Attached files
file | filename |
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EX-32.1 - Blue Earth Solutions, Inc. | ex32-1.htm |
EX-31.1 - Blue Earth Solutions, Inc. | ex31-1.htm |
EX-31.2 - Blue Earth Solutions, Inc. | ex31-2.htm |
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
DC 20549
FORM
10-Q
x
Quarterly Report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
|
For the quarterly period ended December 31,
2009
|
o Transition
Report pursuant to 13 or 15(d) of the Securities Exchange Act of
1934
|
For
the transition period __________
to __________
|
Commission File Number: 333-140438
|
Blue
Earth Solutions, Inc.
(Exact
name of small business issuer as specified in its charter)
Nevada
|
26-1909139
|
(State
or other jurisdiction of incorporation or organization)
|
(IRS
Employer Identification No.)
|
13511 Granville Ave., Clermont,
Florida, 34711
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(Address
of principal executive offices)
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352-729-0150
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(Registrant’s
telephone number)
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_______________________________________________________________
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(Former
name, former address and former fiscal year, if changed since last
report)
|
Check
whether the issuer (1) filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the issuer was required to file such reports), and
(2) has been subject to such filing requirements for the past 90 days x Yes o No
Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this
chapter) during the preceding 12 months (or for such shorter period that the
registrant was required to submit and post such files). [ ] Yes
[ ] No
Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, a non-accelerated filer, or a smaller reporting
company.
o Large
accelerated filer Accelerated filer
|
o Non-accelerated
filer
|
x Smaller
reporting company
|
o Accelerated
filer
|
Indicate
by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). o
Yes x No
State the
number of shares outstanding of each of the issuer’s classes of common stock, as
of the latest practicable date: 32,025,300 common stock shares as of February
19, 2010.
Page
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PART I – FINANCIAL INFORMATION
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Item 1:
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3
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Item 2:
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4
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Item 4T:
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9
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PART II – OTHER INFORMATION
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Item 1:
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11
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Item 2:
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12
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Item 3:
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12
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Item 4:
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12
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Item 5:
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12
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Item 6:
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13
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PART
I - FINANCIAL INFORMATION
Our
unaudited financial statements included in this Form 10-Q are as
follows:
|
|
F-1
|
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F-2
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Condensed
and Consolidated Statements of Operations (unaudited) for the nine
and six months ended December 31, 2009 and
2008
|
F-3
|
Condensed
and Consolidated Statements of Cash Flows (unaudited) for the nine
months ended December 31, 2009 and 2008
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F-5
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These
unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America for interim
financial information and the SEC instructions to Form 10-Q. In the
opinion of management, all adjustments considered necessary for a fair
presentation have been included. Operating results for the interim
period ended December 31, 2009 are not necessarily indicative of the results
that can be expected for the full year.
BLUE EARTH
SOLUTIONS, INC.
December
31,
|
March
31,
|
|||||||
2009
|
2009
|
|||||||
(unaudited)
|
(unaudited)
|
|||||||
ASSETS | ||||||||
CURRENT
ASSETS
|
||||||||
Cash | $ | 300,316 | $ | 50,695 | ||||
Accounts
receivable 2009 net of $17,000 allowance
|
960,307 | 10,907 | ||||||
Prepaid
expenses
|
20,169 | 41,421 | ||||||
Inventory
|
211,332 | 231,153 | ||||||
Total
Current Assets
|
1,492,124 | 334,176 | ||||||
PROPERTY
AND EQUIPMENT, net
|
5,050,298 | 4,098,283 | ||||||
OTHER
ASSETS
|
||||||||
Investments
|
9,492,522 | 8,206,990 | ||||||
Goodwill
|
339,514 | - | ||||||
Loan
receivable related
party
|
432,974 | - | ||||||
Deposits
& deposits on equipment
|
2,828,680 | 2,877,619 | ||||||
TOTAL
ASSETS
|
$ | 19,636,112 | $ | 15,517,068 | ||||
LIABILITIES AND STOCKHOLDERS'
EQUITY
|
||||||||
CURRENT
LIABILITIES
|
||||||||
Accounts
payable and accrued expenses
|
$ | 2,940,975 | $ | 1,399,145 | ||||
Accounts
payable and accrued expenses - Related Parties
|
960,587 | 152,508 | ||||||
Notes
payable
|
35,729 | - | ||||||
Notes
payable - related parties
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5,687,002 | 462,500 | ||||||
Total
Current Liabilities
|
9,624,293 | 2,014,153 | ||||||
LONG-TERM
LIABILITIES
|
||||||||
Notes
payable
|
1,217,749 | 1,049,000 | ||||||
Total
Liabilities
|
10,842,041 | 3,063,153 | ||||||
STOCKHOLDERS'
EQUITY
|
||||||||
Preferred
stock, Series A, $0.001 par value, 10,000,000
|
||||||||
shares
authorized, -0- shares issued and outstanding
|
- | - | ||||||
Preferred
stock, Series B, $0.001 par value, 5,000,000
|
||||||||
shares
authorized, -0- shares issued and outstanding
|
- | - | ||||||
Preferred
stock, Series C, $0.001 par value, 5,000,000
|
||||||||
shares
authorized, 14,130 shares
|
||||||||
issued
and outstanding
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14 | 14 | ||||||
Common
stock, $0.001 par value, 100,000,000 shares
|
||||||||
authorized,
33,532,602 and 32,025,300 shares
|
||||||||
issued
and outstanding, respectively
|
33,532 | 32,025 | ||||||
Unrealized
(Loss) on Available For Sales Securities
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(1,527,219 | ) | - | |||||
Additional
paid-in capital
|
14,992,815 | 15,052,300 | ||||||
Accumulated
deficit
|
(4,705,071 | ) | (2,630,424 | ) | ||||
Total
Stockholders' Equity
|
8,794,071 | 12,453,915 | ||||||
TOTAL
LIABILITIES AND STOCKHOLDERS' EQUITY
|
$ | 19,636,112 | $ | 15,517,068 |
The
accompanying notes are an integral part of these financial
statements.
BLUE
EARTH SOLUTIONS, INC.
(unaudited)
For
the Three Months Ended
|
For
the Nine Months Ended
|
|||||||||||||||
December
31,
|
December
31,
|
|||||||||||||||
2009 | 2008 | 2009 |
2008
|
|||||||||||||
REVENUES
|
$ | 2,692,660 | $ | 5,937 | $ | 4,713,655 | $ | 20,453 | ||||||||
COST
OF SALES
|
2,213,647 | 3,051 | 3,933,053 | 6,986 | ||||||||||||
Gross
Profit
|
479,013 | 2,886 | 780,602 | 13,467 | ||||||||||||
OPERATING
EXPENSES
|
||||||||||||||||
Warrant
expense
|
- | 985,936 | - | 985,936 | ||||||||||||
Salaries
& wages
|
239,193 | 339,241 | 814,294 | 498,164 | ||||||||||||
Contract
settlement
|
- | - | 250,000 | - | ||||||||||||
Inventory
write off
|
30,000 | - | 206,325 | - | ||||||||||||
Acquisition
expense
|
- | - | 180,000 | - | ||||||||||||
Commissions
& fees
|
75,920 | - | 118,711 | - | ||||||||||||
General
and administrative
|
305,427 | 313,104 | 603,901 | 762,160 | ||||||||||||
Total
Operating Expenses
|
650,540 | 1,638,281 | 2,173,231 | 2,246,260 | ||||||||||||
LOSS
FROM OPERATIONS
|
(171,527 | ) | (1,635,395 | ) | (1,392,628 | ) | (2,232,793 | ) | ||||||||
OTHER
INCOME (EXPENSES)
|
||||||||||||||||
Interest
income
|
35,409 | 103,342 | 126,657 | 153,417 | ||||||||||||
Interest
expense
|
(88,028 | ) | (12,238 | ) | (127,930 | ) | (27,678 | ) | ||||||||
Interest
expense Related Party
|
(302,942 | ) | - | (464,346 | ) | - | ||||||||||
Loss
on settlement
|
(58,626 | ) | - | (196,583 | ) | - | ||||||||||
Total
Other Income (Expenses)
|
(414,186 | ) | 91,104 | (662,201 | ) | 125,739 | ||||||||||
NET
(LOSS) BEFORE INCOME TAXES
|
(585,714 | ) | (1,544,291 | ) | (2,054,829 | ) | (2,107,054 | ) | ||||||||
Income
taxes
|
- | - | 19,817 | - | ||||||||||||
NET
(LOSS)
|
$ | (585,714 | ) | $ | (1,544,291 | ) | $ | (2,074,646 | ) | $ | (2,107,054 | ) | ||||
BASIC
AND DILUTED (LOSS) PER COMMON SHARE
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(0.02 | ) | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.09 | ) | |||||
WEIGHTED
AVERAGE NUMBER OF
|
||||||||||||||||
COMMON
SHARES OUTSTANDING
|
33,532,602 | 29,016,300 | 32,194,410 | 22,397,975 |
The
accompanying notes are an integral part of these financial
statements
BLUE
EARTH SOLUTIONS, INC.
