ITEM 1.
BUSINESS
As used herein the terms the
Company
,
we
,
our
, and
us
refer to Infrastructure Developments Corp., its subsidiaries, and its predecessors, unless context indicates otherwise.
Corporate History
The Company was incorporated in Nevada as 1
st
Home Buy & Sell Ltd. on August 10, 2006, to operate as a real estate company. On August 31, 2008, the Company ceased all operations to become a shell company as that term is defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended, and sought to identify a suitable business opportunity. On March 1, 2010, while evaluating possible business combinations, acquisitions or development opportunities, the Company changed its name from 1st Home Buy & Sell Ltd. to Infrastructure Developments Corp.
On April 7, 2010 the Company signed a share exchange agreement to acquire Intelspec International, Inc. (Intelspec) in exchange for 14,000,000 shares of its common stock. The acquisition of Intelspec was completed on April 14, 2010, whereby the shareholders of Intelspec acquired 70% of the Company. The closing of the transaction represented a change in control which for financial reporting purposes was characterized as a reverse acquisition or recapitalization of Intelspec. Following the closing, our principal business became that of Intelspec. On April 26, 2010, the Company disclosed the information that would have been required if it were filing a general form for registration of securities on Form 10, as required under Item 2.01(f) of Form 8-K, thereby removing its status as a shell company.
The Company effected a six for one forward split of its common stock on June 11, 2010 that increased the Companys issued and outstanding shares from 20,000,000 to 120,000,000.
Intelspec changed its name to Interspec International, Inc. ("Interspec") pursuant to an out-of-court legal settlement with Intel Corporation on November 21, 2011
On February 6, 2012, the Company made the determination to change its fiscal year end from June 30 to December 31.
The Company
The Company's current operations consist of marketing efforts for prefabricated housing.
The Companys prefabricated housing business is focused around the marketing and sale of Wing Houses in North America, the Middle East and parts of South-East Asia as a distributor pursuant to an agreement with the Renhe Group. The Wing House is a solution for any application requiring low-cost, rapidly-mobile structures. The Company also offers project management services for various types of construction projects in Southaast Asia.
Products
The standard Wing House units are mobile modular prefabricated structures that fold out from standard 40-foot or 20-foot shipping containers to ready-to-use structures, with all baths, water, plumbing, air conditioning, lighting, cable, network and electrical fittings in place. This folding capacity allows a standard 40-foot unit delivered with a 320 square foot footprint to open into an 880 square foot structure in 4 to 5 hours, in a process requiring only basic hand tools and workers capable of following simple instructions. Any truck and hoisting equipment capable of handling standard shipping containers can
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transport and place a Wing House. Since container sizes are standard around the world, this equipment is widely available. The combination of standard ISO container dimensions and fittings and the ability to quickly unfold into a structure much larger than the original container makes the Wing House extremely economical to ship. Two or more Wing Houses can be joined end to end or side to side to form larger structures. Multiple standard floor plan configurations are available and custom plans can be ordered.
While other container-based prefabricated structures are available, they offer final available space equal to that of the original container. We are aware of no other container-based prefabricated modular structure that shares the ability of the Wing House to open into a structure much larger than the delivered unit.
Wing Houses are rated for extreme temperatures, safe in hurricanes and earthquakes, meet the highest safety and building code standards, and are very economical. The units use insulation sourced from Bradford Insulation, Australias leading insulation brand. The units carry a 5-star energy use rating and are ideal for use in extreme climates
Wing Houses come in many building configurations and room configurations, and they retail at approximately $45,000-$85,000 ex-port in China. The Wing House is built in China by Renhe Manufacturing and has been re-branded by the Company. Renhe has an exclusive distribution agreement with MKL Asia, a company owned by the original patent holder who is also the principal of Renhe. MKL Asia has granted a sub-distribution license to the Company and its affiliates to market and sell Wing House in North America, the GCC, and most of Southeast Asia.
