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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q

x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 
for the quarterly period ended August 31, 2011

OR

¨ TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
for the transition period from ___________ to _____________

Commission file number: 000-25335

INTELLIGENT LIVING CORP.
(Exact name of registrant as specified in its charter)

Nevada
(State or other jurisdiction of incorporation or organization)

88-0409024
(I.R.S. Employer Identification Number)

SUITE 221, 2323 QUEBEC STREET
Vancouver, BC
V5T 4S7
(Address including zip code of principal executive offices)

Issuer’s telephone number: (604) 876-7494

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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.   Yes þ 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 þ   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.  


Large accelerated filer

¨

 

Accelerated filer

¨

Non-accelerated filer

¨

(Do not check if a smaller reporting company)

Smaller reporting company

x


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


As of August 31, 2011, the registrant had outstanding 105,945,324 shares of its $.001 par value Common Stock.


Transitional Small Business Disclosure Format: Yes¨  No þ



1



INTELLIGENT LIVING CORP.

FORM 10Q

For the Quarterly Period Ended August 31, 2010


TABLE OF CONTENTS



Page


PART I

FINANCIAL INFORMATION

3


ITEM 1

Unaudited Consolidated Financial Statements


Consolidated Balance Sheets as of August 31, 2011 (Unaudited) and May 31, 2011

3


Consolidated Statements of Operations for the Three Months ended August 31, 2011

and 2010  (Unaudited)

4


Consolidated Statements of Cash Flows for the Three Months ended August 31, 2011

and 2010 (Unaudited)

5


Condensed Notes to Consolidated Interim Financial Statements

6


ITEM 2

Management's Discussion and Analysis of Financial Condition and Results of

Continuing and Future Plan of Operation

10


ITEM 3

Quantitative and Qualitative Disclosures about Market Risk

15


ITEM 4T

Controls and Procedures

16


PART II

OTHER INFORMATION

17


ITEM 1

Legal Proceedings

17


ITEM 1A

Risk Factors

17


ITEM 2

Unregistered Sales of Equity Securities and Use of Proceeds

17


ITEM 3

Defaults upon Senior Securities

17


ITEM 4

Submission of Matters to a Vote of Security Holders

17


ITEM 5

Other Information

17


ITEM 6

Exhibits

17


SIGNATURE PAGE

18




2



PART  I.  FINANCIAL  INFORMATION


ITEM 1 - FINANCIAL STATEMENTS


INTELLIGENT LIVING CORP.

CONSOLIDATED BALANCE SHEETS

 

 

 

 

August 31,

 

May 31,

 

 

 

 

2011

 

2011

 

 

 

 

(unaudited)

 

 

CURRENT ASSETS

 

 

 

 

 

Cash and cash equivalents

$

3,131

$

3,475

 

Accounts receivable, net

 

30,671

 

16,934

 

Accounts receivable related party

 

14,721

 

20,078

 

Prepaid expenses

 

3,612

 

3,617

 

Inventory, net

 

17,498

 

9,582

 

GST/PST tax refundable

 

-

 

782

 

TOTAL CURRENT ASSETS

$

69,633

$

54,468

 

 

 

 

 

 

 

 

PROPERTY & EQUIPMENT, NET

 

16,230

 

19,300

 

 

 

 

 

 

 

OTHER ASSETS

 

 

 

 

 

Goodwill

 

243,672

 

243,701

 

TOTAL OTHER ASSETS

 

243,672

 

243,701

 

TOTAL ASSETS

$

329,535

$

317,469

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' (DEFICIT)

 

 

 

 

CURRENT LIABILITIES

 

 

 

 

 

Line of credit

 

52,181

 

48,253

 

Accounts payable

 

100,448

 

92,371

 

Accrued liabilities

 

303,962

 

296,067

 

Accrued interest

 

246,053

 

232,279

 

Short term notes and debentures

 

103,505

 

103,533

 

Short term loans - related party

 

459,385

 

424,302

 

Current liabilities related to discontinued operations

 

 

 

 

 

 

Accrued liabilities

 

80,000

 

80,000

 

TOTAL CURRENT LIABILITIES

$

1,345,534

$

1,276,805

 

 

 

 

 

 

 

LONG-TERM LIABILITIES

 

 

 

 

 

Debentures

 

693,253

 

693,253

 

TOTAL LONG TERM LIABILITIES

 

693,253

 

693,253

 

TOTAL LIABILITIES

 

2,038,787

 

1,970,058

 

 

 

 

 

 

 

 

COMMITMENTS & CONTINGENCIES

 

-

 

-

 

 

 

 

 

 

 

STOCKHOLDERS' (DEFICIT)

 

 

 

 

 

Common stock, 800,000,000 shares authorized, $0.001 par value; 105,945,324 issued and outstanding

 

105,944

 

105,944

 

Additional paid in capital

 

13,041,747

 

13,041,747

 

Accumulated deficit

 

(14,748,918)

 

(14,691,501)

 

Accumulated other comprehensive (loss)

 

(108,025)

 

(108,779)

 

TOTAL STOCKHOLDERS' (DEFICIT)

$

(1,709,252)

$

(1,652,589)

 

TOTAL LIABILITIES AND STOCKHOLDERS' (DEFICIT)

$

329,535

$

317,469


See accompanying condensed notes to the interim consolidated financial statements



3




INTELLIGENT LIVING CORP.

