ITEM
1. BUSINESS.
OVERVIEW
Findex.com,
Inc.’s (“Findex,” the “Company,” “we,” “us,” or “our”) headquarters
and operations are based in Lake Park, Florida. Other than two legacy businesses neither of which were material to our results
of operations for the year ended December 31, 2015, we are a developer, manufacturer, and marketer of a proprietary line of specialty
industrial glass-based smart surface coatings materials that have a broad range of industrial, commercial, and consumer applications.
Our line of products center around a U.S. patented technology that, either on its own or when coupled with any of an array of
available proprietary formula additives, offers a unique combination of beneficial surface properties that allow for a broad array
of multi-surface and end-product applications. Among others, such applications include:
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Heavy
machinery, equipment and infrastructure throughout each of the oil and gas, and mining industries
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Marine
industry, vessels and infrastructure
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Industrial
HVAC equipment, commercial refrigeration systems, and power generators
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Energy
production equipment, including solar and wind
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Hardscapes
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Corporate
Formation, Legacy & Subsidiaries
We
were incorporated in the State of Nevada on November 7, 1997 as EJH Entertainment, Inc. On December 4, 1997, a predecessor corporation
with the same name as our own but domiciled in Idaho was merged with and into us. Although the predecessor Idaho corporation was
without material assets or operations as of the time of the merger, since being organized in 1968, it had historically been involved
in mining and entertainment businesses unrelated to our current business.
Beginning
in 1997, and although we were not then a reporting company under the Securities Exchange Act, our common stock was quoted on the
OTC Bulletin Board (originally under the symbol “TIXX”, which was later changed to “TIXXD”). On May 13,
1999, we changed our name to FINdex.com, Inc. On March 7, 2000, in an effort to satisfy a then recently imposed NASD Rule eligibility
requirement that companies quoted on the OTC Bulletin Board be fully reporting under the Securities Exchange Act (thereby requiring
recently audited financial statements) and current in their filing obligations, we acquired, as part of a share exchange in which
we issued 150,000 shares of our common stock, all of the outstanding capital stock of Reagan Holdings, Inc., a Delaware corporation.
At the time of this transaction, Reagan Holdings was subject to the requirements of having to file reports pursuant to Section
13 of the Securities Exchange Act, had recently audited financial statements and was current in its reporting obligations. Having
no operations, employees, revenues or other business plan at the time, however, it was a public shell company. As a result of
this transaction, Reagan Holdings, Inc. became our wholly owned subsidiary and we became the successor issuer to Reagan Holdings
for reporting purposes pursuant to Rule 12g-3 of the Securities Exchange Act. Shortly thereafter, we changed our stock symbol
to “FIND”. Though it does not currently have any operations, employees, or revenues, Reagan Holdings remains our wholly
owned subsidiary.
In
addition to Reagan Holdings, we also have one other wholly owned subsidiary, Findex.com, Inc. (
i.e.
the same name as our
own), a Delaware corporation. Like Reagan Holdings, this entity, too, does not currently have any operations, employees, or revenues.
This subsidiary resulted from an acquisition on April 30, 1999 pursuant to which we acquired all of the issued and outstanding
capital stock of FINdex Acquisition Corp., a Delaware corporation, from its then stockholders in exchange for 4,700,000 shares
of our common stock, which, immediately following the transaction, represented 55% of our total outstanding common stock. Our
purpose for this acquisition (under a previous management) was to broaden our then-existing stockholder base, an important factor
in our effort to develop a strong market for our common stock. On May 12, 1999, in exchange for the issuance of 457,625 shares
of FINdex Acquisition Corp. common stock, FINdex.com, Inc., another Delaware corporation (originally incorporated in December
1995 as FinSource, Ltd.), was merged with and into FINdex Acquisition Corp., with FINdex Acquisition Corp. remaining as the surviving
entity. Our purpose for this merger (under a previous management) was to acquire a proprietary financial information search engine
for the Internet which was to serve as the cornerstone for a Web-based development-stage business, but which has since been abandoned.
As part of the certificate of merger relating to this transaction, FINdex Acquisition Corp. changed its name to FINdex.com, Inc.
We currently own 4,700,000 shares of FINdex.com, Inc. (the Delaware corporation), representing 100% of its total outstanding common
stock.
On
July 23, 2014, we merged with EcoSmart Surface & Coating Technologies, Inc., a Florida corporation (“EcoSmart Florida”).
Because, for accounting purposes, this merger was treated in accordance with ASC 805-40,
Reverse Acquisitions
, and Findex
was recognized as the accounting acquiree in relation thereto with EcoSmart Florida as the accounting acquirer, our consolidated
financial statements for the reporting period from January 1, 2013 through July 23, 2014 were those of EcoSmart Florida, not the
enterprise historically recognized as Findex. Accordingly, our consolidated financial statements for the periods since July 24,
2014, the day after which the merger was consummated, recognize Findex and EcoSmart Florida as a single operating enterprise and
entity for accounting and reporting purposes, albeit with a carryover capital structure inherited from Findex (attributable to
the legal structure of the transaction). Readers of this annual report on Form 10-K should note that, in order to provide materially
relevant disclosure regarding certain of Findex’s historical, operational expenses not otherwise appropriately accounted
for in our consolidated financial statements given the applied accounting treatment described herein, certain disclosure is contained
in the text of this report relating to such expenses, including
e.g.
executive compensation, director compensation, and
audit fees, that does not numerically align with the corresponding figures contained in our consolidated financial statements.
Prior
to the merger with EcoSmart Florida, and since 1999, our business had been developing, publishing, marketing, distributing and
direct-selling off-the-shelf consumer and organizational software products for the Windows platform. Following divestitures of
two software titles which had consistently accounted for the overwhelming majority of our revenues while owned by us, including
our Membership Plus product line, which we sold in late 2007, and our flagship QuickVerse product line, which we sold during 2011,
and title acquisitions during the same period that, in the aggregate, had been relatively insignificant in offsetting the loss
of revenues associated with those major divestitures, our continuing operations, while not nominal, had been very limited and
insubstantial in terms of revenue, both relative to what they had been prior thereto and by any appropriate standalone measure.
Specifically, our operations immediately prior to the merger with EcoSmart Florida consisted exclusively of those relating to
the FormTool line of products which we acquired in February 2008, as well as two language tutorial products, which were retained
after the sale of the QuickVerse product line. Due to a continuing lack of capital over a number of years, we were unable to meaningfully
grow the FormTool line and develop related products, and our business and financial prospects became increasingly challenged.
Since the merger with EcoSmart Florida, our primary focus has shifted away from the continued development of our FormTool line
and much more intently in the direction of our surfaces and coatings business, where we believe the opportunities for our future
growth are greater and have significantly more to offer economically.
In
its most recent corporate form, EcoSmart Florida was organized in 2012. The patents and other intellectual property forming the
foundation of the EcoSmart business were originally developed during a preceding period dating back to 2003 in which it was operated
by the developers of the Company’s technologies as Surface Modification Technologies, Inc. (“SMT”), a Florida
corporation, and EcoSmart, LLC, a Florida limited liability company, which were sold together to The Renewable Corporation, a
Florida based company with its common stock then traded in the over-the-counter market (“TRC”) in 2012. On January
20, 2012, EcoSmart Coating Technologies, Inc., a Florida corporation, was organized as a wholly-owned subsidiary of TRC. Simultaneously,
EcoSmart Surface Technologies, Inc., also a Florida corporation, was formed as a wholly-owned subsidiary of TRC. With common ownership
by TRC, the assets of each of SMT and EcoSmart, LLC were thereafter transferred in part to EcoSmart Coating Technologies, Inc.
with the remainder to EcoSmart Surface Technologies, Inc. On September 18, 2012, EcoSmart Surface Technologies, Inc. changed its
name to EcoSmart Surface & Coating Technologies, Inc. On October 19, 2012, EcoSmart Coating Technologies, Inc. was merged
with and into EcoSmart Surface & Coating Technologies, Inc., leaving EcoSmart Surface & Coating Technologies, Inc. as
the surviving corporation.
PRODUCTS,
APPLICATIONS, AND MARKETS
The
surface is an integral aspect of virtually every physical object and often plays a fundamental role in many of the processes --
beyond mere connectivity and structural support -- that govern chemical and biological interactions involving the object. In some
instances, the surface serves to protect the internal elements of the object that it surrounds; in others, it provides an entry
point into those chemical or biological systems. In most, combinations of these attributes are present, and the potential variations
are both vast in number and complex in structure.
Our
coatings business produces, markets, and distributes a line of effectively invisible glass-based specialty coatings – “smart
surfaces” – that have a wide range of industrial, commercial, and household applications that add a competitive advantage
to a given product or surface through a variety of protective and other features. Conventional coatings, which are bonded by mechanical
means to whatever surface they are applied to, tend to fail, ultimately, in the bonding to the substrate, typically due to poor
surface preparation or variation of temperature exposures. Uniquely, our coatings products consist of inorganic and organic combinatorial
chemistry that causes them to bond chemically with the substrate, whether metal, cement-based, or organic (
e.g.
plastics).
By utilizing covalent bonding that penetrates into the substrate and reacts directly with the free ion within, the otherwise resulting
disbondment is avoided. The result is a much longer lasting and stronger coating, and, in turn, a longer life for the substrate
that has been treated.
With
an addition of only 50 millionths to 2 thousandths of an inch in surface thickness (depending on which product is used), no loss
of either hardness, on the one hand, or pliability, on the other, and no reduction in photon (light) penetration, our patented
platform technology, either on its own or when coupled with any of an array of available proprietary formula additives, offers
the following unique combination of beneficial protective, maintenance-reducing, performance-enhancing and cosmetically-enhancing
properties to most surfaces, including metals, plastics, paints, fabrics, vinyl, wood, masonry, or concrete, in each case without
regard to temperature, climate or most other environmental conditions, without hazard to either human, animal or plant health/life,
and for a period of up to as many as approximately 15-20 years:
Protective
Benefits
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Against
Physical Surface Damage
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Against
Surface Appearance / Cosmetic Degradation
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Resistant
to Abrasion / Scratching
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Resistant
to Dust / Dirt / Grime
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Resistance
to Corrosion
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Resistant
to Staining
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Resistant
to Oxidation
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Resistant
to Color Fading
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Resistant
to (Effects of) Weather / Elements
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Resistant
to Fingerprints
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Resistant
to (Effects of) UV
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Resistant
to Marking / Graffiti
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Resistant
to (Effects of) All But Most Extreme Alkaline or Acidic Chemicals
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Oleophobic
(Oil-Repellent)
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Resistance
to (Effects of) Acid Rain
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Resistance
to (Effects of) Guano (excrement of birds, bats, seals, etc.)
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Resistance
to Termite Infestation
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Against
Human Health Risks / Contagion
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Against
Human Physical / Safety Risks
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Resistant
to Bacterial Growth / Germs (sometimes referred to as “Self-Sterilizing”)
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Slip-Resistant
When Wet
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Resistant
to Mold / Fungal Spore Growth
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Resistant
to Small and Large Viruses
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Maintenance-Reducing
Benefits (sometimes referred to as “Self-Cleaning” attributes)
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Hydrophobic
(Water-Repellent
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Oleophobic
(Oil-Repellent)
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Resistant
to Dust / Dirt / Grime
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Rinses
Cleans with Only Water and/or Mild Detergent
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Performance-Enhancing
Benefits
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Improved
Hydrodynamics / Drag Reduction / Fuel Efficiency
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Improved
Aerodynamics / Drag Reduction / Fuel Efficiency
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Energy
Efficiency
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Cosmetically-Enhancing
Benefits
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Enhanced
Color Clarity
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Enhanced
Gloss / Sheen
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Enhanced
Reflection
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With
the extraordinary array of beneficial properties identified above, certain but not all of which have been independently lab-tested
and verified, the range of potential applications of our specialty coatings is notably far-reaching, spanning across numerous
industrial, commercial, and consumer segments. While we are currently focusing our pursuit on only several of these potential
applications, and there can be no assurance that we will ever pursue any one or more of the others, we have identified the following
as potential markets, among others, to be explored and possibly pursued over time:
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residential,
commercial, and industrial building / construction
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automotive
/ auto body
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interior
and exterior flooring and tiling / pavers
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motorcycles
and ATVs
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sewage
infrastructure, highways, bridges
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boats,
jet-skis and snowmobiles
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oil
& gas drilling / production equipment
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windshields
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solar
panels, reflectors and heliostats
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bathroom
fixtures
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wind
turbines
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kitchen
countertops and cabinetry
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HVAC
/ commercial refrigeration systems
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swimming
pools and hot-tubs / jacuzzis
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desalination
and potable water systems
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outdoor
home decking
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aircraft
/ drones
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patio
furnishings
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military
equipment and weapons systems
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outdoor
cooking hardware
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spacecraft
/ satellites / space-stations
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outdoor
lighting systems
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passenger
cruise ships
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kitchen
and other household appliances
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railroad
/ monorail
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telescopic
equipment
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medical
equipment, operating environments and implant devices
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sunglasses
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biometric
and other security devices
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water/snow
skis, surf boards, and other sporting goods
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industrial
machinery and robotics
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protective
helmets and sporting gear
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telecommunications
hardware
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playground
equipment / apparatus
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textiles
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camping
equipment
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smart-phones
and tablets
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home
furnishings, picture frames and decorative items
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To
date, we have not commissioned or otherwise undertaken or obtained any comprehensive market study in respect of any one or more
of the above-listed potential product applications. Our immediate-term focus is on the following five, unrelated applications,
each of which has been selected based on our combined assessment of (i) the relative size, age and projected growth trend of the
subject market, (ii) experience, observational/anecdotal intelligence, and testing results previously obtained in relation to
the application, (iii) the relative strength of the value proposition to prospective customers, (iv) the comparative time-to-market,
(v) the comparative cost-to-market coupled with existing industry relationships and available resources, (vi) the relative geographic
accessibility of the market, (vii) the seasonality of the market, if any, (viii) the relative barriers-to-entry within the market,
(ix) the relative, projected length of the particular sales cycle, (x) the projected gross profit margins, (xi) both the presence
within the subject market, together with the relative quality, of competitive products, and (xii) the relative size and strength
of the individual competitors:
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Hardscape
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This is the market segment defined by us to include applications involving surfaces consisting
of pavers, poured and stamped concrete, natural stone, brick, and ceramic tile. It has
been targeted based on a combination of all of the factors identified above, with a particular
emphasis on (i) geographic accessibility to the regional market of South Florida, in
which the Company maintains its executive offices and principal operations, and (ii)
relative ease of installation. At a competitive price point, our products offer this
market a high-grade, functional alternative to comparatively under-performing water-based
hardscape sealants, and one with numerous unique, secondary benefits. The marketing and
sales strategy being applied by us is a dual-pronged approach aimed at manufacturers
of primary materials, on the one hand, and contractor-installers, on the other. Able
to rely for showcasing purposes on a major installation involving 310,000 square feet
of pavers at the Palm Beach Outlet Mall in West Palm Beach, Fl., we believes we are poised
for an aggressive roll-out in the hardscape arena.
