NOTES TO FINANCIAL STATEMENTS
NOTE 1 – NATURE OF BUSINESS
The Company was incorporated under the laws of the State of Nevada on May 6, 2009. The Company’s specific goal was to create a profitable service for placing Canadian citizens in accounting positions with Canadian corporations. On August 5, 2010, we changed our name to iMetrik M2M Solutions Inc. to reflect our new business purpose of bringing solutions to the Machine-to-Machine market (Machine-to-Machine (M2M) refers to technologies that allow both wireless and wired systems to communicate with other devices of the same ability). Initially the Company wants to cover applications for fixed assets.
NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with original maturities not exceeding three months to be cash equivalents.
The Company cash balances accounts at institution are insured by the Federal Deposit Insurance Corporation up to $250,000. The Company’s accounts at these institutions may, at times, exceed the federally insured limits. The Company has not experienced any losses in such accounts.
FAIR VALUE MEASUREMENTS
The Company adopted the provisions of ASC Topic 820, “Fair Value Measurements and Disclosures”, which defines fair value as used in numerous accounting pronouncements, establishes a framework for measuring fair value and expands disclosure of fair value measurements.
The estimated fair value of certain financial instruments, including cash and cash equivalents, deposits, prepaid expenses, notes payable, and accrued expenses are carried at historical cost basis, which approximates their fair values because of the short-term nature of these instruments.
ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy, which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes three levels of inputs that may be used to measure fair value:
* level l - quoted prices in active markets for Identical assets or liabilities
* level 2 - quoted prices for similar assets and liabilities in active markets or inputs that are observable
* level 3 - inputs that are unobservable (for example cash flow modeling inputs based on assumptions)
DERIVATIVE LIABILITIES
The Company follows the requirements of guidance primarily codified within ASC Topic No. 815, “Derivatives and Hedging” (“ASC 815”) pertaining to the accounting for derivatives and hedging activities. ASC 815 requires the Company to recognize all derivative instruments on its balance sheet at fair value. The related gains or losses on these transactions are deferred in stockholders’ equity as a component of accumulated other comprehensive loss. These deferred gains and losses are recognized in income in the period in which the related items being hedged are recognized in interest expense. However, to the extent that the change in value of a derivative contract does not perfectly offset the change in the value of the items being hedged, that ineffective portion is immediately recognized in interest expense.
INVENTORIES
Inventories consisting of electronic parts and components are stated at the lower of cost or market. The cost of work in process and finished goods includes materials, direct labor, variable costs and overhead and full absorption of fixed manufacturing overhead.
INCOME TAXES
The asset and liability approach is used to account for income taxes by recognizing deferred tax assets and liabilities for the expected future tax consequences of temporary differences between the carrying amounts and the tax bases of assets and liabilities. The Company records a valuation allowance to reduce the deferred tax assets to the amount that is more likely than not to be realized.
USE OF ESTIMATES
In preparing financial statements, management makes estimates and assumptions that affect the reported amounts of assets and liabilities in the balance sheet and revenue and expenses in the income statement. Actual results could differ from those estimates.
LOSS PER COMMON SHARE
The basic net loss per common share is computed by dividing the net loss by the weighted average number of common shares outstanding.
Diluted net loss per common share is computed by dividing the net loss, adjusted on an “as if converted” basis, by the weighted average number of common shares outstanding plus potential dilutive securities.
STOCK BASED COMPENSATION
The Company accounts for stock options and similar equity instruments issued in accordance with ASC 718. Accordingly, compensation costs attributable to stock options or similar equity instruments granted are measured at the fair value at the grant date, and expensed over the expected vesting period. Transactions in which goods or services are received in exchange for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. ASC 718 requires excess tax benefits be reported as a financing cash inflow rather than as a reduction of taxes paid.
ORGANIZATIONAL COSTS
Organizational costs, which relate to the Company start-up organization, are expenses as incurred. Such costs are included in selling, general and administrative costs.
