10-K/A 1 worldwide_10ka1-2017.htm AMENDMENT NO. 1

Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K/A

 

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended December 31, 2017

 

[_]       TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

Worldwide Specialty Chemicals Inc.

(Exact name of registrant as specified in its charter)

 

Delaware 000-55554 47-5048026
(State or other jurisdiction of incorporation or organization) (Commission File No.) (IRS Employee Identification No.)

 

 

Downtown Republic Center, Suite 3100,

325 N. Saint Paul Street, Dallas, Texas 75201

(Address of Principal Executive Offices)

 

469-513-4198

(Issuer Telephone number)

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $.0001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes [_] No [X]

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Exchange Act. Yes [_] No [X]

 

Indicate by check mark whether the issuer: (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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted 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 [X] No [_]

 

Indicate by check mark if disclosures of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K/A or any amendment of this Form 10-K/A . [  ]

 

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

(Check One)

 

Large accelerated filer    [_]  Accelerated filer    [_] 
Non-accelerated filer     [_]  (Do not check if a smaller reporting company) Smaller reporting company     [X] 
  Emerging growth company     [_] 

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    [_]

 

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

 

As of June 30, 2017, the aggregate market value of the registrant’s Common Stock held by non-affiliates of the issuer was $0.00 (based on lack of any trading market or posted price). This amount excludes the market value of all shares as to which any executive officer, director or person known to the registrant to be the beneficial owner of at least 5% of the registrant’s Common Stock may be deemed to have sole or shared voting power.

 

As of July 9, 2018, there were 24,855,893 of the registrant’s common stock, par value $.0001 per share outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

Listed below are documents incorporated herein by reference and the part of this Report into which each such document is incorporated:

 

None

   
 

 

WORLDWIDE SPECIALTY CHEMICALS INC.
FORM 10-K/A

TABLE OF CONTENTS

 

     
Forward-Looking Statements -ii-
Part I
Item 1. Business. -1-
Item 1A. Risk Factors. -3-
Item 1B. Unresolved Staff Comments. -5-
Item 2. Properties. -5-
Item 3. Legal Proceedings. -5-
Item 4. Mine Safety Disclosures. -5-
     
Part II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities -6-
Item 6. Selected Financial Data. -7-
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations. -7-
Item 7A. Quantitative and Qualitative Disclosures About Market Risk. -10-
Item 8. Financial Statements and Supplementary Data. -11-
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure. -12-
Item 9A. Controls and Procedures. -12-
Item 9B. Other Information. -12-
     
Part III
Item 10. Directors, Executive Officers and Corporate Governance. -13-
Item 11. Executive Compensation. -14-
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters. -15-
Item 13. Certain Relationships and Related Transactions, and Director Independence. -16-
Item 14. Principal Accounting Fees and Services. -17-
     
Part IV
Item 15. Exhibits, Financial Statement Schedules. -18-
SIGNATURES -19-

 

 

 

 

 

 i 
 

 

 

FORWARD-LOOKING STATEMENTS

 

Certain statements contained in this Report that are not statements of historical fact constitute “forward-looking statements.” Words such as “may,” “seek,” “expect,” “anticipate,” “estimate,” “project,” “budget,” “goal,” “forecast,” “anticipate,” “intend,” “plan,” “may,” “will,” “could,” “should,” “strategy,” “believes,” “predicts,” “potential,” “continue,” and similar expressions are intended to identify such forward-looking statements but are not the exclusive means of identifying such statements. Although the Company believes that the current views and expectations reflected in these forward-looking statements are reasonable, those views and expectations, and the Company’s future plans, operations, business strategies, operating results and financial position, are inherently subject to risks, uncertainties, and other factors, many of which are not under the Company’s control. Those risks, uncertainties, and other factors could cause the actual results to differ materially from those in the forward-looking statements. Those risks, uncertainties, and factors (including the risks contained in the section of this report titled “Risk Factors”) that could cause the Company’s actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements and its goals and strategies to not be achieved. You are cautioned not to place undue reliance on forward-looking statements, which speak only as of the date of this Report. The Company expressly disclaims any obligation to release publicly any updates or revisions to these forward-looking statements to reflect any change in its views or expectations. The Company can give no assurances that such forward-looking statements will prove to be correct.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 ii 
 

 

PART I

 

Item 1. BUSINESS.

 

General

 

Worldwide  Specialty Chemicals Inc., (WSC) a Delaware Corporation formed on March 26, 2014 is an international specialty chemical company. Its principal executive offices are located at Downtown Republic Center, Suite 3100, 325 N. Saint Paul Street, Dallas, Texas 75201. WSC’s corporate telephone number is 469-513-4198. WSC does not currently have a stock symbol.

 

On February 15, 2017, the WSC acquired 100% ownership of KT Chemicals, Inc. (“KT Chemicals” or “KT”), a Texas Corporation founded in February 2014 (collectively, the “Company”). WSC anticipates continuing to acquire, merge with, and/or start other industry specific specialty chemical subsidiaries.

 

KT is also a specialty chemicals company, serving as both manufacturer and distributor of environmentally safe, specialty chemicals. KT is located at 1002 North Central Expressway, Suite 499, Richardson, Texas 75080.

 

Business Overview

 

The Company is an international specialty chemical company with many products that are friendly to the environment. The common description is “green chemicals”. The Company has degreed chemists on staff with years of successful experience in the specialty chemical industry. The term “specialty chemicals,” is best defined by those chemicals whose formulas allow the chemical compounds to perform a specific function for a class of customers. The Company’s products have been used successfully in a diverse array of applications, including:

 

·Military weapons and Department of Energy Decommissioning and Decontamination (D&D) sites
·Military Chemical, Biological, Radiological, Nuclear, and Explosives (CBRNE) sites
·Commercial nuclear power plants and nuclear powered ships
·Nuclear medicine and research laboratory environments using radioisotopes and hazardous chemicals and substances
·Hazardous toxic industrial chemical and toxic industrial material clean-up

 

The Company currently operates from several corporate and subsidiary offices around the country. One subsidiary operates from a 20,000 square foot chemical production and distribution facility, from which it markets a number of specialty chemicals. Most of the chemical formulas are protected by patents or trade secrets. For certain specific markets, the company provides customized applications systems that assure safe and proportioned product delivery. The Company may elect to apply for patents on one or more of the application systems.

 

Products and Services

 

Decontamination Products

 

The Company has since inception been engaged in the business of specialty chemicals, selling a variety of decontamination chemical products worldwide. The specialty chemicals sold by the Company have been used in the US, Canada, the UK, and other locations to remove radioactive materials and toxic industrial chemicals. The Company’s family of products is also used in related applications, such as restoration of cement and other surfaces, for removal of paint and graffiti.

 

The products are proven, professional, military-grade, safe to use and handle, water soluble, and environmentally friendly hydrogels with a near neutral pH. The products are tailored to meet the requirements of the U.S. Department of Defense and the U.S. Department of Energy and have been formally approved for use by the U.S. Department of Defense and the U.S. Navy. The products are designed to address extreme, hard-to-clean contamination challenges. By way of example, the products are effective against radioactive isotopes for nuclear plant decommissioning and nuclear medicine spills and are effective against toxic industrial chemicals and materials such as mercury, PCB, acids, lead, and asbestos.

 

 

 

 

 

 

 1 
 

 

KT Chemicals Products

 

Effective February 15, 2017, the Company acquired all of the outstanding shares of KT Chemicals, Inc. KT Chemicals is also a specialty chemicals company, serving as both manufacturer and distributor of environmentally safe, specialty chemicals. KT Chemicals’ products utilize all natural and renewable resources, contain no dangerous chemicals or additives, and offer “green” solutions to its customers. Its product line includes asphalt release agents, industrial cleaners, environmental remediation gels, odor control agents, and consumer friendly cleaners for a wide range of uses, including construction, environmental remediation, hazardous materials cleanup, nuclear decommissioning, industrial cleaning, and odor control. KT Chemicals takes pride in noting that all of the ingredients in its products are selected from the EPA’s Design for the Environment (DfE) list. The full range of KT Chemicals’ product line is described on its website: www.kt-chemicals.com.

 

Product research and development is an ongoing and continuous process at KT Chemicals. Consequently, some of its product variations and some of its newer products are a result of product research and feedback from its customers.

 

Intellectual Property

 

The decontamination family of products current sold by the Company are protected by patents and trademarks held by CBI Polymers, Inc. (CBI). Although not explicitly addressed in the Company’s Exclusive Patent License Agreement with CBI, CBI has historically permitted the Company to use its trademarks for sales purposes.

 

The products manufactured and sold by KT Chemicals are protected by trademarks held by KT Chemicals.

 

Competition

 

The Company competes with a wide variety of companies in the specialty chemical sales industry and, more specifically, in the decontamination products sales industry. These competitors range from small specialty companies to large, multinational corporations. While the products the Company sells have been successful in decontaminating a variety of sites including U.S. government owned and managed facilities, other better financed and more established entities operate in this industry and may be expected to expand in the industry, thus increasing the competitive pressures the Company faces.

 

The Company considers a number of its small - to medium-sized business competitors to potentially be attractive acquisition targets.

 

Employees

 

As of December 31, 2017, the Company had four fulltime employees three paid consultants. The employees are not covered by a collective bargaining agreement. The Company believes that it maintains good relations with its employees.

 

Legal Proceedings

 

The Company is not a party to or otherwise involved in any legal proceedings, claims, or other legal matters.

 

Government Regulation

 

The products sold by the Company are extensively regulated by federal and state authorities in the United States. The Company believes it is in compliance with federal and state requirements in order that it may continue to sell products to its clients consistent with applicable laws and regulations.

 

 

 

 

 2 
 

 

Item 1A. RISK FACTORS.

 

The Company’s limited operating history may not serve as an adequate basis to judge its future prospects and results of operations. The Company has a relatively limited operating history. Its limited operating history makes it difficult for investors to evaluate its business. An investor in its securities must consider the risks, uncertainties and difficulties frequently encountered by companies in rapidly evolving markets.

 

The Company will need additional financing to implement its business plan. The Company will need additional financing to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders and incurring additional indebtedness could involve the imposition of covenants that restrict the Company’s operations.

 

The Company may not successfully manage its growth. The Company’s success will depend upon the expansion of its operations and the effective management of its growth, which will place a significant strain on its management and on its administrative, operational and financial resources. To manage this growth, the Company must expand its facilities, augment its operational, financial and management systems, and hire and train additional qualified personnel. If it is unable to manage its growth effectively, its business would be harmed.