(unaudited)
For
the Nine Months Ended
|
||||||||
December
31,
|
||||||||
2009 | 2008 | |||||||
OPERATING
ACTIVITIES
|
||||||||
Net
loss
|
$ | (2,074,646 | ) | $ | (2,107,054 | ) | ||
Adjustments
to Reconcile Net Loss to Net Cash Used in Operating
Activities
|
||||||||
Amortization
and Depreciation
|
354,242 | 62,490 | ||||||
Write
off of discontinued inventory
|
206,325 | - | ||||||
Loss
on sale of disposal of fixed assets
|
5,643 | - | ||||||
Realized
Loss on Available For Sale Securities
|
9,205 | - | ||||||
Share
issuance for liabilities
|
175,000 | - | ||||||
Share
issuance for acquisition
|
180,000 | |||||||
Loss
on settlement of contract
|
132,314 | - | ||||||
Share
retirement
|
(80,750 | ) | - | |||||
Cashless
exercise of warrants
|
65,572 | - | ||||||
Shares
issued for services
|
- | 64,550 | ||||||
Fair
value of warrants granted
|
- | 985,936 | ||||||
Changes
in operating assets and liabilities:
|
||||||||
(Increase)
decrease in accounts receivable
|
183,600 | (1,257 | ) | |||||
(Increase)
decrease in prepaid expenses
|
28,252 | (115,266 | ) | |||||
(Increase)
decrease in inventory
|
5,496 | (185,686 | ) | |||||
Increase
(decrease) in accounts payable
|
||||||||
and
accrued expenses
|
(185,653 | ) | 366,038 | |||||
(Increase)
decrease in - related party accruals
|
808,079 | - | ||||||
Net
Cash Used in Operating Activities
|
(187,321 | ) | (930,249 | ) | ||||
INVESTING
ACTIVITIES
|
||||||||
Cash
acquired from business acquisitions
|
689,000 | - | ||||||
(Increase)
decrease in investments
|
(111,690 | ) | (8,135,897 | ) | ||||
Issuance
of loan receivable from related party
|
(432,974 | ) | - | |||||
Purchase
of property and equipment, net
|
(111,296 | ) | (5,236,835 | ) | ||||
Proceeds
from sale of property and equipment
|
28,641 | - | ||||||
Purchase
of Available For Sale securities
|
(250,000 | ) | - | |||||
Proceeds
from sale of investments
|
140,795 | - | ||||||
Net
Cash (Used)/Provided by Investing Activities
|
(47,524 | ) | (13,372,732 | ) | ||||
FINANCING
ACTIVITIES
|
||||||||
Proceeds
from related party borrowings
|
524,988 | - | ||||||
Repayments
of notes payable
|
(40,522 | ) | (200,000 | ) | ||||
Borrowings
of notes payable
|
- | 20,000 | ||||||
Issuance
of preferred shares for cash
|
- | 14,570,000 | ||||||
Net
Cash Provided by Financing Activities
|
484,466 | 14,390,000 | ||||||
NET
INCREASE/( DECREASE) IN CASH
|
249,621 | 87,019 | ||||||
CASH
AT BEGINNING OF PERIOD
|
50,695 | 15,150 | ||||||
CASH
AT END OF PERIOD
|
$ | 300,316 | $ | 102,169 | ||||
SUPPLEMENTAL
DISCLOSURES OF CASH FLOW INFORMATION
|
||||||||
CASH
PAID FOR:
|
||||||||
Interest
|
$ | 58,483 | $ | 27,678 | ||||
Income
taxes
|
$ | 19,817 | $ | - | ||||
NON
CASH FINANCING & INVESTING ACTIVITIES:
|
||||||||
Net
consideration given for AMS acquisition, net of cash
acquired
|
$ | (1,028,514 | ) | $ | - | |||
Property
purchased for notes payable
|
$ | - | $ | 1,049,000 |
The
accompanying notes are an integral part of these financial
statements.
BLUE
EARTH SOLUTIONS, INC.
Deficit
|
||||||||||||||||||||||||||||||||
Accumulated
|
||||||||||||||||||||||||||||||||
Additional
|
During
the
|
|||||||||||||||||||||||||||||||
Preferred
Stock
|
Common
Stock
|
Unrealized
|
Paid-In
|
Development
|
||||||||||||||||||||||||||||
Shares
|
Amount
|
Shares
|
Amount
|
Gain or loss |
Capital
|
Stage
|
Total
|
|||||||||||||||||||||||||
Balance,
March 31, 2009
|
14,130 | 14 | 32,025,300 | 32,025 | - | 15,052,300 | (2,630,424 | ) | 12,453,915 | |||||||||||||||||||||||
Common
shares returned and cancelled
|
- | - | (425,000 | ) | (425 | ) | - | 425 | - | - | ||||||||||||||||||||||
Cash-less
exercise of warrant
|
- | - | 49,302 | 49 | - | 65,523 | - | 65,572 | ||||||||||||||||||||||||
Dividends
on preferred stock
|
- | - | - | - | - | (847,800 | ) | - | (847,800 | ) | ||||||||||||||||||||||
Canceled Common shares issued for | ||||||||||||||||||||||||||||||||
services
at $6.13 per share
|
- | - | (17,000 | ) | (17 | ) | - | (80,733 | ) | - | (80,750 | ) | ||||||||||||||||||||
Acquisition
of American Marketing & Sales (AMS)
|
- | - | 1,000,000 | 1,000 | - | 449,000 | - | 450,000 | ||||||||||||||||||||||||
Shares
issued to AMS shareholders
|
- | - | 400,000 | 400 | - | 179,600 | - | 180,000 | ||||||||||||||||||||||||
Settlement
of contract
|
500,000 | 500 | - | 174,500 | 175,000 | |||||||||||||||||||||||||||
Unrealized Loss on investments held for resale | (1,527,219 | ) | (1,527,219 | ) | ||||||||||||||||||||||||||||
Net loss for the nine months ended | ||||||||||||||||||||||||||||||||
through
December 31, 2009
|
- | - | - | - | - | - | (2,074,647 | ) | (2,074,647 | ) | ||||||||||||||||||||||
Balance,
December 31, 2009
|
14,130 | $ | 14 | 33,532,602 | $ | 33,532 | $ | (1,527,219 | ) | $ | 14,992,815 | $ | (4,705,071 | ) | $ | 8,794,071 |
The
accompanying notes are an integral part of these financial
statements.
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
NOTE 1
–CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The
accompanying interim, unaudited and condensed consolidated financial statements
of Blue Earth Solutions, Inc., a Delaware corporation (“BESN” or the “Company”),
reflect the condensed consolidated financial statements of the Company and its
wholly-owned subsidiary, American Marketing & Sales, Inc. (“AMS”). In the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to present fairly the financial position, results of
operations and cash flows at December 31, 2009 and for all periods presented
have been made. The Company acquired AMS on July 1, 2009 (as more fully
described in Note 12). The numbers in the Company’s Statement of Operations
includes AMS’ operations only since July 1, 2009. None of the historical numbers
have been restated with AMS activity.
Certain
information and footnote disclosures normally included in financial statements
prepared in accordance with accounting principles generally accepted in the
United States of America have been condensed or omitted. It is suggested that
these condensed financial statements be read in conjunction with the financial
statements and notes thereto included in the Company's unaudited financial
statements for its fiscal year ending March 31, 2009. The results of
operations for the period ended December 31, 2009 are not necessarily indicative
of the operating results for the full year.
NOTE 2 -
GOING CONCERN
The
Company’s financial statements are prepared using generally accepted accounting
principles, which contemplates the continuation of the Company as a going
concern. At December 31, 2009 current liabilities exceeded current
assets by $8,132,169 and for the nine months ended December 31, 2009, the
Company had negative cash flows from operations in the amount of
$187,321. These matters raise substantial doubt about the Company’s
ability to continue as a going concern. However, the accompanying
consolidated financial statements have been prepared on a going concern basis,
which contemplates the realization of assets and liquidation of liabilities in
the normal course of business.
In order
to continue as a going concern and achieve a profitable level of operations, the
Company will, among other things, need additional capital resources and a
consistent revenue source. Management’s plans include developing and
marketing a practical, economical, and environmentally safe means of disposing
of and recycling certain polystyrene and expanded polystyrene
products.