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

 

 

 

For the 3 month period ended

 

 

 

August 31,

 

 

 

2011

 

2010

 

 

 

(unaudited)

 

(unaudited)

REVENUES

 

 

 

 

 

Intelligent Home: Equipment & Services

$

62,762

$

108,474

COST OF REVENUES

 

 

 

 

 

Intelligent Home: Equipment & Services

 

33,014

 

42,462

GROSS PROFIT

 

29,748

 

66,012

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

Selling expense

 

3,175

 

34

 

Salaries

 

20,285

 

12,461

 

Depreciation

 

3,062

 

7,594

 

Office & Administrative

 

41,103

 

23,310

 

TOTAL OPERATING EXPENSES

 

67,625

 

43,399

 

 

 

 

 

 

(LOSS) FROM OPERATIONS

 

(37,877)

 

22,613

 

 

 

 

 

 

OTHER INCOME (EXPENSE)

 

 

 

 

 

Other expense

 

83

 

17,568

 

Beneficial conversion and fee discount expense

 

-

 

(6,972)

 

Interest expense

 

(19,034)

 

(20,388)

 

TOTAL OTHER INCOME (EXPENSE)

 

(18,951)

 

(9,792)

 

 

 

 

 

 

INCOME (LOSS) FROM CONTINUING OPERATIONS

 

(56,828)

 

12,821

 

 

 

 

 

 

(LOSS) FROM DISCONTINUED OPERATIONS

 

(589)

 

(15,229)

 

 

 

 

 

 

CONSOLIDATED NET (LOSS) BEFORE INCOME TAX

 

(57,417)

 

(2,408)

 

Income Tax Expense

 

-

 

-

NET (LOSS)

$

(57,417)

$

(2,408)

 

EARNINGS PER SHARE BASIC AND DILUTED

 

 

 

 

 

Gain (Loss) income per share from continuing operations

 

(0.00)

 

0.00

 

(Loss) per share from discontinued operations

 

(0.00)

 

(0.00)

 

Net (Loss) per share

 

(0.00)

 

(0.00)

 

Weighted average number of common stock shares outstanding, basic and diluted

 

105,945,324

 

63,292,874

 

 

 

 

 

 

OTHER COMPREHENSIVE (LOSS)

 

 

 

 

 

Foreign currency translation gain

 

754

 

2,053

 

 

 

 

 

 

COMPREHENSIVE (LOSS)

$

(56,663)

$

(355)



See accompanying condensed notes to the interim consolidated financial statements



4




INTELLIGENT LIVING CORP.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

 

 

 

 

For the 3 month period ended

 

 

 

 

 

August 31,

 

 

 

 

 

2011

 

2010

 

 

 

 

 

(unaudited)

 

(unaudited)

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

Net loss

$

(57,417)

$

(2,408)

 

Adjustments to reconcile net loss

 

 

 

 

 

 

to net cash provided by (used by) operating activities:

 

 

 

 

 

 

 

Amortization of debt discount

 

-

 

6,973

 

 

 

Depreciation / Amortization

 

3,062

 

10,956

 

 

Decrease (increase), net of acquisition, in:

 

 

 

 

 

 

 

Accounts receivable

 

(13,737)

 

(50,433)

 

 

 

Accounts receivable related party

 

5,357

 

-

 

 

 

Prepaid expenses

 

-

 

(5)

 

 

 

Inventory

 

(7,916)

 

9,418

 

 

Increase (decrease), net of acquisition, in:

 

 

 

 

 

 

 

Accrued liabilities and interest

 

21,680

 

23,404

 

 

 

Accounts payable

 

8,077

 

3,017

 

 

 

GST tax refundable

 

782

 

(57)

 

 

 

Deposits

 

-

 

849

 

Net cash provided by / (used in) operating activities

 

(40,112)

 

1,714

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

Purchase of fixed assets

 

-

 

(11,615)

 

Net cash used in investing activities

 

-

 

(11,615)

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

Bank Line of Credit

 

3,928

 

5,034

 

Proceeds of loans, related party

 

35,083

 

3,908

 

Repayment of loans, related party

 

-

 

(1,516)

 

Net cash provided by financing activities

 

39,011

 

7,426

 

 

 

 

 

 

 

 

Net decrease in cash

 

(1,101)

 

(2,475)

 

 

 

 

 

 

 

 

 

