Attached files

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EX-5.1 - OPINION OF ANSLOW & JACLIN, LLP. - Intelligent Highway Solutions, Inc.fs12012a5ex5i_intelligent.htm
EX-23 - CONSENT OF SAM KAN & COMPANY. - Intelligent Highway Solutions, Inc.fs12012a4ex23i_intelligent.htm
EX-4.7 - PROMISSORY NOTE DATED APRIL 29, 2011 SECOND AND THIRD ADDENDUM. - Intelligent Highway Solutions, Inc.fs12012a4ex4vii_intelligent.htm
EX-4.8 - CONVERTIBLE DEBENTURE DATED OCTOBER 19, 2012. - Intelligent Highway Solutions, Inc.fs12012a5ex4viii_intelligent.htm
EX-10.14 - COPY OF MICHAEL J. SULLIVAN EMPLOYMENT AGREEMENT DATED OCTOBER 4, 2012. - Intelligent Highway Solutions, Inc.fs12012a4ex10xiv_intelligent.htm


 
 UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
 
 
FORM S-1/A
AMENDMENT NO.5 TO THE
 
 
REGISTRATION STATEMENT
 
 
UNDER
 
 
THE SECURITIES ACT OF 1933
 
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
(Exact name of registrant in its charter)
 
Nevada
 
1731
 
30-0680119
(State or other jurisdiction of incorporation)
 
(Primary Standard Industrial Classification Code Number)
 
(I.R.S. Employer Identification No.)
         
 
8 Light Sky Court
Sacramento, CA 95828
Tel.: (916) 379-0324
 (Address, including zip code, and telephone number,
including area code, of registrant’s principal executive offices)
 
Copies of communications to:
Gregg E. Jaclin, Esq.
Anslow & Jaclin, LLP
195 Route 9 South, Suite204
Manalapan, NJ 07726
Tel. No.: (732) 409-1212
 Fax No.: (732) 577-1188
 
If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box. o
 
If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
 
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.o
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer
o
 
Accelerated filer
o
Non-accelerated filer (Do not check if a smaller reporting company)
o
 
Smaller reporting company
x
 
 
 
CALCULATION OF REGISTRATION FEE
 
Title of Each Class Of Securities to be Registered
 
Amount to be
Registered
(1)
   
Proposed Maximum
Offering
Price per share (2)
   
Proposed Maximum
Aggregate
Offering Price
   
Amount of
Registration Fee
 
Common Stock, $0.00001 par value per share
   
775,000
   
$
0.25
   
$
193,750
   
$
26.43
 
 
  (1) This Registration Statement covers the resale by our selling shareholders of up to 775,000 shares of common stock previously issued to such selling shareholders.
 
(2) The offering price has been estimated solely for the purpose of computing the amount of the registration fee in accordance with Rule 457(o). Our common stock is not traded on any national exchange and in accordance with Rule 457; the offering price was determined by the price of the shares that were sold to our shareholders in a private placement memorandum. The price of $0.25 is a fixed price at which the selling security holders may sell their shares until our common stock is quoted on the OTCBB at which time the shares may be sold at prevailing market prices or privately negotiated prices. There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.
 
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF THE SECURITIES ACT OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SUCH SECTION 8(a), MAY DETERMINE.
 
The information in this preliminary prospectus is not complete and may be changed. These securities may not be sold until the registration statement filed with the U.S. Securities and Exchange Commission (“SEC”) is effective. This preliminary prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any jurisdiction where the offer or sale is not permitted.
 
 
 
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
 
PRELIMINARY PROSPECTUS
SUBJECT TO COMPLETION
DATED  September 14, 2012
  
INTELLIGENT HIGHWAY SOLUTIONS, INC.
 
775,000 SHARES OF COMMON STOCK
 
The selling security holders named in this prospectus are offering all of the shares of common stock offered through this prospectus.  We will not receive any proceeds from the sale of the common stock covered by this prospectus.
 
The selling security holders are offering 775,000 shares of the Company’s common stock at $0.25 per share.  The aggregate net proceeds that the selling shareholders will receive in this offering assuming all of the shares are sold at the offering price are $193,750.  We will not receive any proceeds from the sale of the shares.  We do not have any agreement with an underwriter.
 
Our common stock is presently not traded on any market or securities exchange. The selling security holders have not engaged any underwriter in connection with the sale of their shares of common stock.  Common stock being registered in this registration statement may be sold by selling security holders at a fixed price of $0.25 per share until our common stock is quoted on the OTC Bulletin Board (“OTCBB”) and thereafter at a prevailing market prices or privately negotiated prices or in transactions that are not in the public market. The aggregate net proceeds that the selling shareholders will receive assuming all shares are sold at a fixed price of $0.25 per share is $193,750.  There can be no assurance that a market maker will agree to file the necessary documents with the Financial Industry Regulatory Authority (“FINRA”), which operates the OTCBB, nor can there be any assurance that such an application for quotation will be approved. We have agreed to bear the expenses relating to the registration of the shares of the selling security holders.
 
Intelligent Highway Solutions, Inc. is an emerging growth company, as defined in Section 2(a) of the Securities Act of 1933.
 
Investing in our common stock involves a high degree of risk. See “Risk Factors” beginning on page 2 to read about factors you should consider before buying shares of our common stock.
 
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES COMMISSION HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR DETERMINED IF THIS PROSPECTUS IS TRUTHFUL OR COMPLETE. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.  
 
The Date of This Prospectus is: [                 ], 2012
 
 
 
 
PAGE
Prospectus Summary
1
Risk Factors
3
Use of Proceeds
8
Determination of Offering Price
8
Dilution
8
Selling Shareholders
8
Plan of Distribution
10
Interests of Named Experts and Counsel
11
Description of Business
12
Description of Property
16
Legal Proceedings
17
Market for Common Equity and Related Stockholder Matters
17
Index to Financial Statements
F-
Management Discussion and Analysis of Financial Condition and Financial Results
18
Plan of Operations
20
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
25
Directors, Executive Officers, Promoters and Control Persons
25
Executive Compensation
26
Security Ownership of Certain Beneficial Owners and Management
27
Transactions with Related Persons, Promoters and Certain Control Persons
28
 
 
PROSPECTUS SUMMARY
 
This summary highlights selected information contained elsewhere in this prospectus.  This summary does not contain all the information that you should consider before investing in the common stock.  You should carefully read the entire prospectus, including “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Financial Statements, before making an investment decision. In this Prospectus, the terms “IHS” “Company,” “we,” “us” and “our” refer to Intelligent Highway Solutions, Inc.
 
Overview
 
Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was incorporated on April 22, 2011 and has acquired the rights to perform service and maintenance for the California Department of Transportation See the section following titled “Michael Sullivan Contracts” for a more in depth discussion.  Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.
 
The Company will distinguish itself through a product line including a new wireless and battery-less traffic sensor, used to measure traffic flow-rate, speed, and approximate vehicle weight. The energy self-sufficient sensor will be reliable, easy to install, and affordable to maintain.
 
We have decided to “go public,” because we desire access to the equity market and improve liquidity.  In addition, the benefits to becoming public are ample.  With a public company, stock in the company can be used in part to finance acquisitions of other companies.  In addition, if we successfully create a public market for the company's shares, it will provide an irrefutable means to value of the company on a daily basis. In addition, going public will increase the prestige and visibility of the company.  However, there are also drawbacks to being a public company.  We realize that management may lose some of its autonomy and may need shareholder approval to accomplish future goals.  In addition, we realize that the cost of registering our securities is a considerable expense, and we will also incur future reporting costs.  Lastly, we considered the ongoing time commitments of management to comply with initial and ongoing reporting requirements of the SEC. The cost of this offering after all expenses are considered is roughly $45,000.  Our future reporting costs will likely be several thousand dollars per year.  However, we believe that going public is worth incurring these costs and is a prudent business judgment.
 
Michael Sullivan Contracts
 
The Company has acquired nine (9) agreements from Michael J. Sullivan, with the California Department of Transportation (Caltrans) to provide service and maintenance for the Traffic Operation Services Network (TOSNET) in nine (9) of twelve (12) services districts. The agreements were executed in June 2011 and continue until May 2014, and may be extended for an additional one year period.
 
We purchased from Michael Sullivan several service contracts with the State of California Department of Transportation. All nine of these contracts are substantially similar and are for on-call, as needed maintenance and repair of traffic operations systems networks (“TOSNET”). Specifically, the contracts call for Intelligent Highway to provide on an on-call hourly rate, as needed basis, all labor, equipment, materials, and incidentals necessary for the maintenance of the communication infrastructure systems, network systems and associated equipment that comprise TOSNET. The maintenance will apply to voice, video, and data communications equipment and all facilities used to connect the Traffic Operation System (TOS) field elements to the Transportation Management Center (TMC). All of the contracts require the contractor to be properly licensed in accordance with the laws of the State of California and require a C-10 Electrical Contractor License or a combination of a Class A – General Engineering Contractor License and a C-7 Low Voltage System Contractor License. These contracts may be terminated at any time with 30 days notice by Caltrans.
 
Michael Sullivan continues to invoice Caltrans for work performed in conjunction with these agreements. Because Michael Sullivan did not have enough capital to begin performing the work immediately, he signed an agreement with Avalon Funding Corporation to receive money. As a result of this agreement, Caltrans pays Avalon Funding Corporation pursuant to the terms of their agreement, and Avalon pays Michael Sullivan. The money from these transactions is deposited into an account designated Sullivan/Intelligent Highway. We are then paid for services, labor, material, and other expenses by Michael Sullivan directly.
 
There are several risks associated with this arrangement. First, California may find that these contracts were not legally transferrable by Michael Sullivan. However, we have not had any issue to date with the assignability of these contracts, but we have not received a formal legal opinion as to our rights and liabilities under these contracts. Second, under California law, we may be found to be an expatriate corporation in violation of the original contract between Caltrans and Michael Sullivan. California Public Contract Code Section 10286.1 defines Expatriate Corporation and disallows expatriate corporations from entering into procurement contracts with the State of California. Again, as a Nevada corporation, we have had no issue with the current arrangement, whereby we are performing the work called for by the contracts, in lieu of Michael J. Sullivan, but we have not received a formal legal opinion as to our rights and liabilities as such.
 
Our Operations
Intelligent Highway Solutions, Inc. provides services for Caltrans. These services include all labor, materials, tools, equipment, and incidentals necessary for the corrective and preventive maintenance of nine (9) service districts throughout the state of California. The intent and purpose of these nine (9) agreements is to perform necessary maintenance required to keep these hubs fully functional at all times. The Hubs shall remain fully integrated at all times with all of the component items in the Traffic Operations Systems Networks (TOSNET) system. It is the responsibility of Intelligent Highway Solutions, Inc. to coordinate its activities with other contractors involved in various other contracts to ensure full TOSNET systems' functionality.
 
Business Plan
 
IHS plans on expanding beyond the service business and plans to become more involved with all aspects of the Intelligent Traffic Signal (ITS) sector. Beginning in late 2012, the Company plans to introduce a self-sufficient, battery-less and wireless traffic detector that will eliminate the need for wired, energy-consuming loop detection systems. The Company also plans to expand its operations into neighboring states. Below is a list of our three phases we plan to carry out:
 
 
Phase One: The TOSNET contract with Caltrans will be closing on May, 2014; there will be another bid cycle for a new, three (3) year agreement. We plan to expand this segment of the business to include similar agreements with counties and local districts throughout the State, as well as expand to neighboring states.
 
Phase Two: Growth will occur in the installation division: this includes, but is not limited, to the installation of new technology that IHS intends to license, acquire and/or develop. It also includes expansion beyond the borders of California.
 
Phase Three: Introduction of the Company’s proprietary Technology, including, but not limited to, a new traffic sensor that will be both wireless and battery-less, and can be embedded in the road and used to measure traffic flow, speed, and approximate vehicle weight.
 
Development Stage Company Status
 
Based on our financial history since inception, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage company that has generated very little revenue and have limited tangible assets. Our company has a limited operating history and must be considered in the development stage. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to on a profitable basis. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.
 
Emerging Growth Company Status
 
We are an “emerging growth company,” as defined in Section 2(a) of the Securities Act of 1933, or the Securities Act, as modified by the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As such, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not “emerging growth companies” including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a non-binding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We have not made a decision whether to take advantage of any or all of these exemptions. If we do take advantage of any of these exemptions, we do not know if some investors will find our common stock less attractive as a result. The result may be a less active trading market for our common stock and our stock price may be more volatile.
 
In addition, Section 107 of the JOBS Act also provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies. We intend to take advantage of the benefits of this extended transition period.
 
We could remain an “emerging growth company” for up to five years, or until the earliest of (a) the last day of the first fiscal year in which our annual gross revenues exceed $1 billion, (b) the date that we become a “large accelerated filer” as defined in Rule 12b-2 under the Exchange Act, which would occur if the market value of our common stock that is held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, or (c) the date on which we have issued more than $1 billion in non-convertible debt during the preceding three-year period.
 
Where You Can Find Us
 
Our principal executive office is located at 8 Sky Light Court, Sacramento, CA 95828 and our telephone number is (916) 379-0324. Our website is www.IntelligentHighwaySolutions.com.
 
The Offering
 
Common stock offered by selling security holders
 
775,000 shares of common stock. This number represents 6.5% of our current outstanding common stock (1).
     
Common stock outstanding before the offering
 
10,404,666 common shares
     
Common stock outstanding after the offering
 
10,404,666 common shares as of November 8, 2012.
     
Terms of the Offering
 
The selling security holders will determine when and how they will sell the common stock offered in this prospectus.  The selling security holders will sell at a fixed price of $0.25 per share until our common stock is quoted on the OTC Bulletin Board, and thereafter at prevailing market prices or privately negotiated prices or in transactions that are not in the public market.
     
Termination of the Offering
 
The offering will conclude upon the earliest of (i) such time as all of the common stock has been sold pursuant to the registration statement or (ii) such time as all of the common stock becomes eligible for resale without volume limitations pursuant to Rule 144 under the Securities Act, or any other rule of similar effect.
     
Use of proceeds
 
We are not selling any shares of the common stock covered by this prospectus.
     
Risk Factors
 
The Common Stock offered hereby involves a high degree of risk and should not be purchased by investors who cannot afford the loss of their entire investment. See “Risk Factors” beginning on page 2.
     
(1)      Based on 10,404,666 shares of common stock outstanding as of November 8, 2012.
 
 
RISK FACTORS
 
The shares of our common stock being offered for resale by the selling security holders are highly speculative in nature, involve a high degree of risk and should be purchased only by persons who can afford to lose the entire amount invested in the common stock. Before purchasing any of the shares of common stock, you should carefully consider the following factors relating to our business and prospects. If any of the following risks actually occurs, our business, financial condition or operating results could be materially adversely affected. In such case, you may lose all or part of your investment.  You should carefully consider the risks described below and the other information in this process before investing in our common stock.
 
Risks Related to Our Business
 
OUR INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM HAS EXPRESSED SUBSTANTIAL DOUBT AS TO OUR ABILITY TO CONTINUE AS A GOING CONCERN.
 
Based on our financial history since inception, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage company that has generated very little revenue.  If we are unable to successfully implement our business, then we may be unable to continue to operate.
 
WE HAVE LIMITED OPERATING HISTORY AND FACE MANY OF THE RISKS AND DIFFICULTIES FREQUENTLY ENCOUNTERED BY DEVELOPMENT STAGE COMPANY.
 
We are a development stage company, and to date, our development efforts have been focused primarily on the development and marketing of our business model. We have limited operating history for investors to evaluate the potential of our business development. We have not built our customer base and our brand name. In addition, we also face many of the risks and difficulties inherent in gaining market share as a new company:
 
        Develop effective business plan;
        Meet customer standard;
        Attain customer loyalty;
        Develop and upgrade our service;
 
Our future will depend on our ability to bring our service to the market place, which requires careful planning of providing a product that meets customer standards without incurring unnecessary cost and expense.
 
WE NEED ADDITIONAL CAPITAL TO DEVELOP OUR BUSINESS.
 
The development of our services will require the commitment of substantial resources to implement our business plan. Currently, we have no established bank-financing arrangements. Therefore, it is likely we would need to seek additional financing through subsequent future private offering of our equity securities, or through strategic partnerships and other arrangements with corporate partners. We have no current plans for additional financing.
 
We cannot give you any assurance that any additional financing will be available to us, or if available, will be on terms favorable to us. The sale of additional equity securities will result in dilution to our stockholders. The occurrence of indebtedness would result in increased debt service obligations and could require us to agree to operating and financing covenants that would restrict our operations. If adequate additional financing is not available on acceptable terms, we may not be able to implement our business development plan or continue our business operations.
 
CALTRANS MAY TERMINATE OUR CONTRACTUAL RELATIONSHIP ON ALL OF OUR CONTRACTS AT ANY TIME UPON GIVING 30 DAYS NOTICE.
 
While we do not expect Caltrans to terminate our contract, under the terms of the contracts between Michael J. Sullivan and Caltrans, which we have since acquired, Caltrans has the power to terminate our relationship with thirty days notice. If Caltrans were to terminate one or all of our agreements, we currently have no other means to replace this revenue.
 
BECAUSE A SMALL NUMBER OF CLIENTS ACCOUNT FOR A SUBSTANTIAL PORTION OF OUR REVENUES, THE LOSS OF ANY OF THESE CLIENTS, OR A DECREASE IN THEIR USE OF OUR SERVICES, COULD CAUSE OUR REVENUES TO DECLINE AND LOSSES TO INCREASE SUBSTANTIALLY.
 
Revenues from our services to a limited number of clients have accounted for a substantial percentage of our total revenues.  For the year ended December 31, 2011, our only client, the State of California, accounted for 100% of revenues. The nine (9) contracts with the State of California, all expire during the year 2014. Therefore, these contracts may cease producing revenue in 2014.
 