The
accompanying financial statements do not include any adjustments that may result
from the substantial doubt surrounding our ability to continue as a going
concern.
NOTE 3 –
SIGNIFICANT ACCOUNTING POLICIES
Principles of
Consolidation:
The
accompanying consolidated financial statements present the consolidation of the
financial statements of BESN and its wholly owned subsidiary,
AMS. All intercompany transactions or balances have been eliminated
in consolidation.
Use of
Estimates
Management
uses estimates and assumptions in preparing financial statements in accordance
with generally accepted accounting principles. Those estimates and
assumptions affect the reported amounts of assets and liabilities, as well as
the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
Cash:
Cash
consists principally of currency on hand, demand deposits at commercial banks,
and liquid investment funds having a maturity of three months or less at the
time of purchase. Sat December 31, 2009 substantially all of the cash is
required, as a result of the AMS acquisition, to be used for working capital
within the operations of AMS.
Inventory:
The
Company’s inventory is stated at the lower of cost or market value. Cost is
determined using the first in, first out method. Unusual losses resulting from
lower of cost or market adjustments or losses on firm purchase commitments, if
any, are disclosed, and if material, separately stated from cost of goods sold
in the statement of operations.
Property and
Equipment:
Property
and equipment are stated at cost. Depreciation and amortization are determined
using the straight-line method over estimated useful lives ranging from three to
twenty five years.
Fair Value of Financial
Instruments:
Fair
value is defined as the price that would be received to sell an asset or paid to
transfer a liability in an orderly transaction between market participants at
the measurement date. The fair value hierarchy distinguishes between
(1) market participant assumptions developed based on market data obtained from
independent sources (observable inputs) and (2) an entity’s own assumptions
about market participant assumptions based on the best information available in
the circumstances (unobservable inputs). The fair value hierarchy consists of
three broad levels, which gives the highest priority to unadjusted quoted prices
in active markets for identical assets or liabilities (Level 1) and the lowest
priority to unobservable inputs (Level 3). The three levels of the
fair value hierarchy are described below:
o
|
Level
1—Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or
liabilities.
|
o
|
Level
2—Inputs other than quoted prices included within Level 1 that are
observable for the asset or liability; either directly or indirectly,
including quoted prices for similar assets or liabilities in active
markets; quoted prices for identical or similar assets or liabilities in
markets that are not active; inputs other than quoted prices that are
observable for the asset or liability (e.g. interest rates); and inputs
that are derived principally from or corroborated by observable market
data by correlation or other means.
|
o
|
Level
3—Inputs that are both significant to the fair value measurement and
unobservable.
|
Fair
value estimates discussed herein are based upon certain market assumption and
pertinent information available to management as of December 31,
2009. The respective carrying value of certain on-balance-sheet
financial instruments approximated their fair values due to the short-term
nature of these instruments. These financial instruments include
cash, accounts receivable, accounts payable and accrued expenses. The
fair value of the Company’s note payable is estimated based on current rates
that would be available for debt of similar terms which is not significantly
different than its stated value.
The
Company’s investments are categorized as $972,781 in Level 1 and $8,519,741 in
Level 3.
On
April 1, 2009, the Company applied ASC 820 for all non-financial assets and
liabilities measured at fair value on a non-recurring basis. The application did
not have an impact on the Company’s financial position or results of operations.
The Company’s non-financial assets measured at fair value on a non-recurring
basis include goodwill and other intangible assets. In a business combination,
the non-financial assets and liabilities of the acquired company would be
measured at fair value in accordance with ASC 820. The requirements of ASC 820
include using an exit price based on an orderly transaction between market
participants at the measurement date assuming the highest and best use of the
asset by market participants. The Company would use a market, income or cost
approach valuation technique to perform the valuations. Since the Company
performs its annual impairment analyses of goodwill and indefinite-lived
intangible assets in the fourth quarter of each fiscal year and since no
impairment trigger event occurred during the first nine months of 2009, the
application of ASC 820 for all non-financial assets and liabilities measured at
fair value on a non-recurring basis did not have an impact on the Company’s
financial position or results of operations. However, there may be an impact
during 2009 on the Company’s financial position and results of operations when
the Company performs an impairment analysis of goodwill and indefinite-lived
intangible assets due to the difference in fair value methodology required under
ASC 820. The carrying value of cash, accounts receivable, accounts payable and
accrued expenses, and notes payable are assumed to approximate fair value
because of the relatively short maturity of these instruments.
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
Concentrations of Credit
Risk:
Financial
instruments that potentially subject the Company to concentrations of credit
risk consist primarily of cash. The Company maintains its cash accounts with
several commercial banks.
Revenue
Recognition:
Blue
Earth Solutions, Inc.:
The
Company recognizes revenue upon the rendering of services and shipment of
finished goods to customers.
AMS:
The
Company recognizes revenue from product sales in accordance with Staff
Accounting Bulletin No. 104, which requires recognition when persuasive evidence
of an arrangement exists, the price is fixed or determinable, delivery has
occurred, and payment is reasonably assured. The Company has
determined that these criteria have been met upon shipment, and recognizes
revenue at that point. Pursuant to SFAS No. 5 (ASC Topic 450),
“Accounting for
Contingencies,” the Company has examined collection history, financial
conditions of clients, and general economic conditions and determined that an
allowance of $17,000 is adequate.
Recent Accounting
Pronouncements:
Statement
of Financial Accounting Standards ("SFAS") SFAS No. 165 (ASC Topic 855), "Subsequent Events," SFAS No.
166 (ASC Topic 810), "Accounting for Transfers of
Financial Assets-an Amendment of FASB Statement No. 140," SFAS No. 167
(ASC Topic 810), "Amendments
to FASB Interpretation No. 46(R)," and SFAS No. 168 (ASC Topic 105),
"The FASB Accounting Standards
Codification and the Hierarchy of Generally Accepted Accounting Principles-a
replacement of FASB Statement No. 162," were recently issued. SFAS No.
165, 166, 167, and 168 have no current applicability to the Company or their
effect on the financial statements would not have been significant.
Accounting
Standards Update ("ASU") ASU No. 2009-05 (ASC Topic 820), which amends Fair
Value Measurements and Disclosures - Overall, ASU No. 2009-13 (ASC Topic 605),
Multiple-Deliverable Revenue Arrangements, ASU No. 2009-14 (ASC Topic 985),
Certain Revenue Arrangements that include Software Elements, and various other
ASU's No. 2009-2 through ASU No. 2009-15, which contain technical corrections to
existing guidance or affect guidance to specialized industries or entities were
recently issued. These updates have no current applicability to the Company or
their effect on the financial statements would not have been
significant.
Segment
Information:
ASC Topic
280 (SFAS No. 131) requires public enterprises to report certain
information about operating segments, including products and services,
geographic areas of operations, and major customers. AMS is considered a
separately reportable business segment that meets the ’Single Industry
Dominance’ test, which eliminates the segment disclosure requirements if the
segment accounts for 90% or more of the combined revenue, reported profit, and
assets. The revenues, profits, and assets reported in the consolidated financial
statements are primarily those of AMS.
NOTE 4 –
INVENTORY
Blue Earth Solutions’ Florida
inventory is comprised of chemicals for the recycling of polystyrene and
finished pellets awaiting shipment, and is comprised of the
following:
|
December
31, 2009
|
March
31, 2009
|
||||||
Raw
materials
|
$ | 10,172 | $ | 231,153 | ||||
Finished
goods
|
11,425 | - | ||||||
Work
in process
|
- | - | ||||||
Total
|
$ | 21,597 | $ | 231,153 |
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
AMS
produces caterware for the food service industry via an intense heat injection
molding process using Polystyrene/Polypropylene recycled resins. The
raw materials and finished goods are produced and held by two third-party
manufacturing plants, from where they are shipped nationwide to customers.