Effect of foreign exchange on cash

 

757

 

2,053

 

 

 

 

 

 

 

 

Cash, beginning of period

 

3,475

 

3,931

 

 

 

 

 

 

 

 

Cash, end of period

$

3,131

$

3,509

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURES:

 

 

 

 

 

Cash paid for interest and income taxes:

 

 

 

 

 

 

Interest

$

5,838

$

5,879

 

 

Income taxes

$

-

$

-

 

 

 

 

 

 

 

 

NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

Common stock issued for debt and interest

$

-

$

85,000



See accompanying condensed notes to the interim consolidated financial statements




5



INTELLIGENT LIVING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2011

(Unaudited)




NOTE 1 – BASIS OF PRESENTATION


Intelligent Living Corp (“ILC”, the “Company”, “we”, “us”) was incorporated in the State of Nevada in 1998. Through its wholly owned subsidiary MCM Integrated Technologies, Ltd. (“MCM”) the Company offers automation solutions for single and multi unit new construction and existing buildings, using both traditional component and PC based systems. The Company designs, supplies, installs, upgrades and services home automation systems, energy use monitoring and conservation systems including: structured wiring, security and access control systems, lighting, HVAC and environmental controls, energy use monitoring and reduction systems and distributed audio/video systems. MCM has supplied custom IT solutions since 1994 and home automation and energy management solutions since 2003. The Company has offices in Vancouver British Columbia and Phoenix Arizona.


In response to the downturn in the U.S. housing market the Company shifted its focus to the western Canadian housing market and initiated technology cooperation on a best efforts basis with Kilia Teknologi, a leading security surveillance group in the Republic of Turkey. The western Canadian housing market, and in particular the greater Vancouver housing market, have remained strong with new construction, price appreciation and inventory levels at historical levels. The Company is active with projects in southwest BC. Customers include technology consumers, residential home owners, developers and builders of single family and multi-unit developments and commercial businesses.  


The Company is evaluating opportunities to expand its business activities through expansion vertically within the Company’s current green building, home automation and energy conservation sectors. The Company has recently tendered to supply design build services for First Nations housing and is looking at design build opportunities for small footprint multiple occupancy homes in the greater Vancouver area.


The Company previously engaged in the import and distribution of home décor products for the North American market. This activity was pursued through its wholly owned subsidiary Cardinal Points Trading Corp. In July 2006, as a result of a breach of the Company’s exclusivity agreement with its principal supplier by its principal supplier and other production related issues the board of directors began an evaluation of alternative business models and opportunities. In December 2006 the Company discontinued its activity in the home décor sector and began a process to dispose of assets and obligations related to the home décor import and distribution business. This process is expected to wind down in fiscal 2012.


Results from ongoing operations reported for the periods ending August 31, 2011 and 2010 relate to sales of home automation and energy efficiency products and services including system design, equipment supply, installation and support. Results from discontinued operations consist of miscellaneous charges related pursuing legal recourse against the Company’s home décor supplier.


The Company’s year-end is May 31.


The foregoing unaudited interim financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Regulation S-X as promulgated by the Securities and Exchange Commission. Accordingly, these financial statements do not include all of the disclosures required by generally accepted accounting principles for complete financial statements.  These unaudited interim financial statements should be read in conjunction with the audited financial statements for the period ended May 31, 2011. In the opinion of management, the unaudited interim financial statements furnished herein include all adjustments, all of which are of a normal recurring nature, necessary for a fair statement of the results for the interim period presented.




6



INTELLIGENT LIVING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2011

(Unaudited)



The preparation of financial statements in accordance with generally accepted accounting principles requires the use of estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities known to exist as of the date the financial statements are published, and the reported amounts of revenues and expenses during the reporting period. Uncertainties with respect to such estimates and assumptions are inherent in the preparation of the Company's financial statements; accordingly, it is possible that the actual results could differ from these estimates and assumptions that could have a material effect on the reported amounts of the Company's financial position and results of operations.


The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has suffered material recurring losses from operations since inception. At August 31, 2011, the Company had a working capital deficit of $1,275,901, an accumulated deficit of $14,748,918 and historically has reported negative cash flows from consolidated operations. These factors raise substantial doubt about the Company's ability to continue as a going concern.


Continuation of the Company is dependent on achieving sufficiently profitable operations and obtaining additional financing. Management has and is continuing to raise additional capital from various sources. There can be no assurances that the Company will be successful in raising additional capital. The financial statements do not include any adjustment relating to the recoverability and classification of assets and liabilities that might be necessary should the Company be unable to continue as a going concern.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


This summary of significant accounting policies of Intelligent Living Corp. is presented to assist in understanding the Company’s financial statements.  The financial statements and notes are representations of the Company’s management, which is responsible for their integrity and objectivity.  These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.