 

The Company relies on key executive officers, and their knowledge of its business and technical expertise would be difficult to replace. The Company is highly dependent on its executive officers: its Chairman and Chief Executive Officer, E. Thomas Layton, and Karl M. Taft III, the President of KT Chemicals, Inc. If one or more of the Company's senior executives or other key personnel are unable or unwilling to continue in their present positions, the Company may not be able to replace them easily or at all, and the Company’s business may be disrupted. Competition for senior management personnel is intense, the pool of qualified candidates is very limited, and we may not be able to retain the services of our senior executives or attract and retain highquality senior executives in the future. Such failure could have a material adverse effect on the Company's business, financial condition and results of operations.

 

The Company may never pay dividends to its common stockholders. The Company currently intends to retain its future earnings to support operations and to finance expansion; accordingly, the Company does not anticipate paying any cash dividends in the foreseeable future. The declaration, payment and amount of any future dividends on common stock will be at the discretion of the Company’s Board of Directors, and will depend upon, among other things, earnings, financial condition, capital requirements, level of indebtedness and other considerations the Board of Directors considers relevant. There is no assurance that future dividends will be paid on common stock or, if dividends are paid, the amount thereof.

 

The Company may be unable to successfully integrate future acquisitions with its operations or realize all of the anticipated benefits of such acquisitions. The Company hopes to be able to grow in part through acquisitions, though there can be no assurance that it will be able to do so. Failure to successfully integrate future acquisitions, if any, in a timely manner may have a material adverse effect on its business, financial condition, results of operations, and cash flows. The difficulties of combining acquired operations include, among other things:

 

·operating a significantly larger combined organization;
·consolidating corporate technological and administrative functions;
·integrating internal controls and other corporate governance matters; and
·diverting management’s attention from other business concerns.

 

In addition, the Company may not realize all of the anticipated benefits from future acquisitions, if any, such as increased earnings, cost savings, and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher and unexpected acquisition and operating costs, unknown liabilities, and fluctuations in markets. If benefits from future acquisitions do not meet the expectations of investors or analysts, the market price of its shares of common stock may decline.

 

 

 

 

 3 
 

 

The Company depends on its ability to maintain relationships with industry participants. The Company’s ability to maintain commercial arrangements with customers and suppliers depends on its ability to maintain close working relationships with industry participants. There can be no assurance that it will be able to maintain the strategic relationships developed by its CEO, E. Thomas Layton. Nor can there be any assurance that it will be able to establish additional necessary strategic relationships, in which case the opportunity to maintain or grow its business may be negatively affected.

 

The Company’s future business of its decontamination products is largely dependent upon government spending, which is beyond the Company’s control. The Company’s DeconGel™ decontamination products have been marketed chiefly to governmental agencies, primarily the Department of Defense and the Department of Energy. The Company has demonstrated its products at the Idaho, Los Alamos, and Oak Ridge National Laboratories, and the Hanford Nuclear Site as well as at various US Navy facilities. Budgets for these facilities and the departments that operate them are set by Congress and are subject to political priorities and decisions and vary from year to year. A reduction in funding for these departments and/or for decontamination services within these departments could in turn reduce demand for its products and have a material adverse effect on its financial condition and results of operations.

 

Changes in technology may render its products or services obsolete. The decontamination chemical industry may be substantially affected by changes in technology. New and more active compounds may be discovered that weigh less or require less volume or different manufacturing, application, or disposal methods, or which have other advantages over the products we sell. As a result, the Company’s products may become obsolete and be replaced with other products. While it may attempt to adapt and develop or represent new products, there can be no assurance that it will have sufficient resources to fund these changes or that these changes will ultimately prove successful.

 

The industries in which the Company operate are competitive. This competition may affect its market share or prevent it from raising prices at the same pace as its costs increase, making it difficult for it to maintain existing business and win new business. The Company operates in competitive markets. Certain of its competitors have substantially greater financial and technical resources than it does. Additionally, new competitors may enter its markets. The Company may be required to reduce prices if its competitors reduce prices, or as a result of any other downward pressure on prices for its products, which could have an adverse effect on the Company. If it is unable to compete successfully, its financial condition and results of operations could be adversely affected.

 

The Company’s common stock is not publicly traded; lack of liquidity. Since the Company does not yet have a trading symbol, no established public trading market exists for its common stock. Nor is there any assurance that its common stock will be accepted for listing on the OTC Markets or any other trading system in the future. Therefore, investors who purchase its common stock may be unable to sell the shares.

 

The Company’s common stock is classified as a “penny stock.” Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. Once the Company’s common stock commences trading, it is likely that the Company’s common stock will be considered a penny stock for the immediately foreseeable future.

 

For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the investor, make a reasonable determination that transactions in penny stocks are suitable for that person, and make a reasonable determination that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.

 

The broker or dealer must also provide disclosure to its customers, prior to executing trades, about the risks of investing in penny stocks in both public offerings and in secondary trading, the commissions payable to both the broker-dealer and the registered representative, and the rights and remedies available to an investor in cases of fraud in penny stock transactions.

 

 

 

 

 

 4 
 

 

Because of these regulations, broker-dealers may not wish to furnish the necessary paperwork and disclosures and/or may encounter difficulties in their attempt to buy or sell shares of the Company’s common stock, which may in turn affect the ability of Company stockholders to sell their shares.

 

Accordingly, the penny stock classification will adversely affect any market liquidity for the Company’s common stock, and subjects the shares to certain risks associated with trading in penny stocks. These risks include difficulty for investors in purchasing or disposing of shares, difficulty in obtaining accurate bid and ask quotations, difficulty in establishing the market value of the shares, and a lack of securities analyst coverage.

 

Item 1B. UNRESOLVED STAFF COMMENTS.

 

None

 

Item 2. PROPERTIES.

 

The Company leases various office space on a month to month basis.

  

Item 3. LEGAL PROCEEDINGS.

 

There is no litigation, pending or threatened, by or against the Company.

 

Item 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

 

 

 

 

 

 

 

 

 

 

 

 5 
 

 

PART II

 

Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.

 

Market Information

 

No established public trading market exists for its common stock at present. The Company is working with a broker-dealer to make application to FINRA for a trading symbol for its common stock in order that the Company’s securities may be traded on the OTC Markets. However, there is no assurance that FINRA will provide us a symbol or, if a trading symbol is provided, that a market for its common stock will develop.

 

Holders

 

The approximate number of stockholders of record of the Company’s common stock at June 22, 2018 was 99.

 

Dividends

 

The Company has never paid any cash dividends on its common stock, and it is anticipated that none will be paid in the foreseeable future.

 

Recent Sales of Unregistered Securities

 

To assist the Company obtain and preserve working capital to support its current operations, the Company entered into the following transactions:   

 

On January 3, 2018, 80,000 warrants were exercised at $.50 per share for a total cash amount of $40,000.

 

On February 28, 2018, the Company sold 33,333 common shares at $1.50 per share for a total cash amount of $50,000.

 

On March 2, 2018, the Company sold 16,500 common shares at $1.50 per share for a total cash amount of $24,750.

 

On March 14, 2018, the Company sold 50,000 common shares at $1.50 per share for a total cash amount of $75,000.

 

On March 16, 2018, the Company sold 10,000 common shares at $1.50 per share for a total cash amount of $15,000.

 

On March 19, 2018, the Company sold 100,000 common shares at $1.50 per share for a total cash amount of $150,000.

 

On April 2, 2018, the Company sold 6,667 common shares at $1.50 per share for a total cash amount of $10,000.

 

On April 13, 2018, the Company sold 13,400 common shares at $1.50 per share for a total cash amount of $20,100.

 

On April 30, 2018, the Company sold 34,000 common shares at $1.50 per share for a total cash amount of $51,000.

 

On May 4, 2018, 15,000 warrants were exercised at $.50 per share for a total cash amount of $7,500.

 

 

 

 

 

 6 
 

 

On May 4, 2018, 10,000 warrants were exercised at $.50 per share for a total cash amount of $5,000.

 

On May 18, 2018, the Company sold 13,000 common shares at $1.50 per share for a total cash amount of $19,500.

 

On May 19, 2018, 39,000 warrants were exercised at $.50 per share for a total cash amount of $19,500.

 

On May 21, 2018, 15,000 warrants were exercised at $.50 per share for a total cash amount of $7,500.

 

On May 24, 2018, the Company sold 5,000 common shares at $1.50 per share for a total cash amount of $7,500.

 

On June 7, 2018, the Company sold 6,667 common shares at $1.50 per share for a total cash amount of $10,000.

 

On June 15, 2018, the Company sold 34,000 common shares at $1.50 per share for a total cash amount of $51,000.

 

On June 26, 2018, 40,000 warrants were exercised at $.50 per share for a total cash amount of $20,500.

 

On June 28, 2018, the Company sold 34,000 common shares at $1.50 per share for a total cash amount of $51,000.

 

Repurchases of Equity Securities

 

None.

 

Item 6. SELECTED FINANCIAL DATA.

 

Not applicable.

 

Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

Forward-Looking Statements

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (”MD&A”) is intended to help you understand its historical results of operations during the periods presented and its financial condition. This MD&A should be read in conjunction with its financial statements and the accompanying notes and contains forward-looking statements that involve risks and uncertainties and assumptions that could cause its actual results to differ materially from management’s expectations. See the sections entitled “Forward-Looking Statements” and “Risk Factors” above.

  

OVERVIEW

 

Prior to the acquisition of KT Chemicals on February 15, 2017, the Company had realized only modest revenues from commissions. Revenues during the year ended December 31, 2017, were $1,141,209 and $40,014 for the year ended December 31, 2016. During the year ended December 31, 2017, the Company concentrated its efforts on (a) testing and marketing of its products; (b) customer acquisition; and (c) sourcing and developing new products to fulfill customers’ requirements.

 

Results of Operations for the year ended December 31, 2017 compared to the year ended December 31, 2016

 

Revenues

 

For the year ended December 31, 2017, its revenues were $1,141,209, and for the same period in 2016, the Company had $40,014. The increase in sales is the result of the acquisition of KT Chemicals.

 

 

 

 7 
 

 

Operating Expenses

 

For the year ended December 31, 2017, its operating expenses totaled $2,979,839. These primarily consisted of general and administrative costs of $2,752,486, selling expenses of $144,065 and $83,288 of depreciation expense. For the year ended December 31, 2016, its operating expenses totaled $1,885,909. These consisted of general and administrative costs of $924,478; selling expenses of $118,280; and amortization and impairment of license agreements of $843,151.  The increase is primarily related an increase in professional fees relating to marketing and business development, bad debt expense and payroll cost due to the acquisition of KT Chemicals and share based compensation expense.

