UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 2017March 31, 2018
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to __________
COMMISSION FILE NUMBER: 000-55554
Worldwide Specialty Chemicals Inc.
(Exact name of registrant as specified in its charter)
Delaware | 47-5048026 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
Downtown Republic Center, Suite 3100
325 N. Saint Paul Street
Dallas, TX 75201
Tel: (469) 513-4198
(Address and telephone number of principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesx Noo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x Noo
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an 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.
Large accelerated filero | Accelerated Filero |
Non-accelerated filero | Smaller reporting companyx |
Emerging Growth Companyo |
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.o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
The number of Registrant’s shares of common stock, $0.0001 par value, outstanding as of May 21,August 6, 2018, was 24,637,559.25,186,226.
Page | |||
PART I. FINANCIAL INFORMATION | 3 | ||
Item 1 | Consolidated Financial Statements | 3 | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | ||
Item 4 | Controls and Procedures | ||
PART II. OTHER INFORMATION | |||
Item 1 | Legal Proceedings | ||
Item 1A | Risk Factors | ||
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | ||
Item 3 | Defaults Upon Senior Securities | ||
Item 4 | Mine Safety Disclosures | ||
Item 5 | Other Information | ||
Item 6 | Exhibits | ||
SIGNATURES |
2 |
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
WORLDWIDE SPECIALTY CHEMICALS INC. AND SUBSIDIARYSUBSIDIARIES
(formerly ZEC, INC.)
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
June 30, 2017 | December 31, 2016 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 4,597 | $ | 50,202 | ||||
Accounts receivable | 223,698 | 13,600 | ||||||
Inventory | 51,499 | 7,684 | ||||||
Prepaid expenses | – | 5,742 | ||||||
Total current assets | 279,794 | 77,228 | ||||||
OTHER ASSETS | ||||||||
Goodwill | 2,294,952 | – | ||||||
Total other assets | 2,294,952 | – | ||||||
FIXED ASSETS, net | 512,714 | – | ||||||
TOTAL ASSETS | $ | 3,087,460 | $ | 77,228 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 178,447 | $ | 81,939 | ||||
Accrued expenses | 12,304 | 39,022 | ||||||
Due to CBI Polymers | 4,126 | 1,667 | ||||||
Notes payable | 4,721,641 | 900,187 | ||||||
Total current liabilities | 4,916,518 | 1,022,815 | ||||||
LONG TERM LIABILITIES | ||||||||
Notes payable | 95,393 | – | ||||||
TOTAL LIABILITIES | 5,011,911 | 1,022,815 | ||||||
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; 7,337,393 shares issued and outstanding shares as of June 30, 2017, and 6,817,393 issued and outstanding as of December 31, 2016 | 734 | 682 | ||||||
Additional paid-in capital | 1,090,948 | 1,049,773 | ||||||
Accumulated deficit | (3,016,133 | ) | (1,996,042 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY (DEFICIT) | (1,924,451 | ) | (945,587 | ) | ||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | $ | 3,087,460 | $ | 77,228 |
March 31, 2018 | December 31, 2017 | |||||||
(Unaudited) | (Audited) | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 83,308 | $ | 275,886 | ||||
Accounts receivable - trade | 137,025 | 49,603 | ||||||
Inventory | 74,089 | 62,541 | ||||||
Prepaid expenses | 5,864 | 8,205 | ||||||
Other current assets | 18,520 | 31,102 | ||||||
Total current assets | 318,806 | 427,337 | ||||||
GOODWILL | 2,294,952 | 2,294,952 | ||||||
FIXED ASSETS | ||||||||
Vehicles and trailers | 247,969 | 223,413 | ||||||
Equipment | 432,355 | 420,004 | ||||||
Leasehold improvements | 28,855 | 28,855 | ||||||
709,179 | 672,272 | |||||||
Accumulated depreciation | (99,251 | ) | (83,288 | ) | ||||
Fixed assets, net | 609,928 | 588,984 | ||||||
TOTAL ASSETS | $ | 3,223,686 | $ | 3,311,273 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 271,325 | $ | 224,244 | ||||
Accrued expenses | 65,724 | 19,949 | ||||||
Due to CBI | – | 4,463 | ||||||
Notes payable | 35,773 | 35,650 | ||||||
Total current liabilities | 372,822 | 284,306 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Notes payable | 99,287 | 73,662 | ||||||
TOTAL LIABILITIES | 472,109 | 357,968 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
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; 24,590,159 issued and outstanding shares as of March 31, 2018 and 24,300,326 issued and outstanding shares as of December 31, 2017 | 2,459 | 2,430 | ||||||
Additional paid-in capital | 8,489,086 | 7,661,882 | ||||||
Accumulated deficit | (5,739,968 | ) | (4,711,007 | ) | ||||
TOTAL STOCKHOLDERS’ EQUITY | 2,751,577 | 2,953,305 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 3,223,686 | $ | 3,311,273 |
The accompanying footnotes are an integral part of these consolidated financial statements.
