The notes are an integral part of the financial statements
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HST Global, Inc.
(a Development Stage Company)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
For the Year Ended December 31, 2011
NOTE 1 - ORGANIZATION AND PRINCIPAL ACTIVITIES
The Company was incorporated on April 11, 1984 under the laws of the State of Delaware under the name of NT Holding Corporation. The Company has made several acquisitions and disposals of various business entities and activities. On May 9, 2008, the Company entered into a Merger and share exchange agreement with Health Source Technologies, Inc. This business acquisition has been accounted for as a reverse merger or recapitalization of Health Source Technologies, Inc. At the time of the merger NT Holding Corporation had disposed of its assets and liabilities and had minimal operations and was considered a development stage company. Immediately after the acquisition the Company changed its name to HST Global, Inc. Health Source Technologies, Inc. was incorporated under the laws of the State of Nevada on August 6, 2007. The Company is currently headquartered in Hampton, Virginia.
HST Global, Inc. is an integrated Health and Wellness Biotechnology company that is developing and/or acquiring a network of Wellness Centers worldwide with the primary focus on homeopathic and alternative treatments of late stage cancer and other life threatening diseases. In addition, the Company intends to acquire innovative products for the treatment of life threatening diseases. The Company primarily focuses on homeopathic and alternative product candidates that are undergoing or have already completed significant clinical testing for the treatment of late stage cancer and/or life threatening diseases.
NOTE 2 - SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The company considers all highly liquid instruments purchased with maturity of three months or less to be cash equivalents.
REVENUE RECOGNITION
The company considers revenue to be recognized at the time the service is performed.
USE OF ESTIMATES
The preparation of the Company's financial statements required management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from these estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's short-term financial instruments consist of cash and cash equivalents and accounts payable. The carrying amounts of these financial instruments approximate fair value because of their short-term maturities. Financial instruments that potentially subject the Company to a concentration of credit risk consist principally of cash. During the year the Company did not maintain cash deposits at financial institutions in excess of the $250,000 limit covered by the Federal Deposit Insurance Corporation. The Company does not hold or issue financial instruments for trading purposes nor does it hold or issue interest rate or leverage derivative financial instruments.
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EARNINGS PER SHARE
Basic Earnings per Share ("EPS") is computed by dividing net income available to common stockholders by the weighted average number of common stock shares outstanding during the year. Diluted EPS is computed by dividing net income available to common stockholders by the weighted-average number of common stock shares outstanding during the year plus potential dilutive instruments such as stock options and warrants. The effect of stock options on diluted EPS is determined through the application of the treasury exercises are hypothetically used to repurchase the Company's common stock at the average market price during the period. Loss per share is unchanged on a diluted basis since the assumed exercise of common stock equivalents would have an anti-dilutive effect.
INCOME TAXES
The Company uses the asset and liability method of accounting for income. This method requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax basis of certain assets and liabilities. Deferred income tax assets and liabilities are computed annually for the difference between the financial statement and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future, based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense is the tax payable or refundable for the period, plus or minus the change during the period in deferred tax assets and liabilities.
Deferred income taxes may arise from temporary differences resulting from income and expense items reported for financial accounting and tax purposes in different periods. Deferred taxes are classified as current or non-current, depending on the classification of the assets and liabilities to which they relate. Deferred taxes arising from temporary differences that are not related to an asset or liability are classified as current or non-current depending on the periods in which the temporary differences are expected to reverse. The Company had no significant deferred tax items arise during any of the period presented.
CONCENTRATION OF CREDIT RISK
The Company does not have any concentration of related financial credit risk.
RECENT ACCOUNTING PRONOUNCEMENTS
The Company does not expect that the adoption of other recent accounting pronouncements will have a material impact to its financial statements.
RECLASSIFICATIONS
The Company has made certain reclassifications in the balance sheet from the prior year to make the financial statements consistent with the current year balances
NOTE 3 - REVERSE MERGER, ACQUISITION AND BUSINESS DISPOSAL
On May 9, 2008, the Company entered into a merger and share exchange agreement with NT Holding Corp. NT Holding Corp was incorporated on April 11, 1984 under the laws of the State of Delaware. NT Holding Corp since its inception has been involved in various business operations including mining and the development of mineral properties. At the time of the merger and share exchange agreement, NT
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Holding had disposed of its operation assets and previous operations and was considered a development stage company.