 

Liquidity and Capital Resources

 

During the year ended December 31, 2017, the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable and the sale of common stock.

 

The Company had total assets of $3,311,273 and $77,228 as of December 31, 2017 and 2016, respectively. Its current assets at December 31, 2017, consisted of $275,886 in cash, $49,603 in receivables, $62,541 in inventory and $39,307 in prepaid expenses and other current assets and its long term assets were $2,883,936. As of December 31, 2016, included $50,202 in cash, $13,600 in receivables, $7,684 in inventory, $5,742 in prepaid expense and $0 in long term assets. The increase in total assets of $3,234,045, was largely due to the purchase of KT Chemicals.

 

As of December 31, 2017, the Company had total liabilities totaling $357,968 including $248,656 in accounts payable and other expenses and $109,312 in notes payable. As of December 31, 2016, the Company had total liabilities totaling $1,022,815 including $120,961 in accounts payable and accrued expenses, and $900,187 in convertible notes. The decrease in liabilities of $664,847, was largely the result of the conversion of notes payable to common stock. issuing convertible notes payable to purchase KT Chemicals and to provide working capital for the Company’s operations related to its sales, marketing and operating efforts.

 

At December 31, 2017, the Company had a stockholders’ equity (deficit) of $2,953,305 and $(945,587) at December 31, 2016. The increase is a result of the items discussed above.

 

The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtain additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, it continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful.

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company’s stockholders and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s cash requirements and to finance specific business initiatives.

 

 

 

 

 8 
 

 

Critical Accounting Policies

 

Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s financial statements. These policies are contained in Note 1 to the consolidated financial statements.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management at December 31, 2017 and 2016. The carrying value of the financial instruments included in the Company’s consolidated financial statements approximated their fair values.

 

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.

 

The carrying value of the notes payable approximates fair value as they bear market rates of interest.

 

Revenue Recognition.

 

The Company recognizes revenue in accordance with ASC topic 605, “Revenue Recognition, and other applicable revenue recognition guidance under US GAAP. During 2017, revenue reported by the Company was for product sales and is recognized when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured. During 2016, revenue is for commissions earned on product sales under agreements with KT Chemicals and is recognized when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured. Revenue related to license agreements are recognized once earned in accordance with the applicable license agreement. During the year ended December 31, 2016, 100% of the Company’s revenue was related to the license agreement with KT Chemicals.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At December 31, 2017 and 2016, the allowance for doubtful accounts was $0.

 

Stock-Based Compensation.

 

The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free interest rate from 1.50% to 2.481% in 2017, dividend yield of 0%, expected life of 3.25 - 10 years and volatility of 71.70%.

 

 

 

 

 9 
 

 

Off Balance Sheet Transactions and Related Matters

 

Other than operating leases discussed in Note 7 to the consolidated financial statements, there are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.

 

Disclosure of Contractual Obligations

 

Effective December 31, 2016, the Company entered into an Exclusive Patent Licenses Agreement with CBI Polymers, Inc. ("CBI"), pursuant to which the Company would sell DeconGel™ and pay 10% of the net selling price to CBI, as a license fee.

 

Additionally, the Company leases various office space that houses the plant and corporate offices on a month to month basis.

 

As discussed in note 4 of the consolidated financial statements, the Company is party to certain debt instruments related to its vehicles and equipment.

 

Material Events

 

Effective February 15, 2017, the Company completed the acquisition of KT Chemicals, Inc., a specialty chemicals company located in Richardson, Texas. Under the terms of the acquisition, the Company acquired 100% of KT Chemicals’ common stock for cash and stock. The Company agreed to pay $2,700,000 in cash and to issue 520,000 shares of the Company’s common stock valued at $0.015 per share for a total stock value of $7,800 to KT Chemicals stockholders in exchange for all outstanding shares of KT Chemicals’ common stock.

 

The primary asset acquired from KT Chemicals is the expertise of KT Chemicals, which the Company believes it will be able to leverage in maximizing the sales of specialty chemicals on a go forward basis. As of February 15, 2017, these factors contributed to a purchase price in excess of the fair value of KT Chemicals’ tangible assets acquired, and, as a result, the Company has recorded goodwill in the amount of $2,294,952 in connection with this transaction. Goodwill, as a result of this acquisition, is not deductible for tax purposes. The Company is in the process of finalizing the purchase price allocation and accordingly, the preliminary allocation of the purchase price is subject to adjustment.

 

Effective May 18, 2018, Mr. Paul Williams was appointed to the Board of Directors of the Company. Contemporaneously with such appointment, the Board of Directors of the Company appointed Mr. Williams to assume the role of Chief Financial Officer. 

 

Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not applicable.

 

 

 

 

 

 

 

 10 
 

 

Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

 

 

Worldwide Specialty Chemicals Inc. and Subsidiary

 

CONSOLIDATED FINANCIAL STATEMENTS
AND REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

DECEMBER 31, 2017 AND 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 11 
 

 

Worldwide Specialty Chemicals Inc. and Subsidiary

 

 

DECEMBER 31, 2017 AND 2016

 

TABLE OF CONTENTS

 

 

  Page
   
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM F-2
   
CONSOLIDATED FINANCIAL STATEMENTS  
   
CONSOLIDATED BALANCE SHEETS F-3
   
CONSOLIDATED STATEMENTS OF OPERATIONS F-4
   
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT) F-5
   
CONSOLIDATED STATEMENTS OF CASH FLOWS F-6
   
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS F-7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 F-1 
 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of

Worldwide Specialty Chemicals, Inc.

 

We have audited the accompanying consolidated balance sheets of Worldwide Specialty Chemicals, Inc. and subsidiary (the “Company”), as of December 31, 2017 and 2016, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended.  In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficit that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty

 

/s/ Whitley Penn LLP

 

We have served as the Company's auditor since 2017.

 

 

 

Dallas, Texas

July 17, 2018

 

 

 

 

 

 

 

 

 

 F-2 
 

 

Worldwide Specialty Chemicals Inc. and Subsidiary

Consolidated Balance Sheets

As of December 31,

             

 

   2017   2016 
ASSETS          
           
CURRENT ASSETS          
Cash and cash equivalents  $275,886   $50,202 
Accounts receivable   49,603    13,600 
Inventory   62,541    7,684 
Prepaid expenses   8,205    5,742 
Other current assets   31,102     
Total current assets   427,337    77,228 
           
GOODWILL   2,294,952     
           
FIXED ASSETS          
Vehicles and trailers   223,413     
Equipment   420,004     
Leasehold improvements   28,855     
    672,272     
Accumulated depreciation   (83,288)    
Fixed assets, net   588,984     
           
TOTAL ASSETS  $3,311,273   $77,228 
           
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)          
           
CURRENT LIABILITIES          
Accounts payable  $224,244   $81,939 
Accrued expenses   19,949    39,022 
Due to CBI   4,463    1,667 
Notes payable – current portion   35,650    900,187 
Total current liabilities   284,306    1,022,815 
           
NON-CURRENT LIABILITIES          
Notes payable   73,662     
           
COMMITMENTS AND CONTINGENCIES          
           
STOCKHOLDERS' EQUITY (DEFICIT)          
Preferred stock, $0.0001 par value, 20,000,000 shares authorized; no shares issued or outstanding        
Common stock, $0.0001 par value, 100,000,000 shares authorized; 24,300,326 issued and outstanding as of December 31, 2017 and 6,817,393 issued and outstanding as of December 31, 2016   2,430    682 
Additional paid-in-capital   7,661,882    1,049,773 
Accumulated deficit   (4,711,007)   (1,996,042)
Total stockholders' equity (deficit)   2,953,305    (945,587)
           
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)  $3,311,273   $77,228 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 F-3 
 

 

Worldwide Specialty Chemicals Inc. and Subsidiary

Consolidated Statements of Operations

Years Ended December 31,

 

 

   2017   2016 
         
REVENUE  $1,141,209   $40,014 
COST OF GOODS SOLD   641,462    6,517 
           
Gross profit   499,747    33,497 
           
OPERATING EXPENSES          
General and administrative   2,752,486    924,478 
Selling   144,065    118,280 
Depreciation   83,288     
License impairment       843,151 
Total operating expenses   2,979,839    1,885,909 
           
OTHER (INCOME) EXPENSE          
Interest income   (32)   (4)
Interest expense   234,905    60,315 
Other expense       2,710 
Total other expense   234,873    63,021 
           
NET LOSS  $(2,714,965)  $(1,915,433)
           
Basic and diluted loss per share  $(0.31)  $(0.41)
           
Weighted average shares - basic and diluted   8,822,360    4,617,918 

 

 

The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 

 F-4 
 

 

Worldwide Specialty Chemicals Inc. and Subsidiary

Consolidated Statements of Changes in Stockholders' Equity (Deficit)

For the Years Ended December 31, 2017 and 2016

 

 

   Number of Shares
Issued and
Outstanding
   Common Stock Par
Value Amount
   Additional Paid-in
Capital
   Accumulated
Deficit
   Total 
Balance as of December 31, 2015   3,580,000   $358   $   $(80,609)  $(80,251)
                          
Common stock issued for license agreement at $0.015 per share on April 21, 2016   500,000    50            50 
                          
Notes payable converted to common stock on September 30, 2016   2,737,393    274    1,049,773        1,050,047 
                          
Net loss               (1,915,433)   (1,915,433)
                          
Balance as of December 31, 2016   6,817,393    682    1,049,773    (1,996,042)   (945,587)
                          
Common stock issued for acquisition of KT Chemicals, Inc. on February 15, 2017 at $0.015 per share   520,000    52    7,748        7,800 
                          
Common stock issued for services on July 19, 2017   1,900,000    190    150,476        150,666 
                          
Common stock issued on August 31, 2017 for $.50 - $1.50 per share   1,150,000    115    837,385        837,500 
                          
Common stock issued on September 17, 2017 for $1.50 per share   33,334    3    49,997         50,000 
                          
Common stock issued for services on November 29, 2017   7,500,000    750    461,384        462,134 
                          
Notes payable converted to common stock on December 31, 2017   3,877,931    388    3,631,072        3,631,460 
                          
Warrants exercised to purchase common stock on December 31, 2017   2,375,000    237    1,187,263        1,187,500 
                          
Options exercised to purchase common stock on December 31, 2017   126,668    13    189,987        190,000 
                          
Share based compensation           96,797        96,797 
                          
Net loss               (2,714,965)   (2,714,965)
Balance as of December 31, 2017   24,300,326   $2,430   $7,661,882   $(4,711,007)  $2,953,305 

 

 


The accompanying notes are an integral part of these consolidated financial statements.