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Solar
Panels, Reflectors and Heliostats
. This is the alternative energy production and
related hardware application market segment consisting of photovoltaic (PV) solar panel
modules, reflectors, and heliostats (computer-controlled, curved mirrors which concentrate
the sun’s rays and keep them reflected on a target as the sun moves across the
sky) in relation to which the value-proposition associated with our product offerings
arise out of the “self-cleaning” attributes they afford. Because of the economic
importance in maximizing the capture of incoming photons for energy conversion output,
insuring the consistent cleanliness of solar panels has become an increasingly high priority
and a continuing challenge throughout the industry, and the worldwide demand for coatings
with efficiently “self-cleaning” properties – such as those produced
by us, which do not come at the expense of the optical properties of high transmission
(in the PV modules) or high reflectance (in the heliostats) – is growing rapidly.
In its earliest stages of market entrance, but driving the forefront, we are currently
targeting both domestic and foreign PV panel manufacturers as well as operators of distributed
solar energy farms. In respect of both groups, and though there can be no assurance,
we seek to build our business through the securing of long-term, ongoing supply contracts.
We are aggressively targeting this application based on a combination of all of the factors
identified above, including most notably the relative newness and projected growth rate
of the developing market. Recently conducted initial field tests utilizing our product,
moreover, have been promising, showing in excess of a 30% increase in efficiency over
uncoated PV array panels due primarily to increased cleanliness.
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Oil,
Gas, and Mining.
This is the market segment application surrounding a vast array
of opportunities to sell certain of our coatings to prevent rust, oxidation, corrosion
and abrasion breakdown in the oil, gas and mining industries. We believe our coatings
could result in unimaginable savings in maintenance costs as well as extending the life
of equipment, tools and infrastructure used in these highly corrosive environments. For
instance, our coatings could be used as protective pipe linings, protective coating on
micro-turbines, hydraulic systems, fleet vehicles, rail cars, shipping containers, storage
tanks, cargo vessels as well as general infrastructure. According to recent industry
reports, and with industrial coatings generally comprising more than approximately a
third of the worldwide aggregate coatings market, the oil and gas segment is one seen
as holding the greatest growth potential. Based on the preliminary results of early-stage
field and lab tests being conducted by prospective customers, and though there can be
no assurance, management believes the effectiveness of its products for this purpose
is already higher than many competing products, and that the market and demand for these
products is potentially very significant. We are aggressively targeting this application
based on a combination of all of the factors identified above, and, to date, we have
been pursuing potential distribution opportunities through select industry operators.
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HVAC
/ Commercial Refrigeration Systems
. This is the market segment application consisting
of coatings for HVAC and commercial refrigeration systems intended to serve as protection
from corrosion, including in salt water, acid, alkaline and chemical environments, and
from clogging by particles of mold, pollen, dust, and soot. Testing in this area has
shown that there is a significant efficiency loss factor on HVAC units due to natural
oxidation and the restricted airflow caused by dirt that collects on the condenser coils.
With a product that repels moisture and contaminants, offers increased operating/energy
efficiency of 12-15% over the life of a subject condensing unit, and substantially reduced
cleaning requirements generally, management believes a significant opportunity exists
for us within this market. Accordingly, we have targeted this application based on a
combination of all of the factors identified above and are currently in the process of
developing a strategic marketing plan aimed at this segment.
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Marine
Industry
. This is the market segment defined by us to include applications involving
surfaces both above and below the water line existing on boats, yachts, ships, commercial
vessels, sailing vessels, floating and fixed docks and ocean based platforms. The environmental
conditions for all of the above items are extremely harsh whether it is the salt air
or salt water. We believe our coatings in this market segment can prohibit the growth
of barnacles and algae as well provide a decrease in hydrodynamic friction resulting
in an increase of flow through the water by as much as 35%. Based on the preliminary
results of prospective customer field and lab tests, and though there can be no assurance,
management believes the quality and price of its products for this purpose is better
than many alternatives already widely available, and that the market and demand for these
products is potentially material. We are aggressively targeting this application based
on a combination of all of the factors identified above, and, to date, we have been pursuing
potential distribution opportunities through select industry operators.
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In
general, though not necessarily across all segments, we intend to pursue a strategic approach to identify market opportunities
that rely on master distribution arrangements within individual product/application industry verticals. An emphasis is being made
in the immediate-term on the establishment of such master distribution relationships holding what management believes to be an
industrial customer-base with the greatest potential likelihood of benefitting without a significant lag-time by incorporating
the specialty smart coatings as a product upgrade to their respective current offerings.
For
purposes of development, competitive analysis, and prioritizing sales initiatives and resource deployment, we view our specialty
coatings business in terms of numerous individual markets identified in each case by reference to the particular combination of
our product, on the one hand, and targeted surface and application, on the other. While our complete line of individual specialty
coatings products includes more than fifteen separate formulations, the following list identifies some of our principal products,
by name, together with their respective primary targeted surfaces and application categories, as well certain information in each
case relating to their unique benefits in relation to the target application:
Product
Name:
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ECT-1110
Interior Coating
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Primary
Targeted Surfaces:
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indoor
tile, masonry, paint, cement, plastics, fabric, flame-exposed, cryogenic
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Primary
Target Application Categories:
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interior
flooring and tiling
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Featured
Properties For Target Application:
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hydrophobic
(water-repellent) and oleophobic (oil-repellent); slip-resistant when wet; protective barrier at all temperatures resistant
to abrasion/scratching, corrosion, oxidation, microbials, (effects of) weather/elements, UV, guano, acid rain, staining, color
fading, mold/fungal spore growth
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Product
Name:
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ECT-1120
General Purpose Polyurethane Coating
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Primary
Targeted Surfaces:
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ceramic
floor tile, terrazzo, granite
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Primary
Target Application Categories:
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interior
and exterior flooring and tiling / pavers
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Featured
Properties For Target Application:
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water-based
low VOC (volatile organic compound); extreme chemical-resistance; available with anti-slip additives; single coat potentially
equivalent to three coats of competitive product in terms of physical performance.
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Product
Name:
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ECT-1390
HVAC Corrosion Energy Coating
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Primary
Targeted Surfaces:
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all
surfaces of condensing unit, including coils, copper lines, compressor and cabinet
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Primary
Target Application Categories:
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HVAC
and refrigeration condensing units, micro turbines and other equipment on oil rigs
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Featured
Properties For Target Application:
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“glassifying
surface treatment”; condensing unit protection from corrosion, including in salt water, acid, alkaline and chemical
environments; protection from clogging by particles of mold, pollen, dust, and soot; increased operating/energy efficiency
of 12-15% over life of condensing unit; reduced cleaning requirements generally, and condensing units easily cleaned with
only water and/or mild soap eliminating need for caustic coil cleaners; reduced maintenance for cooling towers and chiller
barrels
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Product
Name:
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ECT-1000
Universal Micro-Coating
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Primary
Targeted Surfaces:
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glass,
mirrors, fiberglass, paints, plastics, metals, fabrics, granites
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Primary
Target Application Categories:
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automotive/motorcycle/marine
interior and exteriors, countertops, sunglasses, surfboards, water and snow skis
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Featured
Properties For Target Application:
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ultra-thin
(50 millionths of an inch) gasified glass layer version of ECT-1000 that be easily applied directly by consumers and last
for 6-8 months; hydrophobic (water-repellent) and oleophobic (oil-repellent); repels dirt and dust, including brake dust;
exceptional clarity on glass and mirrors by filling in microscopic voids in the surface (tests conducted by the Ford Motor
Company showed improvement in the “Distinction of Image” measurement (clarity of a glossy surface) of 10% on new,
and 20% on old, automotive paint); protective barrier at all temperatures resistant to abrasion/scratching, corrosion, oxidation,
microbials, (effects of) weather/elements, UV, guano, acid rain, acid damage from insects, staining, color fading, mold/fungal
spore growth
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Product
Name:
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ECT-1470
Hardscape Coating
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Primary
Targeted Surfaces:
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pavers,
concrete, roofing tile, ceramic tile, and other porous surfaces
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Primary
Target Application Categories:
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floors,
walls, decorative panels, swimming pools
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Featured
Properties For Target Application:
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able
to be applied in heavy coats; protective against staining, chemicals, UV fading, slipping; “self-cleaning”
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The
most unique feature shared by our coatings, and the specific focal point of a patent held by us and considered by management to
be the centerpiece of our smart surface technology, is the positive surface charge they possess once applied. It is this positive
surface charge that is responsible for their most unique and valuable properties identified above, including the hydrophobicity,
oleophobicity, microbial and fungal resistance, dust-repellance, and the enhanced aerodynamics and hydrodynamics.
Hydrophibicity
is a term largely unfamiliar to many outside scientific circles, but that describes a quality with which most everybody has a
basic familiarity. Surfaces may be characterized as either hydro
philic
or hydro
phobic
depending on whether or not
they attract or repel water or other water-based liquids. Hydrophilic and hydrophobic surfaces are abundant in both nature as
well as in synthetic materials, and they exist both organically and inorganically in terms of chemical composition. A hydro
philic
surface can be wet and may adsorb water; a hydrophobic surface cannot and will not – it is compositionally incapable
of becoming wet. An example of a hydrophilic surface encountered routinely in daily life are sponges, which, of course, readily
soak up whatever water with which they come into contact, at least to the point of saturation. Hydro
phobic
materials and
coatings, by contrast, prevent water from pooling on their surfaces. In scientific terms, hybrophobicity is caused by surfaces
that disrupt the hydrogen bonding in water; so as to minimize the disruption in its molecular makeup, the water droplet pushes
itself away from the surface to minimize its contact area, thus becoming very tightly bound. Hydrophobic materials are generally
easy to identify because water forms into droplets upon contact with them after which they tend to roll around freely, like marbles
on a flat Formica countertop, as occurs commonly on the freshly waxed exterior of a car or recently cleaned windshield with new
wiper blades. The more hydrophobic the material (all the way up to and including so-called “
super
hydrophobic”
surfaces), the stronger this effect, until the water effectively floats or skims across the surface with what amounts to very
low friction. Naturally occurring hydrophobic surfaces include many species of plant leaves and flower petals, as well as many
types of bird feathers and the outer body parts of a variety of insects; the lotus leaf is among the most hydrophobic of naturally
occurring hydrophobic surfaces. Synthetic hydrophobic surfaces include such household-name brands as Scotchgard
™
treated fabric, Teflon
®
coated metal, or Rain-X
®
coated glass.
Oleophobicity
is a property very comparable to hydrophobicity, but it relates to oil-repellancy, not water-repellancy. There are important technical
differences, but, for practical and basic observational purposes, they are very similar.
In
terms of chemistry, our platform smart surface, and the coating variations identified above that it serves as a basis for, are
inorganic, formed as they are of chemically “grown” glass. The process by which they form upon application can be
likened to the process, witnessed by many daily in science classrooms, labs, or at home with popular science kits, whereby quartz
crystals are effectively “grown” in a solution. This is important because it results in the establishment of a uniquely
firm chemical bond between the coating and the surface, far stronger than would exist through either a mechanical or light bonding
(the traditional alternatives), fundamentally setting the coatings apart from most others. When coupled with the unusually thin
layer they inhabit – approximately 50 millionths to 1-2 thousandths of an inch – the combination of properties leaves
them notably flexible, permitting their use in connection with such items as fabrics, plastics, and pliable floor-boards, yet
hard, durable, and resilient, particularly when refined with select additives.
The
additives used in our various coating formulations available to customers fall into three basic categories. In the first category
are color tints, which, in recent years, have seen major technology advancements in terms of durability, variety and depth of
color, reflectivity, and fade-resistance. Through developing strategic relationships, we have available to us a wide range of
the most advanced offerings in this regard. In the second category are additives intended to provide increased hardness and wear-resistance.
Here, too, we have access to what we believe are some of the most superior materials available. In the third category, EPA approved
“on-contact” mechanical microbial germ and virus so-called “quat” (industrial and commercial quaternary
ammonium) killers – that works in such a way as to prohibit the mutation of microbials which can otherwise become resistant
over time to chemical kill mechanisms, such as antibiotics – capable of fortifying any of our coatings with additional protection
against bacteria and relatively large viruses/microbials, including, for example, Methicillin-resistant Staphylococcus Aureus
(more commonly known as “MRSA), Clostridium difficile bacterial infection (more commonly known as “C-diff”),
and Influenza A virus subtype H1N1 (more commonly known as “H1N1” or “Swine Flu”). By combining our coatings
– which, based on their positive surface charge, already powerfully discourage the growth of many of the smaller, more common
viruses which can exist between active elements of existing “on-contact” killers (such as the Norovirus, for example,
a concern long plaguing the vacation cruise ship industry) – with a quat and certain other additives available to us, a
unique, broader spectrum of microbial protection is afforded, un-matched, in the belief of the Company’s management, by
any other product in anti-microbial effectiveness.