OUR BUSINESS IS VULNERABLE TO FLUCTUATIONS IN GOVERNMENT SPENDING AND SUBJECT TO ADDITIONAL RISKS AS A RESULT OF THE GOVERNMENT CONTRACTING PROCESS, WHICH OFTEN INVOLVES RISKS NOT PRESENT IN THE COMMERCIAL CONTRACTING PROCESS.
 
Because our contracts are with government entities, our business is subject to a number of risks, including global economic developments, wars, political and economic instability, election results, changes in the tax and regulatory environments, foreign exchange rate volatility and fluctuations in government spending. Because our client is the State of California with a variable and uncertain budget, the amount of business that we might receive from the entities may vary from year to year, regardless of the perceived quality of our business.
 
Moreover, competitive bidding for government contracts presents a number of risks that are not typically present in the commercial contracting process, including:
 
 
the need to devote substantial time and attention of our management team and key personnel to the preparation of bids and proposals for contracts that may not be awarded to us; and
 
 
the expenses that we might incur and the delays and revenue loss that we might suffer if our competitors protest or challenge contract awards made to us pursuant to competitive bidding. Such a protest or challenge could result in the resubmission of bids based on modified specifications, or in the termination, reduction or modification of the awarded contract.
 
If we are unable to consistently win new government contract awards over an extended period, or if we fail to anticipate all of the costs and resources that will be required to secure such contract awards, our growth strategy and our business, financial condition and operating results could be materially adversely affected.
 
OUR CONTRACTS FOR SERVICES WERE ACQUIRED FROM MICHAEL SULLIVAN WHO HAD WON SUCCESSFUL BIDDING COMPETITIONS HELD BY THE STATE OF CALIFORNIA, DEPARTMENT OF TRANSPORTATION.
 
We have not had any issue to date with the assignability of these contracts, but we have not received a formal legal opinion as to our rights and liabilities under these contracts. The agreement can be assigned either in whole or part, with the consent of the State in the form of a formal written amendment. We have operated under our current arrangement for 14 months, all invoices and services have been and continue to be provided without any disruption.  We may in the future enter into a formal amendment, however, we have not yet entered into an amendment to assign the Caltrans contracts.  Accordingly, we have not obtained consent from Caltrans to enter into an amendment.  If the Company and Michael J. Sullivan fail to obtain the consent of Caltrans to assign the Caltrans contracts, then the contracts will stay in Michael J. Sullivan’s name.

OUR CONTRACTS FOR SERVICES WERE PURCHASED FROM MICHAEL SULLIVAN WHO HAS THE ABILITY TO WITHDRAW FROM THE PURCHASE AGREEMENT OR RESELL THE CALTRANS CONTRACTS TO A THIRD PARTY.
 
We purchased the Caltrans contracts from Michael Sullivan.  Michael Sullivan may terminate this agreement at any time and/or resell the Caltrans contracts to a third party without the consent of the Company.  However, if Mr. Sullivan resells the contracts, we may sue Mr. Sullivan for breach of contract under the purchase agreement for the Caltrans contracts.
 
THE STATE OF CALIFORNIA, DEPARTMENT OF TRANSPORTATION REQUIRES THAT THE CALTRANS CONTRACTS BE GIVEN TO A CONTRACTOR WITH A C-10 ELECTRICAL LICENSE.  FAILURE TO MAINTAIN THE LICENSE MAY RESULT IN TERMINATION OF THE CONTRACTS.

The Caltrans Contracts were bid on and awarded to Michael Sullivan.  Accordingly, Michael Sullivan is required to have a C-10 Electrical License.  Currently, Michael Sullivan has a C-10 Electrical License.  If Michael Sullivan’s license was suspended, then the Company would have to have Michael Sullivan assign the Caltrans contracts so the contracts would be held by a contractor with a current C-10 Electrical License.  However, if the Company’s C-10 Electrical License is suspended, the State can terminate the contracts.  However, at this time, both Michael Sullivan and the Company hold active C-10 Electrical licenses.
 
FAILURE TO ACHIEVE FAVORABLE RENEWALS OF CLIENT CONTRACTS COULD NEGATIVELY IMPACT OUR BUSINESS. OUR CONTRACTS WITH OUR CLIENTS RUN FOR A PERIOD OF THREE (3) YEARS. AT THE END OF THE CONTRACT TERM, CLIENTS HAVE THE OPPORTUNITY TO RENEGOTIATE THEIR CONTRACTS WITH US AND TO CONSIDER WHETHER TO ENGAGE ONE OF OUR COMPETITORS TO PROVIDE PRODUCTS AND SERVICES. IN ADDITION, IT IS POSSIBLE THAT CLIENTS COULD SEEK TO RENEGOTIATE TERMS WITH US. IF WE ARE NOT SUCCESSFUL IN ACHIEVING HIGH RENEWAL RATES AND FAVORABLE CONTRACT TERMS, OUR RESULTS OF OPERATIONS AND FINANCIAL CONDITION MAY BE ADVERSELY AFFECTED.
 
 
4

 
 
In fiscal 2011, we generated all of our total revenues from contracts with the State of California. For the foreseeable future, we expect to continue to derive most of our revenues from work performed under contracts with the State of California. Our reputation and relationship with the State of California are key factors in maintaining and growing these revenues. Negative press reports regarding conflicts of interest, poor contract performance, employee misconduct, information security breaches or other aspects of our business, regardless of accuracy, could harm our reputation, particularly with these agencies. If our reputation is negatively affected, or if we are suspended or debarred (or proposed for suspension or debarment) from contracting with the State of California for any reason, the amount of business with the State of California would decrease and our future revenues and growth prospects would be adversely affected.
 
Most of our customer relationships are not exclusive and in certain circumstances may be terminated by our customers. Our customers can reassess their commitments to us at any time in the future and/or develop their own competitive services. Accordingly, our business agreements with customers may not reduce the risk inherent in our business that customers may terminate their relationships with us in favor of relationships with our competitors, or for other reasons, or might not meet their contractual obligations to us.
 
THE CONTRACT BETWEEN MICHAEL SULLIVAN AND CALTRANS HAS A PROVISION WHICH LIMITS EXPATRIATE CORPORATIONS FROM BEING AWARDED CONTRACTS IN CALIFORNIA.
 
Under California law, we may be found to be an expatriate corporation in violation of the original contract between Caltrans and Michael Sullivan.  To date we have had no issue with the current arrangement, whereby we are performing the work called for by the contracts, in lieu of Michael J. Sullivan.
 
WE ARE HIGHLY DEPENDENT ON OUR SENIOR MANAGEMENT AND THE CONTINUED PERFORMANCE AND PRODUCTIVITY OF OUR LOCAL MANAGEMENT AND FIELD PERSONNEL.
 
We are highly dependent on the continued efforts of the members of our senior management. We are also highly dependent on the performance and productivity of our local management and field personnel. The loss of any of the members of our senior management may cause a significant disruption in our business. In addition, the loss of any of our local managers or field personnel may jeopardize existing customer relationships with businesses that use our services based on relationships with these individuals. The loss of the services of members of our senior management could have a material adverse effect on our business.
 
OUR ABILITY TO CONTINUE TO DEVELOP AND EXPAND OUR SERVICE OFFERINGS TO ADDRESS EMERGING BUSINESS DEMANDS AND TECHNOLOGICAL TRENDS WILL IMPACT OUR FUTURE GROWTH.  IF WE ARE NOT SUCCESSFUL IN MEETING THESE BUSINESS CHALLENGES, OUR RESULTS OF OPERATIONS AND CASH FLOWS WILL BE MATERIALLY AND ADVERSELY AFFECTED.
 
Our ability to implement solutions for our customers incorporating new developments and improvements in technology which translate into productivity improvements for our customers and to develop service offerings that meet the current and prospective customers’ needs are critical to our success.  The markets we serve are highly competitive.  Our competitors may develop solutions or services which make our offerings obsolete.  Our ability to develop and implement up to date solutions utilizing new technologies which meet evolving customer needs in consulting and systems integration and technology outsourcing markets will impact our future revenue growth and earnings.

THE LACK OF PUBLIC COMPANY EXPERIENCE OF OUR MANAGEMENT TEAM COULD ADVERSELY IMPACT OUR ABILITY TO COMPLY WITH THE REPORTING REQUIREMENTS OF U.S. SECURITIES LAWS.
 
Our executive officers lack public company experience, which could impair our ability to comply with legal and regulatory requirements such as those imposed by Sarbanes-Oxley Act of 2002. Our CEO has never been responsible for managing a publicly traded company. Such responsibilities include complying with federal securities laws and making required disclosures on a timely basis. Our management may not be able to implement programs and policies in an effective and timely manner that adequately respond to such increased legal, regulatory compliance and reporting requirements, including establishing and maintaining internal controls over financial reporting.  Any such deficiencies, weaknesses or lack of compliance could have a materially adverse effect on our ability to comply with the reporting requirements of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) which is necessary to maintain our public company status. If we were to fail to fulfill those obligations, our ability to continue as a U.S. public company would be in jeopardy in which event you could lose your entire investment in our company. 

OUR CHIEF FINANCIAL OFFICER, PHILIP KIRKLAND, LACKS EXPERIENCE IN PUBLIC COMPANY ACCOUNTING. IF WE FAIL TO MAINTAIN AN EFFECTIVE SYSTEM OF INTERNAL CONTROLS, WE MAY NOT BE ABLE TO ACCURATELY REPORT OUR FINANCIAL RESULTS. AS A RESULT, CURRENT AND POTENTIAL STOCKHOLDERS COULD LOSE CONFIDENCE IN OUR FINANCIAL REPORTING WHICH, IN TURN, COULD HARM OUR BUSINESS AND THE TRADING PRICE OF OUR COMMON STOCK.
 
We are subject to reporting obligations under the U.S. securities laws. The Securities and Exchange Commission, or the SEC, as required by Section 404 of the Sarbanes-Oxley Act of 2002, adopted rules requiring every public company to include a management report on such company’s internal controls over financial reporting in its annual report, which contains management’s assessment of the effectiveness of the company’s internal controls over financial reporting. In addition, an independent registered public accounting firm must attest to and report on management’s assessment of the effectiveness of the company’s internal controls over financial reporting.  Our management may conclude that our internal controls over our financial reporting are not effective. Moreover, even if our management concludes that our internal controls over financial reporting are effective, our independent registered public accounting firm may still decline to attest to our management’s assessment or may issue a report that is qualified if they are not satisfied with our controls or the level at which our controls are documented, designed, operated or reviewed, or if it interprets the relevant requirements differently from us.  Our reporting obligations as a public company will place a significant strain on our management, operational and financial resources and systems for the foreseeable future.  If we fail to timely achieve and maintain the adequacy of our internal controls, we may not be able to conclude that we have effective internal controls over financial reporting at a reasonable assurance level.  Moreover, effective internal controls over financial reporting are necessary for us to produce reliable financial reports and are important to help prevent fraud.  As a result, our failure to achieve and maintain effective internal controls over financial reporting could result in the loss of investor confidence in the reliability of our financial statements, which in turn could harm our business and negatively impact the trading price of our common stock.  Furthermore, we anticipate that we will incur considerable costs and use significant management time and other resources in an effort to comply with Section 404 and other requirements of the Sarbanes-Oxley Act. As of the date of this prospectus we do not have an estimate of the costs to the company of compliance with the Act. Additionally, the Company retains Mr. Christian Carnell, CPA, who is responsible for the preparation of the Company’s financial statements, daily bookkeeping and performs most of the internal controls. Mr. Carnell graduated with a bachelor’s degree in accounting from the University of Utah in 2009 and received a CPA license through the State of California in 2010. He has worked almost exclusively as an outsourced accountant and consultant since that time for both private and publicly held companies providing business administration and accounting expertise, business formation and structuring, financial modeling and forecasting as well as financial statement preparation. He has obtained substantial experience and training with respect to internal controls from his work experience and on the job training regarding appropriate accounting procedures, treatment and controls.

We have not yet begun preparing for compliance with Section 404, but we are aware we must do so by strengthening, assessing and testing our system of internal controls to provide the basis for our report.  The process of strengthening our internal controls and complying with Section 404 is expensive and time consuming, and requires significant management attention.  We cannot be certain that these measures will ensure that we will maintain adequate controls over our financial processes and reporting in the future.  Furthermore, as we grow our business, our internal controls will become more complex and will require significantly more resources to ensure our internal controls overall remain effective.  Failure to implement required new or improved controls, or difficulties encountered in their implementation, could harm our operating results or cause us to fail to meet our reporting obligations.  If we or our auditors discover a material weakness, the disclosure of that fact, even if quickly remedied, could reduce the market's confidence in our financial statements and harm our stock price.
 
 
Risk Related To Our Capital Stock
 
WE MAY NEVER PAY ANY DIVIDENDS TO SHAREHOLDERS.
 
We have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future earnings, if any, to support operations and to finance expansion and therefore we do not anticipate paying any cash dividends on our common stock in the foreseeable future.
 
The declaration, payment and amount of any future dividends will be made at the discretion of the board of directors, and will depend upon, among other things, the results of our operations, cash flows and financial condition, operating and capital requirements, and other factors as the board of directors considers relevant. There is no assurance that future dividends will be paid, and, if dividends are paid, there is no assurance with respect to the amount of any such dividend. 
 
OUR ARTICLES OF INCORPORATION PROVIDE FOR INDEMNIFICATION OF OFFICERS AND DIRECTORS AT OUR EXPENSE AND LIMIT THEIR LIABILITY WHICH MAY RESULT IN A MAJOR COST TO US AND HURT THE INTERESTS OF OUR SHAREHOLDERS BECAUSE CORPORATE RESOURCES MAY BE EXPENDED FOR THE BENEFIT OF OFFICERS AND/OR DIRECTORS.  
 
Our articles of incorporation and applicable Nevada law provide for the indemnification of our directors, officers, employees, and agents, under certain circumstances, against attorney’s fees and other expenses incurred by them in any litigation to which they become a party arising from their association with or activities on our behalf. We will also bear the expenses of such litigation for any of our directors, officers, employees, or agents, upon such person’s written promise to repay us if it is ultimately determined that any such person shall not have been entitled to indemnification. This indemnification policy could result in substantial expenditures by us which we will be unable to recoup.
 
We have been advised that, in the opinion of the SEC, indemnification for liabilities arising under federal securities laws is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In the event that a claim for indemnification for liabilities arising under federal securities laws, other than the payment by us of expenses incurred or paid by a director, officer or controlling person in the successful defense of any action, suit or proceeding, is asserted by a director, officer or controlling person in connection with the securities being registered, we will (unless in the opinion of our counsel, the matter has been settled by controlling precedent) submit to a court of appropriate jurisdiction, the question whether indemnification by us is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. The legal process relating to this matter if it were to occur is likely to be very costly and may result in us receiving negative publicity, either of which factors is likely to materially reduce the market and price for our shares, if such a market ever develops.
 
WE ARE AN EMERGING GROWTH COMPANY WITHIN THE MEANING OF THE SECURITIES ACT, AND IF WE DECIDE TO TAKE ADVANTAGE OF CERTAIN EXEMPTIONS FROM VARIOUS REPORTING REQUIREMENTS APPLICABLE TO EMERGING GROWTH COMPANIES, OUR COMMON STOCK COULD BE LESS ATTRACTIVE TO INVESTORS.
 
We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act, or the JOBS Act. For as long as we continue to be an emerging growth company, we may take advantage of exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies, including not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and shareholder approval of any golden parachute payments not previously approved. We could be an emerging growth company for up to five years, although we could lose that status sooner if our revenues exceed $1 billion, if we issue more than $1 billion in non-convertible debt in a three year period, or if the market value of our common stock held by non-affiliates exceeds $700 million as of the last business day of our most recently completed second fiscal quarter, in which case we would no longer be an emerging growth company as of the following December 31. We cannot predict if investors will find our common stock less attractive because we may rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.
 
Under the JOBS Act, emerging growth companies can also delay adopting new or revised accounting standards until such time as those standards apply to private companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, will be subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.
    
THE OFFERING PRICE OF THE COMMON STOCK WAS DETERMINED BASED ON THE PRICE OF OUR PRIVATE OFFERING, AND THEREFORE SHOULD NOT BE USED AS AN INDICATOR OF THE FUTURE MARKET PRICE OF THE SECURITIES. THEREFORE, THE OFFERING PRICE BEARS NO RELATIONSHIP TO OUR ACTUAL VALUE, AND MAY MAKE OUR SHARES DIFFICULT TO SELL.
 
Since our shares are not listed or quoted on any exchange or quotation system, the offering price of $0.25 per share for the shares of common stock was determined based on the price of our private offering. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market. The offering price bears no relationship to the book value, assets or earnings of our company or any other recognized criteria of value. The offering price should not be regarded as an indicator of the future market price of the securities.
 
 
YOU WILL EXPERIENCE DILUTION OF YOUR OWNERSHIP INTEREST BECAUSE OF THE FUTURE ISSUANCE OF ADDITIONAL SHARES OF OUR COMMON STOCK AND OUR PREFERRED STOCK.
 
In the future, we may issue our authorized, but previously unissued equity securities, resulting in the dilution of the ownership interests of our present stockholders. We are currently authorized to issue an aggregate of 100,000,000 shares of capital stock consisting of 100,000,000 shares of common stock, par value $0.00001 per share.
 
We may also issue additional shares of our common stock or other securities that are convertible into or exercisable for common stock in connection with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our common stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance that we will not be required to issue additional shares, warrants or other convertible securities in the future in conjunction with hiring or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes or for other business purposes, including at a price (or exercise prices) below the price at which shares of our common stock will be quoted on the OTCBB.
 
OUR COMMON STOCK IS CONSIDERED A PENNY STOCK, WHICH MAY BE SUBJECT TO RESTRICTIONS ON MARKETABILITY, SO YOU MAY NOT BE ABLE TO SELL YOUR SHARES.
 