  

 F-5 
 

 

Worldwide Specialty Chemicals Inc. and Subsidiary

Consolidated Statements of Cash Flows

Years Ended December 31,

 

 

   2017   2016 
         
CASH FLOW FROM OPERATING ACTIVITIES          
Net loss  $(2,714,965)  $(1,915,433)
Adjustments to reconcile net loss to net cash used in operating activities          
Depreciation and amortization   83,288    843,151 
Allowance for doubtful accounts   238,306     
Interest expense accrued   231,272    60,315 
Share based compensation   96,797     
Common stock issued for services   612,800     
Changes in operating assets and liabilities          
Accounts receivable   (233,875)   (12,245)
Inventory   (16,357)   (7,684)
Prepaid expenses   (2,463)   (5,742)
Other current assets   (31,102)    
Accounts payable and accrued expenses   82,607    83,461 
Due to CBI   2,796    (128,298)
Net cash used in operating activities   (1,650,896)   (1,082,475)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Acquisition, net of cash acquired   (1,128,954)    
Purchase of property and equipment   (184,277)    
Net cash used in investing activities   (1,313,231)    
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Borrowing on notes payable   2,500,000    1,395,000 
Payments on notes payable   (1,575,189)   (262,500)
Proceeds from the sale of common stock   2,265,000    50 
Net cash provided by financing activities   3,189,811    1,132,550 
           
TOTAL INCREASE IN CASH AND CASH EQUIVALENTS   225,684    50,075 
           
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR   50,202    127 
           
CASH AND CASH EQUIVALENTS AT END OF YEAR  $275,886   $50,202 
           
NONCASH INVESTING AND FINANCING ACTIVITIES:          
Acquisition of licenses under long term financing agreements  $   $1,440,000 
Notes payable and accrued interest converted to common stock  $3,631,460   $1,050,047 
Convertible promissory notes assumed from CBI  $   $494,919 
Property and equipment purchased under financing agreements  $29,916   $ 
Acquisition under a short term promissory note  $2,700,000   $ 
           
SUPPLEMENTAL CASH FLOW DISCLOSURES:          
Cash paid for interest  $3,632   $ 
Cash paid for taxes  $   $ 

 



The accompanying notes are an integral part of these consolidated financial statements.

 

 

 

 F-6 
 

 

Worldwide Specialty Chemicals Inc. and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

 

NATURE OF BUSINESS

 

Worldwide Specialty Chemicals Inc. (“WSC”), a Delaware corporation formed in March of 2014 and based in downtown Dallas, Texas, is an international specialty chemical company with many products that are friendly to the environment. On February 15, 2017, WSC acquired 100% ownership of KT Chemicals, Inc. (“KT Chemicals” or “KT” ), a Texas corporation founded in February 2014 (WSC and KT are collectively referred to as the “Company”). KT is also a specialty chemicals company, serving as both manufacturer and distributor of environmentally safe, specialty chemicals. KT is located at 1002 North Central Expressway, Suite 499, Richardson, Texas 75080.

 

The Company’s products are used in a diverse array of applications, including:

 

Military weapons and Department of Energy Decommissioning and Decontamination (D&D) sites
Military Chemical, Biological, Radiological, Nuclear, and Explosives (CBRNE) sites
Commercial nuclear power plants and nuclear powered ships
Nuclear medicine and research laboratory environments using radioisotopes and hazardous chemicals and substances
Hazardous toxic industrial chemical and toxic industrial material clean-up

 

KT’s products utilize all-natural and renewable resources, contain no dangerous chemicals or additives, and offer “green” solutions to its customers. KT’s product line includes asphalt release agents, industrial cleaners, environmental remediation gels, odor control agents, and consumer friendly cleaners for a wide range of uses, including construction, environmental remediation, hazardous materials clean-up, nuclear decommissioning, industrial cleaning, and odor control.

 

The Company currently operates from several corporate and subsidiary offices around the country. The Company also operates from a 20,000 square foot chemical production and distribution facility, from which it markets a number of specialty chemicals.

 

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

A summary of the significant accounting polices consistently applied in the preparation of the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) is as follows.

 

Basis of Consolidation

 

The consolidated financial statements include the accounts of KT Chemicals, Inc. since the date of acquisition. All significant intercompany accounts and transactions have been eliminated in consolidation.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.

 

Fair Value of Financial Instruments

 

FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management at December 31, 2017 and 2016. The carrying value of the financial instruments included in the Company’s consolidated financial statements approximated their fair values.

 

The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.

 

The carrying value of the notes payable approximates fair value as they bear market rates of interest.

 

Basic and Diluted Net Loss Per Share

 

Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted loss per share has not been presented because there are no dilutive items. Diluted earnings loss per share is based on the assumption that all dilutive stock options, warrants, and convertible debt are converted or exercised by applying the treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options, warrants and/or convertible debt will have a dilutive effect, during periods of net profit, only when the average market price of the common stock during the period exceeds the exercise or conversion price of the items.

 

 

 

 

 F-7 
 

 

For the years ended December 31, 2017 and 2016, approximately 1,110,000 and 2,885,000 common stock warrants, respectively, and 3,439,750 and 0 common stock options, respectively, were not added to the diluted average shares because inclusion of such warrants would be antidilutive.

 

Cash and Cash Equivalents

 

The Company considers all highly liquid investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.

 

Accounts Receivable and Allowance for Doubtful Accounts

 

Accounts receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At December 31, 2017 and 2016, the allowance for doubtful accounts was $0.

 

Revenue Recognition

 

The Company recognizes revenue in accordance with ASC topic 605, “Revenue Recognition, and other applicable revenue recognition guidance under US GAAP. During 2017, revenue reported by the Company was for product sales and is recognized when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured. During 2016, revenue is for commissions earned on product sales under agreements with KT Chemicals and is recognized when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured.  Revenue related to license agreements are recognized once earned in accordance with the applicable license agreement. During the year ended December 31, 2016, 100% of the Company’s revenue was related to the license agreement with KT Chemicals.

 

Inventory

 

Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in first-out basis. The carrying value of inventory is reduced for estimated obsolescence. The Company evaluates the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand.

 

The following table sets forth the components of the Company’s inventory balances as of December 31:

 

   2017   2016 
Finished goods  $22,753   $7,684 
Raw materials   35,557     
Packaging supplies   4,231     
   $62,541   $7,684 

 

Fixed Assets

 

Fixed assets consist of furniture, fixtures and office equipment, vehicles and trailers, equipment and leasehold improvements that are stated at cost, less accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to earnings over their estimated service lives (3 – 10 years) under the straight-line method.

 

Maintenance and repairs are charged to earnings as incurred; major repairs and replacements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.

 

Property and equipment operated under material leases which transfer substantially all benefits and risks associated with the assets to the Company are capitalized. An asset and liability equal to the present or fair value, if appropriate, of minimum payments over the term of the leases are recorded. Depreciation of the asset is computed using the straight-line method over the life of the asset. Expenses associated with operating leases are charged to income as incurred.

 

 

 F-8 
 

 

Goodwill

 

Goodwill represents the excess of the value of the purchase price and related costs over the identifiable assets from business acquisitions. The Company conducts an annual impairment assessment, at the reporting unit level, of its recorded goodwill. The Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. The qualitative factors evaluated by the Company include: macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than its carrying amount, a two-step impairment test is performed. Management determined, by assessing the qualitative factors, that it is more likely than not that the fair value of the reporting unit is greater than its carrying value. Management does not consider the value of goodwill recorded for KT in the accompanying consolidated balance sheet to be impaired as of December 31, 2017. (see Note 10)

 

The accompanying consolidated balance sheets, consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows include the results of operations of KT from the date of acquisition.

 

Goodwill consists of the following:

 

Goodwill at December 31, 2016  $ 
Goodwill generated from acquisition of KT   2,294,952 
Goodwill at December 31, 2017  $2,294,952 

 

Share-Based Compensation

 

The Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation — Stock Compensation, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award. The fair value at the measurement date of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the vesting period based on the estimated number of stock options that are expected to vest.

 

Income Taxes

 

The Company accounts for Federal and state income taxes using the asset and liability approach for financial accounting and reporting for income taxes based on tax effects of differences between the financial statement and tax basis of assets and liabilities.

 

The Company accounts for all uncertain tax positions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 740 – Income Taxes (“ASC 740”). ASC 740 provides guidance on de-recognition, classification, interest and penalties and disclosure related to uncertain income tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties as of December 31, 2017 and 2016.

 

From time to time, the Company may be audited by taxing authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes. The Company’s federal returns since 2014 are still subject to examination by taxing authorities.

 

Prepaid Expenses

 

Prepaid expenses consist of expenses the Company has paid for prior to the service or good being provided. These prepaid expenses will be recorded as expense at the time the service has been provided.

 

License Fee

 

Effective December 31, 2016, the Company entered into an Exclusive Patent Licenses Agreement with CBI Polymers, Inc. ("CBI"), pursuant to which the Company would sell DeconGel and pay 10% of the net selling price to CBI, as a license fee.

 

 

 

 

 

 F-9 
 

  

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred substantial operating losses during 2017 and 2016 resulting in an accumulated deficit of $4,711,007 at December 31, 2017, and an accumulated deficit of $1,996,042 and a deficit in equity of $945,587 at December 31, 2016. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are being issued. As such, the Company will need to arrange for additional financing to fully implement its business plan, including continued growth and establishment of a stronger brand.

 

The Company is actively seeking growth of its service offerings, both organically and via new client relationships. In the ordinary course of the Company’s business, management is trying to raise additional capital through sales of common stock as well as seeking debt financing from third parties. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations, including potential discontinuance of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders.  Additionally, incurring additional indebtedness could involve an increased debt service cash obligation, as well as the imposition of covenants that restrict the Company’s operations or the Company’s ability to perform on its current debt service requirements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

Recently Issued Accounting Pronouncements

 

Pronouncements Recently Adopted

 

In July 2015, the Financial Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) No. 2015-11, Simplifying the Measurement of Inventory (“ASU 2015-11”), which modifies existing requirements regarding measuring inventory at the lower of cost and market. Under existing standards, the market amount requires consideration of replacement cost, net realizable value (“NRV”), and NRV less an approximately normal profit margin. ASU 2015-11 replaces market with NRV, defined as estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. This eliminates the need to determine and consider replacement cost or NRV less an approximately normal profit margin when measuring inventory. This standard is effective for the Company prospectively beginning January 1, 2017. Adoption of ASU 2015-11 did not have a material impact on the Company’s consolidated financial statements.