3 |
WORLDWIDE SPECIALTY CHEMICALS INC. AND SUBSIDIARYSUBSIDIARIES
(formerly ZEC, INC.)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended June 30, 2017 | For the Three Months Ended June 30, 2016 | For the Six Months Ended June 30, 2017 | For the Six Months Ended June 30, 2016 | |||||||||||||
Revenues | $ | 424,344 | $ | 5,478 | $ | 500,504 | $ | 5,478 | ||||||||
Cost of goods sold | 178,013 | 444 | 231,620 | 444 | ||||||||||||
Gross profit | 246,331 | 5,034 | 268,884 | 5,034 | ||||||||||||
Operating expenses | ||||||||||||||||
General and administrative | 564,190 | 218,645 | 1,089,957 | 388,322 | ||||||||||||
Selling | 40,305 | 4,692 | 59,421 | 13,405 | ||||||||||||
Depreciation and amortization | 19,734 | 52,502 | 36,399 | 52,502 | ||||||||||||
Total operating expenses | 624,229 | 275,839 | 1,185,777 | 454,229 | ||||||||||||
Other income and (loss) | ||||||||||||||||
Interest income | 6 | 2 | 32 | 2 | ||||||||||||
Interest expense | (61,881 | ) | (13,705 | ) | (103,230 | ) | (16,899 | ) | ||||||||
�� | ||||||||||||||||
Total other loss | (61,875 | ) | (13,703 | ) | (103,198 | ) | (16,897 | ) | ||||||||
Net loss | $ | (439,773 | ) | $ | (284,508 | ) | $ | (1,020,091 | ) | $ | (466,092 | ) | ||||
Basic and diluted - loss per share | $ | (0.06 | ) | $ | (0.07 | ) | $ | (0.14 | ) | $ | (0.12 | ) | ||||
Basic and diluted - weighted average shares | 7,337,393 | 3,970,110 | 7,208,111 | 3,775,055 |
For the Three Months Ended March 31, 2018 | For the Three Months Ended March 31, 2017 | |||||||
Revenues | $ | 224,536 | $ | 76,160 | ||||
Cost of goods sold | 164,304 | 53,606 | ||||||
Gross profit | 60,232 | 22,554 | ||||||
Operating expenses | ||||||||
General and administrative | 1,013,293 | 525,767 | ||||||
Selling | 30,979 | 19,116 | ||||||
Depreciation and amortization | 26,305 | 16,665 | ||||||
Total operating expenses | 1,070,577 | 561,548 | ||||||
Other income and (expense) | ||||||||
Interest income | 5 | 25 | ||||||
Interest expense | (1,629 | ) | (41,349 | ) | ||||
Other expense | (16,992 | ) | – | |||||
Total other expense | (18,616 | ) | (41,324 | ) | ||||
Net loss | $ | (1,028,961 | ) | $ | (580,318 | ) | ||
Basic and diluted - loss per share | $ | (0.04 | ) | $ | (0.08 | ) | ||
Basic and diluted - weighted average shares | 24,421,011 | 7,077,393 |
The accompanying footnotes are an integral part of these consolidated financial statements.
4 |
WORLDWIDE SPECIALTY CHEMICALS INC. AND SUBSIDIARYSUBSIDIARIES
(formerly ZEC, INC.)