This business acquisition has been accounted for as a reverse merger (recapitalization) with Health Source Technologies, Inc. deemed to be the accounting acquirer and NT Holding Corp deemed to be the legal acquirer. Accordingly, the historical financial information statements presented herein are those of Health Source Technologies, Inc. The accumulated deficit of the accounting acquirer has been carried forward after the acquisition as well as its assets and liabilities. Operations prior to the business combination are those of the acquirer. In conjunction with this business combination, the Board of Directors approved a 25 for 1 reverse split of the Company's common stock. The stock splits have been applied retroactively in the financial statements as if the split had occurred at the inception of the company.
NOTE 4 - STOCKHOLDERS EQUITY
The Company completed a business combination with Health Source Technologies Inc. on May 9, 2008 (see Note 3). In conjunction with this acquisition the Board of Directors approved a 25 for 1 reverse split of the Company's common stock. Prior to the acquisition the Company had 30,039,203 shares of common stock outstanding. The issuance of the 66,000,000 new shares of common stock to facilitate the business combination gave the company a total of 96,039,203 shares outstanding immediately before the stock split. After the stock split there were 4,041,568 shares outstanding. In addition, the post-acquisition equity structure was to reflect a 95% ownership by the shareholders of Health Source Technologies, Inc. In order to facilitate this structure, an additional 99,744,800 pre-split shares were issued and delivered to HST shareholders once sufficient authorized capital was available. On December 31, 2008, 3,989,792 post split shares were issued. On December 31, 2008, 3,989,792 post split shares were issued to Ron Howell, an officer and shareholder of the Company and Eric Clemons, a shareholder of the Company to complete the terms of the acquisition agreement. These shares have been retroactively reported in the financial statements as being issued in conjunction with the acquisition that occurred on May 5, 2008.
As part of the consideration for this business combination there were also 1,000,000 shares of preferred stock issued which where convertible into 16.2 (post split) shares of the company's common stock. These preferred shares were converted into 16,200,000 shares of common stock.
The Company has received $1,049,000 from various persons and companies as deposits that were being held by the company in the anticipation of fulfilling a common stock subscription agreement. On August 20, 2008 the Company issued 839,200 shares of its common stock at a purchase price of $1.25 per share. Also, on August 20, 2008 the company issued 15,000 shares of common stock in exchange for legal services rendered to the company. The shares were valued at $9.50 per share which was the trading price of the shares on the date the shares were issued.
On October 28, 2008, the company received $250,000 from an investor for working capital. This transaction was initially reported as a deposit from shareholder. On June 9, 2009 the Company issued 200,000 shares at a price of $1.25 per share. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On February 20, 2009, the company received $75,000 from an investor for the purchase of common stock. This investor was issued 60,000 shares, at a price of $1.25 per share. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
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On March 16, 2009, the company received $25,000 from an investor for the purchase of common stock. This investor was issued 20,000 shares, at a price of $1.25 per share. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On June 9, 2009, the company received $50,000 from an investor for the purchase of common stock. This investor was issued 40,000 shares, at a price of $1.25 per share. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On June 9, 2009, the company received $26,250 from an investor for the purchase of common stock. This investor was issued 21,000 shares, at a price of $1.25 per share. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On June 10, 2009 the company issued 5,000 shares of common stock in exchange for services rendered to the company. The shares were valued at $1.27 per share which was the trading price of the shares on the date the shares were issued.
On July 15, 2009 the company issued 2,000 shares of common stock in exchange for services rendered to the company. The shares were valued at $.82 per share which was the trading price of the shares on the date the shares were issued.
On January 20, 2010 the Company issued 1,714,286 shares of common stock to Ron Howell as payment for consulting services performed during 2009. The shares were valued at $.07 per share. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On January 20, 2010 the Company issued 1,471,429 shares of common stock to Eric Clemons as payment for consulting services performed during 2009. The shares were valued at $.07 per share. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On April 23, 2010 the Company issued 150,000 shares of common stock in exchange for services rendered to the Company. The shares were valued at $.50 per share which was the trading price of the Shares on the date the shares were issued.
On May 20, 2010 the Company issued 150,000 shares of common stock in exchange for services rendered to the Company. The shares were valued at $.22 per share which was the trading price of the shares on the date the shares were issued.
On February 2, 2011 the Company issued 1,000,000 shares of common stock to Ronald Howell as payment for consulting services performed during 2010. ��The shares were valued at $.06 per share, which was the trading price of the Company’s stock at the date the shares were issued. This issuance was completed in accordance with Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
On February 2, 2011 the Company issued 7,000,000 shares of common stock in exchange for debt owed during 2010. The shares were valued at $.06 per share, this issuance was completed in accordance with
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Section 4(2) of the Securities Act in an offering without any public offering or distribution. These shares are restricted securities and include an appropriate restrictive legend.
