UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.
20549
FORM 10-Q/A
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 2015
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number: 000-53459
HYBRID COATING TECHNOLOGIES
INC.
(Exact name of registrant as specified in its
charter)
NEVADA |
20-3551488 |
(State of other jurisdiction of incorporation or
organization) |
(IRS Employer Identification Number)
|
950 John Daly Blvd. Suite 260
Daly City, CA
94015
(Address of principal executive offices)
(650) 491-3449
(Registrant's telephone number,
including area code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange
Act:
Common Stock, $ 0.001 par value
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [
]
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer or a non-accelerated filer. See
definition of "accelerated filer and large accelerated filer" in Rule 12b-2 of
the Exchange Act.
Large accelerated filer [ ] |
Accelerated filer
[ ] |
Non-accelerated filer [ ] |
Smaller reporting company [X]
|
336,039,518 shares of the issuers common shares, par value
$0.001 per share, were issued and outstanding as of August 26, 2015.
EXPLANATORY NOTE
The sole purpose of this Amendment No. 1 to HYBRID Coating
Technologies Inc.s Form 10-Q for the period ended June 30, 2015, filed with the
Securities and Exchange Commission on August 26, 2015 (the Form 10-Q), is to
is to furnish interactive data files formatted in XBRL (eXtensible Business
Reporting Language) as Exhibit 101 to the Form 10-Q in accordance with Rule 405
of Regulation S-T and to change the balance presented in the Consolidated
Balance Sheets as of December 31,2014 for Accounts payable and accrued
liabilities by $1 from 667,295 to 667,296.
No other changes have been made to the Form 10-Q. This
Amendment No. 1 to the Form 10-Q speaks as of the original filing date of the
Form 10-Q, does not reflect events that may have occurred subsequent to the
original filing date, and does not modify or update in any way the disclosures
made in the original Form 10-Q.
TABLE OF CONTENTS
|
PART I. FINANCIAL INFORMATION |
|
|
|
|
Item 1. |
Consolidated Financial Statements |
|
|
Consolidated Balance Sheets (Unaudited) |
3 |
|
Consolidated Statements of Operations (Unaudited) |
4 |
|
Consolidated Statements of Cash Flows (Unaudited) |
5 |
|
Notes to Consolidated Financial Statements (Unaudited) |
7 |
Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
22 |
Item 3 |
Quantitative and Qualitative Disclosures About Market Risk |
28 |
Item 4. |
Controls and Procedures |
28 |
|
|
|
|
PART II. OTHER INFORMATION |
|
|
|
|
Item 1. |
Legal Proceedings |
29 |
Item 1a. |
Risk factors |
29 |
Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
29 |
Item 3. |
Defaults Upon Senior Securities |
29 |
Item 4. |
Mine Safety Disclosures |
29 |
Item 5. |
Other Information |
29 |
Item 6. |
Exhibits |
30 |
1
PART I
ITEM 1. FINANCIAL STATEMENTS
The accompanying unaudited consolidated balance sheet of Hybrid
Coating Technologies Inc. as of June 30, 2015 and the related unaudited
consolidated statements of operations, and cash flows for the six months ended
June 30, 2015 have been prepared by management in conformity with accounting
principles generally accepted in the United States. In the opinion of
management, all adjustments considered necessary for a fair presentation of the
results of operations and financial position have been included and all such
adjustments are of a normal recurring nature. Operating results for the six
months ended June 30, 2015 are not necessarily indicative of the results that
can be expected for the fiscal year ending December 31, 2015 or any other
subsequent period.
2
Hybrid Coating
Technologies Inc.
Consolidated
Balance Sheets
(Unaudited)
|
|
June 30, |
|
|
December 31, |
|
ASSETS |
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Intangible assets, net of
accumulated amortization |
$ |
1,605,112 |
|
$ |
2,136,205 |
|
|
|
|
|
|
|
|
TOTAL ASSETS |
$ |
1,605,112 |
|
$ |
2,136,205 |
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
Current liabilities |
|
|
|
|
|
|
Bank indebtedness |
$ |
5,863 |
|
$ |
5,552 |
|
Accounts payable and accrued
liabilities |
|
795,197 |
|
|
667,296 |
|
Accounts payable and accrued
liabilities-related parties |
|
414,500 |
|
|
348,731 |
|
Deferred revenue |
|
20,000 |
|
|
20,000 |
|
Stock payable |
|
15,000 |
|
|
15,000 |
|
Senior secured convertible
debentures |
|
200,000 |
|
|
200,000 |
|
Convertible notes, net of unamortized
discount of $330,724 and $160,748, respectively |
|
208,235 |
|
|
119,363 |
|
Loans payable |
|
1,206,500 |
|
|
977,500 |
|
Loans payable -shareholders |
|
1,935,900 |
|
|
1,944,504 |
|
Note payable related party
|
|
1,738,491 |
|
|
1,889,491 |
|
Derivative liabilities |
|
273,209 |
|
|
- |
|
Total current
liabilities |
|
6,812,895 |
|
|
6,187,437 |
|
|
|
|
|
|
|
|
Convertible debentures, net
of unamortized discount of $1,958 and $2,804, respectively |
|
1,343,542 |
|
|
1,342,696 |
|
Derivative liabilities |
|
88,305 |
|
|
181,723 |
|
|
|
|
|
|
|
|
Total liabilities |
|
8,244,742 |
|
|
7,711,856 |
|
|
|
|
|
|
|
|
Commitments and contingencies |
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIT |
|
|
|
|
|
|
|
|
|
|
|
|
|
Series A preferred stock, $0.001 par value,
1,000,000 shares authorized, 0 shares issued |
|
- |
|
|
- |
|
Series B preferred stock,
$0.001 par value, 1,000,000 shares authorized, 0 shares issued |
|
- |
|
|
- |
|
Common stock, $0.001 par value, 650,000,000
shares authorized, 92,674,966 shares and 44,126,829 shares issued and
outstanding, respectively |
|
92,675 |
|
|
44,127 |
|
|
|
|
|
|
|
|
Additional-paid in capital |
|
18,851,180 |
|
|
17,003,285 |
|
|
|
|
|
|
|
|
Accumulated deficit |
|
(25,583,485 |
) |
|
(22,623,063 |
) |
Total stockholders deficit
|
|
(6,639,630 |
) |
|
(5,575,651 |
) |
TOTAL LIABILITIES AND STOCKHOLDERS DEFICIT
|
$ |
1,605,112 |
|
$ |
2,136,205 |
|
The accompanying notes are an integral part of these unaudited consolidated financial statements.
3
Hybrid Coating
Technologies Inc.
Consolidated
Statements of Operations For the Three
Months and Six Months ended June 30, 2015 and 2014
(Unaudited)
|
|
Three months ended |
|
|
Three months ended |
|
|
Six months ended |
|
|
Six months ended |
|
|
|
June 30, 2015 |
|
|
June 30, 2014 |
|
|
June 30, 2015 |
|
|
June 30, 2014 |
|
Revenues |
$ |
4,103 |
|
$ |
- |
|
$ |
4,103 |
|
$ |
29,370 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
1,850 |
|
|
- |
|
|
1,850 |
|
|
1,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross margin |
|
2,253 |
|
|
- |
|
|
2,253 |
|
|
27,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
496,287 |
|
|
698,450 |
|
|
987,622 |
|
|
1,304,397 |
|
Amortization of
intangible assets |
|
265,547 |
|
|
36,390 |
|
|
531,093 |
|
|
72,780 |
|
Loss on settlement of payables |
|
114,820 |
|
|
- |
|
|
484,080 |
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
876,654 |
|
|
734,840 |
|
|
2,002,795 |
|
|
1,377,177 |
|
Loss from operations |
|
(874,401 |
) |
|
(734,840 |
) |
|
(2,000,542 |
) |
|
(1,349,801 |
) |
Other income (expense) |
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of
debt, net |
|
- |
|
|
(321,550 |
) |
|
(355,641 |
) |
|
(1,340,079 |
) |
Change in fair value of derivative
liabilities |
|
497,719 |
|
|
417,256 |
|
|
477,158 |
|
|
762,908 |
|
Gain (loss) on foreign
currency translation |
|
(1,442 |
) |
|
(3,958 |
) |
|
4,492 |
|
|
(1,528 |
) |
Interest expense |
|
(356,811 |
) |
|
(142,833 |
) |
|
(1,085,889 |
) |
|
(284,777 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other income (expense) |
|
139,466 |
|
|
(51,085 |
) |
|
(959,880 |
) |
|
(863,476 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
$ |
(734,935 |
) |
$ |
(785,925 |
) |
$ |
(2,960,422 |
) |
$ |
(2,213,277 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share
|
$ |
(0.01 |
) |
$ |
(0.05 |
) |
$ |
(0.05 |
) |
$ |
(0.15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted weighted average number of
common shares |
|
66,429,386 |
|
|
15,362,006 |
|
|
57,689,379 |
|
|
14,330,462 |
|
The accompanying notes are an
integral part of these unaudited
consolidated financial statements.
4
Hybrid Coating Technologies Inc.