LONG-TERM
STRATEGIC DIRECTION
Although
there can be no assurance, over time, we intend to progress in the strategic direction of becoming a leading research-oriented
high-tech specialty “smart-surface” materials development and licensing company centered around a highly qualified
research team and state-of-the-art research lab and applying a combination of organic and inorganic chemistries, materials science
engineering, and nanotechnology. We currently have expertise and capabilities in each of these areas.
Organic
chemistry is a chemistry sub-discipline involving the scientific study of the structure, properties, and reactions of organic
compounds and organic materials (i.e., matter in its various forms that contain carbon atoms). Inorganic chemistry, by contrast,
refers to the chemistry sub-discipline aimed at understanding the synthesis and behavior of inorganic and organometallic compounds,
generally focused on the silicon atom. Nanotechnology is the creation of functional materials, devices and systems through control
of matter (atoms and molecules) on the nanometer length scale (1-100 nanometers), and exploitation of novel phenomena and properties
(physical, chemical, biological, mechanical, electrical) at that length scale. Materials science engineering has as its focus
the development of new products based on materials whose properties and behavior are controlled at the micrometer and nanometer
scales, and through microfabrication technologies.
MANUFACTURING
AND FULFILLMENT
We
currently conduct all manufacturing and fulfillment operations on our own at our facility in Lake Park, FL. Though output capacity
is only approximately 150 gallons per day currently, we intend to approximately double that in-house capacity in the near future,
subject to having available to it the capital investment requirements. Management is additionally in the process of negotiating
a higher volume, ISO-quality toll manufacturing arrangements with reputable contract manufacturers which, once finalized, are
expected to be relied upon by us for production of higher sales volume products. In both cases, the manufacturing process is comprised
largely of combining and blending raw materials and chemicals, including additives, in each case consistent with our proprietary
formulations, and bottling of final product into labeled, quart and gallon containers. In general, on-hand inventory is kept to
a minimum and built up based on forecasted near-term sales.
Backlog
In
general, we do not manufacture our products against a backlog of orders and do not consider backlog to be a significant indicator
of the level of future sales activity. Production and inventory levels are based on the level of incoming orders as well as projections
of future demand. Accordingly, we do not believe that backlog information is material to an understanding of our overall business
and should not be considered a reliable indicator of our ability to achieve any particular level of revenue or other metric of
financial performance.
Product
Returns Policies and Warranties
Our
product returns policies and warranties differ materially based on the type of surface to which our products are being applied
as well as the anticipated performance life of the particular product.
In
general, we maintain a consistent return policy relative to any products in relation to which there is either no associated installation
or, if there is an installation involved, it is one that we have no participation in or responsibility for (as may be the case
in relation to our paver application specialty coating products). The policy under such circumstances requires that the subject
products be returned unopened within no more than 30 days of purchase, and that all shipping charges associated with the return
be borne by the customer, together with a re-stocking fee equal to 10% of the corresponding purchase price unless the return is
received in the form of purchase credit. For a period of up to five years from purchase, a warranty is extended in such cases
to customers relative to both the chemical integrity (as represented upon sale) and the performance integrity of the coatings
based on the specific characteristics of the subject product and application, and the corresponding representations made by the
Company in relation thereto.
Our
returns policies and product warranties are general policies and warranties and are subject to change in relation to any particular
sale. Further, the general policies and warranties themselves are subject to change from time to time and are likely to evolve
as our operations and revenues develop.
SIGNIFICANT
CUSTOMERS AND VENDORS
During
the years ended December 31, 2015 and 2014, we generated a significant portion of our revenues from certain customers as follows:
|
|
% of Total Revenues
|
Customer
|
|
2015
|
|
2014
|
PCS Phosphate Company Inc.
|
|
32.85%
|
|
29.47%
|
Superior Surfaces
|
|
12.72%
|
|
1.53%
|
For
the year ended December 31, 2015, our revenues were approximately 93% attributable to sales within the specialty coatings division
and approximately 7% attributable to sales within the software division. In the future, the Company anticipates that the majority
of its revenues will be derived from the specialty coatings division.
During
the years ended December 31, 2015 and 2014, our significant product and chemical raw material purchases were as follows:
|
|
% to Total Products
|
|
|
|
2015
|
|
|
2014
|
|
Vendor A
|
|
|
46.40%
|
|
|
|
29.27%
|
|
Vendor B
|
|
|
17.43%
|
|
|
|
18.08%
|
|
Vendor C
|
|
|
16.94%
|
|
|
|
---
|
|
We
currently have no long-term written agreements with any of these vendors. The payment terms are generally net 30 days, and we
are not substantially dependent upon any one or more of them; all are easily replaceable with any locally or nationally available
supplier.
RESEARCH
AND DEVELOPMENT
Though
a substantial and growing percentage of our operating expense, our research and development (“R&D”) has been very
modest in recent years, in real dollar terms, due to a lack of allocable funds. The limited R&D activities that have been
pursued over this period have been conducted exclusively in-house.
Our
R&D objective is to leverage our unique, integrated, emerging science capabilities to drive revenue and margin growth. Our
R&D initiatives are principally focused on our strategic priority of achieving a leadership position across the relatively
higher margin, science-driven segments of the specialized coatings and surfaces markets in which it operates by developing and
refining differentiated, advanced industrial and related coatings and surface materials. We believe that our specialized scientific
expertise, together with our developing R&D program, combine to provide us with distinctive, competitive advantages that position
us to establish broad global reach over time and deep market penetration in our market verticals.
Our
EcoSmart R&D team is led by senior research and development personnel.
We
continue to protect our R&D investments and assets through application of a comprehensive intellectual property strategy.
See discussion under “Intellectual Property.”
REGULATION
We
are subject to an extensive variety of stringent regulations under numerous U.S. federal, state, local and foreign environmental,
health and safety laws and regulations relating to the generation, storage, handling, discharge, disposition and stewardship of
hazardous wastes and other harmful materials. These regulations have potential implications for us in terms of our manufacturing
operations, product handling and use by customers and agents, as well as installation processes. In this regard, we will likely
have to expend substantial amounts to comply with such laws and regulations as well as establish a policy to minimize our environmental
emissions. Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential laws and regulations
pertaining to climate change) may make it difficult for us to project future spending for these purposes and, if there is an acceleration
in new regulatory requirements, we may be required to expend substantial additional funds to remain in compliance.
COMPETITION
Product
performance, technology, cost effectiveness, quality and technical and customer service are major competitive factors in the industrial
coatings businesses. We are unaware of any one or more products possessing the same combination of physical properties, and that,
on the whole, offers the same array of benefits, as its proprietary line of specialty smart surface coatings. There can be no
assurance, however, that there not products under development or already in existence and in the early stages of market introduction
of which management is not yet aware. The market for industrial and product performance coatings is extremely large, broad in
scope, and consists of many different segments and sub-segments, each of which involves a range of product applications. It is
also increasingly characterized by rapidly evolving technology. Precisely because of the wide array of beneficial properties they
possess, and notwithstanding the U.S. patent held by us on our platform smart surface technology, the specialty coatings produced
and distributed by us should be viewed as competing with other coatings products across a wide variety of the various existing
market segments and sub-segments. Hydrophobic, anti-corrosion and antimicrobial coatings, for example, are each segments in which
numerous companies are aggressively competing with one another worldwide, both in terms of technology and market share, but that,
combined, represent only a minor portion of the aggregate competition that we should be viewed as meaningfully confronting.
The
competition faced by us in relation to our proprietary line of specialty smart surface coatings includes both public and private
organizations and collaborations among academic institutions and large companies, both domestic and foreign, most of which have
significantly greater experience and financial resources than us. We expect that our most significant competitors will tend to
be larger, more established companies, including many major multinational corporations such as Akzo Nobel N.V., PPG Industries,
Inc., Axalta Coating Systems, and Valspar Corporation. In general, these companies are all developing products that, at some level
or in one or more ways, compete with ours and, in addition to many existing issued and pending patents, they have significantly
greater capital and other resources available to them for research and development, testing, seeking and obtaining any required
regulatory approvals, marketing and distribution. In addition, many smaller coatings and related nanotechnology companies have
formed strategic alliances or collaborative arrangements, partnerships, and other types of joint ventures with larger, well-established
industry competitors that afford these companies’ potential research and development and commercialization advantages, and
may be aided in becoming significant competitors through rapid evolution of new technologies. Academic institutions, governmental
agencies, and other public and private dedicated research organizations are also financing and conducting research and development
activities that could result in the introduction of products directly competitive to our own.
INTELLECTUAL
PROPERTY
Patents
and Licenses
The
competitive environment in which we operate is largely driven by technology, proprietary or otherwise. In general, companies in
this environment seek to develop competitive advantages – both offensive and defensive –through the obtaining and
maintaining of relevant patents relating to their respective technological advancements. As a science and technology based company,
we believe that securing intellectual property is an important part of protecting our research, and that, in particular, patent,
as well as related trade secret – protection, is critical for the new specialty coatings technologies we develop, as well
as any products and processes derived through them.
By
way of assignment, we currently hold a United States patent relating to our smart surface specialty coatings technology:
Title
|
|
Awarded
|
|
Pending
|
|
|
Expiration
|
|
Method
of Treating Surfaces For Self-Sterilization and Microbial Growth Resistance
|
|
X
|
|
|
|
|
2025
|
|
Over
time, we intend to apply for additional patents relating to advancements we achieve through our research and development initiatives.
There can be no assurance however, that any of the patents currently held, or any obtained in the future, will prove adequate
to protect its technologies or that it will have sufficient financial and resources to keep others from infringing the exclusive
rights it possesses in relation to its technologies. The fields in which we operate have been characterized by significant efforts
by competitors to establish dominant or blocking patent rights to gain a competitive advantage, and by considerable differences
of opinion as to the value and legal legitimacy of competitors’ purported patent rights and the technologies they actually
utilize in their businesses.
Because
we may license our technology and products in foreign markets, we may also seek foreign patent protection for some specific patents.
With respect to foreign patents, the patent laws of other countries may differ significantly from those of the United States as
to the patentability of our products or technology.
It
is possible that competitors in both the United States and foreign countries, many of which have substantially greater resources
and have made substantial investments in competing technologies, may have applied for, or may in the future apply for and obtain,
patents, which will have an adverse impact on our ability to make and sell our products. There can also be no assurance that competitors
will not infringe on our patents or will not claim that we are infringing on their patents. Defense and prosecution of patent
infringement suits, even if successful, are both costly and time consuming. An adverse outcome in the defense of a patent infringement
suit could subject us to significant liabilities to third parties, require disputed rights to be licensed from third parties or
potentially even require us to cease our operations.
Certain
aspects of our know-how and technology are not patentable, or, for strategic reasons, are best protected in the determination
of management by leaving them unpatented. In this regard, trade secrets play an important part in our intellectual property strategy,
and we vigilantly seek to protect them. To protect our proprietary position in trade secrets, we require all employees, consultants,
advisors and collaborators with access to our technology to enter into confidentiality and invention ownership agreements with
us. There can be no assurance, however, that these agreements will provide meaningful protection for our trade secrets, know-how
or other proprietary information in the event of any unauthorized use or disclosure. Further, in the absence of patent protection,
competitors who independently develop substantially equivalent technology, or otherwise acquire it, may adversely impact our business.
If and when we discover that any trade secrets have been misappropriated, it is expected that we will, unless we otherwise determine
for strategic or similar reasons, report the matter to governmental authorities for investigation and potential criminal action,
as appropriate. In addition, and to the extent that we have the available financial resources, we intend to take all reasonably
required measures in an effort to mitigate any potential adverse economic impact
,
which may include civil actions
seeking redress, restitution and/or damages based on losses sustained by us and/or unjust enrichment by a counter-party.
We
are currently in the process of evaluating our options in connection with the registering of trademarks for our specialty coatings
business, and this process is expected to be ongoing. Unlike patent rights, ownership rights in trademarks do not expire if the
trademarks are continued in use and properly protected.
NON-CORE
LEGACY BUSINESSES
Digital
Flooring System
Another
business we own involves a proprietary surfacing process – for which a U.S. patent is currently pending – to treat
and cover existing floors, walls, counter-tops and table-tops, that offers property owners and occupants of all types a cost-effective
means of enjoying a virtually limitless array of very lightweight, aesthetically desirable and high-demand decorative options,
coupled with a variety of meaningfully beneficial surface-layer properties, without the necessity for having to remove and dispose
of the floors, walls, counter-tops and table-tops already in place, and which process affords a uniquely attractive solution to
those property owners and occupants otherwise facing the very costly, time-consuming and administratively burdensome challenges
of having to remove and dispose of existing legacy-laden, chemically contaminated and/or vinyl asbestos tile (so-called “VAT”).
Our
specialty surfacing operation produces, markets, and installs, directly and through third-party contractors, a proprietary system
to treat and cover existing floors, walls, counter-tops and table-tops, providing property owners and occupants of all types with
a cost-effective solution that affords a virtually limitless array of very lightweight, aesthetically desirable and high-demand
decorative choices, coupled with a variety of meaningfully beneficial surface-layer properties. Through a combination of advancements
in applied chemical engineering, enhanced digital imaging and printing technologies, as well as our own specialty coatings, the
system, marketed under the brand name EcoSmart Digital Flooring™, is able to generate a safe, rugged, durable, maintenance-friendly,
and monolithic flooring alternative containing the sharp, color-rich visual imagery of virtually any desired pattern, design,
photo, graphic, logo, or inlaid artwork, on the one hand, or, alternatively, carrying the textured, virtually indistinguishable
appearance of natural, solid materials traditionally associated with both classic and contemporary flooring applications, such
as hardwood, marbles, and granites, but at a fraction of the weight, on the other.