If our common stock becomes tradable in the secondary market, we will be subject to the penny stock rules adopted by the Securities and Exchange Commission that require brokers to provide extensive disclosure to their customers prior to executing trades in penny stocks. These disclosure requirements may cause a reduction in the trading activity of our common stock, which in all likelihood would make it difficult for our shareholders to sell their securities.
 
Penny stocks generally are equity securities with a price of less than $5.00 (other than securities registered on certain national securities exchanges or quoted on the NASDAQ system). Penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and monthly account statements showing the market value of each penny stock held in the customer’s account. The broker-dealer must also make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock and may affect your ability to resell our common stock.
 
THERE IS NO ASSURANCE OF A PUBLIC MARKET OR THAT OUR COMMON STOCK WILL EVER TRADE ON A RECOGNIZED EXCHANGE. THEREFORE, YOU MAY BE UNABLE TO LIQUIDATE YOUR INVESTMENT IN OUR STOCK.
 
There is no established public trading market for our common stock. Our shares have not been listed or quoted on any exchange or quotation system. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTCBB, nor can there be any assurance that such an application for quotation will be approved or that a regular trading market will develop or that if developed, will be sustained. In the absence of a trading market, an investor may be unable to liquidate their investment.
 
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
 
The information contained in this report, including in the documents incorporated by reference into this report, includes some statement that are not purely historical and that are “forward-looking statements.” Such forward-looking statements include, but are not limited to, statements regarding our and their management’s expectations, hopes, beliefs, intentions or strategies regarding the future, including our financial condition, results of operations. In addition, any statements that refer to projections, forecasts or other characterizations of future events or circumstances, including any underlying assumptions, are forward-looking statements. The words “anticipates,” “believes,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “might,” “plans,” “possible,” “potential,” “predicts,” “projects,” “seeks,” “should,” “would” and similar expressions, or the negatives of such terms, may identify forward-looking statements, but the absence of these words does not mean that a statement is not forward-looking.
 
The forward-looking statements contained in this report are based on current expectations and beliefs concerning future developments and the potential effects on the parties and the transaction. There can be no assurance that future developments actually affecting us will be those anticipated. These that may cause actual results or performance to be materially different from those expressed or implied by these forward-looking statements, including the following forward-looking statements involve a number of risks, uncertainties (some of which are beyond the parties’ control) or other assumptions.
 
USE OF PROCEEDS
 
We will not receive any proceeds from the sale of common stock by the selling security holders. All of the net proceeds from the sale of our common stock will go to the selling security holders as described below in the sections entitled “Selling Security Holders” and “Plan of Distribution”.  We have agreed to bear the expenses relating to the registration of the common stock for the selling security holders.
 
DETERMINATION OF OFFERING PRICE
 
Since our common stock is not listed or quoted on any exchange or quotation system, the offering price of the shares of common stock was determined by the price of the common stock that was sold to our security holders pursuant to an exemption under Section 4(2) of the Securities Act of 1933 and Rule 506 of Regulation D promulgated under the Securities Act of 1933.
 
The offering price of the shares of our common stock does not necessarily bear any relationship to our book value, assets, past operating results, financial condition or any other established criteria of value. The facts considered in determining the offering price were our financial condition and prospects, our limited operating history and the general condition of the securities market.
 
Although our common stock is not listed on a public exchange, we will be filing to obtain a listing on the OTCBB concurrently with the filing of this prospectus. In order to be quoted on the OTCBB, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved.
 
In addition, there is no assurance that our common stock will trade at market prices in excess of the initial offering price as prices for the common stock in any public market which may develop will be determined in the marketplace and may be influenced by many factors, including the depth and liquidity.
 
DILUTION
 
The common stock to be sold by the selling shareholders as provided in the “Selling Security Holders” section is common stock that is currently issued. Accordingly, there will be no dilution to our existing shareholders.
 
SELLING SECURITY HOLDERS
 
The common shares being offered for resale by the selling security holders consist of 775,000 shares of our common stock held by 31 shareholders. Such shareholders include: (i) the holders of 220,000 shares issued for services provided to the Company pursuant to an exemption under Section 4(2) on June 17, 2011; (ii) the holders of 200,334 shares sold in our private offering pursuant to Regulation D Rule 506 completed on March 1, 2012 at an offering price of $0.0253 (of which 27% of those shares are being registered herein); (iii) the holders of 66,666 shares sold in our private offering pursuant to Regulation D Rule 506 completed on April 1, 2012 at an offering price of $0.15; (iv) the holders of 88,000 shares sold in our private offering pursuant to Regulation D Rule 506 completed in May 2012 at an offering price of $0.25; (v) the holders of 20,000 shares issued to Anslow & Jaclin, LLP and their associates for services rendered; (vi) the holders of 80,000 shares issued to Innovest, LLC as loan and extension fees pursuant to a loan agreement on June 17, 2011 for 40,000 shares, a loan extension agreement on December 17, 2011 for 20,000 and a loan extension agreement on March 15, 2011 for 20,000 shares; and (vii) the holders of 100,000 shares underlying the convertible note entered into on October 19, 2012.
 
 
The following table sets forth the names of the selling security holders, the number of shares of common stock beneficially owned by each of the selling stockholders as of  November 8 , 2012 and the number of shares of common stock being offered by the selling stockholders. The shares being offered hereby are being registered to permit public secondary trading, and the selling stockholders may offer all or part of the shares for resale from time to time. However, the selling stockholders are under no obligation to sell all or any portion of such shares nor are the selling stockholders obligated to sell any shares immediately upon effectiveness of this prospectus. All information with respect to share ownership has been furnished by the selling stockholders.
 
Name of Selling Stockholder
Shares Beneficially Owned prior to Offering
Percentage Beneficially Owned prior to Offering
Shares to Offer
Shares Beneficially Owned after Offering
Percentage Beneficially Owned After Offering
Emerging Markets Consultant, LLC (1)
750,000
7.21%
200,334
549,666
5.38%
Innovest, LLC (3)
80,000
*
80,000
-
-
Darren Sinopoli
66,666
*
66,666
-
-
Darrell Hom
30,000
*
30,000
-
-
Stephen Berry
20,000
*
20,000
-
-
Bertha Bryant & Tamiko Harper
20,000
*
20,000
-
-
High Water Capital Mgt, LLC (4)
20,000
*
20,000
-
-
Joseph Tigner Jr. & Sharmel Rutherford
20,000
*
20,000
-
-
Leon H. Taylor
20,000
*
20,000
-
-
Tyler James Teynor
20,000
*
20,000
-
-
Anslow & Jaclin, LLP (5)
20,000
*
20,000
-
-
Pairlee Berry
20,000
*
20,000
-
-
Nina Berry
10,000
*
10,000
-
-
AD & Janet Kirkland (7)
10,000
*
10,000
-
-
Denise & Aaron Ellison
10,000
*
10,000
-
-
Dwayne Ross & Brenda Love
10,000
*
10,000
-
-
John Carr
10,000
*
10,000
-
-
Bernard Burks
10,000
*
10,000
-
-
Theodis Ross
10,000
*
10,000
-
-
Joanne Carr
10,000
*
10,000
-
-
Michael Sullivan (10)
10,000
*
10,000
-
-
KP Bear, Inc. (6)
10,000
*
10,000
-
-
Deborah Irwin
10,000
*
10,000
-
-
Brett Rath
8,000
*
8,000
-
-
Kaliah Kirkland (8)
6,000
*
6,000
-
-
Mike Nielson
4,000
*
4,000
-
-
Philip Kirkland, Jr. (9)
4,000
*
4,000
-
-
David Hatton
2,000
*
2,000
-
-
Jimmy Dean Dowda
2,000
*
2,000
-
-
Ryan Painter (2)
2,000
*
2,000
-
-
Common stock issuable upon exercise of the Convertible Notes:
Ruth Shepley
100,000
*
100,000
-
-
Total
1,324,666
 
775,000
   
*Less than 1%
 
(1)
Jim Painter is the principal of Emerging Growth Consultant, LLC and has investment control of the shares of our common stock.
  (2) 
Ryan Painter is the wife of Jim Painter. She makes her own investment decisions.
(3)
Doug Powell is the principal of Innovest, LLC and has investment control of the shares of our common stock. On June 17, 2011, the Company received a loan in the amount of $65,000 from Innovest, LLC (“Innovest”). The loan is unsecured, bears a simple interest of 1.5% per month to be paid monthly for the previous month’s outstanding principal, and required the issuance of 40,000 shares of the Company’s common stock. The loan was originally due on December 17, 2011.  The note was then extended to June 17, 2012 in exchange for 20,000 shares of the Company’s common stock.  The note was then, extended to December 17, 2012 and the Company issued Innovest 20,000 shares of the Company’s common stock as extension fees.  The note has been extended to March 17, 2013 and Innovest is not asking for any more extension fees. As of December 31, 2011, $5,400 in interest has been paid with no interest accrued. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed this loan.  Originally, the Company intended to list the Company’s common stock on the Frankfurt Stock Exchange.  If the Company listed its stock on this exchange, then Innovest would be issued 0.4% of total shares of common stock listed or 100,000 shares of common stock.  However, after due diligence and further review, the Company decided that it was not in the best interests of the Company and its shareholders to list on this foreign exchange.  The Company is not required to issue any other stock to Innovest.
(4)
Sanford Whitehouse is the principal of High Water Capital Mgt., LLC and has investment control of the shares of our common stock.
(5)
Gregg Jaclin is a partner of Anslow & Jaclin, LLP and has investment control of the shares of our common stock.  Anslow & Jaclin, LLP is the Company’s legal counsel.
(6)
Kenneth Polk is the principal of KP Bear, Inc. and has investment control of the shares of our common stock.  On April 29, 2011 the Company received a loan in the amount of $62,500 from Kenneth K. Polk, a related party. The loan is secured by the Caltrans agreements and bears a simple interest of 2.5% per month to be paid monthly for previous month’s outstanding principal. On September 27, 2011 the loan amount was increased to $100,000.  The loan was originally due on March 30, 2012, was extended to September 30, 2012, and the Company has further extended the term of the note to February 28, 2013.  Kenneth K. Polk purchased 10,000 shares of the Company’s common stock pursuant to a private placement subscription agreement issued under an exemption pursuant to Regulation D Rule 506.
(7)
AD and Janet Kirkland are the parents of Philip Kirkland, the Company’s Chief Financial Officer.  AD and Janet Kirkland make their own investment decisions.
(8)
Kaliah Kirkland is the daughter of Philip Kirkland, the Company’s Chief Financial Officer.  Kaliah Kirkland makes her own investment decisions.
(9)
Philip Kirkland, Jr. is the son of Philip Kirkland, the Company’s Chief Financial Officer.  Philip Kirkland, Jr. makes his own investment decisions.
(10)
Michael J. Sullivan was given $2,000 as consideration for the sale of the Caltrans contracts and is an employee  of the Company.
 
 
There are no agreements between the Company and any selling shareholder pursuant to which the shares subject to this registration statement were issued.
 
To our knowledge, none of the selling shareholders or their beneficial owners:
 
has ever been one of our officers or directors or an officer or director of our predecessors or affiliates; or
are broker-dealers or affiliated with broker-dealers. 
 
PLAN OF DISTRIBUTION
 
The selling security holders may sell some or all of their shares at a fixed price of $0.25 per share until our shares are quoted on the OTCBB and thereafter at prevailing market prices or privately negotiated prices. Prior to being quoted on the OTC Bulletin Board, shareholders may sell their shares in private transactions to other individuals. Although our common stock is not listed on a public exchange, we will be filing to obtain a listing on the OTCBB concurrently with the filing of this prospectus. In order to be quoted on the OTC Bulletin Board, a market maker must file an application on our behalf in order to make a market for our common stock. There can be no assurance that a market maker will agree to file the necessary documents with FINRA, which operates the OTC Bulletin Board, nor can there be any assurance that such an application for quotation will be approved. However, sales by selling security holder must be made at the fixed price of $0.25 until a market develops for the stock. 
 
Once a market has developed for our common stock, the shares may be sold or distributed from time to time by the selling stockholders, who may be deemed to be underwriters, directly to one or more purchasers or through brokers or dealers who act solely as agents, at market prices prevailing at the time of sale, at prices related to such prevailing market prices, at negotiated prices or at fixed prices, which may be changed. The distribution of the shares may be effected in one or more of the following methods:
 
ordinary brokers transactions, which may include long or short sales,
transactions involving cross or block trades on any securities or market where our common stock is trading, market where our common stock is trading,
through direct sales to purchasers or sales effected through agents,
through transactions in options, swaps or other derivatives (whether exchange listed of otherwise), or exchange listed or otherwise), or
any combination of the foregoing.
 
In addition, the selling stockholders may enter into hedging transactions with broker-dealers who may engage in short sales, if short sales were permitted, of shares in the course of hedging the positions they assume with the selling stockholders. The selling stockholders may also enter into option or other transactions with broker-dealers that require the delivery by such broker-dealers of the shares, which shares may be resold thereafter pursuant to this prospectus. To our best knowledge, none of the selling security holders are broker-dealers or affiliates of broker dealers.
 
We will advise the selling security holders that the anti-manipulation rules of Regulation M under the Exchange Act may apply to sales of shares in the market and to the activities of the selling security holders and their affiliates. In addition, we will make copies of this prospectus (as it may be supplemented or amended from time to time) available to the selling security holders for the purpose of satisfying the prospectus delivery requirements of the Securities Act. The selling security holders may indemnify any broker-dealer that participates in transactions involving the sale of the shares against certain liabilities, including liabilities arising under the Securities Act.
 
 
Brokers, dealers, or agents participating in the distribution of the shares may receive compensation in the form of discounts, concessions or commissions from the selling stockholders and/or the purchasers of shares for whom such broker-dealers may act as agent or to whom they may sell as principal, or both (which compensation as to a particular broker-dealer may be in excess of customary commissions). Neither the selling stockholders nor we can presently estimate the amount of such compensation. We know of no existing arrangements between the selling stockholders and any other stockholder, broker, dealer or agent relating to the sale or distribution of the shares. We will not receive any proceeds from the sale of the shares of the selling security holders pursuant to this prospectus. We have agreed to bear the expenses of the registration of the shares, including legal and accounting fees, and such expenses are estimated to be approximately $50,000.
 
Notwithstanding anything set forth herein, no FINRA member will charge commissions that exceed 8% of the total proceeds of the offering.
 
DESCRIPTION OF SECURITIES
 
General
 
We are authorized to issue an aggregate number of 100,000,000 shares of capital stock, of which 100,000,000 shares are common stock, $0.00001 par value per share. We do not have any preferred stock authorized.
 
Common Stock
 
We are authorized to issue 100,000,000 shares of common stock, $0.00001 par value per share. Currently we have 10,404,666 shares of common stock issued and outstanding. 
 
Each share of common stock shall have one (1) vote per share for all purpose. Our common stock does not provide a preemptive, subscription or conversion rights and there are no redemption or sinking fund provisions or rights. Our common stock holders are not entitled to cumulative voting for election of Board of Directors.
 
Dividends
 
We have not paid any cash dividends to our shareholders.  The declaration of any future cash dividends is at the discretion of our board of directors and depends  upon our earnings, if any, our capital requirements and financial position, our general economic conditions, and other pertinent conditions.  It is our present intention not to pay any cash dividends in the foreseeable future, but rather to reinvest earnings, if any, in our business operations.
 
Warrants
 
There are no outstanding warrants to purchase our securities.
 
Options
 
There are no outstanding options to purchase our securities.
 
Transfer Agent and Registrar
 
The transfer agent and registrar for our common stock is Cleartrust, LLC. The transfer agent’s address is 16540 Pointe Village Drive, Suite 201, Lutz, FL 33558, and its telephone number is (813) 235-4490.
 
INTEREST OF NAMED EXPERTS AND COUNSEL
 
No expert or counsel named in this prospectus as having prepared or certified any part of this prospectus or having given an opinion upon the validity of the securities being registered or upon other legal matters in connection with the registration or offering of the common stock was employed on a contingency basis, or had, or is to receive, in connection with the offering, a substantial interest, direct or indirect, in the registrant or any of its parents or subsidiaries. Nor was any such person connected with the registrant or any of its parents or subsidiaries as a promoter, managing or principal underwriter, voting trustee, director, officer, or employee.
 
 
Anslow & Jaclin, LLP located at 195 Route 9 South, Suite 204, Manalapan, NJ 07726 will pass on the validity of the common stock being offered pursuant to this registration statement. Additionally, as part of its compensation, Anslow & Jaclin, LLP and its associates received an aggregate of 20,000 shares of common stock that are being registered in this Registration Statement.
 
The financial statements as of December 31, 2011 included in this prospectus and the registration statement have been audited by Sam Kan & Company 1151 Harbor Bay Pkwy Suite 202, Alameda, CA, an independent registered public accounting firm, to the extent and for the periods set forth in their report appearing elsewhere herein and in the registration statement, and are included in reliance upon such report given upon the authority of said firm as experts in auditing and accounting.

DESCRIPTION OF BUSINESS
 
Overview
 
Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was incorporated on April 22, 2011 in the State of Nevada. IHS is a transportation government contractor that conducts all of its business in the state of California.
 
The Company has acquired nine (9) agreements from Michael J. Sullivan, with the California Department of Transportation (Caltrans) to provide service and maintenance for the Traffic Operation Services Network (TOSNET) in nine (9) of twelve (12) services districts (the “Caltrans Contracts”).  Michael J. Sullivan bid on these agreements with Caltrans, and we subsequently entered into an agreement to purchase the rights and payments received from these contracts in exchange for $2,000 (the “Purchase Agreement”).  These are the only contracts and sources of revenue that we currently have in our possession. Furthermore, on October 4, 2012, the Company hired Mr. Sullivan to be the Caltrans Contract Coordinator for the Transportation Operations System Network (the “Employment Agreement”).  Pursuant to the Employment Agreement, Mr. Sullivan will receive compensation of 100,000 shares of the Company’s common stock.  Prior to Mr. Sullivan’s employment, the Company awarded 10,000 shares of the Company’s common stock to Mr. Sullivan for his services rendered connected to the administration of the Caltrans Contracts prior to the execution of the Employment Agreement. Prior to the Employment Agreement, Mr. Sullivan did not hold any Company management or employee position. The Employment Agreement is attached as Exhibit 10.14.
 