Earnings per Share

The Company has adopted ASC 260 “Earnings per Share”.  Basic loss per share is computed using the weighted average number of common shares outstanding.   Diluted net loss per share is the same as basic net loss per share, as the inclusion of common stock equivalents would be antidilutive.


Fair Value of Financial Instruments

On July 1, 2008, the Company adopted Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures (“Topic 820”).  Topic 820 defines fair value, establishes a three-level valuation hierarchy for disclosures of fair value measurement and enhances disclosure requirements for fair value measures. The three levels are defined as follows:

·

Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets.

·

Level 2 inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument.

·

Level 3 inputs to valuation methodology are unobservable and significant to the fair measurement.

The adoption of this standard did not have a material effect on the Company’s financial position, results of operations or cash flows.



7



INTELLIGENT LIVING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2011

(Unaudited)




Recent Accounting Pronouncements

There have been no recently issued accounting pronouncements since the filing of the Company’s Form 10K for the year ended May 31, 2011 that are expected to have a material impact on the Company’s financial position, results of operations, or cash flows.


NOTE 3 - COMMON STOCK


The Company did not issue shares during the quarter ended August 31, 2011.


NOTE 4 – RELATED PARTIES

The Company had short-term loans outstanding to corporate officers at May 31, 2011 in the amount of $424,302. They are unsecured, due on demand and bear interest at an average rate of 7.2%. Accrued interest to May 31, 2011 was $8,651.


During the three months ended August 31, 2011 loans from the Company’s officers increased by $35,083, which is uncollateralized and due on demand. The Company repaid the Company’s officers $5,838 of interest in cash and accrued $1,336 in interest. Total outstanding related party debt [principal plus accrued interest] for the period ended August 31, 2011 and May 31, 2011 was respectively $469,361 and $432,953.


The following table summarizes the position of notes, and amounts due to related parties at August 31, 2011:

Related Parties

 

Principal

Outstanding

on August 31,

2011

 

Interest

Accrued to

August 31,

2011

short-term notes

$

459,385

$

9,976

Total

$

459,385

$

9,976


The Company shares office space and administrative costs in Vancouver with ScanTech Imaging Corp. (“ScanTech”), a company controlled by Murat Erbatur the Company’s COO. The Company provides technical consulting services to ScanTech and Scan Tech’s clients on an as needed basis. For the period ended August 31, 2011 the total value of services provided was nil. At August 31, 2011 $14,721 was receivable from ScanTech.


NOTE 5 – THIRD PARTY NOTES AND DEBENTURES PAYABLE


The total third party note principal outstanding on August 31, 2011 was $28,505.


The total third party debenture principal outstanding on August 31, 2011 was $768,253 consisting of $75,000 short term debenture principal and $693,253 long term debenture principal. The following table summarizes the outstanding principal and discounts associated with debentures and principal amounts of notes outstanding at August 31, 2011.


Debentures

Notes

Total

Principal at end

of period

Remaining

Discounts

Balance Sheet

Amount net of

discounts

Principal at end

of period

End of Period

Balance Sheet

Amount

$768,253

nil

$768,253

$28,505

$796,758




8



INTELLIGENT LIVING CORP. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

August 31, 2011

(Unaudited)




The principal and accrued interest on notes and debentures as at August 31, 2011 are summarized in the following table:

Notes and Debentures

 

Principal

Amount at

Aug 31, 2011

Weighted

Average

Interest Rate

 

Accrued Interest

to

Aug 31, 2011

Third Party Notes

$

28,505

nil

$

nil

Third Party Debentures

 

768,253

6.5%

 

236,007

Total

$

796,758

6.2%

$

236,077


Principal payments on notes and debentures payable in the years ending May 31, 2012 through 2016 are as follows:

Fiscal

Year

Principal

2012

$103,505

2013

-

2014

$232,480

2015

$460,773

2016

-

Total

$796,758



NOTE 6 – DISCONTINUED OPERATIONS


At August 31, 2011, the Company had disposed of all discontinued inventory and fully depreciated all plant and equipment assets. At August 31, 2011, assets from discontinued operations were de minimis.

Liabilities from discontinued operations consisted of:


Description

August 31, 2011

 

 

Professional fees

$

80,000

Total liabilities related to discontinued operations

$

80,000


The loss from discontinued operations, recorded for the period ended August 31, 2011, were a result of miscellaneous charges related pursuing legal recourse against the Company’s home décor supplier.



NOTE 7 – CHANGES IN PRESENTATION OF COMPARATIVE STATEMENTS


The presentation of certain amounts for previous periods has been reclassified to conform to the presentation adopted for the current period.





9





 INTELLIGENT LIVING CORP.