Developed
over recent years in cooperation with Bayer Material Sciences, one of the largest resin suppliers worldwide, our EcoSmart Digital
Flooring centers around a unique compound – for which a U.S. patent is currently pending – which chemically activates
any unclean surface (including a floor), allowing a clear resin/polymer base floor-coating to be integrally – chemically
– bonded to it. The process further encompasses the integral high-definition digital printing component, effected vis-a-vis
a porous media embedded in the clear resin base floor-coating, as well as a surface preparatory agent and a topcoat drawn from
products belonging to EcoSmart’s family of specialty coating formulations, all of which combine to deliver not only a visually
appealing, premium quality end-product reasonably expected to meet and exceed the most demanding commercial grade standards for
any indoor and/or outdoor application, but one that also features enhanced protection, stability, durability and slip-resistance.
Taken
as a whole, and depending in each case on the particular starting surface involved, on the one hand, and desired end-product,
on the other, the system involves either a two, three, or five step procedure, with each step corresponding to an additional layer/coating
of a particular proprietary EcoSmart formulation:
Two-Step Procedure:
|
|
(1) ECT 110 – Surface Preparatory
Agent
|
|
|
(2) ECT 210 – Encapsulating Base Coat
|
|
|
|
Three-Step Procedure:
|
|
(1) ECT 110 – Surface Preparatory Agent
|
|
|
(2) ECT 210 – Encapsulating Base Coat
|
|
|
(3) ECT 310 – Color Polyaspartic Top Coat
|
|
|
|
Five-Step Procedure:
|
|
(1) ECT 110 – Surface Preparatory Agent
|
|
|
(2) ECT 210 – Encapsulating Base Coat
|
|
|
(3) ECT Surfaces Digital Design/Image
|
|
|
(4) ECT 310 – Color Polyaspartic Mid Coat
|
|
|
(5) ECT 1170 – Top Coat
|
A
notably unique aspect of our EcoSmart Digital Flooring system is that, because of the end-result both enabled and facilitated
by the underlying chemical technology, the necessity for having to remove and dispose of existing flooring and baseboards, or
wall tiling, and, in many cases, to purchase replacement flooring or surfacing, is entirely eliminated. This feature is attributable
to the fundamental nature of the final product made possible by the system, which, as applied, resides directly
over
an
existing floor – be it wood, wood laminate, engineered wood flooring, ceramic tile, concrete slabs, and including formerly
carpeted areas – with as little as 1/16
th
of an inch in additional, even surface thickness, devoid of irregularities.
The resultant negation of any need for demolition and clean-up afforded by the system, and the avoidance this leads to in associated
dust-up and diminution in air-quality that would otherwise follow, is not insignificant, particularly when occurring in homes
or small business; it is not uncommon for such clean-up to otherwise have to include the air-handling system, and for the subject
premises to have to be vacated in the meantime. A complete install utilizing the EcoSmart Digital Flooring system, by contrast,
requires only minor preparation and typically takes – for a residential floor, for example – approximately two days,
during which occupants can remain on the premises because there is neither dust nor other particulates, nor anything more than
a minor odor, released into the immediately surrounding environment.
While
an attractive option both aesthetically and economically for most any application, EcoSmart Digital Flooring presents us with
one of our most compelling, immediate-term to long-term market opportunities because it has proven particularly well-suited for
those faced – increasingly through federal and state level regulatory mandates coupled with substantial monetary fines for
non-compliance – with the unique and daunting challenges of having to work with legacy-laden, chemically contaminated (with,
for example, asbestos, fossil fuel residues, or other potentially hazardous substances), and/or, most notably, vinyl asbestos
tile (so-called “VAT”), floors and walls. This is because of the heightened importance in such situations of having
to undertake the intensely regulated, administratively burdensome, highly dangerous, and very costly processes of specialized
demolition, removal, and disposal of the contaminated substrates, which are inherently hazardous to human health in most cases,
and often lethally carcinogenic, and the comparatively low-cost avoidance of all that made possible through use of the EcoSmart
Digital Flooring system rather than abatement or other officially EPA sanctioned forms of remediation. Applying the technology,
old asbestos-based tile, for example, can be chemically bonded and very effectively encapsulated for all purposes – including
those arising under applicable EPA guidelines – without the need for any of the machine abrasion and otherwise highly-intensive
cleaning processes traditionally associated with the handling of friable, asbestos-fibre-laden materials, and without the need
for specialized and expensive hazmat materials treatment and disposal. Consisting of a highly durable coating with resultant flexibility
properties such that it can tolerate elongation of up to approximately 100% once installed, the containment provided by this encapsulation
is not jeopardized by potential cracking and future instability in the composition of the asbestos materials, thereby effectively
eliminating the risk of future liberation and exposure of the hazardous substances.
Although
there can be no assurance as to which markets will be targeted by us over time, or in what order they may be targeted, the potential
markets for the EcoSmart Digital Flooring system include owners or operators of essentially all types of premises:
|
●
|
residential
properties, including all single and multi-family homes, apartments, condominiums, cooperatives
|
|
●
|
commercial
properties, including retail spaces, office complexes and buildings, restaurants, and gas stations
|
|
●
|
hospitals,
medical centers and research laboratories
|
|
●
|
private
and public schools and universities
|
|
●
|
churches,
synagogues, temples and other places of worship
|
|
●
|
federal,
state and local government occupied buildings and properties
|
|
●
|
factories,
storage facilities, and related industrial buildings and complexes
|
To
date, our EcoSmart Digital Flooring system has been used with favorable results, through installations conducted by us in more
than twelve U.S. Veteran’s Administration (VA) facilities, six Wal-Mart stores, and four Bed, Bath and Beyond retail outlets,
and through installations conducted by approved distributor-contractors, an additional 150 Bed, Bath and Beyond outlets. In each
of these cases, the installations principally involved restrooms, kitchens and other tiled areas.
FormTool
FormTool,
which we acquired in February 2008, is a business focused upon the production, marketing and distribution of a line of consumer
software products that offer quality, professionally designed forms for business, accounting, construction, sales, real estate,
human resources and personal organization needs.
Revenues
for our FormTool line for the year ended December 31, 2015 were $11,720.
EMPLOYEES
As
of April 14, 2016, we had seven full-time and one part-time employees/contractors. One full-time employee/contractor is part of
the senior-level executive team, two full-time employees/contractors and one part-time employee/contractor are part of the product
research and development and business development team, two full-time employees/contractors are part of the marketing, customer
service and sales team, one full-time employee/contractor is part of the manufacturing team, and one full-time employee/contractor
is part of the financial management and administration team.
We
rely heavily on our current officers and directors in operating the business. We are not subject to any collective bargaining
agreements and believe that our relationships with our employees/contractors are good.
ITEM
1A. RISK FACTORS.
Several
of the matters discussed in this annual report on Form 10-K for the fiscal year ended December 31, 2015 contain forward-looking
statements that involve risks and uncertainties. Factors associated with the forward-looking statements that could cause actual
results to differ from those projected or forecast are included in the statements below. In addition to other information contained
in this annual report, readers should carefully consider the following cautionary statements and risk factors.
An
investment in the Company is highly speculative and involves an extremely high degree of risk.
GENERAL
BUSINESS RISKS
If
we are required to repay our outstanding debt as and when required, we may not be able to without either depleting our working
capital or raising additional funds, and any failure on our part to repay such debt could result in legal action against us, which
could require the sale of material assets, including our smart surface patent.
As
of the date of this annual report on Form 10-K, and in addition to $307,009 in trade and related accounts payables, we owe an
aggregate of $1,075,283 in principal face amount of notes payable and notes payable, related party. In accordance with the respective
terms of these notes, $300,000 is required to be serviced with quarterly interest payments (calculated on the basis of a 10% annual
percentage rate), and then the principal to be repaid in full by August 1, 2015, $377,500 is payable by us upon demand by the
creditors and another $239,000 carries no stated interest rate and has no stated maturity date. In the event that we are required
to repay any of these notes and/or other payables in the near-term, in whole or substantial part, the funds available to us for
this purpose would have to come from either working capital or funds on hand in excess of working capital at that time. No assurance
can be provided, however, that any such required funds would be available to us for this purpose. If funds are not available to
us for this purpose, we would likely need to undertake a financing transaction of some kind. No assurance can be provided, however,
that we would be able to complete any such financing between the date hereof and the maturity date of the principal debt we owe,
or that, if we are able, that it would be on the basis of terms that are not unfavorable to us. Among other reasons, this is true
because investors in early-stage technology companies such as ours generally look disfavorably on the allocation of funds invested
by them towards the repayment of debt to third parties as opposed to growing the business. In the event that we are required to
repay the principal, in whole or in part, and we have insufficient funds to meet and satisfy the obligation, legal action is likely
to be taken against us, which could lead to our having to sell some or all of our material assets, including intellectual property.
We
are operating at a substantial working capital deficit and our liquidity and capital resources are very limited.
For
the year ended December 31, 2015, we generated only $169,756 in total revenue while incurring $1,280,956 in combined sales, marketing,
general and administrative expenses. This represents a substantial working capital deficit that is severely constraining our ability
to operate, both near-term and long-term and our ability to meet our obligations as they become due. Our ability to fund working
capital, as well as anticipated capital expenditures, will depend on our ability to raise much-needed capital and our future performance,
which is subject to general economic conditions, our customers, actions of our competitors and other factors that are beyond our
control. Our ability to fund operating activities is also dependent upon (i) the extent and availability of bank and other credit
facilities, (ii) our ability to access external sources of financing, and (iii) our ability to effectively manage our expenses
in relation to revenues. Although we believe that our existing working capital, together with cash flow from operations, will
be adequate to meet our minimum anticipated liquidity requirements over the next twelve months, given our initiative toward rapid
revenue growth and due to our need to service certain long-term liabilities, it is likely to become necessary for us to raise
additional capital to support growth and/or otherwise finance potential acquisitions. Furthermore, there can be no assurance that
our operations or access to external sources of financing will continue to provide resources sufficient to satisfy our liabilities
arising in the ordinary course of business, and while it may be possible to obtain or borrow funds as required, any such additional
capital is likely to require that we sell and issue additional equity and/or convertible securities, including shares issuable
upon exercise of currently outstanding warrants, any of which issuances would have a dilutive effect on holdings of existing shareholders.
See “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital
Resources”.
There
is uncertainty as to our ability to continue as a going concern.
Our
audited financial statements for the period ending December 31, 2015, including the footnotes thereto, call into question our
ability to continue as a going concern. This conclusion was drawn from the fact that, as of the date of those financial statements,
we had a negative current ratio and total liabilities in excess of total assets. Those factors, as well as questions surrounding
our ability to secure additional financing for continued operations, have resulted in uncertainty regarding our ability to continue
as a going concern. See Note 2 in the Notes to the Consolidated Financial Statements for the year ended December 31, 2015.
We
owe an aggregate amount of $58,218 to various third parties which, under state escheat laws, could subject us to substantial additional
liabilities for penalties and interest.
We
are carrying certain liabilities on our balance sheet in the aggregate amount of $53,890 for trade payables and royalties payable
in connection with services and content licenses associated with certain of our titles extending back up to thirteen years but
in relation to which we have been unable to locate the parties to whom we owe such trade payables and royalties and no effort
to collect such obligations by such parties or any successors-in-interest have been made. We are additionally carrying certain
liabilities on our balance sheet in the aggregate amount of $4,328 for amounts payable to customers for product return refunds
extending back up to seven years many of whom we expect, without actually knowing at this point one way or the other, to similarly
be unable to locate and in connection with which no effort to date to collect such obligations has been made. Under the escheat
laws of the various states in which these creditors were last known to have an address based on our records, we are or may be
required to pay to such states the aggregate amounts owed for these obligations – in both categories – even though
we cannot locate the actual parties to whom they are owed. Moreover, we are likely to be additionally liable for substantial penalties,
both individually and in the aggregate, for not having previously reported such obligations and paid such amounts to such various
states, which reporting obligations and associated penalties for non-compliance vary significantly among states, as well as interest
for amounts deemed past due. It is likely that these additional liabilities, neither the individual nor collective extent of which
are known at this time and as such have not been accrued, will be material in the aggregate and have a material adverse effect
on our financial condition and our results of operations, including our liquidity.
We
will require substantial additional funding, and our failure to raise additional capital necessary to support and expand our operations
could reduce our ability to compete and adversely affect our business.
At
April 14, 2016 we had $46,566 in cash and cash equivalents. We currently need to raise substantial additional capital during fiscal
year 2016 and beyond, through equity, debt or hybrid (combination) financing, for the following:
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Developing
and securing our intellectual property and associated rights;
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insuring
the integrity of, and/or continuing to develop, our technologies, products, and related systems;
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commercially
exploiting our technologies, products, and related systems;
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aggressively
preparing, filing, prosecuting, maintaining and enforcing potential patent and/or other intellectual property claims;
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establishing
manufacturing capabilities for commercial quantities of our products;
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fully
developing and exploiting sales, marketing, and distribution channels for our products ;
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maintaining
and meeting our general and administrative expenses at required levels, including the hiring and training of personnel, and
the securing of outside technical and other consultants;
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developing
and expanding our operations and business infrastructure;
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responding
to competitive pressures;
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making
strategic acquisitions of complementary technologies and/or product lines; or
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meeting
unanticipated capital requirements.
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We
cannot provide any assurance that any such financing, be it through strategic collaborations, public or private equity financings
or other financing sources, will be available to us as and when required, either on acceptable terms or at all. To the extent
that financing is only available through the sale of equity or convertible securities, or that a determination is made by management
that the sale of equity or convertible securities is otherwise in the best interests of the Company, any such financing could
and likely would result in significant dilution to our existing stockholders. Further, if additional funds are obtained through
arrangements with collaborative partners, these arrangements may require us to relinquish rights to some of our technologies,
product candidates or products that we would otherwise seek to develop and commercialize on our own. If sufficient capital is
not available, we may be required to delay, reduce the scope of, or eliminate one or more of our development programs or product
lines, or be unable to adequately protect our intellectual property or other competitive advantages, any of which could have a
material adverse effect on our financial condition or business prospects.