The cover pages and the entirety of the nine (9) service agreements with the State of California Department of Transportation are attached as Exhibit 10.1.  The agreements were executed in June 2011 and continue until May 2014, and may be extended for an additional one year period. A copy of the Purchase Agreement between us and Michael J. Sullivan is attached as Exhibit 10.3.
 
We purchased from Michael Sullivan service contract numbers 56A0298, 56A0299, 56A0300, 56A0301, 56A0302, 56A0303, 56A0304, 56A0305, and 56A0306 with the State of California Department of Transportation (the “Contracts”).  All nine of these Caltrans Contracts are substantially similar and are for on-call, as needed maintenance and repair of traffic operations systems networks (“TOSNET”). Specifically, the Contracts call for Intelligent Highway to provide on an on-call hourly rate, as needed basis, all labor, equipment, materials, and incidentals necessary for the maintenance of the communication infrastructure systems, network systems and associated equipment that comprise TOSNET. The maintenance will apply to voice, video, and data communications equipment and all facilities used to connect the Traffic Operation System (TOS) field elements to the Transportation Management Center (TMC).  All of the contracts require the contractor to be properly licensed in accordance with the laws of the State of California and require a C-10 Electrical Contractor License or a combination of a Class A – General Engineering Contractor License and a C-7 Low Voltage System Contractor License.  A copy of our C-10 Electrical Contractor License is attached as Exhibit 10.6.  These Contracts may be terminated at any time with 30 days notice by Caltrans.
 
The material difference of these Caltrans Contracts is the maximum amount that may be awarded in the arrangements.  They range from $87,899.92 to $2,306,997.60.  Contract 56A0298 lists the total cost of transaction as $403,499.60. Also, the contracts cover different regions throughout the state of California.  Specifically, 56A0298 contract for on-call services to be performed in Alpine, Amador, Calaveras, Mariposa, Merced, San Joaquin, Sanislaus, and Tuolumne Counties. A copy of the 56A0298 contract between the State of California and Michael J. Sullivan is attached as Exhibit 10.5.
  
Michael Sullivan continues to invoice Caltrans for work performed in conjunction with these agreements.  Because Michael Sullivan did not have enough capital to begin performing the work immediately, he signed an agreement with Avalon Funding Corporation to receive money.  A copy of the Factoring Agreement between Michael J. Sullivan and Avalon Funding Corporation is attached as Exhibit 10.4.  As a result of this agreement, Caltrans pays Avalon Funding Corporation pursuant to the terms of their agreement, and Avalon pays Michael Sullivan.  The money from these transactions is deposited into an account designated Sullivan/Intelligent Highway.  We are then paid for services, labor, material, and other expenses by Michael Sullivan directly.
 
Expatriate Corporation Status and Eligibility to Bid and Receive California Contracts
 
California Public Contract Code Section 10286 (the “Code”) disallows any California state agency to enter into any contract with an Expatriate Corporation. Section 10286.1 of the Code defines Expatriate Corporation. The definition of Expatriate Corporation includes foreign incorporated entities that publicly trade in the United States. However, foreign incorporated entities are entities that are created or organized under the laws of a foreign country or reside in a foreign country. We do not believe we are an Expatriate Corporation within the definition expressed in the Code.

In addition, the Company possesses a C-10 Electrical License from the Contractors State License Board from the State of California and is licensed as a small business with the State of California. A copy of our small business status with the State of California is attached as Exhibit 10.8.  This license allows us to contract with the State and grants us a five percent bidding preference over non-qualified entities.
 
Given that we are not an Expatriate Corporation, we possess a C-10 Electrical License, and we are licensed as a small business with the State of California, we believe that we are qualified to bid on, receive and enter into contracts with the State of California.
 
Going Concern
 
Based on our financial history since inception, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. We are a development stage company that has generated very little revenue and have limited tangible assets. Our company has a limited operating history and must be considered in the development stage. Our company’s operations will be subject to all the risks inherent in the establishment of a developing enterprise and the uncertainties arising from the absence of a significant operating history. We may be unable to on a profitable basis. If our business plan is not successful, and we are not able to operate profitably, investors may lose some or all of their investment in our company.

 
Our Corporate History and Background
 
Devon Jones and Philip Kirkland have worked together for several years as independent electrical contractors involved with a number of contracts associated within the transportation sector. These contracts included, but were not limited to, the pulling of fiber optic cable, installation of video equipment, and the service, maintenance and installation of traffic operations systems for Caltrans.  After over five years of working in the transportation industry, they decided to pool their talents and contacts and the two formed a new company to expand beyond a services based business and introduce new technology to the transportation market.
 
 In April 2011, Jones and Kirkland re-organized their operations under Intelligent Highway Solutions, Inc. and acquired nine new contracts from Michael J. Sullivan to perform service and maintenance in nine of the State’s twelve service districts
 
Services
 
Intelligent Highway Solutions, Inc. provides services on an on-call basis and/or as instructed by the contract manager for Caltrans. These services include all labor, materials, tools, equipment, and incidentals necessary for the corrective and preventive maintenance coverage for the Controlled Environmental Vaults (CEVs) and/or Hubs/Mini Hubs for three (3) years of the Contract and include nine (9) service districts. The CEVs allow for the operation of sensitive communication equipment in adverse weather conditions. Hubs/Mini Hubs are the connection points or control boxes that serve as the termination points for the wiring associated with the ramp metering systems, closed circuit TV, electronic messaging signs, and environmental sensing units.
 
The intent and purpose of these Caltrans Contracts is to perform necessary maintenance required to keep the CEVs/Hubs fully functional at all times. The CEVs/Hubs shall remain fully integrated at all times with all of the component items in the Traffic Operations Systems Networks (TOSNET) system. It is the responsibility of Intelligent Highway Solutions, Inc. to coordinate its activities with other contractors involved in various other contracts to ensure full TOSNET systems' functionality.
 
Growth Strategy

IHS plans on expanding beyond the service business and plans to become more involved with all aspects of the ITS sector. Beginning in late 2012, the Company plans to introduce a self-sufficient, battery-less and wireless traffic detector that will eliminate the need for wired, energy-consuming loop detection systems. The Company also intends to expand into neighboring states.

Phase One: The TOSNET contract with Caltrans will be closing on May 2014; there will be another bid cycle for a new (3) year agreement. We plan to expand this segment of the business to include similar agreements with counties and local districts throughout California, as well as expand to neighboring states.

Phase Two: Growth will occur in the installation division: this includes but is not limited to the installation of the new technology that IHS has licensed, acquired and/or developed. It also includes expansion beyond the borders of California.
 
Phase Three: Introduction of the Company’s proprietary technology, including, but not limited to a new wireless and battery-less traffic sensor that can be embedded in the road and used to measure traffic flow, speed, and approximate vehicle weight.
 
Research and Development

Development of an alternative to inductive loop system
 
The Company’s objective is to develop a new inductive loop system to gather data relevant to traffic flow and reduce the power required to maintain the system and use a wireless transmitter to transmit the data.
 
This project will present a battery-less wireless sensor that can be embedded in the road and used to measure traffic flow rate, speed and approximate vehicle weight. Compared to existing inductive loop based traffic sensors, the new sensor is expected to provide increased reliability, easy installation and low maintenance costs. The sensor uses power only for wireless transmission and has zero idle power loss. The sensor is expected to be extremely energy efficient. Energy to power this sensor is harvested entirely from the short duration vibrations that results when an automobile passes over the sensor.
 
A significant portion of the project focuses on developing low power control algorithms that can harvest energy efficiently from the short duration vibrations that result when a vehicle passes over the sensor.
 
The objective would to use existing sensor technology, existing wireless technology to reduce the development time of this project.
 
We expect that once fully developed and tested, the new system would replace traditional inductive loop systems. To install a loop detector and calibrate it, it is sometimes necessary to shut down traffic on the road for as much as 2 days. The new sensors can be installed by drilling a slot across the lane in the road surface of 1 inch width and 2 inches depth. Most importantly, no wiring is needed from the traffic lane to the roadside data acquisition unit. It is expected that the installation will only take a few minutes.
 
The new sensor on the roadway require no external power supply while inductive loop detectors have to be continuously powered all the time, even during the night when traffic flow might be really low.
The new sensors can measure number of axles and vehicle length, in addition to traffic flow rate. Thus they can be used for vehicle classification. With some further development, the sensors can likely also be used for weigh-in-motion.
 
The Company’s budget is $37,000 for the development including the initial beta product. We expect that this amount of money is sufficient to develop this product. We anticipate a field test in the late 2012 or early 2013. As of June 30, 2012, the Company has incurred research and development costs of $3,000.

Development Agreement with American Water Solutions, Inc.

On May 8, 2012, we entered into a development agreement (“Development Agreement”) with American Water Solutions (“AWS”). Attached as Exhibit 10.2 is a copy of the Development Agreement. AWS is in the business of providing wireless products and solutions for customers. Pursuant to the Development Agreement, AWS will design and develop the battery-less wireless loop detection system for use in the Company’s proprietary wireless traffic flow monitoring system. The Company engaged AWS because of their expertise in alternative power solutions, as well as the development of wireless data collection systems. In consideration for the development of the product, IHS agreed to pay AWS i) $2,000 upon the execution of the Development Agreement, ii) $10,000 upon the release of initial drawings and specifications, iii) $12,000 upon the completion of the original design, and iv) $12,000 upon completion of the prototype.
 
On July 2, 2012, AWS delivered the first draft of the design and patent documents. As of the date of this registration statement, the Company has delivered $3,000 to AWS pursuant to the Development Agreement, $2,000 was paid as a down payment and a $1,000 deposit to begin the drawing of the initial designs and specifications.  On October 4, 2012, the Company entered into an addendum to the Development Agreement, which states that the Company will pay to AWS $2,700 within thirty (30) days of the execution of the amendment and $10,000 upon the Company’s approval of the initial drawings and specifications.
 
 
Future Products and Their Market

In the future we plan to develop an intelligent traffic solution. Improving traffic flow, reducing emissions and synchronizing traffic signals for public safety and public transportation vehicle priority are just a few of the uses for intelligent transportation systems (ITS). Intelligent traffic solutions collect information at signals all around the city, correlate the real-time data and can automatically regulate traffic policies across a city. ITS includes a range of applications that can benefit cities such as:
 
Intelligent Traffic Signal Management - Actively managed and coordinated traffic signals can reduce congestion and moderate traffic speeds, smoothing traffic flow and reducing auto emission levels.
Video Analytics - Real-time video enables traffic controllers to identify problems, record and ticket red light runners, gather traffic analytics information and enforce special traffic zones. Public safety workers may also access the video to identify traffic conditions so they can route around congested roads when responding to an emergency.
Information and Alerts - Variable message signs can quickly broadcast information such as weather, road conditions, stolen vehicle and other timely local information to drivers.
Real-Time Public Transit Information - Up-to-the-minute information on busses and other public transportation vehicles can be published to the web and bus stations, improving schedule accuracy and helping increasing ridership.
Automated Parking Meters – Real-time centralized management of meters, improving revenue capture, improving parking availability, and providing payment option flexibility for visitors

The Company has started, in conjunction with American Water Solutions, to design and develop the battery-less wireless loop detection system. AWS has prepared the initial patent application and intends to move forward with the development of a prototype product. The estimated cost to design/develop a pro-to-proto-type will be $37,000.00.   Currently, the Company does not have the necessary funds to develop the prototype product.  The Company will have to obtain additional financing to pursue this opportunity. Compared to existing inductive loop based traffic sensors, the new sensor is expected to provide increased reliability, easy installation and low maintenance costs. The sensor uses power only for wireless transmission and has ZERO idle power loss. Thus, the sensor is expected to be extremely energy efficient. Energy to power this sensor is harvested entirely from the short duration vibrations that result when an automobile passes over the sensor. Transportation agencies all around the country monitor traffic flow rates on most major highways using inductive loop detectors (ILDs). Despite their popularity, ILDs are far from perfect and there has been considerable work to improve detection using better models, better filtering technology and by using better identification techniques such as Fuzzy Logic and Artificial Neural Networks (ANNs). Despite many improvements, the installation of the ILD involves cutting a large section of   the roadway in each lane and therefore causes considerable traffic disruption. Owing to its operating principle, the ILD needs to be continuously powered resulting in considerable idle power loss. For example, an ILD needs to be continuously powered during the night, even if there is very little traffic flowing on a particular highway.   The traffic sensor developed in this project is unique and different from all the sensor technologies described above. Its uniqueness comes from the fact that it is the first ever sensor that is battery-less, wireless and is powered entirely by harvesting energy from vibrations for its operation.
 
 
Customers

Currently, our only customer is California Department of Transportation (Caltrans).

Competition

There are currently five contractors that compete against IHS on most Caltrans proposal requests. It is one of only a few firms experienced in all electrical disciplines required to compete in every sector of the Caltrans ITS programs.
 
Employees

We currently have 22 full time employees, consisting of three executives, two project managers and seventeen technicians. Each technician has completed four years as an assistant technician with experience in the repair, maintenance and installation of voice, data and video telecommunications equipment and devices.

DESCRIPTION OF PROPERTY
 
Our principal executive office is located at 8 Sky Light Court, Sacramento, CA 95828, and our telephone number is (916) 379-0324.  We lease our office space, which consists of 4,000 square feet of office and warehouse space and pay a monthly rent of $1,480.  The lease terminates on October, 2012. The Company has an option to renew the lease for two additional years.  Attached as Exhibit 10.7 of the registration statement filed with the Securities and Exchange Commission on June 25, 2012, is a copy of the lease.
 
 
LEGAL PROCEEDINGS

From time to time, we may become involved in various lawsuits and legal proceedings, which arise, in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are currently not aware of any such legal proceedings or claims that we believe will have a material adverse effect on our business, financial condition or operating results.
 
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

There is presently no public market for our shares of common stock. We anticipate applying for quoting of our common stock on the OTCBB upon the effectiveness of the registration statement of which this prospectus forms apart. However, we can provide no assurance that our shares of common stock will be quoted on the OTCBB or, if quoted, that a public market will materialize.

Holders of Capital Stock

As of the date of this registration statement, we had 34 holders of our common stock.
 
Rule 144 Shares
 
As of the date of this registration statement, we do not have any shares of our common stock that are currently available for sale to the public in accordance with the volume and trading limitations of Rule 144.

Stock Option Grants
 
We currently have not issued any stock options.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
 
UNAUDITED FINANCIAL STATEMENTS
 
June 30, 2012
 
Balance Sheets as of June 30, 2012 and December 31, 2011
F-1
Statement of Operations for the Three and Six Months Ended June 30, 2012
F-2
Statement of Cash Flows for the Six Months Ended June 30, 2012
F-3
Notes to Unaudited Financial Statements
F-4
 
 
INTELLIGENT HIGHWAY SOLUTIONS
BALANCE SHEETS
             
   
June 30,
2012
   
December 31,
2011
 
 
(Unaudited)
       
ASSETS
 
Current assets
           
Cash and cash equivalents
 
$
-
   
$
35,804
 
Accounts receivable, net of allowance of $17,850
   
149,896
     
105,066
 
Other receivables
   
54,002
     
34,096
 
Other current assets
   
39,499
     
4,663
 
Total current assets
   
243,397
     
179,629
 
                 
Property and equipment, net of accumulated depreciation of $599 and $263
   
2,760
     
3,096
 
                 
Total assets
 
$
246,157
   
$
182,725
 
                 
LIABILITIES AND STOCKHOLDERS' DEFICIT
 
                 
Current liabilities
               
Bank overdraft
 
$
1,271
   
$
-
 
Accounts payable
   
13,828
     
1,306
 
Related party notes payable
   
285,208
     
292,000
 
Other payables
   
296
     
2,322
 
Accrued expenses and other liabilities
   
408,914
     
222,900
 
Total current liabilities
   
709,517
     
518,528
 
                 
Stockholders' deficit
               
Common stock, $0.00001 par value; 100,000,000 shares authorized; 10,404,666 and 9,250,000 shares issued and outstanding at June 30, 2012 and December 31, 2011
   
104
     
93
 
Additional paid-in capital
   
66,776
     
21,347
 
Accumulated deficit
   
(530,240)
     
(357,243)
 
Total stockholders' deficit
   
(463,360)
     
(335,803)
 
                 
Total liabilities and stockholders' deficit
 
$
246,157
   
$
182,725
 
                 
See accompanying notes to unaudited financial statements.
 
 
INTELLIGENT HIGHWAY SOLUTIONS
UNAUDITED STATEMENT OF OPERATIONS
             
   
Three months ended
June 30, 2012
   
Six months
ended
June 30, 2012
 
Revenues
 
$
477,679
   
$
943,800
 
Cost of sales
   
366,652
     
719,532
 
Gross profit
   
111,027
     
224,268
 
                 
Operating expenses
               
Salaries and wages
   
36,570
     
57,279
 
Research and development
   
3,000
     
3,000
 
General and administrative
   
134,886
     
315,934
 
Total operating expenses
   
174,456
     
376,713
 
                 
Loss from operations
   
(63,429
)
   
(152,445
)
                 
Other expense
               
Interest expense
   
9,955
     
20,552
 
Total other expense
   
9,955
     
20,552
 
                 
Loss before income taxes
   
(73,384
)
   
(172,997
)
                 
Provision for income taxes
   
-
     
-
 
                 
Net loss
 
$
(83,384
)
 
$
(172,997
)
                 
Basic and diluted loss per common share
 
$
(0.01
)
 
$
(0.02
)
                 
Basic and diluted weighted average shares outstanding
   
10,351,047
     
9,899,425
 
                 
See accompanying notes to unaudited financial statements.
 

