10-Q 1 f4mcf.10q_03.31.18.final.htm 10Q - 4M CARBON FIBER - MARCH 31, 2018 10Q - 4M Carbon Fiber - March 31, 2018


SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


 [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2018


[ ] 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: 000-55401



4M Carbon Fiber Corp.
(Exact name of registrant as specified in its charter)


Delaware

80-0379897

(State or other jurisdiction of incorporation organization)  

(I.R.S. Employer Identification No.)



835 Innovation Drive, Suite 200, Knoxville, TN 37932
(Address of principal executive offices) (Zip Code)


Registrants Telephone Number, Including Area Code:  865-444-6789

________________ __________________________
(Former name, former address and former fiscal year, if changed since last report)

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 [] No [ X]



Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [  ] No [X]



Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.


Large accelerated filer

[ ]

Accelerated filer

[ ]

Non-accelerated filer

[ ]

(Do not check if a smaller reporting company)

Smaller reporting company

[X]


Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes [  ] No [X]


Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date: 76,901,637 as September 6, 2018.  

 







4M CARBON FIBER CORP.

INDEX

Page

PART I.

FINANCIAL INFORMATION

ITEM 1

Financial Statements


Consolidated balance sheets as of March 31, 2018 (unaudited), and December 31, 2017

F-1

Consolidated statements of operations for the three months ended March 31, 2018 and 2017 (unaudited)

F-2

Consolidated statements of cash flows for the three months ended March 31, 2018 and 2017 (unaudited)

F-3

Notes to condensed consolidated financial statements (unaudited)

F4-F12

ITEM 2.

Managements Discussion and Analysis of Financial Condition and Results of Operations

13-18

ITEM 3.

Quantitative and Qualitative Disclosures about Market Risk

18

ITEM 4.

Controls and Procedures

18-19

PART II.

OTHER INFORMATION


ITEM 1.

Legal Proceedings

19

ITEM 1A.

Risk Factors

19

ITEM 2.

Unregistered Sales of Equity Securities and Use of Proceeds

18

ITEM 3.

Defaults Upon Senior Securities

18

ITEM 4.

Mine Safety Disclosures

18

ITEM 5.

Other Information

18

ITEM 6.

Exhibits

18

SIGNATURES

19



























 

 

 

PART 1 - FINANCIAL INFORMATION

Item 1. Financial Statements.

4M CARBON FIBER CORP & SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(Unaudited)


March 31, 2018


December 31, 2017

ASSETS




Current assets:

 

 

 

Cash

$

1,208,491 

 

$

1,309,573 

Accounts receivable (net of reserve for bad debts of $0 and $0, respectively)

566 

 

566 

Assets of discontinued operations

15,904 

 

Prepaid license fees

150,000 

 

150,000 

      Total current assets

1,374,961 


1,460,139 

 

 

 

 

Fixed assets:

 

 

 

Computer hardware

2,332 

 

2,332 

Equipment

696,025 

 

696,025 

Website and presentation templates

12,825 

 

12,825 

Leasehold improvements

96,605 

 

96,605 

     Total fixed assets

807,787 

 

807,787 

 Accumulated depreciation and amortization

(141,580)

 

(124,176)

Fixed assets, net

666,207 

 

683,611 

 

 

 

 

        Total other assets

 

 

 

 

 

        Total assets

$

2,041,168 

 

$

2,143,750 

 

 

 

 

LIABILITIES AND STOCKHOLDERS EQUITY

 

 

 

Current liabilities:

 

 

 

Accounts payable and accrued expenses

$

349,320 

 

$

416,364 

Accrued interest

66,326 

 

58,013 

Deferred sales

11,368 

 

11,368 

Loans from related party

278,000 

 

278,000 

Notes payable

350,584 

 

350,584 

Total current liabilities

1,055,598 

 

1,114,328 

 

 

 

 

Long-term liabilities:

 

 

 

  Convertible debt - long term (net of debt discount of $0 and $0, respectively)

20,000 

 

90,000 

      Total long-term liabilities

20,000 

 

90,000 

 

 

 

 

        Total liabilities

1,075,598 

 

1,204,328 

 

 

 

 

Commitments and contingencies

 

 

 

 

 

Stockholders equity

 

 

 

Preferred Stock, par $0.0001; Authorized 25,000 shares, Issued and outstanding 0 and 0 shares, respectively

 

Common stock, par $0.0001; Authorized 250,000,000 shares, Issued and outstanding 75,854,781 and 72,793,709 shares, respectively

7,585 

 

7,279 

Additional paid-in capital

4,539,409 

 

2,636,902 

Subscriptions receivable

(104,400)

 

(104,400)

Stock to be issued

                            -

 

             522,500

Treasury Stock, at cost, 3,664,641 and 3,664,641 shares, respectively

(100,000)

 

(100,000)

 Accumulated deficit

(3,377,571)

 

(2,022,859)

        Total stockholders' equity

934,259 

 

939,422 

 

 

 

 

        Total liabilities and stockholders' equity

$

2,041,168 

 

$

2,143,750 

F-1

See accompanying notes to the consolidated financial statements




4M CARBON FIBER CORP & SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)




 For the three months ended

 

 

March 31, 2018

 

March 31, 2017

Income

 

 

 

 

Total Income

 

$

 

$

48,020 

 

 

 

 

 

Cost of sales

 

 

 

 

 

 

 

Gross profit

 

-

 

48,020

 

 

 

 

 

Operating expenses:

 

 

 

 

  General and administrative

 

1,328,446 

 

257,688 

  Depreciation and amortization

 

17,404 

 

11,830 

Total operating expenses

 

1,345,850 

 

269,518 

 

 

 

 

 

Loss from operations

 

(1,345,850)

 

(221,498)

 

 

 

 

 

Other Expenses:

 

 

 

 

Interest expense

 

8,314 

 

9,444 

Loss from discontinued operations

 

 

5,198 

Total other expenses

 

8,314 

 

14,642 

 

 

 

 

 

Net loss

 

$

(1,354,164)

 

$

(236,140)

 

 

 

 

 

Per share data

 

 

 

 

  Net Loss per share - basic and diluted

 

$

(0.02)

 

$

(0.05)

 

 

 

 

 

Weighted average number of

 

 

 

 

  shares outstanding- basic and diluted

 

74,119,582 

 

4,655,338 

 

 

 

 

 

F-2

See accompanying notes to the unaudited condensed consolidated financial statements