OFFERING COSTS
Offering costs, which relate to the Company Registration Statement on form S-1, are taken directly as a reduction of shareholders equity as incurred.
RESEARCH AND DEVELOPMENT
Research and development costs are charged to expense as incurred.
NEW ACCOUNTING PRONOUNCEMENTS
From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations and cash flows when implemented.
NOTE 3 – GOING CONCERN
The Company’s financial statements 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 posted net loss of $1,105,116 for the year ended May 31, 2012 as compared to net loss of $318,267 last year. The Company had $12,800 in revenue for the year ended May 31, 2012.These factors among others raise substantial doubt about the Company’s ability to continue as a going concern.
Management’s plans for the Company’s continued existence include selling additional stock and borrowing additional funds to pay overhead expenses.
The Company’s future success is dependent upon its ability to achieve profitable operations, generate cash from operating activities and obtain additional financing. There is no assurance that the Company will be able to generate sufficient cash from operations, sell additional shares of common stock or borrow additional funds.
The Company’s inability to obtain additional cash could have a material adverse effect on its financial position, results of operations and its ability to continue in existence. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
NOTE 4 – INVENTORIES
Inventories consist of the following at May 31:
|
|
2012
|
|
2011
|
|
|
|
|
|
Work-in-process
|
$
|
6,497
|
$
|
-
|
|
|
|
|
|
|
$
|
6,497
|
$
|
-
|
NOTE 5 – ACCRUED EXPENSES AND SUNDRY CURRENT LIABILITIES
Accrued expenses consisted of the following at May 31:
|
|
2012
|
|
2011
|
|
|
|
|
|
Accrued interest
|
$
|
26,037
|
$
|
11,429
|
Accrued operating expenses
|
|
131,629
|
|
74,115
|
|
$
|
157,666
|
$
|
85,544
|
NOTE 6 – NOTES PAYABLE
In 2012, the Company received additional loans from Capex Investments Limited, a shareholder, in the amount of $287,774. In 2011, the Company received loans from Capex Investments Limited in the amount of $111,325.
On February 8, 2012, Capex Investments Limited converted loans of $280,934 plus $11,370 in accrued interest into 2,923,035 shares of the Company. The fair value of the shares was $0.10 per share and the market price was $0.20 per share resulting in a debt conversion inducement expense of $292,304. The amount owed to Capex Investments Limited at May 31, 2012 is $118,165. These loans carry an interest of 10% and are payable on demand.
In 2012, the Company received loans from DT Crystal in the amount of $45,000. On February 8, 2012, DT Crystal converted loans of $45,000 into 450,000 shares of the Company. The fair value of the shares was $0.10 per share and the market price was $0.20 per share resulting in a debt conversion inducement expense of $45,000. The amount owed to DT Crystal May 31, 2012 is $0.
NOTE 7 – NOTES PAYABLE – STOCKHOLDERS’
In 2012, the Company received additional loans from Michel St-Pierre in the amount of $95,178. At May 31, 2012, the loans amounted to $215,261. These loans carry an interest of 10% and are payable on demand.
NOTE 8 – DERIVATIVE LIABILITIES
On May 4, 2012, the Company issued a drawdown convertible promissory note (“the drawdown note”) to an investor, in the principal amount of $32,500, at an interest rate of eight percent (8%) per annum. The drawdown note can be prepaid upon five days notice, is payable nine months following its issuance on February 4, 2013, and all or a portion of the principal and interest is convertible upon demand into fully paid and non-assessable shares of the Company’s common stock at 45% of the average of the lowest three trading prices of the Company’s common stock during the ten trading day period ending on the latest complete trading day period to the conversion date. The Company requested $32,500 and received proceeds in the amount of $32,500 from the drawdown note on May 4, 2012. The conversion option was recorded as a discount on notes payable of $32,500 was valued using the Black- Scholes Method using a risk free rate of 2.00%, volatility rate of 145.00%, and a forfeiture rate of 0%.and expensed over the nine months life of the of the drawdown note. Interest expense of $7,798 was recorded in 2012 related to this conversion option. Additional interest expense of $202 was accrued as of May 31, 2012 related to the eight percent (8%) per annum payable under the drawdown note.