Our
accumulated deficit makes it harder for us to borrow funds.
As
of December 31, 2015, and as a result of historical losses both during the year ended December 31, 2015 and prior years, our accumulated
deficit was $5,452,474. The fact that we maintain an accumulated deficit, as well as the extent of our accumulated deficit relative
to recent earnings, negatively affects our ability to borrow funds because lenders – and particularly commercial and other
market rate lenders – generally view an accumulated deficit as a negative factor in evaluating creditworthiness, and ours
is roughly 15 times our total 2015 revenues. Any inability on our part to borrow funds if and when required, or any reduction
in the favorability of the terms upon which we are able to borrow funds if and when required, including amount, applicable interest
rate and collateralization, would likely have a material adverse effect on our business, our financial condition, including liquidity
and profitability, and our results of operations. See “Management’s Discussion and Analysis of Financial Condition
and Results of Operations - Liquidity and Capital Resources”.
RISKS
ASSOCIATED WITH OUR BUSINESS AND INDUSTRY
Our
business segment is early-stage and highly speculative.
Our
coatings operations and revenues have been slow to develop and, taken as a whole, insubstantial to date. In this respect, we remain
an early-stage enterprise expecting to devote substantially all of our resources to strategically protecting our intellectual
property and other competitive advantages, commercializing our coatings technologies, products, and related systems, and continuing
to more fully develop our operations. Because of our limited coatings operations to date, our business must be viewed as one characterized
by largely unproven, new-to-the-market technologies and related systems, and subject to some or all of the attendant risks and
uncertainties associated with early-stage technology companies more generally, including without limitation:
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failures
in technologies and systems performance and reliability;
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unanticipated
costs in getting technologies and systems commercialized;
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high
costs of ongoing research and development;
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technologies
and systems obsolescence;
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business
model non-feasibility;
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inability
to manufacture or obtain from third party manufacturers sufficient quantities of product at an acceptable quality level and
at an acceptable cost to meet market demand
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inability
to establish potential markets;
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unanticipated
costs in establishing potential markets;
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inability
to adequately protect intellectual property;
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potential
infringement on the intellectual property rights of others;
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intense
market competition from other technologies and systems;
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competition
for employee talent; and
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inability
to manage rapid growth.
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We
may not be able to protect our proprietary technology, which could harm our ability to become profitable.
We
believe that our intellectual property with respect to our specialty smart surface coatings is critical to our gross margins,
viability, and eventual profitability and success. Although we possess certain patent pending rights relating to our EcoSmart
coatings products, our intellectual property is principally embodied in what effectively constitutes a portfolio of trade secrets.
We have made a deliberate determination to rely principally on trade secrets and related know-how in this regard based on our
reasoned conclusion that they are best protected by leaving them unpatented and that, strategically and tactically, this offers
the greatest protection against misappropriation of our technology or other loss of competitive advantage. Certain aspects of
our know-how and technology, moreover, are not patentable. On the whole of it, trade secrets thus play an important part in our
intellectual property strategy, and we vigilantly seek to protect them. In the final analysis, our competitive advantage is, both
individually and collectively, the extensive array of chemical formulations that we have developed, tested, and identified as
effective for the wide variety of industrial, commercial and consumer applications that our products serve. Because of our reliance
on trade secret formulations, we go to extraordinary lengths to insure that any of our employees who become privy to any one or
more of such formulations are bound by legally enforceable written agreements containing provisions regarding the required confidentiality
and secrecy of any knowledge they acquire in the course of their employ. While measures such as these are being taken by us at
all times to preserve and protect our trade secrets and know-how, and to guard against any potential loss or diminution in competitive
advantage, and we take deliberate steps to limit the formula-related knowledge imparted to any given individual to less than the
entirety of any given formula, there can be no assurance that these measures will prove effective in guarding against any breach
of our secrecy containment and/or loss of competitive advantage.
Patent
protection is also important for the protection of our unique technologies, as well as the products and processes derived from
them. The space in which we operate has long been characterized by significant efforts by competitors to establish dominant or
blocking patent rights to gain a competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy
of competitors’ purported patent rights and the technologies they actually utilize in their businesses. Our success will
depend to a substantial degree on our ability to obtain and enforce patent protection for our products, and operate without infringing
the patent rights of others. We cannot assure you that:
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we
will succeed in obtaining any patents in a timely manner or at all, or that the breadth or degree of protection of any such
patents will protect our interests;
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the
use of our technology will not infringe on the proprietary rights of others;
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patent
applications relating to our potential products or technologies will result in the issuance of any patents or that, if issued,
such patents will afford adequate protection to us or not be challenged, invalidated or infringed;
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patents
will not issue to other parties, which may be infringed by our potential products or technologies; or
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we
will continue to have the financial resources necessary to prosecute our existing patent applications, pay maintenance fees
on patents and patent applications, or file patent applications on new inventions.
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The
market for industrial coatings and floor and wall surfacing products is highly competitive.
Product
performance, technology, cost-effectiveness, quality and technical and customer service are major competitive factors in the industrial
coatings business. We are unaware of any one or more products possessing the same combination of physical properties, and that,
on the whole, offers the same array of benefits, as our proprietary line of specialty smart surface coatings. There can be no
assurance, however, that there not products under development by others, or already in existence and in the early stages of market
introduction, of which our management is not yet aware. The market for industrial and product performance coatings is extremely
large, broad in scope, and consists of many different segments and sub-segments, each of which involves a range of product applications.
It is also increasingly characterized by rapidly evolving technology. Precisely because of the wide array of beneficial properties
they possess, and notwithstanding the U.S. patent held by us on our platform smart surface technology, the specialty coatings
produced and distributed by EcoSmart should be viewed as competing with other coatings products across a wide variety of the various
existing market segments and sub-segments. Hydrophobic and antimicrobial coatings, for example, are each segments in which numerous
companies are aggressively competing with one another worldwide, both in terms of technology and market share, but that, combined,
represent only a minor portion of the aggregate competition that we should be viewed as meaningfully confronting in relation to
our EcoSmart business.
The
competition faced by us in relation to its proprietary line of specialty smart surface coatings includes both public and private
organizations and collaborations among academic institutions and large companies, both domestic and foreign, most of which have
significantly greater experience and financial resources than us. Management expects that our most significant competitors in
its specialty coatings business will tend to be larger, more established companies, including many major multinational corporations
such as Akzo Nobel N.V., PPG Industries, Inc., Axalta Coating Systems, and Valspar Corporation. In general, these companies are
all developing products that, at some level or in one or more ways, compete with those of EcoSmart and, in addition to many existing
issued and pending patents, they have significantly greater capital and other resources available to them for research and development,
testing, seeking and obtaining any required regulatory approvals, marketing and distribution. In addition, many smaller coatings
and related nanotechnology and materials companies have formed strategic alliances or collaborative arrangements, partnerships,
and other types of joint ventures with larger, well-established industry competitors that afford these companies’ potential
research and development and commercialization advantages, and may be aided in becoming significant competitors through rapid
evolution of new technologies. Academic institutions, governmental agencies, and other public and private dedicated research organizations
are also financing and conducting research and development activities that could result in the introduction of products directly
competitive to those of ours.
Our
management is unaware of any one or more products possessing the same combination of physical properties, and that, on the whole,
offers the same array of benefits, as the EcoSmart Digital Flooring system. There can be no assurance, however, that there not
products under development by others, or already in existence and in the early stages of market introduction, of which management
is not yet aware. The market for comparable floor, wall, tabletop and countertop surfacing products and systems is extremely large,
broad in scope, and consists of many different participants. It is also increasingly characterized by rapidly evolving technology.
Notwithstanding the unique attributes of the EcoSmart Digital Flooring system, or the U.S. patent-pending on it, it should be
viewed as competing with all other products in the market vying for differentiation and customers.
The
competition faced by us in relation to the EcoSmart Digital Flooring system includes both public and private organizations and
collaborations among academic institutions and large companies, both domestic and foreign, most of which have significantly greater
experience and financial resources than EcoSmart. Management expects that our most significant competitors in its specialty surfacing
business will tend to be larger, more established companies, including many major multinational corporations such as Akzo Nobel
N.V., PPG Industries, Inc., Axalta Coating Systems, BASF Corporation, Valspar Corporation, DuPont, and Sherwin-Williams. In general,
these companies are all developing products that, at some level or in one or more ways, compete with those of EcoSmart and, in
addition to many existing issued and pending patents, they have significantly greater capital and other resources available to
them for research and development, testing, seeking and obtaining any required regulatory approvals, marketing and distribution.
In addition, many smaller surfacing product/system companies have formed strategic alliances or collaborative arrangements, partnerships,
and other types of joint ventures with larger, well-established industry competitors that afford these companies’ potential
research and development and commercialization advantages, and may be aided in becoming significant competitors through rapid
evolution of new technologies. Academic institutions, governmental agencies, and other public and private dedicated research organizations
are also financing and conducting research and development activities that could result in the introduction of products and systems
directly competitive to those of ours.
Our
primary business segment is based on a technology with very limited testing, minimal independent verification, and no prior commercial
history.
Although
certain limited testing results conducted by independent laboratories and prospective customers in relation to some of the potential
applications for our specialty smart surface coatings technology have provided positive indications of its reliably yielding performance
results consistent with internal management expectations, to date, such technologies have not been extensively tested or independently
evaluated and assessed in a comprehensive way, and have only very recently developed any prior commercial history. Although we
have no reason to suspect that the technologies will not ultimately meet reliability, efficiency, or other performance targets,
and that their efficacy will exceed minimally acceptable qualitative standards given benchmark economic objectives, there can
be no assurance of this result. If our specialty smart surface coatings technology fails to consistently perform at levels that
enable cost-effective solutions for customers, or fails to do so without undesirable environmental consequences, or we are unable
to effectively manage the implementation of the technology despite its otherwise satisfactory performance capabilities, it would
likely have a material adverse effect on our financial condition and prospects.
Our
primary business segment products may not be accepted in the marketplace
.
The
degree of market acceptance of our products will depend on many factors. We cannot predict or guarantee that targeted markets
or customers will accept or utilize any of our products. Failure to achieve market acceptance would limit our ability to generate
revenue and would have a material adverse effect on our business. In addition, if any of our products achieve market acceptance,
we may not be able to maintain that market acceptance over time if competing products or technologies are introduced that are
received more favorably or are more cost-effective.
New
products markets take time to develop and many of the applications markets for our smart surface specialty coatings should be
viewed as separate, new market opportunities.
Commercialization
of new technology products often has a very long lead-time and a multiplicity of risks. The confluence of materials engineering
and nanotechnology is in its very early stages and acceptance and demand for products in this developing area can often be a long,
evolutionary process. In general, new products markets – even those surrounding innovative, revolutionary, and so-called
‘break-through’ or ‘game-changing’ technologies – develop gradually over time; despite advancements
offering meaningful benefits, they tend to be resistant to change and slow to adapt, evolve, and keep pace with the rate of those
advancements. Many of the applications markets potentially served by our smart surface specialty coatings are new – either
brand new or recently emerging – and should thus be viewed as likely to take significant time to develop. Moreover, each
should be viewed individually, separate and distinct from all others in terms of development life. If one or more of these applications
markets takes longer to develop than we expect, it will likely have an adverse effect on the pace with which we are able to grow
revenues, as well as on our prospects more generally, and it may be reflected in a downward adjustment at some point in our publicly
quoted stock price.
We
may make strategic determinations to allocate capital towards the pursuit of particular applications markets that turn out to
be less receptive to our products, or more difficult to penetrate, than expected.
We
perceive our smart surface technology as having a wide array of potential product applications, spanning across numerous industrial,
consumer, and household segments. As we grow our business, we will thus be faced with the challenges – as we are currently
– of having to select certain of these potential product applications markets over others for purposes of focusing our available
human and financial resources because those resources are necessarily limited and would be less apt to bring about meaningfully
positive results if allocated across too many separate market initiatives concurrently. The considerations involved in making
these determinations are complex and involve many factors, including the following:
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the
relative size, age and projected growth trend of the subject market,
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experience,
observational/anecdotal intelligence, and lab and field testing results previously obtained in relation to the application;
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the
relative strength of the value proposition to prospective customers;
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the
comparative time-to-market;
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the
comparative cost-to-market coupled with existing industry relationships and available resources;
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the
relative geographic accessibility of the market;
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the
seasonality of the market, if any;
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the
relative barriers-to-entry within the market;
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the
relative, projected length of the particular sales cycle;
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the
projected gross profit margins;
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both
the presence within the subject market, together with the relative quality, of competitive products; and
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the
relative size and strength of the individual competitors.
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While
management will exercise its best judgment in making these determinations, there can be no assurance that the determinations it
makes in this regard will turn out to have been the most productive or otherwise best ones for the Company all things considered.
Some of the potential applications markets will inevitably be more receptive to our products than others due to the inherent vagaries
of product markets generally, and it may turn out that strategic determinations we make along the way to forego the pursuit of
certain applications markets in the immediate- and near-term in favor of pursuing others that our management expects to be comparatively
more promising or susceptible to penetration by us in that timeframe are proven incorrect. If this should occur, it would be an
indication that, despite our intentions and prudence in assessing future demand, we had not allocated our capital as effectively
as we might otherwise had done, and this could have a material adverse effect on our returns on capital and/or be reflected in
a downward adjustment in our publicly quoted stock price.
For
strategic reasons, we may pursue more applications markets for our smart surface specialty coatings products in the near-term
and concurrently than we can most effectively penetrate given our available resources.