INTELLIGENT HIGHWAY SOLUTIONS
UNAUDITED STATEMENT OF CASH FLOWS
       
   
Six months
 ended
June 30, 2012
 
Cash flows from operating activities
     
Net loss
 
$
(172,997
)
Adjustments to reconcile net loss to net cash used in operating activities
 
Common stock issued for services
   
3,440
 
Depreciation
   
336
 
Amortization of loan fee
   
1,221
 
Changes in operating assets and liabilities
       
Accounts receivable
   
(44,830
)
Other receivables
   
(19,906
)
Other current assets
   
(36,057
)
Accounts payable
   
12,522
 
Other payables
   
(2,026
)
Accrued expenses and other liabilities
   
186,014
 
Net cash used in operating activities
   
(72,283
)
         
Cash flows from investing activities
   
-
 
         
Cash flows from financing activities
       
Proceeds from bank overdraft
   
1,271
 
Repayment of related party notes payable
   
(6,792
)
Issuance of common stock for cash
   
42,000
 
Net cash provided by financing activities
   
36,479
 
         
Change in cash and cash equivalents
   
(35,804
)
Cash at beginning of period
   
35,804
 
Cash at end of period
 
$
-
 
         
Supplemental disclosures of cash flow information
 
Cash paid for interest
 
$
20,548
 
Cash paid for income taxes
 
$
-
 
         
See accompanying notes to unaudited financial statements.
 
 

INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012
 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization, Nature of Business and Trade Name

Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was incorporated on April 22, 2011 and has acquired the rights to perform service and maintenance for the California Department of Transportation.  See the section following titled “Michael Sullivan Contracts” for a more in depth discussion.  Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.

Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.

Use of Estimates

The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred.

Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012
 
Accounts Receivable

Accounts receivable, if any, are carried at the expected net realizable value. The allowance for doubtful accounts, when determined, is based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations.

Property, Plant and Equipment

Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

Depreciation is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:

 
Estimated Useful Life
Furniture and fixtures
5 years
Machinery and equipment
5 years
Vehicles
5 years
 
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements purposes, depreciation is computed under the straight-line method. Balances of each asset class as of June 30, 2012 were:

   
Cost
   
Accumulated
Depreciation
   
Net Book
Value
 
Furniture and fixtures
 
$
1,210
   
$
(169
)
 
$
1,041
 
Machinery and equipment
   
2,149
     
(430
)
   
1,719
 
Total
 
$
3,353
   
$
(599
)
 
$
2,760
 
 
Accounts Payable

The Company has accounts payable total $13,828 and $1,306 as of June 30, 2012 and December 31, 2011.

Revenue Recognition

Service revenue is recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. The Company’s service revenue is largely attributable professional engineering services where the fee is based on the billable rate of the employees.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012
 
Advertising
 
Advertising expenses are recorded as sales and marketing expenses when they are incurred. The Company did not incur such expense during the period ended June 30, 2012.

Research and Development

All research and development costs are expensed as incurred. The Company incurred $3,000 of such expenses during the six months ended June 30, 212.

Income Tax

We are subject to state and federal income taxes in the U.S. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In accordance with FASB ASC Topic 740, “Income Taxes,” we provide for the recognition of deferred tax assets if realization of such assets is more likely than not.

Fair Value Measurements

In January 2010, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports.  For the Company, this statement applies to certain investments and long-term debt.  Also, the FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.   

Various inputs are considered when determining the value of the Company’s investments and long-term debt.  The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in the three broad levels listed below.
 
Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The Company’s adoption of FASB ASC Topic 825 effectively at the inception did not have a material impact on the Company’s financial statements.

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012

Fair Value Measurements (continued)

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company does not have financial assets as an investment carried at fair value on a recurring basis as of June 30, 2012.

The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. As of June 30, 2012, 2012, the Company has assets and liabilities in cash, various receivables, property and equipment, and various payables. Management believes that they are being presented at their fair market value.

Basic and diluted earnings per share
 
Basic earnings per share are based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per share is based on the weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially dilutive instruments:

Warrants,
Employee stock options, and
Other equity awards, which include long-term incentive awards.

The FASB ASC Topic 260, Earnings per Share, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.  

Diluted earnings per share are based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company does not have diluted effects on common stock as there was no warrant or option issued.

Basic and diluted earnings per share are the same as there was no dilutive effect of outstanding stock options for the period ended June 30, 2012, 2012.

The following is a reconciliation of basic and diluted earnings per share for the six months ended June 30, 2012:

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012

Basic and diluted earnings per share (continued)
 
   
Period Ended
June 30, 2012
 
Numerator:
     
   Net loss available to common shareholders
 
$
(172,997
)
Denominator:
       
   Weighted average shares - basic
   
9,899,425
 
Net income (loss) per share – basic and diluted
 
$
(0.02
)
 
Common Stock

The holders of the Company’s common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine.  Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders.  There is no cumulative voting of the election of directors then standing for election.  The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption.  Upon liquidation, dissolution or winding up of the company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $.00001.
 
Stock Based Compensation

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our statement of operations and other comprehensive income. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012

NOTE 2 - RECENTLY ENACTED ACCOUNTING STANDARDS
 
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”.  The amendment results in a consistent definition of fair value and ensures the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards (“IFRS”). This amendment changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This amendment will be effective for the Company on January 1, 2012. Based on current operations, the adoption is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities”.  The guidance in this update requires the Company to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The pronouncement is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented.  The Company’s adoption of the new standard is not expected to have a material effect on the Company’s consolidated financial position or results of operations.
 
NOTE 3 - GOING CONCERN

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern.

Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
 
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.

Historically, it has mostly relied upon revenues generated from its core business and internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse affect upon it and its shareholders.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012

NOTE 4 – ACCOUNTS RECEIVABLE

Due to Michael J. Sullivan’s inability to carry out the required obligations under the service contracts with Caltrans he entered into an agreement to sell those contracts to the Company.  Accordingly, on July, 11, 2011, with the Company’s recommendation, Michael J. Sullivan entered into a one-year accounts receivable factoring agreement with Avalon Funding Corporation (“Avalon”). The agreement stipulates that Avalon extend a line of credit in the amount of $350,000 to Michael J. Sullivan and Michael J. Sullivan will receive 80% of the invoice amount in advance payment per invoice once it is submitted to the State of California. A factoring fee of 3.5% of the invoice amount will be imposed on each invoice purchased by Avalon if collected within 1 to 30 days. Invoices collected after 30 days will be charged an additional .12% of the invoice amount each day thereafter until it is fully paid. An additional maintenance fee of .35% of the invoice amount will also be imposed on each invoice. Payments from the State of California will be collected by Avalon and the remaining differences will be released to the joint bank account set-up between Michael J. Sullivan and the Company. The sale of these invoices is considered a transfer with recourse and is classified as sales of receivables. Michael J. Sullivan agrees to indemnify and save Avalon harmless from and against any and all claims, loss, costs and expenses caused by or arising out of the receivables or any attempt by Avalon to collect or to resolve any dispute. During the period ended December 31, 2011, $793,591 was collected and released to the Company’s joint bank account through Avalon.
 
The Company carries net accounts receivable that are all due from the factoring agreement through Avalon totaling $149,896 and $105,066 as of June 30, 2012 and December 31, 2011.
 
NOTE 5 – RELATED PARTY NOTES PAYABLE
 
On June 17, 2011, the Company received a loan in the amount of $65,000 from Innovest, LLC (“Innovest”). The loan is unsecured, bears a simple interest of 1.5% per month to be paid monthly for the previous month’s outstanding principal, and required the issuance of 40,000 shares of the Company’s common stock. The loan was originally due on December 17, 2011.  The note was then extended to June 17, 2012 in exchange for 20,000 shares of the Company’s common stock.  The note was then, extended to December 17, 2012 and the Company issued Innovest 20,000 shares of the Company’s common stock as extension fees.  The note has been extended to March 17, 2013 and Innovest is not asking for any more extension fees. As of December 31, 2011, $5,400 in interest has been paid with no interest accrued. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed this loan.  Originally, the Company intended to list the Company’s common stock on the Frankfurt Stock Exchange.  If the Company listed its stock on this exchange, then Innovest would be issued 0.4% of total shares of common stock listed or 100,000 shares of common stock.  However, after due diligence and further review, the Company decided that it was not in the best interests of the Company and its shareholders to list on this foreign exchange.  The Company is not required to issue any other stock to Innovest.
 
On April 29, 2011, the Company received a loan in the amount of $62,500 from Kenneth K. Polk, a related party. The loan is secured by the Caltrans agreements and bears a simple interest of 2.5% per month to be paid monthly for previous month’s outstanding principal.  The loan agreement was not signed by Mr. Polk, however later addendums to the original loan were personally signed.  On September 27, 2011 the loan amount was increased to $100,000. The loan was originally due on March 30, 2012, was extended to September 30, 2012, and the Company has further extended the term of the note to February 28, 2013. As of December 31, 2011, $7,500 in interest has been paid with no interest accrued.
 
On November 21, 2011 the Company received a loan in the amount of $27,000 from Byrd & Company LLC, Emerging Markets Consulting LLC, and Douglas S. Hackett ($9,000 from each party). The principals of Byrd & Company, LLC, Messrs. James Byrd Jr. and Robyn Byrd, orally agreed to the loan, and executed the agreement in writing on April 3, 2012.  All the loans are unsecured and bear a simple interest of 12% per annum to be amortized in 6 equal installments of principal and interest commencing January 1, 2012 through June 1, 2012.  The Company and Douglas S. Hackett have not memorialized the loan in writing.  Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed these loans.  On March 1, 2012, the Company issued Emerging Markets Consulting, LLC shares of common stock equivalent to $19,000, $10,000 for services rendered and $9,000 in satisfaction of the outstanding loan.  Accordingly, the loan from Emerging Markets Consulting, LLC is no longer outstanding.  Additionally, the note from Byrd & Company was extended on April 3, 2012 to a maturity date of November 1, 2012.  Also, the Company is negotiating to amend or extend the terms of the remaining amount of the note from Douglas S. Hackett.
 
On December 15, 2011 the Company received a loan in the amount of $100,000 from O.K. and B. The loan is unsecured and bears a simple interest of 5% per annum. The loan was originally due on March 15, 2012, however the note’s maturity was extended to September 17, 2012.  On October 3, 2012, the Company entered into an addendum to further extend the term of the loan to September 15, 2013.
 
As of December 31, 2011 the Company has total notes payable in the amount of $292,000 with accrued interest from the O.K. and B. loan in the amount of $2,322.
 
As of June 30, 2012 the Company has total notes payable in the amount of $285,208 with accrued interest totaling $0.
 
 
F-10

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012
 
NOTE 6 – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities are consisted of $304,334 in payroll liabilities, among that $258,114 is related to payroll tax liabilities. There are $10,945 in penalty and $364 in interest imposed by the IRS for unpaid payroll taxes. Details of this penalty could be found in Note 10 – Commitments and Contingencies. As of June 30, 2012, the Company has total accrued expenses and other liabilities in the amount of $408,914.  The Company had overdrawn its cash accounts by a total of $1,271. The financial institution at which the Company maintains its cash accounts has not guaranteed overdraft protection but has done so, and may continue to do so, at its discretion. There is no interest charged on overdrafted funds, however the Company will incur a $35 fee for each item the financial institution clears while in overdraft.  
 
NOTE 7 – CAPITAL STOCK

Common Stock

On June 1, 2011 the Company has issued an aggregate of 9,180,000 shares to various parties for consulting services received valued at $18,360 in total. The Company has also issued an additional 10,000 shares to a new party for their consulting services valued at $1,000 on December 5, 2011.

On June 17, 2011 the Company has issued 40,000 shares to cover a loan fee in the amount of $80. The Company has issued another 20,000 shares for loan fees in the amount of $2,000 on December 17, 2011.
 
On various dates during the six months ended June 30, 2012, the Company issued a total of 904,666 shares of its common stock for cash proceeds totaling $42,000.
 
As of June 30, 2012 and December 31, 2011, the Company has 10,404,666 and 9,250,000 common stock shares issued and outstanding.
 
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION

$20,548 in cash was paid for interest during the period ended June 30, 2012. There was no cash paid for income tax in that same period.
 
NOTE 9 – INCOME TAX

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation  allowance when, in the opinion of management,  it is more likely than not that some  portion or all of the deferred tax assets will to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012

NOTE 9 – INCOME TAX (CONTINUED)

Net deferred tax assets consist of the following components as of June 30, 2012:
 
     
2012
 
Deferred tax assets:
       
   NOL carryover
 
$
530,240
 
   Valuation allowance                        
   
(530,240
)
Net deferred tax asset
 
$
-
 
 
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the period ended June 30, 2012 due to the following:
 
   
2012
 
Income tax benefit at statutory rate
 
$
(69,469
)
Valuation allowance
   
69,469
 
   
$
-
 

At June 30, 2012, the Company had net operating loss carryforwards of $525,300 that may be offset against future taxable income through 2032. No tax benefit has been reported in the June 30, 2012 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations.

NOTE 10 – COMMITMENTS AND CONTINGENCIES

The Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters.

As of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.

As of June 30, 2012, the Company has accrued $258,114 in payroll tax liabilities.  The payment of these liabilities has not been made due to our limited profitability.  Due to the uncertainty regarding our future profitability, it is difficult to predict our ability to pay these liabilities.   As a result, a federal tax lien has been levied that will have to be satisfied.

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012

NOTE 10 – COMMITMENTS AND CONTINGENCIES (CONTINUED)

Office and Warehouse Lease
 
The Company is required under the terms of the rental lease to make monthly lease payments.

The Company’s property lease is for an initial period of thirteen months from October 2011 and may be extended in thirteen-month increments for up to a total term of twenty-six months. The Company may not terminate this lease prior to the agreed upon termination date. The minimum future annual rental commitments are as follows:
 
2012
 
$
16,320
 
2013
   
16,720
 
2014
   
 18,720
 
         
Total annual lease commitments
 
$
51,760
 
 
Vehicle Leases
 
The Company leases vehicles for use in operations.

The Company’s vehicle leases vary in terms from 48 to 60 months. The Company may not terminate these leases prior to the agreed upon termination date, the latest of which is August 31, 2012. We are currently negotiating extensions of these leases. The minimum future annual rental commitments are as follows:
 
2012
 
$
8,071
 
         
Total annual lease commitments
 
$
8,071
 

Additionally, the Company has leases on a month to month basis which are cancelable at any time with payments totaling $5,722.

NOTE 11 – SIGNIFICANT TRANSACTIONS

On June 21, 2011 the Company entered into a Purchase Agreement with Michael J. Sullivan Sole Proprietorship (“MJS”) to acquire all of MJS’ agreements, rights, benefits, and payments relating to various contracts between MJS and the State of California for $2,000. The Purchase Agreement does not prevent MJS to withdraw at any time or have the same various contracts sold to a third party.  Furthermore, the Company hired Mr. Sullivan to be the Contract Coordinator for the Transportation Operations System Network (the “Employment Agreement”).  The Company will issue Mr. Sullivan 100,000 shares in consideration for his work as Contract Coordinator.  Prior to Mr. Sullivan’s employment, the Company awarded 10,000 shares of the Company’s common stock to Mr. Sullivan for his services rendered prior to the execution of the Employment Agreement.
  
Michael J Sullivan is a related party to the company as he was originally awarded the Caltrans contracts. He sold the contracts to IHS for $2000.  He was also issued 10,000 shares for services rendered for the administration of the Caltrans contracts.  Management then decided it would be in the best interests of the Company to hire Mr. Sullivan to the position of Caltrans Contract Coordinator.  On October 4, 2012, the Company entered into an employment agreement with Mr. Sullivan for a one year term as Caltrans Contract Coordinator.  Pursuant to the employment agreement, Mr. Sullivan will be issued 100,000 shares as compensation.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Unaudited Financial Statements
June 30, 2012

NOTE 12 – CONCENTRATION OF RISK

The Company had one customer who accounted for 100% of revenues for the period ended June 30, 2012.
 
NOTE 13 – SUBSEQUENT EVENTS
 
The Company re-negotiated four notes: (1) the note from Kenneth E. Polk in the amount of $100,000.00 was extended to September 30, 2012, and on September 17, the Company entered into an addendum with the noteholder to extend the term to February 28, 2013 ; same terms and conditions apply; (2) the note from Innovest, LLC for $65,000.00 was extended until December 17, 2012, and the Company has extended the term to March 17, 2013; same terms and conditions apply; (3) the note from O.K. and B. note for $100,000 was extended to September 17, 2012, and the Company entered into an addendum on October 3, 2012 to extend the term to September 15, 2013, same terms and conditions apply; and (4) on March 1, 2012, the Company issued Emerging Markets Consulting, LLC shares of common stock equivalent to $19,000, $10,000 for services rendered and $9,000 in satisfaction of the outstanding loan.  Accordingly, the loan from Emerging Markets Consulting, LLC is no longer outstanding.  The note from Byrd & Company was extended on April 3, 2012 to November 1, 2012 and, the Company is negotiating to amend or extend the terms of the remaining amount of the note from Douglas S. Hackett.
 
The Company raised equity in March, April and May 2012 through three Regulation D Rule 506 offerings in the amount of $50,975 by selling shares of common stock that will be registered in the Company’s S-1 registration statement.
 
On October 19, 2012, the Company received $30,000 related to one convertible note purchased by Ruth Shepley. The term of the note is 6 months. Interest is computed at 10% based on a 360 day year and is payable on the maturity date. Interest is due and payable only if the notes are repaid in cash. These notes may be converted to common stock at a conversion rate of $.30 per share at any time after 30 days. The securities sold in these transactions were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act provided by Section 4(2) and Regulation D (Rule 506) under the Securities Act. Each of the investors who received shares of our common stock in these transactions were accredited investors (as defined by Rule 501 under the Securities Act).
 