Wing Houses are suitable for a wide range of applications, including:
·
living space
·
office space
·
on site showrooms
·
restaurants
·
worker accommodation
·
forward operations bases
Standard configurations include:
·
3 bedrooms + 1 living room + 1 kitchen + 1 bath + 1 laundry
·
4 bedrooms + 2 kitchens + 2 baths
·
4 bedrooms + 4 baths
·
6 bedrooms + 6 baths
·
8 bedrooms + 4 baths
·
1 classroom + 1 bath + 1 office
·
1 large room
The Wing House is available in configurations specifically optimized for classroom use, wired with high-speed Internet and with computer stations included.
The range of products also includes the newly developed pop out 20 and 40 foot rapid deployment units that slide out in minutes and are also pre-fit with all baths and fixtures.
Markets
The Modular Building Institute (MBI) estimates that at the end of 2011 there were well over 500,000
code-compliant relocatable buildings in North America. MBI estimated that the total value of industry
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owned relocatable buildings was between $5.5 - $6.0 billion, and that these assets generated estimated annual revenues of $3.0 billion. MBI reports that
... fleet owners indicated that top markets served were: classrooms or educational units; construction site offices; general offices; retail/hospitality; and energy/industrial This last category is comprised mainly of workforce housing accommodations in areas of energy exploration.
Income from the three largest companies primarily engaged in the sale and lease of relocatable buildings exceeds 50 percent of the total industry revenue. The ten largest fleet owners account for greater than 75 percent of total revenue while the top twenty account for greater than 90 percent. About 75 percent of all inventory of relocatable buildings in North America is controlled by the ten largest fleet owners, with 90 percent controlled by the top 20 largest fleet owners.
Fleet owners generated revenue from the following sources:
·
Leasing activity 45%
·
Sales 30%
·
Service (transportation, installation, stairs, ramps, etc.) 25%
A 2011 report by Sage Policy Group, titled
The Economic & Financial Performance of the U.S. Modular Building Industry
, analyzed thousands of relocatable building transactions over a 10 year period. The average annual return on investment of a relocatable building sold was 18 percent, which was achieved after an average holding period of 5.8 years.
The Company intends to target the North American oil & gas. The Company has invited hundreds of parties that are active in the prefabricated mobile shelter industry in North America to cooperate in marketing and placing this unique product, and the response has to date been positive.
The Companys initial focus on the oil and gas industry is an obvious choice. Growth in the North American market for modular, transportable, prefabricated structures is dominated by the energy and mining industries. Soaring commodity prices and the boom in shale-based and other unconventional energy industries has driven rapid employment growth in many of these industries. IHS Global Insight reports that the unconventional oil and gas industry in the United States created 1.7 million jobs in 2012, according to a report by IHS Global Insight. By 2015, that number is expected to grow to 2.5 million and nearly reach 3.5 million by 2035. Many of these jobs will involve field work in areas with little available worker housing and few existing structures.
The rapid expansion of North American resource extraction industries has led to the emergence of multiple companies providing complete solutions for installing and managing workforce accommodation camps. These facilities range from small temporary installations housing exploration crews to large scale camps housing thousands of workers engaged in full scale production. Since the Wing House is readily adaptable to situations requiring easy transport and rapid installation and because of the unique ability to present an installed footprint far larger than its shipping footprint, we believe the Wing House will have strong appeal in this market.
While the oil, gas, and mining industries are the priority target, presentation of the Wing House to other markets, including disaster relief, education, and residential housing, will be pursued as showroom units become available.
A Freedonia Group's industry market research report from late 2011 indicated that inside the multi-billion dollar U.S. nonresidential prefabricated building system industry, modular building systems provide the
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best growth opportunities, and commercial applications are expected to post the fastest gains of any major market. The Company's own research on market demand combined with new features and refinements of the product to meet more stringent buyer standards influenced it to initiate this rollout in 2013. Silver Fern Enterprises based in Texas handles the Company's Wing House marketing in the U.S. The Company's Wing House marketing in the Gulf Cooperation Council region is through Al Battal Trading; we own one unit in Saudi Arabia to support the marketing effort there. The Company's Wing House marketing in Southeast Asia is through Allied Building Co.; we own two units in Thailand to support the marketing effort there.