Consolidated
Statements of Cash Flows
For the Six Months ended June 30, 2015 and
2014
(Unaudited)
|
|
Six Months ended |
|
|
Six Months ended |
|
|
|
June 30, 2015 |
|
|
June 30, 2015 |
|
CASH FLOWS FROM OPERATING
ACTIVITIES |
|
|
|
|
|
|
Net loss |
$ |
(2,960,422 |
) |
$ |
(2,213,277 |
) |
Adjustments to reconcile net
loss to net cash used in operating activities: |
|
|
|
|
|
|
Stock-based compensation |
|
182,199 |
|
|
659,405 |
|
Interest paid through
the issuance of shares |
|
- |
|
|
9,143 |
|
Amortization of debt discounts |
|
354,348 |
|
|
27,436 |
|
Amortization of
intangible assets |
|
531,093 |
|
|
72,780 |
|
Loss on settlement of payables |
|
484,080 |
|
|
- |
|
Loss on extinguishment
of debt |
|
355,641 |
|
|
1,340,079 |
|
Derivative liabilities in excess of
face value of debt |
|
374,494 |
|
|
- |
|
Change in fair value
of derivative liabilities |
|
(477,158 |
) |
|
(762,908 |
) |
Gain (loss) on foreign currency |
|
(4,492 |
) |
|
1,528 |
|
Interest imputed from
notes payable-related party |
|
92,487 |
|
|
64,000 |
|
Change in operating assets and liabilities
|
|
|
|
|
|
|
Accounts payable and
accrued liabilities |
|
770,038 |
|
|
65,519 |
|
Accounts payable and accrued
liabilities related parties |
|
(153,332 |
) |
|
580,887 |
|
Bank overdraft |
|
310 |
|
|
295 |
|
Net cash used in operating activities |
|
(450,714 |
) |
|
(155,113 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES |
|
|
|
|
|
|
Proceeds from exercise of warrants |
|
500 |
|
|
300 |
|
Proceeds from convertible
notes, net of issuance costs |
|
474,950 |
|
|
- |
|
Proceeds from loans payable |
|
229,000 |
|
|
- |
|
Proceeds from loans
payable-shareholders |
|
982,006 |
|
|
669,311 |
|
Repayments from loans payable-shareholders
|
|
(894,870 |
) |
|
(335,498 |
) |
Repayments of convertible
notes |
|
(189,872 |
) |
|
- |
|
Repayments of note payable - related party
|
|
(151,000 |
) |
|
(179,000 |
) |
Net cash provided by
financing activities |
|
450,714 |
|
|
155,113 |
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH
|
|
- |
|
|
- |
|
|
|
|
|
|
|
|
CASH, BEGINNING |
|
- |
|
|
- |
|
CASH, ENDING |
$ |
- |
|
$ |
- |
|
5
Hybrid Coating Technologies Inc.
Consolidated
Statements of Cash Flows (continued)
For the Six Months ended June
30, 2015 and 2014
(Unaudited)
|
|
Six Months ended |
|
|
Six Months ended |
|
|
|
June 30,2015 |
|
|
June 30,2015 |
|
Supplemental disclosure of
cash flow information |
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest |
$ |
44,733 |
|
$ |
29,075 |
|
Income taxes |
$ |
- |
|
$ |
- |
|
|
|
|
|
|
|
|
Non-cash financing
transactions: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Common stock issued and
payable for accounts payable |
$ |
- |
|
$ |
50,924 |
|
|
|
|
|
|
|
|
Common stock issued and
payable for interest accrual |
$ |
- |
|
$ |
2,940 |
|
|
|
|
|
|
|
|
Common stock issued for
settlement of accounts payable-related party |
$ |
458,220 |
|
$ |
322,000 |
|
|
|
|
|
|
|
|
Common stock issued and
payable for principal and interest accrual on convertible debenture |
$ |
- |
|
$ |
132,050 |
|
|
|
|
|
|
|
|
Common stock issued for and
payable for interest on senior secured convertible debenture |
$ |
- |
|
$ |
29,800 |
|
|
|
|
|
|
|
|
Warrants issued for payment
of interest |
$ |
15,600 |
|
$ |
- |
|
|
|
|
|
|
|
|
Cashless exercise of warrants
|
$ |
410 |
|
$ |
150 |
|
|
|
|
|
|
|
|
Common stock issued for debt
|
$ |
525,394 |
|
$ |
- |
|
|
|
|
|
|
|
|
Warrants and stock issued for
settlement of liabilities |
$ |
626,410 |
|
$ |
- |
|
Warrants issued for cancellation of shares
|
$ |
1,950 |
|
$ |
- |
|
|
|
|
|
|
|
|
Derivative debt discount |
$ |
820,064 |
|
$ |
- |
|
The accompanying notes are an integral part of these
unaudited consolidated financial statements.
6
Hybrid Coating Technologies Inc.
Notes to
Consolidated Financial Statements
For the Six Months Ended June 30,
2015
(Unaudited)
NOTE 1 NATURE OF BUSINESS AND BASIS OF PRESENTATION
Hybrid Coating Technologies Inc. (the Company, HCT) was
incorporated in the State of Nevada on July 8, 2010.
The Company manufactures and sells under license, alternative
non-toxic (isocyanate-free) polyurethane, Green Polyurethane, including
coatings and raw binder ingredients (Green Polyurethane® Monolithic Floor
Coating and Green Polyurethane Binder).
The accompanying consolidated financial statements, which
should be read in conjunction with the financial statements and footnotes of
Hybrid Coating Technologies Inc., included in Form 10-K filed on April 15, 2015
with the Securities and Exchange Commission, are unaudited, but have been
prepared in accordance with accounting principles generally accepted in the
United States for interim financial information. Accordingly, they do not
include all of the information and footnotes required by accounting principles
generally accepted in the United States for complete financial statements. In
the opinion of management, all adjustments (consisting only of normal recurring
adjustments) considered necessary for a fair presentation have been included.
Operating results for the six months ended June 30, 2015 are not necessarily
indicative of the results that may be expected for the full year ending December
31, 2015.
Going Concern
The Company remains highly dependent upon funding from
non-operational sources. The Companys consolidated financial statements have
been presented on the basis that it is a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has an accumulated deficit of $25,583,485, and has a
working capital deficit of $6,812,895 as of June 30, 2015. These conditions
raise substantial doubt about the Companys ability to continue as a going
concern. The consolidated financial statements do not include any adjustments to
reflect the possible future effects on the recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
There are no assurances that the Company will be able to either
(1) achieve a level of revenues adequate to generate sufficient cash flow from
operations; or (2) obtain additional financing through either private placement,
public offerings and/or bank financing necessary to support The Companys
working capital requirements. To the extent that funds generated from operations
and any private placements, public offerings and/or bank financing are
insufficient, the Company will have to raise additional working capital. No
assurance can be given that additional financing will be available, or if
available, will be on terms acceptable to the Company. If adequate working
capital is not available the Company may be required to curtail or cease its
operations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation - The financial statements
of the Company have been prepared in accordance with generally accepted
accounting principles in the United States of America and are presented in US
dollars. The Companys fiscal year end is December 31.
7
Principles of Consolidation - The consolidated
financial statements include the accounts of the Company and its wholly-owned
subsidiary, Nanotech Industries International, Inc. (Nanotech). All
significant inter-company balances and transactions have been eliminated in the
consolidated financial statements.
Use of Estimates The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make certain estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts
of revenue and expenses during the reported period. Actual results could differ
from those estimates.
Cash and Cash Equivalents The Company
maintains various cash balances in two financial institutions located in Daly
City, California. These balances are fully insured by the Federal Deposit
Insurance Corporation, which insures up to $250,000. On occasion, balances may
temporarily exceed such coverage. The Company considers all highly liquid debt
instruments, which could include commercial paper and certificates of deposits,
with an original maturity of three months or less to be cash equivalents.
Investments with maturities greater than three months and less than on year are
classified as short term investments.
Intangible Assets - Intangible assets are
comprised of intellectual property which is amortized on a straight-line basis
over the assets respective life, ranging from 24 months to 120 months.
Intellectual property with a perpetual life in not amortized.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment on an
annual basis or whenever events or changes in circumstances indicate that the
carrying amount of such asset may not be recoverable. The determination of
recoverability of long-lived assets is based on an estimate of undiscounted
future cash flows resulting from the use of the asset or its disposition.
Measurement of an impairment loss for long-lived assets that management expects
to hold and use is based on the fair value of the asset. Long-lived assets to be
disposed of are reported at the lower of carrying amount or net realizable
value.
Revenue Recognition Revenue is
recognized when persuasive evidence of an arrangement exists, goods are
delivered, sales price is determinable, and collection is reasonably
assured.
Fair Value ASC 820 defines fair value,
establishes a framework for measuring fair value and enhances disclosures about
fair value measurements. It defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820 also
establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities that are not active; and model-driven
valuations whose inputs are observable or whose significant value drivers are
observable. Valuations may be obtained from, or corroborated by, third-party
pricing services.
Level 3: Unobservable inputs to measure fair value of assets
and liabilities for which there is little, if any market activity at the
measurement date, using reasonable inputs and assumptions based upon the best
information at the time, to the extent that inputs are available without undue
cost and effort.
8
As of June 30, 2015 and 2014, the significant inputs to the
Companys derivative liability calculation were Level 3 inputs.
Stock-Based Compensation For stock and
stock options awarded in return for services rendered, the expense is measured
at the grant-date fair value of the award and recognized as compensation expense
on a straight-line basis over the service period, which is the vesting period.
The Company estimates forfeitures that it expects will occur and records expense
based upon the number of awards expected to vest.
Earnings Per Share - Basic net loss per
share amounts are computed by dividing the net loss by the weighted average
number of common shares outstanding over the reporting period. In periods in
which the Company reports a net loss, dilutive securities are excluded from the
calculation of diluted net loss per share amounts as the effect would be
anti-dilutive.
For six months ended June 30, 2015 and 2014, the following
convertible debt and warrants to purchase shares of common stock were excluded
from the computation of diluted net loss per share, as the inclusion of such
shares would be anti-dilutive:
|
|
Six Months
Ended |
|
|
|
June 30,
|
|
|
|
2015 |
|
|
2014 |
|
Convertible debt |
|
84,654,907 |
|
|
2,324,394 |
|
Stock warrants |
|
27,146,592 |
|
|
7,816,928 |
|
Total common shares issuable
|
|
111,801,499 |
|
|
10,141,322 |
|
Recently Issued Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
Subsequent Events The Company has
evaluated all transactions occurring from June 30, 2015 through the date of
issuance of the consolidated financial statements for disclosure consideration.