As
noted in the risk factor immediately above, given the notably wide array of industrial and consumer products that we perceive
our smart surface specialty coatings technology as potentially benefitting, we are faced with important decisions as to which
of these applications markets to pursue in each of the immediate-, near- and long-term. As also noted in the risk factor immediately
above, the considerations involved in making these determinations are complex and involve many factors. While management seeks
to exercise sound judgment in making these determinations, there can be no assurance that, in hindsight, the determinations it
makes in this regard will turn out to have been the most productive or otherwise best ones for the Company. For purposes of achieving
a degree of so-called ‘first-mover advantage,’ for example, we may pursue some markets in the immediate- or near-term
that we might otherwise wait to pursue until sometime in the future when we are better equipped to do so effectively. Further,
some applications markets may be targeted by management to be pursued in the immediate- or near-term because of their perceived
likelihood, whether accurate or inaccurate, to generate revenues sooner than others, even though such others are expected to be
larger in the aggregate and/or to offer higher gross margin opportunities. If the strategic determinations that management makes
in this regard prove after the fact not to have been the most productive or otherwise best ones for the Company, it will have
an adverse effect on our ability to grow revenues relative to the forecasts and expectations developed in the meantime by some,
as well as on our prospects more generally, and it may be reflected in a downward adjustment at some point in our stock price.
Our
smart surface technology may turn out to be less effective for one or more applications than we expect.
Our
current view of the potential applications markets for our smart surface specialty coatings is intentionally broad and far-reaching,
spanning numerous potential industrial, consumer, and household segments in relation to which we believe our technology may provide
a range of meaningful benefits. To date, however, and with only limited exception, we have not commissioned or otherwise undertaken
or obtained any comprehensive market study in respect of any one or more of these applications markets. Whether before or after
we undertake any such market study, it may turn out to be the case that our coatings are not as effective for any one or more
of these applications as we have preliminarily concluded and pursued accordingly, and that we may make a subsequent determination
at some point to abandon any continued pursuit of the corresponding markets for this reason. If this should occur, it will have
an adverse effect on our ability to grow revenues relative to the forecasts and expectations developed in the meantime by some,
as well as on our prospects more generally, and it may be reflected in a downward adjustment at some point in our stock price.
It
is conceivable that the coatings products of others – including those having fewer attributes than ours that could reasonably
be expected to make them attractive to manufacturers and customers – will be adopted more broadly than ours within one or
more applications markets.
Most
of the applications markets potentially served by our smart surface specialty coatings are perceived by our management to present
substantial, attractive economic opportunities for us because of the unique array of benefits the coatings are expected to be
able to provide. With many different companies in the industrial coatings market all vying for market share, ranging from small
and specialized, on the one hand, to large and diversified, on the other, and each selling products with coatings that offer many
of the same benefits as ours, however, there can be no assurance that the coatings products marketed by others will not become
the preferred choice among manufacturers of end products and/or customers over time with respect to any one or more individual
applications markets category. For many different reasons the particular combination of which is not consistent in each case,
category leaders are not always necessarily the most effective products in a given market segment. Well-established brand recognition,
industry ‘marketing muscle,’ and credibility, for example, and especially when coupled with relative financial strength,
can often be more important than technological superiority in a head-to-head market competition. If it turns out that one or more
other companies are able to achieve a dominant market position in any one or more applications markets potentially served by our
EcoSmart smart surface specialty coatings, and whether on the basis of broad market strength or otherwise, it will have an adverse
effect on our ability to grow revenues, as well as on our prospects more generally, and it may be reflected in a downward adjustment
at some point in our publicly quoted stock price.
Either
individually or collectively, and without infringing on our smart surface patent or other proprietary rights, one or more technologies
owned by others may be able to effect the same or similar results as our own.
We
believe that our smart surface proprietary technology affords us a competitive advantage in a wide variety of product applications
markets that we are either currently pursuing or intend to fully evaluate as potential targets in the future. There can be no
assurance, however, that other technologies, whether existing or developed in the future, and whether individually or combined
with others, will not be able to effect the same or similar results as our own, thereby potentially neutralizing whatever unique
market advantage we had theretofore believed we possessed. This could potentially occur, moreover, without any infringement on
the part of others as it relates to our smart surface technology patent or our other, related proprietary intellectual property
rights. It is not at all uncommon for meaningfully different technologies – each protectable in their own right –
to produce the same or a very similar result, albeit through an alternate means. If any such other technologies are determined
to exist, or are developed in the future, that effect the same or a similar result as our own, and particularly if they can do
so at a reduced cost, it would likely have a material adverse effect on our financial condition, results of operation, and prospects.
Our
smart surface coatings technology is, or will become, a component within end-products marketed and sold by others for the most
part, and the success of our coatings products is, accordingly, dependent on the success of such end-products.
The
need for effective solutions-based coatings such as those featuring our smart surface technology will depend upon industrial and
commercial needs going forward and the related demand for such products as components. The success of our smart surface specialty
coatings products will thus depend largely upon the continuing need for the end-user products into which they become incorporated,
and the market demand this engenders. If a significant percentage of the products into which our smart surface specialty coatings
products are incorporated are not embraced by end-users, it would likely have a material adverse effect on our financial condition,
results of operation, and prospects.
We
depend on strategic relationships with commercial and industrial collaborators to help us develop and test our products, and our
ability to develop and commercialize products may be impaired or delayed if collaborations are unsuccessful.
Our
strategy for the development, testing and commercialization of our proposed products requires that we enter into collaborations
with actual and potential corporate partners, licensors, licensees and others. Wherever possible, and in order to benefit from
their resources and abilities, we are seeking collaborators in this regard with established lines of business and greater financial
resources than our own. We are dependent upon the subsequent success of these other parties in performing their respective responsibilities
as well as the continued cooperation and interest. Under agreements with collaborators, we may rely significantly on such collaborators
to, among other things, (i) fund research, development and testing activities either with or for us, and (ii) market with us any
commercial products that result from our collaborations. Our collaborators, however, may not cooperate with us or perform their
obligations under our agreements with them. Moreover, we cannot control the amount and timing of our collaborators’ resources
that will be devoted to our research, development and testing activities related to our collaborative agreements with them. Such
collaborators may not place the same degree of relative importance that we do on product lines that rely on our products to meet
benchmark performance standards because the success or failure of such product lines is not as material to their business, taken
as a whole, as it is to ours. If our collaborators fail to cooperate with us as desired, devote the requisite resources to our
joint initiatives, or meet their obligations under agreements we establish, or if they choose for any reason to pursue existing
or alternative technologies in preference to those being developed in collaboration with us, it would likely have a material adverse
effect on our financial condition, results of operations and prospects.
Our
reliance on the activities of our non-employee consultants, research institutions, and scientific contractors, whose activities
are not wholly within our control, may lead to delays in development of our proposed products
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We
rely extensively upon and have relationships with outside consultants and contract research organizations having specialized skills
to conduct research and to help develop and test our EcoSmart products. The consultants and contract research organizations we
engage provide us critical skills and resources that we do not internally possess. These consultants are not our employees and
may have commitments to, or consulting or advisory contracts with, other entities that may limit their availability to us. We
have limited control over the activities of these consultants and, except as otherwise required by our collaboration and consulting
agreements to the extent they exist, can expect only limited amounts of their time to be dedicated to our activities. These research
facilities may have commitments to other commercial and non-commercial entities. We have limited control over the operations of
these collaborators and can expect only limited amounts of time to be dedicated to our research and product development goals.
We
have
limited resources to manage development activities, and because of the numerous risks and uncertainties associated
with our product development and commercialization efforts, we are unable to predict the extent of our future losses or when or
if we will become profitable.
Our
limited resources in conducting and managing development activities might prevent us from successfully developing or exploiting
potential markets for our existing products. If we do not succeed in conducting and managing our development activities, we may
not be able to commercialize our products, or may encounter significant delays in doing so, either of which is likely to materially
harm our business. Our ability to generate revenues from any of our products, moreover, will depend on a number of factors, including
our ability to successfully complete and implement our commercialization strategy. Our failure to successfully commercialize our
products or to become and remain profitable would likely depress the market price of our Common Stock and impair our ability to
raise capital, expand our business, diversify our product offerings and continue our operations.
Our
ability to commercially develop our technologies will be dictated in, large part, by forces outside our control which cannot be
predicted, including, but not limited to, general economic conditions. Other such forces include the success of our research and
field testing, the availability of collaborative partners to finance our work in pursuing applications markets for our smart surface
technologies or other developments in the field which, due to efficiencies or technological breakthroughs may render one or more
areas of commercialization more attractive, obsolete or competitively unattractive. It is possible that one or more areas of commercialization
will not be pursued at all if a collaborative partner or entity willing to fund research and development cannot be located. Our
decisions regarding the ultimate products we pursue could have a significant adverse effect on our ability to earn revenue if
we misinterpret trends, underestimate development costs and/or pursue technologies, products, or applications markets that turn
out to have lesser market appeal and demand than expected. Any of these factors either alone or in concert could materially harm
our ability to earn revenues or could result in a loss of any investment in us.
If
we are unable to keep up with rapid technological changes in our primary business segment field, we will be unable to effectively
compete.
Our
primary business segment is engaged in activities in the organic and inorganic chemistry, materials engineering, and nanotechnology
fields, which are generally characterized by extensive research efforts and rapid technological progress. Materials engineering
and the manipulation of materials of nano sizes and dimensions is a very new science and the creation of new products is dependent
upon new and different properties of such materials created that will result in many uncertain applications and rapid change.
The evolution of nanotechnology as a new science adds greater uncertainty to new applications and new and improved product introductions
is unpredictable. If we fail to anticipate or respond adequately to scientific or technological advancements developments, our
ability to operate profitably could suffer. We cannot assure you that research and discoveries by other companies will not render
our technologies or potential products or services uneconomical or result in products superior to those we develop or that any
technologies, applications, or products we develop will be preferred to any existing or newly-developed technologies, applications,
or products.
Our
EcoSmart business has historically depended on a disproportionate percentage of its revenues being attributable to only a few
customers.
Although
our marketing and sales focus has been evolving rapidly, and aggregate revenues have been insubstantial, during the year ended
December 31, 2014, and the year ended December 31, 2015, and as reflected in the table below, our EcoSmart business generated
a significant portion of its revenues from a select few customers.
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% of Total Revenues
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|
Customer
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2015
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|
|
2014
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|
PCS Phosphate Company Inc.
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|
|
32.85%
|
|
|
|
29.47%
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Superior Surfaces
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|
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12.72%
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|
|
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1.53%
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In
general, any concentration of customer base for a business creates a risk that the continuity of the business is more dependent
on such customer or customers than is desirable and that the loss of that customer or customers for any reason would have a material
adverse effect on the business. Although management believes that the planned direction of our business going forward will result
in an expanded and more diverse customer base over time, and a discontinuance of this trend in reliance on only a few customers,
there can be no assurance that we will be successful in achieving this targeted objective and any failure in this regard would
likely have a material adverse effect on our financial condition and prospects.
The
business model and strategies surrounding our primary business segment may have to change from time to time in the pursuit of
profitability.
Our
primary business segment is in an early stage of development. Despite the fact that our proposed business strategies incorporate
our senior management’s current best analysis of potential markets, opportunities and difficulties that face us, no assurance
can be given that the underlying assumptions upon which these decisions are based will accurately reflect current trends in our
industry or our prospective customers’ reaction to our products and services, or that such products or services will be
embraced, or even accepted, by the market. Our business model and strategies may and likely will change substantially from time
to time as our management reassesses its opportunities from time to time and reallocates Company resources, and any such model
and/or strategies may be changed or abandoned at any point in the process. If we are unable to develop or implement any such model
or strategies through our technologies and related systems, we may never achieve profitability. And even if we do achieve profitability,
we can predict neither its level nor its sustainability.
The
business model to be applied in our primary business segment may be highly capital intensive.
Our
definitive business model for the future as it relates to our primary business, EcoSmart, is currently subject to further research,
development and change. As a result, there can be no assurance as to what the business model of our primary business segment will
ultimately be. While there is a possibility that we will ultimately determine to focus our strategy exclusively on the exploitation
of our technology through a model that contemplates its involvement and risk solely to the extent of its exploitation of licensing
opportunities to third parties, in the meantime, and quite possibly as a long-term plan, we are manufacturing and marketing our
own products to customers both directly and through distribution channels. Some contemplated business models in this regard, including
those that involve any manufacturing and stocking of product, are considerably more capital intensive than others. Accordingly,
there can be no assurance as to the degree of capital intensity of our business model. Although it may be possible to rely to
a significant extent on debt financing over time, substantial debt financing is unlikely to be a realistic option in the near-term
and a high degree of capital intensity could lead to the need to raise additional equity financing, thereby resulting in dilution
to the interests of existing stockholders.
The
patent we hold on our platform coatings smart surface technology expires in approximately 9 years.
We
currently own only a single patent, which is a United States patent and relates to our platform smart surface coating technology.
Once filed, patents in the United States provide exclusive rights for a period of only 20 years, not indefinitely. As a result,
and because the patent was filed in 2005, whatever exclusive rights we have in this flagship proprietary technology, including
all associated licensing rights, will only benefit us, at most, for another approximately 9 years. Once it comes off patent, the
resulting loss of our exclusive rights could have a material adverse effect on our gross profit margins and/or our ability to
generate or sustain revenues.
Efforts
to patent critical technologies may not be successful.
New
patent activity from other companies could affect and alter the ability to obtain and/or license what we believe to be our own
patentable or otherwise proprietary intellectual property. Additionally, the possibility exists that our efforts could infringe
on the proprietary rights of third parties. Competitive patent activity is always a risk, and U.S. patent applications are unpublished
for at least one year. Although we intend to reasonably protect our rights with respect to what we believe to be our intellectual
property, there can be no assurance that such initiatives will be successful or that, in any event, such initiatives would not
divert management’s attention away from operational matters and indirectly result in adverse consequences to our financial
condition and results of operation.