. AMS does not enter into long-term contracts and generally
experiences a high inventory turnover ratio while maintaining minimal quantities
on-hand in the warehouses. AMS’ inventory is:
|
December
31, 2009
|
March
31, 2009
year
end*
|
||||||
Raw
materials
|
$ | 500 | $ | 4,560 | ||||
Finished
goods
|
124,939 | 587,033 | ||||||
Work
in process
|
64,296 | 176,309 | ||||||
Total
|
$ | 189,735 | $ | 767,902 |
* For information purposes only-- not
included in March 31, 2009 Balance Sheets
NOTE 5 –
DEPOSITS AND DEPOSITS ON EQUIPMENT
During
the normal course of business, the Company has made deposits for various vendors
such as utility companies, which it refers to as operating deposits; these
operating deposits are fully refundable. In addition, the Company has
made deposits on equipment that would further enhance the Company’s Blue Line
system. These deposits on equipment are not refundable, however
should the Company not ultimately purchase the equipment enhancements, the
entire balance of the deposit on equipment would need to be written
off. While delayed, the Company still intends to purchase the
equipment enhancements either for use or potential resale. At
December 31, 2009, the Company had total deposits and deposits on equipment as
noted:
Balance at December 31, 2009 | ||||
Operating Deposits | $ | 16,615 | ||
Deposits on Equipment | $ | 2,812,065 | ||
Total Deposits and Deposits on Equipment | $ | 2,828,680 |
NOTE 6 –
SERIES C PREFERRED STOCK AND DEPOSITORY FUNDS HELD FOR INVESTMENT
On August
29, 2008, the Company completed and closed a private offering of newly-created
Series C Preferred Stock at an offering price of $1,000 per share in a private
placement. The Company sold a total of 14,130 shares for total gross
proceeds of $14,130,000, including $13,430,000 in cash and the cancelation of a
$700,000 promissory note. Of the proceeds, funds of $8,500,000 (the “Funds”)
were deposited in an offshore fund account. There is a dispute as to
the control and dispositions of the Funds, which management is currently
investigating. The Agreement between the Company and the offshore
funds provides: (a) for an investment return that the Company will earn on the
Funds; (b) that the Company agrees to wait to withdraw $8,000,000 of the Funds
until one of several stated conditions are met; such conditions are (i) if the
Company’s Series C Preferred Stock is converted to common shares and that these
shares are registered and maintain a price in excess of $6.25 per share for 30
consecutive days; or (ii) if the Company should have a change of control event;
and (c) that the Company was and is entitled to withdraw the earnings, less the
investment fees, generated by the Funds, without restriction.
The Funds
were classified as a current asset at March 31, 2009 because they were
considered by management to be a liquid asset. During the quarter
ended June 30, 2009, the Company attempted to withdraw some of the Funds, but
the offshore fund account’s management resisted its release. The
Company is reviewing legal & other steps to get the Funds
released. In the interim, the Company is re-classifying the Funds as
a non-current asset in all periods until such time that the Funds are released,
if ever.
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
Note 7 –
INVESTMENTS
At
December 31, 2009 the Company had the following investments:
Fair
Value at
|
||||
December 31, 2009 | ||||
Investment Type:
|
|
|||
Depository
Funds Held
|
$ | 8,269,741 | ||
Common
Stock 748,293 shares of NTUR $1.30/share
|
$ | 972,781 | ||
Common
Stock 1,250,000 shares of Corporate Merchant Solutions
|
$ | 250,000 | ||
Total
Investments Held
|
$ | 9,492,522 |
Fair
value of the Depository Funds was determined by the balance of the cash in the
account at December 31, 2009. As more fully described in Note 6,
there is a dispute as to the control and dispositions of the Funds, which
management is currently investigating.
Fair
value of NTUR was determined by the closing price of the related common stock on
December 31, 2009; as of February 18, 2010 the closing price of the NTUR was
$1.10. Management views the price decline of the shares of these
investments as temporary in nature, however, our investment in the common stock
described above is subject to specific risks applicable to the companies and
generally to various market risks.
On July
29, 2009, the Company invested $250,000 in a privately held business venture,
Corporate Merchant Solutions, (“CMS”) in exchange for 1,250,000 shares of the
Company’s common stock, with a par value of $0.20. CMS is a credit
card processing venture in its early stages of growth. The Company’s management
believes that its investment in CMS is fairly valued at December 31,
2009.
NOTE 8 –
NOTE RECEIVABLE RELATED PARTIES
During
the nine months ended December 31, 2009 the Company entered into
a unsecured Note Receivable with the a related party in the amount of
$432,974, which bears interest at a rate of 6% per annum and is payable on
demand.
NOTE 9 –
NOTES PAYABLE RELATED PARTIES
As part
of the purchase of AMS, the Company entered into a $5,450,000 note secured by
the assets and stock of AMS and payable to the former stockholders of AMS. The
note accrues interest at 6% and the entire note balance, including accrued
interest, is due and payable on December 7, 2010. During the term of the note,
the former stockholders shall have the right to convert the principal and
interest then due, into Blue Earth’s restricted common shares with piggy-back
registration rights at the price of $6 per share. The note is subject to a
market interest rate-discount of $750,486, which will be amortized over the life
of the note. The balance of the unamortized interest-rate discount is $483,905
at December 31, 2009. At December 31, 2009 accrued interest totaled $82,422 and
the amortized discount totaled $215,713 for the three months ended December 31,
2009.
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
During
the nine months ended December 31, 2009, in addition to the aforementioned note
above for the purchase of AMS, the Company received an additional $157,787 in
advances, resulting in a total note payable balance of $5,687,002 at December
31, 2009. The notes payable are interest bearing, secured by the
assets of the Company and are due and payable upon demand. Excluding the note
payable on the AMS sale, which bears interest at 6% per annum as noted above,
the remaining notes bear interest at various rates between 8% and 12% per
annum.
NOTE 10 –
LONG-TERM NOTES PAYABLE
On August
6, 2008, the Company purchased real property and improvements it uses as its
headquarters for a total purchase price of $1.7 million. The Company executed a
mortgage, backed in favor of the seller of that property, in the principal
amount of $1,049,000, due in August, 2011, with interest only payments due
monthly until maturity in the amount of $6,119. The mortgage was
personally guaranteed by the Company’s Chief Executive Officer and her
spouse.
In May 2007, The Company entered into a note
payable with Flagship Bank for $400,000. The note accrues interest at
prime less .75% (approximately 2.5%), carries monthly payments that annually
total of $88,628, and matures in May 2012. The Company is current on its
payments, so there was no accrued interest at December 31, 2009 or
2008. Future maturities as of December 31, 2009 are as follows:
Dec. 31,
|
Payments
|
Principal
|
Interest
|
|||||||||
2010
|
88,628 | 81,500 | 7,128 | |||||||||
2011
|
88,628 | 85,032 | 3,596 | |||||||||
2012
|
38,674 | 37,946 | 728 | |||||||||
Totals
|
215,930 | 204,478 | 11,452 |
NOTE 11 –
STOCKHOLDERS’ EQUITY
During
the quarter ended December 31, 2009 there were no changes in the number of
issued and outstanding shares of the Company’s preferred or common shares
outstanding.
For the
nine months ended December 31, 2009, the Company accrued Preferred Series C
cumulative dividends of $565,200, which was recorded as a reduction in
additional paid-in capital. The Company also issued 49,302 common
shares pursuant to warrants exercised via $65,572 in services
rendered. Also during the nine months ended December 31, 2009,
442,000 common shares were returned to the Company; 425,000 shares were returned
in conjunction with the AMS acquisition; 17,000 shares were returned from the
settlement with a vendor. The Company also issued 500,000 shares to settle a
contract with a vendor. The AMS acquisition (as more fully described in Note 12)
had an effect on Common Stock of 1,400,000 shares and a net increase in Common
stock and Paid in Capital of $630,000.
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
NOTE 12
–ACQUISITION
On July
1, 2009, the Company completed the purchase of AMS, which is in the plastic
injection molding business. The Company has not completed its financial
evaluation of all the assets of AMS and is still evaluating the value of AMS’
revenue stream based on its existing customers, which is expected to be
completed in the next six months. AMS’ operations complement the Company’s
business plan, which is the recycling of expended polystyrene products back into
plastic pellets that can be used in the injection molding
industry. The acquisition was made pursuant to the following
terms:
● |
|
On
March 18, 2009, Natural Blue Resources, Inc., a Delaware
corporation(formerly known as Datameg Corporation) ("NTUR") entered into a
Stock Purchase Agreement and purchase money promissory note Assignment and
Assumption Agreement incident to its proposed sale of its wholly owned
subsidiary, American Marketing & Sales, Inc., a Massachusetts
corporation (“AMS”). The sale was subject to the consent of a majority of
the NTUR’s shareholders, which consent was
obtained.