Competition
The Wing House mobile shelter faces no direct competition as a prefabricated expandable container-based mobile shelter system though a variety of site-built shelter options provide indirect competition. Typical portable cabins used as temporary offices in some regions are much cheaper than the Wing Houses, but they (i) have a life span of much less than half that of a Wing House, (ii) cannot be moved and re-used without virtually rebuilding the units, (iii) can only be trucked as 35 square meters of cabin space per truck (as opposed to Wing House 80 square meter per truck folded in), and (iv) have inferior wiring, lighting, bath fixtures, and insulation. The Wing Houses are competitively priced in certain markets, and for certain users that are looking for more modern and efficient workforce accommodation as opposed to the more utilitarian pre-fabricated structures used in the past.
A number of US and Canadian companies compete in the high quality prefabricated structure market, notably Sunbelt Modular, Pacific Mobile Structures, Mobile Modular, Satellite Shelters, Williams Scotsman, M Space Modular Buildings, and ModSpace. These companies use a variety of systems, typically panelized, to install mobile structures in various configurations. Many of these structures are designed to be semi-permanent, and fill a distinctly different niche from the Wing House. They offer greater flexibility in terms of size, with larger and more open floor plans available. They are also typically more expensive and require more time to install. While these structures will continue to dominate the market for larger structures, the Company believes that the Wing House will fill an underserved niche demand for high quality structures offering a far higher degree of mobility and far faster installation than current offerings.
The Company will also compete with companies focused on the leasing of modular workforce housing and the management of workforce housing facilities. Companies engaged in this business include Black Diamond Group Limited, Target Logistics, Atco Structures and Logistics, Rapid Camp Ltd, Guerdon Modular Buildings, Williams Scotsman, Stock Modular, Wilmot Modular Structures, and many others. While some of these companies do produce their own modular housing units, their primary business lies in leasing, installation, and management of workforce camps. The rapid growth of this sector is demonstrated by the recent results of the Black Diamond Group, a publicly traded industry leader with operations focused on Western Canada, which as more than tripled it income since 2009.
The Company recognizes these companies as competitors but also sees them as potential customers. If the Company can provide these companies with a facility option that is more economical, more efficient, and more easily portable than the structures they currently use, we believe that a significant number of these companies would adopt the Wing House as part of their leasing fleet.
The Company anticipates three probable avenues for marketing the Wing House to North American resource extraction industries:
·
Direct sales to exploration companies needing small, rapidly portable facilities below the size threshold that would justify subcontracting a camp to a turnkey solution provider.
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·
Sales to turnkey workforce camp solution providers.
·
Eventual formation of a joint management venture, with the Company providing the facilities and local partners providing installation and management services.
International Markets
The Company holds distribution rights for the Wing House in both the Gulf Cooperation Council (GCC), composed of
Bahrain
,
Kuwait
,
Oman
,
Qatar
,
Saudi Arabia
, and the
United Arab Emirates
. Fueled by sustained high oil and gas prices, this has emerged as one of the worlds most rapidly growing regions. Steffen Hertog of the London School of Economics states:
No other rich region in the world has grown as fast as the GCC in recent years and none has as rosy an outlook for the near future: IMF estimates of real GDP growth for 2012 range from 2 percent (Bahrain) to 6.3 percent (Saudi Arabia), with a regional average of 4.9 percent. Average growth for 2013 is expected to again reach above 3 percent - all the while all countries bar Bahrain are expected to rack up sizeable fiscal surpluses between 5.8 and 26 percent of GDP thanks to continuing high oil prices. Consumer confidence is at an all-time high and privately driven sectors like retail and construction are expanding rapidly.