9
NOTE 3 INTANGIBLE ASSETS
The following is a summary of the licenses acquired to date
from Nanotech Industries, Inc. (NTI)
|
|
|
Term (date) |
Original |
Carrying Value |
Carrying Value at
|
|
License Rights |
Licensed
Region |
of License |
Cost |
at June 30, |
December 31, |
|
Overview |
|
|
|
2015 |
2014 |
|
|
|
|
|
|
|
|
|
|
12-Jun-10 |
|
|
|
A |
Coating Products |
North America |
|
$500,000 |
$0 |
$0 |
|
|
|
6 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
17-Mar-11 |
|
|
|
B |
Coating Products |
Russian Territory |
|
$150,000 |
$27,200 |
$29,600 |
|
|
|
10 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
07-Jul-11 |
|
|
|
C |
Coating Products |
European Continent |
|
$1,250,000 |
$199,400 |
$269,780 |
|
|
|
5 years |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
D |
Spray Foam |
North America, |
06-May-16 |
$500,000 |
$211,845 |
$336,825 |
|
Insulation |
European Continent |
|
|
|
|
|
|
and |
|
|
|
|
|
|
|
|
|
|
|
|
|
Russian Territory |
2 years |
|
|
|
|
|
|
|
|
|
|
|
Added Applications |
|
|
|
|
|
|
including synthetic |
North America, |
|
|
|
|
|
leather, sealants and |
European Continent |
|
|
|
|
E |
adhesives |
and Russian Territory |
31-Mar-17 |
$2,000,000 |
$1,1166,666 |
$1,500,000 |
|
|
|
|
|
|
|
|
|
|
3 years |
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
|
$4,400,000 |
$1,605,112 |
$2,136,205 |
Intangible assets activity is as follows for the six months
ended June 30, 2015 and 2014:
|
|
2015 |
|
|
2014 |
|
|
|
|
|
|
|
|
Net intangible assets,
beginning of period |
$ |
2,136,205
|
|
$ |
444,940
|
|
|
|
|
|
|
|
|
Less:
current amortization |
|
( 531,093 |
) |
|
(72,780 |
) |
Net intangible assets, end of period |
$ |
1,605,112 |
|
$ |
372,160 |
|
The balance of intangible assets, net is as follows:
|
|
June 30, 2015 |
|
|
December 31, 2014 |
|
Intangible assets |
$ |
3,618,083
|
|
$ |
3,618,083
|
|
Less: accumulated amortization |
|
(2,012,971 |
) |
|
(1,481,878 |
) |
Intangible assets, net |
$ |
1,605,112 |
|
$ |
2,136,205 |
|
NOTE 4 LOANS PAYABLE
Loans payable include a loan from a non-related party that was
issued for $75,000 on November 16, 2010 and was repayable on May 16, 2011 with a
10% premium. The balance at June 30, 2015 and December 31, 2014 was $27,500, and the loan is currently in default. The
Company has not received any notices from the loan holder with respect to the
defaults.
10
In 2012, the Company entered into various loan agreements
totalling $681,500 at interest rates ranging from 15%-25%. These loans are all
currently in default. The creditors have not called these loans.
In 2013, the Company entered into various loan agreements
totalling $268,500, at interest rates ranging from 15%-16%. These loans are all
currently in default. The creditors have not called these loans.
In 2015, several non-related parties advanced the Company
$229,000. These are all demand loans, non-interest bearing with no specified
terms of repayment.
The Company recorded $0 and $5,455 of interest expense related
to the debt discount during the six months ended June 30, 2015 and 2014,
respectively. During the six months ended June 30, 2015 and 2014, interest
expense related to these notes was $85,317 and $81,552, respectively, and the
interest paid was $21,450 and $18,792, respectively. The Company had an
outstanding balance of $1,206,500 and $977,500 as of June 30, 2015 and December
31, 2014, respectively.
NOTE 5 LOANS PAYABLE SHAREHOLDERS
During the years ended December 31, 2014, 2013, 2012 and 2011,
the Company entered into various loan agreements and arrangements for loans with
certain shareholders. The loans all have different maturity dates ranging from
2011 to 2015 and interest rates that range from 2% to 18%. The total amount of
the loans was $1,944,503, of which the Company was in default on loans totalling
$1,000,466 as of June 30, 2015. The shareholders have not called these
loans.
During the six months ended June 30, 2015, the Company received
$990,757 in shareholder loans and repaid $894,870.
During the six months ended June 30, 2015, a
shareholder-creditor transferred $100,000 of its outstanding balance owed by the
Company to a third party. The Company and the third party agreed to amend the
loan agreement to allow the third party to convert the principal balance into
shares of the Companys stock. The third party converted the principal balance
of $100,000 into 6,252,324 shares of the Companys common stock. The shares had
a fair value of $258,141 and the Company recorded a loss on debt extinguishment
of $158,141.
During the six months ended June 30, 2015 and 2014, the Company
recorded interest expense related to the amortization of debt discounts of $0
and $12,404, respectively, related to all loans from shareholders. As of June
30, 2015 and 2014, the total interest expense was $33,950 for both years, and
the total interest paid on loans from shareholders was $2,810 and $7,671,
respectively. The Company had an outstanding balance of $1,935,900 and
$1,944,504 as of June 30, 2015 and December 31, 2014, respectively.
NOTE 6 CONVERTIBLE DEBENTURES
On April 29, 2011, the Company issued convertible debentures
for proceeds of $1,201,000 (the April 29 debenture) and on February 21, 2012,
issued an additional $119,500 (the Feb 21 debenture and together the
Debentures) with a maturity of 36 months and a coupon rate of 10% per annum
payable in cash or capital stock at the Companys discretion. The debentures are
held by third parties and by non-controlling shareholders, and are convertible
as follows:
11
April 29, 2011 convertible debentures
-by dividing the conversion amount by a conversion factor of
1.4 yielding Units of the Company where each Unit (at a price of $1.40 per
Unit), is comprised of 1 share of common stock and one half of a warrant to
purchase a share of common stock of the Company with an exercise price of $2.00
per share and a maturity at April 29, 2014. Warrants are exercisable at the
option of the holder at any time prior to maturity.
February 21, 2012 convertible debentures:
-by dividing the conversion amount by a conversion factor of
1.45 yielding Units of the Company where each Unit (at a price of $1.45 per
Unit), is comprised of 1 share of common stock and one half of a warrant to
purchase a share of common stock of the Company with an exercise price of $2.10
per share and a maturity at February 21, 2015. Warrants are exercisable at the
option of the holder at any time prior to maturity.
Both debentures carry an anti-dilution provision. The
conversion price applicable to the debentures is subject to reset in the event
of a Dilutive Issuance (as defined in the debenture agreement) by the Company. A
Dilutive Issuance excludes shares or options issued to employees, officers,
directors or consultants pursuant to stock option plans approved by the Board of
Directors.
The Company recorded a corresponding discount of $46,721 and
$558,248 against the carrying value of the convertible debentures during the
years ended December 31, 2012 and 2011, respectively. The discounts were
amortized using the effective interest method over the term of the debt.
On November 20, 2013, the Company entered in an amendment
agreement modifying its terms with both the April 29 and February 21 debenture
holders as follows:
1) The maturity date of the Debentures, was extended by a
period of 24 (twenty-four) months, to April 29, 2016 and February 21, 2017,
respectively,
2) Each Unit into which the Debentures are convertible shall be
comprised of 2 stock purchase warrants at an exercise price per share equal to
the conversion price. The warrants shall expire 36 (thirty-six months) from the
date of issuance.
As consideration for the amendments, the Company issued a total
of 400,152 shares to the debenture holders at a price of $0.33 per share.
The amendment resulted in an extinguishment of both the April
29 and February 21 Debentures as the present value of the new convertible
debentures exceeded the present value of the old debentures by greater than
10%.
The Company measured the fair value of the embedded derivatives
in the April 29 Debentures, which was $76,322 on the date of the amendments and
recorded a gain of $61,238 for the change in fair value of the derivative
liabilities.
The Company recorded a loss on extinguishment of debt on the
April 29 debenture of $530,541 and the new debt was recorded at its fair value
of $1,268,453 with a corresponding derivative liability of $357,790.
During the year ended December 31, 2014, the Company issued
432,454 shares of common stock for a value of $132,050 to pay for accrued
interest of $64,597 and the remainder was applied against the outstanding
principal balance. As of June 30,2015, the outstanding principal balance of the
April 29 debenture was $1,201,000.
The Company measured the fair value of the embedded derivatives
in the February 21 debentures, which was $23,090 on the date of the amendments
and recorded a gain of $6,071 for the change in fair value of the derivative
liabilities.
12
The Company recorded a loss on extinguishment of debt on the
February 21 debenture of $113,195 and the new debt was recorded at its fair
value of $128,405 with a corresponding derivative liability of $102,150.
On November 12, 2014, the Company issued convertible debentures
for $25,000, a maturity of 24 months and a coupon rate of 10% per annum payable
in cash or capital stock at the Companys discretion. The debentures are held by
third parties and by non-controlling shareholders. The conversion price is
calculated as 45% of the average trading price for the five days prior to the
conversion however the conversion price can never be lower than $0.08 per share
nor can it exceed $0.30 per share. The Company recorded a discount of $2,804.
During the six months ended June 30, 2015 the company amortized discount of $846
to interest expense. An unamortized discount of $1,958 remains outstanding.
Interest of $66,722 has been recorded for the six months ended
June 30, 2015 and June 30, 2014, respectively. No interest payments were made
during the six months ended June 30, 2015. The balance of the debentures at June
30, 2015 was $1,343,542 and at December 31, 2014 was $1,342,696.
NOTE 7 CONVERTIBLE NOTES
On July 23, 2014, the Company entered into an agreement with an
investor whereby the investor could lend a principal sum up to $250,000
including an original issue discount (OID) of $25,000. Upon signing, the
investor was required to pay $111,111 with the OID prorated based on the actual
consideration paid. The investor may pay additional amounts at its own
discretion. The OID on the $111,111 investment was $11,111 and was recorded as
debt discount. In March 2015, the Company borrowed an additional $62,223 with
and OID of $12,223 from the investor. If the Company pays the investor within 90
days then there is 0% interest, and if the Company pays after 90 days then there
is a one-time interest charge of 12% applied to the outstanding balance. The
maturity date is 2 years from the date of each borrowing and the outstanding
balance and any interest is due and payable. The note is convertible into common
shares of the Company. The conversion price is 60% of the lowest trade price of
the 25 trading days prior to the conversion.