|
●
|
Assets
acquired were $3,998,000,
including:
|
o
|
$689,000
Cash
|
o
|
$1,133,000 Net
Trade Receivables
|
o
|
$192,000 Inventory
|
o
|
$1,577,000 Property
Plant & Equipment
|
o
|
$400,000 Investments
|
o
|
$7,000 Other
|
●
|
Liabilities
acquired were $1,438,000
|
o
|
$1,193,000 Accounts
Payable & Accrued Expenses
|
o
|
$245,000 Bank
Loan
|
Leonard
J. Tocci is the representative of the Principal Shareholders (Leonard J.
Tocci, Lynel J. Tocci, Leanne J. Whitney, and Linnea J. Clary) who are the
former AMS owners and are now owners of the 150,000 NTUR shares in escrow
from their sale of American Marketing to NTUR in December 2007. The
Principal Shareholders also hold a purchase money note ("Note") secured by
all of the assets of American Marketing concerning an election to return
the 150,000 NTUR shares in favor of full payment of the purchase money
note. As of December 31, 2009, the principal and interest due on the Note
is approximately $5,600,000 consisting of $5,400,000 in principal and
$200,000 of interest.
|
●
|
The
purchase of AMS was made pursuant to a Stock Purchase Agreement. The Stock
Purchase Agreement contained, among other things, representations,
warranties and covenants of the aforementioned parties to the AMS
agreement. Blue Earth Solutions is allowed to make additional draws from
available cash of AMS for the purpose of meeting additional operating
capital with respect to new customers secured by the Company for AMS after
the closing of the Agreement.
|
●
|
Among
other terms, NTUR received 1 million restricted common shares of the
Company with piggyback registration rights in exchange for the transfer of
AMS shares to the Company. NTUR delivered to the Principal Shareholders
from escrow 150,000 NTUR common shares in exchange for (1) a complete
release of NTUR and its directors and officers from further liability upon
the Note and otherwise (2) the Principal Shareholders’ written consent to
the assumption of the Note by the Company (3) the Company's written
assumption of the Note and (4) the Principal Shareholder’s and the
Company’s agreement to extend the term of the Note for one
year.
|
●
|
For
their assumption of the additional loans from AMS on the Note, the
Company was issued 500,000 unregistered NTUR common shares at the
Closing.
|
BLUE
EARTH SOLUTIONS, INC. & SUBSIDIARY
Notes to
the Condensed Consolidated Financial Statements
●
|
In
consideration of their aforementioned acts and consents, the
Company delivered to the Principal Shareholders 400,000 (restricted
with piggy-back registration rights) common shares of the
Company common shares.
|
On July
1, 2009 the 500,000 shares of NTUR’s common stock issued to the
Company had a value of $4.50 per share ($2,250,000 total value). The
1,000,000 shares issued by the Company to NTUR had a fair market value
of $450,000 on the closing date, and represents a 3% ownership in the
Company.
NOTE 13-
NET LOSS PER COMMON SHARE
As
required by ASC Topic 260 (SFAS No. 128), the following is a reconciliation of
the basic and diluted loss per share calculations for the periods
presented:
BASIC AND
DILUTED EARNINGS (LOSS) PER COMMON SHARE:
For
the Quarter Ending
|
For
the Nine Months Ended
|
|||||||||||||||
Basic
EPS
|
December
31,
|
December 31, | ||||||||||||||
|
2008
|
2009
|
2008
|
2009 | ||||||||||||
Net
loss per share,
|
||||||||||||||||
Continuing
operations
|
$ | (0.02 | ) | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.09 | ) | ||||
Net
earnings/(loss) per share
|
||||||||||||||||
Discontinued
operations
|
- | - | - | - | ||||||||||||
Total
Net Loss per share
|
$ | (0.02 | ) | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.09 | ) | ||||
Weighted
average Common
|
||||||||||||||||
shares
outstanding
|
33,532,602 | 29,016,300 | 32,194,410 | 22,397,975 |
For
the Quarter Ending
|
For the Nine Months Ended | |||||||||||||||
Diluted
EPS
|
December
31,
|
December 31, | ||||||||||||||
|
2008
|
2009
|
2008
|
2009 | ||||||||||||
Net
loss per share,
|
||||||||||||||||
Continuing
operations
|
$ | (0.02 | ) | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.09 | ) | ||||
Net
earnings/(loss) per share
|
||||||||||||||||
Discontinued
operations
|
- | - | - | - | ||||||||||||
Total
Net Loss per share
|
$ | (0.02 | ) | $ | (0.05 | ) | $ | (0.06 | ) | $ | (0.09 | ) | ||||
Weighted
average Common
|
||||||||||||||||
shares
outstanding
|
33,532,602 | 29,016,300 | 32,194,410 | 29,016,300 |
At
December 31, 2009, the Company had no options issued or
outstanding. During the year ended March 31, 2009, the Company had
issued 483,000 for third party consulting services. These
warrants were expensed when issued and were exercisable within 60 days of the
grant date, which was September 29, 2008 and has since expired.
NOTE 14 –
SUBSEQUENT EVENTS
On
January 15, 2010 the Company reached a tentative settlement with Graybar, an
electrical supplier which had filed a construction lien for services performed
at the Company’s headquarters by a third party vendor in the amount of
$17,170. The settlement calls for monthly payments, which includes
principal and interest at the rate of 7.25% per annum, for one year at which
time the balance of the lien will be fully paid.
Blue
Earth Solutions, Inc. is hereafter referred to as “we”, “our” or
“us”.
Forward-Looking
Statements
Certain
statements, other than purely historical information, including estimates,
projections, statements relating to our business plans, objectives, and expected
operating results, and the assumptions upon which those statements are based,
are “forward-looking statements” within the meaning of the Private Securities
Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of
1934. These forward-looking statements generally are identified
by the words “believes,” “project,” “expects,” “anticipates,” “estimates,”
“intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will
continue,” “will likely result,” and similar expressions. We intend
such forward-looking statements to be covered by the safe-harbor provisions for
forward-looking statements contained in the Private Securities Litigation Reform
Act of 1995, and are including this statement for purposes of complying with
those safe-harbor provisions. Forward-looking statements are based on
current expectations and assumptions that are subject to risks and uncertainties
which may cause actual results to differ materially from the forward-looking
statements, including that: (a) our entire operations and ability to continue as
a going concern are contingent upon obtaining adequate financing and/or
obtaining a consistent revenue source; (b) our ability to predict results or the
actual effect of future plans or strategies is inherently uncertain; (c) we are
subject to intense competition with companies that have far superior financial,
operational, and personnel resources than we do as well as
superior brand name recognition; (b) our operations are subject to
conditions beyond our control, including: changes in economic conditions,
legislative/regulatory changes, availability of capital, interest rates, new
technologies developed by our competitors, and changes in generally accepted
accounting principles; (d) our ability to successfully execute our
business plan is heavily dependent upon our ability to secure plastic materials
to recycle; (e) we are subject to the “penny stock rules” provided for in the
Securities Enforcement Penny Stock Act of 1990, which may lead to difficulties
in selling our common stock shares and/or in establishing an active market for
our stock; (f) we may encounter potential environmental liability from
regulatory actions or private litigation, which will increase our costs, and
otherwise may negatively affect our financial condition; (g) changes in
environmental regulations and environmental enforcement policies may potentially
subject us to increased costs and potential liability and thereby adversely
affect our operations; (h) our production process has not yet, and may never
achieve expected production volumes; (i) we have experienced losses since our
inception and we expect to continued losses in the near future; we may never
become profitable; and (j) our plans to sell our assets and certain
of our liabilities, which are subject to a non-binding term sheet and letter of
intent, are subject to certain risks: (1) the essence of the proposed
transaction (as summarized under Note 1 to the financial statements) is that we
are buying back some or all of the assets that we already purchased from the
entity that sold it to us; and (2) closing of the transaction, i.e. the sale of
AMS’ assets, will result in the elimination of over 90% of our current revenue
source and the ability to execute our proposed business plan reflected
below.
The above
risks and uncertainties should be considered in evaluating forward-looking
statements. Undue reliance should not be placed on such
forward-looking statements. We undertake no obligation to publicly
update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise. Further information
concerning our business, including additional factors that could materially
affect our financial results, is included in this Form 10-Q and in our other SEC
filings
Plan
of Operation
Overview
As of
December 31, 2009, we conduct our recycling operations from our facility at
13511 Granville Ave., Clermont, Florida. We use our Blue Line System
(“Blue Line”), which primarily uses established recycling technologies and
methods to recycle expanded polystyrene (otherwise known and referred to herein
as “EPS”). We stopped using our Styrosolve™ system during the third
quarter of 2009, which we previously used to process pellets. We are
presently dismantling that system; however, we have experienced delays, and
continue to anticipate delays in our dismantlement process. Some
equipment from this dismantling process may be utilized in our operations, and
the balance of the equipment will be liquidated.
We
created the Blue Line as a more effective system to the now abandoned
Styrosolve™ system.