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Six Months Ended June 30, 2017 | For the Six Months Ended June 30, 2016 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (1,020,091 | ) | $ | (466,092 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 36,399 | 52,502 | ||||||
Interest expense accrued | 101,459 | – | ||||||
Allowance for doubtful accounts | 224,386 | – | ||||||
Common stock option compensation | 33,427 | – | ||||||
Change in current assets and current liabilities | ||||||||
Accounts receivable | (394,050 | ) | (4,123 | ) | ||||
Inventory | (5,315 | ) | (13,490 | ) | ||||
Prepaid expenses | 5,742 | (2,500 | ) | |||||
Accounts payable and accrued expenses | 29,165 | 174,516 | ||||||
Due to CBI Polymers | 2,459 | – | ||||||
Net cash used in operating activities | (986,419 | ) | (259,187 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of intangible assets | – | (345,611 | ) | |||||
Purchase of property and equipment | (91,034 | ) | – | |||||
Acquisition, net of cash acquired | (1,128,954 | ) | – | |||||
Total cash used in investing activities | (1,219,988 | ) | (345,611 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Payments under long term financing agreements | – | (44,233 | ) | |||||
Proceeds from sale of common stock | – | – | ||||||
Proceeds from notes payable | 2,500,000 | 670,000 | ||||||
Payments on notes payable | (339,198 | ) | – | |||||
Net cash provided by financing activities | 2,160,802 | 625,767 | ||||||
Net change in cash and cash equivalents | (45,605 | ) | 20,969 | |||||
Cash at beginning of period | 50,202 | 127 | ||||||
Cash at end of period | $ | 4,597 | $ | 21,096 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid during period for: | ||||||||
Interest | $ | 863 | $ | – | ||||
NON CASH INVESTING & FINANCING ACTIVITIES | ||||||||
Acquisition of KT Chemicals, Inc. under a short term promissory note | $ | 2,700,000 | $ | – |
For the Three Months Ended March 31, 2018 | For the Three Months Ended March 31, 2017 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (1,028,961 | ) | $ | (580,318 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 26,305 | 16,665 | ||||||
Interest expense accrued | – | 40,441 | ||||||
Loss on disposal of assets | 10,728 | – | ||||||
Allowance for doubtful accounts | – | 110,500 | ||||||
Share based compensation | 472,483 | 23,377 | ||||||
Change in current assets and current liabilities | ||||||||
Accounts receivable - trade | (87,422 | ) | (111,212 | ) | ||||
Inventory | (11,548 | ) | 50 | |||||
Prepaid expenses | 2,341 | 5,742 | ||||||
Other current assets | 12,582 | (5,600 | ) | |||||
Accounts payable and accrued expenses | 92,856 | (44,245 | ) | |||||
Due to CBI Polymers | (4,463 | ) | 386 | |||||
Net cash used in operating activities | (515,099 | ) | (544,214 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Purchase of property and equipment | (24,164 | ) | (42,360 | ) | ||||
Acquisition, net of cash acquired | – | (1,128,954 | ) | |||||
Total cash used in investing activities | (24,164 | ) | (1,171,314 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from notes payable | – | 1,900,000 | ||||||
Payments on notes payable | (8,065 | ) | (4,117 | ) | ||||
Proceeds from sale of common stock | 354,750 | – | ||||||
Net cash provided by financing activities | 346,685 | 1,895,883 | ||||||
Net change in cash and cash equivalents | (192,578 | ) | 180,355 | |||||
Cash at beginning of period | 275,886 | 50,202 | ||||||
Cash at end of period | $ | 83,308 | $ | 230,557 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid during period for: | ||||||||
Interest | $ | 1,629 | $ | 907 | ||||
NON CASH INVESTING & FINANCING ACTIVITIES | ||||||||
Acquisition of KT Chemicals, Inc., under short term promissory note | $ | – | $ | 2,700,000 | ||||
Acquisition of assets under a financing agreement | $ | 33,813 | $ | – |
The accompanying footnotes are an integral part of these consolidated financial statements.
5 |
WORLDWIDE SPECIALTY CHEMICALS INC. AND SUBSIDIARYSUBSIDIARIES
(formerly ZEC, INC.)
Notes to Interim Condensed Consolidated Financial Statements
June 30, 2017
March 31, 2018
(Unaudited)
1. NATURE OF BUSINESS
Worldwide Specialty Chemicals Inc. (“WSC”Company”), a Delaware corporation formed in March of 2014 and based in downtown Dallas, Texas, is an international specialty chemicalchemicals company with many products that are friendly to the environment.environment and are marketed through KT Chemicals, Inc. and Safeway Pest Elimination LLC both of which are wholly owned subsidiaries and PCNM LLC, a 49% investment. On February 15, 2017, WSCthe Company acquired 100% ownership of KT Chemicals, Inc. (“KT”), a Texas corporation founded in February 2014 (WSC and KT are collectively referred to as the “Company”).2014. 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. Safeway Pest Elimination LLC and PCNM LLC are newly created operating companies in 2018.