NOTE 5 – ACCOUNTS PAYABLE AND ACCURED EXPENSES – RELATED PARTIES
Accounts payable and accrued expenses consist of the following at December 31, 2011 and 2010.
| | | |
| December 31, 2011 |
| December 31, 2010 |
The Health Network, Inc. | $ 185,462 |
| $ 284,498 |
Ronald Howell | 243,770 |
| 163,770 |
Eric Clemons | 166,727 |
| 166,727 |
Total | $ 595,959 |
| $ 614,996 |
Please see Notes 6 and 8 for further explanation of these liabilities.
NOTE 6 – SHAREHOLDER DEPOSITS
During July and August of 2009, the company received a total of $200,000 from an investor as a deposit for the purchase of common stock. This transaction has been reported as shareholder deposits on the company's financial statements.
NOTE 7 – NOTES PAYABLE – RELATED PARTIES
In connection with the reverse acquisition described in note 3 to the financial statements, the Company agreed to pay the former shareholders of the target company the sum of $100,000. This note does carry an interest amount and is repayable upon demand by the holder of the note. Although the note does not carry a stated interest rate, there is a provision that the Company would owe an additional $50,000 if the note was note paid by a certain date or upon demand by the holder of the note. The Company did not repay the note by the due date and has accrued an additional $50,000 owed under the terms of the note. Management of the Company disputes the amount owed under this note and is currently assessing the legal issues surrounding this obligation.
On November 25, 2009, the Company entered into an agreement with a shareholder of the Company. Under terms of this agreement, the Company received $200,000 from this individual in exchange for the issuance of a promissory note in the principal amount of $200,000 and 200,000 shares of the Company’s common stock. Under the terms of the promissory note, the Company is obligated to repay the principal amount of the note together with $20,000 interest on or before March 15, 2010.
As of December 31, 2010, the Company had not issued the shares of common stock. The Company has accrued interest in the amount of $46,000 owed under the terms of this agreement. The Company recorded interest in the amount of $26,000 which represents the 200,000 shares of common stock valued at $.13 per share which was the trading price of the Company’s common stock on the date the agreement was executed by the Company. The Company has also accrued an additional $20,000 as interest owed at December 31, 2010 based upon the terms of the promissory note.
This company has not repaid this note and there is no provision for additional interest once the note is in default. This note was guaranteed by a former consultant of the Company. The Company disputes the amount owed under this note and is currently assessing the legal issues surrounding this obligation.
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NOTE 8 – ADVANCES FROM SHAREHOLDER
Mr. Howell has advanced $441,300 to the Company to assist with working capital needs. These advances accrue interest at a rate of six percent (6%) per annum of the unpaid balance. At December 31, 2011, the Company owes Mr. Howell the amount of $501,345 which includes accrued interest in the amount of $60,045.
The Health Network Inc., a company that is controlled by Mr. Howell has advanced the company $40,100 during the year ended December 31, 2011. These advances do not include a stated interest rate and are payable upon demand.
Mr. Clemons has advanced $124,335 to the Company loans to assist with working capital needs and was repaid $3,036 of these advances. These advances accrue interest at a rate of six percent (6%) per annum of the unpaid balance. At December 31, 2011 the Company has recognized a liability to Mr. Clemons in the amount of $143,989 which includes accrued interest in the amount of $22,690.
The Company disputes the amount that is owed to Mr. Clemons and is currently assessing the legal issues concerning this obligation.
NOTE 9 - RELATED PARTY TRANSACTIONS
EXECUTIVE OFFICES
The Company's executive offices are located at 150 Research Dr., Hampton VA. These offices are leased by The Health Network, Inc. ("THN"), of which Ron Howell is President. THN allows the Company to use the office space without a formal sublease or rental agreement.
The Company currently accrues $15,000 per month as a general operating fee, which covers use of the office space, use of certain equipment, and various other services. The company paid a total $10,000 to The Health Network during 2010. The Company issued 7,000,000 shares of common stock in February of 2011 as a partial payment for amounts due under this agreement. At December 31, 2011 and 2010, the Company owes THN an amount of $185,462 and $284,499 respectively, for amounts due under this agreement.