NOTE 9 – CAPITAL STOCK
The company is authorized to issue 500,000,000 shares of common stock (par value $0.00001) of which 62,182,477 were issued and outstanding as of May 31, 2012.
On January 13, 2010 the Company sold 761,500 shares of common stock (par value $0.00001) for an aggregate consideration of $76,150 and incurred related expenses of $27,155.
On September 28, 2010 the Company paid a stock dividend of 9 additional shares of common stock for each 1 share of common stock outstanding. The record date, for the stock dividend, was August 18, 2010.
On February 8, 2012, we issued 2,923,035 restricted shares of the Company’s common stock, fully paid and non-assessable, in full satisfaction of the outstanding indebtedness owed to Capex in the amount of $292,304 owed at January 26, 2012. The shares were issued on the basis of one restricted common share for each $0.10 of debt.
On February 9, 2012, we issued 450,000 restricted shares of the Company’s common stock, fully paid and non-assessable, in full satisfaction of the outstanding indebtedness owed to DT Crystal Holdings Ltd in the amount of $45,000 owed at February 9, 2012. The shares were issued on the basis of one restricted common share for each $0.10 of debt.
On February 8, 2012, we issued 1,194,442 restricted shares of the Company’s common stock, fully paid and non-assessable, in full satisfaction of the outstanding indebtedness owed to Mr. Jean-Paul Langlais in the amount of $119,444 owed at January 31, 2012. The shares were issued on the basis of one restricted common share for each $0.10 of debt. The fair value of the shares was $0.10 per share and the market price was $0.20 per share resulting in a debt conversion inducement expense of $119,444.
NOTE 10 – INCOME TAXES
Income taxes are provided for using the liability method of accounting in accordance with the Income Taxes Topic of the FASB ASC. Deferred tax assets and liabilities are determined based on differences between the financial reporting and tax basis of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is established when necessary to reduce deferred tax assets to the amount expected to be realized and when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The computation of limitations relating to the amount of such tax assets, and the determination of appropriate valuation allowances relating to the realizing of such assets, are inherently complex and require the exercise of judgment. As additional information becomes available, we continually assess the carrying value of our net deferred tax assets.
As of May 31, 2012 the company had net operating loss carry forwards of approximately $1,455,189. These net operating losses are being utilized against the reported income for the year ended May 31, 2012. This results in no tax expense or provision for the year.
Components of deferred tax assets and liabilities at May 31, 2012 are as follows:
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|
2012
|
|
2011
|
|
|
|
|
|
Deferred tax asset
|
$
|
582,221
|
$
|
140,066
|
Valuation allowance
|
|
(582,221)
|
|
(140,066)
|
Net deferred tax asset
|
$
|
0
|
$
|
0
|
The Company has recorded a full valuation allowance against its deferred tax asset since it believes it is more likely than not that such deferred tax asset will not be realized.
NOTE 11 – COMMITMENTS AND CONTINGENCIES
The Company does not have any commitments nor contingencies.
NOTE 12 – RELATED PARTY TRANSACTIONS
In 2012, the Company received loans from Michel St-Pierre, a stockholder, in the amount of $95,178. The amount owed to Michel St-Pierre at May 31, 2012 is $215,261. These loans carry an interest of 10% and are payable on demand.
NOTE 13 – SUBSEQUENT EVENTS
Management evaluated all activity of the Company through the issue date of the Financial Statements and noted there were no material subsequent events as of that date.
NOTE 14 – LITIGATION
As of the filing of the present Annual report on form 10-K, the Company considers there was no pending or threatened litigation, claims, or assessments against the Company for its acts or omission.