Non-oil growth is emerging as a major growth driver, as regional governments invest oil income in heavy industry, infrastructure, and other developments in an effort to diversify their oil-dependent economies. The combination of high investment in increased energy production and surging investment in economic diversification creates a significant opportunity for the marketing of modular workforce housing solutions. Virtually all construction labor in the GCC is provided by contractual workers from other countries. These workers are typically housed on job sites, and construction managers need the ability to pack up housing facilities as jobs finished and move them to other job sites as easily as possible. The extreme mobility and rapid deployment of the Wing House make it a strong contender for acceptance in the GCC market.
The Company also holds marketing rights for the Wing House in Southeast Asia, a region that the OECD expects to maintain a robust average of 5.5% over the next five years. Large infrastructure projects, energy and mining industry developments, disaster relief, and temporary offices are among the niches open for the Wing House in Southeast Asia.
The Companys Prefabricated Housing division will focus primarily on the GCC and Southeast Asia.
Patents, Trademarks, Licenses, Franchises,
Concessions, Royalty Agreements and Labor Contracts
We neither own nor have applied for any patents or trademarks. We do not license any of our technology from other companies. However, we have an exclusive distribution agreement with Renhe for the Wing Houses
Marketing and Advertising Methods
The Company markets the Wing Houses through traditional methods, internet web sites and emails
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Dependence on Major Customers or Suppliers
The Company is not dependent on one or a few customers, as we have a product targeted to a wide range of buyers.
Governmental and Environmental Regulation
Health and Safety
We are subject to numerous health and safety laws and regulations imposed by the governments controlling the jurisdictions in which we operate and by or clients and project financiers. These regulations are frequently changing, and it is impossible to predict the effect of such laws and regulations on us in the future. We actively seek to maintain a safe, healthy and environmentally friendly work place for all of our employees and those who work with us. However, we provide some of our services in high-risk locations and as a result we may incur substantial costs to maintain the safety of our personnel. All of our operations and personnel are covered by comprehensive all risk insurance, the costs of which are included in our contracts.
Office of Foreign Assets Control
The Office of Foreign Assets Control ("OFAC") of the U.S. Department of the Treasury administers and enforces economic and trade sanctions based on U.S. foreign policy and national security goals against targeted foreign countries and regimes, terrorists, international narcotics traffickers, those engaged in activities related to the proliferation of weapons of mass destruction, and other threats to the national security, foreign policy or economy of the United States. OFAC acts under presidential national emergency powers as well as authority granted by specific legislation to impose controls on transactions and freeze assets under U.S. jurisdiction. Since the Company is a U.S. corporation, it is bound to the regulations of OFAC. Although we have never contracted nor made any effort to contract with countries which OFAC has identified as state sponsors of terrorism, the possibility exists that certain OFAC sanctioning methods could be employed against certain of our operations.
Environmental Regulation
The countries where we do business often have numerous environmental regulatory requirements by which we must abide in the normal course of our operations. We do not expect costs related to environmental matters will have a material adverse effect on our consolidated financial position or our results of operations.
Climate Change Legislation and Greenhouse Gas Regulation
Many studies over the past couple decades have indicated that emissions of certain gases contribute to warming of the Earths atmosphere. In response to these studies, many nations have agreed to limit emissions of greenhouse gases or GHGs pursuant to the United Nations Framework Convention on Climate Change, and the Kyoto Protocol. Although the United States did not adopt the Kyoto Protocol, several states have adopted legislation and regulations to reduce emissions of greenhouse gases. Additionally, the United States Supreme Court has ruled, in
Massachusetts, et al. v. EPA
, that the EPA abused its discretion under the Clean Air Act by refusing to regulate carbon dioxide emissions from mobile sources. As a result of the Supreme Court decision the EPA issued a finding that serves as the foundation under the Clean Air Act to issue other rules that would result in federal greenhouse gas regulations and emissions limits under the Clean Air Act, even without Congressional action. Finally, acts of Congress, particularly those such as the American Clean Energy and Security Act of 2009 approved
8
by the United States House of Representatives, as well as the decisions of lower courts, large numbers of states, and foreign governments could widely affect climate change regulation. Greenhouse gas legislation and regulation could have a material adverse effect on our business, financial condition, and results of operations.