CONSULTING AGREEMENTS
The Company has entered into a consulting agreement with Mr. Howell, President of the Company, whereby the Company agreed to pay Mr. Howell $10,000 per month for consulting services thru December 31, 2010. Mr. Howell received 1,714,286 shares of common stock valued at $120,000 as a partial payment for amounts owed under this agreement in January of 2010 and $0 during 2009. The consulting agreement may be terminated at will by the Company. The Company intends to continue to engage Mr. Howell as a consultant until his consulting services are no longer required. As of December 31, 2011 and 2010, the Company owes Mr. Howell $243,770 and $163,970, respectively under the agreement.
The Company has entered into a consulting agreement with Eric Clemons, a shareholder of the Company, whereby the Company agreed to pay Mr. Clemons $10,000 per month for consulting services through December 2009. This employment agreement carried the provision that it could be extended beyond this date upon mutual agreement by both parties and that the agreement could be canceled by the Company at any time after that date. Mr. Clemons received 1,471,419 shares of common stock valued at $103,000 as
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a partial payment for amounts owed under this agreement in January of 2010. The Company continued to accrue amounts owed under this agreement through July of 2010. The balance owed to Mr. Clemons at December 31, 2011 and 2010 is $166,727 and $126,728, respectively. The Company disputes this amount and is currently assessing legal issues surrounding this obligation.
NOTE 10 – LOSS ON EXTINGUISHMENT OF DEBT – RELATED PARTIES
On February 7, 2011, the Company issued 1,000,000 shares of common stock to Ronald Howell, a shareholder and President of the Company as a partial payment of the amounts due to him under a consulting agreement made with the Company. The shares were valued at $.06 per share, which was the trading price of the Company’s common stock on the date the shares were issued. The Company was able to extinguish $40,000 of the debt owed to Mr. Howell by the issuance of these shares. The Company has recognized a loss in the amount of $20,000 related to the extinguishment of this debt.
On the same date, the Company issued 7,000,000 shares of common stock to The Health Network, Inc., a related party, as Mr. Howell is the President and shareholder of this Company. The shares were valued at $.06 per share, which was the trading price of the Company’s common stock on the date the shares were issued. The Company was able to extinguish $280,000 of the debt owed to The Health Network, Inc. by the issuance of these shares. The Company has recognized a loss in the amount of $140,000 related to the extinguishment of this debt.
NOTE 11 - FINANCIAL CONDITION AND GOING CONCERN
The Company's financial statements have been presented on the basis that it will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company incurred a net loss from continuing operations of $540,350 for the year ended December 31, 2011 and has an accumulated deficit of $4,366,010 at December 31, 2011. These factors raise substantial doubt as to its ability to obtain debt and/or equity financing and achieve profitable operations.
There are no assurances that HSTC will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support its working capital requirements. To the extent that funds generated from operations and any private placements, public offerings and/or bank financing are insufficient, the Company will have to raise additional working capital. No assurance can be given that additional financing will be available, or if available, will be on terms acceptable to HSTC. If adequate working capital is not available HSTC may be required to curtail its operations.
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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
ITEM 9A. CONTROLS AND PROCEDURES
(a) Evaluation of disclosure controls and procedures
Our management, including our Principal Executive and Principal Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Securities Exchange Act Rules 13a-15(e) and 15d-15(e)) as of December 31, 2011. Our disclosure controls and procedures are designed to ensure that information required to be disclosed by the issuer in the reports that it files or submits under the Act (15 U.S.C. 78a et seq.) is recorded, processed, summarized, and reported, within the time periods specified in the Commission's rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Act is accumulated and communicated to the issuer's management, including its principal executive and principal financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of December 31, 2011.
(b) Management's Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-a5(f) under the Exchange Act. Our internal control over financial reporting is 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. GAAP. Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use of disposition of our assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision of our Chief Executive Officer and Chief Financial Officer, our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making this assessment, management used the criteria set forth in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, our management has concluded that our internal control over financial reporting was ineffective as of December 31, 2011 and there are material weaknesses in our internal control over financial reporting. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material
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misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis.
The material weaknesses relate to the limited number of persons responsible for the recording and reporting of financial information, the lack of separation of financial reporting duties, and the limited size of our management team in general. We are in the process evaluating methods of improving our internal control over financial reporting, including the possible addition of financial reporting staff and the increased separation of financial reporting responsibility, and intend to implement such steps as are necessary and possible to correct these material weaknesses.
This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting.
