Note
|
||
E-Fuel
Limited Exclusive Distributor Agreement between E-Fuel Corporation and
GreenHouse dated January 4, 2009
|
||
Placement
Agent Agreement with Hallmark Investments, Inc.
|
||
|
Subsidiaries
of GreenHouse Holdings ,
Inc.
|
|
|
Audited
financial statements of Green House Holdings, Inc. for the period ended
December 31, 2008.
|
|
Unaudited
Pro Forma Consolidated Financial
Statements
|
32
SIGNATURES
In
accordance with the requirements of the Exchange Act, the registrant caused this
report to be signed on its behalf by the undersigned, thereunto duly
authorized.
GREENHOUSE
HOLDINGS, INC.
|
|
Date:
January 13, 2010
|
|
By:
Chris Ursitti, Chief Executive
Officer
|
33