FORM 10-Q

For the Quarterly period ended August 31, 2011


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF CONTINUING AND FUTURE PLAN OF OPERATION


Cautionary Statement Regarding Forward-Looking Statements. This annual report contains forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These statements relate to future events or our future financial performance. Some discussions in this report may contain forward-looking statements that involve risk and uncertainty. A number of important factors could cause our actual results to differ materially from those expressed in any forward-looking statements made by us in this report. Forward-looking statements are often identified by words like: "believe", "expect", "estimate", "anticipate", "intend", "project" and similar expressions or words which, by their nature, refer to future events.


In some cases, you can also identify forward-looking statements by terminology such as "may", "will", "should", "plans", "predicts", "potential" or "continue" or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements.


Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.


OVERVIEW


Intelligent Living Corp (“ILC”, the “Company”, “we”, “us”) was incorporated in the State of Nevada in 1998. Through its wholly owned subsidiary MCM Integrated Technologies, Ltd. (“MCM”) the Company offers automation solutions for single and multi unit new construction and existing buildings, using both traditional component and PC based systems. The Company designs, supplies, installs, upgrades and services home automation systems, energy use monitoring and conservation systems including: structured wiring, security and access control systems, lighting, HVAC and environmental controls, energy use monitoring and reduction systems and distributed audio/video systems. MCM has supplied custom IT solutions since 1994 and home automation and energy management solutions since 2003. The Company has offices in Vancouver British Columbia and Phoenix Arizona.


In response to the downturn in the U.S. housing market the Company shifted its focus to the western Canadian housing market and initiated technology cooperation on a best efforts basis with Kilia Teknologi, a leading security surveillance group in the Republic of Turkey. The western Canadian housing market, and, in particular, the greater Vancouver housing market have remained strong with new construction, price appreciation and inventory at historical levels. The Company is active with projects in southwest BC. Customers include technology consumers, residential home owners, developers and builders of single family and multi-unit developments and commercial businesses.  


The Company is evaluating opportunities to expand its business activities through expansion vertically within the Company’s current green building, home automation and energy conservation sectors. The Company has recently tendered to supply design build services for First Nations housing and is looking at design build opportunities for small footprint multiple occupancy homes in the greater Vancouver area.




10





The Company previously engaged in the import and distribution of home décor products for the North American market. This activity was pursued through its wholly owned subsidiary Cardinal Points Trading Corp. In July 2006, as a result of a breach of the Company’s exclusivity agreement with its principal supplier by its principal supplier and other production related issues the board of directors began an evaluation of alternative business models and opportunities. In December 2006 the Company discontinued its activity in the home décor sector and began a process to dispose of assets and obligations related to the home décor import and distribution business. This process is expected to wind down in fiscal 2012.


Results from ongoing operations reported for the periods ending August 31, 2011 and 2010 relate to sales of home automation and energy efficiency products and services including system design, equipment supply, installation and support. Results from discontinued operations reflect miscellaneous charges related pursuing legal recourse against the Company’s home décor supplier.


Foreign currency translation

MCM Integrated Technologies, Ltd. and Cardinal Points Trading, Corp. use the Canadian Dollar as their functional currency. Transactions denominated in currencies other than the entity’s functional currency are translated into the entity’s functional currency at the exchange rate ruling on the date of the transaction. Currency translation differences are recognized in the statement of income for the period.


On consolidation, the results of operations and cash flows whose functional currency is other than the US dollar are translated into US dollars at the average exchange rate for the period and their assets and liabilities are translated into US dollars at the exchange rate ruling on the balance sheet date. Currency translation differences are recognized within other comprehensive income as a separate component of shareholders’ equity. In the event that such an operation is sold, the cumulative currency translation differences that are attributable to the operation are reclassified to income.


During the three month period June 1, 2011 through August 31, 2011, the US dollar to Canadian Dollar exchange rate has varied from a low of 1.0067 on August 10, 2011 to a high of 1.0590 on July 27, 2011. The closing exchange rate was 1.0223 and the average exchange rate over the 3 month period ended August 31, 2011 was 1.0287 resulting in comprehensive income of $754 for the period ended August 31, 2011.


Transactions with related parties

Our By-Laws include a provision regarding related party transactions which requires that each participant to such transaction identify all direct and indirect interests to be derived as a result of the Company's entering into the related transaction. A majority of the disinterested members of the board of directors must approve any related party transaction.


Except for the transactions described below, none of our directors, senior officers or principal shareholders, nor any associate or affiliate of the foregoing have any interest, direct or indirect, in any transaction, since the beginning of the fiscal year ended May 31, 2011, or in any proposed transactions, in which such person had or is to have a direct or indirect material interest.


During the year ended May 31, 2011, loans from the Company’s CEO increased by $41,581 and loans from the Company’s COO increased by $6,952. The loans are unsecured and due on demand and accrued interest at an average rate of 7.4%. Total outstanding related party debt (principal plus accrued interest) for the year ended May 31, 2011 was $432,953.