 

In November 2015, the FASB issued ASU No. 2015-17, Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes (“ASU 2015-17”), which simplifies the presentation of deferred income taxes by requiring deferred tax assets and liabilities be classified as noncurrent on the balance sheet. ASU 2015-17 is effective beginning on January 1, 2017 with early application permitted as of the beginning of any interim or annual reporting period. Adoption of ASU 2015-17 did not have a material impact on the Company’s consolidated financial statements.

 

In March 2016, the FASB issued ASU No. 2016-09, Compensation – Stock Compensation (Topic 718) (“ASU 2016-09”). The amendments in this Update are to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. ASU 2016-09 is effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. The financial impact of this ASU did not have a significant impact on the Company’s financial statements.

 

Pronouncements Not Yet Adopted

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which supersedes existing revenue recognition guidance under GAAP. The standard’s core principle is that a company will recognize revenue when it transfers promised goods or services to customers in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services. The standard defines a five-step process to achieve this principle, and will require companies to use more judgment and make more estimates than under the current guidance. The guidance was originally effective for public entities for interim and annual periods beginning after December 15, 2016 and allows for adoption using a full retrospective method, or a modified retrospective method. Early adoption was originally not permitted. In August 2015, the FASB issued ASU 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, which delayed the effective date for public entities to annual periods beginning after December 15, 2017 and for interim periods within those fiscal years. Early adoption of the standard is permitted for annual periods beginning after December 15, 2016. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, to clarify the implementation guidance on principal versus agent considerations. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, to clarify various aspects of Topic 606, including the identification of performance obligations and the implementation of licensing guidance. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, to clarify aspects of Topic 606, including assessing the collectability criterion, presentation of sales taxes and other similar taxes collected from customers, noncash consideration, contract modifications at transition and completed contracts at transition. The Company is in the process of evaluating the impact of this new guidance.

 

 

 

 F-10 
 

 

In February 2016, the FASB issued ASU Update No. 2016-02, Leases (Topic 842). Under the new guidance, a lessee will be required to recognize assets and liabilities for leases with lease terms of more than 12 months. Consistent with current GAAP, the recognition, measurement, and presentation of expenses and cash flows arising from a lease by a lessee primarily will depend on its classification as a finance or operating lease. However, unlike current GAAP - which requires only capital leases to be recognized on the balance sheet - the new ASU will require both types of leases to be recognized on the balance sheet. ASU 2016-02 is effective for the years beginning after December 15, 2018 and for all periods presented. Early application of the amendments in this ASU is permitted. The financial impact of this ASU has not been determined but is not expected to be significant.

 

In August 2016, the FASB issued ASU No. 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force (“ASU 2016-15”). ASU 2016-15 is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. Certain issues addressed in this guidance include - debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the settlement of insurance claims, distributions received from equity method investments and beneficial interests in securitization transactions. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. Early adoption is permitted. ASU 2016-15 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business (“ASU 2017-01”). ASU 2017-01 clarifies the definition of a business when evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses, ASU 2017-01 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017, and interim periods within those annual periods. ASU 2017-01 is not expected to have a material impact on the Company’s consolidated financial statements.

 

In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the effect of ASU 2017-04.

 

On May 10, 2017, the FASB issued ASU No. 2017-09, Compensation–Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), clarifying when a change to the terms or conditions of a stock-based payment award must be accounted for as a modification. ASU 2017-09 requires modification accounting if the fair value, vesting condition or the classification of the award is not the same immediately before and after a change to the terms and conditions of the award. ASU 2017-09 is effective for the Company on a prospective basis beginning on January 1, 2018. ASU 2017-09 is not expected to have an impact on the Company’s consolidated financial statements as it is not the Company’s practice to change either the terms or conditions of stock-based payment awards once they are granted.

 

2. ACCOUNTS RECEIVABLE

 

Accounts receivable relate to trade receivables from product sales and commissions earned on sales made by the Company. Accounts receivable consist of the following at December 31:

 

   2017   2016 
Commissions receivable from KT (prior to acquisition)  $   $13,600 
Trade receivables   49,603     
   $49,603   $13,600 

 

3. DUE TO / FROM CBI

 

At December 31, 2017 and 2016, the Company owed CBI $4,463 and $1,667, respectively for license fees payable related to the Company's Exclusive Patent License Agreement with CBI.

 

4. NOTES PAYABLE

 

Convertible Promissory Notes Payable 

 

During 2016, the Company received $1,010,000 from several individuals in exchange for convertible promissory notes. These notes are convertible at the election of the Holder at any time after issuance or at the election of the Company at maturity date by dividing the principal and accrued interest by conversion prices ranging between $0.30 and $0.40. The rate for these newly-issued notes is 12% and each note had a maturity date of December 31, 2016. On September 30, 2016, these notes were converted into 2,737,393 shares of common stock valued at $1,050,047.

 

 

 

 F-11 
 

 

On October 5, 2016, the Company assumed $494,919 of convertible promissory notes from CBI. The notes are convertible into shares of the Company's common stock at the election of the Holder at any time after issuance, or at the election of the Company at maturity date. The number of shares issuable upon conversion is determined by dividing the principal and accrued interest by $0.40. The interest rate for these issued notes is 12% and each note has a maturity date of December 31, 2016. The maturity date of these notes was extended to June 30, 2017. On July 1, 2017, the notes went into default and as a result, accrued interest at the default interest rate of 15%. The principal and accrued interest balance of these notes at December 31, 2017 and December 31, 2016 was $0 and $509,076, respectively.


During the 4th quarter of 2016, the Company issued $385,000 in principal amount of convertible promissory notes, for cash consideration. The notes provide for conversion into Company common stock, and the number of shares issuable upon conversion is determined by dividing the principal amount plus accrued interest by the conversion price of $1.25. For each $1.00 invested in convertible promissory notes, the investor also received a warrant to purchase one share of the Company's common stock at an exercise price of $0.50 per share. Each such warrant is exercisable for the period of time ending December 31, 2017. The interest rate for these notes ranges from 6% to 12% for a weighted average of 11.2%, and the notes have maturity dates of December 31, 2016 or June 30, 2017. The notes with original maturities of December 31, 2016 were extended to June 30, 2017. On July 1, 2017, those notes went into default and as a result, accrued interest at the default interest rate of 15%. During the 1st quarter of 2017, the Company issued $1,900,000 in principal amount of convertible promissory notes, for cash consideration. The notes provide for conversion into Company common stock, and the number of shares issuable upon conversion is determined by dividing the principal amount plus accrued interest by the conversion price of $1.25. For each $1.00 invested in convertible promissory notes, the investor also received a warrant to purchase one share of the Company's common stock at an exercise price of $0.50 per share. Each such warrant is exercisable for the period of time ending December 31, 2017. The interest rate for these issued notes is 6% and each note has an original maturity date of June 30, 2017 with the option to extend the maturity date to December 31, 2017. During the 2nd quarter of 2017, the Company issued $600,000 in principal amount of convertible promissory notes, for cash consideration. The notes provide for conversion into Company common stock, and the number of shares issuable upon conversion is determined by dividing the principal amount plus accrued interest by the conversion price of $1.25. For each $1.00 invested in convertible promissory notes, the investor also received a warrant to purchase one share of the Company's common stock at an exercise price of $0.50 per share. Each such warrant is exercisable for the period of time ending December 31, 2017. The interest rate for these issued notes is 6% and each note has an original maturity date of June 30, 2017 with the option to extend the maturity date to December 31, 2017. The principal and interest balance of these notes at December 31, 2017 and December 31, 2016 was $0 and $391,111, respectively.

 

Effective December 31, 2017, the Company issued a total of 3,877,931 common shares as settlement of all outstanding convertible promissory notes payable, having principal and accrued interest totaling $3,631,460. The conversion of the outstanding debt and accrued interest cured the events of default under such debt instruments.

 

Acquisition Note Payable 

 

On February 15, 2017, the Company issued a short term promissory note to KT Chemicals stockholders in the amount of $2,700,000, of which $1,150,000 was paid on the acquisition date. The note was due on December 31, 2017. During 2017, the Company paid the note in full.

 

Vehicles and Equipment Notes Payable 

 

The Company has three notes payable with separate financial institutions relating to the purchase of certain of the Company’s vehicles and equipment. The balance outstanding under these notes payable was $109,312 and $0 at December 31, 2017 and 2016, respectively. The notes payable bear interest ranging from 3.95% - 5.99% with principal and interest due monthly. The notes mature in July 2020, December 2020 and February 2021.

 

The Company’s future minimum principal payments as of December 31, 2017 are as follows:

 

2018  $35,650 
2019   37,251 
2020   34,292 
2021   2,119 
2022 and thereafter    
   $109,312 

 

 

 

 F-12 
 

 

5. ACCRUED EXPENSES

 

Accrued expenses consist of the following at December 31:

 

   2017   2016 
Professional Fees  $   $38,000 
Other Accrued Expenses   19,949    1,022 
   $19,949   $39,022 

 

6. INCOME TAXES

 

On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into United States tax law, which among other provisions lowered the corporate tax rate to 21%. Given this date of enactment, the Company’s consolidated financial statements as of and for the year ended December 31, 2017 reflect the impact of the Act.

 

The Company elected C Corporation tax status upon inception in 2014. Net operating losses (“NOL”) since that date total $4,933,788 as of December 31, 2017 and may be carried forward to offset future taxable income. As future taxable income is uncertain, a full valuation allowance has been recorded and accordingly, no current provision for income tax has been recorded in the accompanying statements of operations. NOL carry-forward benefits begin to expire in 2035.

 

The following table summarizes the difference between the actual tax provision and the amounts obtained by applying the statutory tax rates to the income or loss before income taxes for the years ended December 31:

 

   2017   2016 
Tax benefit calculated at statutory rate   21%    34% 
Expense not deductible   (.19)   (0.15)
Changes to valuation allowance   (11.29)   (33.85)
Effect of U. S. Statutory rate changes   (9.52)    
Provision for income taxes   –%    –% 

 

A deferred tax liability or asset is determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense or benefit in the accompanying consolidated statements of operations are the result of changes in the assets and liabilities for deferred taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount for any tax benefits that, based on available evidence, are not expected to be realized. Income tax expense is the current tax payable or refundable for the year plus or minus the net change in the deferred tax assets and liabilities. Deferred income taxes of the Company arise from the temporary differences between financial statement and income tax recognition of NOL carry-forwards.