Patent
litigation presents an ongoing threat to our primary business segment in terms of both outcomes and costs.
It
is possible that litigation over patent matters with one or more competitors could arise. We could incur substantial litigation
or interference costs in defending ourselves against lawsuits brought against us or in lawsuits in which we assert our patent
rights against others. If the outcome of any such litigation is unfavorable, our business could be materially adversely affected.
To determine the priority of inventions, we may also have to participate in interference proceedings declared by the United States
Patent and Trademark Office, the associated expense of which can become substantial. In such event, there can be no assurance
that we will have available to us the requisite financial resources to aggressively, or even adequately, defend, initiate, or
pursue this type of litigation.
Patents
obtained by other persons may result in infringement claims against us that are costly to defend and which may limit our ability
to use the disputed technologies and prevent us from pursuing research and development or commercialization of potential products
and/or applications markets.
If
third party patents or patent applications contain claims infringed by either our technology or other technology required to make
and use our potential products, and such claims are ultimately determined to be valid, there can be no assurance that we would
be able to obtain licenses to these patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology.
If, under such circumstances, we are unable to obtain any such licenses at a reasonable cost, we may not be able to develop some
products commercially, and, further, we may be required to defend ourselves in court against allegations of infringement of third
party patents. Patent litigation is very expensive and can consume substantial resources and create significant uncertainties.
Any adverse outcome in such a suit could subject us to significant liabilities to third parties, require disputed rights to be
licensed from third parties, or require us to cease using such technology.
We
may not be able to adequately defend against piracy of intellectual property in foreign jurisdictions.
Considerable
research in the areas of organic and inorganic chemistry, materials engineering, and nanotechnology is being performed in countries
outside of the United States, and a number of potential competitors are located in these countries. The laws protecting intellectual
property in some of those countries may not provide adequate protection to prevent our competitors from misappropriating our intellectual
property within those jurisdictions and elsewhere. Several of these potential competitors may be further along in the process
of product development and also operate large, company-funded research and development programs. As a result, our international
competitors may develop more competitive or affordable products, or achieve earlier patent protection or product commercialization
than we are able to achieve. Any such competitive products may render any products or product candidates that we develop obsolete.
Our
products are currently expensive to manufacture for the most part, and they may not be profitable if we are unable to reduce our
costs to produce them.
Our
products are significantly more expensive to manufacture on a per-unit basis than most comparable products currently in our markets.
This is because our sales to date have been very modest, causing our raw materials purchasing volumes and manufacturing output
volumes to be correspondingly low, and our costs for each relatively high. We have only recently begun exploring and experimenting
with purchasing and manufacturing processes and procedures enabling our production capacity to reach commercial volumes. Although
there can be no assurance, it is our intention to substantially reduce manufacturing costs through process improvements, increases
in manufacturing scale and outsourcing to experienced manufacturers. If we are not able to make these or other improvements, and
depending on the pricing of the product, our gross (profit) margins may be significantly less than that of our competitors. In
addition, we may not be able to command a high enough price from our customers for our products within some or all applications
markets to generate a profit. If we are unable to realize significant profits from our products, our business would be materially
harmed.
We
will likely be required to spend large amounts of money for environmental compliance in connection with our ongoing operations.
As
a manufacturer of applied specialty coating and surfacing materials, we are subject to a variety of stringent regulations under
numerous U.S. federal, state, local and foreign environmental, health and safety laws and regulations relating to the generation,
storage, handling, discharge, disposition and stewardship of hazardous wastes and other materials. In this regard, we will likely
have to expend substantial amounts to comply with such laws and regulations as well as establish a policy to minimize our environmental
emissions. Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential laws and regulations
pertaining to climate change) may make it difficult for us to project future spending for these purposes and, if there is an acceleration
in new regulatory requirements, we may be required to expend substantial additional funds to remain in compliance.
Our
business involves our having to work with dangerous materials that can potentially injure our employees, damage our facilities,
and disrupt our operations.
Some
of our operations involve the handling of hazardous materials that may pose the risk of fire, explosion, or the release of hazardous
substances into the surrounding environment. Such events could result from terrorist attacks, natural disasters, or operational
failures, and might cause injury or loss of life to our employees and others, environmental contamination, and property damage.
Any such events might cause a temporary shutdown of an affected plant, or portion thereof, or a customer’s premises, or
a portion thereof, and we could be subject to penalties or claims as a result. A disruption of our operations caused by any of
these or other events could have a material adverse effect on our results of operations.
Our
primary business segment could expose us to product liability claims, which, in turn, could diminish our assets and adversely
affect our operations.
We
may be held liable or incur expenses to settle product liability claims if the EcoSmart products we sell cause injury, directly
or indirectly, or are found unsuitable during product testing, manufacturing, marketing, sale or use. These risks exist even with
respect to any products that have received, or may in the future receive, regulatory approval, registration or clearance for commercial
use. There can be no assurance that we will be able to avoid product liability exposure.
We
currently do not maintain product liability insurance of any kind, and, as a result of the consummation of the Merger, we will
likely need to obtain such insurance coverage in the very near future at levels determined to be sufficient and consistent with
industry standards for companies such as ours. It is possible that such insurance coverage may not be available to us on commercially
reasonable terms or at all, and a product liability claim could potentially result in liability to us greater than our assets
and insurance coverage, if any, at such time. Whether or not a product liability insurance policy is obtained or maintained in
the future, any product liability claim could harm our business or financial condition. Moreover, even if we have adequate insurance
coverage, product liability claims or recalls could result in negative publicity or force us to devote significant time and attention
to matters other than those that arise in the normal course of business.
Our
insurance policies may be inadequate and potentially expose us to unrecoverable risks.
We
do not carry director and officer insurance and have limited commercial insurance policies. Any significant insurance claims would
have a material adverse effect on our business, financial condition and results of operations. Insurance availability, coverage
terms and pricing continue to vary with market conditions. We endeavor to obtain appropriate insurance coverage for insurable
risks that we identify, however, we may fail to correctly anticipate or quantify insurable risks, we may not be able to obtain
appropriate insurance coverage, and insurers may not respond as we intend to cover insurable events that may occur. We have observed
rapidly changing conditions in the insurance markets relating to nearly all areas of traditional corporate insurance. Such conditions
have resulted in higher premium costs, higher policy deductibles, and lower coverage limits. For some risks, we may not have or
maintain insurance coverage because of cost or availability.
Conditions
in the global economy and global capital markets may adversely affect our results of operations, financial condition, and cash
flows.
Our
business and operating results may in the future be adversely affected by global economic conditions, including instability in
credit markets, declining consumer and business confidence, fluctuating commodity prices and interest rates, volatile exchange
rates, and other challenges such as the changing financial regulatory environment that could affect the global economy. Our customers
may experience deterioration of their businesses, cash flow shortages, and difficulty obtaining financing. As a result, existing
or potential customers may delay or cancel plans to purchase products and may not be able to fulfill their obligations in a timely
fashion. Further, suppliers could experience similar conditions, which could impact their ability to fulfill their obligations
to us. Because we intend to have significant international operations, there are expected to be a large number of currency transactions
that result from international sales, purchases, investments and borrowings. And although we also intend to actively manage currency
exposures that are associated with net monetary asset positions, committed currency purchases and sales, foreign currency-denominated
revenues and other assets and liabilities created in the normal course of business, there can be no assurances that such initiatives
will be effective. Future weakness in the global economy and failure to manage these risks could adversely affect our results
of operations, financial condition and cash flows in future periods.
Changes
in government policies and laws could adversely affect our financial results.
Although
there can be no assurance, sales to customers outside the U.S. are expected over time to account for a material percentage of
gross revenues. As a result, our financial results could be affected by changes in trade, monetary and fiscal policies, laws and
regulations, or other activities of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include,
but are not limited to, changes in a country’s or region’s economic or political conditions, trade regulations affecting
production, pricing and marketing of products, local labor conditions and regulations, reduced protection of intellectual property
rights in some countries, changes in the regulatory or legal environment, restrictions on currency exchange activities, burdensome
taxes and tariffs and other trade barriers. International risks and uncertainties, including changing social and economic conditions
as well as terrorism, political hostilities and war, could lead to reduced sales and profitability.
Increases
in prices and declines in the availability of raw materials could negatively impact our financial results.
Most
of the raw materials used in production are purchased from outside sources, and we intend in the near future to begin making supply
arrangements from time to time to meet our planned operating requirements for the future. Supply of critical raw materials is
managed by qualifying multiple and local sources of supply, including suppliers from outside the U.S., establishing contracts,
procuring from multiple sources, and identifying alternative materials or technology whenever possible. We are continuing our
aggressive sourcing initiatives to support our continuous efforts to find the lowest raw material costs.
Increases
in the cost of raw materials may have an adverse effect on our earnings or cash flow in the event we are unable to offset these
higher costs in a timely manner. Any inability to obtain critical raw materials would adversely impact our ability to produce
our products.
GENERAL
BUSINESS RISKS
The
loss of key personnel could adversely affect our business.
We
are presently dependent to a great extent upon the experience, abilities and continued services of our management team. Currently,
our only executives under contract are Mr. Malone, our President and Chief Executive Officer and Bo Gimvang, our Vice President
of Research and Development. Beyond the obligations expressly set forth in Mr. Malone’s employment agreement, no assurances
can be given that either he or any other executive will remain with us for any particular duration or that any of such other executives
will enter into employment agreements with us. The loss of services of any of the management personnel could have a material adverse
effect on our business, financial condition or results of operation.
Failure
to effectively manage acquisitions, divestitures, alliances and other portfolio actions could adversely impact our future results.
From
time to time, we expect to be evaluating and pursuing acquisition candidates that may strategically fit our business and/or growth
objectives. If we are unable to successfully integrate and develop acquired businesses, we could fail to achieve anticipated synergies
and cost savings, including any expected increases in revenues and operating results, which could materially and adversely affect
our financial results. We intend to continually reviews our portfolio of operational assets to assess their respective contributions
to our larger objectives and alignment with our broader growth strategy. However, we may not be successful in separating underperforming
or non-strategic assets and gains or losses on the divestiture of, or lost operating income from, such assets may affect our results
of operations. Moreover, we may incur asset impairment charges related to acquisitions or divestitures that reduce
any otherwise reportable earnings.
Our
results of operations and financial condition could be seriously impacted by business disruptions and security breaches, including
cybersecurity incidents.
Business
and/or supply chain disruptions, plant and/or power outages and information technology system and/or network disruptions, regardless
of cause including acts of sabotage, employee error or other actions, geo-political activity, weather events and natural disasters
could seriously harm our operations as well as the operations of our customers and suppliers. Failure to effectively prevent,
detect and recover from security breaches, including attacks on information technology and infrastructure by hackers, viruses,
breaches due to employee error or actions, or other disruptions could result in misuse of our assets, business disruptions, loss
of property including trade secrets and confidential business information, legal claims or proceedings, reporting errors, processing
inefficiencies, negative media attention, loss of sales and interference with regulatory compliance. We intend to actively manage
the risks within our reasonable control that could lead to any such business disruptions and security breaches. As these threats
continue to evolve, particularly around cybersecurity, and particularly as our business grows, however, we may be required to
expend significant resources to enhance our control environment, processes, practices and other protective measures. Despite these
efforts, such events could materially adversely affect the Company’s business, financial condition or results of operations.
Our
business, including our results of operations and reputation, could be adversely affected by process safety and product stewardship
issues.
Failure
to appropriately manage safety, human health, product liability and environmental risks associated with our products, product
life cycles and production processes could adversely impact employees, communities, stakeholders, the environment, as well as
our reputation and results of operations. Public perception of the risks associated with our products and production processes
could impact product acceptance and influence the regulatory environment in which we operate. While we have in place procedures
and controls to manage process safety risks, issues could be created by events outside of our control including natural disasters,
severe weather events, acts of sabotage and substandard performance by our external partners.
Our
results of operations could be adversely affected by litigation and other commitments and contingencies.
We
face risks arising from various asserted and unasserted litigation matters, including, but not limited to, product liability,
patent infringement, and claims for third party property damage or personal injury stemming from alleged environmental torts.
We have noted a nationwide trend in purported class actions against manufacturers of chemical and materials-based products generally
seeking relief such as medical monitoring, property damages, off-site remediation and punitive damages arising from alleged environmental
torts without claiming present personal injuries. We have also noted a trend in public and private nuisance suits being filed
on behalf of states, counties, cities and utilities alleging harm to the general public. Various factors or developments can lead
to changes in current estimates of liabilities such as a final adverse judgment, significant settlement or changes in applicable
law. A future adverse ruling or unfavorable development could result in future charges that could have a material adverse effect
on us. An adverse outcome in any one or more of these matters could be material to our financial results.
In
the ordinary course of business, we may make certain commitments, including representations, warranties and indemnities relating
to current and past operations, including those related to products we sell, divested businesses, and issue guarantees of third
party obligations. If we were required to make payments as a result, they could exceed the amounts accrued, thereby adversely
affecting our results of operations.
RISKS
ASSOCIATED WITH AN INVESTMENT IN OUR COMMON STOCK
The
holder of certain of our term debt has veto power over the filling of vacant board seats, which we have agreed to limit to five
until that debt is retired.