4M CARBON FIBER CORP & SUBSIDIARY

Consolidated Statements of Cash Flows

(Unaudited)

 

 

 

 

 

 

 For the three-month period ended

 

March 31, 2018

 

March 31, 2017

 

 

 

 

Cash flows from operating activities:

 

 

 

Net loss

$

(1,355,476)

 

$

  (236,140)

Adjustments to reconcile net loss to net cash used in operating activities:

 

 

 

Bad debts

 

Depreciation and amortization

17,404 

 

11,830 

Common stock issued for services

924,958 

 

    Changes in operating asset and liability account balances:

 

 

 

Prepaid expenses

(15,904)

 

Accrued interest

9,625 

 

9,444 

Accounts payable and accrued expenses

(67,045)

 

(9,131)

Total adjustments

867,727 

 

12,143 

 

 

 

 

Net cash used in operating activities

(486,437)

 

(223,997)

 

 

 

 

Cash flows from investing activities

 

 

 

Acquisition of control stock

 

(100,000)

Computers and equipment

 

(46,849)

Net cash used in investing activities

 

(146,849)

 

 

 

 

Cash flows from financing activities:

 

 

 

Proceeds from related party loan

 

200,000 

Proceeds from member contributions

 

190,000 

Proceeds of sale of common stock

385,355 

 

Net cash provided by financing activities

385,355 

 

390,000 

 

 

 

 

Net increase (decrease) in cash

(101,082)

 

19,154 

 

 

 

 

Cash at beginning of period

1,309,573 

 

50,829 

 

 

 

 

Cash at end of period

$

1,208,491 

 

$

69,983 

 

 

 

 

Supplemental Schedule of Cash Flow Information:

 

 

 

 Cash paid for interest

$

 

$

 Cash paid for income taxes

$


$

 

 

 

 

Supplemental Schedules of Noncash Investing and Financing Activities:

 

 

 

Conversion of convertible debt to equity

$                              70,000

 

$                            -

 

 

 

 

F-3

See accompanying notes to the consolidated financial statements









4M Carbon Fiber Corp. and Subsidiary

Notes to the Unaudited Consolidated Financial Statements

 For the three months ended March 31, 2018 and 2017

 


 1.

Basis of Presentation


Interim Unaudited Consolidated Financial Statements


The unaudited interim consolidated financial statements of 4M Carbon Fiber Corporation (the Company, 4MCF, we, our or us) as of March 31, 2018 and for the three-month periods ended March 31, 2018 and 2017 contained in this Quarterly Report (collectively, the Unaudited Interim Consolidated Financial Statements) were prepared in accordance with accounting principles generally accepted in the United States (U.S. GAAP) for all periods presented. The results of operations for the three-month period ended March 31, 2018 are not necessarily indicative of the results that may be expected for the entire fiscal year.


The accompanying Unaudited Interim Condensed Consolidated Financial Statements have been prepared in accordance with the regulations for interim financial information of the Securities and Exchange Commission (the SEC). Accordingly, they do not include all of the disclosures required by U.S. GAAP for complete financial statements.  In the opinion of management, the unaudited accompanying statements of financial condition and related interim statements of operations, cash flows, and stockholders deficit include all adjustments (which consist only of normal and recurring adjustments) considered necessary for a fair presentation in conformity with U.S. GAAP. These Unaudited Interim Consolidated Financial Statements should be read in conjunction with the 4M Carbon Fiber Corp. consolidated financial statements as of and for the year ended December 31, 2017, as filed with the SEC on Form 10-K.



 2.

Organization and Nature of Operations


Corporate History


The Company was incorporated under the name Woodland Holdings Corp. (Woodland) in the state of Delaware on January 21, 2009 as a wholly-owned subsidiary of CornerWorld Corporation (CWC), a Nevada corporation publicly traded on the OTCQB exchange. The Company was originally formed as a holding company for three telecommunications services subsidiaries Phone Services and More, L.L.C., doing business as Visitatel (PSM), T2 Communications, L.L.C. (T2), and TinyDial, LLC (TinyDial and together with PSM and T2, the Subsidiaries).


On August 13, 2015, CWCs Board of Directors formally approved a plan whereby Woodland and its wholly-owned subsidiaries were to be spun off in their entirety. On October 14, 2015, the Securities and Exchange Commission (the SEC) formally informed Woodland that its registration statement had become effective, clearing the way for the spin-off. Finally, on December 31, 2015, CWCs Board of Directors spun-off Woodland to CWCs stockholders of record as of December 31, 2015 (the Record Date). CWC stockholders, as of the Record Date, received shares in Woodland equal to their pro-rata ownership percentage of CWC. For every share owned by CWCs stockholders as of the Record Date, those same stockholders were issued 1 share of Woodlands Common Stock.


Divestment


Simultaneously with the consummation of the Transaction (as defined below), on March 31, 2017, the Company sold 100% of the outstanding membership interests of the Companys Subsidiaries to Enversa Companies, LLC for cash consideration of $1.00.  At the time of the sale, the Subsidiaries had substantially ceased all operations and had no active customers or employees.

 

 

 

F-4

 

 

 

 

Change in Control


On March 31, 2017, Scott N. Beck (the Companys then Chief Executive Officer and Chairman), V. Chase McCrea III (the Companys then Chief Financial Officer), Marc Blumberg (a then member of the Board of Directors), IU Holdings II, GP, Inc., and Opal Capital, LLC, among others, (collectively, the Selling Stockholders) entered into a Stock Purchase Agreement, dated March 31, 2017 (the Agreement), with 4M Industrial Oxidation, LLC, a Tennessee limited liability company (4MIO),  pursuant to which 4MIO purchased from the Selling Stockholders an aggregate of 3,664,641 shares of common stock, par value $0.001 per share (the Common Stock), of the Company, representing approximately 78.7% of the then issued and outstanding shares of Common Stock of the Company and substantially all of the shares of Common Stock of the Company held by the Selling Stockholders, in consideration for $100,000, or approximately $0.025 per share (the Transaction).  The foregoing sale of Common Stock by the Selling Stockholders resulted in a change in control of the Company.


Simultaneously with the consummation of the Transaction, the following actions occurred:


·

Scott Beck, V. Chase McCrea III and Marc Blumberg resigned from all of their positions with the Company and Joshua M. Kimmel was appointed as the Companys Chief Executive Officer and President and as a member to the Board of Directors of the Company;


·

Scott Beck relinquished his security interest in the Companys assets, pursuant to that certain Promissory Note, dated as of March 30, 2011, between the Company and Mr. Beck (the Note).  Mr. Beck also released the Company from responsibility for any accrued but unpaid interest and late fees accrued on the Note.