 

The deferred tax assets and liabilities in the accompanying consolidated balance sheets include the following components at December 31:

 

    2017     2016  
Net non-current deferred tax assets:                
Net operating loss carry-forward   $ 1,036,096     $ 675,696  
Fixed assets     24,079       –   
Net non-current deferred tax liabilities:                
Intangible assets     (10,841      
                 
Net     1,049,333       675,696  
Less valuation allowance     (1,049,333 )     (675,696 )
Net deferred taxes   $     $  

 

The change in valuation allowance of $373,637 was driven primarily by the current year loss and the change in statutory rate.

 

7. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS

 

Leases

 

The Company leases various office space on a month to month basis. Rental expense for the year ended December 31, 2017 and 2016 was $99,750 and $23,512, respectively.

 

 F-13 
 

 

Concentrations

 

As of December 31, 2016, the entire balance in accounts receivable represents commissions due from KT Chemicals (prior to its acquisition) and license fees due from CBI. At December 31, 2016, the Company's revenues consisted 100% of commissions due from KT Chemicals and license fees due from CBI.

 

8. STOCKHOLDERS’ EQUITY

 

Common and Preferred Stock

 

As of December 31, 2017 and 2016, the authorized share capital of the Company consisted of 100,000,000 shares of common stock with $0.0001 par value, and 20,000,000 shares of preferred stock also with $0.0001 par value. No other classes of stock are authorized.

 

Warrants

 

During 2014, under the previous management, prior to the current change of control, the Company distributed two million five hundred thousand warrants in the Company to all of its previous creditors of the Company. The creditors received five warrants in the Company for each $0.10 of the Company’s previous administrative debt which they held. These creditors received an aggregate of 2,500,000 warrants consisting of 500,000 “A Warrants” each convertible into one share of common stock at an exercise price of $4.00; 500,000 “B Warrants” each convertible into one share of common stock at an exercise price of $5.00; 500,000 “C Warrants” each convertible into one share of common stock at an exercise price of $6.00; 500,000 “D Warrants” each convertible into one share of common stock at an exercise price of $7.00; and 500,000 “E Warrants” each convertible into one share of common stock at an exercise price of $8.00. All warrants are exercisable at any time prior to August 30, 2017. All warrants expired in August of 2017.

 

As set forth in Note 4 there were $2,885,000 in notes payable issued. These notes came with one warrant for each dollar borrowed for a total 2,885,000 warrants at an exercise price of $0.50, all of which expire on December 31, 2017. On February 9, 2018, the expiration date of the warrants was extended to December 31, 2018 (see Note 11). The fair value of these warrants upon issuance was $0.

 

On March 31, 2017, the Company issued 600,000 warrants at an exercise price of $.50 for services provided to a consultant. The warrants expire on March 31, 2024. The fair value of these warrants upon issuance was $302.

 

There were 2,375,000 warrants exercised during the year ended December 31, 2017 at $.50 per share for a total cash amount of $1,187,500.

 

As of December 31, 2017 and 2016, there were 1,110,000 and 2,885,000 common stock warrants outstanding, respectively, with an exercise price of $.50. See Note 11 for additional warrants exercised subsequent to December 31, 2017.

 

Stock option plan

 

Effective February 1, 2017, the Company established the 2016 Stock Option Plan (the “Plan”). The Board of Directors of the Company has the authority and discretion to grant stock options. The maximum number of shares of stock that may be issued pursuant to the exercise of options under the Plan is 2,000,000. Eligible individuals include any employee or director of the Company and any consultant providing services to the Company. The expiration date and exercise price for each stock option grant are as established by the Board of Directors of the Company. No option may be issued under the Plan after February 1, 2027. On December 28, 2017, the Plan was amended to increase the maximum number of shares of stock that may be issued to 3,750,000.

 

Stock option activity during the year ended December 31, 2017 is summarized as follows:

 

   Shares Under Option   Price Per Share   Weighted Average Exercise Price   Weighted Average Remaining Contractual Life
                
Outstanding - beginning of year      $   $    
Granted   3,566,418   $0.00 - 1.50   $0.39    
Exercised   126,668   $1.50   $1.50    
Canceled or expired               
Outstanding - end of year   3,439,750   $0.00 - 1.50   $0.39  113 months
                   
Exercisable - end of year   2,827,417        $0.42  113 months

 

 

 

 

 F-14 
 

 

The fair value of each option grant is calculated using the following assumptions:

 

    2017  
       
Expected life – years     3.25 – 10  
Interest rate     1.50 - 2.48 %
Volatility     71.70 %
Dividend yield    

 

Total share based compensation expense (including stock grants) included in salaries and wages was $709,597 for the year ended December 31, 2017. Unamortized share-based compensation expense as of December 31, 2017 amounted to $10,548 which is expected to be recognized over the next 20 months.

 

9. RELATED PARTY TRANSACTIONS

 

Throughout 2017, the Company incurred consulting fees of $299,710 to three current shareholders. The unpaid balance due was $77,000 as of December 31, 2017 and is included in accounts payable in the accompanying consolidated financial statements.

 

The Company is in effect a sales representative of CBI pursuant to the Exclusive Patent License Agreement between the Company and CBI. CBI and the Company are companies under the common control of E. Thomas Layton, the Company’s chairman and chief executive officer. There are no other transactions or contracts between CBI and the Company other than those discussed in this report.

 

The Company was also a sales representative of KT Chemicals, Inc., which was partially owned by E. Thomas Layton until immediately prior to the Company’s acquisition of KT (see Note 10).

 

Throughout 2016, the Company paid consulting fees of $21,503 to a company named Maine Consultants Inc. owned by the spouse of E. Thomas Layton. As of October 2016, the Company no longer relied on Maine for any consulting services.

 

Throughout 2016, the Company incurred consulting fees of $80,000 to a former executive and current shareholder. The unpaid balance due was $25,000 and $80,000 as of December 31, 2017 and 2016, respectively and is included in accounts payable in the accompanying consolidated financial statements.

 

10. BUSINESS ACQUISITION

 

Effective February 15, 2017, the Company completed the acquisition of KT Chemicals, Inc., a specialty chemicals company located in Richardson, Texas. Under the terms of the acquisition, the Company acquired 100% of KT Chemicals’ stock for cash and stock. The Company agreed to pay to KT Chemicals stockholders $2,700,000 in cash by December 31, 2017 and issue 520,000 shares of the Company’s common stock valued at $0.015 per share for a total stock value of $7,800 in exchange for all outstanding shares of KT Chemicals’ common stock.

 

The primary asset acquired from KT Chemicals is the expertise of KT, which the Company believes it will be able to leverage in maximizing the sales of specialty chemicals on a go forward basis. As of February 15, 2017, these factors contributed to a purchase price in excess of the fair value of KT Chemicals’ tangible assets acquired, and, as a result, the Company has recorded goodwill in the amount of $2,294,952 in connection with this transaction. Goodwill, as a result of this acquisition, is not deductible for tax purposes. The Company is in the process of finalizing the purchase price allocation and accordingly, the preliminary allocation of the purchase price is subject to adjustment.

 

 

 

 

 F-15 
 

 

The transaction resulted in recording assets, liabilities and goodwill at preliminary estimated fair value as follows:

 

Total consideration  $2,707,800 
      
The assets acquired and liabilities assumed were as follows:     
      
Assets acquired:     
Cash  $21,046 
Inventory   38,500 
Accounts receivable   40,434 
Property and equipment, net   458,079 
Total tangible assets   558,059 
      
Liabilities assumed:     
Accounts payable   28,932 
Accrued expenses   11,693 
Capital lease   104,586 
Total liabilities   145,211 
Net acquired assets   412,848 
      
Goodwill   2,294,952 
      
Total  $2,707,800 

 

The following table presents selected unaudited pro forma information assuming the acquisition of KT Chemicals had occurred on January 1, 2016.

 

Pro Forma Information (unaudited)  December 31, 2017   December 31, 2016 
Revenues  $1,179,456   $755,660 
Net loss  $(2,783,694)  $(2,234,996)
Loss per share  $(.31)  $(.48)

 

The unaudited pro forma revenue and pro forma net loss are not necessarily indicative of the consolidated results of operations for the future periods or the results of operations that would have been realized had the Company consolidated KT Chemicals during the period noted.

 

11. SUBSEQUENT EVENTS

 

On February 9, 2018, the Plan was amended to increase the maximum number of shares of stock that may be issued to 4,500,000. It was further amended on March 18, 2018 to increase the maximum number of shares of stock that may be issued to 5,000,000

 

On January 3, 2018, 80,000 warrants were exercised at $.50 per share for a total cash amount of $40,000.

 

On February 9, 2018, the expiration date of the remaining warrants was extended to December 31, 2018.

 

On February 28, 2018, the Company sold 33,333 common shares at $1.50 per share for a total cash amount of $50,000.

 

On March 2, 2018, the Company sold 16,500 common shares at $1.50 per share for a total cash amount of $24,750.

 

On March 14, 2018, the Company sold 50,000 common shares at $1.50 per share for a total cash amount of $75,000.

 

On March 16, 2018, the Company sold 10,000 common shares at $1.50 per share for a total cash amount of $15,000.

 

On March 19, 2018, the Company sold 100,000 common shares at $1.50 per share for a total cash amount of $150,000.

 

 

 

 

 F-16 
 

 

On April 2, 2018, the Company sold 6,667 common shares at $1.50 per share for a total cash amount of $10,000.

 

On April 13, 2018, the Company sold 13,400 common shares at $1.50 per share for a total cash amount of $20,100.

 

On April 30, 2018, the Company sold 34,000 common shares at $1.50 per share for a total cash amount of $51,000.

 

On May 4, 2018, 15,000 warrants were exercised at $.50 per share for a total cash amount of $7,500.

 

On May 4, 2018, 10,000 warrants were exercised at $.50 per share for a total cash amount of $5,000.

 

On May 18, 2018, the Company sold 13,000 common shares at $1.50 per share for a total cash amount of $19,500.

 

On May 19, 2018, 39,000 warrants were exercised at $.50 per share for a total cash amount of $19,500.

 

On May 21, 2018, 15,000 warrants were exercised at $.50 per share for a total cash amount of $7,500.

 

On May 24, 2018, the Company sold 5,000 common shares at $1.50 per share for a total cash amount of $7,500.

 

On June 7, 2018, the Company sold 6,667 common shares at $1.50 per share for a total cash amount of $10,000.

 

On June 15, 2018, the Company sold 34,000 common shares at $1.50 per share for a total cash amount of $51,000.

 

On June 26, 2018, 40,000 warrants were exercised at $.50 per share for a total cash amount of $20,500.

 

On June 28, 2018, the Company sold 34,000 common shares at $1.50 per share for a total cash amount of $51,000.