Employees
We have no employees other than our officer/director who devotes a portion of his time to the operations of the Company. We also have part-time consultants and sales agents in the Middle East, Southeast Asia, and Texas. We believe we have a good working relationship with our agents and consultants, which are not represented by a collective bargaining organization. We also use third party consultants to assist in the completion of various projects; third parties are instrumental to keep the development of projects on time and on budget. Our management expects to continue to use consultants, attorneys, and accountants as necessary, to complement services rendered by our employees.
Reports to Security Holders
The Companys annual report contains audited financial statements. We are not required to deliver an annual report to security holders and will not automatically deliver a copy of the annual report to our security holders unless a request is made for such delivery. We file all of our required reports and other information with the Securities and Exchange Commission (the Commission). The public may read and copy any materials that are filed by the Company with the Commission at the Commissions Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The statements and forms filed by us with the Commission have also been filed electronically and are available for viewing or copy on the Commission maintained Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission. The Internet address for this site can be found at
www.sec.gov
.
ITEM 1A. RISK FACTORS
Our operations and securities are subject to a number of risks. Below we have identified and discussed the material risks that we are likely to face. Should any of the following risks occur, they will adversely affect our operations, business, financial condition and/or operating results as well as the future trading price and/or the value of our securities.
Risk Factors Relating To Our Business
The Companys ability to continue as a going concern is in question
Our auditors included an explanatory statement in their report on our consolidated financial statements for the years ended December 31, 2013 and 2012, stating that there are certain factors which raise substantial doubt about the Companys ability to continue as a going concern. These factors include a working capital deficit, negative cash flows, and accumulated losses.
We depend on the recruitment and retention of qualified personnel, and our failure to attract and retain such personnel could seriously harm our business.
Due to the specialized nature of our businesses, our future performance is highly dependent upon the continued services of our key personnel and executive officers, the development of additional management personnel, and the recruitment and retention of new qualified engineering, manufacturing,
9
marketing, sales, and management personnel for our operations. Competition for personnel is intense, and we may not be successful in attracting or retaining qualified personnel. In addition, key personnel may be required to receive security clearances and substantial training in order to work on government sponsored programs or perform related tasks. The loss of key employees, our inability to attract new qualified employees or adequately train employees, or the delay in hiring key personnel could impair our ability to prepare bids for new projects, fill orders, or develop new products.
International and political events may adversely affect our operations.
To date our revenue is derived entirely from non-United States operations, which exposes us to risks inherent in doing business in each of the countries in which we transact business. The occurrence of any of the risks described below could have a material adverse effect on our results of operations and financial condition. Operations in countries other than the United States are subject to various risks peculiar to each country. With respect to any particular country, these risks may include:
·
expropriation and nationalization of our assets in that country;
·
political and economic instability;
·
civil unrest, acts of terrorism, force majeure, war, or other armed conflict;
·
natural disasters, including those related to earthquakes and flooding;
·
inflation;
·
currency fluctuations, devaluations, and conversion restrictions;
·
confiscatory taxation or other adverse tax policies;
·
governmental activities that limit or disrupt markets, restrict payments, or limit the movement of funds;
·
governmental activities that may result in the deprivation of contract rights; and
·
governmental activities that may result in the inability to obtain or retain licenses required for operation.
Risks Relating to Our Common Stock
Our stock price is volatile.
The market price of our common stock is highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:
·
services offered by us or our competitors;
·
additions or departures of key personnel;
·
our ability to execute its business plan;
·
operating results that fall below expectations;
·
loss of any strategic relationship;
·
industry developments;
·
economic and other external factors; and
·
period-to-period fluctuations in our financial results.
In addition, the securities markets have from time to time experienced significant price and volume fluctuations that are unrelated to the operating performance of particular companies. These market fluctuations may also materially and adversely affect the market price of our common stock.
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We incur significant expenses as a result of the Sarbanes-Oxley Act of 2002, which expenses may continue to negatively impact our financial performance.