The Company evaluated all events or transactions that occurred after June 30, 2012 through the date of this filing in accordance with FASB ASC 855 “Subsequent Events”. The Company determined that it does not have any additional subsequent event requiring recording or disclosure.
 
 
FINANCIAL STATEMENTS

For the Period from April 22, 2011 (Inception) to December 31, 2011
 
   
Page(s)
Report of independent registered public accounting firm
 
F-1
     
Balance sheets as of December 31, 2011
 
F-2
     
Statements of operations for the period from inception on April 22, 2011 to December 31, 2011
 
F-3
     
Statement of changes in stockholders' equity (deficit) for the period from inception on April 22, 2011 to December 31, 2011
 
F-4
     
Statements of cash flows for the period from inception on April 22, 2011 to December 31, 2011
 
F-5
     
Notes to financial statements
 
F-6 ~ F-15
 
 
Report of Independent Registered Public Accounting Firm
 
To the Board of Directors of
Intelligent Highway Solutions, Inc.

We have audited the accompanying balance sheet of Intelligent Highway Solutions, Inc. (hereinafter the “Company”), as of December 31, 2011, and the related statements of operations, stockholders' equity (deficit), and cash flows for the period from inception on April 22, 2011 to December 31, 2011. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial positions of the Company as of December 31, 2011, and the results of its operations and cash flows for the period from inception on April 22, 2011 to December 31, 2011 are in conformity with U.S. generally accepted accounting principles.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 3 to the financial statements, the Company has suffered losses and has experienced negative cash flows from operations, which raises substantial doubt about the Company's ability to continue as a going concern.  Management's plans in regard to those matters are also described in Note 3 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
 
/s/ Sam Kan & Company  
Sam Kan & Company  
 
May 2, 2012

Alameda, California
 
 
F-1

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
BALANCE SHEET
       
   
December 31,
 
   
2011
 
ASSETS
     
Current assets
     
 Cash and cash equivalents
  $ 35,804  
 Account receivable
    105,066  
 Other receivable
    34,096  
 Other current assets
    4,662  
Total current assets
    179,629  
         
 Property and equipments, net
   
3,096
 
Total assets
  $
182,725
 
         
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
       
         
Current liabilities
       
Accounts payable
  $ 1,306  
Notes payable -
    292,000  
Other payables
    2,322  
Accrued expenses and other liabilities
    222,900  
Total current liabilities
    518,528  
         
Notes payable - (non-current)
    -  
Total liabilities
    518,528  
         
Stockholders' (deficit) equity
       
Common stock, $.00001 par value; 100,000,000 shares authorized, 9,250,000 shares issued and outstanding as of December 31, 2011
    93  
Additional paid-in capital
    21,347  
Accumulated deficit
   
(357,243
)
Total stockholders' (deficit) equity
   
(335,803
)
         
Total liabilities and stockholders' (deficit) equity
  $
182,725
 
 
See accompanying notes to condensed consolidated financial statements
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
STATEMENT OF OPERATIONS
       
   
Period From April 22, 2011 (Inception) To
December 31, 2011
 
       
Revenues
  $ 898,657  
         
Cost of sales
   
774,702
 
         
Gross profit
   
123,955
 
         
Operating Expenses
       
General and administrative
   
468,882
 
Total operating expenses
   
468,882
 
         
Income from operations
    (344,927 )
         
Interest income (expense)
       
Interest income
    1,866  
Interest expense
    (13,483 )
Total interest income (expense)
    (11,617 )
         
Income (loss) before income taxes
   
(357,243
)
         
Provision for income taxes
    -  
         
Net income (loss)
  $
(357,243
)
         
Net income per share of common stock:
       
Basic
  $ (0.07 )
         
Weighted average number of shares outstanding
    5,405,507  
 
See accompanying notes to condensed consolidated financial statements
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY
Cumulative from April 22, 2011 (Inception) to December 31, 2011
 
 
   
Common Stock
   
Additional
Paid in Capital
 
 
Accumulated
Deficit
 
 
 
 
   
Shares
   
Amount
            Total  
Balance, April 22, 2011 (Inception)
    -     $ -     $ -     $ -     $ -  
                                         
Common stock issued for consulting services
    9,190,000       92       19,268       -       19,360  
Common stock issued as loan fee
    60,000       1       2,079       -       2,080  
Net income, period ended December 31, 2011
    -       -       -      
(357,243
)    
(357,243
)
Balance, December 31, 2011
    9,250,000     $ 93     $ 21,347     $
(357,243
)   $
(335,803
)
 
See accompanying notes to financial statements.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
 
STATEMENT OF CASH FLOWS
 
       
   
Period From April 22, 2011 (Inception) To December 31, 2011
 
Cash flows from operating activities
     
Net Income
  $
(357,243
)
Adjustments to reconcile net income to net cash used by operating activities:
       
Depreciation
    263  
Amortization on loan fee
    859  
Common stock issued for services
    19,360  
Changes in operating assets and liabilities:
       
Account receivable
    (105,066 )
Other receivable
    (34,096 )
Other assets
    (3,441 )
Accounts payable and accrued interest payable
    1,306  
Other payables
    2,322  
Accrued expenses and other liabilities
    222,900  
Net cash used by operating activities
   
(252,837
)
         
Cash flows from investing activities
       
Purchase of property and equipments
   
(3,359
)
Net cash provided (used) by investing activities
   
(3,359
)
         
Cash flows from financing activities
       
Proceeds from notes payable
    292,000  
Net cash provided by financing activities
    292,000  
         
Net change in cash and cash equivalent
    35,804  
         
Cash and cash equivalent at the beginning of period
    -  
         
Cash and cash equivalent at the end of period
  $ 35,804  
         
Supplemental disclosures of cash flow Information:
       
Cash paid for interest
  $ 11,161  
Cash paid for taxes
  $ -  
         
Supplemental non-cash investing and financing activities:
       
Common stock issued for service
  $ 19,360  
Common stock issued for debt issuance costs (loan fee)
  $ 2,080  
 
See accompanying notes to condensed consolidated financial statements
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization, Nature of Business and Trade Name

Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was incorporated on April 22, 2011 and has acquired the rights to perform service and maintenance for the California Department of Transportation See the section following titled “Michael Sullivan Contracts” for a more in depth discussion.  Additionally, the Company intends to develop transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication will allow state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.
 
Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.

Use of Estimates

The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred.

Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.

Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable, if any, is carried at the expected net realizable value. The allowance for doubtful accounts, when determined, will be based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
Property, Plant and Equipment

Property and equipment are carried at cost. Expenditures for maintenance and repairs are charged against operations. Renewals and betterments that materially extend the life of the assets are capitalized. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is reflected in income for the period.

Depreciation is computed over the estimated useful lives of the related assets. The estimated useful lives of depreciable assets are:
 
 
Estimated
 
Useful Lives
Furniture and fixtures
5 years
Machinery and equipment
5 years
Vehicles
5 years
 
For federal income tax purposes, depreciation is computed under the modified accelerated cost recovery system. For financial statements purposes, depreciation is computed under the straight-line method. During the period ended December 31, 2011, the Company has acquired $1,210 in furniture and fixtures as well as $2,848 in machinery and equipments. The change in this account is depicted in the following table:
 
   
Balance On
               
Balance On
 
   
April 22, 2011
   
Additions
   
Removals
   
December 31, 2011
 
                         
Furniture and fixtures
  $ -     $ 1,210     $ -     $ 1,210  
Machinery and equipments
    -      
2,149
      -      
2,149
 
 
                               
Total property
  $ -     $
3,359
    $ -     $
3,359
 
 
                               
Accumulated depreciation
  $ -     $ 263     $ -     $ 263  
                                 
Net book value
                          $
3,096
 
 
Accounts Payable

The Company has accounts payable in the amount of $1,306 as of December 31, 2011.

Revenue Recognition

Service revenue is recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. The Company’s service revenue is largely attributable professional engineering services where the fee is based on the billable rate of the employees.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
Advertising
 
Advertising expenses are recorded as sales and marketing expenses when they are incurred. The Company did not incur such expense during the period ended December 31, 2011.
 
Research and Development

All research and development costs are expensed as incurred. The Company did not incur any research and development expense during the period ended December 31, 2011.

Income Tax

We are subject to state and federal income taxes in the U.S. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In accordance with FASB ASC Topic 740, “Income Taxes,” we provide for the recognition of deferred tax assets if realization of such assets is more likely than not.

Fair Value Measurements

In January 2010, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports.  For the Company, this statement applies to certain investments and long-term debt.  Also, the FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.   

Various inputs are considered when determining the value of the Company’s investments and long-term debt.  The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in the three broad levels listed below.
 
  
Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
  
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc.).
  
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The Company’s adoption of FASB ASC Topic 825 effectively at the inception did not have a material impact on the Company’s financial statements.

The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company does not have financial assets as an investment carried at fair value on a recurring basis as of December 31, 2011.

The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. As of December 31, 2011, the Company has assets and liabilities in cash, various receivables, property and equipments, and various payables. Management believes that they are being presented at their fair market value.
 
 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
Basic and diluted earnings per share
 
Basic earnings per share are based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per share is based on the weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially dilutive instruments:

  
Warrants,
  
Employee stock options, and
  
Other equity awards, which include long-term incentive awards.

The FASB ASC Topic 260, Earnings per Share, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.  

Diluted earnings per share are based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to purchase common stock at the average market price during the period. The Company does not have diluted effects on common stock as there was no warrant or option issued.

Basic and diluted earnings per share are the same as there was no dilutive effect of outstanding stock options for the period ended December 31, 2011.

The following is a reconciliation of basic and diluted earnings per share for 2011:

   
Period Ended
December 31, 2011
 
Numerator:
     
   Net income (loss) available to common shareholders
 
$
(357,243
)
Denominator:
       
   Weighted average shares – basic
   
5,405,507
 
Net income (loss) per share – basic and diluted
 
$
(0.07
)

Common Stock

The holders of the Company’s common stock are entitled to receive dividends out of assets or funds legally available for the payment of dividends of such times and in such amounts as the board from time to time may determine.  Holders of common stock are entitled to one vote for each share held on all matters submitted to a vote of shareholders.  There is no cumulative voting of the election of directors then standing for election.  The common stock is not entitled to pre-emptive rights and is not subject to conversion or redemption.  Upon liquidation, dissolution or winding up of the company, the assets legally available for distribution to stockholders are distributable ratably among the holders of the common stock after payment of liquidation preferences, if any, on any outstanding payment of other claims of creditors.

The Company is authorized to issue 100,000,000 shares of common stock with a par value of $.00001.


INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
Stock Based Compensation

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our statement of operations and other comprehensive income. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.
 
NOTE 2 - RECENTLY ENACTED ACCOUNTING STANDARDS
 
In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”.  The amendment results in a consistent definition of fair value and ensures the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards (“IFRS”). This amendment changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This amendment will be effective for the Company on January 1, 2012. Based on current operations, the adoption is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities”.  The guidance in this update requires the Company to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The pronouncement is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented.  The Company’s adoption of the new standard is not expected to have a material effect on the Company’s consolidated financial position or results of operations.
 
NOTE 3 - GOING CONCERN

The Company's financial statements are prepared using accounting principles generally accepted in the United States of America applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. However, the Company does not have significant cash or other current assets, nor does it have an established source of revenues sufficient to cover its operating costs and to allow it to continue as a going concern.

Under the going concern assumption, an entity is ordinarily viewed as continuing in business for the foreseeable future with neither the intention nor the necessity of liquidation, ceasing trading, or seeking protection from creditors pursuant to laws or regulations. Accordingly, assets and liabilities are recorded on the basis that the entity will be able to realize its assets and discharge its liabilities in the normal course of business.
 
 
F-10

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plan described in the preceding paragraph and eventually attain profitable operations. The accompanying financial statements do not include any adjustments that may be necessary if the Company is unable to continue as a going concern.

In the coming year, the Company’s foreseeable cash requirements will relate to continual development of the operations of its business, maintaining its good standing and making the requisite filings with the Securities and Exchange Commission, and the payment of expenses associated with operations and business developments. The Company may experience a cash shortfall and be required to raise additional capital.

Historically, the Company has mostly relied upon revenues generated from its core business and internally generated funds such as shareholder loans and advances to finance its operations and growth. Management may raise additional capital by retaining net earnings or through future public or private offerings of the Company’s stock or through loans from private investors, although there can be no assurance that it will be able to obtain such financing. The Company’s failure to do so could have a material and adverse affect upon it and its shareholders.
 
NOTE 4 – ACCOUNTS RECEIVABLE

Due to Michael J. Sullivan’s inability to carry out the required obligations under the service contracts with Caltrans he entered into an agreement to sell those contracts to the Company.  Accordingly, on July, 11, 2011, with the Company’s recommendation, Michael J. Sullivan entered into a one-year accounts receivable factoring agreement with Avalon Funding Corporation (“Avalon”). The agreement stipulates that Avalon extend a line of credit in the amount of $350,000 to Michael J. Sullivan and Michael J. Sullivan will receive 80% of the invoice amount in advance payment per invoice once it is submitted to the State of California. A factoring fee of 3.5% of the invoice amount will be imposed on each invoice purchased by Avalon if collected within 1 to 30 days. Invoices collected after 30 days will be charged an additional .12% of the invoice amount each day thereafter until it is fully paid. An additional maintenance fee of .35% of the invoice amount will also be imposed on each invoice. Payments from the State of California will be collected by Avalon and the remaining differences will be released to the joint bank account set-up between Michael J. Sullivan and the Company. The sale of these invoices is considered a transfer with recourse and is classified as sales of receivables. Michael J. Sullivan agrees to indemnify and save Avalon harmless from and against any and all claims, loss, costs and expenses caused by or arising out of the receivables or any attempt by Avalon to collect or to resolve any dispute. During the period ended December 31, 2011, $793,591 was collected and released to the Company’s joint bank account through Avalon.
 
The Company carries accounts receivable that are all due from the factoring agreement through Avalon in the amount of $105,066 as of December 31, 2011.


INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
NOTE 5 – NOTES PAYABLE
 
On June 17, 2011, the Company received a loan in the amount of $65,000 from Innovest, LLC (“Innovest”), The loan is unsecured, bears a simple interest of 1.5% per month to be paid monthly for the previous month’s outstanding principal, and required the issuance of 40,000 shares of the Company’s common stock. The loan was originally due on December 17, 2011.  The note was then extended to June 17, 2012 in exchange for 20,000 shares of the Company’s common stock.  The note was then, extended to December 17, 2012 and the Company issued Innovest 20,000 shares of the Company’s common stock as extension fees.  The note has been extended to March 17, 2013 and Innovest is not asking for any more extension fees. As of December 31, 2011, $5,400 in interest has been paid with no interest accrued. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed this loan.  Originally, the Company intended to list the Company’s common stock on the Frankfurt Stock Exchange.  If the Company successfully listed its stock on this exchange, then the Company would issue Innovest 0.4% of total shares of common stock listed or 100,000 shares of common stock.  However, the Company decided that it was not in the best interests of the Company to list on this foreign exchange.  The Company is not required to issue any other stock to Innovest. 
 
On April 29, 2011, the Company received a loan in the amount of $62,500 from Kenneth K. Polk, a related party. The loan is secured by the Caltrans agreements and bears a simple interest of 2.5% per month to be paid monthly for previous month’s outstanding principal.  The loan agreement was not signed by Mr. Polk, however later addendums to the original loan were personally signed.  On September 27, 2011 the loan amount was increased to $100,000. The loan was originally due on March 30, 2012, was extended to September 30, 2012, and the Company has further extended the term of the note to February 28, 2013. As of December 31, 2011, $7,500 in interest has been paid with no interest accrued.
 
On November 21, 2011 the Company received a loan in the amount of $27,000 from Byrd & Company LLC, Emerging Markets Consulting LLC, and Douglas S. Hackett ($9,000 from each party). The principals of Byrd & Company, LLC, Messrs. James Byrd Jr. and Robyn Byrd, orally agreed to the loan, and executed the agreement in writing on April 3, 2012.  The Company and Douglas S. Hackett have not memorialized the loan in writing.  All the loans are unsecured and bear a simple interest of 12% per annum to be amortized in 6 equal installments of principal and interest commencing January 1, 2012 through June 1, 2012. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed these loans.  On March 1, 2012, the Company issued Emerging Markets Consulting, LLC shares of common stock equivalent to $19,000, $10,000 for services rendered and $9,000 in satisfaction of the outstanding loan.  Accordingly, the loan from Emerging Markets Consulting, LLC is no longer outstanding.  Additionally, the note from Byrd & Company was extended on April 3, 2012 to a maturity date of November 1, 2012.  Also, the Company is negotiating to amend or extend the terms of the remaining amount of the note from Douglas S. Hackett.
 
On December 15, 2011 the Company received a loan in the amount of $100,000 from O.K. and B. The loan is unsecured and bears a simple interest of 5% per annum. The loan is due on March 15, 2012.
 
As of December 31, 2011 the Company has total notes payable in the amount of $292,000 with accrued interest from the O.K. and B. loan in the amount of $2,322.

NOTE 6 – ACCRUED EXPENSES AND OTHER LIABILITIES

Accrued expenses and other liabilities are consisted of $211,591 in payroll liabilities, among that $164,445 is related to payroll tax liabilities. There are $10,945 in penalty and $364 in interest imposed by the IRS for unpaid payroll taxes. Details of this penalty could be found in Note 11 – Commitments and Contingencies. As of December 31, 2011, the Company has total accrued expenses and other liabilities in the amount of $222,900.
 
NOTE 7 – CAPITAL STOCK

Common Stock

On June 1, 2011 the Company has issued an aggregate of 9,180,000 shares to various parties for consulting services received valued at $18,360 in total. The Company also issued an additional 10,000 shares to a new party for their consulting services valued at $1,000 on December 5, 2011.
 