During the three months ended August 31, 2011 loans from the Company’s CEO increased by $18,661 and loans from the Company’s COO increased by $16,422. Related party loans are uncollateralized and due on demand. The Company repaid the Company’s COO $5,838 of interest in cash and accrued $1,336 in interest due the Company’s CEO. Total outstanding related party debt [principal plus accrued interest] for the period ended August 31, 2011 and May 31, 2011 was respectively $469,361 and $432,953.




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The Company shares office space and administrative costs in Vancouver with ScanTech Imaging Corp. (“ScanTech”), a company controlled by Murat Erbatur the Company’s COO. The Company provides technical consulting services to ScanTech and Scan Tech’s clients on an as needed basis. For the period ended August 31, 2011 the total value of services provided was nil.

RESULTS OF OPERATIONS – for the three months ended August 31, 2011 and August 31, 2010


For the 3 months ended August 31, 2011, revenues from continuing operations were $62,762 compared to $108,474 in the same period ending last year, a decrease of 42%. Revenues are a result of the sale of smart home products and services. The decrease in revenue is the net of a 13% increase in the value of residential installations combined with an unexpected reduction in related party technical consulting work.


For the 3 months ended August 31, 2011, gross profit was $29,748 compared to $66,012 in the same period in the prior year, a decrease of 55%. Gross margin (gross profit as a percent of revenue) was 47%, compared to 61% for the same period in the prior year. The reduced gross profit and gross margin are a result of the reduction in related party technical consulting work.


Operating expenses for the 3 months ending August 31, 2011 were $67,625 versus $43,399 for the same period in the prior year, an increase of 56%. The increase in operating expenses resulted from a 63% increase in salary costs as a result of project scheduling demands, a 60% decrease in depreciation expenses, and a 76% increase in administration expenses resulting principally from fees related to the audit of the Company’s 2011 year, accrual towards the current year’s audit fees and expenses, fees related to the design and implementation of the Company’s updated web site and fees related to the design of single family and multi-residence homes specific to the needs of First Nations communities.  


The Company recorded an operating loss profit from continuing operations of ($37,877) for the period ending August 31, 2011 compared to an operating profit of $22,613 for the same period in the prior year.


Total other expenses for the three month period ending August 31, 2011 were $18,951 compared to $9,792 for the comparable period in the prior year. In the period ended August 31, 2011 the Company recorded a 100% reduction in accretion expenses associated with the Company’s historical debenture financings and a small reduction in interest expense compared to the same period in the prior year. In the period ended August 31, 2010, the Company recorded other income of $17,310. In the current period ended August 31, 2011, other income was nil. The net result on other expenses in the current period was an increase of 94% compared to the comparable period in the prior year.


The net loss from continuing operations for the three month period ending August 31, 2011 was ($56,828) compared to a net profit of $12,821 in the comparable period in the prior year.


During the 3 months ended August 31, 2011 the Company incurred expenses associated with its discontinued wholesale business. The net loss from discontinued operations was ($589) compared to a net loss of ($15,229) for the comparable period in the prior year, a decrease of 96%. The decrease in expenses related to the Company’s discontinued operations reflects management’s ongoing efforts to eliminate liabilities associated with discontinued operations.


The total net loss for the 3 months ended August 31, 2011 was ($57,417) compared to a total net loss of ($2,408) for the corresponding period in the prior year. A gain of $754 was realized as a result of foreign currency translation and the resulting comprehensive loss the period ending August 31, 2010 was $(56,663) compared to a gain of $2,053 as a result of foreign currency translation and a comprehensive loss of ($355) for the corresponding period in the prior year.



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LIQUIDITY AND CAPITAL RESOURCES


Liquidity

As of August 31, 2011, our principal sources of liquidity included cash and cash equivalents, cash flow from our operating subsidiary, and shareholder and related party loans. At August 31, 2011, cash and cash equivalents totaled $3,131 compared to $3,475 at May 31, 2011.


Our business continues in transition and our liquidity must be considered in light of the risks, expenses and difficulties frequently encountered by companies in our stage of re-development. The Company has historically operated in both the US and Canadian markets. The transition to the home automation sector through the acquisition of MCM Integrated Technologies occurred at the same time that the U.S. housing market entered a protracted period of substantially reduced home construction and renovation activity, declining home prices, extensive mortgage foreclosures and a contraction in the availability of consumer credit. The ongoing impairment in the U.S. and Canadian economies and financial markets has and will continue to impact the Company’s sales and liquidity for the foreseeable future.  


Risk factors relevant to these events and management decisions include, but are not limited to: the Company’s ability to secure ongoing product supply, foreign exchange fluctuations, continued acceptance of the Company’s products and services, changes in technology and consumer adoption of technology, the strength of the North American housing market and consumer economy in general, and cannot be credibly quantified by the Company at this time.