Reverse Merger


On April 6, 2017, the Company entered into an Agreement and Plan of Merger, dated April 6, 2017 (the Merger Agreement), with 4MIO Merger Sub, LLC, a Tennessee limited liability company and wholly-owned subsidiary of the Company (the Merger Sub), and 4M Industrial Oxidation, LLC, a Tennessee limited liability company (4MIO), for the purposes of consummating a reverse merger (the Reverse Merger).


Pursuant to the Merger Agreement, Merger Sub merged with and into 4MIO, with 4MIO being the surviving company and resulting in 4MIO becoming a wholly-owned subsidiary of the Company. The Reverse Merger was intended to constitute a tax-free reorganization within the meaning of Section 368 of the United States Internal Revenue Code of 1986, as amended.


In the Reverse Merger, the members of 4MIO exchanged their membership interests of 4MIO, representing 100% of the outstanding membership interests of 4MIO, for aggregate of 55 million (55,000,000) shares of Common Stock of the Company which represented approximately 78.46% of the shares of Common Stock of the Company based on an aggregate of 70,096,470 shares of Common Stock outstanding upon consummation of the Merger.


On April 4, 2017, the Board of Directors of the Company appointed Rodney G. Grubb as the Chairman of the Board, and Dr. Truman A. Bonds and Douglas D. Mentzer as directors.  Each director serves for a period of one year, until the next annual stockholders meeting and their respective successors are elected and qualified or upon their earlier resignation or removal:


On April 4, 2017, the Board appointed the following persons as executive officers of the Company, to serve at the pleasure of the Board until their successors are appointed or upon their earlier resignation or removal:


Name:

 

Office:

Erwin W. Vahlsing, Jr.

 

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

Rodney G. Grubb

 

Chief Operating Officer

Dr. Truman A. Bonds

 

Chief Technology Officer


On March 28, 2018, the Board of Directors of the Company appointed Mr. Paresh Chari as a member of the Board, to serve until the next annual stockholders meeting and until his replacement is elected and qualified.  

 

F-5


Recapitalization


On April 24, 2017, the Company filed a Certificate of Amendment to the Companys Articles of Incorporation with the Secretary of State of Delaware thereby to increase the authorized amount of Common Stock of the Company from 100 Million (100,000,000) shares to 250 Million (250,000,000) shares; (ii) reduce the par value of the Common Stock from $0.01 to $0.0001 per share, and (iii) authorize 25,000 shares of blank check preferred stock, par value $0.0001 per share (Preferred Stock). The amendment was effective May 15, 2017 and was approved by the Board of Directors of the Company and the stockholders holding an aggregate of 50,640,679 outstanding shares of Common Stock, representing approximately 72.24% of all the then outstanding shares of Common Stock which were entitled to be voted at any annual or special meeting of stockholders of the Company or action by written consent in lieu of a meeting as permitted under the Delaware General Corporation Law and the By-laws of the Company.  


Name Change


On February 20, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Delaware Secretary of State thereby changing the name of the Company to 4M Carbon Fiber Corp. (the Name Change). The Name Change was approved by the Board of Directors of the Company at a meeting of the Board held on February 14, 2018 pursuant to Section 242(b) of the Delaware General Corporation Law (DGCL), which permits such amendments to be adopted by a corporations Board of Directors without stockholder approval. The Name Change was effective upon acceptance of the Certificate of Amendment by the Delaware Secretary of State. The Name Change does not affect the rights of the Companys stockholders and no action is required by stockholders.


Strategic Pivot from Hardware Sales to Carbon Fiber Producer


In late 2017, 4M began working on a new business model of carbon fiber production instead of selling the equipment and licensing technology.   Plasma Oxidation offers significant benefits to the user, and as a result 4M began planning a shift of strategy from one of a hardware supplier / licensor to that of a low-cost carbon fiber producer.   4M began communicating this strategy to carbon fiber manufacturers and industry participants in late 2017.


 


 3.

Basis of Presentation

 

The financial statements of the Company have been prepared in accordance with US GAAP and are expressed in U.S. dollars. All inter-company accounts and transactions have been eliminated. The Companys fiscal year end is December 31.

 

          Summary of Significant Accounting Policies


a)   Use of Estimates


The preparation of unaudited condensed consolidated financial statements in conformity with US GAAP requires management to make 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 revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Companys estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

 

 

F-6

 


 

b)  Principles of Consolidation


The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary 4M Industrial Oxidation, LLC.  All significant inter-company transactions are eliminated.

 

c)   Cash and Cash Equivalents


For purposes of the statement of cash flows, cash includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid instruments with maturities of three months or less when purchased to be cash equivalents.


At March 31, 2018, the Company had one bank account that exceeded the $250,000 FDIC limit.  The Company is in the process of opening additional accounts to eliminate the risk of loss.  


d)   Accounts receivable and concentration of credit risk


The Company currently provides specialized testing services to various carbon fiber manufacturers and companies utilizing carbon fiber to evaluate the efficacy of the technology on their particular products and product lines.  The Company typically requires an upfront fee prior to setup and operation of the test runs.  At times, some accounts utilize more than the anticipated resources and additional services are invoiced after the fact.  This has minimized the risk of default in the collection of accounts receivable.  In addition, our concentration risk, which is evaluated on a quarterly basis is currently, was virtually eliminated.


e)   Allowance for doubtful accounts


The allowance for doubtful accounts is based on the Companys assessment of the collectability of customer accounts and the aging of the accounts receivable.  The Company regularly reviews the adequacy of the Companys allowance for doubtful accounts through identification of specific receivables where it is expected that payments will not be received.  The Company also establishes an unallocated reserve that is applied to all amounts that are not specifically identified.  In determining specific receivables where collections may not have been received, the Company reviews past due receivables and gives consideration to prior collection history and changes in the customers overall business condition.  The allowance for doubtful accounts reflects the Companys best estimate as of the reporting dates.


At March 31, 2018 and December 31, 2017, the Company had an allowance for bad debts in the amount of $0 and $0, respectively.



f)   Basic and Diluted Net Loss per Share


The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. There were dilutive potential securities as of March 31, 2018 in the form of convertible debt (see Note 5), however, due to the Companys loss their effect on EPS was anti-dilutive and therefor did not affect the EPS calculation.


 

 

 

F-7

 

 


 

g)   Financial Instruments


Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instruments categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.


Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.


Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.


The Company did not have any Level 2 or Level 3 assets or liabilities as of March 31, 2018, with the exception of its notes payable. The carrying amounts of these liabilities at March 31, 2018 approximate their respective fair value based on the Companys incremental borrowing rate.

 

Cash is considered to be highly liquid and easily tradable as of March 31, 2018 and therefore classified as Level 1 within our fair value hierarchy.

 

In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments



h)   Income Taxes


Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 Accounting for Income Taxes as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.



i) Revenue Recognition


The Company recognizes revenue in accordance with ASC-605, Revenue Recognition, which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or title has passed; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.


Revenues are recognized (a) for larger construction type projects based on the percentage of completion method; or (b) for direct sales of products, upon shipment, provided that a signed purchase order has been received, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, and there are no remaining significant obligations. Reserves for sales returns and allowances, based on historical levels of returns and discounts, current economic trends and changes in customer demand.  

 

 

 

 

F-8

 


Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been delivered or no refund will be required.


j) Reclassification


Certain reclassifications have been made to conform the prior period data to the current presentation. These reclassifications had no effect on reported net loss.


4.     Notes Payable


Notes Payable, others:


The Company owed $200,583 and $200,583 at March 31, 2018 and December 31, 2017, respectively, to a formerly related party and now an affiliate.  The relationship ceased to exist when 4MIO was merged into Woodland Holdings.  

During the year ended December 31, 2015, the Company had through its 4MIO subsidiary borrowed $150,000 in 2-year notes from an investment group.  The notes due dates have been extended to June 30, 2019.  


During the three months ended March 31, 2018 and 2017, the Company made no repayments of notes or accrued interest.  


At March 31, 2018 and December 31, 2017, the Company has accrued interest of $67,638 and $58,013, respectively.



5.

Convertible debt


In September 2017, the Company entered into four, two-year convertible debentures, totaling $90,000 with four accredited investors.  The debentures are convertible at the higher of (a) 80% of the market price on the date of conversion or (b) $2.00 per share.  The notes carry interest at eight percent (8%) per annum.  


Date

March 31, 2018

 

December 31, 2017

September 7, 2017

$20,000

 

$20,000

September 13, 2017

-

 

$20,000

September 19, 2017

-

 

$40,000

September 22, 2017

-

 

$10,000

Total

$20,000

 

$90,000


The Company computed the Beneficial Conversion Feature to determine any debt discount.  The computations indicated that no discount adjustment was required.


At March 31, 2018 and December 31, 2017 convertible notes and debentures consisted of the following:


 

March 31, 2018

 

December 31, 2017

Convertible notes payable

$

20,000 

 

$

90,000 

Unamortized debt discount

(-)

 

(-)

Carrying amount

$

20,000 

 

$

90,000 

Less: current portion

(-)

 

(-)

Long-term convertible notes, net

$

20,000 

 

$

90,000 

   


 

F-9

 

 


 

6.

Related Party Transactions

 

Prior to the reverse merger of 4MIO with Woodland Holdings Corp. on April 6, 2017, approximately 95% of outstanding membership interests of 4MIO were owned by Remaxco Technologies, Inc. (RMX).  As a result, there are certain transactions between the companies which are disclosed below as well as other places in these footnotes (see Footnote 4).


In January 2016, the Company reclassified a Note Receivable of $150,000 due from RMX to Prepaid Licensing Fees.  This reclassification reflects a portion of the expected royalties that are to be paid to RMX and ORNL once the Plasma Oxidation ovens equipped with the technology begin to ship.  

 

          Notes Payable to Related Parties:

On the following dates, the Company entered into individual eighteen-month promissory note agreements for an aggregate principal amount of $278,000 with a company of which our COO is a member.  Pursuant to the agreement, the loans bear interest at 10% per annum. (see Footnote 6)


Date

Amount

03/04/16

$

50,000

03/11/16

50,000

09/30/16

58,000

10/05/16

60,000

10/20/16

60,000

Total

$

278,000


The maturity amounts of the notes has been extended to June 30, 2018.


As of March 31, 2018, and 2017, $108,592 and $636 respectively, of the Companys accounts payable are owed to two formerly related parties.



7.

Stockholders Equity

Where applicable, all common share numbers have been restated to retroactively reflect, the acquisition of 4M by Woodland on April 6, 2017.  

a)

Authorized

 

Authorized capital stock consists of:


· 250,000,000 shares of common stock with a par value of $0.0001 per share; and


· 25,000 preferred shares with a par value of $0.0001 per share;



b)

Share Issuances

 

In January 2016, the Company issued 4,655,338 shares to the shareholders of CornerWorld Corporation in connection with CornerWorlds spin out of the Woodland operating subsidiary.  Simultaneously, CornerWorld surrendered its 100 shares (100%) equity back to the Company resulting in the issued and outstanding shares of the Company being 4,655,338 shares of common stock.



·

On January 4, 2018, the Company issued 83,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $50,000.


·

On February 26, 2018, the Company issued 83,334 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $50,000 recorded as stock to be issued at the year ended December 31, 2017.

 

 

F-10


 

 

·       On February 26, 2018, the Company made stock granted to 15 employees totaling 875,000 shares of common stock.  The shares were priced at $0.60 per share, with $525,000 recorded as compensation expense.

 

·       On February 26, 2018, the Company issued 33,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $20,000 recorded as “stock to be issued” at the year ended December 31, 2017.

 

·

On February 26, 2018, the Company issued 33,333 shares of common stock at a price of $0.60 per share to an accredited investor in full settlement of a $20,000 convertible debenture.  Interest was waived at the time of conversion.

·

On February 27, 2018, the Company issued 42,000 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $25,200.


·

On February 27, 2018, the Company issued 66,667 shares of common stock at a price of $0.60 per share to an accredited investor in full settlement of a $40,000 convertible debenture.  Interest was waived at the time of conversion.


·

On February 27, 2018, the Company issued 83,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $50,000.


·

On March 8, 2018, the Company issued 8,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $5,000 recorded as stock to be issued at the year ended December 31, 2017.


·

On March 14, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $75,000.


·

On March 16, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $75,000.


·

On March 21, 2018, the Company issued 55,555 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $50,000.


·

On March 21, 2018, the Company issued 16,667 shares of common stock at a price of $0.60 per share to an accredited investor in full settlement of a $10,000 convertible debenture.  Interest was waived at the time of conversion.


·

On March 21, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $75,000.