(c) Change in Internal Controls
There were no changes in our internal control over financial reporting during the quarter ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Director And Executive Officer Summary
The following table sets forth the names, ages, and principal offices and positions of our current directors, executive officers, and persons we consider to be significant employees. The Board of Directors elects our executive officers annually. Our directors serve one-year terms or until their successors are elected, qualified and accept their positions. The executive officers serve terms of one year or until their death, resignation or removal by the Board of Directors. There are no family relationships or understandings between any of the directors and executive officers. In addition, there was no arrangement or understanding between any executive officer and any other person pursuant to which any person was selected as an executive officer.
| | |
Name of Director or Officer | Age | Position |
Ronald R. Howell
| 64 | Chief Executive Officer, Chairman of the Board of Directors and Interim Chief Financial Officer |
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Executive Officer and Director Bios
Ronald R. Howell, Chief Executive Officer, Chairman and Interim Chief Financial Officer: Mr. Howell has over 30 years of diversified leadership experience. He has distinguished himself in various businesses and held executive positions in various industries including real estate, distribution, national and international sales, wholesale and retail marketing, financial service. Mr. Howell serves as the CEO and President of The Health Network, Inc. and has served in that capacity for over 5 years. The Health Network, Inc. is a direct sales and marketing company in the nutraceutical industry.
Holding a Bachelor's Degree in Management from the University of Maryland and an MBA from the Sellinger School of Business and Management at Loyola College, Mr. Howell has also taught as an Adjunct Professor at Loyola College in Baltimore, Maryland. Ron also served his country as a United States Marine.
Legal and Disciplinary History
No officer, director or control person of the Company has been the subject of:
1. A conviction in a criminal proceeding or named as a defendant in a pending criminal proceeding (excluding traffic violations and other minor offenses);
2. The entry of an order, judgment, or decree, not subsequently reversed, suspended or vacated, by a court of competent jurisdiction that permanently or temporarily enjoined, barred, suspended or otherwise limited such person's involvement in any type of business, securities, commodities, or banking activities;
3. A finding or judgment by a court of competent jurisdiction (in a civil action), the Securities and Exchange Commission, the Commodity Futures Trading Commission, or a state securities regulator of a violation of federal or state securities or commodities law, which finding or judgment has not been reversed, suspended, or vacated; or
4. The entry of an order by a self-regulatory organization that permanently or temporarily barred, suspended or otherwise limited such person's involvement in any type of business or securities activities.
Section 16(A) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 (the "Exchange Act") requires our directors and officers, and persons who own more than ten percent of the Common Stock to file reports of ownership and changes in ownership with the Securities and Exchange Commission ("SEC") and the American Stock Exchange. SEC regulations require reporting persons to furnish us with copies of all Section 16(a) forms they file.
Based solely on our review of the copies of the Forms 3, 4 and 5 and amendments thereto furnished to us by the persons required to make such filings during fiscal 2011 and our own records, we believe that Mr. Howell failed to file timely a Form 4 to report initial beneficial ownership.
Corporate Governance.
We have not adopted a code of ethics do date. We are in the process of evaluating the standards of conduct necessary for the deterrence of malfeasance and the promotion of ethical conduct and accountability, and will determine whether a code of ethics is necessary based on our evaluation.
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The Company does not have a standing Nominating Committee. There have been no changes to the procedures whereby security holders may recommend nominees to the registrant's board of directors.
The Company is not a "listed issuer" as defined by Rule 10A-3, and does not have a standing Audit Committee. We do not have a financial expert serving on our board of directors.
ITEM 11. EXECUTIVE COMPENSATION
COMPENSATION DISCUSSION AND ANALYSIS
Compensation Discussion and Analysis
We do not have a standing compensation committee. Our board of directors as a whole makes the decisions as to employee benefit programs and officer and employee compensation. The primary objectives of our executive compensation programs are to:
-
attract, retain and motivate skilled and knowledgeable individuals;
-
ensure that compensation is aligned with our corporate strategies and business objectives;
-
promote the achievement of key strategic and financial performance measures by linking short-term and long-term cash and equity incentives to the achievement of measurable corporate and individual performance goals; and
-
align executives' incentives with the creation of stockholder value.
To achieve these objectives, our board of directors evaluates our executive compensation program with the objective of setting compensation at levels they believe will allow us to attract and retain qualified executives. In addition, a portion of each executive's overall compensation is tied to key strategic, financial and operational goals set by our board of directors. We also generally provide a portion of our executive compensation in the form of options that vest over time, which we believe helps us retain our executives and align their interests with those of our stockholders by allowing the executives to participate in our longer term success as reflected in asset growth and stock price appreciation.