Internal and External Sources of Capital

For the 3 month period ending August 31, 2011 the Company realized a loss from operations of ($56,828) and a net loss of ($57,417). As of August 31, 2011 the Company had a working capital deficit of $1,275,901 and limited assets to sell in order to create short or long term liquidity. Therefore, we are dependent on external sources for funding until such time as the Company develops positive net cash flow to maintain liquidity. Until such time as we have positive cash flow on a sustained basis, the dependence on external capital will remain. There are no guarantees that we will be able to raise external capital in sufficient amounts or on terms acceptable to us.


Investing Activities

There were no investing activities during the 3 month period ending August 31, 2011.


Financing Activities

Since inception, we financed operations through proceeds from the issuance of equity and debt securities and loans from shareholders and others. To date, we raised approximately $13.0 million from the sale of common stock and as at August 31, 2011 we have borrowings of approximately $1.26 million from investors and shareholders.  Funds from these sources were used as working capital to fund the development of the Company.


In the 3 month period ended August 31, 2011 the Company related party short term loans increased by $35,083 and line of credit increased by $3,928. These loans are interest bearing and due on demand.


FUTURE PLAN OF OPERATIONS


Through 2011 the U.S. housing market continued to experience recession due to deteriorated residential property values, defaults and delinquencies in the residential mortgage market, impairment in consumer and business loans, increased unemployment, fiscal contraction a downgrade in the US credit rating.




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The Company has shifted its focus to the western Canadian housing market, and in particular the greater Vancouver housing market which has remained strong with new construction, price appreciation and inventory levels at close to historical levels. The Company is actively evaluating opportunities to expand its business activities through expansion vertically within the Company’s current green building, home automation and energy conservation sectors and horizontally into home construction and development.


The Company realized increased year-on-year revenue in its traditional service sector, a trend that is expected to continue through fiscal 2012. The Company did not realize any related party revenues during the first quarter of the current fiscal year. These services are provided on an as required basis and it is uncertain at this time whether the Company will realize the level of historical annual revenues from this source during the current fiscal year.  Efforts to fully wind down all activity associated with the Company’s discontinued operations are expected to be complete within the first half of fiscal 2012.


The Company is actively evaluating opportunities to expand its business activities through both vertical expansion within the Company’s current green building, home automation and energy conservation sectors and horizontally within related sectors including home construction and development.


Beginning in the second quarter of FY 2011 the Company began discussions with a local specialty builder and entered into a non-binding letter of intent to explore joint opportunities for property development within the greater Vancouver area, design build housing specific to the needs of First Nations communities and small economical fast erecting relief housing.  The Company initially favored a joint venture approach to these markets; however, after detailed analysis of structural and financial cost benefits, the Company is pursuing these opportunities as the prime contractor/developer.


This has led to the development of eco and energy friendly designs for single family housing and multi-suite senior’s (elder’s) residences specific to the needs and budgets of First Nations communities and the development of designs for small footprint relief housing. The designs capitalize on modular construction techniques and utilize advanced building systems.


The Company has recently tendered and is in negotiations with a coastal First Nations band for turnkey design build housing. The opportunity within First Nations communities is extensive and the Company plans to continue efforts on developing this market over the coming year. The Company has also undertaken pro-forma analysis of multi-strata development opportunities suitable for those communities in the greater Vancouver area with zoning approval for building multi-strata units on single family residential lots. The Company is actively looking at ways and means of securing development funding and is examining the need for equity re-structuring as a pre-requisite for financing.      


The far eastern European and west Asian areas of Turkey are experiencing growth supported by export sales of manufactured products and Middle Eastern oil revenue related investment. The Turkish economy has recorded strong growth in recent quarters and has remained relatively buoyant through the ongoing global credit crisis and Euro zone debt crisis. The Company has historical ties to this area and plans to continue to pursuing technology cooperation and marketing activities within Turkey and the Middle East on an opportunistic and best efforts basis.


Cash flow from ongoing business activities combined with the availability of loans from related parties are estimated to be sufficient to sustain the current level of operations and planned activities through to the end of the current fiscal year.


OFF BALANCE-SHEET ARRANGEMENTS


During year ended May 31, 2011, and the three months ended August 31, 2011 the Company did not engage in any off-balance sheet arrangements.




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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


Interest Rate Risk


Our exposure to market risk for changes in interest rates relates primarily to our bank credit facility because borrowings under the facility are variable rate borrowings.  At the current time all of the borrowings under our credit agreements accrue interest at the Prime Rate plus the applicable margin.  Assuming that the balance on our variable interest loans as of August 31, 2011, was the same throughout the entire quarter, each 1.0% increase in the prime interest rate on our variable rate borrowings would result in an increase in annual interest expense and a decrease in our cash flows and income before taxes of approximately $4,508 per year.


Foreign Currency Exchange Risks


Our home automation subsidiary (MCM) and discontinued home décor subsidiary (Cardinal Points) have operations in Canada, both have assets and liabilities in Canadian dollars and both use the Canadian Dollar as a functional currency.  Each financial period, all assets, including goodwill, and liabilities of MCM and Cardinal Points are translated into U.S. Dollars, our reporting currency, using the closing rate method. In addition, we routinely purchase goods in Canadian dollars for resale in US dollars and goods in US dollars for resale in Canadian dollars.