 

 

 

 

 

 

 

 

 F-17 
 

 

Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

 

None

 

Item 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

The Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure controls and procedures as of December 31, 2017. The term “disclosure controls and procedures,” as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives and management necessarily applies its judgment in evaluating the cost benefit relationship of possible controls and procedures. Based on its evaluation, management concluded as of December 31, 2017 that its disclosure controls and procedures were not effective because of material weaknesses in our internal control over financial reporting, described below in Management’s Report on Internal Control Over Financial Reporting. Notwithstanding the identified material weaknesses, management believes the financial statements included in this Annual Report on Form 10-K/A fairly represent in all material respects our financial condition, results of operations and cash flows at and for the periods presented in accordance with U.S. GAAP.

 

Management’s Report on Internal Control Over Financial Reporting

 

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Its chief executive officer assessed the effectiveness of its internal control over financial reporting as of December 31, 2017. In making this assessment, its management used the criteria based on the framework in Internal Control - Integrated Framework 2013 issued by the Committee of Sponsoring Organizations of the Treadway Commission . Its chief executive officer has concluded that, as of December 31, 2017, its internal control over financial reporting was not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with US generally accepted accounting principles. Its chief executive officer reviewed the results of his assessment with its board of directors.

 

Based on its evaluation under this framework, management concluded that its internal control over financial reporting was not effective as of the evaluation date due to the factors stated below.

 

  · Insufficient Resources: The Company has inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting to be able to have appropriately designed and operating entity level controls including risk assessment; information and communication; monitoring; and financial reporting.
  · Inadequate Segregation of Duties: The Company has inadequate number of personnel to properly segregate duties to implement control procedures.
  · Lack of Audit Committee and Outside Directors on the Company’s Board of Directors: The Company does not have a functioning audit committee or outside directors on its board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.

 

This annual report does not include an attestation report of its Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.

 

Inherent Limitations on Effectiveness of Controls 

 

Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

 

Changes in Internal Control over Financial Reporting

 

During the period covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

Item 9B. OTHER INFORMATION.

 

None.

 

 

 12 
 

 

PART III

 

Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.

 

Directors and Executive Officers

 

Set forth below is certain information regarding each person who served as an officer or director at any time during fiscal year 2017.

 

Name Age Positions with the Company
E. Thomas Layton 81 Chairman of the Board, Chief Executive Officer, Chief Financial Officer and Chief Accounting Officer
Karl M. Taft III 44 President of KT Chemicals, Inc.  (since February 15, 2017)

 

E. Thomas Layton, 81, has been Chairman, CEO and Director of the Company since September 2015. From January 2014 until May 2018 he also served as the Company’s Chief Financial Officer and Chief Accounting Officer. From January 2014 until September 2015 he was the senior advisor to KT Chemicals, Inc. From 2013, he was CEO and is currently the Chairman of CBI Polymers, Inc., and for nine months in 2012 he was Acting CEO of LAXAIOSR, a clinical research organization. From 1998 until 2014 he was also an independent consultant to a variety of companies. From 1998 until 2009 most of his consulting clients were in the chemical industry, although beginning in 2009 and continuing through 2010, 2011 and 2012 he was consulting primarily to real estate related businesses including hotels and commercial developments, assisting them with restructuring and refinancing. In the course of this work he also served as a court authorized debtor-in-possession manager, shepherding real property projects through Chapter 11 Bankruptcy. From 1994 to 1998 he was CEO of Deepwater Iodide (now Deepwater Chemicals), and from 1976 to 1990 he was CEO of Bishopric, Inc., a construction engineering and manufacturing business which he grew from sales of $9 million to $122 million. Prior to that he managed the worldwide chemical business of G.D. Searle, and prior to that he worked in positions of increasing responsibility at Mallinckrodt Chemical, ultimately reporting directly to the Chairman of the Board. He holds an AB Degree from Central Methodist College with a major in Chemistry. Mr. Layton is CEO and a Director of the Company because of his long and successful history in sales and management, and especially in the chemical industry.

 

Mr. Layton’s specific experience, qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:

 

  · Has served as CEO and Chairman of the Company since September 2015
  · A seasoned manager

 

Executive Officer, Significant Subsidiary

 

Karl M. Taft III, 44, the founder and President of KT Chemicals Inc. (a wholly owned subsidiary of the Company). Prior to that Mr. Taft was one of the founders of Hoku Corporation, a solar energy products and services company, and served as its Chief Technology Officer from March 2001 to November 2010. From October 1996 to March 2001, Mr. Taft held various positions at PCC Structurals, Inc., a manufacturer of titanium casting parts, including as Lead Manager for Research and Development, Industrial Engineer and Research Chemist. In 2000, Mr. Taft was an Adjunct Professor at Portland State University. Mr. Taft has a B.A. in Chemistry from Pacific University, an M.S. in Environmental Science and Engineering from Oregon Graduate Institute, and an M.B.A. from Portland State University.

 

Executive Officer appointed subsequent to December 31, 2017

 

Paul O. Williams, effective May 18, 2018, Mr. Williams was appointed to the Board of Directors of the Company. Contemporaneously with such appointment, the Board of Directors of the Company appointed Mr. Williams to assume the role of Chief Financial Officer.

 

Mr. Williams graduated from Austin College in Sherman, Texas is 1978 and the Institute for Organization Management in Washington, DC in 1982. Since 2007, Mr. Williams has served as Chief Executive Officer of Bison Financial Group, Inc. in Plano, Texas, a corporate financial advisory and business development firm serving middle market growth companies. Mr. Williams personally provides corporate financial advisory and business development consulting services.

 

In addition, Mr. Williams also serves as an officer and director of two other public companies. Mr. Williams currently serves as Vice Chairman of the Board & Chief Financial Officer of Financial Gravity Companies, Inc. (OTCQB: FGCO) in Allen, Texas since 2015. Mr. Williams also currently serves as Chairman of the Board & Chief Financial Officer of Light Engine Design Corp. (OTC: TLED) in Tempe, Arizona since 2017.

 

 

 

 

 13 
 

 

Mr. Williams also serves as an officer and director of three other private companies. Mr. Williams currently serves as: Vice Chairman of the Board & Chief Financial Officer of Dynamic Chemical Solutions, Inc. in Frisco, Texas since 2016; Chairman of the Board & Chief Financial Officer of Curtis Mathes, Inc. in Frisco, Texas since 2013; and Chairman of the Board of Championship Sports Group, Inc. in Frisco, Texas since 2012.

 

Mr. Williams also currently serves on the Board of Directors and Executive Committee of the Frisco Chamber of Commerce and served as their Chairman of the Board in 2007. In 2009, he was recognized as the CFO of the Year for North Texas by the Dallas Business Journal.

 

The breadth of Mr. Williams’ entrepreneurial and financial services experience led the Board of Directors to the conclusion that he is qualified to serve as a director for the Company. Mr. Williams specific experience qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:

 

  · Over 40 years of business experience, primarily in capital markets and mergers & acquisitions.
  · Chief Executive Officer of Bison Financial Group, Inc., a corporate financial advisory and business development firm serving middle market growth companies.
  · Has served as both an officer and director of other public companies.

 

Section 16(a) Beneficial Ownership Reporting Compliance

 

Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires officers, directors and persons who beneficially own more than 10% of a class of its equity securities registered under the Exchange Act to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Mr. Layton did not meet his Form 3 filing responsibilities in a timely manner but did file his Form 3 on April 14, 2017. The Company has notified all known beneficial owners of more than 10% of its common stock of their requirement to file ownership reports with the Securities and Exchange Commission.

 

Code of Ethics

 

The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and persons performing similar functions. The code of ethics is filed is incorporated by reference.

 

No Committees of the Board of Directors; No Financial Expert

 

The Company does not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee or any other committees of its Board of Directors. Nor does it have an audit committee “financial expert”. At present, its entire Board of Directors acts as its audit committee. None of the members of its Board of Directors meets the definition of “audit committee financial expert” as defined in Item 407(d) of Regulation S-K promulgated by the Securities and Exchange Commission. The Company has not retained an audit committee financial expert because it does not believe that it can do so without undue cost and expense. Moreover, it believes that the present members of its Board of Directors, taken as a whole, have sufficient knowledge and experience in financial affairs to effectively perform their duties.

 

Item 11. EXECUTIVE COMPENSATION.

 

Summary Compensation Table

 

The particulars of compensation paid to the following persons during the year ended December 31, 2017 and 2016 are set out in the summary compensation table below:

 

  ·

The Company’s Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer (Principal Executive Officer);

 

  · The President of KT Chemicals Inc. (a wholly owned subsidiary of the Company)

 

 

 

 14 
 

 

SUMMARY COMPENSATION TABLE

 

Name and Principal Position Year Salary
($)
Bonus
($)
Stock Awards
($)
Option Awards
($)
All Other Compensation
($)
Total
($)
E. Thomas Layton 2017 $159,375 $-0- $189,729 $16,464 $20,000 (1) $385,568
CEO, CFO, CAO (Principal Executive Officer) 2016 $81,250 $60,400 -0- -0- $78,500 (1) $220,150
               
Karl M. Taft III (President, KT Chemicals, Inc. - a wholly owned subsidiary of the Company) 2017 $-0- $-0- $189,729 $8,964 $-0- $198,693

____________________

(1) Other compensation consisted of $2,000 and $62,500 of compensation paid Mr. Layton during 2017 and 2016, respectively, plus $18,000 and $16,000 of medical reimbursements during 2017 and 2016, respectively.

 

Effective May 1, 2016, Mr. Layton entered into an employment agreement with the Company, providing for monthly compensation of $12,500 ($150,000 per year) plus a discretionary bonus premised upon Company performance, in consideration of his services as Chairman and Chief Executive Officer. The agreement has a one-year term and renews annually. Effective May 31, 2017, Mr. Layton’s salary was increased to $13,750 per month.

 

There are no other agreements in place or contemplated to provide additional compensation to any officer or director. The Company does not have retirement, pension, profit sharing, or insurance programs or other similar programs for the benefit of its officers and directors.

 

Summary Compensation

 

Except as described above, the Company has no employment agreements with any director or executive officer.

 

For the fiscal year ended December 31, 2017, no outstanding stock options or other equity-based awards were repriced or otherwise materially modified. No stock appreciation rights have been granted to any director or executive officer and no director or executive officer exercised any stock options or stock appreciation rights. With the exception of the discretionary bonus contained in Mr. Layton’s agreement and the discretionary bonus contained in Mr. Taft’s employment agreement, there are no nonequity incentive plan agreements with any director or Named Executive Officer.