Compared
to the Styrosolve™ system, Blue Line:
·
|
Creates
less waste;
|
·
|
Converts
a higher percentage of expanded polystyrene into useable crystal
polystyrene pellets;
|
·
|
Reduces
energy consumption;
|
·
|
Requires
no chemical inputs;
|
·
|
Occupies
less square footage; and
|
·
|
Is
less labor intensive.
|
Blue Line
is presently operating and producing pellets, which we are selling to our
customers.
During
the quarter ending December 31, 2009, we continued recycling of polystyrene
using Blue Line. In addition, we added new products to recycle,
including carpeting and assorted soft goods associated with hotel
renovations
We have
received a third-party claim alleging that the seller of the Styrosolve™ patents
did not have the legal right to sell the patents to us; however, we believe that
we have clear title to the patents and we are presently investigating this
claim.
American
Marketing and Sales, Inc. D/B/A Innovative Designs, our Wholly Owned
Subsidiary
AMS has
developed and introduced a line of environmentally friendly, injection-molded
Green Line food-packaging/cater ware products. We have twenty-five (25) Green
Line products, including various size trays, party platters, and serving bowls
with lids. These non-toxic products qualify for the Green label
because they are manufactured from Federal Food and Drug
Administration approved polypropylene and polystyrene resins that contain up to
40 percent recycled plastic content. The Company acquired AMS on July 1,
2009.
Plan
for other Products and Services
During
the fourth quarter of our fiscal year we plan to test market expansion of the
Green office product line.
In
addition to our recycling operations, we produce, market and distribute six
other products on a limited basis, including Tire Muscle®, Dumpster
Ease, Diaper Ease, Nu-silver, Nu-Brass, and Nu-Chrome, which represent products
such as a tire fix, odor eliminator in commercial dumpsters,
and polish enhancing formulas. However, we do not view
this as a substantial part of our future operations since we only intend to
continue producing small amounts of these products for existing customers while
seeking other companies or individuals that may wish to purchase the rights to
these products.
Marketing
Plan & Sales Strategy
Our goal
is to expand our polystyrene recycling business and to become in industry leader
in this field. Our initial marketing efforts will focus on acquiring EPS for
recycling and re-sale as pellets, which are used for producing plastic products
that are labeled “produced with recycled materials.” We will attempt to develop
an infrastructure that will enable us to acquire scrap EPS from the construction
and packaging industries, local and state governments, military bases and
vessels, and the food services industry. Our management will be responsible for
presenting the fiscal and environmental benefits of utilizing our products and
services to industry decision makers. We have also recycled other
types of materials, such as other plastics, carpet, cardboard, and
fabrics. We will continue to investigate other materials to recycle,
which complement our strategy to compete.
We will
continue to use Internet-based and traditional media to increase public
awareness of our brand name and processes and our attempted sales to large
organizations. We have introduced our technologies and processes in
the recycling industry through our attendance at trade groups and meetings,
promotional events, seminars, national conferences and other organizations,
including the International Expanded Polystyrene Recycling Association
(“INEPSA”) and the Alliance of Foam Packaging Recyclers (“AFPRA”), and generally
to events attended by other organizations, which generate scrap EPS and other
materials that will be in need of our products and services.
We will
continue to work with landfills serving the areas around our processing center
and transfer stations. By intercepting EPS bound for the landfill, our goal is
to extend the landfill’s life by reducing EPS’s environmental impact. Similarly,
we will attempt to provide EPS recycling on a residential level in communities
where there is an existing residential recycling pick-up program. We will
attempt to partner with those companies that are already
collecting paper, aluminum, and glass products, which allow
them to add EPS to their list of recyclable material, which provides additional
scrap EPS for us to process.
In
addition to acquiring scrap EPS to recycle into Pellets, we are able to sell
those Pellets. Our management establishes contacts by forging
relationships, arrangements and agreements with companies that manufacture
products from polystyrene to promote a mutually-beneficial public relations
arrangement -- these companies will be able to promote their products as both
recycled and recyclable and we will promote the sale of our
pellets.
American
Marketing will continue to sell their catering and food service products to
large user stores and big box markets.
Sales
Personnel
As of
December 31, 2009, we will continue to use the services of our executive
management to sell our services and products. We have contracted with
independent marketing representatives to sell and distribute Tire Muscle,
Dumpster Ease and other proprietary formulas and polishes. At the current
time, we do not need additional sales support; however, should our services and
products expand and sales increase, we plan to employ additional
regional sales representatives to promote and sell our recycling services to
governments, companies, and the general public. We intend to provide service and
support to our sales representatives, including advertising and sales
materials. American Marketing currently deals with twelve (12)
manufacturing sales representatives, which are divided into a food packaging and
services and retail house ware table and party ware groups.
Governmental
Regulation
We are
unaware of and do not anticipate having to expend significant resources to
comply with any non-environmental governmental regulations. We are subject to
applicable laws and regulations in the jurisdictions where we
will sell our products, which laws and regulations are generally
applicable to business operations, such as business licensing requirements,
income taxes and payroll taxes. In general, the collection, recycling, and sale
of polystyrene in the United States are not subject to special
non-environmentally related regulatory and/or supervisory
requirements.
Compliance
with Environmental Laws
Our
business is subject to strict supervision and regulation by state and federal
governmental environmental authorities, including the U.S.
Environmental Protection Agency (“EPA”) and state counterparts, which we intent
to comply with, including regulations pertaining to receiving and
mixing chemicals.
Critical
Accounting Policies
Our
significant accounting policies are described in Note 1 of the Financial
Statements.
Results
of Operations for the Nine Months Ended December 31, 2009 and 2008
As more
fully described in the Notes to the Financial Statements, Note 12, the Company
acquired AMS on July 1, 2009, which accounts for the increases noted
below.
The
Company had revenues of $4,713,665 and $20,453 for the nine month periods ending
December 31, 2009 and 2008. Sales for the nine months ended December 31, 2009
were primarily generated from our newly acquired company, AMS.
Blue
Earth Solutions Florida, a wholly owned
subsidiary of the Company (“BES Florida”) predominantly sold pellets as a
by-product of the recycling process, known as purgings. In addition, we received
fees for the collection and transportation of other recycled materials and other
sales of our non-recycling related products, primarily Dumpster Ease & Tire
Muscle.
Costs of
Sales for the same 2009 and 2008 comparable periods were $3,933,053 and $6,986.
These increased costs are primarily attributable to AMS’ sales costs. AMS
contributes a positive gross margin while BES Florida is producing
a negative gross margin (costs exceed revenue).
Operating
Expenses were $2,173,231 and $2,246,260 for the nine month periods ending
December 31, 2009 and 2008, respectively, representing a decrease of $73,029 or
3.3%, on sales that have increased by $4,693,202. For the same 2009
and 2008 comparable periods, the Operating Expenses include charges to inventory
for obsolescence and breakage in the amount of $206, 325 and $0, respectively;
settlements on contracts for $250,000 and $0, respectively; acquisition expenses
of $180,000 and $0, respectively and commissions of $118,711 and $0,
respectively. In the nine months ended December 31, 2008 the Company
had issued and expensed Warrants in the amount of $985,936 as fair value for
third party consultant services; there were no such expenses in the
nine months ended December 31, 2009.
Other
Income (Expenses) was $(662,201) of expense and income of $125,739, representing
an expense increase of $787,940 in the nine months ended December 31, 2009
compared to the comparable period ended December 31, 2008, primarily
attributable to accrued interest expense on the assumed note we acquired as part
of the AMS acquisition. In addition we recorded a $196,583 loss on the sale of
assets related with our Styrosolve™ system, and experienced reduced interest
income on lower investment balances.
We
recorded a net loss of $(2,074,646) and $(2,107,054) for the nine months ended
December 31, 2009 and 2008, respectively. The loss in 2009 is primarily
attributable to our inability to generate sufficient gross margin to offset our
operating expenses and increased interest expenses on higher note payable
balances.
We
anticipate that operating expenses will increase as we execute our plan of
operations, which are attributable to the continued product and services
development and the legal, accounting, and auditing fees associated with our
being a Securities and Exchange Commission reporting company.
Results
of Operations for the Three Months Ended December 31, 2009, 2008
We
generated revenue of $2,692,660 and $5,937 for the three months ended December
31, 2009 and 2008. Revenues in the three months ended December 31,
2009 were primarily generated from our newly acquired subsidiary,
AMS. BES Florida predominantly sold pellets and a by-product of the
recycling process known as purgings. In addition, we received fees
for the collection and transportation of other recycled materials and other
sales were from sales of our non-recycling related products, primarily Dumpster
Ease & Tire Muscle.
Cost of
Sales for the same three month comparable time periods are $2,213,647 and
$3,051. The Cost of Sales is primarily attributable to AMS’ costs associated
with their sales. The Gross Profit for the three months ended December 31, 2009
and 2008 is $479,013 and $2,886. This profit increase is
attributable to AMS’ operations. BES continues to attempt to lower
its costs.