·

On March 29, 2018, the Company issued 460,531 shares of common stock at a price of $0.60 per share to 23 consultants for services rendered.  The Company recorded $276,320 as consulting expense.


·

On March 29, 2018, the Company issued 45,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $27,000.


·

On March 29, 2018, the Company issued 45,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $27,000.


·

On March 29, 2018, the Company issued 30,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $18,000.


·

On March 29, 2018, the Company issued 40,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $24,000.

 

F-11

 


 

·

On March 29, 2018, the Company issued 20,720 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $12,432.


·    On March 29, 2018, the Company issued 13,600 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $8,160.


·

On March 29, 2018, the Company issued 2,000 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $1,200.


·

On March 29, 2018, the Company issued 10,000 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $6,000.


·

As of March 31, 2018, and December 31, 2017, there were 75,854,781 and 72,794,376 shares of common stock issued and outstanding, respectively.  



8.

Income Taxes

Deferred income tax assets as of March 31, 2018 and December 31, 2017 of $878,027 and $525,943, respectively, resulting from net operating losses and future amortization deductions, have been fully offset by valuation allowances.  The valuation allowances have been established equal to the full amounts of the deferred tax assets, as the Company is not assured that it is more likely than not that these benefits will be realized.

Reconciliation between the statutory United States corporate income tax rate (21%) and the effective income tax rates based on continuing operations is as follows:

 

March 31, 2018

 

December 31, 2017

Income tax benefit at Federal statutory rate of 21%

$

(284,374)

 

$

(325,807)

State Income tax benefit, net of Federal effect

(67,708)

 

(77,575)

Permanent and other differences

 

Change in valuation allowance

351,558 

 

403,380 

 Total

$

 

$


Components of deferred tax assets were approximately as follows:


 

March 31, 2018

 

December 31, 2017

 Net operating loss

$

878,027 

 

$

525,943 

Asset impairment

 

Valuation allowance

(878,027)

 

(525,943)

Total

$

 

$


At December 31, 2017, the Company has available net operating losses of approximately $2,022,900 which may be carried forward to apply against future taxable income. These losses will begin to expire in 2032. Deferred tax assets related to these losses have not been recorded due to uncertainty regarding their utilization.

The provisions of ASC 740 require companies to recognize in their financial statements the impact of a tax position if that position is more likely than not to be sustained upon audit, based upon the technical merits of the position. ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken on a tax return. ASC 740 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods and disclosure.

Management does not believe that the Company has any material uncertain tax positions requiring recognition or measurement in accordance with the provisions of ASC 740. Accordingly, the adoption of these provisions of ASC 740 did not have a material effect on the Companys financial statements. The Companys policy is to record interest and penalties on uncertain tax positions, if any, as income tax expense.


F-12




The Company has not filed its applicable Federal and State tax returns for the year ended December 31, 2017. The Company has filed an extension for the 2017 filing.

The Company entered into a share exchange agreement during fiscal year 2017, as a result, pursuant to Internal Revenue Code Section 382, the amount of future taxable income that can be offset by pre-share exchange agreement net operating losses may be limited. The deferred tax asset derived from these tax loss carry-forwards have been included in consolidated deferred tax assets- net operating loss carry-forwards, and a full valuation allowance has been established since it is not more likely than not that such benefits will be recovered.



9.

Commitments and Contingencies


Litigation


The Company may, from time to time, become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently not aware of any such legal proceedings that it believes will have, individually or in the aggregate, a material adverse effect on its business. 



10.

Acquisition of 4M Industrial Oxidation, LLC.


On April 6, 2017, the Company entered into an Agreement and Plan of Merger, dated April 6, 2017 (the Merger Agreement) with an effective date of April 1, 2017, with 4MIO Merger Sub, LLC, a Tennessee limited liability company and wholly-owned subsidiary of the Company (the Merger Sub), and 4MIO, for the purposes of consummating a reverse merger (the Merger).


Pursuant to the Merger Agreement, Merger Sub merged with and into 4MIO, with 4MIO being the surviving company and resulting in 4MIO becoming a wholly-owned subsidiary of the Company. The Merger was intended to constitute a tax-free reorganization within the meaning of Section 368 of the United States Internal Revenue Code of 1986, as amended.


In the Merger, the members of 4MIO exchanged their membership interests of 4MIO, representing 100% of the outstanding membership interests of 4MIO, for an aggregate of 55 million (55,000,000) shares of Common Stock of the Company which represented approximately 78.46% of the shares of Common Stock of the Company based on an aggregate of 70,096,470 shares of Common Stock outstanding upon consummation of the Merger.


The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition:

 

ASSETS:

 

Current assets

$

319,983

Property & equipment

603,949

Furniture & fixtures

11,854

Leasehold improvements

73,127

Total

$

1,008,913

 

 

LIABILITIES:

 

Current liabilities

$

388,086

Net purchase price

$

620,827

 


 

F-13


 

 


 

11.      Subsequent Events


We have evaluated subsequent events through the date of issuance of the unaudited condensed consolidated financial statements, and below are the material recognizable subsequent events.



o

On April 2, 2018, the Company issued 27,778 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $25,000.


o

On April 4, 2018, the Company issued 222,222 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $200,000.


o

On April 6, 2018, the Company issued 25,000 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $15,000.


o

On April 27, 2018, the Company issued 15,000 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $13,500.


o

On April 27, 2018, the Company issued 25,000 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $22,500.


o

On May 15, 2018, the Company issued 55,556 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $50,000.


o

On May 17, 2018, the Company issued 15,000 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $3,500.


o

On May 17, 2018, the Company issued 7,000 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $6,300.


o

On May 30, 2018, the Company issued 111,112 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $100,000.


o

On May 30, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $30,000.


o

On June 4, 2018, the Company issued 33,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $29,970.


o

On June 28, 2018, the Company issued 50,000 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $45,000.


o

On June 28, 2018, the Company issued 33,300 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $29,970.


o

On June 28, 2018, the Company issued 27,778 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $25,000.


o

On June 28, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $75,000.


o

On June 28, the Company issued each of 2 consultants 10,000 shares of common stock at a price of $0.90 per share to for services rendered.  The Company recorded $18,000 as consulting expense.


o

On July 2, 2018, the Company issued 56,000 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $50,400.

 

F-14

 

 

 


 

o

On July 9, 2018, the Company issued 111,111 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $100,000.


o  On August 3, 2018, the Company issued 45,000 shares of common stock at a price of $1.12 per share to  an accredited investor in consideration of a cash investment of $50,400.