 

Outstanding Equity Awards at Fiscal Year-end

 

This section is not applicable to any Named Executive Officer as of December 31, 2017.

  

Director Compensation Table

 

During the year ended December 31, 2017, Mr. Layton was the Company’s Chairman and sole director. Expect as described above, there was no other director compensation during the year ended December 31, 2017.

 

Employment Contracts, Termination of Employment, Change-in-Control Arrangements

 

Except as described above, there are no employment or other contracts or arrangements with officers or Directors. There are no compensation plans or arrangements, including payments to be made by us, with respect to its officers, Directors or consultants that would result from the resignation, retirement or any other termination of service in respect of such Directors, officers or consultants. There are no arrangements for Directors, officers, employees or consultants that would result from a change-in-control. 

 

Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.

 

Security Ownership of Certain Beneficial Owners and Management

 

The following table sets forth certain information as of July 9, 2018 regarding the beneficial ownership of its common stock (i) by each person known by the Company to be the beneficial owner of more than five percent of the outstanding common stock, (ii) by each director of the Company, (iii) by each executive officer of the Company and (iv) by all executive officers and directors of the Company as a group.

 

 

 

 

 15 
 

 

    Amount of Beneficial     Percentage  
Beneficial Owner(1)   Ownership (1)     of Shares  
E. Thomas Layton (2), (3)     5,350,000       20.77%  
Karl Taft (2), (4)     4,370,000       17.30%  
Ernest K.F. Lum (2), (5)     4,433,310       17.62%  
Paul Williams (2)     3,400,000       13.68%  
                 
Directors and executive officers as group (three persons)     13,270,000       51.75%  

____________________

(1) Except as noted below, each beneficial owner has sole voting and investment power with respect to all shares attributable to that owner.

(2) The address for each such beneficial owner is 325 N. Saint Paul Street, Downtown Republic Center, Suite 3100, Dallas, Texas 75201.

(3) Represents ownership of 4,450,000 shares, and options to purchase 900,000 shares of which 450,000 are exercisable.

(4) Represents shares owned by both Mr. Taft and Mr. Taft's spouse, the ownership of which is attributed to Mr. Taft and options to purchase 400,000 shares.

(5) Represents ownership of 4,133,310 shares and options to purchase 300,000 shares.

 

Changes in Control

 

The Company is unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of the Company.

 

Securities authorized for issuance under equity compensation plans

 

As of the end of the most recently completed fiscal year, the Company has not adopted a compensation plan (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

 

Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

 

Transactions with Related Persons, Promoters and Certain Control Persons

 

Except as set forth below, none of the Company’s directors or officers, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the Company’s shares, nor any relative or spouse of any of the foregoing persons, has had any material interest, direct or indirect, in any transaction to which the Company was a party, and in which the amount involved exceeds the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years.

 

Throughout 2017, the Company incurred consulting fees of $299,710 to three current shareholders. The unpaid balance due was $77,000 as of December 31, 2017 and is included in accounts payable in the accompanying consolidated financial statements.

 

The Company is in effect a sales representative of CBI pursuant to the Exclusive Patent License Agreement between the Company and CBI. CBI and the Company are companies under the common control of E. Thomas Layton, the Company’s chairman and chief executive officer. There are no other transactions or contracts between CBI and the Company other than those discussed in this report.

 

The Company paid consulting fees of $21,503 to a company named Maine Consultants Inc. which is owned by the spouse of E. Thomas Layton. As of October 2016, the Company no longer relied on Maine for any consulting services.

 

Director Independence; Board Leadership Structure

 

For purposes of determining whether members of the Company’s Board of Directors are “independent,” the Company’s Board utilizes the standards set forth in the NASDAQ Stock Market Marketplace Rules. At present, the Company’s entire Board serves as its Audit, Compensation and Nominating Committees. Thomas Layton is not an “independent director” since he currently serves as Chief Executive Officer of the Company.

 

The Company’s Board of Directors is of the view that the current leadership structure is suitable for the Company at its present stage of development, and that the interests of the Company are best served by the combination of the roles of Chairman of the Board and Chief Executive Officer.

 

As a matter of regular practice, and as part of its oversight function, the Company’s Board of Directors undertakes a review of the significant risks in respect of the Company’s business. Such review is conducted in concert with outside professionals (including legal counsel) with expertise in substantive areas germane to the Company’s business. With the Company’s current governance structure, the Company’s Board of Directors and senior executives are, by and large, the same individuals, and consequently, there is not a significant division of oversight and operational responsibilities in managing the material risks facing the Company.

 

 

 

 16 
 

 

Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

 

Fiscal Year 2017

 

The following information summarizes the fees billed by Whitley Penn LLP for professional services rendered for the fiscal year ended December 31, 2017.

 

Audit Fees.  $65,194

Audit-Related Fees. None

Tax Fees. None

All Other Fees. None

 

Fiscal Year 2016

 

The following information summarizes the fees billed by Whitley Penn LLP for professional services rendered for the fiscal year ended December 31, 2016.

 

Audit Fees.  Fees billed for annual audit services by Whitley Penn LLP were $50,682 for fiscal year 2016.

Audit-Related Fees. None

Tax Fees. None

All Other Fees. None

 

The following information summarizes the fees billed by Carr, Riggs & Ingram, LLC for professional services rendered for the fiscal year ended December 31, 2016.

 

Audit Fees. Fees billed for audit services by Carr, Riggs & Ingram, LLC were $59,000 for fiscal year 2016. Audit fees include fees associated with the annual audit and review of the Company’s quarterly reports on Form 10-Q, and other SEC filings.

Audit-Related Fees. None

Tax Fees. None

All Other Fees. None

 

The following information summarizes the fees billed by PLS, CPA for professional services rendered for the fiscal year ended December 31, 2016.

 

Audit Fees. Fees billed for audit services by PLS, CPA were $12,100 for fiscal year 2016. Audit fees include fees associated with the annual audit and the reviews of the Company’s quarterly reports on Form 10-Q, and other SEC filings.

Audit Related Fees. None

Tax Fees. None

All Other Fees. None

 

 17 
 

 

PART IV

 

Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

 

(a)   Financial Statements and financial statement schedules

 

(1) and (2) The financial statements and financial statement schedules required to be filed as part of this report are set forth in Item 8 of Part II of this report.

 

(3) Exhibits. See Item 15(b) below.

 

(b)  Exhibits required by Item 601 of Regulation S-K 

 

Exhibit Number Description Form File Number Exhibit Number Filing Date Filed with this 10-K/A
2.1 Plan of reorganization authorizing formation of the Company 10 12G/A 00055554 2.1 2/8/16  
2.2 Stock Purchase Agreement dated February 15, 2017, among Karl M. Taft III and Michelle L. Taft, as sellers, and ZEC, Inc. 8-K 00055554 2.1 2/21/17  
3.1 Certificate of Incorporation 10 12G 00055554 3.1 12/28/15  
3.2 Certificate of Amendment of Certificate of Incorporation 8-K 00055554 3.1 8/18/17  
3.3 Amended & Restated Bylaws 8-K 00055554 3.1 8/18/17  
4.1 Form of “A” Warrant Agreement 10 12G 00055554 4.1 12/28/15  
4.2 Form of “B” Warrant Agreement 1012G 00055554 4.2 12/28/15  
4.3 Form of “C” Warrant Agreement 1012G 00055554 4.3 12/28/15  
4.4 Form of “D” Warrant Agreement 1012G 00055554 4.4 12/28/15  
4.5 Form of “E” Warrant Agreement 1012G 00055554 4.5 12/28/15  
4.6 Form of Convertible Promissory Note Purchase Agreement 10 12G/A 00055554 4.6 2/8/16  
4.7 Form of First Amendment to Convertible Promissory Note Purchase Agreement dated effective February 29, 2016 10-12G/A 00055554 4.7 3/23/16  
4.8 Form of Warrant Agreement for investors 10-K 00055554 4.8 4/12/17  
4.9 Form of Warrant Agreement 10-K 00055554 4.9 4/12/17  
10.1 Confidential Agreement between the Company and E. Thomas Layton dated May 1, 2016 10-K 00055554 10.1 4/12/17  
10.2 Exclusive License Agreement between the Company and CBI Polymers, Inc. dated April 13, 2016 10-12G/A 00055554 10.1 4/25/16  
10.3 Secured Promissory Note dated February 15, 2017, in the principal amount of $2,506,248.00. payable by ZEC, Inc. to Karl M. Taft III and Michelle L. Taft 8-K 00055554 10.1 2/21/17  
10.4 Security Agreement dated February 15, 2017, by KT Chemicals, Inc., as pledgor, Karl M. Taft III and Michelle L. Taft, as secured party, and ZEC, Inc. 8-K 00055554 10.2 2/21/17  
10.5 Stock Pledge Agreement dated February 15, 2017, by ZEC, Inc., as pledgor, and Karl M. Taft III and Michelle L. Taft, as secured party 8-K 00055554 10.3 2/21/17  
10.6 Employment Agreement dated February 15, 2017, between KT Chemicals, Inc. and Karl M. Taft III 8-K 00055554 10.4 2/21/17  
14.1 Code of Ethics 10-K 00055554 14.1 4/12/17  
21.1 List of Subsidiaries 10-K 00055554 21.1 4/12/17  
31.1 Sarbanes-Oxley Section 302(a) Certification of E. Thomas Layton         X
31.2 Sarbanes-Oxley Section 302(a) Certification of Paul O. Williams         X
32.1 Sarbanes-Oxley Section 906 Certifications         X
101 Interactive Data Files for Form 10-K for the period ended December 31, 2017.         X
101.INS XBRL Instances Document         X
101.SCH XBRL Taxonomy Extension Schema Document         X
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document         X
101.DEF XBRL Taxonomy Extension Definition Linkbase Document         X
101.LAB BRL Taxonomy Extension Label Linkbase Document         X
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document         X

 

 

 18 
 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) 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.

 

Date: September 6, 2018 By: /s/ E. Thomas Layton                       
  E. Thomas Layton
  Chairman, CEO, Director
  (Principal Executive Officer)
   
  By: /s/ Paul O. Williams                          
  Paul O. Williams
  Vice Chairman, CFO and Director
  (Principal Financial Officer)

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

     
Signature Capacity Date
     
/s/ E. Thomas Layton                        Chairman, CEO, and Director September 6, 2018
E. Thomas Layton (Principal Executive Officer)  
     
/s/ Paul O. Williams                           Vice Chairman, CFO and Director September 6, 2018
Paul O. Williams (Principal Financial Officer)  
     

  

 

 

 

 

 

 

 

 

 19