UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
| (Mark One) | |
[x] | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the Fiscal Year EndedJuly 31, | |
or | |
[ ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to | |
Commission file number 000-33391
Terra Inventions Corp.
(Name of Registrant as Specified in Its Charter)
Nevada (State or Other Jurisdiction of Incorporation or Organization) | 88-0490890 (I.R.S. Employer Identification No.) | |
4894 Lone Mountain #168, Las Vegas, Nevada (Address of Principal Executive Offices) | 89130 (Zip Code) | |
(702) 425-4289 (Issuer’s Telephone Number, Including Area Code) | ||
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, Par value $0.01$0.001 per share
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. x[x] No
Indicate by checkmark if the registrant is not required to file reports to Section 13 or 15(d) of the Act. o[ ] Yes x[x] No
Indicate by check mark whether the issuer: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x[x] Yes o[ ] No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. x
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). o[ ] Yes x[x] No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. 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 o[ ] Smaller reporting company x
(Do not check if a smaller reporting company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). o[ ] Yes x[x] No
The aggregate market value of voting and non-voting common equity held by non-affiliates as of January 31, 2012,2013, was $9,047,301,$3,191,191 based on the average bid and asked prices on the OTC Bulletin Board on that date.
On November 16, 2012,1, 2013, there were 32,373,47039,935,517 shares of common stock outstanding.
PART I
NOTE REGARDING FORWARD LOOKING STATEMENTS
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS
OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This Annual Report contains historical information as well as forward-looking statements. Statements looking forward in time are included in this Annual Report pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Such statements involve known and unknown risks and uncertainties that may cause our actual results in future periods to be materially different from any future performance suggested herein. We wish to caution readers that in addition to the important factors described elsewhere in this Form 10-K, the following forward looking statements, among others, sometimes have affected, and in the future could affect, our actual results and could cause our actual consolidated results during 2012,2013, and beyond, to differ materially from those expressed in any forward-looking statements made by or on our behalf.
Company History
Terra Inventions Corp. (“we, “us”, or the “Company” or “Li-ion”) was incorporated under the laws of the State of Nevada in April 2000. The Company currently has no employees, (only an accounting consultant with limited hours and the CEO), and is seeking funding to enable us to begin the development and marketing of electric powered vehicles and products based on the advanced lithium battery technology we developed.
Recent Developments
Our facility in Mooresville, North Carolina, was closed in May 2012, and all employees in North Carolina were released. Currently, all ongoing work is being performed by consultants. The Company is looking to establish a facility in Quebec Canada, where government incentives will help cover expenses related to research and development and also to license its automotive and battery technologies to other electric vehicle manufacturers.
Foreclosure Proceedings
Foreclosure proceedings on the Company’s facility in Mooresville were initiated in July 2012 by Bayview Loan Servicing, LLC (“Bayview”) and Frontline Asset Management, Inc. (“Frontline”), with the County of Iredell, North Carolina, General Court of Justice, Superior Court Division. The property was sold pursuant to the Frontline notice of foreclosure and sale on August 22, 2012. On September 14, 2012, the sale of the property pursuant to the Frontline foreclosure and sale was completed, and Frontline assigned to a third party its rights to its foreclosure bid, subject to the rights of Bayview, as the holder of the first mortgage on the property.
Liquidity and Capital Resources
As of July 31, 2012,2013, we had cash on hand of $64$76 and our liabilities totaled $3,351,316.$2,532,392. For the year ended July 31, 2012,2013, we incurred a net loss from continuing operations of $2,312,015.$1,099,873. On July 31, 2012,2013, we had a working capital deficiency of $2,046,537$2,532,316 and stockholders' deficiency of $2,254,218.
We need capital to continue development and marketing of our electric vehicles, particularly given the number of companies competing in this sector and the fact that many of the larger car manufacturers are developing and marketing electric and hybrid vehicles.
We had 32,373,470 39,945,517 shares of common stock issued and outstanding as of November 16, 2012.1, 2013. Our common stock is traded on the OTC Bulletin Board.
General
We are an early stage technology company. We plan to develop and market electric powered vehicles and products.
Our Electric Battery Pack and Vehicle Technology
In late 2007 and early 2008 we began marketing conversions of four-wheel vehicles. Then in 2009, we began to design and manufacture our own new and innovative auto designs. Currently with only consultant work, and no employeeswork in the facility, all employee work is at a standstill.
We had converted and tested vehicles based on Chrysler PT Cruiser, Mini Cooper, Pontiac Vibe, Toyota Yaris and the Mercedes’ Smart car in the Mooresville, North Carolina facilityfacility. We replaced the gasoline power systems with all electric lithium battery power systems and battery management systems. We developed a rapid charge system that reduces charge time by approximately 65%; it was briefly used and tested.
Our Battery Technology
In electric vehicles the battery pack performs the same function as the gas tank in a conventional vehicle: it stores energy needed to operate the vehicle. We used battery packs created in-house from Kokam cells in our converted vehicles. We anticipate using cells created by Sky Power in the future.
License Agreements
We entered into a License Agreement (“Sky PowerClean Enviro License Agreement”) with Clean Enviro Tech Corp. (formerly Sky Power Solutions Corp., “Clean Enviro”) in April 2008, providing for our license to Sky PowerClean Enviro of our patent applications and technologies for rechargeable lithium ion batteries for electric vehicles and other applications (“Licensed Products”). With the closing of the Mooresville facility the space leased to Sky PowerClean Enviro is no longer available and we are not certain how this will affect them and their ability to produce batteries or honor the license agreement. Under the Sky Power License Agreement, we have the right to purchase our requirements of lithium ion batteries from Sky Power, and our requirements of lithium ion batteries shall be supplied by Sky Power in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of Sky Power. Our cost for lithium ion batteries purchased from Sky Power shall be Sky Power’s actual manufacturing costs for such batteries for the fiscal quarter of Sky Power in which our purchase takes place. On May 25, 2010, the Sky Power License Agreement was amended to reflect Sky Power’s territory would be the United States, U.S. possessions and territories only and the Company can license other companies in other parts of the world.
Clean Enviro agreed to invest a minimum of $1,500,000 in 2008 and 2009, in development of the technology for the Licensed Products. To date, Sky PowerClean Enviro has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement. The Company has advised Sky PowerClean Enviro that it will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.
Commercial Initiatives
On March 9, 2009, the State of North Carolina issued a manufacturing license to the Company. We canCompany that permitted us to manufacture our own original design vehicles with Vehicle Identification Number’s (“VIN”), and continue to convert other vehicles. The manufacturing license is currently suspended.
Since February 2004, the LiVTM series electric vehicles were tested and reviewed by a number of government agencies. The testing of the LiVTM series vehicles by NASA, Arcadis, a contractor to the U.S. Environmental Protection Administration, NYC Taxi Commission, and US Paratransit has been completed. The LiVTM WISE is listed in the catalogue of the Unites States General Services Administration, and these vehicles were available for purchase by multiple government agencies. The target market for the LiVTM WISE iswas federal government offices, utility companies, defense organizations and fleet operators. Li-IonWe worked with Zero Truck- USA for commercialization of lithium ion powered heavy duty truck. We hope to offer our own, WAVE two and four door electric vehicles and the INIZIO super cars to the US market. The WAVE electric vehicle iswas targeted at the commuter environment, and the INIZIO super sport car targetsfor the high performance car market. We anticipate that the INIZIO and WAVE will be the front line vehicles for us.
Competition
There are allowing the industry to begin expanding.”
Employees
As of the date of this report, we have one employee and all other work is being performed by consultants. Our President and CEO, Stacey Fling, has elected to defer her salary. Our accounting consultant is now in a minimal capacity and Holly Roseberry serves in an advisory position in Las Vegas, Nevada.
Research and Development Expenditures
We incurred research and development expenditures of $1,297 in our fiscal year ended July 31, 2013, and $483,599 in our fiscal year ended July 31, 2012, and $1,318,267 in our fiscal year ended July 31, 2011.
Patents and Trademarks
We filed three utility patents, (non-provisional); each application claims the benefit of the provisional filing date of July 1, 2009.
The Patent Office has issued a Notice of Allowance for the company’s Rechargable Battery Cathode Material patent application.1. Thermal Management System for Lithium Batteries - Application No: 12829369
It has been observed that lithium ion batteries work efficiently and provide the highest mileage at certain predetermined temperatures. Below optimum temperature, efficiency drops off drastically. For example if an electric vehicle can run 100 miles at its battery’s optimum operational temperature, at zero or subzero temperatures the vehicle’s mileage would drop by approximately forty percent. To avoid this, a heating system has been introduced to keep the battery temperature at a certain point to achieve the target mileage while driving during the winter seasons which reach zero or subzero temperatures. The lithium ion battery is also not allowed to charge at zero, subzero or, or below temperatures for safety issues.
2. Rechargeable Battery Cathode Material - Application No. 12829355
A novel cathode material for a rechargeable battery. The patent office has issued a Notice of Allowance.
3. Charging Algorithm for Lithium Batteries - Application No. 12829362
There are two major charging procedures for charging lithium polymer batteries. One method is to charge at a constant current. When a target voltage is reached the current is kept constant until the current which normally decreases, rises to a certain value. Another method of charging is step charging with a constant current. In this method, the current is stopped at time intervals until the target voltage is reached. It has been observed that lithium ion batteries are very sensitive to charge rates, temperatures, thermodynamics and kinetics of all components, electrodes and battery chemistry.
A novel method reveals a specific algorithm to efficiently charge lithium batteries by adjusting battery voltage and current output to match the individual chemistry of lithium batteries.
The Company has also filed two provisional patents related to our battery management system and reverse battery management.
Item 1A. Risk Factors
You should be particularly aware of the inherent risks associated with our business plan. These risks include but are not limited to:
We have ceased electric vehicle operations in North Carolina and our facility there has been foreclosed upon.
Our facility in Mooresville, North Carolina, was closed in May 2012, and all employees in North Carolina were released. Currently, all ongoing work is being performed by consultants. Foreclosure proceedings on the Company’s facility in Mooresville were initiated in July 2012 by the lenders secured by our Mooresville facility, and the property was sold pursuant to a foreclosure and sale on August 22, 2012. There is no assurance that we will ever be able to resume production of electric vehicles.
We have incurred substantial losses and anticipate ongoing losses.
We do not have revenues from our joint ventures or substantial sales of our products. We have not signed any definitive joint venture agreements to commercialize any of our products. As of July 31, 2012,2013, we had cash on hand of $64. At that same date$76 and our liabilities totaled $3,351,316.$2,532,392. For the year ended July 31, 2012,2013, we hadincurred a net loss from continuing operations of $2,312,015.$1,099,873. On July 31, 2012,2013, we had a working capital deficiency of $2,046,537$2,532,316 and stockholders' deficiency of $2,254,218.
We expect that we will continue to have no or minimal earnings or incur operating losses in the future. Failure to achieve or maintain profitability may materially and adversely affect the future value of our common stock.
If we do not obtain additional financing, our business will fail.
We currently have nominimal operating funds and receive no revenues from converted vehicle sales therefore we are unable to commercialize our products. The X-Prize award was of assistance to us; however, we need to obtain financing to complete our business plan. We do not currently have arrangements for additional financing and we may not find such financing as required. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
We are subject to all of the risks of a new business.
Our business operations are relatively recent; therefore, we face a potentially higher risk of business failure. Our sales revenues are currently nonexistent as of the date of this report. Potential investors should be aware of the difficulties normally encountered by newer companies and the high rate of failure of such enterprises. The likelihood of success must be considered in light of the many problems including: expenses, difficulties, complications, delays encountered in connection with the commercialization of our products, unanticipated problems relating to product development, arranging and negotiating with joint venture partners, additional costs and expenses that may exceed current estimates. We have limited history upon which to base any assumption as to the likelihood that our business will prove successful, and investors should be aware that there is a substantial risk that we may not generate any significant operating revenues or ever achieve profitable operations. If we are unsuccessful in addressing these risks, our business will most likely fail.
We expect to incur operating losses for the foreseeable future.
This may adversely affect the timing of bringing products to market, as well as the profitability of such products once regulatory approvals are obtained.
Item 1B. Unresolved Staff Comments.
None.
Item
2. Properties.Our principal executive office is located in Las Vegas, Nevada. Our mailing address is 4894 Lone Mountain Rd., Suite 168, Las Vegas, Nevada 89130, for which we pay $25 per month, on a month to month basis.
In May 2006, we purchased 40,000 square foot facility at 158 Rolling Hill in Mooresville, North Carolina. The Company’s facility in Mooresville, North Carolina was financed through Bayview Loan Servicing, LLC (“Bayview”) and Frontline Asset Management, Inc. (“Frontline”), which had a second lien on the property. Li-ionWe became delinquent with the mortgage payments, and, following a prior foreclosure filing and new agreement as to payments under the mortgage, on July 12, 2012, Bayview refiled a notice of hearing on foreclosure on its deed of trust and security agreement for a hearing on August 21, 2012, the outstanding amount of the loan at July 31, 2012 being $946,279. A similar notice of foreclosure pursuant to the Frontline deed of trust was filed by the Trustee with the same court on July 25, 2012, noticing a hearing for August 22, 2012, the amended notice of default in the amount of $660,546 having been given on July 23, 2012. The Trustee for Frontline also filed on July 25, 2012, a notice of foreclosure and sale to take place on August 22, 2012. The Trustee under the Bayview deed of trust on August 21, 2012, filed its notice of foreclosure and sale to take place on September 18, 2012, of the real and personal property securing the deed of trust. On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned its rights to its foreclosure bid to A&S Holdings Inc., a related holding company, subject to the rights of Bayview, as the holder of the first mortgage on the property.
Item
3. Legal Proceedings.Other than as described below, we are not a party to any material legal proceedings and to our knowledge, no such proceedings are threatened or contemplated.
Caudle & Spears v. EV Innovations, Inc.
Caudle & Spears has obtained a default judgment against the Company in Mecklenberg County, North Carolina, General Court, in the amount of $17,686. This law firm represented us in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. The Company is in settlement negotiations with Caudle & Spears, since its judgment against Martin Koebler is still in the collection process. A payment agreement has been reached in the amount of $2,500 per month with no interest until paid. The Company is not current with its payment arrangements and has a balance of $4,263 still due.
Internal Revenue Service
Internal Revenue Service (“IRS”) served the Company with a tax lien dated March 3, 2010 in the total amount of $251,928. Third quarter 2009 taxes are approximately $117,000, which are included in total due. The Company has been served with an additional tax lien dated January 19, 2011, in the amount of $2,925. The Company had a payment plan in place with IRS; however, the Company is arrears in payments as of July 31, 2012. Management is working with the local IRS office to try and revise the payment agreement. The balance due on the most recent statementfrom the IRS is $566,071.
Javad Hajihadian
Tallman Hudders & Sorrentino has obtained a judgment in Lehigh County, Pennsylvania, on behalf of their client Javad Hajihadian, an individual. Mr. Hajihadian had ordered and paid for, the first super car to be produced by Li-ion Motorsthe Company in November 2008. The car was in the design stage when it was ordered. Mr. Hajihadian’s attorney subsequently contacted the Company to cancel his contract and have his payment refunded. The parties had reached a settlement agreement and the payment was being refunded with interest.
The settlement agreement was for $102,500 and stipulated monthly payments of $10,250 commencing in July 2010. Payments were made through November 2010, totaling $51,250, leaving a balance of five payments or $51,250 still due; which is reflected on the Company’s balance sheet under current liabilities. The Company became delinquent and Mr. Hajihadian proceeded with litigation and on February 4, 2011, a judgment was issued in his favor for $51,750. Management wasdeposed December 2011, and produced requested documents and information.
Bayview Loan Servicing, LLC
The Company’s facility in Mooresville North Carolina was financed through Bayview Loan Servicing, LLC (“Bayview”) secured by a first lien on the Company’s property located at 158 Rolling Hill Road in Mooresville. Frontline Asset Management, Inc. (“Frontline”) holds a note in the amount of $2,000,000 (current balance due of $508,492) secured by a second lien on the property..property. On July 12, 2012, Bayview refiled a notice of hearing on foreclosure on its deed of trust and security agreement for a hearing on August 21, 2012, the outstanding amount of the loan at July 31, 2012 being $946,279. A similar notice of foreclosure pursuant to the Frontline deed of trust was filed by the Trustee with the same court on July 25, 2012, noticing a hearing for August 22, 2012, with an amended notice of default, the amount of $508,492 being outstanding under the loan as of July 31, 2012. The Trustee for Frontline also filed in Superior Court of Iredell County North Carolina on July 25, 2012, a notice of foreclosure and sale to take place on August 22, 2012. The Trustee under the Bayview deed of trust on August 21, 2012, filed its notice of foreclosure and sale to take place on September 18, 2012, of the real and personal property securing the deed of trust. On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned its rights to its foreclosure bid to A&S Holdings Inc., subject to the rights of Bayview, as the holder of the first mortgage on the property.