Our
corporate bylaws currently provide for a classified board of directors consisting of up to 15 members, as determined from time
to time within the discretion of our board of directors through the due execution of appropriate resolutions and procedures. We
currently have a 5-person classified board of directors with three sitting members and two vacancies. Of the three sitting members,
one, John Kuehne, is a Class I member, whose current term expires on July 22, 2016, one, Donald Schoenfeld, is a Class II member,
whose current term expires on July 22, 2017, and one, Steven Malone, is a Class III member, whose current term expires on July
22, 2018. In accordance with a $300,000 debt restructuring effected concurrently with the consummation of the Merger, and since
modified, however, we have agreed to limit the size of our board of directors to no more than five sitting members until such
time as that debt is satisfied and to obtain the consent of the holder of such debt to any directorship appointments effectively
filling the two existing vacancies in the meantime. As a result of this agreement, and though still possessing all of the same
voting rights relative to the constitution of our board of directors, holders of our Common Stock, individually and collectively,
are deprived for the time being of the same right to influence and effect such constitution as otherwise entitled under Nevada
corporate law and our articles of incorporation and bylaws, and there can be no assurance that the constitution of our board of
directors will be consistent with what it would be in the absence of this agreement and/or that any actions taken or not taken
by our board of directors during the effectiveness of this agreement will be consistent with those that would have occurred were
it not in place.
Future
issuances of our Common Stock or preferred stock are likely and may dilute your economic interest.
We
may issue additional shares of our Common Stock in the future in connection with financings, which we expect to do in the very
near-term and will likely have to do repeatedly until such time, if at all, that our revenues attain a consistent level at which
they can support both our operating and capital investment requirements. While any such financings may involve registered or unregistered
sales of securities, in the case of unregistered sales, the subject securities may, and likely will – given our early-stage
of development – be either preferred stock or debt, convertible into Common Stock on the basis of a given ratio. We may
also issue shares of our Common Stock or preferred stock in connection with acquisitions and/or business combinations, and here,
too, in either registered or unregistered, exempted transactions. Although we intend to limit any financings or acquisitions in
relation to which we issue shares to those for which the implied value of our shares are equal to or greater than our most reasoned
estimate of our intrinsic value, thereby avoiding dilution to our existing stockholders in terms of economic value, there can
be no assurance in this regard because (i) intrinsic value is, to at least some degree, an inherently subjective benchmark range
in relation to which reasonable minds can differ, and (ii) financings may be critical at a time when we are unable to attract
the interest of potential investors willing to invest on the basis of a valuation considered by us to be within our intrinsic
value range.
Future
issuances of our Common Stock or preferred stock are likely and may depress our stock price.
We
may issue additional shares of our Common Stock in the future in connection with financings, which we expect to do in the very
near-term and will likely have to do repeatedly until such time, if at all, that our revenues attain a consistent level at which
they can support both our operating and capital investment requirements. While any such financings may involve registered or unregistered
sales of securities, in the case of unregistered sales, the subject securities may, and likely will – given our early-stage
of development – be either preferred stock or debt, convertible into Common Stock on the basis of a given ratio. We may
also issue shares of our Common Stock or preferred stock in connection with acquisitions and/or business combinations, and here,
too, in either registered or unregistered, exempted transactions. Although we intend to limit any financings or acquisitions in
relation to which we issue shares to those for which the implied value of our shares are equal to or greater than our most reasoned
estimate of our intrinsic value, thereby avoiding dilution to our existing stockholders in terms of economic value, there can
be no assurance in this regard because (i) intrinsic value is, to at least some degree, an inherently subjective benchmark range
in relation to which reasonable minds can differ, and (ii) financings may be critical at a time when we are unable to attract
the interest of potential investors willing to invest on the basis of a valuation considered by us to be within our intrinsic
value range. In any event, future issuances of shares may have the effect of depressing our stock price for any one or more of
the following reasons, among others:
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the
market perceives shares as having been issued below intrinsic value, thereby diluting
their economic interests, and decide therefore to sell, thereby putting downward pressure
on the stock price;
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the
market will perceive an “overhang” in shares soon to be entering the float
via resale registration or exemption, and discount the current value accordingly, thereby
putting downward pressure on the stock price;
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investors
that acquire substantial blocks of Common Stock in connection with a private financing
subsequently determine to sell out their position rapidly once the shares become eligible
for resale, and particularly if they are professional investors that acquired their shares
at a price below current market, thereby putting downward pressure on the stock price;
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investors
that acquire substantial blocks of Common Stock in connection with a private financing
involving a convertible security in relation to which the conversion price is tied to
the market price of the stock and there is no lower limit (“floor”) on such
conversion price subsequently determine to sell out their position rapidly once they
acquire the shares or they become eligible for resale, and particularly if they are engaged
in contemporaneous short-selling initiatives involving the Common Stock, thereby putting
downward pressure on the stock price; or
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recipients
of shares in a business combination subsequently determine to sell out their position rapidly once the shares become eligible
for resale, and particularly if they are individual retail investors that had held the shares throughout an extended period
of illiquidity, thereby putting downward pressure on the stock price.
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Future
sales of our Common Stock by our officers or directors may depress our stock price.
Our
officers and directors are not contractually obligated to refrain from selling any of their shares; therefore, our officers and
directors may sell any shares owned by them which are registered under the Securities Act, or which otherwise may be sold without
registration to the extent permitted by Rule 144 or other exemptions. Because of the perception by the investing public that a
sale by such insiders may be reflective of their own lack of confidence in our prospects, the market price of our Common Stock
could decline as a result of a sell-off following sales of substantial amounts of Common Stock by our officers and directors into
the public market, or even the mere perception that these sales could occur.
Though
our Common Stock is quoted on the OTC Markets and OTCBB, there is no liquidity and no established public market for our Common
Stock, which means that it will likely be difficult to sell shares.
Our
Common Stock is quoted over the counter on the OTC Markets and OTCBB under the symbol “FIND.” The OTC Markets and
OTCBB are not exchanges and the over-the-counter market is a significantly more limited market than established trading markets
and national exchanges such as the New York Stock Exchange and Nasdaq, including the Nasdaq Global Select Market. Broker dealers
may not be willing to make a market in shares quoted solely over the counter such as ours. In addition, the OTC Markets, OTCBB,
and similar quotation services are often characterized by low trading volumes, and price volatility, which may make it difficult
for an investor to sell shares on acceptable terms.
Although
we are an Exchange Act reporting company, there is no active trading market for our Common Stock. There can be no assurance that
an active trading market will ever develop for our Common Stock or, if it does develop, that it will be maintained. Failure to
develop or maintain an active trading market will have a generally negative effect on the price of our Common Stock, and you may
be unable to sell your shares or any attempted sale of such shares may have the effect of lowering the market price, and therefore
your investment could be a complete or partial loss. Unless an active trading market develops for our Common Stock, for which
there is no assurance, you may not be able to sell your shares.
We
cannot assure you that our Common Stock will ever be listed on one of the national securities exchanges.
Although
it is our intention to seek the listing of our Common Stock on Nasdaq (Global or Capital Markets) or another stock exchange as
soon as we are able, there can be no assurance that we will be able to meet the initial listing standards of either of those or
any other stock exchange in the foreseeable future, or ever, or that, if we do, and we become listed, that we will be able to
maintain such listing through continuing eligibility. Until our Common Stock is listed on one of the national stock exchanges,
for which there can be no assurance, we expect that our Common Stock would continue to trade on the OTC Markets and OTCBB.
Since
our Common Stock is thinly traded, it is more susceptible to extreme rises or declines in price, and you may not be able to sell
your shares at or above the price you paid.
You
may have difficulty reselling shares of our Common Stock, either at or above the price you paid, or even at a fair market value.
The stock markets often experience significant price and volume changes that are not related to the operating performance of individual
companies, and because our Common Stock is thinly traded, it is particularly susceptible to such changes. These broad market changes
may cause the market price of our Common Stock to decline regardless of how well we perform as a company, and, depending on when
you determine to sell, you may not be able to obtain a price at or above the price you paid.
If
you require dividend income, you should not rely on an investment in our Common Stock.
Because
we have very limited cash resources, significant cash needs, and a substantial accumulated deficit relative to recent (negative)
earnings, we have not declared or paid any dividends on our Common Stock since our inception and we do not anticipate declaring
or paying any dividends on our Common Stock in the foreseeable future. Rather, we intend to retain earnings, if any, for the continued
operation and expansion of our business. It is unlikely, therefore, that holders of our Common Stock will have an opportunity
to profit from anything other than potential appreciation in the value of our Common Stock held by them. If you require dividend
income, you should not rely on an investment in our Common Stock.
If
we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us to fail to meet
our reporting obligations, result in the restatement of our financial statements, harm our operating results, subject us to regulatory
scrutiny and sanction, cause investors to lose confidence in our reported financial information and have a negative effect on
the market price for shares of our Common Stock.
Effective
internal controls are necessary for us to provide reliable financial reports and to effectively prevent fraud. We maintain a system
of internal control over financial reporting, which is defined as a process designed by, or under the supervision of, our principal
executive officer and principal financial officer, or persons performing similar functions, and effected by our board of directors,
management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation
of financial statements for external purposes in accordance with generally accepted accounting principles.
As
a public company that files reports under the Exchange Act, we have significant additional requirements for enhanced financial
reporting and internal controls. We are required to document and test our internal control procedures in order to satisfy the
requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which requires annual management assessments of the effectiveness
of our internal controls over financial reporting. The process of designing and implementing effective internal controls is a
continuous effort that requires us to anticipate and react to changes in our business and the economic and regulatory environments
and to expend significant resources to maintain a system of internal controls that is adequate to satisfy our reporting obligations
as a public company under the Exchange Act.
We
cannot assure you that we will not, in the future, identify areas requiring improvement in our internal control over financial
reporting. We cannot assure you that the measures we will take to address any areas in need of improvement will be successful
or that we will implement and maintain adequate controls over our financial processes and reporting in the future as we continue
our growth. If we are unable to establish appropriate internal financial reporting controls and procedures, it could cause us
to fail to meet our reporting obligations, result in the restatement of our financial statements, harm our operating results,
subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our reported financial information and have
a negative effect on the market price for shares of our Common Stock.
Unless
and until we garner analyst research coverage, we are unlikely to create long-term market value in our Common Stock.
Although
we are an Exchange Act reporting company and our Common Stock is quoted on the OTC Markets and OTCBB, we are unaware of any investment
banking firms, large or small, that currently provide analyst research coverage on the Company and, given our relatively small
size within the public securities markets, it is unlikely that any investment banks will begin doing so in the near future. Without
continuing research coverage by reputable investment banks or similar firms, it is considerably more difficult to attract the
interest of most institutional investors, which are generally considered to be very important in achieving a desirable balance
in shareholder composition and long-term market value in a stock. While we intend to continue to aggressively pursue investor
relations initiatives designed to create visibility for the Company and Common Stock, and hope to garner analyst coverage in the
future, there can be no assurance that we will succeed in this regard and any inability on our part to develop such coverage is
likely to materially impede the realization of long-term market value in our Common Stock.
Our
common stock is subject to the “penny stock” regulations, which is likely to make it more difficult to sell.
Our
common stock is considered a “penny stock”, which generally is a stock trading under $5.00 and not registered on any
national securities exchanges. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions
in penny stocks. This regulation generally has the result of reducing trading in such stocks, restricting the pool of potential
investors for such stocks, and making it more difficult for investors to sell their shares. Prior to a transaction in a penny
stock, a broker-dealer is required to:
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deliver
a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in
the penny stock market;
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provide
the customer with current bid and offer quotations for the penny stock;
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explain
the compensation of the broker-dealer and its salesperson in the transaction;
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provide
monthly account statements showing the market value of each penny stock held in the customer’s account; and
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make
a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s
written agreement to the transaction.
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These
requirements may have the effect of reducing the level of trading activity in the secondary market for a stock that is subject
to the penny stock rules. Since our common stock is subject to the penny stock rules, investors in our common stock may find it
more difficult to sell their shares.
As
an issuer of “penny stock,” we do not currently benefit from the protection provided by the federal securities laws
relating to forward-looking statements.
Although,
generally, federal securities laws provide a safe harbor for forward-looking statements made by a public company that files reports
under the federal securities laws, this safe harbor is not available to issuers of penny stocks. As a result, and since our common
stock has consistently traded in recent years at a level at which it is considered to constitute a “penny stock”,
we do not have the benefit of this safe harbor protection in the event of any legal action based upon a claim that any material
provided by us contained a material misstatement of fact or was misleading in any material respect because of our failure to include
any statements necessary to make the statements not misleading. Such an action could hurt our financial condition.
Our
stock price could be volatile, and your investment could suffer a decline in value.
The
trading price of our common stock is likely to be highly volatile and could be subject to extreme fluctuations in price in response
to various factors, many of which are beyond our control, including:
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the
trading volume of our shares;
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the
number of securities analysts, market-makers and brokers following our common stock;
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changes
in, or failure to achieve, financial estimates by securities analysts;
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new
products introduced or announced by us or our competitors;
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announcements
of technological innovations by us or our competitors;
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our
ability to produce and distribute retail packaged versions of our software in advance of peak retail selling seasons;
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actual
or anticipated variations in quarterly operating results;
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conditions
or trends in the consumer software and/or Christian products industries;
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announcements
by us of significant acquisitions, strategic partnerships, joint ventures, or capital commitments;
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additions
or departures of key personnel;
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sales
of our common stock; and
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stock
market price and volume fluctuations of publicly-traded, particularly microcap, companies generally.
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The
volatility of our common stock is illustrated by reference to the fact that, during fiscal year 2015, our trading price fluctuated
from a low of $0.007 to a high of $0.020 per share.
The
stock market has recently experienced significant price and volume fluctuations. Volatility in the market price for particular
companies has often been unrelated or disproportionate to the operating performance of those companies. These broad market and
industry factors may seriously harm the market price of our common stock, regardless of our operating performance. In addition,
securities class action litigation has often been initiated following periods of volatility in the market price of a company’s
securities. A securities class action suit against us could result in substantial costs, potential liabilities and the diversion
of management’s attention and resources from our business. Moreover, and as noted above, our shares are currently traded
on the OTC Markets and, further, are subject to the penny stock regulation. Price fluctuations in such shares are particularly
volatile and subject to manipulation by market-makers, short-sellers and option traders.