Named Executive Officers
The following table identifies our principal executive officer, our principal financial officer and our most highly paid executive officers, who, for purposes of this Compensation Disclosure and Analysis only, are referred to herein as the "named executive officers."
| | |
Name | | Corporate Office |
Ron Howell | | Chief Executive Officer and Interim Chief Financial Officer |
Components of our Executive Compensation Program
At this time, Named Executive Officers receives compensation for their services to the Company. Compensation will be negotiated in the near future and may be contingent on the availability of financing. The primary elements of our executive compensation program will be base salaries and option grant incentive awards, although the board of directors has the authority to award cash bonuses, benefits and other forms of compensation as it sees fit.
The Company has entered into a consulting agreement with Mr. Howell whereby the Company agreed to pay Mr. Howell $10,000 per month for consulting services thru December 31, 2010. The consulting
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agreement may be terminated at will by the Company. The Company intends to continue to engage Mr. Howell as a consultant until his consulting services are no longer required.
We do not have any formal or informal policy or target for allocating compensation between short-term and long-term compensation, between cash and non-cash compensation or among the different forms of non-cash compensation. Instead, we have determined subjectively on a case-by-case basis the appropriate level and mix of the various compensation components. Similarly, we do not rely on benchmarking against our competitors in making compensation related decisions.
Base salaries – Base salaries will be used to recognize the experience, skills, knowledge and responsibilities required of our named executive officers. Base salary, and other components of compensation, may be evaluated by our board of directors for adjustment based on an assessment of the individual's performance and compensation trends in our industry.
Equity Awards –Our stock option award program will be the primary vehicle for offering long-term incentives to our executives. To date, we have not issued any equity awards. We intend our equity awards to executives to generally be made in the form of warrants. We believe that equity grants in the form of warrants provide our executives with a direct link to our long-term performance, create an ownership culture, and align the interests of our executives and our stockholders.
Cash bonuses –Our board of directors has the discretion to award cash bonuses based on our financial performance and individual objectives. The corporate financial performance measures (revenues and profits) will be given the greatest weight in this bonus analysis. We have not yet granted any cash bonuses to any named executive officer nor have we yet developed any specific individual objectives while we wait to attain revenue and profitability levels sufficient to undertake any such bonuses.
Benefits and other compensation –Our named executive officers are permitted to participate in such health care, disability insurance, bonus and other employee benefits plans as may be in effect with the Company from time to time to the extent the executive is eligible under the terms of those plans. As of the date of this Registration Statement, with exception to health care, we have not implemented any such employee benefit plans.
Description of Compensation Agreements and Arrangements
As discussed below, we have not agreed to pay the Named Executive Officers an annual salary. We will negotiate base salary in the near future. Base salary may be increased from time to time with the approval of the board of directors. The following table summarizes the agreed annual salary of each of the named executive officers:
Summary Annual Salary
| | |
Name | | Annual Salary |
Ron Howell | | 01 |
(1)
Mr. Howell has agreed to defer receiving an annual salary. He has received $10,000 per month thru December 31, 2011 from the Company pursuant to a consulting agreement. See "Relationships and Related Transactions," below.
Ron Howell, Chief Executive Officer –Mr. Howell currently does not receive compensation for his services as Chief Executive Officer. He has agreed to defer compensation until the Company obtains sufficient financing. The Board of Directors will determine what level of compensation is appropriate to offer Mr. Howell in the near future.
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Grants of Plan-Based Awards Table for Fiscal Year 2011
The Company currently does not participate in any equity award plan. During fiscal 2011, we did not grant any equity awards under any equity award plan.
Option Exercises for Fiscal 2011
During fiscal 2011, none of the named executive officers exercised options.
Nonqualified Deferred Compensation
To date, we currently offer no defined contribution or other plan that provides for the deferral of compensation on a basis that is not tax-qualified to any of our employees, including the named executive officers.
Compensation of Directors
We intend to use a combination of cash and equity-based compensation to attract and retain candidates to serve on our board of directors. We intend to compensate directors who are also our employees for their service on our board of directors. Therefore, Mr. Howell will receive compensation for his service on our board of directors, which compensation has not yet been determined.
Compensation Committee Interlocks and Insider Participation
We do not currently have a standing Compensation Committee. Our entire board of directors participated in deliberations concerning executive officer compensation.
Compensation Committee Report
The board of directors has reviewed and discussed the Compensation Discussion and Analysis required by Item 402(b) of Regulation S-K with management and, based on such review and discussions, the board of directors has recommended that this Compensation Discussion and Analysis be included in this Registration Statement on Form 10.