Under a Stipulation Agreement, dated July 18, 2013, Bayview agreed to suspend foreclosure proceedings and, if four monthly payments of $7,470 each were made on the 30th day of the months August through November, 2013, that it would enter into a Loan Adjustment Agreement, dated as of July 18, 2013, which would extend the term of Bayview’s loan to the same date, would become effective to set the unpaid principal balance of the loan (including unpaid installments, late charges, fees and costs) at $1,107,515, with a monthly payment of principal and interest of $7,470, and a maturity date of March 1, 2038. A&S Holdings has made the first three payments under the Stipulation Agreement, the final payment being due November 30, 2013.
FINE Mobile
Fine Mobile and Li-ion MotorsThe Company entered into a confession of judgment in relation to the X-Prize winnings. The parties agreed to a payment arrangement of $10,000 per month for a period of eight (8) months. If a default were to occur, the debtor would then be entitled to exercise confession of judgment in the amount of $120,000 without further delay. The initial payment was wired on December 15, 2011; however, the Company was unable to make any additional payments. On June 18, 2012 Fine Mobile executed the judgment with the Iredell County Sheriff’s Office and on July 2, 2012, the Sherriff took possession of the building located at 158 Rolling Hill Road, Mooresville, NC, seizing all remaining assets.
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our shares of common stock trade and have traded on the NASD OTC Bulletin Board since March 4, 2002. Our common stock also trades on the OTCQB Tier of the Pink OTC Markets.Markets Group. The following table sets forth for our last twothree fiscal years by quarter the high and low closing prices of our common shares traded on the OTC Bulletin Board:
| Period | High | Low | ||||||
| August 1, 2010 to October 31, 2010 | $ | 1.56 | $ | 0.81 | ||||
| November 1, 2010 - January 31, 2011 | $ | 1.01 | $ | 0.55 | ||||
| February 1, 2011 - April 30, 2011 | $ | 1.14 | $ | 0.68 | ||||
| May 1, 2011 - July 31, 2011 | $ | 0.85 | $ | 0.30 | ||||
| August 1, 2011 to October 31, 2011 | $ | 1.98 | $ | 0.65 | ||||
| November 1, 2011 - January 31, 2012 | $ | 1.01 | $ | 0.25 | ||||
| February 1, 2012 - April 30, 2012 | $ | 0.39 | $ | 0.10 | ||||
| May 1, 2012 - July 31, 2012 | $ | 0.13 | $ | 0.05 | ||||
| August 1, 2012 to October 31, 2012 | $ | 0.06 | $ | 0.013 | ||||
| November 1, 2012 - January 31, 2013 | $ | 0.86 | $ | 0.005 | ||||
| February 1, 2013 - April 30, 2013 | $ | 0.33 | $ | 0.17 | ||||
| May 1, 2013 - July 31, 2013 | $ | 0.50 | $ | 0.17 | ||||
(1) A one-for-five reverse split was effective January 26, 2012, and a one-for-ten reverse split was effective December 21, 2012.
| Period | High | Low | ||||||
| August 1, 2010 to October 31, 2010 | $ | 1.56 | $ | 0.81 | ||||
| November 1, 2010 - January 31, 2011 | $ | 1.01 | $ | 0.55 | ||||
| February 1, 2011 - April 30, 2011 | $ | 1.14 | $ | 0.68 | ||||
| May 1, 2011 - July 31, 2011 | $ | 0.85 | $ | 0.30 | ||||
| August 1, 2011 to October 31, 2011 | $ | 1.98 | $ | 0.65 | ||||
| November 1, 2011 - January 31, 2012 | $ | 1.01 | $ | 0.25 | ||||
| February 1, 2012 - April 30, 2012 | $ | 0.39 | $ | 0.10 | ||||
| May 1, 2012 - July 31, 2012 | $ | 0.13 | $ | 0.05 | ||||
The above quotations are taken from information provided by Google and reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
Holders of Common Stock
As of November 16, 2012,1, 2013, we had 176179 holders of record of our common stock.
Dividends
Our current policy is to retain earnings in order to finance our operations. Our board of directors will determine future declaration and payment of dividends, if any, in light of the then-current conditions they deem relevant and in accordance with the Nevada Revised Statutes.
Securities Authorized for Issuance under Equity Compensation Plans
Sales of Unregistered Securities
The following table sets forth the unreported sales of unregistered securities for the last three years.
| Date | Title and Amount (1) | Purchaser | Principal Underwriter | Total Offering Price/ Underwriting Discounts | ||||
| September 13, 2012 | 1,300,000 shares of common stock issued upon conversion of debt. | Kisumu SA | NA | |||||
| October 5, 2012 | 1,450,000 shares of common stock issued upon conversion of debt. | Frontline Asset Management | NA | |||||
| November 15, 2012 | 3,200,000 shares of common stock issued upon conversion of debt. | Kisumu SA | NA | $0.10/NA | ||||
| November 15, 2012 | 1,610,000 shares of common stock issued upon conversion of debt. | Bridge Capital | NA | $0.10/NA | ||||
| December 27, 2012 | 18,700,000 shares of common stock issued upon conversion of debt. | Frontline Asset Management | NA | $0.03/NA | ||||
| December 31, 2012 | 18,000,000 shares of common stock issued upon conversion of debt. | Cameo Properties LLC | NA | $0.01/NA |
Not applicable.
Forward Looking Statements
This annual report contains forward-looking statements that involve risks and uncertainties. We use words such as anticipate, believe, plan, expect, future, intend and similar expressions to identify such forward-looking statements. You should not place too much reliance on these forward-looking statements. Our actual results are likely to differ materially from those anticipated in these forward-looking statements for many reasons, including the risks faced by us described in this section.
Recent Developments
Our facility in Mooresville, North Carolina, was closed in May 2012, and all employees in North Carolina were released. Currently, all ongoing work is being performed by consultants. The Company is looking to establish a facility in Quebec Canada, where government incentives will help cover expenses related to research and development and also to license its automotive and battery technologies to other electric vehicle manufacturers.
Foreclosure proceedings on the Company’s facility in Mooresville were initiated in July 2012 by Bayview Loan Servicing, LLC (“Bayview”) and Frontline Asset Management, Inc. (“Frontline”), with the County of Iredell, North Carolina, General Court of Justice, Superior Court Division. The property was sold pursuant to the Frontline notice of foreclosure and sale on August 22, 2012. On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned to a third party its rights to its foreclosure bid to A&S Holdings Inc., subject to the rights of Bayview, as the holder of the first mortgage on the property.
Under a Stipulation Agreement, dated July 18, 2013, Bayview agreed to suspend foreclosure proceedings and, if four monthly payments of $7,470 each were made on the 30th day of the months August through November, 2013, that it would enter into a Loan Adjustment Agreement, dated as of July 18, 2013, which would extend the term of Bayview’s loan to the same date, would become effective to set the unpaid principal balance of the loan (including unpaid installments, late charges, fees and costs) at $1,107,515, with a monthly payment of principal and interest of $7,470, and a maturity date of March 1, 2038. A&S Holdings has made the first three payments under the Stipulation Agreement, the final payment being due November 30, 2013.
Results of Operations for the Year Ended July 31, 2012
Electric Vehicle Operations
We sold two of our electric prototype vehicles during the fiscal year ended July 31, 2012 to Frontline Asset Management for $255,000 which was applied to our outstanding debt with them. We have closed our facility in North Carolina and liquidated or wrote off most of our assets with some assets being seized by the sheriff’s department in relation to a court action with FINE Mobile. Other sales during fiscal year ended July 31, 2012, were for vehicle parts totaling $7,795.
We had converted and manufactured vehicles in Mooresville, North Carolina. We had teams of highly qualified engineers overseeing electrical and mechanical staff, all engineers and staff were released from contracts when the building was closed just prior to foreclosure proceedings. When we had licensed our lithium battery and electric vehicle technology described below, we hoped to concentrate on sales of our vehicles.
Clean Enviro License Agreement
We entered into a License Agreement (“Sky PowerClean Enviro License Agreement”) with Sky PowerClean Enviro Tech Corp. in April 2008, providing for our license to Sky PowerClean Enviro of our patent applications and technologies for rechargeable lithium ion batteries for hybrid vehicles and other applications (“Licensed Products”). Under the Sky PowerClean Enviro License Agreement, we have the right to purchase our requirements of lithium ion batteries from Sky Power,Clean Enviro, and our requirements of lithium ion batteries shall be supplied by Sky PowerClean Enviro in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of Sky Power.Clean Enviro. Our cost for lithium ion batteries purchased from Sky PowerClean Enviro shall be Sky Power’sClean Enviro’s actual manufacturing costs for such batteries for the fiscal quarter of Sky PowerClean Enviro in which our purchase takes place. On May 25, 2010, the Sky PowerClean Enviro License Agreement was amended to reflect Sky Power’sClean Enviro’s territory would be the United States, U.S. possessions and territories only, and the Company can license other companies in other parts of the world.
Clean Enviro agreed to invest a minimum of $1,500,000 in 2008 and 2009 in development of the technology for the Licensed Products. In the initial year under the License Agreement, To date, Sky PowerClean Enviro has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement. The Company has advised Sky PowerClean Enviro that it will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement. With the closure of the Mooresville facility and the loss of the leased space to Sky Power,Clean Enviro, they may be unable to fulfill this agreement.
Lithium Electric Vehicle Corp. License Agreement
Effective May 28, 2010, the Company entered into a ten year license agreement with Lithium Electric Vehicle Corp. (“LEVC”) providing for the Company to license to LEVC certain of the Company’s patent applications and technologies for electric vehicles and other applications. The purpose of the licensee is to expand sales of the Company’s current line of products by the manufacture and sale of such products in Canada, which is LEVC’s exclusive territory under the license agreement.
The license agreement consists of an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party. LEVC is required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year. The Company has received $732,666 from LEVC with a balance due of $267,334 as of July 31, 2012, which is now delinquent. The Company has reflectedwrote off the delinquent amountbalance due from LEVC in its accounts receivable and has established a reserve for doubtful accounts forduring the entire amount.
Cost of Sales
Cost of sales as a percentage of net vehicle sales for the fiscal year ended July 31, 2012,2013 was approximately 177%0% as compared to approximately 246% during177% for the same period in 2011.2012. Cost of sales at July 31, 2012, included $209,947 in inventory write offs due to the facility being closed. Excluding this write off, our cost of sales would have been 97% of our sales. Based on our historical review of costs, we expect that cost of sales in the future will remain in line on a percentage basis with our historic level of approximately 105%. If sales volumes and prices increase, costs should then reduce as a percentage of sales.
General and Administrative Expenses
General and administrative (“SG&A”) expenses decreased to $1,054,901for$534,726 for the fiscal year ended July 31, 2012,2013, as compared to $1,448,274$1,054,901 during the same period in 2011.2012. The decrease was attributable to bad debt expenselender default fees of $523,226 related to the LEVC note.$200,000. This was offset by a reduction in: (1) advertising and promotionbad debt expense of $391,015;$506,206; (2) professionalpenalties and late fees of $207,572;$89,088; (3) salaries and related payroll expenses of $61,242; (4) depreciation expense of $48,485; (5) finder’s fees related to debt financing of $97,529; (4) travel$25,000; (6) office rental related expenses of $78,073; (5) insurance expense of $36,897; (6)$22,889; (7) directors fees of $31,500; (7) utilities of $21,113;$21,000; and (8) warranty expense of $24,600; (9) depreciation expense of $20,095; and (10) other various expenses of $8,204.$42,179. Of all SG&A expenses the Company incurred during fiscal 2012,2013, the majority were charges that are expected to be recurring.
Research and Development Expenses
No set amount has been set aside for research and development (“R&D”), however, all projects and purchases require approval prior to initiation. Salaries, payroll taxes, and benefits expensed to R&D for the fiscal year endingended July 31, 2013 and July 31, 2012, amounted to $0 and $471,300, and $1,261,478 for year ending July 31, 2011.respectively. Parts and supplies shipping charges, and battery management systems expensed to R&D werewas $1,297 and $12,299 and $56,789 for the fiscal year endingended July, 31,2013 and 2012, and July 31, 2011, respectively. We expect that research and development expenses will continue to remain substantial and grow as we try to bring products to market.
Interest Expense
Interest expense decreased to $145,088$84,438 for the fiscal year ended July 31, 20122013 as compared to $422,156$145,088 for 2011.2012. The decrease was due to the conversion of debt to the Company’s common stock. Interest expense consists primarily of interest related to borrowings.
Other Income
Other income for the year ended July 31, 2013, consisted primarily of accounting fees from CET.
Effective April 16, 2008, Sky Power agreed to lease approximately 5,000 square feet of space (“Leased Space”) in our North Carolina facility, such Leased Space to be suitable for, and utilized by Sky Power for, Sky Power’s developmental and manufacturing operations for Licensed Products pursuant to the License Agreement. The Leased Space is leased on a month-to-month basis at a monthly rental of $3,038 the monthly rental to be escalated five (5%) percent annually. With the closing of the facility in May 2012, and pending foreclosure this lease is null and void.
Other income for the year ended July 31, 2012, consisted primarily of (1) interest income from the LEVC Note of $175,479; (2) accounting fees and rental income from Sky Power for $62,083; (3) nonrefundable deposit of $30,000; and (4) forgiveness of debt of $17,435. This income was offset by: (1) write down of lost deposit of $50,000; and (2) other expense of $143.
Net Loss
Net loss attributable to common stockholders for the fiscal year ended July 31, 2012,2013, decreased to $2,312,015$1,099,873 from net earnings of $118,921$2,312,015 for the previous fiscal year. Basic and diluted loss attributable to common stockholders per share of common stock for the fiscal year ended July 31, 2012,2013 was $0.09$0.02 as compared to earnings of $0.00$0.11 for the fiscal year ended July 31, 2011.
Liquidity and Capital Resources
Since our incorporation, we have financed our operations almost exclusively through the sale of our common shares to investors and borrowings. We expect to finance operations through borrowings and the sale of equity in the foreseeable future as we receive minimal revenue from our current business operations. There is no guarantee that we will be successful in arranging financing on acceptable terms.
At July 31, 2012,2013, we had liabilities of $3,351,316,$2,532,392, as compared with $4,292,604$3,351,316 at July 31, 2011;2012; and a working capital deficiency of $2,046,537$2,532,316 and stockholders' deficiency of $2,254,218.
Our property, plant and equipment decreased to $3,267 at July 31, 2013, as compared with $1,054,931 at July 31, 2012, as compared with $1,983,739 at July 31, 2011. An impairment of $740,000 was determined after an evaluation of the Company’s facility in North Carolina; as well as some assets were sold for pennies on the dollar, others were seized by the sheriff and most have now been written off.
We used net cash in operating activities of $742,456$158,326 in the year ended July 31, 2012,2013, as compared with $1,170,778 in 2011,$742,456in 2012, and cash receivedused in investing activities was $35,285$0 in 2012,2013, as compared with cash usedreceived of $135,157$35,285 in 2011.
During the year ended July 31, 2012,2013, from the issuance of a promissory note for a receivable, we advanced $81,758$0 to Sky PowerCET and were repaid $22,984.$0. During the year ended July 31, 2012,2013, we received net proceeds of $838,814$168,228 from the issuance of promissory notes for debt, and made repayments of $79,698.$9,005. Total cash provided by financing activities in the year ended July 31, 20122013 was $700,342$159,223 as compared with $1,309,701to $700,342 in 2011.
On February 26, 2010, the Company entered into a loan agreement with Frontline. The loan provides for payments to the Company of $2,000,000 with interest at a fixed annual rate of 12%. On March 1, 2012, an Addendum to the original Promissory Note, dated February 26, 2010, was entered into which amended the term of the note to provide for interest only payments, due on the last day of every month until maturity date March 30, 2013, when all principal and accrued interest shall be due and payable. On April 11, 2011, Frontline assigned $850,279 of its debt to Windsor Capital, Inc. (“Windsor”). On April 19, 2011, Frontline partially assigned $437,309 to Kisumu S.A. (“Kisumu”) and Kisumu immediately converted the assigned note for 1,041,212 shares of Common Stock at a fair value price of $0.42 per share. On April 19, 2011, Frontline assigned $420,000 to Eurolink Corporation (“Eurolink”) and Eurolink immediately converted the assigned note for 1,000,000 shares of Common Stock at a fair value price of $0.42 per share. On December 27, 2011, Frontline purchased two electric vehicles for $255,000. On the same day Frontline assigned $250,000 to Cameo Properties, LLC. On April 26, 2012, the Company assigned $112,500 of its note receivable with SPSClean Enviro to Frontline which reduced the balance due to Frontline by $112,500.