Operating
Expenses were $650,540 and $1,638,281 for the three months ended December 31,
2009 and 2008, respectively, representing an $987,741 decrease, which is
attributable to the costs of warrants that were issued in the prior year in the
amount of $985,936; offset by a charge to write off obsolete inventory during
the three months ended December 31, 2009 and 2008 in the amount of $30,000 and
$0, respectively.
Other
Income (Expenses) was $(414,186) of expense and $91,104 of income for the three
months ended December 31, 2009, representing an increase of $505,290 over the
earlier December 31, 2008 three month period. This increase is
primarily attributable to accrued interest expense on the assumed note we
acquired as part of the AMS acquisition, a loss on the sale of assets related
with our Styrosolve™ system, and reduced interest income on lower investment
balances.
We
recorded a net loss of $(585,714) and $ (1,544,291) for the three months ended
December 31, 2009 and 2008, respectively. This loss is primarily
attributable to BES Florida. We anticipate
our operating expenses will increase as we undertake our plan of operations,
which will be primarily attributable to the continued development of our
products and services and the professional fees associated with our being a
Securities and Exchange Commission reporting company.
Liquidity
and Capital Resources
As of
December 31, 2009, we have a working capital deficit of $8,132,169, which is
composed of $1,492,124 in current assets less $9,624,293 of current
liabilities. For the nine months ended December 31, 2009 and 2008 the
Company generated cash flows in the amount of $249,621 and $87,019,
respectively.
The net
cash which was used in Operating activities was $187,321 and $930,249 for the
nine months ended December 31, 2009 and 2008 respectively.
o
|
The
primary uses in Operating Activities for the comparable 2009 and 2008 nine
month periods were:
|
·
|
Net
losses of $2,074,646 and $2,107,054,
respectively
|
·
|
A
decrease in Accounts Payable and Accrued Expenses of $185,653
|
·
|
and
an increase of $366,038,
respectively
|
·
|
A
decrease in Inventory of $5,496 and an increase of $185,686,
respectively
|
·
|
A
decrease in Prepaid Expenses of $28,252 and an increase of
$115,266
|
o
|
The
primary sources in Operating Activities for the comparable 2009 and 2008
nine month periods were:
|
·
|
A
decrease in related party loans of $808,079 and $0,
respectively
|
·
|
Issuance
of warrants of $0 and $985,936,
respectively
|
·
|
A
decrease in Accounts Receivable of $183,600 and an increase of $1,257,
respectively
|
The net
cash which was used by Investing activities was $47,524 and $13,372,732 for the
nine months ended December 31, 2009 and 2008 respectively.
o
|
The
primary uses in Investing Activities for the comparable 2009 and 2008 nine
month periods were:
|
·
|
The
purchase of Property, Plant and Equipment of $111,296 and $5,236,835,
respectively
|
·
|
A
increase in Investments of $111,690 and $8,135,897,
respectively
|
·
|
Investment
of Available for Sale investments of $250,000 and $0,
respectively
|
·
|
Issuance
of loan receivable of $432,974 and $0,
respectively
|
o
|
The
primary sources in Investing Activities for the comparable 2009 and 2008
nine month periods were:
|
·
|
Cash
acquired from business acquisitions of $689,000 and $0,
respectively
|
·
|
Proceeds
from the sale of investments of $140,795 and $0,
respectively
|
The net
cash which was provided by Financing activities was $484,466 and $14,390,000 for
the nine months ended December 31, 2009 and 2008 respectively.
o
|
The
primary sources in Financing Activities for the comparable 2009 and 2008
nine month periods were:
|
·
|
The
issuance of Preferred Shares of $0 and $14,570,000,
respectively
|
·
|
The
proceeds from related party borrowings of $524,988 and $0,
respectively
|
o
|
The
primary use in Financing Activities for the comparable 2009 and 2008 nine
month periods were:
|
·
|
Repayments
of Notes Payable of $40,522 and $200,000,
respectively
|
On August
29, 2008, we completed and closed a private offering of newly-created Series C
Preferred Stock at an offering price of $1,000 per share. We sold
14,130 shares for total gross proceeds of $14,130,000, including $13,430,000 in
cash and the cancelation of the $700,000 promissory note that we disclosed in
our Form August 13, 2008 Form 8K. From the
$14,130,000 total gross proceeds, $8,500,000 was deposited in an offshore fund
account that details an investment return to be earned upon the funds. At
present, there remains a dispute about the control and dispositions of these
funds, which management is continuing to investigate. Additionally,
the Agreement provides that we agree to wait to withdraw $8,000,000 of the funds
until one of several stated conditions are met. We are entitled to
withdraw the earnings, less the investment fees, generated by these funds
without restriction. During the quarter ended September 30, 2009, we attempted
to withdraw some of the funds, but the fund management refused to release
them. We have consulted with our legal counsel to determine the appropriate
legal steps to take regarding this manner. The Company reports the
funds as a non-current asset, unless they are released, if ever.
Our
financial condition will be negatively affected if we encounter any difficulties
associated with the Funds, as follows: (a) difficulties with the control and
disposition of the Funds; (b) incurring substantial or total losses from the
investment of the funds; (c) the fund administrator refusing to return our
funds; and/or (d) incurring substantial litigation costs associated with
litigating a matter in an overseas jurisdiction and enforcing claims and
judgments in a foreign jurisdiction.
Currently,
our sources of cash are limited to our current cash reserves. Cash on
hand was $300,316 as of December 31, 2009, substantially all of which is
restricted for use in the operations of AMS. Our current business is
operating on a negative cash flow basis and we do not have sources of debt
financing available to us. Our continued operation is contingent upon
our obtaining additional financing and establishing a consistent source of
revenues. We intend to fund operations through debt and/or equity financing
arrangements, which may be insufficient to fund our capital expenditures,
working capital, or other cash requirements. We do not have any formal
commitments or arrangements for the sales of stock or the advancement or loan of
funds at this time. We do not anticipate that we will have access to debt
financing under terms acceptable to us in the foreseeable future. There are
also no assurances that our existing business will be successful in generating
positive cash flow sufficient to sustain them and allow for their continued
development. If our attempts to raise additional capital are unsuccessful,
then implementation of our business plan may be delayed.
Off
Balance Sheet Arrangements
As of
December 31, 2009, there were no off balance sheet arrangements.
Going
Concern
Our
financial statements are prepared using generally accepted accounting principles
which contemplates the continuation of the Company as a going
concern. At December 31, 2009 current liabilities exceeded current
assets by $8,132,169 and for the nine months ended December 31, 2009, we had
negative cash flows of $187,321. These matters raise substantial
doubt about our ability to continue as a going concern. However the
accompanying consolidated financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and liquidation of
liabilities in the normal course of business.
In order
to continue as a going concern and achieve a profitable level of operations, we
will need, among other things, additional capital resources and a
consistent revenue source. Management’s plans include developing and
marketing a practical, economical, and environmentally safe means of disposing
of and recycling certain polystyrene and expanded polystyrene
products.
Our
ability to continue as a going concern is dependent upon our ability to
successfully accomplish our plan of operations and attain profitable
operations. The accompanying financial statements do not include any
adjustments that may result from the substantial doubt surrounding our ability
to continue as a going concern.
We
carried out an evaluation of the effectiveness of the design and operation of
our disclosure controls and procedures (as defined in Exchange Act Rules
13a-15(e) and 15d-15(e)) as of December 31, 2009. This evaluation was
carried out under the supervision and with the participation of our Chief
Executive Officer Patricia Cohen, and our Chief Financial Officer, Paul
Slusarczyk. Based upon that evaluation, our Chief Executive Officer
and Chief Financial Officer concluded that, as of December 31, 2009, our
disclosure controls and procedures are not effective. Due to expansion and lack
of sufficient personnel certain controls and procedures have been
inadequate.
Disclosure
controls and procedures are controls and other procedures that are designed to
ensure that information required to be disclosed in our reports filed or
submitted under the Exchange Act are recorded, processed, summarized and
reported, within the time periods specified in the SEC's rules and forms.
Disclosure controls and procedures include, without limitation, controls and
procedures designed to ensure that information required to be disclosed in our
reports filed under the Exchange Act is accumulated and communicated to
management, including our Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
Limitations on the
Effectiveness of Internal Controls
Management
did not use a formal framework to conduct the required evaluation of the
effectiveness of our internal control over financial reporting since, in the
view of management, comparison with a formal framework was unwarranted because
of (1) the small size of our current operations and (2) our management structure
consists of only our principal executive officer and principal financial officer
which enables management to be aware of all transactions.