On June 17, 2011 the Company has issued 40,000 shares to cover a loan fee in the amount of $80. The Company has issued another 20,000 shares for loan fees in the amount of $2,000 on December 17, 2011.
 
As of December 31, 2011, the Company has 9,250,000 common stock shares issued and outstanding.
 

INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
NOTE 8 - SUPPLEMENTAL CASH FLOW INFORMATION

$11,161 in cash was paid for interest during the period ended December 31, 2011. There was no cash paid for income tax in that same period. There was $19,360 in common stock issued for consulting services received during the period. There was an additional $2,080 in common stock issued for loan fee paid during the same period.
 
NOTE 9 – INCOME TAX

Deferred taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences.  Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases.  Deferred tax assets are reduced by a valuation  allowance when, in the opinion of management,  it is more likely than not that some  portion or all of the deferred tax assets will to be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

 Net deferred tax assets consist of the following components as of December 31, 2011:
 
     
2011
 
Deferred tax assets:
       
   NOL carryover
 
$
357,243
 
   Valuation allowance                        
   
(357,243
)
Net deferred tax asset
 
$
-
 

The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income tax rates of 39% to pretax income from continuing operations for the period ended December 31, 2011 due to the following:
 
   
2011
 
Income tax benefit at statutory rate
 
$
(139, 325
)
Valuation allowance
   
139,325
 
   
$
-
 
 
At December 31, 2011, the Company had net operating loss carryforwards of $357,243 that may be offset against future taxable income through 2032. No tax benefit has been reported in the December 31, 2011 financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for Federal income tax reporting purposes are subject to annual limitations.


INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011

 
NOTE 10 – COMMITMENTS AND CONTINGENCIES

The Company could become a party to various legal actions arising in the ordinary course of business. Matters that are probable of unfavorable outcomes to the Company and which can be reasonably estimated are accrued. Such accruals are based on information known about the matters, the Company’s estimates of the outcomes of such matters and its experience in contesting, litigating and settling similar matters.

As of the date of this report, except as described below, there are no material pending legal proceedings to which the Company is a party or of which any of their property is the subject, nor are there any such proceedings known to be contemplated by governmental authorities.

Office and Warehouse Lease
 
The Company is required under the terms of the rental lease to make monthly lease payments.

The Company’s property lease is for an initial period of thirteen months from October 2011 and may be extended in thirteen-month increments for up to a total term of twenty-six months. The Company may not terminate this lease prior to the agreed upon termination date. The minimum future annual rental commitments are as follows:
 
2012
  $ 16,320  
2013
    16,720  
2014
     18,720  
         
Total annual lease commitments
  $ 51,760  
 
Vehicle Leases
 
The Company leases vehicles for use in operations.

The Company’s vehicle leases vary in terms from 48 to 60 months.. The Company may not terminate these leases prior to the agreed upon termination date, the latest of which is August 31, 2012. We are currently negotiating extensions of these leases. The minimum future annual rental commitments are as follows:
 
2012
  $ 17,263  
         
Total annual lease commitments
  $ 17,263  

Additionally, the Company has leases on a month to month basis which are cancelable at any time with payments totaling $5,721.54.
 
NOTE 11 – SIGNIFICANT TRANSACTIONS

On June 21, 2011 the Company entered into a Purchase Agreement with Michael J. Sullivan Sole Proprietorship (“MJS”) to purchase all of MJS’ agreement, rights, benefits, and payments relating to Contracts between MJS and the State of California for $2,000. The Purchase Agreement does not prevent MJS to withdraw at any time or have the Contracts sold to a third party.
 
 
F-14

 
INTELLIGENT HIGHWAY SOLUTIONS, INC.
Notes to Financial Statements
For the Period from April 22, 2011 (Inception) to December 31, 2011


NOTE 12 – CONCENTRATION OF RISK

The Company had one customer who accounted for approximately 100% of revenues for the period ended December 31, 2011.
 
NOTE 13 – SUBSEQUENT EVENTS

The Company re-negotiated four notes: (1) the note from Kenneth E. Polk in the amount of $100,000.00 was extended to September 30, 2012, and on September 17, the Company entered into an addendum with the noteholder to extend the term to February 28, 2013 ; same terms and conditions apply; (2) the note from Innovest, LLC for $65,000.00 was extended until December 17, 2012, and the Company has extended the term to March 17, 2013; same terms and conditions apply; (3) the note from O.K. and B. note for $100,000 was extended to September 17, 2012, and the Company entered into an addendum on October 3, 2012 to extend the term to September 15, 2013, same terms and conditions apply; and (4) on March 1, 2012, the Company issued Emerging Markets Consulting, LLC shares of common stock equivalent to $19,000, $10,000 for services rendered and $9,000 in satisfaction of the outstanding loan.  Accordingly, the loan from Emerging Markets Consulting, LLC is no longer outstanding.  The note from Byrd & Company was extended on April 3, 2012 to November 1, 2012 and, the Company is negotiating to amend or extend the terms of the remaining amount of the note from Douglas S. Hackett.
 
The Company raised equity in March, April and May 2012 through three Regulation D Rule 506 offerings in the amount of $50,975 by selling shares of common stock that will be registered in the Company’s S-1 registration statement.
 
On October 19, 2012, the Company received $30,000 related to one convertible note purchased by Ruth Shepley. The term of the note is 6 months. Interest is computed at 10% based on a 360 day year and is payable on the maturity date. Interest is due and payable only if the notes are repaid in cash. These notes may be converted to common stock at a conversion rate of $.30 per share at any time after 30 days. The securities sold in these transactions were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act provided by Section 4(2) and Regulation D (Rule 506) under the Securities Act. Each of the investors who received shares of our common stock in these transactions were accredited investors (as defined by Rule 501 under the Securities Act).

The Company evaluated all events or transactions that occurred after December 31, 2011 through the date of this filing in accordance with FASB ASC 855 “Subsequent Events”. The Company determined that it does not have any additional subsequent event requiring recording or disclosure.
 
 
 
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULT OF OPERATIONS

The following plan of operation provides information which management believes is relevant to an assessment and understanding of our results of operations and financial condition. The discussion should be read along with our financial statements and notes thereto. This section includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. 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. You should not place undue certainty on these forward-looking statements. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from our predictions.

Overview

Intelligent Highway Solutions, Inc. (the “Company” or “IHS”) was incorporated on April 22, 2011; and provides transportation technology services that enable vehicles, roads, traffic lights, message signs, and other elements to become “intelligent” by embedding them with microchips and sensors and by empowering them to communicate with each other via wireless technologies. The acceleration of data collection and communication allows state governments to improve transportation system performance by reducing congestion and increasing both traveler safety and convenience.
 
IHS has become a leading  transportation government contractor in California servicing 90% of the State’s highways and freeways. As the market for intelligent transportation continues to expand, IHS will look to pursue growth opportunities,  domestically and internationally. The Company hopes to distinguish itself through its future product line, including a potentially new, wireless and battery-less traffic sensor, used to measure traffic flow-rate, speed, and approximate vehicle weight. The energy self-sufficient sensor will boast an advantage of increased reliability, easy installation, and low maintenance costs.
 
 
Plan of Operations

The Company has acquired nine (9) agreement from Michael Sullivan with the California Department of Transportation (Caltrans) to provide service and maintenance for the Traffic Operation Services Network (TOSNET) in nine (9) of the twelve (12) services districts.  The agreements were signed in June 2011 and continue until May 2014, and may be extended for an additional one year period. The Company plans to seek further contracts in counties and municipalities throughout California and expand to neighboring states.
 
Additionally, the Company intends to expand to provide full service turn-key electrical services for the expanding intelligent highway services market sector. These contracts are typically bid on through the State and municipal entities. Typically, they involve the installation and purchase of materials and labor to provide a complete, operational system. Our primary focus will be in systems that are related to the intelligent highway sector, such as, but not limited to: (1) installation and materials for the installation of fiber optic cables; (2) installation and distribution of materials for the video monitoring systems deployed on the highway corridors; and (3) the distribution and installation of monitor devices and signage used in conjunction with the transportation network.
 
As an additional step, the Company, building off its experience in the service and maintenance of traffic monitoring systems, will develop wireless systems to replace existing hardwire loop detection systems, video monitoring systems, etc. The Company, in late 2012, intends to introduce a wireless/battery-less loop detection system. The Company has received the approval of two service districts in California to deploy the new technology in a real-time, real-world application. The application of this new technology can be used on any freeway entrance ramps; freeway lanes to monitor traffic flow; at intersections to monitor traffic and send information to traffic signals and alert management of congestion.
 
Results of Operations

The Company commenced operations on April 2011.  In June 2011, due to Michael J. Sullivans inability to meet the obligations under his nine (9) contracts with Caltrans, he sold the contracts to the Company.  At that time, the Company was undercapitalized, so the Company recommended that Michael J. Sullivan enter into a factoring agreement whereby the fees and interest ratesequal 9% of the gross revenues, in addition the factoring company holds back 20% of the gross revenues until the invoice is fully paid by the customer.  In the 1 st  quarter our gross revenues equaled $464,000. The interest expense was $41,760 plus the factoring company withheld $92,800 until all invoices were paid.   The Company’s objective is to negotiate with Michael J. Sullivan new terms with the factoring company or enter into an agreement with another factoring company to reduce the interest expense 2% - 3% and reduce the retainer amount to 15% - 10%.   One of the primary objectives of the Company will be to raise equity in the public markets to replace the current factoring arrangement, thereby improving cash flow.
 
A second area where the Company can increase cash flow is by reducing the expenses of the leased vehicles and cost of fuel. The Company is researching replacement of the current vehicle fleet with newer, more fuel efficient vehicles. The current fleet is comprised of Ford F-150 type vehicles; the average age of the vehicles is five years. The Company is looking at replacing the vehicles with smaller vehicle types and at flex-fuel or CNG power vehicles.

Fuel cost continues to have an impact on operations; the average cost of gas has increased by almost 10% from June 2011 to April, 2012. The Company continues to look at ways to minimize the increased fuel cost. We are looking at upgrading the current fleet of vehicles to small vehicles, using either flex-fuel or compressed natural gas (CNG). We are also looking at ways to reduce driving distance between work sites and dispatched centers.
 
 
Our current vehicle fleet is leased, we have the option to terminate the leases, we are investigating the purchase of used vehicles, and/or alternative to our current lease provider. Vehicle leasing is a major cost each month, and the Company continues to look for alternatives to improve cash flow.

As the Company moves forward, the plan is to expand to provide full turn-key installation services for the intelligent transportation market. This expansion will require that the Company obtain a payment and performance bond. The Company will also need to finance the purchase of materials in addition to labor cost associated with a full services agreement. This will require that the Company raise additional capital and explore other types of financing such as, but not limited to, construction loans and accounts receivable financing.  Another option is to use a private investment, public equity (PIPE) financing to raise the necessary equity to self fund project cost and bonding.
 
Development and roll out of the Company’s new technology will require additional capital, the Company has retained outside engineering to design, engineer and fully develop the initial technology. It is not the intent of the Company to product manufacture the system, but the Company plans to outsource the construction manufacturing of the systems, including but not limited to, the hardware and software systems. The Company will seek the additional capital for this effort using a PIPE financing.
 
For the Three Months Ended June 30, 2012
 
Revenue: Revenues for the three months ended June 30, 2012 were $477,679, which were generated from the execution of services in conjunction with Caltrans contracts.
 
Cost of Revenue: Cost of revenues for the three months ended June 30, 2012 were $366,652, which represents the purchase of materials, direct labor and vehicle related expenses in conjunction with the Caltrans agreements.
 
Gross Profit: The Company had a gross profit of $112,027 which represents the net amount invoiced to Caltrans in conjunction with the agreements less the cost of providing such services.
 
SG&A Expenses: $174,456 of salaries, research and development, and general and administrative expenses comprise all of the expenses incurred in the daily operations of the Company that generated revenue, except interest.
 
Total Expenses: $551,063 consists of all necessary and related cost of doing business which include but not limited to: start-up expenses, vehicle leases, equipment lease, overhead, rent and employees cost.
 
Loss from Operations: The Company had a loss from operations of $63,429 as a result of administrative overhead exceeding the margin from providing services. The administrative costs include office wages, factoring fees related to accounts receivable and rent.
 
Other Expense:  $9,955 represents interest expense incurred on the notes payable the company has entered into.

For the Six Months Ended June 30, 2012

Revenue: Revenues for the three months ended June 30, 2012 were $943,800 which were generated from  services performed in relation to the nine (9) Caltrans agreements.
 
Cost of revenue: Cost of revenues for the six months ended June 30, 2012 was $719,532 which represents the purchase of material, direct labor and vehicle expenses in conjunction with the Caltrans agreements.
  
Gross Profit: $224,268 is the net amount of the monthly billed project cost for the (9) Caltrans agreements less the cost of the cost of sales..
 
SG&A Expenses: $376,713 of selling, research and development, and general and administrative expenses comprise all of the expenses incurred in the daily operations of the Company, except interest.
 
Total Expenses:  $1,116,797 consists of all necessary and related cost of doing business which include but not limited to: start-up expenses, vehicle leases, equipment lease, overhead, rent and employees cost.
 
Loss from Operations: $152,445 is a result the cost to factor the accounts receivable funds, cost to lease vehicles for start up of the (9) agreements with Caltrans, and an increase in the fuel expense associated with the Caltrans agreements.
 
Other Expense: $20,524 represents interest expense on the notes payable the company has entered into.
 
Net loss:  We incurred a net loss of $172,997, or 18.33% of revenues, during the six months ending June 30, 2012. The loss was in conjunction to the start-up cost of a new Company, the start of (9) contracts with Caltrans; cost associated with the lease of vehicles to services the new Caltrans projects (the leases will be replaced with more efficient vehicles), cost associated with factoring the accounts receivable, our interest rate for this service is high, we are seeking a replacement for our current accounts receivable financing.
 
 
For the Year Ended December 31, 2011

Revenue: Revenues for the year ended December 31, 2011 were $898,657 which was generated from product sold in relation to the nine (9) Caltrans agreements.  
 
Cost of Revenue: Cost of revenues in fiscal year 2011 were $774,702, which represents the purchase of material, direct labor and vehicle expenses in conjunction with the Caltrans agreements.
 
Gross Profit: $123,955 is the net amount of the monthly billed project cost for the nine (9) Caltrans agreements less the cost of the cost of sales of $17,731.
 
SG&A Expenses: $468,882 the selling, general and administrative expenses consist of all the expenses incurred in the daily operations of the Company that generated revenue, except interest.
 
Total Expenses: $1,240,035 consists of all necessary and related cost of doing business which include but not limited to: start-up expenses, vehicle leases, equipment lease, overhead, rent and employees cost.

Loss from Operations: ($357,243) is a result the cost to factor the accounts receivable funds, cost to lease vehicles for start up of the (9) agreements with Caltrans, and an increase in the fuel expense associated with the Caltrans agreements.
 
Other Expense: $13,483 represents interest incurred on notes payable the Company has entered into.
 
Net loss: We incurred a net loss of $357,243, or 39.75% of revenues, in fiscal year 2011. The loss was related to the start-up cost of a new Company, the start of (9) contracts with Caltrans; cost associated with the lease of vehicles to services the new Caltrans projects (the leases will be replaced with more efficient vehicles), cost associated with factoring the accounts receivable, our interest rate for this service is high, we are seeking a replacement for our current accounts receivable financing.

Liquidity and Capital Resources
 
Equity raised through the public markets will be used to  replace the current factoring of the Company’s accounts receivable; replace current fleet of vehicles; expand the business from a services based Company to a full turn-key contractor focused in the intelligent transportation sector; development of proprietary technology for the intelligent transportation sector.
 
Equity will be raised through private investment through public equity (PIPE).
 
At December 31, 2011, we had cash on hand of $35,804 ($0 at June 30, 2012) and a working capital deficit of $377,604 ($463,360 at June 30, 2012).  We have historically financed our operations primarily through net cash flow from financing activities, however, we are uncertain whether we will be able to continue to do so and may be required to secure financing through additional debt or equity issuances to continue operations. We believe we will obtain such financing; however, we cannot provide any assurance that we will be able to do so.
 
As of June 30, 2012 the Company had overdrawn its cash accounts by a total of $1,271. The financial institution at which the Company maintains its cash accounts has not guaranteed overdraft protection but has done so, and may continue to do so, at its discretion. There is no interest charged on overdrafted funds, however the Company will incur a $35 fee for each item the financial institution clears while in overdraft.  

As previously noted the major expenses to the Company are the vehicle leases and the accounts receivable financing (factoring). The factoring fees in the second quarter equaled $27,648.51.  The objective of the Company would be to negotiate new terms with the factoring company or enter into an agreement with another factoring company to reduce the interest expense 2% - 3% and reduce the retainer amount to 15% - 10%.   An additional maintenance fee of .35% of the invoice amount is imposed on each invoice.

Payments from the State of California are collected by Avalon and the remaining difference is released to the joint bank account between the Company and Michael J. Sullivan. The Company does not have a legal right to the factoring funds directly from Avalon, however, pursuant to the Purchase Agreement for the Caltrans Contracts, the Company is given the proceeds.  The sale of these invoices is considered a transfer with recourse and is classified as sales of receivables. The Company agrees to indemnify and save Avalon harmless from and against any and all claims, loss, costs and expenses caused by or arising out of the receivables or any attempt by Avalon to collect or to resolve any dispute. The Company is in the process of re-negotiating the vehicle lease agreements. Under the proposed terms, the average monthly savings would equal 30% per month.  However, we cannot make any assurance that we will be successful in re-negotiating the leases or be able to re-negotiate the leases in a favorable manner.

The Company has also entered into negotiations with a new factoring company.  The proposed terms would provide substantial savings on the interest rate charged and the amount of the retainer will be reduced from 20% to 15%.  Accordingly, this savings will release an additional 5% cash flow to the Company each month. Based on the 1st quarter revenues the Company would have realized an additional $23,000 in cash.
  