On April 15, 2010, the Company entered into a loan agreement for $2,000,000 with Windsor. The loan provided for payments of up to $2,000,000 to the Company with an initial installment of $250,000 and additional installments of up to $1,750,000 with a 10% interest rate. The entire loan amount was secured by 12,000,000 shares of the Company common stock. Each loan installment matured in three years from issuance of the installment. The loan had an anti-dilution clause for the stock issued as collateral. Stock is issued and delivered proportionately to the delivery of funds. The loan was fully funded during the third quarter ending April 30, 2011 with (1) cash advances of $250,000; (2) debt assignment from Frontline of $850,279; (3) accrued interest of $33,534; and (4) $97,528 in cash advance fees.
On April 19, 2011, Windsor converted the entire $2,000,000 outstanding loan amount for the 10,000,000 collateralized shares and the Company issued a Stock Purchase Warrant (“Windsor Warrant”) which entitles Windsor, for a three-year period, to purchase at a purchase price of $.001 per share, on a one time basis and only following the effectiveness of the first reverse split of the Company’s common stock following the issuance of the Windsor Warrant , such number of shares of common stock as is equal to the difference between 10,000,000 and the number of shares into which such 10,000,000 shares were changed in such first reverse split, the effect being to protect Windsor from any dilution to its 10,000,000 share holding resulting from such first reverse split.
The Company entered into a Loan Agreement, dated as of July 14, 2011, with Cameo Properties LLC (“Cameo”) and was amended on October 14, 2011 (the “Amended Loan Agreement”). Each Note issued under the Amended Loan Agreement is due three years from the date of its issuance. The Amended Loan Agreement provides for loans to the Company of up to $750,000 (the “Loan”), with a minimum initial loan of $250,000 within 60 days of the date of the Loan Agreement, and up to an additional $500,000 within the first year and a half from execution of the Amended Loan Agreement. This is not a revolving facility, and any principal repaid by the Company will not be available for additional advances to the Company under the Amended Loan Agreement. The Company cannot, without the Lender’s consent, prepay all or part of the Loan. The notes evidencing the installments of the loans bear interest payable monthly in arrears at the rate of 10% per annum, and mature and are due and payable three years from the date of issuance. On December 27, 2011, Frontline assigned $250,000 of its receivable to Cameo.
Liquidity Issues
On October 27, 2010, we received the $2,500,000 in funds for the X-Prize award, from the competition sponsored by Progressive Insurance Casualty Company. Those funds have all been used and we need capital to recommence development and marketing of our electric vehicles. Given the number of companies competing in this sector and the fact that many of the larger car manufacturers are developing and marketing electric and hybrid vehicles there is no guarantee we will achieve or maintain a place in this market.
The Company has substantial obligations to the Internal Revenue Service and other creditors. The Company is trying to make payments to the Internal Revenue Service (IRS) for delinquent payroll taxes, and had a plan in place with one of two judgment creditors, upon which we have defaulted. There is no assurance that we will be able raise additional required capital to meet obligations arising from the settlements of these obligations and litigation matters, as well as the settlement payments with the IRS, and continue operations.
Our current operating funds will not allow any commercialization of our planned products, and therefore we need to obtain additional financing in order to complete our business plan. In addition, our facility in Mooresville, North Carolina, was closed in May 2012, and all employees in North Carolina were released. Currently, all ongoing work is being performed by consultants. Foreclosure proceedings on the Company’s facility in Mooresville were initiated in July 2012 by the lenders secured by our Mooresville facility, and the property was sold pursuant to a foreclosure and sale on August 22, 2012. There is no assurance that we will ever be able to resume production of electric vehicles.
We anticipate approximately $2,000,000 of additional working capital will be required over the next 12 months for certification and market introduction of these products through joint venture partners or otherwise. We do not have sufficient cash on hand to meet these anticipated obligations, which are in addition to payments we will owe to judgment creditors and the IRS.
We do not currently have any additional arrangements for financing, and we may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to us.
Critical Accounting Issues
The Company's discussion and analysis of its financial condition and results of operations are based upon the Company's financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of the financial statements requires the Company to make estimates and judgments that affect the reported amount of assets, liabilities, and expenses, and related disclosures of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates, including those related to intangible assets, income taxes and contingencies and litigation. The Company bases its estimates on historical experience and on various assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.
Other Matters
None.
New Financial Accounting Standards
The Financial Accounting Standards Board (“FASB”) has codified a single source of U.S. Generally Accepted Accounting Principles (“GAAP”), the Accounting Standards Codification™. Unless needed to clarify a point to readers, we will refrain from citing specific section references when discussing application of accounting principles or addressing new or pending accounting rule changes. There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk.
Interest Rate Risk - Interest rate risk refers to fluctuations in the value of a security resulting from changes in the general level of interest rates. Investments that are classified as cash and cash equivalents have original maturities of three months or less. Our interest income is sensitive to changes in the general level of U.S. interest rates. We do not have significant short-term investments, and due to the short-term nature of our investments, we believe that there is not a material risk exposure. Our debt is at fixed interest rates.
Credit Risk - Our accounts receivables are subject, in the normal course of business, to collection risks. We regularly assess these risks and have established policies and business practices to protect against the adverse effects of collection risks. As a result we do not anticipate any material losses in this area.
TERRA INVENTIONS CORP.
CONSOLIDATED FINANCIAL STATEMENTS
July 31, 20122013 and 20112012
TABLE OF CONTENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors
Terra Inventions Corp.(Formerly Li-ion Motors CorpCorp.)
We have audited the accompanying consolidated balance sheet of Terra Inventions Corp. (Formerly Li-ion Motors Corp.) (the Company) as of July 31, 2013, and the related consolidated statements of operations and comprehensive loss, stockholders’ equity (deficit) and cash flows for the year ended June 30, 2013. 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 audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States).
Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.In our opinion the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Terra Inventions Corp. (Formerly Li-ion Motors Corp.) as of July 31, 2013, and the consolidated results of its operations and cash flows for the year then ended, 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. The Company will need additional working capital to service its debt and for its planned activity, which raises substantial doubt about its ability to continue as a going concern. Management’s plans concerning these matters are also described in the notes to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Sadler, Gibb & Associates, LLC
Salt Lake City, UT
November 14, 2013
Madsen & Associates, CPA's Inc.
684 East Vine Street
Murray, UT 84107
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors
Terra Inventions Corp.
Las Vegas, NV
We have audited the accompanying consolidated balance sheets of Li-ion Motors Corp.Terra Inventions Corp. (formerly EV
Innovations, Inc.) (collectively, the “Company”) as of July 31, 2012 and 2011, and the related consolidated statements of operations, comprehensive income (loss), stockholders' equity (deficiency) and cash flows for the years then ended. 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 audit.
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 consolidated financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.
In our opinion, the 2012 and 2011 financial statements present fairly, in all material respects, the financial position of the Company as of July 31, 2012 and 2011, and the results of its operations and its cash flows each of the two years then ended, in conformity with accounting principles generally accepted in the United States of America.
As discussed in Note 1 to the consolidated financial statements, the Company has changed its accounting policy of recognizing revenue from licensing agreements. The Company's licensee is in default in making timely payments to the Company. The Company's revenue recognition policy is to recognize license revenue only to the extent the amount of payments received.
The accompanying financial statements have been prepared assuming the Company will continue as a going concern. The Company did not have any revenue from vehicle sales in 2012 other than from related parties, does not have cash flows to support its current operations and needs to cover expenses in future periods as the Company continues to incur losses from operations. The building where the Company conducts its operations in North Carolina was foreclosed upon and sold to a third party subsequent to the balance sheet date. These factors and others described in Note 1 raise substantial doubt about the Company’s ability to continue as a going concern.
These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary in the event the Company cannot continue in existence.
/s/ Madsen & Associates, CPA's Inc.
Madsen & Associates, CPA's Inc.
November 19, 2012
| Terra Inventions Corp. | ||||||||||||||
| (Formerly Li-ion Motors Corp.) | ||||||||||||||
| Consolidated Balance Sheets | ||||||||||||||
| July 31, | ||||||||||||||
| 2013 | 2012 | |||||||||||||
| Assets | ||||||||||||||
| Current assets: | ||||||||||||||
| Cash and cash equivalents | $ | 76 | $ | 64 | ||||||||||
| Accounts receivable, net of allowance for doubtful accounts of $0 and $561,237, respectively | — | — | ||||||||||||
| Notes receivable, net of allowance for doubtful accounts of $0 and $2,458,602, respectively | — | — | ||||||||||||
| Inventories | — | 1,500 | ||||||||||||
| Building and building improvements, net | — | 1,049,146 | ||||||||||||
| Other current assets | — | 3,190 | ||||||||||||
| Total current assets | 76 | 1,053,900 | ||||||||||||
| Property and equipment, net | 3,267 | 5,785 | ||||||||||||
| Deferred patent and trademark costs | 38,213 | 37,413 | ||||||||||||
| Total assets | $ | 41,556 | $ | 1,097,098 | ||||||||||
| Liabilities and Stockholders' Deficiency | ||||||||||||||
| Current liabilities: | ||||||||||||||
| Accounts payable and accrued expenses | $ | 1,712,910 | $ | 1,538,060 | ||||||||||
| Current portion of long-term debt | 717,294 | 1,460,189 | ||||||||||||
| Customer deposits | 102,188 | 102,188 | ||||||||||||
| Total current liabilities | 2,532,392 | 3,100,437 | ||||||||||||
| Long-term liabilities: | ||||||||||||||
| Long-term debt, less current portion | — | 250,879 | ||||||||||||
| Total liabilities | 2,532,392 | 3,351,316 | ||||||||||||
| Commitments and contingencies | — | — | ||||||||||||
| Stockholders' deficiency | ||||||||||||||
| Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding | — | — | ||||||||||||
| Common stock, $.001 par value, 40,000,000 shares authorized, 39,945,517 and 2,650,517 issued | ||||||||||||||
| and outstanding at July 31, 2013 and July 31, 2012, respectively. | 39,946 | 2,651 | ||||||||||||
| Additional paid-in capital | 63,470,061 | 62,643,216 | ||||||||||||
| Accumulated deficit | (65,991,996 | ) | (64,892,123 | ) | ||||||||||
| Accumulated other comprehensive loss | (8,847 | ) | (7,962 | ) | ||||||||||
| Stockholders' deficiency attributable to Terra Inventions Corp. | (2,490,836 | ) | (2,254,218 | ) | ||||||||||
| Non-controlling interests | — | — | ||||||||||||
| Stockholders' deficiency | (2,490,836 | ) | (2,254,218 | ) | ||||||||||
| Total stockholders' deficiency | (2,490,836 | ) | (2,254,218 | ) | ||||||||||
| Total liabilities and stockholders' deficiency | $ | 41,556 | $ | 1,097,098 | ||||||||||
| See accompanying notes to consolidated financial statements | ||||||||||||||
| Terra Inventions Corp. | ||||||||||||
| (Formerly Li-ion Motors Corp.) | ||||||||||||
| Consolidated Statements of Operations | ||||||||||||
| For the Year Ended | ||||||||||||
| July 31, | ||||||||||||
| 2013 | 2012 | |||||||||||
| Revenue: | ||||||||||||
| Sales | $ | — | $ | 262,795 | ||||||||
| License agreement revenue | — | 149,333 | ||||||||||
| Total revenue | — | 412,128 | ||||||||||
| Costs and expenses: | ||||||||||||
| Cost of sales | — | 464,623 | ||||||||||
| General and administrative | 534,726 | 1,054,901 | ||||||||||
| (Gain) loss on disposal of property and equipment | 5,552 | 70,786 | ||||||||||
| Impairment Charge | 1,500 | 740,000 | ||||||||||
| Research and development | 1,297 | 483,599 | ||||||||||
| Total costs and expenses | 543,075 | 2,813,909 | ||||||||||
| Loss from operations | (543,075 | ) | (2,401,781 | ) | ||||||||
| Other (expenses) income: | ||||||||||||
| Interest (expense) | (84,438 | ) | (145,088 | ) | ||||||||
| Loss on extinguishment of debt | (483,480 | ) | — | |||||||||
| Other income | 11,118 | 234,854 | ||||||||||
| Loss before provision for (benefit from) income taxes | (1,099,873 | ) | (2,312,015 | ) | ||||||||
| Provision for (benefit from) income taxes | — | — | ||||||||||
| Net loss | (1,099,873 | ) | (2,312,015 | ) | ||||||||
| Less: net loss attributable to non-controlling interest | — | — | ||||||||||
| Net loss attributable to Terra Inventions Corp. | $ | (1,099,873 | ) | $ | (2,312,015 | ) | ||||||
| Loss per share - basic and diluted: | ||||||||||||
| Loss per common share attributable to Terra Inventions Corp. common shareholders | $ | (0.02 | ) | $ | (0.11 | ) | ||||||
| Weighted average number of shares outstanding - basic and diluted | 47,690,045 | 20,642,347 | ||||||||||
| See accompanying notes to consolidated financial statements | ||||||||||||
| Terra Inventions Corp. | ||||||||||||||
| (Formerly Li-ion Motors Corp.) | ||||||||||||||
| Consolidated Statements of Cash Flows | ||||||||||||||
| For the Year Ended | ||||||||||||||
| July 31, | ||||||||||||||
| 2013 | 2012 | |||||||||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||||||||
| Net loss | $ | (1,099,873 | ) | $ | (2,312,015 | ) | ||||||||
| Adjustments to reconcile net earnings (loss) to net cash utilized by operating activities | ||||||||||||||
| Depreciation | 2,518 | 51,003 | ||||||||||||
| Loss on disposal of property and equipment, net | 5,552 | 70,786 | ||||||||||||
| Loss on impairment | — | 740,000 | ||||||||||||
| Loss on disposal of inventory due to facility closure | — | 209,947 | ||||||||||||
| Loss on finished goods write down | — | 31,527 | ||||||||||||
| Loss on deposit | — | 50,000 | ||||||||||||
| Provision for doubtful accounts | — | 2,139,079 | ||||||||||||
| Licensing fees | — | (1,638,166 | ) | |||||||||||
| Non-cash sale of inventories | — | (255,000 | ) | |||||||||||
| Default fees on debt | 200,000 | — | ||||||||||||
| Loss on extinguishment of debt | 483,480 | — | ||||||||||||
| Increase (decrease) in cash flows from changes in operating assets and liabilities | ||||||||||||||
| Inventories | 1,500 | — | ||||||||||||
| Prepaid expenses and other current assets | 3,190 | 22,278 | ||||||||||||
| Deferred patent and trademark costs | (800 | ) | (1,555 | ) | ||||||||||
| Accounts payable and accrued expenses | 246,107 | 390,759 | ||||||||||||
| Customer deposits | — | (99 | ) | |||||||||||
| Deferred revenue | — | (241,000 | ) | |||||||||||
| Net cash used in operating activities | (158,326 | ) | (742,456 | ) | ||||||||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||||||||
| Sale of property and equipment | — | 35,825 | ||||||||||||
| Additions to property and equipment | — | — | ||||||||||||
| Net cash provided by investing activities | — | 35,825 | ||||||||||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||||||||
| Advances on notes receivable | — | (81,758 | ) | |||||||||||
| Payments received on notes receivable | — | 22,984 | ||||||||||||
| Proceeds from issuance of debt | 168,228 | 838,814 | ||||||||||||
| Payments on debt | (9,005 | ) | (79,698 | ) | ||||||||||
| Net cash provided by financing activities | 159,223 | 700,342 | ||||||||||||
| Effect of exchange rate changes on cash and cash equivalents | (885 | ) | 1,235 | |||||||||||
| CHANGE IN CASH AND CASH EQUIVALENTS | ||||||||||||||
| Net increase (decrease) in cash and cash equivalents | 12 | (5,054 | ) | |||||||||||
| Cash and cash equivalents at beginning of period | 64 | 5,118 | ||||||||||||
| Cash and cash equivalents at end of period | $ | 76 | $ | 64 | ||||||||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES | ||||||||||||||
| Cash paid during the period for: | ||||||||||||||
| Interest | $ | — | $ | 20,470 | ||||||||||
| Income taxes | $ | — | $ | — | ||||||||||
| Terra Inventions Corp. | ||||||||
| (Formerly Li-Ion Motors Corp.) | ||||||||