Because
of our limited financial and personnel resources, there is currently a material
weakness in our financial reporting, including:
·
|
We
have an insufficient quantity of dedicated resources and experienced
personnel involved in reviewing and designing internal
controls. As a result, a material misstatement of the interim
and annual financial statements could occur and not be prevented or
detected on a timely basis.
|
·
|
We
have not achieved the optimal level of segregation of duties relative to
key financial reporting functions.
|
·
|
We
do not have an audit committee or an independent audit committee financial
expert. While not being legally obligated to have an audit
committee or independent audit committee financial expert, it is the
management’s view that to have an audit committee, comprised of
independent board members, and an independent audit committee financial
expert is an important entity-level control over our financial
statements.
|
·
|
We
have not achieved an optimal segregation of duties for executive officers
of the Company.
|
A
material weakness is a deficiency (within the meaning of the Public Company
Accounting Oversight Board (PCAOB) auditing standard 5) or combination of
deficiencies in internal control over financial reporting such that there is a
reasonable possibility that a material misstatement of the Company’s annual or
interim financial statements will not be prevented or detected on a timely
basis. Management has determined that a material weakness exists due
to a lack of segregation of duties, resulting from the Company’s limited
resources and personnel.
PART
II – OTHER INFORMATION
Except as
described below, we are not a party to any pending legal proceeding, nor are we
aware of any pending legal proceeding to which any of our officers, directors,
or any beneficial holders of 5% or more of our voting securities are adverse to
us or have a material interest adverse to us.
Katz
and Iovino v. Blue Earth Solutions, Inc.
On
December 22, 2008, we filed an action in the Eighth Judicial District Court in
and for Clark County, Nevada (Case no. 08-A-578406-B) against several persons,
including a former director and 5% shareholder, Harvey Katz, and former employee
Claudia Iovino, Iovino’s husband, a shareholder Caicedo Resources LLC, and
brokerage firms Glendale Securities, Citigroup Global Markets, Smith Barney, and
Penson Financial Services. Our complaint alleged multiple causes of
action arising out of the conversion of our Series A Preferred Stock
by Harvey Katz and Claudia Iovino into common stock on or about October 2008,
and the later public resale by Katz, Iovino, and Caicedo of some of
those shares and / or other common stock held by the
defendants. The complaint alleges that the
shares of common stock held by the Defendants, including the shares resulting
from the conversion of the Series A Preferred Stock, could not be publicly
resold by the Defendants. Our complaint seeks
both damages and injunctive relief. We moved for both a
temporary restraining order and a preliminary injunction enjoining further sales
of the securities and freezing the proceeds of all sales consummated thus
far.
On
December 22, 2008, the court issued a temporary restraining order which, among
other things, barred further sales of those shares by all defendants and
temporarily freezing all proceeds of sales already
consummated. Defendants Katz and Iovino responded and objected to the
TRO and any preliminary injunction on several grounds, including that SEC Rule
144 permitted the public resale of the securities in question. On
January 12, 2008, the court held a hearing on our preliminary
injunction motion. On January 16, 2009, the court entered a
preliminary injunction which, among other things, enjoined any further sale of
the securities until the earlier of a full trial on the merits or May 20, 2009,
but returned the proceeds of prior sales of the securities at issue to the
defendants.
Defendants
Katz and Iovino filed an Answer and Counterclaim on January 29, 2009, an Answer
and Amended Counterclaim on February 9, 2009 and a Second Amended Counterclaim
on March 17, 2009 seeking unspecified damages. The defendants have
not appeared at court dates and as far as we know do not have council
representing them. We continue to vigorously prosecute our claims and
defend against Katz and Iovino’s counterclaims.
In June,
2009, we issued 1,000,000 shares of our common stock to Datameg
Corporation, a Delaware corporation (“Datameg”), in exchange for our
receipt of all of the American Marketing’s issued and outstanding stock, a then
subsidiary of Datameg. In the acquisition, we also assumed a
promissory note in the amount of $5,450,000 between American Marketing and
Datameg’s former shareholders stemming from Datameg’s purchase of American
Marketing. In exchange for the note assignment to us, we issued
various share amounts totaling 400,000 shares to
the following note holders:
a.
|
Lynel
J.
Tocci 100,000
shares
|
b.
|
Leanne
J.
Whitney 100,000
shares
|
c.
|
Linnea
J.
Clary 100,000
shares
|
d.
|
John
Roncone,
Sr
20,000 shares
|
e.
|
Leonard
J.
Tocci
80,000 shares
|
We issued
the above shares in reliance upon the exemption from registration provided by
Securities Act Section 4(2). These provisions exempt transactions by an issuer
not involving any public offering.
We have a
related party loan with the General Partner of JEC Family LP, JEC
Corp. James Cohen, Sr., is the President of JEC Corp. and our Chief
Executive Officer’s spouse as well as the father of James Cohen, Jr., our Vice
President and Director. From August 2008 to December 31, 2009, JEC
Family LP loaned us $665,907, which accrues interest at 8%
annually. The loan is collateralized by the building we own at 13511
Granville Ave, Clermont, Florida 34711. As of December 31, 2009, the
accrued interest on the loan is $38,442, $34,175 of which represents delinquent
payments. We have not made any interest or principal payments on the
outstanding balances. Additionally, as of December 31, 2009, we may owe late fee
penalties of $1,500 because we failed to make required interest payments. We are
obligated to make interest and principle payments from May 15, 2009 until April
15, 2011. We are technically in default under the note terms, although we have
received no default notice from the related party note holder.
No
matters have been submitted to our security holders for a vote, through the
solicitation of proxies or otherwise, during the quarterly period ended December
31, 2009.
Purchase of American
Marketing & Sales, Inc.
On March
17, 2009, we entered into a Stock Purchase Agreement (the “Agreement”) with
Datameg Corporation, a Delaware corporation (“Datameg”) to purchase American
Marketing,, a Massachusetts corporation (“AMS”) from Datameg providing for the
purchase of all of AMS’ outstanding securities, as reported in
our March 31, 2009 Form 8-K filing with the Securities and Exchange
Commission.
On June
24, 2009, our Board of Directors consented to
satisfying all of our remaining obligations under the Agreement, and
on June 30, 2009, we completed the AMS purchase, which
is now our wholly-owned subsidiary.
In
October 2009, the Company negotiated a non-binding term sheet with Natural Blue
Resources, Inc. (“NTUR”), a Delaware corporation, and secured a non-binding
letter of intent to sell of all its assets and transfer certain of its
liabilities to NTUR. NTUR was formerly known as Datameg Corporation and is
the former parent company of AMS. In connection therewith, the
Company received a cash advance in the amount of $100,000, which it has invested
in a Certificate of Deposit, and is reflected in the Company’s cash balance at
December 31, 2009. Pursuant to the terms of the letter of intent, if a closing
of such transaction has not occurred by March 31, 2010, the Company will execute
a secured promissory note to evidence the advance, which note will bear interest
at the rate of 10% per annum from the date of the note and be due and payable in
full on June 29, 2010. The term sheet also contemplates an exchange
of all of the Company’s outstanding preferred stock for a yet to be created
class of preferred stock of NTUR.
Departure of
Directors
Resignation
of Douglas G. Vaught as our Director
On
January 18, 2010, Douglas G. Vaught, our Director since February 4, 2009,
resigned as a member of our Board of Directors. Mr. Vaught’s
resignation as our Director was not regarding any matter pertaining to our
operations, policies, or practices. Mr. Vaught has served as our Vice
President of Operations since September 1, 2008 and will continue to serve in
that capacity.
Resignation
of Paul Pelosi as our Director
On
January 11, 2010, Paul Pelosi, our Director since November 28, 2008, resigned as
a member of our Board of Directors and as a member of our Audit
Committee. Mr. Vaught’s resignation as our Director was not regarding
any matter pertaining to our operations, policies, or practices.
Change
in Independent Registered Public Accounting Firm
In
October, 2009, the Company changed its Independent Public Accounting Firm to
Cross, Fernandez and Riley. The appointment of a new Independent
Public Accounting firm was necessary as the Company’s prior Independent Public
Accounting Firm had been deregistered.
Exhibit Number
|
Description of Exhibit
|
31.1
|
|
31.2
|
|
32.1
|
|
Certification of Chief Financial Officer pursuant
to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
In
accordance with the requirements of the Securities and Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
Blue Earth Solutions, Inc. | |||
Date:
February
21, 2010
|
By:
|
/s/ Patricia Cohen | |
Patricia Cohen | |||
Chief Executive Officer and Director | |||