On May 1, 2018, the Board of Directors of the Company appointed Robert M. Klawonn as the Chief Executive Officer of the Company, effective immediately.  Mr. Klawonn replaced Joshua M. Kimmel as Chief Executive Officer.  Mr. Kimmel remains the Companys President and a member of the Board of Directors.



F-15














Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations


Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are forward-looking statements. These forward-looking statements generally are identified by the words believes, project, expects, anticipates, estimates, intends, strategy, plan, may, will, would, will be, will continue, will likely result, and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.


Corporate History

The Company was incorporated under the name Woodland Holdings Corp. (Woodland) in the state of Delaware on January 21, 2009 as a wholly-owned subsidiary of CornerWorld Corporation (CWC), a Nevada corporation publicly traded on the OTCQB exchange. The Company was originally formed as a holding company for three telecommunications services subsidiaries Phone Services and More, L.L.C., doing business as Visitatel (PSM), T2 Communications, L.L.C. (T2), and TinyDial, LLC (TinyDial and together with PSM and T2, the Subsidiaries).

On August 13, 2015, CWCs Board of Directors formally approved a plan whereby Woodland and its wholly-owned subsidiaries were to be spun off in their entirety. On October 14, 2015, the Securities and Exchange Commission (the SEC) formally informed Woodland that its registration statement had become effective, clearing the way for the spin-off. Finally, on December 31, 2015, CWCs Board of Directors spun-off Woodland to CWCs stockholders of record as of December 31, 2015 (the Record Date). CWC stockholders, as of the Record Date, received shares in Woodland equal to their pro-rata ownership percentage of CWC. For every share owned by CWCs stockholders as of the Record Date, those same stockholders were issued 1 share of Woodlands Common Stock.

 

Divestment

Simultaneously with the consummation of the Transaction (as defined below), on March 31, 2017, the Company sold 100% of the outstanding membership interests of the Companys Subsidiaries to Enversa Companies, LLC for cash consideration of $1.00.  At the time of the sale, the Subsidiaries had substantially ceased all operations and had no active customers or employees.

 

Change in Control

On March 31, 2017, Scott N. Beck (the Companys then Chief Executive Officer and Chairman), V. Chase McCrea III (the Companys then Chief Financial Officer), Marc Blumberg (a then member of the Board of Directors), IU Holdings II, GP, Inc., and Opal Capital, LLC, among others, (collectively, the Selling Stockholders) entered into a Stock Purchase Agreement, dated March 31, 2017 (the Agreement), with 4M Industrial Oxidation, LLC, a Tennessee limited liability company (4MIO),  pursuant to which 4MIO purchased from the Selling Stockholders an aggregate of 3,664,641 shares of common stock, par value $0.001 per share (the Common Stock), of the Company, representing approximately 78.7% of the then issued and outstanding shares of Common Stock of the Company and substantially all of the shares of Common Stock of the Company held by the Selling Stockholders, in consideration for $100,000, or approximately $0.025 per share (the Transaction).  The foregoing sale of Common Stock by the Selling Stockholders resulted in a change in control of the Company.

Simultaneously with the consummation of the Transaction, the following actions occurred:

·

Scott Beck, V. Chase McCrea III and Marc Blumberg resigned from all of their positions with the Company and Joshua M. Kimmel was appointed as the Companys Chief Executive Officer and President and as a member to the Board of Directors of the Company;


·    Scott Beck relinquished his security interest in the Companys assets, pursuant to that certain Promissory Note, dated as of March 30, 2011, between the Company and Mr. Beck (the Note).  Mr. Beck also released the Company from responsibility for any accrued but unpaid interest and late fees accrued on the Note.

 

 

18



Reverse Merger

On April 6, 2017, the Company entered into an Agreement and Plan of Merger, dated April 6, 2017 (the Merger Agreement), with 4MIO Merger Sub, LLC, a Tennessee limited liability company and wholly-owned subsidiary of the Company (the Merger Sub), and 4M Industrial Oxidation, LLC, a Tennessee limited liability company (4MIO), for the purposes of consummating a reverse merger (the Reverse Merger).

Pursuant to the Merger Agreement, Merger Sub merged with and into 4MIO, with 4MIO being the surviving company and resulting in 4MIO becoming a wholly-owned subsidiary of the Company. The Reverse Merger was intended to constitute a tax-free reorganization within the meaning of Section 368 of the United States Internal Revenue Code of 1986, as amended.

In the Reverse Merger, the members of 4MIO exchanged their membership interests of 4MIO, representing 100% of the outstanding membership interests of 4MIO, for aggregate of 55 million (55,000,000) shares of Common Stock of the Company which represented approximately 78.46% of the shares of Common Stock of the Company based on an aggregate of 70,096,470 shares of Common Stock outstanding upon consummation of the Merger.

On April 4, 2017, the Board of Directors of the Company appointed Rodney G. Grubb as the Chairman of the Board, and each Dr. Truman A. Bonds and Douglas D. Mentzer as directors.  Each director serves for a period of one year, until the next annual stockholders meeting and their respective successors are elected and qualified or upon their earlier resignation or removal:

On April 4, 2017, the Board appointed the following persons as executive officers of the Company, to serve at the pleasure of the Board until their successors are appointed or upon their earlier resignation or removal:

 

Name:

 

Office:

Erwin W. Vahlsing, Jr.

 

Chief Financial Officer and Treasurer

(Principal Financial and Accounting Officer)

Rodney G. Grubb

 

Chief Operating Officer

Dr. Truman A. Bonds

 

Chief Technology Officer

On March 28, 2018, the Board of Directors of the Company appointed Mr. Paresh Chari as a member of the Board, to serve until the next annual stockholders meeting and until his replacement is elected and qualified.  

On May 1, 2018, the Board of Directors of the Company appointed Robert M. Klawonn as the Chief Executive Officer of the Company, effective immediately.  Mr. Klawonn replaced Joshua M. Kimmel as Chief Executive Officer.  Mr. Kimmel remains the Companys President and a member of the Board of Directors.