| Consolidated Statements of Cash Flows (continued) | ||||||||
| For the Year Ended | ||||||||
| July 31, | ||||||||
| 2013 | 2012 | |||||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES | ||||||||
| Assignment of note receivable with Clean Enviro Tech Corp. to Frontline Asset Management debt | $ | 70,860 | $ | 112,500 | ||||
| Shares issued for debt | $ | 180,660 | $ | — | ||||
| Fixed assets foreclosed on | $ | 1,246,724 | ||||||
| Property and equipment, inventories and electric vehicles exchanged for payment on debt | $ | — | $ | 255,000 | ||||
| Assignment of debt from Frontline Asset Management to Cameo Properties, LLC | $ | — | $ | 250,000 | ||||
| See accompanying notes to consolidated financial statements | ||||||||
| Table of Contents | -24- |
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| Assets | ||||||||
| Current assets: | ||||||||
| Cash and cash equivalents | $ | 64 | $ | 5,118 | ||||
| Accounts receivable, net of allowance for doubtful accounts of $561,237 and $0, respectively | - | - | ||||||
| Notes receivable, net of allowance for doubtful accounts of $2,458,602 and $762,327, respectively | - | 1,750,000 | ||||||
| Inventories | 1,500 | 380,558 | ||||||
| Building and building improvements, net | 1,049,146 | |||||||
| Other current assets | 3,190 | 193,893 | ||||||
| Total current assets | 1,053,900 | 2,329,569 | ||||||
| Property and equipment, net | 5,785 | 1,983,739 | ||||||
| Deferred patent and trademark costs | 37,413 | 35,858 | ||||||
| Total assets | $ | 1,097,098 | $ | 4,349,166 | ||||
| Liabilities and Stockholders' Equity (Deficiency) | ||||||||
| Current liabilities: | ||||||||
| Accounts payable and accrued expenses | $ | 1,538,060 | $ | 1,156,136 | ||||
| Current portion of long-term debt | 1,460,189 | 399,407 | ||||||
| Customer deposits | 102,188 | 102,287 | ||||||
| Deferred license agreement revenue | - | 324,333 | ||||||
| Total current liabilities | 3,100,437 | 1,982,163 | ||||||
| Long-term liabilities: | ||||||||
| Long-term debt, less current portion | 250,879 | 939,608 | ||||||
| Deferred license agreement revenue, less current portion | - | 1,370,833 | ||||||
| Total liabilities | 3,351,316 | 4,292,604 | ||||||
| Commitments and contingencies | - | - | ||||||
| Stockholders' equity (deficiency) | ||||||||
| Preferred stock, $.001 par value, 5,000,000 shares authorized, 0 issued and outstanding | - | - | ||||||
Common stock, $.001 par value, 400,000,000 shares authorized, 26,423,470 and 26,423,470 issued and 26,423,470 and 6,423,470 outstanding at July 31, 2012 and July 31, 2011, respectively. | 26,423 | 26,423 | ||||||
| Additional paid-in capital | 62,619,444 | 62,639,444 | ||||||
| Accumulated deficit | (64,892,123 | ) | (62,580,108 | ) | ||||
| Accumulated other comprehensive loss | (7,962 | ) | (9,197 | ) | ||||
| (2,254,218 | ) | 76,562 | ||||||
| Less: Treasury stock, 20,000,000 shares at cost at July 31, 2011 | - | (20,000 | ) | |||||
| Stockholders' equity (deficiency) attributable to Li-ion Motors Corp. | (2,254,218 | ) | 56,562 | |||||
| Non-controlling interests | - | - | ||||||
| Stockholders' equity (deficiency) | (2,254,218 | ) | 56,562 | |||||
| Total stockholders' equity (deficiency) | (2,254,218 | ) | 56,562 | |||||
| Total liabilities and stockholders' equity (deficiency) | $ | 1,097,098 | $ | 4,349,166 | ||||
| For the Year Ended | ||||||||
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| Revenue: | ||||||||
| Sales | $ | 262,795 | $ | 7,013 | ||||
| License agreement revenue | 149,333 | 704,167 | ||||||
| Total revenue | 412,128 | 711,180 | ||||||
| Costs and expenses: | ||||||||
| Cost of sales | 464,623 | 17,243 | ||||||
| General and administrative | 1,054,901 | 1,448,274 | ||||||
| Loss on disposal of property and equipment | 70,786 | - | ||||||
| Impairment charge | 740,000 | - | ||||||
| Research and development | 483,599 | 1,318,267 | ||||||
| Total costs and expenses | 2,813,909 | 2,783,784 | ||||||
| Loss from operations | (2,401,781 | ) | (2,072,604 | ) | ||||
| Other (expenses) income: | ||||||||
| Interest expense | (145,088 | ) | (422,156 | ) | ||||
| Other income | 234,854 | 2,613,681 | ||||||
| Earnings (loss) before provision for (benefit from) income taxes | (2,312,015 | ) | 118,921 | |||||
| Provision for (benefit from) income taxes | - | - | ||||||
| Net earnings (loss) | (2,312,015 | ) | 118,921 | |||||
| Less: Net earnings (loss) attributable to non-controlling interest | - | - | ||||||
| Net earnings (loss) attributable to Li-ion Motors Corp | $ | (2,312,015 | ) | $ | 118,921 | |||
| Earnings (loss) per share - basic and diluted: | ||||||||
| Earnings (loss) per common share attributable to Li-ion Motors Corp. common shareholders | $ | (0.09 | ) | $ | 0.00 | |||
| Weighted average number of shares outstanding - basic and diluted | 26,423,470 | 26,127,867 | ||||||
| For the Year Ended | ||||||||
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| Net earnings (loss) | $ | (2,312,015 | ) | $ | 118,921 | |||
| Other comprehensive income | ||||||||
| Currency translation adjustment | 1,235 | (761 | ) | |||||
| Comprehensive income (loss) | (2,310,780 | ) | 118,160 | |||||
| Comprehensive income (loss) attributable to noncontrolling interest | - | - | ||||||
| Comprehensive income (loss) attributable to Li-ion Motors Corp | $ | (2,310,780 | ) | $ | 118,160 | |||
| For the Year Ended | ||||||||
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net earnings (loss) | $ | (2,312,015 | ) | $ | 118,921 | |||
| Adjustments to reconcile net earnings (loss) to net cash utilized by operating activities | ||||||||
| Depreciation | 51,003 | 71,099 | ||||||
| Loss on disposal of property and equipment, net | 70,786 | - | ||||||
| Impairment charge | 740,000 | - | ||||||
| Loss on disposal of inventory due to facility closure | 209,947 | - | ||||||
| Loss on finished goods write down | 31,527 | - | ||||||
| Loss on deposit | 50,000 | - | ||||||
| Provision for doubtful accounts | 444,346 | (78,880 | ) | |||||
| Licensing fees | 56,567 | (204,167 | ) | |||||
| Non-cash sale of inventories | (255,000 | ) | - | |||||
| Increase (decrease) in cash flows from changes in operating assets and liabilities | ||||||||
| Note receivable, net | - | (1,750,000 | ) | |||||
| Inventories | - | (345,558 | ) | |||||
| Employee advances | - | 10,000 | ||||||
| Prepaid expenses and other current assets | 22,278 | (142,890 | ) | |||||
| Deferred patent and trademark costs | (1,555 | ) | (11,600 | ) | ||||
| Bank overdraft | - | (14,104 | ) | |||||
| Accounts payable and accrued expenses | 390,759 | (140,598 | ) | |||||
| Customer deposits | (99 | ) | 2,287 | |||||
| Deferred revenue | (241,000 | ) | 1,314,712 | |||||
| Net cash used in operating activities | (742,456 | ) | (1,170,778 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Sale of property and equipment | 35,825 | - | ||||||
| Additions to property and equipment | - | (135,157 | ) | |||||
| Net cash used in investing activities | 35,825 | (135,157 | ) | |||||
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||||||||
| Advances on notes receivable | (81,758 | ) | (208,587 | ) | ||||
| Payments received on notes receivable | 22,984 | 287,467 | ||||||
| Proceeds from issuance of debt | 838,814 | 2,403,163 | ||||||
| Payments on debt | (79,698 | ) | (1,172,342 | ) | ||||
| Net cash provided by financing activities | 700,342 | 1,309,701 | ||||||
| Effect of exchange rate changes on cash and cash equivalents | 1,235 | (761 | ) | |||||
| - | ||||||||
| CHANGE IN CASH AND CASH EQUIVALENTS | ||||||||
| Net increase (decrease) in cash and cash equivalents | (5,054 | ) | 3,005 | |||||
| Cash and cash equivalents at beginning of period | 5,118 | 2,113 | ||||||
| Cash and cash equivalents at end of period | $ | 64 | $ | 5,118 | ||||
| SUPPLEMENTAL CASH FLOW DISCLOSURES | ||||||||
| Cash paid during the period for: | ||||||||
| Interest | $ | 20,470 | $ | 394,927 | ||||
| Income taxes | $ | - | $ | - | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES | ||||||||
| Property and equipment and inventories exchanged for payment on debt | $ | 255,000 | $ | - | ||||
| Assignment of note receivable with Sky Power Solutions Corp. to Frontline Asset Management debt | $ | 112,500 | $ | - | ||||
| Shares issued for debt | $ | - | $ | 5,857,309 | ||||
Number of Common Shares | Common Shares $0.01 Par Value | Additional Paid in Capital | Accumulated Deficit | Accumulated Other Comprehensive Income (Loss) | Treasury Stock at Cost | Non-Controlling Interest | Comprehensive Income (Loss) | Total | ||||||||||||||||||||||||||||
| Balance - August 1, 2010 | 6,015,227 | $ | 6,015 | $ | 56,782,543 | $ | (62,699,029 | ) | $ | (8,436 | ) | $ | - | $ | - | $ | (5,918,907 | ) | ||||||||||||||||||
| Issuance of stock for conversion of promissory notes | 408,243 | 408 | 5,856,901 | - | - | - | - | 5,857,309 | ||||||||||||||||||||||||||||
| Common stock issued as collateral on loan | 20,000,000 | 20,000 | - | - | - | (20,000 | ) | - | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | (761 | ) | - | - | $ | (761 | ) | (761 | ) | |||||||||||||||||||||||
| Net earnings | - | - | - | 118,921 | - | - | - | 118,921 | 118,921 | |||||||||||||||||||||||||||
| Comprehensive income | $ | 118,160 | - | |||||||||||||||||||||||||||||||||
| Balance - July 31, 2011 | 26,423,470 | 26,423 | 62,639,444 | (62,580,108 | ) | (9,197 | ) | (20,000 | ) | - | 56,562 | |||||||||||||||||||||||||
| Common stock issued as collateral on loan released to lender | - | - | (20,000 | ) | - | - | 20,000 | - | - | |||||||||||||||||||||||||||
| Foreign currency translation | - | - | - | - | 1,235 | - | - | $ | 1,235 | 1,235 | ||||||||||||||||||||||||||
| Net earnings | - | - | - | (2,312,015 | ) | - | - | - | (2,312,015 | ) | (2,312,015 | ) | ||||||||||||||||||||||||
| Comprehensive income | $ | (2,310,780 | ) | - | ||||||||||||||||||||||||||||||||
| Balance - July 31, 2012 | 26,423,470 | $ | 26,423 | $ | 62,619,444 | $ | (64,892,123 | ) | $ | (7,962 | ) | $ | - | $ | - | $ | (2,254,218 | ) | ||||||||||||||||||
Notes to Consolidated Financial Statements
For the Years Ended and as of July 31, 20122013 and 2011
Note 1. Financial Statement Presentation
History and Nature of Business
Li-ion Motors CorpCorp. was incorporated under the laws of the State of Nevada on April 12, 2000. On November 30, 2012, Li-ion Motors merged with its wholly owned subsidiary, Terra Inventions, Corp. (the “Company” or “Terra”) and as a result of the merger the name of the Company was changed. The name Terra was effective for trading purposes on December 21, 2012. The Company is currently pursuing the development and marketing of electric powered vehicles and products based on the advanced lithium battery technology it has developed.
Effective April 15, 2008, the Company entered into a License Agreement (“License Agreement”) with SPSSky Power Solutions, now Clean Enviro Tech Corp. (“CET”), CET providing for their license to SPSCET of their patent applications and technologies for rechargeable lithium ion batteries for electric vehicles and other applications (“Licensed Products”). Under the License Agreement, the Company has the right to purchase their requirements of lithium ion batteries from SPS,CET, and their requirements of lithium ion batteries shall be supplied by SPSCET in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of SPS.CET. The Company’s cost for lithium ion batteries purchased from SPSCET shall be SPS’sCET’s actual manufacturing costs for such batteries for the fiscal quarter of SPSCET in which the Company’s purchase takes place. On May 25, 2010, the license agreement was amended to reflect Sky Power’sClean Enviro Tech’s territory would only be the United States and US possessions and territories and we can license to other companies in other parts of the world. The Company issued a license to a firm for the rights in Canada in 2010.
Under the terms of the license agreement, SPS hasCET had agreed to invest a minimum of $1,500,000 in each of the nextfollowing two years years(2009 and 2010)in development of the technology for the Licensed Products. To date, SPSCET has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement. The Company has advised SPSCET that it will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.
The Company entered into a ten year license agreement with Lithium Electric Vehicle Corp. (“LEVC”) on May 28, 2010, providing for the Company to license to LEVC certain of the Company’s patent applications and technologies for electric vehicles and other applications. The purpose of the licensee islicense was to expand sales of the Company’s current line of products by the manufacture and sale of such products in Canada, which is LEVC’s exclusive territory under the license agreement.
The license agreement consistsconsisted of an annual fee of $500,000 for ten years and an additional $1,750,000 based on a valuation report prepared by an independent third party. LEVC iswas required to pay $1 million of the license fee during year one for the initial two years and $500,000 each additional year. The Company hashad received $732,666 from LEVC with a balance due of $267,334 as of July 31, 2012, which is now delinquent.2012. The Company has reflected the delinquent amount due from LEVC in its accounts receivable and hashad established a reserve for doubtful accounts for the entire amount.
On February 19, 2013, the Company and LEVC amended the License Agreement and both parties have agreed that; (1) Terra Inventions will own 49% of LEVC in exchange for the balance of any funds due to Terra in connection with the license agreement; (2) LEVC intends to further develop Terra’s technology in Canada. In exchange for this agreement Terra will have full access to these developments made by LEVC for Terra’s use, including further development in the United States; (3) LEVC will retain ownership of further developments only; (4) Terra and LEVC also agree that LEVC will be doing R&D and develop free energy technology and wind turbine technology to achieve higher efficiency for electric vehicles.
Basis of Presentation
Going Concern
The Company’s financial statements for the year ended July 31, 2012,2013, have been prepared on a going concern basis which contemplates the realization of assets and settlement of liabilities and commitments in the normal course of business. The Company did not have any cash revenue from vehicle sales in 2012.2013. Management recognized that the Company’s continued existence is dependent upon its ability to obtain needed working capital through additional equity and/or debt financing and revenue to cover expenses, as the Company continues to incur losses from operations.
Since its incorporation, the Company financed its operations through advances and loans from its controlling shareholders. The Company expects to finance operations through the sale of equity or other investments as well as continued advances from shareholders for the foreseeable future, as the Company does not expect to receive significant revenue from vehicle sales until the required certifications have been received. There is no guarantee that the Company will be successful in arranging financing on acceptable terms.
The Company’s facility in Mooresville, North Carolina was financed through Bayview Loan Servicing, LLC (“Bayview”) and. Frontline Asset Management, Inc. (“Frontline”), which had a second lien on the property. Li-ion became delinquent with the mortgage payments, and, following a prior foreclosure filing and new agreement as to payments under the mortgage, on July 12, 2012, Bayview refiled a notice of hearing on foreclosure on its deed of trust and security agreement for a hearing on August 21, 2012, the outstanding amount of the loan at July 31, 2012 being $946,279. A similar notice of foreclosure pursuant to the Frontline deed of trust was filed by the Trustee with the same court on July 25, 2012, noticing a hearing for August 22, 2012, the amended notice of default in the amount of $660,546 having been given on July 23, 2012. The Trustee for Frontline also filed on July 25, 2012, a notice of foreclosure and sale to take place on August 22, 2012. The Trustee under the Bayview deed of trust on August 21, 2012, filed its notice of foreclosure and sale to take place on September 18, 2012, of the real and personal property securing the deed of trust. On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned its rights to its foreclosure bid to A&S Holdings Inc., a related holding company, subject to the rights of Bayview, as the holder of the first mortgage on the property.
As of the filing of this Report, the Company does not have any substantive plan on where its facilities will be or how it will continue the manufacturing process of its electric vehicles.
The Company’s ability to raise additional capital is affected by trends and uncertainties beyond its control. The Company does not currently have any arrangements for financing and it may not be able to find such financing if required. Obtaining additional financing would be subject to a number of factors, including investor sentiment. Market factors may make the timing, amount, terms or conditions of additional financing unavailable to it. These uncertainties raise substantial doubt about the ability of the Company to continue as a going concern. The accompanying financial statements do not include adjustments that might result from the outcome of these uncertainties. The Company has reduced the workforce to a few consultants, even if financing is obtained qualified engineers and technicians that would need to be hired may not be readily available.
Common Stock
On December 13, 2011, the Board of Directors unanimously approved an amendment to the Company’s Articles of Incorporation to decrease the authorized number of shares of common stock from 300 million shares, par value $.001 per share, to 60 million shares, par value $.001 per share. The Company filed the amendment with the Secretary of State of Nevada on December 14, 2011.