The Company has approximately six months of working capital to fund the Company’s operations and obligations.  The Company is seeking additional capital/debt through our network of possible investors and current shareholders.  The Company cannot make any assurance that it will be able to obtain equity or debt financing, or if it the terms of the financing will be on terms favorable to the Company.
 
 
Outstanding Loans

On June 17, 2011, the Company received a loan in the amount of $65,000 from Innovest, LLC (“Innovest”), a related-party. The loan is unsecured, bears a simple interest of 1.5% per month to be paid monthly for the previous month’s outstanding principal, and required the issuance of 40,000 shares of the Company’s common stock. The loan was originally due on December 17, 2011.  The note was then extended to June 17, 2012 in exchange for 20,000 shares of the Company’s common stock.  The note was then, extended to December 17, 2012 and the Company issued Innovest 20,000 shares of the Company’s common stock as extension fees.  The noteshas been extended to March 17, 2013 and Innovest is not asking for any more extension fees. As of December 31, 2011, $5,400 in interest has been paid with no interest accrued. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed this loan.  Originally, the Company intended to list the Company’s common stock on the Frankfurt Stock Exchange.  If the Company successfully listed its stock on this exchange, then the Company would issue Innovest 0.4% of total shares of common stock listed or 100,000 shares of common stock.  However, the Company decided that it was not in the best interests of the Company to list on this foreign exchange.  The Company is not required to issue any other stock to Innovest.
 
On April 29, 2011, the Company received a loan in the amount of $62,500 from Kenneth K. Polk, a related party. The loan is secured by the Caltrans agreements and bears a simple interest of 2.5% per month to be paid monthly for previous month’s outstanding principal.  The loan agreement was not signed by Mr. Polk, however later addendums to the original loan were personally signed.  On September 27, 2011 the loan amount was increased to $100,000. The loan was originally due on March 30, 2012, was extended to September 30, 2012, and the Company has further extended the term of the note to February 28, 2013. As of December 31, 2011, $7,500 in interest has been paid with no interest accrued.
 
On November 21, 2011, the Company received a loan in the amount of $27,000 from Byrd & Company LLC, Emerging Markets Consulting LLC, and Douglas S. Hackett ($9,000 from each party). The principals of Byrd & Company, LLC, Messrs. James Byrd Jr. and Robyn Byrd, orally agreed to the loan, and executed the agreement in writing on April 3, 2012.  The Company and Douglas S. Hackett have not memorialized the loan in writing.  All the loans are unsecured and bear a simple interest of 12% per annum to be amortized in 6 equal installments of principal and interest commencing January 1, 2012 through June 1, 2012. Our Chief Executive Officer, Devon Jones, and our Chief Financial Officer and Chief Operating Officer, Philip Kirkland, have personally guaranteed these loans.  On March 1, 2012, the Company issued Emerging Markets Consulting, LLC shares of common stock equivalent to $19,000, $10,000 for services rendered and $9,000 in satisfaction of the outstanding loan.  Accordingly, the loan from Emerging Markets Consulting, LLC is no longer outstanding.  Additionally, the note from Byrd & Company was extended on April 3, 2012 to a maturity date of November 1, 2012.  Also, the Company is negotiating to amend or extend the terms of the remaining amount of the note from Douglas S. Hackett.
 
On December 15, 2011, the Company received a loan in the amount of $100,000 from O.K. and B, a related party. The loan is unsecured and bears a simple interest of 5% per annum. The loan was originally due on March 15, 2012, was extended to September 17, 2012, and has been extended to September 15, 2013.
 
On October 19, 2012, the Company received $30,000 related to one convertible note purchased by Ruth Shepley. The term of the note is 6 months. Interest is computed at 10% based on a 360 day year and is payable on the maturity date. Interest is due and payable only if the notes are repaid in cash. These notes may be converted to common stock at a conversion rate of $.30 per share at any time after 30 days. The securities sold in these transactions were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration under the Securities Act provided by Section 4(2) and Regulation D (Rule 506) under the Securities Act. Each of the investors who received shares of our common stock in these transactions were accredited investors (as defined by Rule 501 under the Securities Act).
  
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements.

Critical Accounting Policies and Estimates

Basis of Presentation

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reported period. Actual results could differ from those estimates. Management further acknowledges that it is solely responsible for adopting sound accounting practices, establishing and maintaining a system of internal accounting control and preventing and detecting fraud. The Company’s system of internal accounting control is designed to assure, among other items, that (1) recorded transactions are valid; (2) all valid transactions are recorded and (3) transactions are recorded in the period in a timely manner to produce financial statements which present fairly the financial condition, results of operations and cash flows of the company for the respective periods being presented.

Use of Estimates

The preparation of financial statements in accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. A change in managements’ estimates or assumptions could have a material impact on the Company’s financial condition and results of operations during the period in which such changes occurred.

Actual results could differ from those estimates. The Company’s financial statements reflect all adjustments that management believes are necessary for the fair presentation of their financial condition and results of operations for the periods presented.

 
Cash and Cash Equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with a maturity of three months or less to be cash equivalents.

Accounts Receivable

Accounts receivable, if any, is carried at the expected net realizable value. The allowance for doubtful accounts, when determined, will be based on management's assessment of the collectability of specific customer accounts and the aging of the accounts receivables. If there were a deterioration of a major customer's creditworthiness, or actual defaults were higher than historical experience, our estimates of the recoverability of the amounts due to us could be overstated, which could have a negative impact on operations.

Revenue Recognition

Service revenue is recognized in the period services are rendered and earned under service arrangements with clients where service fees are fixed or determinable and collectability is reasonably assured. The Company’s service revenue is largely attributable professional engineering services where the fee is based on the billable rate of the employees.

Advertising

Advertising expenses are recorded as sales and marketing expenses when they are incurred.

Research and Development

All research and development costs are expensed as incurred.

Income Tax

We are subject to state and federal income taxes in the U.S. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. In accordance with FASB ASC Topic 740, “Income Taxes,” we provide for the recognition of deferred tax assets if realization of such assets is more likely than not.

Fair Value Measurements

In January 2010, the FASB ASC Topic 825, Financial Instruments, requires disclosures about fair value of financial instruments in quarterly reports as well as in annual reports.  For the Company, this statement applies to certain investments and long-term debt.  Also, the FASB ASC Topic 820, Fair Value Measurements and Disclosures, clarifies the definition of fair value for financial reporting, establishes a framework for measuring fair value and requires additional disclosures about the use of fair value measurements.   

Various inputs are considered when determining the value of the Company’s investments and long-term debt.  The inputs or methodologies used for valuing securities are not necessarily an indication of the risk associated with investing in these securities.  These inputs are summarized in the three broad levels listed below.
 
·  
Level 1 – observable market inputs that are unadjusted quoted prices for identical assets or liabilities in active markets.
·  
Level 2 – other significant observable inputs (including quoted prices for similar securities, interest rates, credit risk, etc…).
·  
Level 3 – significant unobservable inputs (including the Company’s own assumptions in determining the fair value of investments).

The Company’s adoption of FASB ASC Topic 825 effectively at the inception did not have a material impact on the Company’s financial statements.

 
The carrying value of financial assets and liabilities recorded at fair value is measured on a recurring or nonrecurring basis. Financial assets and liabilities measured on a non-recurring basis are those that are adjusted to fair value when a significant event occurs. The Company had no financial assets or liabilities carried and measured on a nonrecurring basis during the reporting periods. Financial assets and liabilities measured on a recurring basis are those that are adjusted to fair value each time a financial statement is prepared. The Company does not have financial assets as an investment carried at fair value on a recurring basis as of December 31, 2011.

The availability of inputs observable in the market varies from instrument to instrument and depends on a variety of factors including the type of instrument, whether the instrument is actively traded, and other characteristics particular to the transaction. For many financial instruments, pricing inputs are readily observable in the market, the valuation methodology used is widely accepted by market participants, and the valuation does not require significant management discretion. For other financial instruments, pricing inputs are less observable in the market and may require management judgment. As of December 31, 2011, the Company has assets and liabilities in cash, various receivables, property and equipments, and various payables. Management believes that they are being presented at their fair market value.

Basic and diluted earnings per share

Basic earnings per share are based on the weighted-average number of shares of common stock outstanding.  Diluted earnings per share is based on the weighted-average number of shares of common stock outstanding adjusted for the effects of common stock that may be issued as a result of the following types of potentially dilutive instruments:

·  
Warrants,
·  
Employee stock options, and
·  
Other equity awards, which include long-term incentive awards.

The FASB ASC Topic 260, Earnings per Share, requires the Company to include additional shares in the computation of earnings per share, assuming dilution.  

Diluted earnings per share are based on the assumption that all dilutive options were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options are assumed to be exercised at the time of issuance, and as if funds obtained thereby were used to purchase common stock at the average market price during the period.

Stock Based Compensation  

For purposes of determining the variables used in the calculation of stock compensation expense under the provisions of FASB ASC Topic 505, “Equity” and FASB ASC Topic 718, “Compensation — Stock Compensation,” we perform an analysis of current market data and historical company data to calculate an estimate of implied volatility, the expected term of the option and the expected forfeiture rate. With the exception of the expected forfeiture rate, which is not an input, we use these estimates as variables in the Black-Scholes option pricing model. Depending upon the number of stock options granted any fluctuations in these calculations could have a material effect on the results presented in our statement of operations and other comprehensive income. In addition, any differences between estimated forfeitures and actual forfeitures could also have a material impact on our financial statements.
 
Recent Accounting Pronouncements

In May 2011, the FASB issued ASU 2011-04, “Fair Value Measurement (Topic 820), Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and IFRS”.  The amendment results in a consistent definition of fair value and ensures the fair value measurement and disclosure requirements are similar between GAAP and International Financial Reporting Standards (“IFRS”). This amendment changes certain fair value measurement principles and enhances the disclosure requirements particularly for Level 3 fair value measurements. This amendment will be effective for the Company on January 1, 2012. Based on current operations, the adoption is not expected to have a material effect on the Company’s consolidated financial position or results of operations.

 
In December 2011, the FASB issued ASU 2011-11, “Balance Sheet (Topic 210), Disclosures about Offsetting Assets and Liabilities”.  The guidance in this update requires the Company to disclose information about offsetting and related arrangements to enable users of its financial statements to understand the effect of those arrangements on its financial position.  The pronouncement is effective for fiscal years and interim periods beginning on or after January 1, 2013 with retrospective application for all comparative periods presented.  The Company’s adoption of the new standard is not expected to have a material effect on the Company’s consolidated financial position or results of operations.
 
JOBS Act
 
On April 5, 2012, the JOBS Act was signed into law. The JOBS Act contains provisions that, among other things, reduce certain reporting requirements for qualifying public companies. As an “emerging growth company” we may delay adoption of new or revised accounting pronouncements applicable to public companies until such pronouncements are made applicable to private companies. We intend to take advantage of the benefits of this extended transition period. To the extent we do so, our financial statements may not be comparable to companies that comply with such new or revised accounting standards.
 
Additionally, we are in the process of evaluating the benefits of relying on the other reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, if, as an “emerging growth company”, we choose to rely on such exemptions we may not be required to, among other things, (i) provide an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404, (ii) provide all of the compensation disclosure that may be required of non-emerging growth public companies under the Dodd-Frank Wall Street Reform and Consumer Protection Act, (iii) comply with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements (auditor discussion and analysis), and (iv) disclose certain executive compensation related items such as the correlation between executive compensation and performance and comparisons of the CEO’s compensation to median employee compensation. These exemptions will apply for a period of five years following the completion of our initial public offering or until we are no longer an “emerging growth company,” whichever is earlier.
 
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There have been no changes in or disagreements with accountants on accounting or financial disclosure matters.

DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS

The following table sets forth the name and age of officers and director as of November 8, 2012.
 
Name
Age
Position
David D. Singer
63
President and Director
Devon Jones
34
Chief Executive Officer and Director
Philip Kirkland
48
Chief Financial Officer, Chief Operating Officer and Director

Set forth below is a brief description of the background and business experience of our executive officer and director for the past five years.
 
David D. Singer is the President and Chief Technology Officer (CTO) of the Intelligent Highway Solutions, Inc. From 2009 to 2011, he served as the CEO of American Control Technologies, a privately held company. From 2007 to 2009 he was President of Homeland Security Corporation (OTC: HSCC). From 2004 to 2007, he served as the COO of Tarallax, a privately held company. Mr. Singer’s service as President of Homeland Security Corporation has given him the requisite experience needed to serve as an officer and director of the Company.

Devon Jones is the Chief Executive Officer (CEO) of the Company.   From June 2002 to November 2006, Mr. Jones served as the CEO of Connect One Communications, a telecom provider. He has a variety of electrical service certifications and has the requisite knowledge and skill in the electrical service industry which led to the conclusion that he should serve as a director of the Company.
 
Philip Kirkland is the Chief Operating Officer (COO) and Chief Financial Officer (CFO) of the Company. He founded Kid Conduit, Inc., a privately held business in 1996. He has a variety of electrical service certifications including an electrical contractor’s license which led to the conclusion that he should serve as a director of the Company.
 
Involvement in Certain Legal Proceedings
 
To the best of our knowledge, none of our directors or executive officers has, during the past ten years:
 
been convicted in a criminal proceeding or been subject to a pending criminal proceeding (excluding traffic violations and other minor offenses);
had any bankruptcy petition filed by or against the business or property of the person, or of any partnership, corporation or business association of which he was a general partner or executive officer, either at the time of the bankruptcy filing or within two years prior to that time;
been subject to any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction or federal or state authority, permanently or temporarily enjoining, barring, suspending or otherwise limiting, his involvement in any type of business, securities, futures, commodities, investment, banking, savings and loan, or insurance activities, or to be associated with persons engaged in any such activity;
been found by a court of competent jurisdiction in a civil action or by the SEC or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law, and the judgment has not been reversed, suspended, or vacated;
been the subject of, or a party to, any federal or state judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated (not including any settlement of a civil proceeding among private litigants), relating to an alleged violation of any federal or state securities or commodities law or regulation, any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
been the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Securities Exchange Act of 1934, as amended (“Exchange Act”)), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.
 
Except as set forth in our discussion below in “Certain Relationships and Related Transactions,” none of our directors or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.
 
Term of Office
 
Our directors are appointed for a one-year term to hold office until the next annual general meeting of our shareholders or until removed from office in accordance with our bylaws. Our officers are appointed by our board of directors and hold office until removed by the board

Family Relationships

There are no family relationships among any of our officers or directors.

Employment Agreements
 
On January 1, 2012, we entered into an employment agreement with our Chief Financial Officer, Philip Kirkland.  Pursuant to the agreement, Mr. Kirkland’s employment will be for a term of three (3) years, unless removed earlier, and be compensated with an annual base salary of $50,000.  See Exhibit 10.9 for a more detailed description of the terms.

On January 1, 2012, we entered into an employment agreement with our Chief Executive Offier, Devon Jones.  Pursuant to the agreement, Mr. Jones’s employment will be for a term of three (3) years, unless removed earlier, and be compensated with an annual base salary of $50,000.  See Exhibit 10.10 for a more detailed description of the terms.
 
Consulting Agreements

On April 22, 2011, we entered into a consulting agreement with Philip Kirkland to provide advisory, consulting and other services in relation to the Company’s operations.  Pursuant to the agreement, Mr. Kirkland is to be paid a monthly consulting fee of $10,560 continuing until the termination of the agreement, December 31, 2012.  See Exhibit 10.11 for a more detailed description of the terms.

On April 22, 2011, we entered into a consulting agreement with Devon Jones to provide advisory, consulting and other services in relation to the Company’s operations.  Pursuant to the agreement, Mr. Jones is to be paid a monthly consulting fee of $9,685 continuing until the termination of the agreement, December 31, 2012.  See Exhibit 10.12 for a more detailed description of the terms.
 
Involvement in Certain Legal Proceedings

Certain conditions may exist as of the date the financial statements are issued. These conditions may result in a future loss to us but which will only be resolved when one or more future events occur or fail to occur. We and our legal counsel assess such contingent liabilities, and such assessment inherently involves an exercise of judgment. In assessing loss contingencies related to legal proceedings that are pending against us or unasserted claims that may result in such proceedings, our legal counsel evaluates the perceived merits of any legal proceedings or unasserted claims as well as the perceived merits of the amount of relief sought or expected to be sought.

To the best of our knowledge, none of our directors or executive officers has been convicted in a criminal proceeding, excluding traffic violations or similar misdemeanors, or has been a party to any judicial or administrative proceeding during the past five years that resulted in a judgment, decree, or final order enjoining the person from future violations of, or prohibiting activities subject to, federal or state securities laws, or a finding of any violation of federal or state securities laws, except for matters that were dismissed without sanction or settlement. Except as set forth in our discussion below in “Certain Relationships and Related Transactions, and Director Independence – Transactions with Related Persons,” none of our directors, director nominees, or executive officers has been involved in any transactions with us or any of our directors, executive officers, affiliates, or associates which are required to be disclosed pursuant to the rules and regulations of the Commission.

EXECUTIVE COMPENSATION

The following sets forth information with respect to the compensation awarded or paid to David D. Singer, our President and CTO, Devon Jones, our Chief Executive Officer, and Philip Kirkland, our COO and Chief Financial Officer for all services rendered in all capacities to us in fiscal 2011.  These executive officers are referred to as the “named executive officers” throughout this report.

Summary Compensation Table

The following table sets forth information regarding each element of compensation that we paid or awarded to our named executive officers for fiscal 2011.
 
 
Name and
Principal Position
Year
 
Salary
   
Bonus
   
Stock Awards ($)
   
Option Awards
   
Non-Qualified Deferred Compensation Earnings
   
All Other Compensation
   
Totals ($)
 
David D. Singer President and Chief Technology Officer
2011
  $ 14,435     $ 0     $ 0     $ 0     $ 0