In the case that conversion shares are not deliverable, an
additional 10% discount will apply; and if the shares are ineligible for deposit
into the Depository Trust Company system and only eligible for Xclearing
deposit, an additional 5% discount shall apply; and in the case of both, an
additional cumulative 15% discount shall apply.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of
$153,702, a debt discount of $100,000 and recognized the difference as
additional interest during the year ended December 31, 2014. The Company
recorded a derivative liability of $95,613 for the amount borrowed in March 2015
with $50,000 being recorded as a debt discount and recognized the difference as
additional interest expense. During the six months ended June 30, 2015 the
Company amortized $10,058 of the debt discount as interest expense.
The Company repaid the original borrowing of $111,111 and
accrued interest of $13,333 in January 2015. The Company amortized the remaining
debt discount of $86,605 on the original borrowing as interest expense on the
date the note was repaid. The Company amortized $4,960 of the debt discount as
interest expense on the $62,223 additional borrowing for the six months ended
June 30, 2015.
On October 3, 2014, the Company entered into an agreement with
an investor whereby the investor loaned a principal sum of $115,000. Upon
signing, the Company received $108,000 in cash and paid fees of $7,000 recorded
as debt discount. The maturity date is April 3, 2015 and the interest rate from
the date of borrowing is 12% per annum. The note and any accrued unpaid interest
are convertible into common shares of the Company. The conversion price is 60%
of the lowest trade price of the 20 trading days prior to the conversion. The
Note has redemption premiums, if the Note is repaid prior to maturity, of 130%
up until the 160th day and 150% thereafter up until maturity. The Company does
not intend to repay the Note prior to maturity.
13
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $73,357
and a debt discount was recorded. During the six months ended June 30, 2015, the
Company fully amortized the debt discount on the note as interest expense. The
company has repaid the loan through the conversion of $36,239 for 4,919,344
shares. The remaining $78,761 was paid through a cash payment of $130,629 with
the remainder against accrued interest of $7,140 and $44,728 of interest expense
from prepayment penalties.
On November 13, 2014, the Company entered into an agreement
with an investor whereby the investor loaned a principal sum of $54,000. Upon
signing, the Company received $50,000 in cash and paid fees of $4,000, recorded
as a debt discount. The maturity date is August 17, 2015 and the interest rate
from the date of borrowing is 8% per annum. If the note is unpaid by maturity
the interest rate becomes 22% per annum thereafter. The note and any accrued
unpaid interest are convertible into common shares of the Company 180 days after
the issuance of this note. The conversion price is 61% of the lowest trade price
of the 10 trading days prior to the conversion.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $65,717
of which $50,000 was recorded as debt discount, and $15,717 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $35,285 of the debt discount as interest expense and recorded accrued
interest of $2,150.
The lender converted $46,780 of debt for 12,245,222
shares.
On January 7, 2015, the Company entered into an agreement with
an investor whereby the investor loaned a principal sum of $65,000. The Company
received $50,000 in cash and paid fees of $15,000, recorded as a debt discount.
The maturity date of the note is September 30, 2015 and the interest rate from
the date of borrowing is 18% per annum. If the convertible note is unpaid by
maturity the interest rate becomes 22% per annum thereafter. The convertible
note and any accrued unpaid interest is convertible into common shares of the
Company 180 days after the issuance of this note. The conversion price is 50% of
the lowest closing bid price of the 20 trading days prior to the conversion. The
convertible note has a redemption premiums if the convertible note is repaid
prior to 180 days of 120% of the principal and accrued interest.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $111,083
of which $50,000 was recorded as debt discount, and $61,083 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $43,095 of the debt discount as interest expense.
On January 13, 2015, the Company entered into an agreement with
an investor whereby the investor loaned a principal sum of $52,500. Upon
signing, the Company received $50,000 in cash and paid fees of $2,500, recorded
as a debt discount. The maturity date of the convertible note is January 13,
2016 and the interest rate from the date of borrowing is 8% per annum. If the
note is unpaid by maturity the interest rate becomes 24% per annum thereafter.
The note and any accrued unpaid interest are convertible into common shares of
the Company 180 days after the issuance of this Note. The conversion price is
60% of the lowest closing bid price of the 20 trading days prior to the
conversion. The note has redemption premiums if the note is repaid prior to 180
days of 110% to 135% based on the number of days after the issuance that the
note is repaid.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $109,533
of which $50,000 was recorded as debt discount, and $59,533 as additional
interest expense. During the six months ended June 30, 2015 the Company
amortized the $24,164 of debt discount as interest expense and recorded accrued
interest of $1,950.
On January 16, 2015, the Company entered into an agreement with
an investor whereby the investor lent a principal sum of $54,000. Upon signing,
the Company received $50,000 in cash and paid fees of $4,000, recorded as a debt
discount. The maturity date is October 20, 2015 and the interest rate from the
date of borrowing is 8% per annum. If the note is unpaid by maturity the
interest rate becomes 22% per annum thereafter. The note and any accrued unpaid
interest is convertible into common shares of the Company 180 days after the
issuance of this note. The conversion price is 61% of the lowest trade price of
the 10 trading days prior to the conversion. The note has redemption premiums
if the Note is repaid prior to 180 days of 135% of the outstanding principal and
accrued interest balances.
14
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $82,026
of which $50,000 being recorded as debt discount, and $32,026 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $32,166 of the debt discount as interest expense and recorded accrued
interest of $1,780.
On January 21, 2015, the Company entered into an agreement with
an investor whereby the investor loaned a principal sum of $35,000. Upon
signing, the Company received $33,000 in cash and paid fees of $2,000, recorded
as a debt discount. The maturity date is January 21, 2016 and the interest rate
from the date of borrowing is 8% per annum. If the note is unpaid by maturity
the interest rate becomes 22% per annum thereafter. The note and any accrued
unpaid interest are convertible into common shares of the Company 180 days after
the issuance of this note. The conversion price is 60% of the lowest closing bid
price of the 20 trading days prior to the conversion. The note has redemption
premiums if the note is repaid prior to 180 days of 135% of the outstanding
principal and accrued interest balances.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $65,569
of which $33,000 was recorded as debt discount, and $32,569 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $15,342 of the debt discount as interest expense and recorded accrued
interest of $1,220.
On January 28, 2015, the Company entered into an agreement with
an investor whereby the investor agreed to lend a principal sum of up to
$220,000. Upon closing, the Company received $35,000 in cash The Company paid an
OID of $3,500 and an interest payable on issuance $3,850. The maturity date of
the notes is January 28, 2016 and the interest rate from the date of borrowing
is 10% per annum which was recorded at issuance. If the note is unpaid by
maturity the interest rate becomes 20% per annum thereafter. The note and any
accrued unpaid interest are convertible into common shares of the Company 180
days after the issuance of this note. The conversion price is 60% of the lowest
trading price of the 25 trading days prior to the conversion. The note has
redemption premiums if the note is repaid prior to 180 days of 135% of the
outstanding principal and accrued interest balances.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $80,513
of which $35,000 being recorded as debt discount, and $45,513 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $17,752 of the debt discount as interest expense.
On February 5, 2015, the Company entered into an agreement with
an investor whereby the investor agreed to lend a principal sum of up to
$250,000 with OID of 12% of all amounts borrowed. Upon closing, the Company
received $25,000 in cash and paid fees of $2,174, recorded as a debt discount.
The maturity date is February 5, 2017. The note does not bear interest, however,
if the note is unpaid by maturity the interest rate becomes 24% per annum
thereafter. The note and any accrued unpaid interest are convertible into common
shares of the Company 180 days after the issuance of this note. The conversion
price is 60% of the lowest trading price of the 25 trading days prior to the
conversion. The note has redemption premiums if the note is repaid prior to 180
days of 135% of the outstanding principal and accrued interest balances.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $50,952
of which $25,000 was recorded as debt discount, and $25,952 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $5,390 of the debt discount as interest expense and recorded accrued
interest of $1,320.
On March 6, 2015, the Company entered into an agreement with an
investor whereby the investor agreed to lend a principal sum of up to $100,000.
Upon closing, the Company received $25,000 in cash and recorded an OID $2,778 as
debt discount. The maturity date is March 6, 2017. The note has a one time
interest fee from the date of each borrowing of 12% per annum and was recorded
at issuance as debt discount in the amount of $3,333. If the note is unpaid by
maturity the interest rate becomes 24% per annum thereafter.
15
The note and any accrued unpaid interest are convertible into
common shares of the Company 180 days after the issuance of this note. The
conversion price is 60% of the lowest closing bid price of the 20 trading days
prior to the conversion. The Note has redemption premiums if the Note is repaid
prior to 180 days of 135% of the outstanding principal and accrued interest
balances.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $50,880
of which $25,000 was recorded as debt discount, and $25,880 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $4,937 of the debt discount as interest expense.
On March 26, 2015, the Company entered into an agreement with
an investor whereby the investor loaned a principal sum of $22,500. Upon
signing, the Company received $18,750 in cash and paid fees of $3,750, recorded
as a debt discount. The maturity date is March 26, 2016 and the interest rate
from the date of borrowing is 8% per annum. If the note is unpaid by maturity
the interest rate becomes 24% per annum thereafter. The note and any accrued
unpaid interest are convertible into common shares of the Company 180 days after
the issuance of this Note. The conversion price is 60% of the lowest trading
price of the 20 trading days prior to the conversion. The Note has redemption
premiums if the note is repaid prior to 180 days of 135% of the outstanding
principal and accrued interest balances.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $56,832
of which $18,750 was recorded as debt discount, and $39,882 as additional
interest expense. During the six months ended June 30, 2015, the Company
amortized $5,902 of the debt discount as interest expense.