Effective January 26, 2012, the Financial Industry Regulatory Authority (“FINRA”) approved a one-for-five reverse split of the common stock. All share and per share amounts have been restated to reflect the one-for-five reverse stock split.
Our Board of Directors unanimously approved an amendment to our Articles of Incorporation to decrease the authorized number of shares of common stock from 400,000,000 shares, par value $.001 per share, to 40,000,000 shares, par value $.001 per share, on November 29, 2012. On the same date we received the written consent from shareholders of our company holding a majority (75.69%) of the outstanding shares of our common stock. We filed the amendment with the Secretary of State of Nevada on November 29, 2012, and the amendment was effective on that date.
Effective December 31, 2012, FINRA approved a one-for-ten reverse split of the common stock. All share and per share amounts have been restated to reflect the one-for-ten reverse stock split.
All shares and per share information has been revised to give retroactive effect to the reverse stock splits.
Note 2. Summary of Significant Accounting Policies
Basis of Consolidation
The consolidated financial statements included the accounts and records of the Company and its wholly-owned and majority-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated. The Company does not have any special purpose entities. For those consolidated subsidiaries in which the company's ownership is less than 100 percent (100%), the outside stockholders' interests are shown as non-controlling interest. The non-controlling interest of the company's earnings or loss is classified as net income (loss) attributable to non-controlling interest in the consolidated statement of operations.
The following is a listing of the Company's subsidiaries and its ownership interests:
| Global | 67.57 | % | ||
| R Electric Car, Co. | 67.57 | % | ||
| Solium Power, Corp. | 67.57 | % | ||
| Hybrid Technologies USA Distributing Inc. | 100 | % | ||
| Hybrid Electric Vehicles India Pvt. Ltd. | 100 | % | ||
| Li-ion Motors of Canada | 100 | % |
Reclassifications
Certain prior period amounts have been reclassified to conform with current period other income presentations.
Use of Estimates
The preparation of financial statements in accordance with accounting principles generally accepted in the United States of America requires the Company to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and disclosure of contingent assets and liabilities. On an on-going basis, the Company evaluates its estimates and judgments, including those related to revenue recognition, inventories, adequacy of allowances for doubtful accounts, valuation of long-lived assets and goodwill, income taxes, litigation and warranties. The Company bases its estimates on historical and anticipated results and trends and on various other assumptions that the Company believes are reasonable under the circumstances, including assumptions as to future events.
The policies discussed below are considered by management to be critical to an understanding of the Company’s financial statements. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. By their nature, estimates are subject to an inherent degree of uncertainty. Actual results may differ from those estimates.
Fair Value Measurements
The Company utilizes the accounting guidance for fair value measurements and disclosures for all financial assets and liabilities and nonfinancial assets and liabilities that are recognized or disclosed at fair value in the consolidated financial statements on a recurring basis or on a nonrecurring basis during the reporting period. The fair value is an exit price, representing the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants based upon the best use of the asset or liability at the measurement date. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability. The accounting guidance establishes a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. These tiers are defined as follows:
Level 1
- Observable inputs such as quoted market prices in active marketsLevel 2
- Inputs other than quoted prices in active markets that are either directly or indirectly observableLevel 3
- Unobservable inputs about which little or no market data exists, therefore requiring an entity to develop its own assumptions| Assets at Fair Value as of July 31, 2011 and 2010 Using | ||||||||||||||||
Quoted Prices in Activated Markets for Identical Assets | Significant Other Observable Inputs | Significant Observable Inputs | ||||||||||||||
| Total | (Level 1) | (Level 2) | (Level 2) | |||||||||||||
| July 31, 2012 | ||||||||||||||||
| Cash and Cash Equivalents | $ | 64 | $ | 64 | $ | - | $ | - | ||||||||
| July 31, 2011 | ||||||||||||||||
| Cash and Cash Equivalents | $ | 5,118 | $ | 5,118 | $ | - | $ | - | ||||||||
The Company has other financial instruments, such as receivables, accounts payable and other liabilities which have been excluded from the tables above. Due to the short-term nature of these instruments, the carrying value of receivables, accounts payable and other liabilities approximate their fair values. The Company did not have any other financial instruments with the scope of the fair value disclosure requirements as of July 31, 2012.
Non-financial assets and liabilities, such as goodwill and long-lived assets, are accounted for at fair value on a nonrecurring basis. These items are tested for impairment on the occurrence of a triggering event or in the case of goodwill, on at least an annual basis. The Company's annual test on its long-lived assets indicated that the carrying value of its long-lived assets was recoverable and that no impairment existed as of the testing date.
Cash and Cash Equivalents
Cash and cash equivalents consist of highly liquid investments, which are readily convertible into cash with original maturities of three months or less.
Accounts Receivable
The Company provides credit to customers in the normal course of business. An allowance for accounts receivable is estimated by management based in part on the aging of receivables and historical transactions. Periodically management reviews accounts receivable for accounts that appear to be uncollectible and writes off these uncollectible balances against the allowance accordingly.
Inventories
Inventories are stated at the lower of cost or market using the first-in, first-out (“FIFO”) method. The Company may write down its inventory for estimated obsolescence or unmarketable inventory equal to the difference between the cost of inventory and the estimated market value based upon assumptions about future demand and market conditions.
Property and Equipment
Property and equipment are recorded at cost less accumulated depreciation. Depreciation of property and equipment are accounted for by methods over the following estimated useful lives:
| Lives | Methods | |||||
| Building Improvements | 39 Years | Straight Line | ||||
| Furniture and Fixtures | 10 years | Accelerated | ||||
| Software | 3-5 years | Straight Line | ||||
| Computers | 5 years | Straight Line |
Significant improvements are capitalized, while maintenance and repairs are charged to operations as incurred.
Evaluation of Long-Lived Assets
The Company reviews property and equipment for impairment whenever events or changes in circumstances indicate the carrying value may not be recoverable in accordance with the guidance in ASC 360-15-35 “Impairment or Disposal of Long-Lived Assets”. An impairment exists when the carrying amount of the long-lived assets is not recoverable and exceeds its fair value. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. If an impairment exists the resulting write-down would be the difference between the fair market value of the long-lived asset and the related net book value. The Company’s building in North Carolina was foreclosed upon and sold to a third party subsequent to the balance sheet date. The first mortgage debt was liquidated upon the sale and the amount due to the second mortgagee was reduced by $50,000. As a result of the sale of the building, the Company recorded a $740,000 impairment charge related to the building during the year ended July 31, 2012.
Deferred Patent Costs
The Company capitalizes costs directly incurred in pursuing patent applications as deferred patent costs. When such applications result in an issued patent, the related costs are amortized over the remaining legal life of the patents, which is assumed to be 17 years, using the straight-line method. On a quarterly basis, the Company reviews the issued patents and pending patent applications and if the Company determines to abandon a patent application, or an issued patent no longer has economic value, the unamortized balance in deferred patent costs relating to that patent is immediately expensed. As of July 31, 2012,2013, the Company’s patents were in the approval processing phase.
Revenue Recognition
The Company recognizes revenue in accordance with the guidance contained in Financial Accounting Standards Board Accounting Standards Codification 605, “Revenue Recognition”, (“ASC 605”) and other relevant accounting literature. Revenue is recognized when the product has been delivered and title and risk of loss have passed to the customer, collection of the resulting receivable is deemed reasonably assured by management, persuasive evidence of an arrangement exists and the sale price is fixed and determinable.
Revenue received from the sale of license agreements is earned over the life of the agreement. Revenue received but not earned is classified as deferred revenue on the Company's consolidated balance sheet. The Company has changed its accounting policy of recognizing revenue from licensing agreements. The Company’s licensee is in default in making timely payments to the Company. The Company’s revenue recognition policy is to recognize license revenue only to the extent the amount of payments received.
The Company typically has a twenty-four month warranty policy for workmanship defects. The Company establishes an accrual for warranty work and expenses the amount over a two year period.
Customer Deposits
The Company receives advances from customers for automobiles to be manufactured in the future. The Company applies these advances against future billings. As of July 31, 20122013 and 2011,2012, customer deposits amounted to $102,188 and $102,287,$102,188, respectively.
Shipping and Handling
Shipping and handling costs related to services and product sales are expensed as incurred.
Advertising
Advertising costs are expensed as incurred and are included in general and administrative expenses. Total advertising expenditures for the year ended July 31, 20122013 and 2011,2012, amounted to $1,340 and $5,019, and $369,034, respectively.
Research and Development
No set amount has been set aside for research and development (“R&D”), however, all projects and purchases require approval prior to initiation. Salaries, payroll taxes, and benefits expensed to R&D for the year ending July 31, 2013 and 2012, were $0 and 2011, were $471,300, and $1,261,479, respectively. Parts and supplies; battery and motor management systems; and shipping charges were $12,299$1,297 and $56,788,$12,299, for the year ending July 31, 20122013 and July 31, 2011,2012, respectively. The Company expects the research and development expenses will continue to remain substantial and grow as the Company aggressively moves to bring products to market.
Concentration of Risk
The Company maintains cash deposit accounts and may have certificates of deposits which at times may exceed federally insured limits. These accounts have not experienced any losses and the Company believes it is not exposed to any significant credit risk related to cash.
Income taxes
Deferred income tax assets or liabilities are computed based on the temporary differences between the financial statement and income tax bases of assets and liabilities using the statutory marginal income tax rate in effect for the years in which the differences are expected to reverse. Deferred income tax expenses or credits are based on the changes in the deferred income tax assets or liabilities from period to period. A valuation allowance against deferred tax assets is required if, based on the weight of available evidence, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The valuation allowance should be sufficient to reduce the deferred tax asset to the amount that is more likely than not to be realized.
Foreign Currency Translation
The functional currency for some foreign operations is the local currency. The reporting currency is the US Dollar. Assets and liabilities of foreign operations are translated at balance sheet date rates of exchange and income, expense and cash flow items are translated at the average exchange rate for the period. Translation adjustments in future periods will be recorded in Other Comprehensive Income (Loss). The translation loss for the year ended July 31, 2013, was $885 and the translation gain for the year ended July 31, 2012, was $1,235 and the translation loss for the year ended July 31, 2011, was $761.
Comprehensive Loss
The Company reports comprehensive loss in accordance with the requirements of FASB ASC 220-10-15, “Comprehensive Income”, and (“ASC 220-10-15”). For the years ended July 31, 20122013 and 2011,2012, the difference between net loss and comprehensive loss was foreign currency translation.
Net Earnings (Loss)Loss Per Common Share
Basic earnings (loss)loss per common share is computed by dividing the net earnings (loss)loss by the weighted average number of common shares outstanding during the specified period. Diluted earnings (loss)loss per common share is computed by dividing net earnings (loss)loss by the weighted average number of common shares and potential common shares during the specified period. All potentially dilutive securities have been excluded from the computations for the year ending July 31, 2012,2013, as their effect is anti-dilutive.
Recently Issued Pronouncements
FASB has codified a single source of U.S. Generally Accepted Accounting Principles, the Accounting Standards Codification™. Unless needed to clarify a point to readers, we will refrain from citing specific section references when discussing application of accounting principles or addressing new or pending accounting rule changes. There are no recently issued accounting standards that are expected to have a material effect on our financial condition, results of operations or cash flows.
Note 3. Notes Receivable
As of July 31, 2012, the Company had a note receivable balance with CET of $708,602. On October 2, 2012 the Company sold its interest in the receivable to Frontline Asset Management (“Frontline”) for $0.10 on the dollar which reduced the Company’s debt with Frontline to $70,786. The entire note receivable had previously been reserved for in its entirety; therefore, we had a $70,786 credit in our bad debt expense which is included in the general and administrative expenses on the Company’s consolidated statement of operations for the year ending July 31, 2013.
During the year endedending July 31, 2013, the Company advanced $0 and $0 was repaid by CET. During year ending July 31, 2012, the Company advanced Sky Power Solutions Corp. (“SPS”) $81,758. The advances were reduced byCET $81,758 of which $22,984 was repaid in payments through a reimbursement for a leased employee and $112,500 through an assignment of debt to Frontline. During the year ended July 31, 2011 the Company advanced SPS $208,587 of which $287,467 was repaid ($173,600 in the form of cash and $113,867 in reimbursement for a leased employee). As of July 31, 20122013 and July 31, 2011,2012, an allowance for doubtful accounts in the amount of $698,207$0 and $762,327,$708,602, respectively was recorded against the note receivable, reducing the amount to $0.
On November 26, 2010, LEVC issued the Company a Secured Promissory Note (“LEVC Note”) in the amount of $1,750,000 in accordance with the license agreement. The LEVC Note bearsbore an interest atof ten (10%) percent per annum on the outstanding amount of the loan and shall accrueaccrued for the first 12 months during which the outstanding amount, or any portion thereof is outstanding. Commencing for the first month following the first year and for all subsequent months during which any portion of the amount is outstanding, LEVC shall makewould monthly interest payments in arrears on the first day of the month following the month for which the interest payment is made on the outstanding amount of the LEVC Note, including any accrued unpaid interest thereon. The outstanding amount and any accrued but unpaid interest thereon shallwould be repaid in full by LEVC within sixty (60) days of receiving written demand for repayment by the Company. LEVC shallwould have the right to repay the LEVC Note in whole or in part, at any time without notice, bonus or penalty. The LEVC Note is secured by LEVC’s (1) inventory; (2) equipment, other than inventory; (3) receivables; and (4) all other property, including leasehold interests, chattel paper, documents of title, securities, instruments, money and intangibles. In addition, the LEVC Note includesincluded a conversion right in which the Company cancould convert the LEVC Note if LEVC should beginbegan trading on the TSX Venture Exchange. The conversion clause stipulatesstipulated that the LEVC Note willwould be converted at a price the greater of fifteen cents ($0.15) per share or ninety percent (90%) of the average ten (10) day trading price and if the conversion of the LEVC Note resultsresulted in a fractional share, LEVC shall,would, in lieu of issuing such fractional share, pay to the Company an amount equal to the conversion value of the fractional share.
The Company recognized interest income of $0 and $175,479, none of which has been received, in accordance to the terms of the LEVC Note for the year endedending July 31, 2012.2013 and 2012, respectively. The Company hashad reflected the amount due from LEVC in its accounts receivable and hashad established a reserve for doubtful accounts for the entire amount and is included in general and administrative expenses on the Company’s consolidated statement of operations.
Due to the execution of the following:
| Years Ended | ||||||||
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| Raw Materials | $ | - | $ | 1,103 | ||||
| Work-In-Progress | - | 344,455 | ||||||
| Finished Goods | 1,500 | 35,000 | ||||||
| $ | 1,500 | $ | 380,558 | |||||
Note 5.4. Property and Equipment
Property and equipment consist of:
| July 31, | July 31, | |||||||
| 2012 | 2011 | |||||||
| Building and Improvements | $ | 552,276 | $ | 1,292,276 | ||||
| Equipment and Furniture and Fixtures | 4,827 | 328,663 | ||||||
| Vehicles | 66,429 | 66,429 | ||||||
| Software Costs | - | 28,913 | ||||||
| Land | 700,000 | 700,000 | ||||||
| 1,323,532 | 2,416,281 | |||||||
| Less Accumulated Depreciation | (268,601 | ) | (432,542 | ) | ||||
| Net Property and Equipment | $ | 1,054,931 | $ | 1,983,739 | ||||
| July 31, | July 31, | |||||||
| 2013 | 2012 | |||||||
| Building and Improvements | $ | — | $ | 552,276 | ||||
| Equipment and Furniture and Fixtures | 4,827 | 4,827 | ||||||
| Vehicles | 66,429 | 66,429 | ||||||
| Land | — | 700,000 | ||||||
| 71,256 | 1,323,532 | |||||||
| Less Accumulated Depreciation | (67,989 | ) | (268,601 | ) | ||||
| Less Current Portion | — | (1,049,146 | ) | |||||
| Net Property and Equipment | $ | 3,267 | $ | 5,785 | ||||
Depreciation expense for the year ended July 31, 2013 and 2012 was $2,518 and 2011 was $51,003, and $71,099, respectively and is included in general and administrative expenses on the Company’s consolidated statement of operations.
On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed. Due to the foreclosure of the property and the loss of rights to the facility, the Company wrote-off the building and its improvements, which caused a loss of $5,552 and is reflected on the Company’s consolidated statement of operations.
During the fiscal year ended July 31, 2012, and in accordance with the guidance in ASC 360-15-35 “Impairment or Disposal of Long-Lived Assets”, The Company reviewed its building in North Carolina at July 31, 2012, for impairment and determined the amount carried on the books exceeded current fair market value by $740,000. Therefore, the company reduced the carrying amount and recorded the impairment under operating costs on the consolidated statement of operations. The building was sold subsequent to the balance sheet date and accordingly, the Company has reclassified the building and improvements to current assets.