We incur significant legal, accounting and other expenses as a result of the Sarbanes-Oxley Act of 2002, as well as related rules implemented by the Commission, which control the corporate governance practices of public companies. Compliance with these laws, rules and regulations, including compliance with Section 404 of the Sarbanes-Oxley Act of 2002, as discussed in the following risk factor, has increased our expenses, including legal and accounting costs, and made some activities more time-consuming and costly.
FINRA sales practice requirements may limit a stockholders ability to buy and sell our stock.
The Financial Industry Regulatory Authority (FINRA) has adopted rules that relate to the application of the Commissions penny stock rules in trading our securities and require that a broker/dealer have reasonable grounds for believing that the investment is suitable for that customer, prior to recommending the investment. Prior to recommending speculative, low priced securities to their non-institutional customers, broker/dealers must make reasonable efforts to obtain information about the customers financial status, tax status, investment objectives and other information. Under interpretations of these rules, the FINRA believes that there is a high probability that speculative, low priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker/dealers to recommend that their customers buy our common stock, which may have the effect of reducing the level of trading activity and liquidity of our common stock. Further, many brokers charge higher transactional fees for penny stock transactions. As a result, fewer broker/dealers may be willing to make a market in our common stock, reducing a stockholders ability to resell shares of our common stock.
Our internal controls over financial reporting are not considered effective, which conclusion could result in a loss of investor confidence in our financial reports and in turn have an adverse effect on our stock price.
Pursuant to Section 404 of the Sarbanes-Oxley Act of 2002 we are required to furnish a report by our management on our internal controls over financial reporting. Such report must contain, among other matters, an assessment of the effectiveness of our internal controls over financial reporting as of the end of the year, including a statement as to whether or not our internal controls over financial reporting are effective. This assessment must include disclosure of any material weaknesses in our internal controls over financial reporting identified by management. For the period ending September 30, 2013, we were unable to assert that our internal controls were effective. Accordingly, our shareholders could lose confidence in the accuracy and completeness of our financial reports, which in turn could cause our stock price to decline.
Our past capital funding needs have resulted in dilution to existing shareholders.
We have realized funding from Asher Enterprises, Inc. ("Asher"), in the form of convertible notes, which has been converted into shares of our common stock. Additionally, we will need to realize capital funding over the next year to further our business plan. We intend to raise this capital through equity offerings, debt placements or joint ventures. Should we secure a commitment to provide us with capital, such commitment may obligate us to issue shares of our common stock, warrants or create other rights to acquire our common stock. Any new issuances of our common stock result in a dilution of our existing shareholders interests.
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Our common stock is currently deemed to be penny stock, which makes it more difficult for investors to sell their shares.
Our common stock is and will be subject to the penny stock rules adopted under section 15(g) of the Exchange Act. The penny stock rules apply to companies whose common stock is not listed on the NASDAQ Stock Market or other national securities exchange and trades at less than $5.00 per share or that have tangible net worth of less than $5,000,000 ($2,000,000 if the company has been operating for three or more years). These rules require, among other things, that brokers who trade penny stock to persons other than established customers complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances. Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited. If the Company remains subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities. If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of the Companys securities.
The elimination of monetary liability against our directors, officers and employees under Nevada law and the existence of indemnification rights for our directors, officers and employees may result in substantial expenditures by the Company and may discourage lawsuits against our directors, officers and employees.
Our certificate of incorporation contains a specific provision that eliminates the liability of directors for monetary damages to the Company and the Companys stockholders; further, the Company is prepared to give such indemnification to its directors and officers to the extent provided by Nevada law. The Company may also have contractual indemnification obligations under its employment agreements with its executive officers. The foregoing indemnification obligations could result in the Company incurring substantial expenditures to cover the cost of settlement or damage awards against directors and officers, which the Company may be unable to recoup. These provisions and resultant costs may also discourage the Company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties and may similarly discourage the filing of derivative litigation by the Companys stockholders against the Companys directors and officers even though such actions, if successful, might otherwise benefit the Company and its stockholders.