Recapitalization

On April 24, 2017, the Company filed a Certificate of Amendment to the Companys Articles of Incorporation with the Secretary of State of Delaware thereby to increase the authorized amount of Common Stock of the Company from 100 Million (100,000,000) shares to 250 Million (250,000,000) shares; (ii) reduce the par value of the Common Stock from $0.01 to $0.0001 per share, and (iii) authorize 25,000 shares of blank check preferred stock, par value $0.0001 per share (Preferred Stock). The amendment was effective May 15, 2017 and was approved by the Board of Directors of the Company and the stockholders holding an aggregate of 50,640,679 outstanding shares of Common Stock, representing approximately 72.24% of all the then outstanding shares of Common Stock which were entitled to be voted at any annual or special meeting of stockholders of the Company or action by written consent in lieu of a meeting as permitted under the Delaware General Corporation Law and the By-laws of the Company.  




19



Name Change

On February 20, 2018, the Company filed a Certificate of Amendment to its Articles of Incorporation with the Delaware Secretary of State thereby changing the name of the Company to 4M Carbon Fiber Corp. (the Name Change). The Name Change was approved by the Board of Directors of the Company at a meeting of the Board held on February 14, 2018 pursuant to Section 242(b) of the Delaware General Corporation Law (DGCL), which permits such amendments to be adopted by a corporations Board of Directors without stockholder approval. The Name Change was effective upon acceptance of the Certificate of Amendment by the Delaware Secretary of State. The Name Change does not affect the rights of the Companys stockholders and no action is required by stockholders.

Strategic Pivot from Hardware Sales to Carbon Fiber Producer

In late 2017, 4M began working on a new business model of carbon fiber production instead of selling the equipment and licensing technology.   Plasma Oxidation offers significant benefits to the user, and as a result 4M began planning a shift of strategy from one of a hardware supplier / licensor to that of a low-cost carbon fiber producer.   4M began communicating this strategy to carbon fiber manufacturers and industry participants in late 2017.

Results of Operations for the three months ended March 31, 2018 and 2017.

Operating Revenues

In the three-month periods ended March 31, 2018 and 2017 we generated $0 and $48,020, respectively, from the sales of testing services to prove product capabilities.  The decrease is due to the Company beginning its sales efforts with major potential customers, who have completed most of their required testing of the process and product prior to committing to purchases of full ovens, which require capital investments and appropriations.  In addition, beginning in the first quarter of 2018, we began the shift from equipment sales to carbon fiber manufacturing.  We expect this shift in business model will provide the Company with an opportunity for greater long-term growth and profitability.  

Cost of Goods Sold

In the three-month periods ended March 31, 2018 and 2017, we incurred $-0- and $-0-, respectively.  The cost of development on the test production line and refinement of the process of production of carbon fiber are treated as R & D and expensed as incurred as part of the S, G & A expenses.

Gross profit (loss)

For the three-months ended March 31, 2018 and 2017, our gross profit loss was $0 and $148,020, respectively.  The decrease in gross profit in 2018, is due to no revenue in the period ended March 31, 2018.    

Operating Expenses

Our operating expenses for the three-month periods ended March 31, 2018 and 2017 are outlined in the table below:

 

Three Months Ended

 

March 31,

2018

 

2017

 

 

 

 

General and administrative

$

1,328,446

 

$

257,688

Depreciation and amortization

17,404

 

11,830

Total

$

1,345,850

 

$

269,518


 

Operating expenses for the three-months ended March 31, 2018 and 2017, was $1,345,850 and 269,518, respectively.  The increase in operating expense during the three-months ended March 31, 2018 versus 2017 is due in part to the reclassification of R&D costs to general and administrative, coupled with other increases in general and administrative costs including the increase in full-time employees and their associated payroll, professional fees for legal, accounting, and audit services required for SEC filing requirements, and other general and administrative costs due to the planned growth of the Company.  


Other Expenses


In addition to operating expenses, we incurred interest expenses of $8,314 and $9,444 during the three-months ended March 31, 2018 and 2017, respectively.  The nominal increase in interest expense during the period ended March 31, 2018 is primarily attributable to the debt being outstanding for additional days in 2018 versus 2017.  In addition, for the three-month periods ended March 31, 2018 and 2017, the Company recorded a loss from discontinued operations of $0 and $5,198, respectively.

 

20


Net Loss


We incurred a net loss of $1,354,164 and $236,140 for the three-months ended March 31, 2018 and 2017, respectively.    


 

Liquidity and Capital Resources


Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.


To date we have financed our operations through sales of common stock and the issuance of debt.


The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing and generating profitable operations from the Companys future operations. The Company has, with over $1.2 million of cash, sufficient funds to cover its overhead and expenses for the coming year.  


Working Capital

 

 

 

 

 

 

Percentage

 

March 31,

 

December 31,

 

Increase

 

2018

 

2017

 

(Decrease)

Current Assets

$

1,374,961 

 

$

1,460,139 

 

(5.8%)

Current Liabilities

$

1,055,598 

 

$

1,114,328 

 

(5.3%)

Working Capital Surplus

$

319,363

 

$

345,811

 

(7.7%)


 

At March 31, 2018, our cash balance was $1,208,491 compared to $1,309,573 at December 31, 2017.  The decrease in cash is attributed to proceeds of $385,355 from the private sale of shares of common stock, all of which were used to pay operating expenses, and to reduce accounts payable.

 

At March 31, 2018, we had total current liabilities of $1,055,598, compared with total current liabilities of $1,114,328 at December 31, 2017.  The decrease in total liabilities is attributed to a decrease in accounts payable and accrued liabilities of $67,044 and offset by an increase in accrued interest of $9,625.  

 

At March 31, 2018, we had a working capital surplus of $319,363 compared with a working capital surplus of $345,811 at December 31, 2017.  The decrease in working capital surplus is primarily due to an increase increases in our selling, general, and administrative expenses, and decreases in prepaid expenses, accounts payable and accrued expenses which were offset by cash obtained from proceeds of common stock sales.



21






Cash Flows


 

For the three Months Ended

 

Percentage

 

March 31,

 

March 31,

 

Increase

 

2018

 

2017

 

(Decrease)

Cash Used in Operating Activities

$

(486,437)

 

$

(223,997)

 

(117.2%)

Cash Used in Investing Activities

-

 

(146,849)

 

-%

Cash Provided by Financing Activities

385,355 

 

390,000 

 

(1.2%)

Net Increase (decrease) in Cash

$

(101,082) 

 

$

19,154 

 

(627.7%)




Cash flow from Operating Activities


During the three months ended March 31, 2018, we used $486,039 of cash in operating activities compared to the use of $223,997 of cash for operating activities during the period ended March 31, 2017.  The increase in the use of cash for operating activities was mainly attributed to our net loss of $1,355,476, offset mainly by depreciation and amortization of $17,404, a decrease in accounts payable of $67,044, an increase of $9,6251 in accrued interest, a decrease in deferred revenue of $15,904, and issuance of stock for services of $924,958.