During the year ended July 31, 2012, the Company closed its office in Las Vegas, subsequent to year end, and its facility in North Carolina has been foreclosed upon. All employees were laid off and minimal consultants are working on projects in North Carolina. The Company evaluated its remaining fixed asset inventory of equipment, furniture and fixtures, and software and wrote off $99,304 due to obsolescence. This was offset by a net effect of $3,693 for the surrender of equipment to Treger Financial (See Note 8); $5,975 from the seizure of assets (See below) and cash from individuals in the amount of $18,850 for various equipment.
During the year ended July 31, 2012, the Company signed a confession of judgment on November 7, 2011, which was filed with the Iredell Country, North Carolina Superior Court Division. The plaintiff enforced the judgment and the Company’s assets at our North Carolina facility were seized and auctioned off. The Sherriff’s office received $5,975 which was applied to the Company’s accrued expense account and partially offset the write off of obsolete assets.
| Years Ended | ||||||||
| July 31, | ||||||||
| 2011 | 2011 | |||||||
| Deposits | $ | 3,190 | $ | 4,957 | ||||
| Deferred Product Asset | - | 4,958 | ||||||
| Prepaid Expenses | - | 65,553 | ||||||
| Interest Receivable | - | 118,425 | ||||||
| Total | $ | 3,190 | $ | 193,893 | ||||
Note 7.5. Accounts Payable and Accrued Expenses
Accounts payable and accrued expenses and other current liabilities at July 31, 20122013 and 20112012 consisted of:
| Years Ended | ||||||||
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| Accounts Payable | $ | 291,156 | $ | 608,623 | ||||
| Accounts Payable - Related Parties | 4,682 | 28,029 | ||||||
| Wages, Paid Leave and Payroll Related Taxes | 948,410 | 259,122 | ||||||
| Accrued Interest | 120,067 | 8,403 | ||||||
| Legal Settlements | 152,976 | 171,750 | ||||||
| Other | 20,769 | 80,209 | ||||||
| Total | $ | 1,538,060 | $ | 1,156,136 | ||||
| Years Ended | ||||||||
| July 31, | ||||||||
| 2013 | 2012 | |||||||
| Accounts Payable | $ | 321,243 | $ | 291,156 | ||||
| Accounts Payable - Related Parties | 16,177 | 4,682 | ||||||
| Wages, Paid Leave and Payroll Related Taxes | 1,149,438 | 948,410 | ||||||
| Accrued Interest | 73,076 | 120,067 | ||||||
| Legal Settlements | 152,976 | 152,976 | ||||||
| Other | — | 20,769 | ||||||
| Total | $ | 1,712,910 | $ | 1,538,060 | ||||
Accounts payable due to related parties are reimbursable general and administrative expenses paid by the Company’s President and Consultant.
Note 8.6. Long-Term Debt
Long-term debt consists of:
| July 31, | July 31, | |||||||
| 2013 | 2012 | |||||||
| 5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,433 including interest, collateralized by real property. Due to foreclosure of the building, the entire balance has been eliminated. (1) | $ | — | $ | 946,279 | ||||
| 12% Note payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2014 (2) | 460,997 | 508,492 | ||||||
| 48.956% Note payable to Amicus Funding Group, LLC, payable in monthly installments of approximately $467, collateralized by real property due in full on September 1, 2013 (3) | 6,297 | 6,297 | ||||||
| 10% Note payable to Cameo Properties, LLC payable in monthly installments of interest only, due in full on December 27, 2011 (4) | 250,000 | 250,000 | ||||||
| 717,294 | 1,711,068 | |||||||
| Less Current Portion | — | (1,460,189 | ) | |||||
| $ | 717,294 | $ | 250,879 | |||||
| July 31, | July 31, | |||||||
| 2012 | 2011 | |||||||
5% Note payable to Bayview Loan Servicing, LLC, payable in monthly installments of $5,433 including interest, collateralized by real property. Due to foreclosure of the building, the entire balance is included in current portion of long-term debt. (1) | $ | 946,279 | $ | 951,921 | ||||
9.367% Note payable to Allegiance Direct Bank, payable in monthly installments of approximately $1000, due in full on February 28, 2012 (2) | - | 6,112 | ||||||
12% Note payable to Frontline Asset Management, payable in monthly installments of interest only, due in full on March 1, 2012 (3) | 508,492 | 349,465 | ||||||
48.956% Note payable to Amicus Funding Group, LLC, payable in monthly installments of approximately $467, collateralized by real property due in full on September 1, 2013 (4) | 6,297 | 7,394 | ||||||
26.85% Note payable to Treger Financial, payable in monthly installments of approximately $2,000, collateralized by real property due in full on June 1, 2012 (5) | - | 24,123 | ||||||
10% Note payable to Cameo Properties, LLC payable in monthly installments of interest only, due in full on December 27, 2014 (6) | 250,000 | - | ||||||
| 1,711,068 | 1,339,015 | |||||||
| Less Current Portion | (1,460,189 | ) | (399,407 | ) | ||||
| $ | 250,879 | $ | 939,608 | |||||
Principal maturities for long-term debt are as follows for the years ended July 31:
| 2013 | $ | 1,460,189 | ||
| 2014 | 879 | |||
| 2015 | 250,000 | |||
| 2016 | - | |||
| 2017 | - | |||
| Thereafter | - | |||
| $ | 1,711,068 |
| 2014 | $ | 717,294 | ||||
| 2015 | — | |||||
| 2016 | — | |||||
| 2017 | — | |||||
| 2018 | — | |||||
| Thereafter | — | |||||
| $ | 717,294 |
(1)
In November 2007, the Company refinanced the first mortgage loan on its Mooresville, North Carolina building (the “property”) with Bayview.(2)
Loans under the Frontline loan agreement are secured by a junior deed of trust on the Company’s property located at 158 Rolling Hill Road, Mooresville, North Carolina. On August 22, 2012, the foreclosure by Frontline of the property took place, pursuant to a notice of foreclosure and sale dated July 25, 2012, and the foreclosure sale to an assignee of Frontline, which was the only bidder, was completed on September 14, 2012. Frontline received $50,000 upon the sale of the foreclosed property and this amount will reducereduced the debt to Frontline.
During the year ended July 31, 20122013 and 2011,2012, the Company received advances totaling $838,814$159,222 and $1,968,314,$838,814, respectively; and made payments of $62,288$0 and $1,146,665,$62,288, respectively. Interest expense for the year ended July 31, 2013 and 2012, was $53,127 and 2011, was $65,071, and $101,522, respectively.
(3) On March 11, 2011, the Company financed $7,992 for office equipment with Amicus Funding Group, LLC (“Amicus”) and monthly payments including interest of 48.956% are approximately $467.$477. During the year ended July 31, 20122013 and 2011,2012, the Company repaid $1,097$0 and $598, respectively. Interest expense for the year ended July 31, 2012 and 2011, was $3,109 and $1,269,$1,097, respectively. The Company is in default on this note.
Interest expense for the year ended July 31, 2013 and 2012, was $1,575 and 2011, was $2,591 and $3,996,$3,109, respectively.
(4) accrued interest of $2,207 would be eliminated.
Interest expense for the year ended July 31, 2013 and 2012, was $25,000 and 2011, was $14,863, and $0, respectively.
Note 9.7. Stockholders’ Equity (Deficiency)
On July 14, 2011, the Company entered into a Loan Agreement with Cameo Properties LLC (“Cameo”). The loans under the Loan Agreement are secured, over the life of the loan, by 20 million shares of our common stock. If the Company should default on the loan, Cameo will retain all of the 20 million shares of common stock. In the event of a reverse stock split or combination of shares, the number of shares of common stock constituting the Share Collateral will, immediately following such reverse stock split or combination of shares, be increased by a new issuance of common stock of the Company to that number of shares constituting the Share Collateral immediately prior to such reverse stock split or combination of shares. The certificates representing any share dividends that the Company pays during the term of the Loan with respect to the Shares being held in escrow shall be credited and delivered to the Lender and held by the Lender pursuant to the terms of the Loan Agreement.
Effective January 26, 2012, the Securities and Exchange Commission approved a one-for-five reverse split of the common stock. Pursuant to the anti-dilution provisions in the Cameo Properties loan agreement the Company issued 16,000,000 shares to Cameo Properties, so they again held 20,00,000 post reverse stock split shares.
Effective December 31, 2012, the Securities and Exchange Commission approved a one-for-ten reverse split of the common stock. Pursuant to the anti-dilution provisions in the Cameo Properties loan agreement the Company issued 18,000,000 shares to Cameo Properties, so they again held 20,00,000 post reverse stock split shares. Upon default of the Note with
Cameo, the Company recognized a default fee expense, for the 20,000,000 shares issued to Cameo, in the amount
of $200,000.
On September 13, 2012, Frontline converted $39,000 of accrued interest for 130,000 shares of Common Stock at a discounted value price of $0.30 per share. The Company recorded a loss on extinguishment of debt in the amount of $13,000 in connection with the conversion.
On October 2, 2012, Frontline converted $12,180 for 145,000 shares of Common Stock at a discounted value price of $0.0084 per share. The Company recorded a loss on extinguishment of debt in the amount of $6,960 in connection with the conversion.
On November 13, 2012, Frontline partially assigned $17,280 to Kisumu and Kisumu immediately converted the assigned note for 320,000 shares of Common Stock at a discounted value price of $0.0054 per share. The Company recorded a loss on extinguishment of debt in the amount of $14,720 in connection with the conversion.
On December 26, 2012, Frontline partially assigned $561,000 to various entities that converted the assigned notes for 18,700,000 shares of Common Stock at a discounted price of $0.006 per share. The Company recorded a loss on extinguishment of debt in the amount of $448,800 in connection with the conversion.
Changes to Authorized Common Stock
On June 24, 2011, the Board of Directors unanimously approved an amendment to the Articles of Incorporation to increase the authorized number of shares of common stock from 100 million shares, par value $.001 per share, to 300 million shares, par value $.001 per share. The Company filed the amendment with the Secretary of State of Nevada on August 10, 2011, after mailing a Definitive Information Statement to the Company’s stockholders and the amendment was effective August 10, 2011.
On December 13, 2011, the Board of Directors unanimously approved an amendment to the Company’s Articles of Incorporation to change the authorized number of shares of common stock from 300 million shares, par value $.001 per share, to 60 million shares, par value $.001 per share, and to effect a reverse split in the outstanding common stock in the same ratio. The Company filed the amendment with the Secretary of State of Nevada on December 14, 2011.
On November 29, 2012, our Board of Directors unanimously approved an amendment to our Articles of Incorporation to increase the authorized number of shares of common stock from 400,000,000 shares, par value $.001 per share, to 40,000,000 shares, par value $.001 per share. On the same day we received the written consent from shareholders of our company holding a majority (75.69%) of the outstanding shares of our common stock. We filed the amendment with the Secretary of State of Nevada on November 29, 2012, and the amendment was effective on that date.
Note 10.8. Net Earnings (Loss)Loss Per Common Share
The following table sets forth the reconciliation of the basic and diluted net earnings (loss)loss per common share computations for the years ended July 31, 20122013 and 2011.
| Years Ended | ||||||||
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| Basic and Diluted Earnings (Loss) Per Share | ||||||||
| Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted | $ | (2,312,015 | ) | $ | 118,921 | |||
| Weighted Average Shares Outstanding - Basic and Diluted | 26,423,470 | 26,127,867 | ||||||
| Basic and Diluted Net Earnings (Loss) Per Common Share | $ | (0.09 | ) | $ | 0.00 | |||
| Years Ended | ||||||||
| July 31, | ||||||||
| 2012 | 2011 | |||||||
| Tax Provisions Computed at Federal Statuary Rate of 35% | ||||||||
| Continuing Operations | $ | (809,205 | ) | $ | 41,622 | |||
| Increase (Decrease) in Taxes Resulting From: | ||||||||
| (Used) Unused Operating Losses | 809,205 | (41,622 | ) | |||||
| $ | - | $ | - | |||||
| Years Ended | ||||||||
| July 31, | ||||||||
2012 Tax Effect | 2011 Tax Effect | |||||||
| Deferred Tax Assets - Current: | ||||||||
| United States Net Operating Loss | $ | 22,705,162 | $ | 21,895,957 | ||||
| Valuation Allowances | (22,705,162 | ) | (21,895,957 | ) | ||||
| $ | - | $ | - | |||||
| Years Ended | ||||||||
| July 31, | ||||||||
| 2013 | 2012 | |||||||
| Basic and Diluted Earnings (Loss) Per Share | ||||||||
| Net Earnings (Loss) Ascribed to Common Shareholders - Basic and Diluted | $ | (1,099,878 | ) | $ | (2,312,015 | ) | ||
| Weighted Average Shares Outstanding - Basic and Diluted | 39,938,166 | 20,642,347 | ||||||
| Basic and Diluted Net Earnings (Loss) Per Common Share | $ | (0.03 | ) | $ | (0.11 | ) | ||
Note 13.9. Commitments and Contingencies
Legal Proceedings
The Company is currently involved in various claims and legal proceedings. Quarterly, the Company reviews the status of each significant matter and assesses its potential financial exposure and if the potential loss from any claim or legal proceeding is considered probable and the amount can be reasonably estimated, the Company accrues a liability for the estimated loss.
Caudle & Spears has obtained a default judgment against the Company in Meckenberg County, North Carolina, General Court, in the amount of $17,686. This law firm represented us in our litigation against Martin Koebler, a former employee, whom we successfully sued for return of Company property and other damages. The Company is in settlement negotiations with Caudle & Spears, since its judgment against Martin Koebler is still in the collection process. A payment agreement has been reached in the amount of $2,500 per month with no interest until paid. The Company is not current with its payment arrangements and has a balance of $4,263 still due.
Internal Revenue Service (“IRS”) served the Company with a tax lien dated March 3, 2010 in the total amount of $251,928. Third quarter 2009 taxes are approximately $117,000, which are included in total due. The Company has been served with an additional tax lien dated January 19, 2011, in the amount of $2,925. The Company had a payment plan in place with IRS; however, the Company is arrears in payments as of July 31, 2012.2013. Management is working with the local IRS office to try and revise the payment agreement. The balance due on the most recent statementfrom the IRS is $566,071.
Tallman Hudders & Sorrentino has obtained a judgment in Lehigh County, Pennsylvania, on behalf of their client Javad Hajihadian, an individual. Mr. Hajihadian had ordered and paid for, the first super car to be produced by Li-ion Motors in November 2008. The car was in the design stage when it was ordered. Mr. Hajihadian’s attorney subsequently contacted the Company to cancel his contract and have his payment refunded. The parties had reached a settlement agreement and the payment was being refunded with interest. The settlement agreement was for $102,500 and stipulated monthly payments of $10,250 commencing in July 2010. Payments were made through November 2010, totaling $51,250, leaving a balance of five payments or $51,250 still due; which is reflected on the Company’s balance sheet under current liabilities. The Company became delinquent and Mr. Hajihadian proceeded with litigation and on February 4, 2011, a judgment was issued in his favor for $51,750.
The Company’s facility in Mooresville, North Carolina was financed through Bayview and Frontline, which had a second lien on the property. Li-ion became delinquent with the mortgage payments, and, following a prior foreclosure filing and new agreement as to payments under the mortgage, on July 12, 2012, Bayview refiled a notice of hearing on foreclosure on its deed of trust and security agreement for a hearing on August 21, 2012, the outstanding amount of the loan at July 31, 2012 being $946,279. A similar notice of foreclosure pursuant to the Frontline deed of trust was filed by the Trustee with the same court on July 25, 2012, noticing a hearing for August 22, 2012, with an amended notice of default, the amount of $508,492 being outstanding under the loan as of July 31, 2012. The Trustee for Frontline also filed on July 25, 2012, a notice of foreclosure and sale to take place on August 22, 2012. The Trustee under the Bayview deed of trust on August 21, 2012, filed its notice of foreclosure and sale to take place on September 18, 2012, of the real and personal property securing the deed of trust. On September 14, 2012, the sale of the property pursuant to the Frontline August 22, 2012 foreclosure and sale was completed, and Frontline assigned its rights to its foreclosure bid to A&S Holdings Inc., subject to the rights of Bayview, as the holder of the first mortgage on the property.
Fine Mobile and Li-ion Motors entered into a confession of judgment in relation to X-Prize winnings. The parties agreed to a payment arrangement of $10,000 per month for a period of eight (8) months. If a default were to occur, the debtor would then be entitled to exercise confession of judgment in the amount of $120,000 without further delay. The initial payment was wired on December 15, 2011; however, the Company was unable to make any additional payments. On June 18, 2012 Fine Mobile executed the judgment with the Iredell County Sheriff’s Office and on July 2, 2012, the Sherriff took possession of the building located at 158 Rolling Hill Road, Mooresville, NC, seizing all remaining assets.