There are principally two types of foreign exchange risk: transaction risks and translation risks. Transaction risks may impact the results of operations and translation risks may impact comprehensive income.  These are discussed more fully below.


Transaction risks


Transactions in currencies other than the functional currency are translated at either an average exchange rate used for the reporting period in which the transaction took place (to approximate to the exchange rate at the date of transactions for that period) or in some cases the rate in effect at the date of the transaction.  Differences in exchange rates during the period between the date a transaction denominated in a foreign currency is consummated and the date on which it is settled or translated, are recognized in the consolidated statements of operations as foreign exchange transaction gains and losses.


MCM’s and Cardinal Points’ cash balances consist of Canadian Dollars and U.S. Dollars. This exposes us to foreign currency exchange rate risk in the Statement of Operations. The change in exposure from period to period is related to the change in the balance of the bank accounts based on timing of event receipts and payments.  For the 3month period ended August 31, 2011, MCM purchased approximately $10,000 of goods valued in US dollars for sale in Canadian dollars. For the 3 month period ended August 31, 2011, a 10% increase or decrease in the average level of the U.S. Dollar exchange rate against the Canadian Dollar with all other variables held constant would result in a realized gain or loss of approximately $982 in the purchase of US goods.


Translation risks


The financial statements of MCM and Cardinal Points, with a functional currency of Canadian dollars, are translated into U.S. dollars using the current rate method.  Accordingly, assets and liabilities are translated at period-end exchange rates while revenue, expenses and cash flows are translated at reporting period weighted average exchange rates.  Adjustments resulting from these translations are accumulated and reported as the principal component of other comprehensive loss in stockholders’ equity.


The fluctuation in the exchange rates resulted in foreign currency translation gains reflected in comprehensive gain in stockholders’ equity of $754 at August 31, 2011.  Future changes in the value of the U.S. dollar to Canadian dollar could have a material impact on our financial position.




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ITEM 4T. CONTROLS AND PROCEDURES


Evaluation of Disclosure Controls and Procedures


In connection with the preparation of this quarterly report on Form 10-Q, an evaluation was carried out by our management, with the participation of the Chief Executive, Principal Financial and Accounting Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 ("Exchange Act")) as of August 31, 2011. Based on that evaluation the Chief Executive, Principal Financial and Accounting Officer has concluded that, as of the end of the period covered by this report, there was a material weakness in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the issuer’s annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness relates to the lack of monitoring or review of work performed by our management and lack of segregation of duties.  As of August 31, 2011, in the preparation of audited financial statements, footnotes and financial data, all of our financial reporting was carried out solely by our chief financial and accounting officer and we did not have an audit committee to monitor and review the work performed. The lack of segregation of duties resulted from lack of accounting staff with accounting technical expertise necessary for an effective system of internal control. Based on this evaluation the Chief Executive and Principal Financial Officer has concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures were not  effective.


Our management, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.  Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. To address the material weaknesses, we performed additional analysis and other post-closing procedures in an effort to ensure our consolidated financial statements included in this report have been prepared in accordance with generally accepted accounting principles.  Accordingly, management believes that the financial statements included in this report fairly present in all material respects our financial condition, results of operations and cash flows for the periods presented.


Changes in Internal Controls over Financial Reporting

There were no changes in our internal control over financial reporting (as defined in Rule 13(a)-15(f) or 15(d)-15(f)) that occurred during the period covered by this quarterly report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Limitations on the Effectiveness of Internal Controls

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.




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PART II. OTHER INFORMATION


ITEM 1.  LEGAL PROCEEDINGS


We are not currently involved in any litigation, nor do we know of any threatened litigation against us that would have a material effect on our financial condition.


ITEM 1A.  RISK FACTORS


Not applicable.


ITEM 2.  UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS


No shares were issued during the 3 month period ended August 31, 2011


ITEM 3.  DEFAULTS UPON SENIOR SECURITIES


None.


ITEM 4.  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS


None.


ITEM 5.  OTHER INFORMATION


None


ITEM 6.  EXHIBITS


No.

Description

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------------------------------------------------------------------------------

31

Certification of Michael Holloran Pursuant to

Section 302 of the -Sarbanes-Oxley Act of 2002, filed herewith

32

Certification of Michael F. Holloran Pursuant to 18 U.S.C.

Section 1350, as Adopted Pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002, filed herewith




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SIGNATURES



Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.




INTELLIGENT LIVING CORP


By: /s/ Michael F. Holloran

-------------------------------------

Michael F. Holloran

President, Chief Executive Officer, and

Principal Financial and Accounting Officer


Dated:  October 17, 2011




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