 

Cash flow from Investing Activities


During the three months ended March 31, 2018, we used $0 in investing activities.  In the three months ended March 31, 2017, we used $146,849 to invest in the purchase of certain upgrades to our manufacturing equipment and control systems ($46,849) and $100,000 to acquire controlling interest in Woodland Holdings Corp. prior to affecting our reverse merger.  



Cash flow from Financing Activities

 

During the three months ended March 31, 2018 and 2017, we received net proceeds of $385,355 and $390,000, respectively from financing activities.  The proceeds from financing activities for the period ended March 31, 2018 are solely attributed to $385,555 from the issuance of unregistered shares of common stock.  For the period ended March 31, 2017, proceeds from financing activities included proceeds from notes payable related parties of $200,000, and an additional membership contribution to 4MIO of $190,000 prior to its acquisition by the Company in April 2017.


Going Concern

 

As of March 31, 2018, the Company had cash on hand of $1,208,491 which management believes is enough to support the next twelve (12) months of operations.  Therefore, the accompanying unaudited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Off-Balance Sheet Arrangements

 

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

 

 

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Future Financings

 

We intend to continue to rely on private sales of our shares of common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

Critical Accounting Policies

 

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

 

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

Our significant accounting policies are more fully described in Note 3 to our unaudited consolidated financial statements included in this Quarterly Report.

Recently Issued Accounting Pronouncements

 

Our significant accounting policies are more fully described in Note 3 to our unaudited consolidated financial statements included in this Quarterly Report.


The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.

 

 

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements as of March 31, 2018 and December 31, 2017.

 

Inflation

We do not believe that inflation has had a material effect on our Companys results of operations.

 

 

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Item 3. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

Item 4. Controls and Procedures.

Our management is responsible for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commissions rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuers management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.


An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2018. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms.

 

Changes in Internal Control Over Financial Reporting

During the quarter ended March 31, 2018 the Company implemented remediation plans to improve its internal control over financial reporting. However, a material weakness in the proper documentation for and tracking of timely issuance of subscribed shares was only partially addressed during the first quarter, with the remainder of the remediation completed during the second quarter ended June 30, 2018.  No other changes in our internal control over financial reporting occurred during the three months ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 



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PART II-OTHER INFORMATION

Item 1. Legal Proceedings.

None

Item 1A. Risk Factors.

Not Applicable.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

On January 4, 2018, the Company issued 83,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $50,000.


On February 26, 2018, the Company issued 83,334 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $50,000 recorded as stock to be issued at the year ended December 31, 2017.


On February 26, 2018, the Company made stock granted to 15 employees totaling 875,000 shares of common stock.  The shares were priced at $0.60 per share, with $525,000 recorded as compensation expense.


On February 26, 2018, the Company issued 33,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $20,000 recorded as stock to be issued at the year ended December 31, 2017.


On February 26, 2018, the Company issued 33,333 shares of common stock at a price of $0.60 per share to an accredited investor in full settlement of a $20,000 convertible debenture.  Interest was waived at the time of conversion.


On February 27, 2018, the Company issued 42,000 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $25,200.


On February 27, 2018, the Company issued 66,667 shares of common stock at a price of $0.60 per share to an accredited investor in full settlement of a $40,000 convertible debenture.  Interest was waived at the time of conversion.


On February 27, 2018, the Company issued 83,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $50,000.


On March 8, 2018, the Company issued 8,333 shares of common stock at a price of $0.60 per share to an accredited investor in consideration of a cash investment of $5,000 recorded as stock to be issued at the year ended December 31, 2017.


On March 14, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $75,000.


On March 16, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $75,000.


On March 21, 2018, the Company issued 55,555 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $50,000.


On March 21, 2018, the Company issued 16,667 shares of common stock at a price of $0.60 per share to an accredited investor in full settlement of a $10,000 convertible debenture.  Interest was waived at the time of conversion.


On March 21, 2018, the Company issued 83,333 shares of common stock at a price of $0.90 per share to an accredited investor in consideration of a cash investment of $75,000.

 

On March 29, 2018, the Company issued 460,531 shares of common stock at a price of $0.60 per share to 23 consultants for services rendered. 


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On March 29, 2018, the Company issued 45,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $27,000.


On March 29, 2018, the Company issued 45,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $27,000.


On March 29, 2018, the Company issued 30,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $18,000.


On March 29, 2018, the Company issued 40,000 shares of common stock at a price of $0.60 per share to an officer and director and recorded compensation expense of $24,000.


On March 29, 2018, the Company issued 20,720 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $12,432.


On March 29, 2018, the Company issued 13,600 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $8,160.


On March 29, 2018, the Company issued 2,000 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $1,200.


On March 29, 2018, the Company issued 10,000 shares of common stock at a price of $0.60 per share to an employee and recorded compensation expense of $6,000.


The foregoing unregistered shares of common stock of the Company were issued pursuant to the exemption from the registration requirements of the Securities Act of 1933, as amended, available under Section 4(a)(2) and/or Rule 504(b) of Regulation D promulgated thereunder due to the fact that there were no solicitation or advertisement and that such issuances did not involve a public offering of securities.  


Item 3. Defaults Upon Senior Securities

None.


Item 4. Mine Safety Disclosures

Not applicable.


Item 5. Other Information


Not applicable.







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Item 6. Exhibits

Exhibit No.

Description of Exhibit

31.1

Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Chief Financial and Accounting Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Chief Executive Officer pursuant to Section 906 Certifications under Sarbanes-Oxley Act of 2002

32.2

Certification of Chief Financial Officer and Accounting pursuant to Section 906 Certifications under Sarbanes-Oxley Act of 2002

101.INS

XBRL Instance Document

101.SCH

XBRL Taxonomy Extension Schema Document

101.CAL

XBRL Taxonomy Extension Calculation Linkbase Document

101.DEF

XBRL Taxonomy Extension Definition Document

101.LAB

XBRL Taxonomy Extension Label Linkbase Document

101.PRE

XBRL Taxonomy Extension Presentation Linkbase Document



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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

4M CARBON FIBER CORP.


By:  /s/ Erwin Vahlsing, Jr.

Name: Erwin Vahlsing, Jr.

Title: Chief Financial Officer

(Principal Financial and Accounting Officer and officer authorized to sign on behalf of registrant)


Date:      September 13, 2018





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