Item
9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our Securities Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our chief executive and financial officer, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and management necessarily was required to apply its judgment in evaluating the cost- benefit relationship of possible controls and procedures.
As of July 31, 2012,2013, an evaluation was performed under the supervision and with the participation of our management, including our Chief Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based upon that evaluation, our Chief Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not as effective as they have previously been. We are tightening procedures to ensure in the future control and paperwork of finances meet GAAP standards.
Management's Annual Report on Internal Control over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Rule 13a-15(f) of the Exchange Act. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.
Management assessed the effectiveness of internal control over financial reporting as of July 31, 2012.2013. We carried out this assessment using the criteria of the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control—Integrated Framework. In this assessment management noted that Frontline Asset Management, who has loaned and funded the company,Company, made some direct wage payments for Li-ionthe Company and other liability payments, paperwork on these items was not turned over to the company.Company. Some employees have provided written confirmation of payments received; others were not willing to provide written confirmation. Li-ionThe Company has instructed Frontline in the future all funds must go directly to the companyCompany so records are properly maintained.
Management's report was not subject to attestation by our registered public accounting firm pursuant to rules of the Securities and Exchange Commission.SEC. Management concluded in this assessment that, as of July 31, 2012,2013, given management’s actions with regard to the above reportable conditions, our internal control over financial reporting was not effective.
There have been no significant changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of our 20122013 fiscal year that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Limitations on the Effectiveness of Controls
A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have been detected. The Company's disclosure controls and procedures are designed to provide reasonable assurance of achieving its objectives. The Company's Chief Executive Officer and Principal Financial Officer concluded that the Company's disclosure controls and procedures are effective at that reasonable assurance level.
Item
9B. Other Information.None.
Change of Company’s Name to Terra Inventions Corp. and Reverse Stock Split
On November 26, 2012, our Board of Directors authorized the merger with our wholly-owned subsidiary, Terra Inventions Corp. and also approved the filing with the Secretary of State of Nevada a Certificate of Change that effected a 1:10 reverse split in our outstanding common stock and a reduction of our authorized common stock in the same 1:10 ratio, from 400,000,000 shares to 40,000,000 shares. In the merger the name of our company was changed from Li-ion Motors Corp. to Terra Inventions Corp. Both of these corporate actions were permitted to be taken by the Company’s Board of Directors without stockholder approval under Nevada NRS 92A.180 (for the merger with the subsidiary and name change) and NRS 78.207 (for the change in authorized and outstanding stock), and were authorized to be effective upon receipt of FINRA approval for trading purposes.
The change of the Company’s name to Terra Inventions Corp. and the 1:10 reverse split with the concurrent reduction of our authorized common stock in the same ratio were approved by FINRA and effective for trading purposes on December 21, 2012.
PART III
Item
10. Directors, Executive Officers, and Corporate Governance.Our executive officers and directors and their respective ages as of October 31, 20122013 are as follows:
| Name | Age | Position | ||
| Stacey Fling | Chief Executive Officer, President and Director |
Our Board of Directors consists of one director. The following information with respect to the principal occupation or employment of each officer and director, the principal business of the corporation or other organization in which such occupation or employment is carried on, and such person's business experience during the past five years, has been furnished to the Company by the respective officers and director:
Stacey Fling hashad been the President of A & S Holdings, Inc., since 2003, a real estate investment and development company located in Las Vegas, NV.NV from 2003 to 2011. Prior to 2003, Ms. Fling managed the administrative offices of an environmental remediation and monitoring company with offices in San Diego, California, as well as in Las Vegas, Nevada.
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.
Committees
We do not have any committees of the Board of Directors.
Corporate Code of Conduct
We have adopted a corporate code of conduct, which provides for internal procedures concerning the reporting and disclosure of corporate matters that are material to our business and to our stockholders. The corporate code of conduct includes a code of ethics for our officers and employees as to workplace conduct, dealings with customers, compliance with laws, improper payments, conflicts of interest, insider trading, company confidential information, and behavior with honesty and integrity.
Significant Employees
We have no significant employees other than the officers described above.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Exchange Act requires the Company’s executive officers and directors, and persons who beneficially own more than ten percent of the Company's equity securities, to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Officers, directors and greater than ten percent shareholders are required by SEC regulation to furnish the Company with copies of all Section 16(a) forms they file. Based on its review of the copies of such forms received by it, the Company believes that during the fiscal year ended July 31, 2012,2013, all such filing requirements applicable to its officers and directors were complied with.
The following table sets forth certain information as to the Company's highest paid executive officers and directors for the Company's fiscal years ended July 31, 2013, 2012, 2011, and 2010.2011. No other compensation was paid to any such officer or director other than the cash compensation set forth below.
Summary Compensation Table
Name and Principal Position | Year* | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan | Change in Pension Value and Nonqualified | All Other Compensation | Total ($) | ||||||||||||||||||
| (a) | (b) | ( c ) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | ||||||||||||||||||
| Stacey Fling, President | 2010 | $ | 74,100 | $ | - | $ | - | $ | - | $ | - | $ | - | $ | - | $ | 74,100 | ||||||||||
| 2011 | 61,200 | - | - | - | - | - | - | 61,200 | |||||||||||||||||||
| 2012 | 62,400 | - | - | - | - | - | - | 62,400 | |||||||||||||||||||
| Holly Roseberry, Director | 2010 | - | - | - | - | - | - | - | - | ||||||||||||||||||
| 2011 | - | - | - | - | - | - | - | - | |||||||||||||||||||
| 2012 | - | - | - | - | - | - | - | - | |||||||||||||||||||
| Name and Principal Position | Year* | Salary ($) | Bonus ($) | Stock Awards ($) | Option Awards ($) | Non-Equity Incentive Plan Compensation ($) | Change in Pension Value and Nonqualified Deferred Compensation Earnings ($) | All Other Compensation ($) | Total ($) | |||||||||||||||||||||||
| (a) | (b) | ( c ) | (d) | (e) | (f) | (g) | (h) | (i) | (j) | |||||||||||||||||||||||
| Stacey Fling, President | 2011 | $ | 61,200 | $ | — | $ | — | $ | — | $- | $ | — | $- | $ | 61,200 | |||||||||||||||||
| 2012 | 62,400 | — | — | — | - | — | - | 62,400 | ||||||||||||||||||||||||
| 2013 | -0- | — | — | — | - | — | - | -0- | ||||||||||||||||||||||||
* Years ended July 31, 2013, 2012 2011 and 2010.
Option/SAR Grants in Last Fiscal Year
There were no grant of options to purchase our common stock to our officers or directors in fiscal 2012, and there were no exercises of such options during or options held at the end of such fiscal year by officers or directors.
Directors’ Compensation
The following table shows compensation paid to our directors in the fiscal year ended July 31, 2012.
Director Compensation
| Change in | |||||||||||||
| Pension Value and | |||||||||||||
| Nonqualified | |||||||||||||
| Fees Earned | Non-Equity | Deferred | |||||||||||
| or Paid in | Stock | Option | Incentive Plan | Compensation | All Other | ||||||||
| Name | Cash ($) | Awards ($) | Awards ($) | Compensation ($) | Earnings ($) | Compensation ($) | Total ($) | ||||||
| (a) | (b) | ( c ) | (d) | (e) | (f) | (g) | (h) | ||||||
| Stacey Fling | $ | 12,000 | $ | 12,000 | |||||||||
| Holly Roseberry | $ | 21,000 | $ | 21,000 | |||||||||
| Change in | |||||||||||||
| Pension Value and | |||||||||||||
| Nonqualified | |||||||||||||
| Fees Earned | Non-Equity | Deferred | |||||||||||
| or Paid in | Stock | Option | Incentive Plan | Compensation | All Other | ||||||||
| Name | Cash ($) | Awards ($) | Awards ($) | Compensation ($) | Earnings ($) | Compensation ($) | Total ($) | ||||||
| (a) | (b) | ( c ) | (d) | (e) | (f) | (g) | (h) | ||||||
| Stacey Fling | $ | -0- | $ | -0- | |||||||||
* Stacey Fling has acted as a director since May 1, 2009 and Holly Roseberry commenced service as a Director on November 15, 2002 and resigned December 21, 2011.2009.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth certain information concerning the number of shares of our common stock owned beneficially as of October 24, 2012,November 1, 2013 by: (i) each person (including any group) known to us to own more than five percent (5%) of any class of our voting securities, (ii) each of our directors, and (iii)officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.
| Title of Class | Owner | Number of Shares of Common Stock | Percentage of Outstanding | |||||||
| Common Stock | ||||||||||
| Stacey Fling, President and Chief Executive Officer | 107 | * | ||||||||
| 4933 W. Craig Road | ||||||||||
| Las Vegas, NV 89130 | ||||||||||
| Cameo Properties LLC | 20,000,000 | 68.55 | % | |||||||
| Hunkins Waterfront Plaza | ||||||||||
| PO Box 556 | ||||||||||
| Charlestown, Nevis, West Indies | ||||||||||
| All Officers and Directors | 107 | * | ||||||||
| Directors as a Group (2 persons) | ||||||||||
| Title of Class | Owner | Number of Shares of Common Stock | Percentage of Outstanding | |||||||
| Common Stock | ||||||||||
| Stacey Fling, President and Chief Executive Officer | 3 | * | ||||||||
| 4933 W. Craig Road | ||||||||||
| Las Vegas, NV 89130 | ||||||||||
| Windsor Capital Inc. | 3,750,000 | 9.38 | % | |||||||
| 35 New Road #2112 | ||||||||||
| Belize City, Belize | ||||||||||
| Wazalmin Capital Corp. | ||||||||||
| 88022 7235 Belle Shire | ||||||||||
| Mississauga ON, ON L5N 8M1 | 3,750,100 | 9.38 | % | |||||||
| Platinum Capital Holding Corp. | ||||||||||
| 2602 S. Grand Canyon Dr. #2074 | ||||||||||
| Las Vegas, NV 89117 | 3,750,000 | 9.38 | % | |||||||
| Cameo Properties LLC | 20,000,000 | 50.06 | % | |||||||
| Hunkins Waterfront Plaza | ||||||||||
| PO Box 556 | ||||||||||
| Charlestown, Nevis, West Indies | ||||||||||
| All Officers and Directors | 3 | * | ||||||||
| Directors as a Group (2 persons) | ||||||||||
* Less than 1%
| (1) | As of November |
Change in Control
We are not aware of any arrangement that might result in a change in control in the future.
Effective April 15, 2008, the Company entered into a License Agreement (“License Agreement”) with Sky PowerClean Enviro Solutions Corp., now Clean Enviro Tech Corp. (“SPS”Clean Enviro”) providing for their license to Sky PowerClean Enviro of their patent applications and technologies for rechargeable lithium ion batteries for electric vehicles and other applications (“Licensed Products”). Under the License Agreement, the Company has the right to purchase their requirements of lithium ion batteries from Sky Power,Clean Enviro, and their requirements of lithium ion batteries shall be supplied by SuperatticeClean Enviro in preference to, and on a priority basis as compared with, supply and delivery arrangements in effect for other customers of SPS.Clean Enviro. The Company’s cost for lithium ion batteries purchased from SPSClean Enviro shall be SPS’sClean Enviro’s actual manufacturing costs for such batteries for the fiscal quarter of SPSClean Enviro in which the Company’s purchase takes place. On May 25, 2010 the license agreement was amended to reflect SPI’sClean Enviro’s territory would only be the United States, U.S. possessions and territories and we can license other companies in other parts of the world. We have issued a license to a firm for the rights in Canada.
Under the terms of the license agreement, SPSClean Enviro has agreed to invest a minimum of $1,500,000 in each of the next two years in development of the technology for the Licensed Products. To date, SPSClean Enviro has not met the minimum requirements in the development of technology, and therefore, is not in compliance with its obligations under this covenant of the license agreement. The Company has advised SPSClean Enviro that it will not give notice of default against them for their failure to comply with this covenant over the term of the License Agreement.
Effective April 16, 2008, SPSClean Enviro agreed to lease approximately 5,000 square feet of space in the Company’s North Carolina facility at a rental rate of $2,500.00 per month and the monthly rental to be escalated five (5%) percent annually beginning April 16, 2009. The leased space is suitable for, and utilized by SPSClean Enviro for, SPS’sClean Enviro’s developmental and manufacturing operations for licensed products pursuant to the License Agreement. The leased space is leased on a month-to-month basis at a current monthly rental of $3,038. Although the lease was signed, the space is only 80% completed as of July 31, 2012. The facility was closed in May 2012, and there is no longer any leased space available.
| Fiscal 2012 | Fiscal 2011 | |||||||
| Audit - Related Fees (1) | $ | 18,250 | $ | 42,000 | ||||
| Tax Fees (2) | - | - | ||||||
| All Other Fees | - | - | ||||||
Audit committee pre-approval processes, percentages of services approved by audit committee, percentage of hours spent on audit engagement by persons other than principal accountant's full time employees. | N/A | N/A | ||||||
| Fiscal 2013 | Fiscal 2012 | |||||||
| Audit - Related Fees (1) | $ | 12,500 | $ | 18,250 | ||||
| Tax Fees (2) | — | — | ||||||
| All Other Fees | — | — | ||||||
| Audit committee pre-approval processes, percentages of services approved by audit committee, percentage of hours spent on audit engagement by persons other than principal accountant's full time employees. | N/A | N/A | ||||||
(1) Audit Fees consist of fees billed for professional services rendered for the audit of the Company’s consolidated annual financial statements and review of the interim consolidated financial statements included in quarterly reports and services that are normally provided by Madsen & Associates in connection with statutory and regulatory filings or engagements.
(2) Tax Fees consist of fees billed for professional services rendered for tax compliance, tax advice and tax planning. These services include assistance regarding federal and state tax compliance, international tax, research, and unclaimed property services.