On March 9, 2015, the Company entered into an agreement with an
investor whereby the investor loaned a principal sum of $33,000. Upon signing,
the Company received $30,000 in cash and paid fees of $3,000, recorded as a debt
discount. The maturity date is December 11, 2015 and the interest rate from the
date of borrowing is 8% per annum. If the note is unpaid by maturity the
interest rate becomes 22% per annum thereafter. The note and any accrued unpaid
interest are convertible into common shares of the Company 180 days after the
issuance of this Note. The conversion price is 61% of the average of the three
lowest trading prices of the 10 trading days prior to the conversion.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $9,812
with a corresponding amount recorded as debt discount. During the six months
ended June 30, 2015, the Company amortized $5,227 of the debt discount as
interest expense and recorded accrued interest of $820.
On March 31, 2015, the Company entered into an agreement with
an investor whereby the investor loaned a principal sum of $40,000. Upon
signing, the Company received $36,500 in cash and paid fees of $3,500, recorded
as a debt discount. The maturity date is March 31, 2016 and the interest rate
from the date of borrowing is 10% per annum. If the note is unpaid by maturity
the interest rate becomes 24% per annum thereafter. The note and any accrued
unpaid interest are convertible into common shares of the Company 180 days after
the issuance of this Note. The conversion price is 60% of the lowest trading
prices of the 40 trading days prior to the conversion.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $36,500
of which $34,762 was recorded as debt discount and $1,738 as additional interest
expense. During the six months ended June 30, 2015, the Company amortized $9,945
of the debt discount as interest expense and recorded accrued interest of $990.
On May 8, 2015, the Company entered into an agreement with an
investor whereby the investor loaned a principal sum of $25,000. Upon signing,
the Company received $17,000 in cash and paid fees of $8,000, recorded as a debt
discount. The maturity date is May 8, 2016 and the interest rate from the date
of borrowing is 8% per annum. If the note is unpaid by maturity the interest
rate becomes 24% per annum thereafter. The note and any accrued unpaid interest
are convertible into common shares of the Company 180 days after the issuance of this Note. The conversion price
is 60% of the lowest trading prices of the 15 trading days prior to the
conversion
16
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $19,944
of which $17,000 was recorded as debt discount and $2,944 as additional interest
expense. During the six months ended June 30, 2015, the Company amortized $3,620
of the debt discount as interest expense and recorded accrued interest of $290.
On May 21, 2015, the Company entered into an agreement with an
investor whereby the investor loaned a principal sum of $38,000. Upon signing,
the Company received $35,000 in cash and paid fees of $3,000, recorded as a debt
discount. The maturity date is February 26, 2016 and the interest rate from the
date of borrowing is 8% per annum. If the note is unpaid by maturity the
interest rate becomes 22% per annum thereafter. The note and any accrued unpaid
interest are convertible into common shares of the Company 180 days after the
issuance of this Note. The conversion price is 61% of the average of the three
lowest trading prices of the 10 trading days prior to the conversion.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $25,808
with a corresponding amount recorded as debt discount. During the six months
ended June 30, 2015, the Company amortized $4,101 of the debt discount as
interest expense and recorded accrued interest of $330.
On June 9, 2015, the Company entered into an agreement with an
investor whereby the investor loaned a principal sum of $25,000. Upon signing,
the Company received $19,700 in cash and paid fees of $5,300, recorded as a debt
discount. The maturity date is June 9, 2016 and the interest rate from the date
of borrowing is 8% per annum. If the note is unpaid by maturity the interest
rate becomes 24% per annum thereafter. The note and any accrued unpaid interest
are convertible into common shares of the Company at any time after the issuance
of this Note. The conversion price is 60% of the lowest trading prices of the 20
trading days prior to the conversion. The company has repaid the loan through
the conversion of $19,119 for 6,380,515 shares.
The Company determined that the conversion option was a
derivative. Accordingly, the Company recorded a derivative liability of $21,461
of which $21,461was recorded as debt discount and $1,761 as additional interest
expense. During the six months ended June 30, 2015, the Company amortized
$17,768 of the debt discount as interest expense and recorded accrued interest
of $120.
NOTE 8 SENIOR SECURED CONVERTIBLE DEBENTURES
On August 16, 2010, the Company entered into a securities
purchase agreement with a third party for the subscription of senior secured
convertible debentures (SSCD) for an amount of $400,000. The debentures have a
maturity date of August 16, 2012 with a coupon of 10% and convert at the option
of the holder into shares of common stock of the Company at a price of $0.75 per
share. The notes are secured by all assets of the Company. The subscriber also
received 533,336 Series A warrants with a maturity of 1 year and an exercise
price of $1.25 and 133,360 Series B warrants with a term of 3 years and an
exercise price of $1.50. The debentures and Series A warrants carry registration
rights whereby upon the consummation of the reverse merger with Nanotech, the
shares underlying the debentures and Series A warrants will be registered as
soon as is practicable. To date, the shares have not been registered. All prices
and warrants issued have been adjusted for the post-acquisition of Nanotech by
HCT.
During the year ended December 31, 2011, $200,000 of the debt
was repaid through the issuance of a Convertible Debenture due April 29, 2014.
The Company is in default of payment of the debentures which
matured on August 16, 2012. No notices have been issued by the debenture
holder.
The obligations of the Company under the SSCD will rank senior
to all outstanding and future indebtedness of the Company and shall be secured by a first priority,
perfected security interest in all the assets of the Company.
17
NOTE 9 DERIVATIVE LIABILITIES
The embedded conversion features in the convertible debentures
and attached warrants are accounted for as a derivative liability. The warrants
contain full ratchet reset features (subject to adjustment for dilutive share
issuances) and should be valued as a derivative liability.
The valuation of the derivative liability attached to the
Debentures arrived at through the use of multinomial lattice models based on a
probability weighted discounted cash flow model. These models are based on
future projections of the various potential outcomes. The features in the note
that were analyzed and incorporated into the model included the conversion
feature with the reset provisions and the call/redemption options. Based on
these features, there are six primary events that can occur: payments are made
in cash; payments are made with stock; the holder converts upon receiving a
change notice; the holder converts the note; the Issuer redeems the note; or the
company defaults on the note.
The model analyzed the underlying economic factors that
influenced which of these events would occur, when they were likely to occur,
and the specific terms that would be in effect at the time (i.e. interest rates,
stock price, conversion price, etc.). Projections were then made on these
underlying factors which led to a set of potential scenarios. Probabilities were
assigned to each of these scenarios over the remaining term of the note based on
management projections. This led to a cash flow projection over the life of the
note and a probability associated with that cash flow. A discounted weighted
average cash flow over the various scenarios was completed, and it was compared
to the discounted cash flow of the note without the embedded features, thus
determining a value for the derivative liability. For the six months ended June
30, 2015, the Company recorded derivative liabilities for issuance of
convertible notes payable initial fair value of $820,064. As of June 30, 2015,
the fair value of the embedded derivatives in the Convertible Debentures was
$361,514 with a current portion of $273,209 and a long term portion of $88,305..
The Company recorded unrealized gains of $477,158 and $762,908
for the six months ended June 30, 2015 and June 30, 2014 respectively. The fair
value of the derivative liability was $361,514 and $181,723 as of June 30, 2015
and December 31, 2014, respectively. Activity during the six months ended June
30, 2015 is as follows:
18
|
|
Derivative Values |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value |
|
|
|
|
Debt |
|
December 31, |
|
|
Additions |
|
|
Conversions |
|
|
Increase |
|
|
June 30, 2015 |
|
Instrument |
|
2014 |
|
|
|
|
|
|
|
|
(decrease) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29 debenture |
$ |
13,405 |
|
$ |
- |
|
$ |
- |
|
$ |
(13,196 |
) |
$ |
209 |
|
Feb 21 debenture |
|
9,000 |
|
|
- |
|
|
- |
|
|
(8,377 |
) |
|
623 |
|
Oct 10 note |
|
73,472 |
|
|
- |
|
|
(109,896 |
) |
|
36,424 |
|
|
- |
|
Nov 12 debenture |
|
2,750 |
|
|
- |
|
|
- |
|
|
1,634 |
|
|
1,958 |
|
Nov 13 debenture |
|
83,096 |
|
|
- |
|
|
(36,885 |
) |
|
(42,182 |
) |
|
1,203 |
|
2015 convertible notes |
|
- |
|
|
820,064 |
|
|
(16,334 |
) |
|
(451,461 |
) |
|
357,521 |
|
Total |
$ |
181,723 |
|
$ |
820,064 |
|
$ |
(163,115 |
) |
$ |
(477,158 |
) |
$ |
361,514 |
|
The following table sets forth a reconciliation of changes in
the fair value of financial assets and liabilities classified as Level 3 in the
fair value hierarchy:
|
|
Significant Unobservable Inputs |
|
|
|
(Level 3) |
|
|
|
Six Months Ended June 30, |
|
|
|
2015 |
|
|
2014 |
|
Beginning balance |
$ |
181,723
|
|
$ |
816,488
|
|
Additions |
|
820,064 |
|
|
- |
|
Conversions |
|
(163,115 |
) |
|
- |
|
Total (gains) and losses |
|
(477,158 |
) |
|
(762,908 |
) |
Ending balance |
$ |
361,514 |
|
$ |
53,580 |
|
|
|
|
|
|
|
|
Unrealized gains (losses)
included in earnings relating to change in fair value derivative
liabilities |
$ |
477,158 |
|
$ |
762,908 |
|
NOTE 10 STOCKHOLDERS DEFICIT
On April 17, 2015, the shareholders approved an increase in
authorized common stock from 150 million to 650 million common shares.
During the six months ended June 30, 2015, the Company issued a
total of 17,200,000 shares of common stock to a shareholder-creditor for payment
of outstanding accounts payable. The fair value of the shares was $459,220 based
on the market price on the date of grant which settled accounts payable and
accrued liabilities to related parties of $146,900. Accordingly, the Company
recognized a loss on settlement in the amount of $312,320.
19
During the six months ended June 30, 2015, a
shareholder-creditor transferred $100,000 of its outstanding balance owed by the
Company to a third party. The Company and the third party agreed to amend the
loan agreement to allow the third party to convert the principal balance into
shares of the Companys stock. The third party converted the principal balance
of $100,000 into 6,252,324 shares of the Companys common stock. The shares had
a fair value of $258,141 and the Company recorded a loss on debt extinguishment
of $158,141.