| Exhibit No. | Description | |
| 3.1 | Articles of Incorporation of the Company.(Incorporated herein by reference to Exhibit 3.1 to the Company's Registration Statement on Form SB-2, filed with the Commission on May 29, 2001.) | |
| 3.1a | Certificate of Amendment to Articles of Incorporation filed October 27, 2004. (Incorporated by reference to Exhibit3.1a to the Company’s Current Report on Form 8-K, filed with the Commission on November 2, 2004.) | |
| 3.1b | Form of Restatement of Articles of Incorporation of the Company. (Incorporated by reference to Exhibit 3.1a to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on December 15, 2004.) | |
| 3.1c | Certificate of Amendment to Articles of Incorporation, filed effective March 9, 2005. (Incorporated by reference to Exhibit 3.1c to the Company’s Annual Report on Form 10-KSB, filed with the Commission on May 23, 2005.) | |
| 3.1d | Certificate of Change, filed effective January 17, 2008. (Incorporated by reference to Exhibit 3.1d to the Company’s Current Report on Form 8-K, filed with the Commission on January 16, 2008.) | |
| 3.1e | Certificate of Amendment to Articles of Incorporation, filed effective December 24, 2007. (Incorporated by reference to Exhibit 3.1e to the Company’s Annual Report on Form 10-K, filed with the Commission on November 12, 2008.) |
| 3.1f | Certificate of Amendment to Articles of Incorporation, filed effective February 19, 2009.(Incorporated by reference to Exhibit 3.1f to the Company’s Current Report on Form 8-K, filed with the Commission on February 27, 2009.) | |||
| 3.1g | Certificate of Merger with subsidiary, dated December 28, 2009, amending Articles of Incorporation of Company to change the name of the Company to Li-ion Motors Corp. (Incorporated by reference to Exhibit 3.1g to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.) | |||
| 3.1h | Certificate of Change, filed effective February 1, 2010. (Incorporated by reference to Exhibit 3.1h to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.) | |||
| 3.1i | Certificate of Amendment to Articles of Incorporation, filed effective May 17, 2010. (Incorporated by reference to Exhibit 3.1i to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.) | |||
| 3.1j | Certificate of Amendment to Articles of Incorporation, filed effective August 10, 2011. (Incorporated by reference to Exhibit 3.1j to the Company’s Current Report on Form 8-K, filed with the Commission on August 16, 2011.) | |||
| 3.1k | Certificate of Change, filed December 13, 2011. (Incorporated by reference to Exhibit 3.1k to the Company’s Current Report on Form 8-K, filed with the Commission on January 31, 2011.) | |||
| 3.1l | Certificate of Amendment to Articles of Incorporation, filed effective August 30, 2012. (Incorporated by reference to Exhibit 3.1l to the Company’s Current Report on Form 8-K, filed with the Commission on September 7, 2012.) | |
| 3.lm | Certificate of Change, filed November 29, 2012. Filed herewith. | |
| 3.1n | Certificate of Merger with subsidiary, filed November 30, 2012, amending Articles of Incorporation of Company to change the name of the Company to Terra Inventions Corp. (corrected). Filed herewith. | |
| 3.2 | By-Laws of the Company. (Incorporated herein by reference to Exhibit 3.2 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.) | |
| 4.1 | Specimen Common Stock Certificate. (Incorporated herein by reference to Exhibit 4.1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.) | |
| 4.2 | Whistler Investments, Inc. 2003 Restricted Stock Plan. (Incorporated herein by reference to Exhibit 4.2 to the Company's Registration Statement on Form S-8 filed with the Commission on July 18, 2003.) | |
| 10.3 | Office Services Agreement, dated May 1, 2000, between the Company and Dewey Jones. (Incorporated herein by reference to Exhibit 10.3 to the Company's Registration Statement on Form SB-2 filed with the Commission on May 29, 2001.) | |
| 10.4 | Asset Purchase Agreement dated April 10, 2002 between Salim S. Rana Investments Corp. and Whistler Investments, Inc. (Incorporated by reference to Exhibit No. 10.1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on May 6, 2002.) | |
| 10.5 | Agreement dated January 1, 2003 between Whistler Investments, Inc. and Kim Larsen respecting the disposition of Azra Shopping Center. (Incorporated by reference to Exhibit 10.1 to the Company's Amendment No. 1 to its Annual Report on Form 10-KSB filed May 8, 2003) | |
| 10.6 | Amendment to Licensing Agreement, dated October 21, 2003, between Nu Age Electric Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.3 to the Company's Current Report on Form 8-K, filed with the Commission on November 21, 2003.) | |
| 10.7 | Agreement dated October 21,2003, by and between RV Systems, Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.4 to the Company's Current Report on Form 8-K, filed with the Commission on November 21, 2003.) |
| 10.8 | Investment Agreement, dated as of January 19, 2004, by and between Whistler Investments, Inc. and Dutchess Private Equities Fund, L.P. (Incorporated by reference to Exhibit 10.5 to the Company's Current Report on Form 8-K, filed with the Commission on January 23, 2004.) | |
| 10.9 | Registration Rights Agreement dated as of January 19, 2004, by and between Whistler Investments, Inc. and Dutchess Private Equities Fund, L.P. (Incorporated by reference to Exhibit 10.6 to the Company's Current Report on Form 8-K, filed with the Commission on January 23, 2004.) | |
| 10.10 | Stock Redemption and Reissuance Agreement, dated as of February 10, 2004, Between Whistler Investments, Inc. and Salim S. Rana Investments, Inc. (Incorporated by reference to Exhibit 10.10 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.) |
| 10.11 | Letter from City of Austin, Texas, dated February 27, 2004. (Incorporated by reference to Exhibit 10.11 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.) | |
| 10.12 | Memorandum of Understanding, dated March 15, 2004, between Shanghai Geely Metop International and the Global Electric 21 subsidiary of Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.12 to Amendment No. 1 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.) | |
| 10.13 | Loan Agreement, made as of the 20th day of February, 2004, among Sterling Capital Inc. and Whistler Investments, Inc. (Incorporated by reference to Exhibit 10.13 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.) | |
| 10.14 | Letter Agreement, dated February 3, 2004, between Whistler Investments, Inc. and RV Systems, Inc. (Incorporated by reference to Exhibit 10.14 to Amendment No. 1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on October 4, 2004.) | |
| 10.15 | Purchase and Sale Agreement, made effective as of the 3rd day of December, 2004, between WhistlerTel, Inc. and Trade Winds Telecom, LLC. (Incorporated by reference to Exhibit 10.15 to the Company's Current Report on Form 8-K, filed with the Commission on December 8, 2004.) | |
| 10.16 | Bill of Sale and Assignment, dated as of December 3, 2004, between Trade Winds Telecom LLC and Whistlertel,Inc. (Incorporated by reference to Exhibit 10.16 to the Company's Current Report on Form 8-K, filed with the Commission on December 8, 2004.) | |
| 10.17 | Agreement and Plan of Reorganization, dated as of August 18, 2005, among the Company, Whistlertel, Inc. and Javakingcoffee, Inc. (Incorporated by reference to Exhibit 10.17 to the Company's Current Report on Form 8-K, filed with the Commission on August 24, 2005.) | |
| 10.18 | Notice, dated July 2, 2005, from EV Innovations, Inc. To RV Systems, Inc. (Incorporated by reference to Exhibit10.18 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on October 26, 2005.) | |
| 10.19 | Non-reimbursable Space Act Agreement between National Aeronautics and Space Administration, John F. Kennedy Space Center and EV Innovations, Inc. (Incorporated by reference to Exhibit 10.19 to the Company's Quarterly Report on Form 10-QSB, filed with the Commission on March 17, 2006. |
| 10.20 | Agreement dated March 30, 2006 between Paratransit, Inc. and the Company. (Incorporated herein by reference to Exhibit 10.20 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.) | |
| 10.21 | Request for Pilot Approval, submitted May 31, 2006, to New York City Taxi and Limousine Commission by the Company. (Incorporated herein by reference to Exhibit 4.1 to the Company's Annual Report on Form 10-KSB, filed with the Commission on November 8, 2006.) | |
| 10.22 | Consulting Agreement, dated March 26, 2007, between Hybrid Technologies, Inc. and Griffen Trading Company.(Incorporated by reference to Exhibit 10.22 to the Company’s Quarterly Report on Form 10-QSB, filed with the Commission on June 19, 2007.) | |
| 10.23 | Loan Agreement, dated as of October 29, 2007, between Wyndom Capital Investments, Inc. and the Company.(Incorporated by reference to Exhibit 10.23 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 13, 2007.) |
| 10.24 | Form of Note issuable pursuant to the Loan Agreement, dated October 29, 2007, between Wyndom Capital Investments, Inc. and the Company, filed herewith. (Incorporated by reference to Exhibit 10.24 to the Company’s Annual Report on Form 10-KSB, filed with the Commission on November 13, 2007.) | |
| 10.25 | Stock Purchase Agreement, dated as of April 15, 2008, between the Company and Blue Diamond Investments, Inc.(Incorporated by reference to Exhibit 10.25 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2008.) | |
| 10.26 | License Agreement, dated April 15, 2008, between the Company and Zingo, Inc. (now | |
| 10.27 | Loan Agreement, dated as of May 5, 2008, between Crystal Capital Ventures Inc. and the Company. (Incorporated by reference to Exhibit 10.27 to the Company’s Current Report on Form 8-K, filed with the Commission on June 6, 2008.) | |
| 10.28 | Form of Note issuable pursuant to the Loan Agreement, dated May 5, 2008, between Crystal Capital Ventures Inc. and the Company. (Incorporated by reference to Exhibit 10.28 to the Company’s Current Report on Form 8-K, filed with the Commission on June 6, 2008.) | |
| 10.29 | Letter to the | |
| 10.30 | Loan Agreement, dated as of April 15, 2010, between Winsor Capital Inc. and the Company. (Incorporated by reference to Exhibit 10.30 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2010.) | |
| 10.31 | Form of Note issuable pursuant to the Loan Agreement, dated April 15, 2010, between Winsor Capital Inc. and the Company. (Incorporated by reference to Exhibit 10.31 to the Company’s Current Report on Form 8-K, filed with the Commission on April 21, 2010.) | |
| 10.32 | License Agreement, made effective May 28, 2010, between the Company and Lithium Electric Vehicle Corp. (Incorporated by reference to Exhibit 10.32 to the Company’s Current Report on Form 8-K, filed with the Commission on June 4, 2010.) |
| 10.33 | Promissory Note, payable to Frontline Asset Management, Inc.(Incorporated by reference to Exhibit 10.33 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.). | |
| 10.34 | Amendment to Promissory Note, dated October 11, 2010, between the Company and Frontline Asset Management, Inc. (Incorporated by reference to Exhibit 10.34 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.) | |
| 10.35 | Amendment, dated as of October 11, 2010, to License Agreement, dated as of May 28, 2010, by and between the Company and Lithium Electric Vehicle | |
| 10.36 | Amendment, dated as of October 12, 2010, to Loan Agreement, dated as of May 5, 2008, between the Company and Crystal Capital | |
| 10.37 | Amendment, dated May 25, 2010, to License Agreement, dated April 14, 2008, between the Company and Sky Power Solutions, Inc. (Incorporated by reference to Exhibit 10.37 to the Company’s Annual Report on Form 10-K, filed with the Commission on November 2, 2010.) |
| 10.38 | Stock Purchase Warrant, dated April 19, 2011, issued to Starglow Asset, Inc. (Incorporated by reference to Exhibit 10.38 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on June 14, 2011.) | |
| 10.39 | Stock Purchase Warrant, dated April 19, 2011, issued to Winsor Capital, Inc. (Incorporated by reference to Exhibit 10.39 to the Company’s Quarterly Report on Form 10-Q, filed with the Commission on June 14, 2011.) | |
| 31 | ||
| 32 |
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Date: November | By: | /s/ Stacey Fling | |
| Stacey Fling | |||
| Chief Executive Officer and Principal Financial Officer | |||
In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
| By: | /s/ Stacey Fling | ||||
| Stacey Fling | |||||
| President and C.E.O. | |||||
| (President, Chief Executive Officer | |||||
| Principal Financial Officer and Director) | |||||
| Date: | November |
EXHIBIT 3.1m
 | ROSS MILLERSecretary of State 204 North Carson Street, Suite 1 Carson City, Nevada 89701-4520 (775) 684 5708 Website:www.nvsos.gov |
Certificate of Change Pursuant
to NRS 78.209
| Filed in the office of | Document Number 20120807835-66 |
_ | Filing Date and Time |
| Ross Miller | 11/29/2012 8:35 PM |
| Secretary of State | Entity Number |
| State of Nevada | C10054-2000 |
USE BLACK INK ONLY - DO NOT HIGHLIGHTABOVE SPACE IS FOR OFFICE USE ONLY
Certificate of Change filed Pursuant to NRS 78.209
1.Name of corporation:For Nevada Profit Corporations
Li-ion Motors Corp.
2.The board of directors have adopted a resolution pursuant to NRS 78.209 and have obtained anyrequired approval of the stockholders.
3.The current number of authorized shares and the par value, if any, of each class or series, if any, ofshares before the change:
400,000,000 shares of common stock, par value $.001 per share
4.The number of authorized shares and the par value, if any, of each class or series, if any, of shares afterthe change:
40,000,000 shares of common stock, par value $.001 per share
5.The number of shares of each affected class or series, if any, to be issued after the change in exchangefor each issued share of the same class or series:
3,237,347 shares of common stock, par value $.001 per share
6.The provisions, if any, for the issuance of fractional shares, or for the payment of money or the issuance ofscrip to stockholders otherwise entitled to a fraction of a share and the percentage of outstanding sharesaffected thereby:
7.Effective date of filing: (optional) Date: December 31, 2012 Time:
8.Signature: (required)(must not be later than 90 days after the certificate is filed)
X /s/ Stacey FlingPresident
Title
Signature of Officer
IMPORTANT:Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
This form must be accompanied by appropriate fees.
Nevada Secretary of State Stock Split
Revised: 3-6-09
EXHIBIT 3.1n
Filed in the office of Document Number Ross Miller 20120815786-30 Filing Date and Time Secretary of State 11/30/2012 7:41 AM State of Nevada Entity Number E0439182012-7 |
ROSS MILLER
Secretary of State
204 North Carson Street, Ste 1
Carson City, Nevada 89701-4299
(775) 684 5708
Website:www.nvsos.gov
Articles of Merger
(PURSUANT TO NRS 92A.200)
Page 1
USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY
Articles of Merger
Pursuant to NRS Chapter 92A
| 1) | Name and jurisdiction of organization of each constituent entity (NRS 92A.200). |
If there are more than four merging entities, check box and attach an 81/2" x11" blank sheet containing the required information for each additional entity.
Terra Inventions Corp.
Name of merging entity
Nevada Corporation
Jurisdiction Entity type*
and,
Li-ion Motors Corp.
Name of surviving entity
Nevada Corporation
Jurisdiction Entity type*
* Corporation, non-profit corporation, limited partnership, limited-liability company or business trust.
Filing Fee: $350.00
This form must be accompanied by appropriate fees.Nevada Secretary of State 92A Merger Page 1 Revised: 8-31-11
| Table of Contents | -52- |
Articles of Merger
(PURSUANT TO NRS 92A.200)
Page 2
USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY
2) Forwarding address where copies of process may be sent by the Secretary of State of Nevada (if a foreign entity is the survivor in the merger -NRS 92A.1 90):
3) (Choose one)
[ ] The under signed declares that a plan of merger has been adopted by each constituent entity (NRS 92A.200).
[X] The undersigned declares that a plan of merger has been adopted by the parent domestic entity (NRS 92A.180)
4) Owner's approval (NRS 92A.180) (options a, b, or c must be used, as applicable, for each entity) (if there are more than four merging entities, check box [ ] and attach an 81/2 x 11 blank sheet containing the required information for each additional entity):
| (a) Owner's approval was not required from | ||
Terra Inventions Corp. Name of merging entity, if applicable and, or; Li-ion Motors Corp. Name of Surviving Entity, if applicable | ~ |
This form must be accompanied by appropriate fees.Nevada Secretary of State 92A Merger Page 2 Revised: 8-31-11
Articles of ContentsMerger
(PURSUANT TO NRS 92A.200)
Page 3
USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY
(b) The plan was approved by the required consent of the owners of *:
Name of merging entity, if applicable
Name of merging entity, if applicable Name of merging entity, if applicable
Name of merging entity, if applicable and, or;
Name of surviving entity, if applicable
* Unless otherwise provided in the certificate of trust or governing instrument of a business trust, a merger must be approved by all the trustees and beneficial owners of each business trust that is a constituent entity in the merger.
This form must be accompanied by appropriate fees.Nevada Secretary of State 92A Merger Page 3 Revised: 8-31-11
Articles of Merger
(PURSUANT TO NRS 92A.200)
Page4
USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY
(c) Approval of plan of merger for Nevada non-profit corporation (N RS 92A. 160):
The plan of merger has been approved by the directors of the corporation and by each public officer or other person whose approval of the plan of merger is required by the articles of incorporation of the domestic corporation.
Name of merging entity, if applicable
Name of merging entity, if applicable
Name of merging entity, if applicable
Name of merging entity, if applicable and, or;
Name of surviving entity, if applicable
This form must be accompanied by appropriate fees.Nevada Secretary of State 92A Merger Page 4 Revised: 8-31-11
Articles of Merger
(PURSUANT TO NRS 92A.200)
Page 5
USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY
5) Amendments, if any, to the articles or certificate of the surviving entity. Provide article numbers, if available. (NRS 92A.200)*:
Article FIRST is amended to read in its entirety as follows:
The name of the corporation is Terra Inventions Corp.
6) Location of Plan of Merger (check a or b):
[ ] (a) The entire plan of merger is attached; or,
[X] (b) The entire plan of merger is on file at the registered office of the surviving corporation, limited-liability company or business trust, or at the records office address if a limited partnership, or other place of business of the surviving entity (NRS 92A.200).
7) Effective date and time of filing: (optional) (must not be later than 90 days after the certificate is filed)
Date: Time:
* Amended and restated articles may be attached as an exhibit or integrated into the articles of merger. Please entitle them "Restated" or "Amended and Restated," accordingly. The form to accompany restated articles prescribed by the secretary of state must accompany the amended and/or restated articles. Pursuant to NRS 92A.1 80 (merger of subsidiary into parent - Nevada parent owning 90% or more of subsidiary), the articles of merger may not contain amendments to the constituent documents of the surviving entity except that the name of the surviving entity may be changed.
This form must be accompanied by appropriate fees.Nevada Secretary of State 92A Merger Page 5 Revised: 8-31-11
Articles of Merger
(PURSUANT TO NRS 92A.200)
Page 6
USE BLACK INK ONLY - DO NOT HIGHLIGHT ABOVE SPACE IS FOR OFFICE USE ONLY
8) Signatures - Must be signed by: An officer of each Nevada corporation; All general partners of each Nevada limited partnership; All general partners of each Nevada limited-liability limited partnership; A manager of each Nevada limited-liability company with managers or one member if there are no managers; A trustee of each Nevada business trust (NRS 92A.230)*
| If there are more than four merging entities, check box and attach an 8 1/2" x 11" blank sheet containing the required information for each additional entity.): |
Terra Inventions Corp.
Name of merging entity
X/s/ Stacey Fling ___ Chief Executive Officer 11/30/2012
Signature Title Date
Li-ion Motors Corp.
Name of surviving entity
X/s/ Stacey Fling Chief Executive Officer 11/30/2012
Signature Title Date
| · | The articles of merger must be signed by each foreign constituent entity in the manner provided by the law governing it (NRS 92A.230). Additional signature blocks may be added to this page or as an attachment, as needed. |
IMPORTANT: Failure to include any of the above information and submit with the proper fees may cause this filing to be rejected.
This form must be accompanied by appropriate fees.Nevada Secretary of State 92A Merger Page 6 Revised: 8-31-