Convertible notes holders converted principal of $104,138 into
23,545,080 shares of the Companys common stock. The Company recorded a
reduction of $163,115 in the derivative liability with a corresponding increase
in paid-in capital.
The Company issued 2,590,668 shares of common stock to
consultants as payment for services. The shares had a fair value of $182,198
based on the market price on the date of grant and were recorded as stock-based
compensation.
During the six months ended June 30, 2015, 410,000 shares of
common stock were issued on the cash-less exercise of 420,000 warrants. Upon
exercise of warrants, another 500,000 common shares were issued for $500.
Additionally, the Company cancelled 1,950,000 common shares in
exchange for 1,950,000 warrants with a 5-year term and an exercise price of
$0.001 at a value of $1,950.
Warrants
During the six months ended June 30, 2015, the Company issued
630,000 warrants to consultants for consulting services at a fair value of
$69,412 (recorded as stock-based compensation), 8,600,000 warrants to a
shareholder to repay accounts payable-related party with a fair value of
$614,260 (recorded as an adjustment to accounts payable-related party of
$245,000 and loss on settlement of payables of $369,260); 300,000 warrants to
shareholders for interest of $15,600, 6,0000,000 warrants to the CEO for
compensation of $48,600; 1,500,000 warrants to a related-party landlord for
$12,150 for payment to accounts payable related party; 1,950,000 warrants to
shareholder in exchange for the cancellation of 1,950,000 shares for
consideration of $ 1,950 all with a corresponding increase in additional paid-in
capital valued using the Black-Scholes method according to the following
assumptions:
Expected volatility
|
|
261%-276%
|
|
Exercise price |
$ |
0.001 |
|
Stock price |
$ |
0.0081-$0.50 |
|
Expected life |
|
5 years |
|
Risk-free interest rate |
|
1.19%-1.71% |
|
Dividend yield |
$ |
Nil |
|
A summary of the activity in the Company's warrants during the
six months ended June 30, 2015 is presented below:
|
|
Number
of |
|
|
Weighted
Average |
|
|
|
Warrants |
|
|
Exercise Price |
|
|
|
|
|
|
|
|
Outstanding and
exercisable at December 31, 2014 |
|
9,501,092
|
|
$ |
0.10 |
|
Issued |
|
18,980,000 |
|
$ |
0.001 |
|
Exercised |
|
(920,000 |
) |
$ |
0.001 |
|
Expired |
|
(415,000 |
) |
$ |
0.01 |
|
Outstanding and
exercisable at March 31, 2013 |
|
27,146,592 |
|
$ |
0.03 |
|
The intrinsic value of warrants outstanding at June 30, 2015
was $93,433.
20
Contingent Warrant Issuance
On July 20, 2012, the Companys board of directors approved the
issuance of 300,000 stock purchase warrants, exercise price of $0.001 per share
and a five-year life from date of issuance to the Companys President, Joseph
Kristul, contingent upon his successful negotiation of a major sales contract.
The major sales contract agreement has not yet been consummated by the Company.
NOTE 11 RELATED PARTY TRANSACTIONS
Fees charged by Shareholder
During the six months
ended June 30, 2015 and 2014, the Company was charged $203,717 and $522,000 by
an outside consultant, who is also a shareholder, for professional fees,
expenses and commissions. The amounts are included in accounts payable and
accrued liabilities to related parties. The Company has an outstanding balance
as of June 30, 2015 and December 31, 2014 of $248,961 and $212,682,
respectively.
Principal Debt Payments
During the six months ended
June 30, 2015, the Company made principal payments of $151,000 on its note
payable to NTI related to the 2014 acquisition of the Added Applications license
rights. The note matures on March 31, 2017, does not bear interest, and no
payments are required prior to maturity. The balance of the note was $1,738,491
and $1,889,491 at June 30, 2015 and December 31, 2014, respectively.
Shared Administrative Costs
The Company shares
office space and certain personnel with NTI. Costs are allocated among the
parties based on usage. Rent expense for the six months ended June 30, 2015 and
2014 were both $22,500.
NOTE 12 SUBSEQUENT EVENTS
Subsequent to June 30, 2015, the Company issued the following
shares:
-114,500,000 shares of common stock at a
fair value of $528,200 based on the market price on the dates of grant for
payment of $241,250 in accounts payable and accrued liabilities to a related
party. $286,750 was recorded as loss on settlement of debt.
-128,864,552 shares of common stock for
the conversion of $237,458 of principal and accrued interest on convertible
notes.
The Company issued 150,000 warrants to
purchase common stock for consulting services. The warrants have an exercise
price of $0.001 and a five year life. The fair value of the warrants using the
Black-Scholes model was $1,176.
On July 15, 2015, the Company issued a
convertible debenture for $20,000 which bears interest at 10% per annum. The
debenture is convertible at 50% of the lowest trading price for thirty days
before conversion. The debenture matures on October 21, 2015.
On July 15, 2015, the Company issued a
convertible debenture for $52,500 of which the Company received $50,000. The
debenture bears interest at a rate of 8% per annum. The debenture is convertible at a rate of 60% of the lowest closing price for
the previous twenty days. The debenture matures on July 16, 2016.
21
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward Looking Statements
The Managements Discussion and Analysis (MD&A) is
designed to assist investors in understanding the nature and the importance of
the changes and trends, as well as the risks and uncertainties associated with
the Companys operations and financial position. Some sections of this report
contain forward-looking statements that, because of their nature, necessarily
involve a number of known and unknown risks and uncertainties, including
statements regarding our capital needs, business strategy and expectations, and
the factors described under Risk Factors contained in the Companys Form 10-K
Report filed May 2, 2014. Any statements contained herein that are not
statements of historical facts may be deemed to be forward-looking statements.
In some cases, forward-looking statements can be identified by terminology such
as may, will, should, expect, plan, intend, anticipate, believe,
estimate, predict, potential or continue, the negative of such terms or
other comparable terminology. The Companys actual and future results could
therefore differ materially from those indicated or underlying these
forward-looking statements.
Although the Company deems the expectations reflected in these
forward-looking statements to be reasonable, the Company cannot provide any
guarantee as to the materialization of the expectations reflected in these
forward-looking statements.
The following information should be read in conjunction with
the unaudited financial statements for the period ended March 31, 2014 and notes
thereto. Unless otherwise indicated or the context otherwise requires, the
"Company," HCT, we," "us," and "our" refer to Hybrid Coating Technologies
Inc.
Compliance with Generally Accepted Accounting Principles
Unless otherwise indicated, the financial information presented
below, including tabular amounts, is expressed in US dollars and prepared in
accordance with accounting principles generally accepted in the United States
(GAAP).
Use of Estimates
The preparation of financial statements in conformity with GAAP
requires that management make estimates and assumptions that affect the reported
amounts of assets and liabilities, disclosure of contingent assets and
liabilities as at the date of the financial statements, and the reported amounts
of revenue and expenses during the reporting period. Critical items of the
financial statements that require the use of estimates include the determination
of the allowance for doubtful accounts, the determination of the allowance for
inventory obsolescence, the determination of the useful life of fixed and
intangible assets for amortization calculation purposes, the assumptions for
fixed asset impairment tests, the determination of the allowance for guarantees,
the determination of the allowance for income taxes, the assumptions used for
the purposes of calculating the stock-based compensation expense, the
determination of the fair value of financial instruments, the determination of
the fair value of the assets and liabilities acquired on business acquisitions
and the implicit fair value of goodwill.
The financial statements include estimates based on currently
available information and managements judgment as to the outcome of future
conditions and circumstances.
Changes in the status of certain facts or circumstances could
result in material changes to the estimates used in the preparation of the
financial statements and actual results could differ from the estimates and
assumptions.
22
Changes in Accounting Principles
No accounting changes were adopted during the three months
ended June 30, 2015.
23
Overview
Company Background
HCTs principal office is located in Daly City, California,
U.S.A.
As of June 30, 2015, HCT had 2 employees.
HCT offers an alternative to toxic formulations of polyurethane
(PU) worldwide through its exclusive distribution rights which provide for a
cost-effective alternative non-toxic (isocyanate-free) polyurethane, Green
Polyurethane. Its focus is within the C.A.S.E. segment specifically for large
industrial and commercial coatings applications where Green Polyurethane has a
natural competitive advantage over other PU and epoxy coatings due to its
superior chemical resistance and environmentally safe properties with reduced
health risks.
The Companys ultimate goal is to license its proprietary Green
Polyurethane formulation to national and/or global coatings formulators and
then focus on rolling out the commercialization of other Green Polyurethane
applications such as adhesives and sealants. In order to achieve this, the
Company is proving the validity of its products through direct sales and is
therefore targeting large distributors and multiple client bases. The Company
intends to focus within the C.A.S.E. segment specifically for large industrial
and commercial coatings applications where Green Polyurethane has a natural
competitive advantage over other polyurethane ("PU") and epoxy coatings due to
its superior chemical resistance and environmentally safe properties with
reduced health risks. Some of the target applications for Green Polyurethane
products markets include:
|
|
Industrial and commercial buildings |
|
|
Civil applications for tunnels and bridges
|
|
|
Private and public garages |
|
|
Chemical and food processing plants |
|
|
Warehouses |
|
|
Monolithic floorings for civil, industrial and
military engineering |
|
|
Marine and Aeronautic applications |
|
|
Industrial equipment for dairy and liquid
fertilizer processing plants and delivery systems |
|
|
Military facilities and equipment |
|
|
Protective coatings inside industrial and
commercial pipes |
The Companys business growth model includes a two-pronged
strategy of direct sales and licensing. HCTs ultimate goal is to license our
proprietary formulation to national or global coatings formulators. In order to
achieve this it is proving the validity of its products through direct
sales.
In addition, the Company plans to:
|
|
Increase the number of contractors and
applicators contacted |
|
|
Contact paint formulators and offer Green
Polyurethane® Binder for their proprietary formulations |
|
|
Establish distribution channels utilizing
existing distribution hubs |
|
|
Sub-license technology in certain geographic
areas. |
HCT intends to establish full commercial-scale manufacturing
for both of its products at Adhpro Adhesives in Magog, Quebec and Simpson
Coatings in California through non-exclusive toll manufacturing agreements.
24
HCTs strategy is to avoid large capital investments in
manufacturing and to outsource the manufacturing of the EPOD Products to
third-party manufacturers. At current capacity, the Company can outsource the
manufacture of up to 20,000 tons per year.
HCT is currently at the commencement of the commercialization
phase of its business model. HCT plans on significantly expanding its sales and
client base by promoting the NTI Products at trade unions, press and trade shows
and by capitalizing on existing distribution hubs to increase its distribution
channels and build new strategic relationships. The Company expects to have
significant sales by the end of 2015.
Results of Operation
HCT is does not yet have any significant revenues. Management
is in talks with prospective clients and the Company expects to have revenues in
this fiscal year. The Company recorded $4,103 in revenues for the three months
ended March 31, 2014. These sales were related to promotional samples of the
Companys products.
General and administrative expenses totaled $987,622 for the
six months ended June 30, 2015, as compared to $1,304,397 for the six months
ended June 30, 2013, representing a 23% decrease from the prior corresponding
period. Included in general administrative expenses for the six months ended
June 30 are the following:
|
|
6 months ended
June 30 |
|
|
|
|
|
|
2015 |
|
|
2014 |
|
|
% |
|
|
|
|
|
|
|
|
|
change |
|
Professional Fees |
$ |
577,161
|
|
$ |
492,808
|
|
|
17% |
|
Payroll |
|
22,902 |
|
|
58,067 |
|
|
(61% |
) |
Stock-based compensation
(non-cash) |
|
176,832 |
|
|
659,405 |
|
|
(73% |
) |
Rent, supplies and general office costs |
|
51,737 |
|
|
59,447 |
|
|
(13% |
) |
Travel and trade shows |
|
158,990 |
|
|
34,670 |
|
|
359% |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
987,622 |
|
$ |
1,304,397 |
|
|
(23% |
)
|
Professional fees were $577,161 for the six months ended June
30, 2015 compared to $492,808 for the six months ended June 30, 2014.
Professional fees increased due to greater use of consultants for financing,
sales and marketing purposes.
Payroll was $22,902 for the six months ended June 30, 2015
compared to $58,067 for the corresponding prior years period. Payroll decreased
due to a reduction in employees from three to two.
Stock based compensation was $176,832 for the six months ended
June 30, 2015 compared to $659,406 for the six months ended June 30, 2014. Stock
based compensation decreased by 73% from the prior years period due to the
decline in stock price and thus fair value of shares issued to consultants in
2015 as well as less shares and warrants given to consultants.
Rent, supplies and general office costs were $51,737 for the
six months ended June 30, 2015 a decrease of 13 % from the $59,447 for the
corresponding prior years period due to lower shipping and delivery charges in
2015.
25
For the six months ended June 30, 2015, travel and tradeshows
were $158,990 decreasing from $34,670 for the corresponding prior years period
as 2015. There was a strong effort to promote the product and raise financing in
2015.
The Company expects to significantly increase operating
expenses in the future including selling general and administrative expenses as
the Company commences its efforts to commercialize its products.
The Company had $531,093 of amortization expense related to its
intangible assets for the six months ended June 30, 2015, compared to $72,780
for the six months ended June 30, 2014. The increase in amortization expense was
a result of the increased intangible asset balance related to additional
licenses acquired subsequent to June 30, 2014.
The Company recognized a gain on change in fair value of
derivatives of $477,158 during the six months ended June 30, 2015, compared to a
gain of $762,908 in the six months ended June 30, 2014. The intrinsic fair value
of the Companys convertible notes decreased during the six months ended June
30, 2015. This decrease was due to the exercise price of the embedded conversion
feature decreasing as a result of the discount rate applied to the 25 day
average trading price of the Companys stock as measured at June 30, 2015
compared to the exercise price on the dates of issuance of the convertible
notes. Accordingly, as of June 30, 2015 the Company recorded a decrease in the
derivative liabilities and a corresponding gain n change in fair value.
The Company recorded $1,085,889 in interest expense for the six
months ended June 30, 2015, compared to $284,777 in interest expense for the six
months ended June 30, 2015. The increase in interest expense was a result of
$374,494 of interest expense being recorded on derivative liabilities in excess
of face value of convertible notes issued and amortization of debt discount of
$354,348 during the three months ended June 30, 2015. There were no comparable
convertible notes issued during the six months ended June 30, 2014.
During the six months ended June 30, 2015, the Company recorded
loss on extinguishment of debt in the amount of $355,641 compared to $1,340,079
recorded in the six months ended June 30, 2014. The decrease is due to certain
debt transactions which occurred in the prior year, but not in the current year.
In addition, for the six months ended June 30, 2015, the Company recorded a loss
on settlement of payables in the amount of $484,080 compared with $0 during the
six months ended June 30, 2014.
Comparison of the Three Months Ended June 30, 2015 with the
Three Months Ended June 30, 2014
General and administrative expenses totaled $496,287 for the
three months ended June 30, 2015, as compared to $698,450 for the three months
ended June 30, 2014, representing a 14% decrease from the prior corresponding
period. Included in general administrative expenses for the three months ended
June 30 are the following:
|
|
Three months |
|
|
Three months |
|
|
|
|
|
|
ended June 30, |
|
|
ended June 30, |
|
|
|
|
|
|
|
|
|
|
|
|
% |
|
|
|
2015 |
|
|
2014 |
|
|
change |
|
Professional Fees |
$ |
309,706
|
|
$ |
305,643
|
|
|
1% |
|
Payroll |
|
11,360 |
|
|
26,674 |
|
|
(57% |
) |
Stock-based compensation
(non-cash) |
|
67,000 |
|
|
321,155 |
|
|
(79% |
) |
Rent, supplies and general office costs |
|
27,497 |
|
|
23,973 |
|
|
15% |
|
Travel and trade shows |
|
80,724 |
|
|
21,005 |
|
|
284% |
|
|
|
|
|
|
|
|
|
|
|
Total |
$ |
496,287 |
|
$ |
698,450 |
|
|
(29% |
)
|
26
Professional fees were $309,706 for the three months ended June
30, 2015 with a minor 1% increase compared to $305,643 for the three months
ended June 30, 2014.
Payroll was $11,360 for the three months ended June 30, 2014
compared to $26,674 for the corresponding prior years period. There was a
reduction in one employee from 2015 to 2014.
Stock based compensation was $67,000 for the three months ended
June 30, 2015 compared to $321,155 for the three months ended June 30, 2014.
Stock based compensation decreased by 79% due to additional warrants issued to
consultants and employees for services in 2014.
Rent, supplies and general office costs were $27,497 for the
three months ended June 30, 2015 an increase of 15 % from the $23,973 for the
corresponding prior years period due to higher office expenses in 2015.
For the six months ended June 30, 2014, Travel and tradeshows
were $80,724 decreasing from $21,005 for the corresponding prior years period.
There was a strong effort to promote the product and raise financing in 2015.
Liquidity and Capital Resources
The Company had no cash and equivalents of June 30, 2015. For
the six months ended June 30, 2015, the Company received $982,006 proceeds from
shareholder loans and repaid $894,870 for shareholder and related party loans.
The Company also received $229,000 on loans payable and $474,950 in convertible
notes. The Company intends to raise additional capital to fund ongoing
operations, but has no assurances of being able to do so. The Company expects it
will need approximately $600,000 in additional funding to continue operations
for the next 12 months.
The ability of the Company to continue its operations is
dependent on the successful execution of management's plans, which include the
expectation of raising debt or equity based capital, with some additional
funding from other traditional financing sources, including term notes, until
such time that funds provided by operations are sufficient to fund working
capital requirements. The Company may need to incur additional liabilities with
related parties to sustain the Companys existence.
Principal Cash Flows for the six months ended June 30, 2015
Operating activities for the six months ended June 30, 2015,
used cash flows of $450,714 compared to $115,113 for the six months ended June
30, 2014. The Companys net loss for the six months ended June 30, 2015of
$2,960,422 was partly offset by $484,080 in loss on settlement of payables,
$355,641 in loss on extinguishment of debt, $182,199 for stock-based
compensation, $531,093 amortization of intangible asset and by non-cash
derivative liabilities in excess of debt and amortization of debt discounts of
$374,494 and $354,348, respectively. The increase in cash flows used in
operations was a result of the Companys increase in travel and use of
consultants for selling and marketing activities as well as searching for
financing opportunities.
Financing activities for the three months ended June 30, 2015,
provided cash flows of $450,715 compared to $155,113 for the six months ended
June 30, 2014. The increase in cash provided by financing activities was
primarily as a result of proceeds from loans and convertible notes during the
period.
Off Balance Sheet Arrangements
We have no off-balance sheet arrangements, including
arrangements that would affect our liquidity, capital resources, market risk
support and credit risk support or other benefits.
27
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Convertible Debt
The fair market value of our 10% senior secured convertible
debentures is subject to interest rate risk, market price risk and other factors
due to the convertible feature of the debentures. The fair market value of the
debentures will generally increase as interest rates fall and decrease as
interest rates rise. In addition, the fair market value of the debentures will
generally increase as the market price of our common stock increases and
decrease as the market price falls. The interest and market value changes affect
the fair market value of the debentures but do not impact our financial
position, cash flows or results of operations due to the fixed nature of the
debt obligations.
ITEM 4. CONTROLS AND PROCEDURES
Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Exchange Act) which are designed to
ensure that information required to be disclosed in the reports we file or
submit under the Exchange Act is recorded, processed, summarized and reported
within the time periods specified in the SECs rules and forms, and that such
information is accumulated and communicated to our management, including our
President and Chief Executive Officer, who also acts as our principal financial
officer, as appropriate, to allow timely decisions regarding required
disclosure.
Under the supervision and with the participation of our
management, including our President and Chief Executive Officer, who also acts
as our principal financial officer, an evaluation was performed on the
effectiveness of the design and operation of our disclosure controls and
procedures as of the end of the period covered by this quarterly report. Based
on that evaluation, our President and Chief Executive Officer, concluded that
our disclosure controls and procedures were not effective as of the end of the
period covered by this quarterly report for the purpose of gathering, analyzing
and disclosing of information that the Company is required to disclose in the
reports it files under the Exchange Act within the time periods specified in the
SECs rules and forms. The Company has undertaken steps to remedy this and
improve the effectiveness of its disclosure controls and procedures.
Changes in internal control over financial reporting
There were no changes in our internal control over financial
reporting that occurred during the period covered by this Quarterly Report on
Form 10-Q that have materially affected, or are reasonably likely to materially
affect, our internal control over financial reporting.
28
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
Item 1A. RISK FACTORS
We are a smaller reporting company (as defined by Rule 12b-2
of the Exchange Act) and are not required to provide the information required
under this item.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE
OF PROCEEDS
This Item is not applicable.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
This Item is not applicable.
ITEM 4. MINE SAFETY DISCLOSURES
This Item is not applicable.
ITEM 5. OTHER INFORMATION
This Item is not applicable.
29
ITEM 6. EXHIBITS
Exhibit Number |
|
Description of Exhibits |
|
|
|
3.1 |
|
Amended Articles of
Incorporation. (1) |
3.2 |
|
Bylaws, as amended. (1) |
3.3 |
|
Certificate of Amendment to
Articles of Incorporation (2) |
4.1 |
|
Convertible Debenture Agreement dated April
29,2011 Pursuant to Regulation D (6) |
4.2 |
|
Convertible Debenture Agreement
dated April 29,2011 Pursuant to Regulation S (6) |
10.1 |
|
Stock Purchase Agreement, dated August 18,
2010, by and among Nanotech Industries International Inc. and EPOD Solar
Inc. (3) |
10.2 |
|
Licensing Agreement between
Nanotech Industries International Inc. and Nanotech Industries Inc. dated
July 12, 2010 (4) |
10.3 |
|
Amendment to the Licensing Agreement previously
entered into on the 12th day of July, 2010 (5)
|
10.4 |
|
Securities Purchase Agreement
dated April 29,2011 Pursuant to Regulation D (6) |
10.5 |
|
Securities Purchase Agreement dated April
29,2011 Pursuant to Regulation S (6) |
10.6 |
|
Warrant Agreement dated April
29,2011 Pursuant to regulation D (6) |
10.7 |
|
Warrant Agreement dated April 29,2011 Pursuant
to regulation S (6) |
10.8 |
|
Amendment to articles of
incorporation to change the name of the company to Hybrid Coating
Technologies Inc. (7) |
10.9 |
|
Approval and adoption of the 2011 Stock
Incentive Plan (7) |
10.10 |
|
Second Amendment to the
Licensing Agreement previously entered into on the 12th day of
July, 2010 (8) |
10.11 |
|
Licensing Agreement between Nanotech Industries
International Inc. and Nanotech Industries Inc. dated October 18, 2011
(9) |
10.12 |
|
Convertible Debenture Agreement
Dated February 21, 2012 (10) |
10.13 |
|
Third Amendment of Licensing Agreement entered
into the 12th day of July 2010 (11) |
10.14 |
|
Amendment Agreements to
Convertible Debenture Agreements dated April 29,2011 and February
21,2012(12) |
10.15 |
|
Fourth Amendment of Licensing Agreement entered
into the 12th day of July 2010 (13) |
10.16 |
|
Fifth Amendment of Licensing
Agreement entered into the 12th day of July 2010 (14) |
10.17 |
|
Sixth Amendment of Licensing Agreement entered
into the 12th day of July 2010 (15) |
10.18 |
|
Seventh Amendment of Licensing
Agreement entered into the 12th day of July 2010 (16) |
10.19 |
|
Eight Amendment of Licensing Agreement entered
into the 12th day of July 2010 (17) |
10.20 |
|
Ninth Amendment of Licensing
Agreement entered into the 12th day of July 2010 (18) |
10.21 |
|
Form of 10% Convertible Debenture (Pursuant to
Regulation D)(19) |
10.22 |
|
Form of 10% Convertible
Debenture (Pursuant to Regulation S)(19) |
10.23 |
|
Form of Securities Purchase Agreement (Pursuant
to Regulation D)(19) |
10.24 |
|
Form of Securities Purchase
Agreement (Pursuant to Regulation S)(19) |
31.1 |
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. |
32.1 |
|
Certification of Principal
Executive Officer and Principal Financial Officer pursuant to Section 906
of the Sarbanes-Oxley Act of 2002. |
(1) Incorporated by reference to the Registration Statement on
Form S-1 (File No. 333-153675), filed with the SEC on September 26, 2008.
(2) Incorporated by reference to the Current Report on Form 8-K filed with
the SEC on July 22, 2009.
(3) Incorporated by reference to the Current
Report on Form 8-K filed with the SEC on August 30, 2010.
(4) Incorporated
as reference to the Current Report on Form 8-K filed with the SEC on August
30,2010
30
(5) Incorporated as reference to the Current Report on Form 8-K
filed with the SEC on March 14,2011
(6) Incorporated as reference to the
Current Report on Form 8-K filed with the SEC on May 3,2011
(7) Incorporated
as reference to the Schedule 14C filed with the SEC on July 6,2011
(8)
Incorporated as reference to the Current Report on Form 8-K filed with the SEC
on July 7,2011
(9) Incorporated as reference to the Current Report on Form
8-K filed with the SEC on October 18,2011
(10) Incorporated as reference to
the Current Report on Form 8-K filed with the SEC on February 21,2012
(11)
Incorporated as reference to the Current Report on Form 8-K filed with the SEC
on June 28,2013
(12) Incorporated as reference to the Current Report on Form
8-K filed with the SEC on November 20,2013
(13) Incorporated as reference to
the Current Report on Form 8-K filed with the SEC on December 13,2013
(14)
Incorporated as reference to the Current Report on Form 8-K filed with the SEC
on March 31,2014
(15) Incorporated as reference to the Current Report on
Form 8-K filed with the SEC on April 9,2014
(16) Incorporated as reference
to the Current Report on Form 8-K filed with the SEC on May 8, 2014
(17)
Incorporated as reference to the Current Report on Form 8-K filed with the SEC
on August 19, 2014
(18) Incorporated as reference to the Current Report on
Form 8-K filed with the SEC on September 10, 2014
(19) Incorporated as
reference to the Current Report on Form 8-K filed with the SEC on November 28,
2014
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities and Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: August 27, 2015 |
Hybrid Coating Technologies Inc. |
|
|
|
BY: /s/ Joseph Kristul
|
|
Name: Joseph
Kristul Title: President and Chief Executive
|
|
Officer (Principal Executive,
Financial and Accounting Officer) |
31
EXHIBIT 31.1
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY
ACT OF 2002
I, Joseph Kristul, certify that:
1. |
I have reviewed this quarterly report on
Form 10-Q/A of Hybrid Coating Technologies Inc; |
|
|
|
2. |
Based on my knowledge, this report does not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements
made, in light of the circumstances under which such statements were made,
not misleading with respect to the period
covered by this report; |
|
|
|
3. |
Based on my knowledge, the financial
statements, and other financial information included in this report,
fairly present in all material respects the financial
condition, results of operations and cash flows of the registrant as of,
and for, the periods presented in this report; |
|
|
|
4. |
I am responsible for establishing and
maintaining disclosure controls and procedures (as defined in Exchange Act
Rules 13a-15(e) and 15d-15(e)) and internal
control over financial reporting ((as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant
and have: |
|
|
|
|
a) |
Designed such disclosure controls and
procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure
that material information relating to the registrant, including its consolidated subsidiaries, is made known
to us by others within those entities, particularly during the period in which this report is being
prepared; |
|
|
|
|
b) |
Designed such internal control over financial
reporting, or caused such internal control over financial reporting to be designed under our
supervision, 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; |
|
|
|
|
c) |
Evaluated the effectiveness of the registrant's
disclosure controls and procedures and presented in this report our conclusions about the effectiveness
of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and |
|
|
|
|
d)
|
Disclosed in this
report any change in the registrant's internal control over financial
reporting that occurred during the registrant's most recent
fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the registrant's internal control over financial
reporting; and
|
|
|
|
5. |
I have disclosed, based on our most recent
evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing
the equivalent function): |
|
|
|
|
a) |
All significant deficiencies and material
weaknesses in the design or operation of internal control over financial reporting which are reasonably
likely to adversely affect the registrant's ability to record, process, summarize and report financial
information; and |
|
|
|
|
b)
|
Any fraud, whether or not material, that
involves management or other employees who have a significant role in the registrant's internal controls over
financial reporting.
|
Date: August 27, 2015
/s/ Joseph Kristul
Joseph Kristul
President and Chief Executive Officer, (Principal
executive officer, principal financial and principal accounting officer)
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the accompanying Quarterly Report on Form 10-Q/A of Hybrid Coating Technologies Inc. for the period ending June 30, 2015, I, the undersigned, Joseph Kristul, President and Chief Executive Officer, and principal financial officer
of Hybrid Coating Technologies Inc., certify, pursuant to 18 U.S.C. Sec. 1350, as adopted pursuant to Sec. 906 of the Sarbanes-Oxley Act of 2002, that:
(1) such Quarterly Report on Form 10-Q/A for the quarter ended June 30, 2015
fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934, as amended; and
(2) the information contained in such Quarterly Report on Form 10-Q/A for the
quarter ended June 30, 2015 fairly presents, in all material respects, the
financial condition and results of operations of Hybrid Coating Technologies
Inc..
/s/ Joseph Kristul
-------------------------------
Joseph Kristul
President and Chief Executive Officer,
(Principal executive officer principal financial and accounting officer)
August 27, 2015
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise adopting the signature that appears in typed form within the electronic version of this written statement has been
provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.