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.
2. 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, Safeway Pest Elimination LLC (SPE), both of which are wholly owned subsidiaries of the dateCompany and PCNM LLC (PCNM), a 49% investment. PCNM’s remaining 51% ownership is owned by an employee and shareholder of acquisition. the Company. The Company evaluated its investment in PCNM to determine if it represented a variable interest in a Variable Interest Entity (VIE). The Company determined that it had a variable interest in a VIE, and that it was the primary beneficiary of the VIE. During the three months ended March 31, 2018, SPE and PCNM did not engage in any material transactions.
All significant intercompany accounts and transactions have been eliminated in consolidation.
6 |
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("US GAAP") for interim financial reporting and the instructions for Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they include all information and footnote disclosures necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholder’sstockholders’ equity in conformity with US GAAP. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
The condensed consolidated balance sheet data as of December 31, 2017 was derived from the audited financial statements included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2017. The unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s most recently filed Form 10-K as of and for the year end December 31, 20162017 that was filed on February 15,July 17, 2018.
Operating results for the six monthsthree-months ended June 30, 2017,March 31, 2018, are not necessarily indicative of the results that can be expected for the year ending December 31, 2017.2018.
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.
Revenue Recognition
Effective January 1, 2018, the Company adopted Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (ASC) Topic 606,Revenue from Contracts with Customers, using the modified retrospective transition method. Under Topic 606, the Company recognizes revenue when it transfers control of promised goods or services to its customers in an amount that reflects the consideration which the Company expects to receive in exchange for those goods or services. To determine revenue recognition for arrangements that the Company determines are within the scope of Topic 606, the Company performs the following five steps: (i) identify the contract(s) with a customer; (ii) identify the performance obligations in the contract; (iii) determine the transaction price; (iv) allocate the transaction price to the performance obligations in the contract; and (v) recognize revenue when (or as) the entity satisfies a performance obligation. The Company only applies the five-step model to contracts when it is probable that the Company will collect the consideration it is entitled to in exchange for the goods or services it transfers to the customer. At contract inception, once a contract is determined to be within the scope of Topic 606, the Company assesses the goods or services promised within the contract and determines those that are performance obligations, and assesses whether each promised good or service is distinct. The Company then recognizes as revenue the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation is satisfied.
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 June 30, 2017March 31, 2018 and December 31, 2016.2017. The carrying value of the financial instruments included in the Company’s 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.
For the sixthree months ended June 30,March 31, 2018 and 2017, approximately 3,485,0001,030,000 and 2,885,000 common stock warrants, respectively, and 2,396,0004,409,750 and 2,046,000 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.
7 |
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are trade receivables from product sales 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 June 30, 2017March 31, 2018 and December 31, 2016, an2017, the allowance for doubtful accounts was $224,386$0.
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 $0, respectively.obsolete inventory exposures by analyzing historical and anticipated demand.
The following table sets forth the components of the Company’s inventory balances as of March 31, 2018 and December 31, 2017:
March 31, 2018 | December 31, 2017 | |||||||
Finished goods | $ | 32,990 | $ | 22,753 | ||||
Raw materials | 35,557 | 35,557 | ||||||
Packaging supplies | 5,542 | 4,231 | ||||||
$ | 74,089 | $ | 62,541 |
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.
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. Costs associated with operating leases are expensed as incurred.
Revenue RecognitionGoodwill
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 March 31, 2018 and December 31, 2017.
License Fee
Effective December 31, 2016, the Company entered into an Exclusive Patent License 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.
Share-Based Compensation
The Company recognizes revenuecompensation expense for all share-based payments in accordance with ASC topic 605, “Revenue Recognition, and other applicable revenueTopic 718, Compensation — Stock Compensation, (ASC 718). Under the fair value recognition guidance under US GAAP. For the six months ended June 30, 2017, revenue reported byprovisions of ASC 718, the Company was for product sales andrecognizes 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 when: (i) persuasive evidenceon a straight-line basis over the vesting period based on the estimated number of a sales arrangement exists, (ii) the sales termsstock options that are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured. During the year ended December 31, 2016, revenue reported by the Company was for commissions earned on product sales under previous agreements with KT and was recognized when: (i) persuasive evidence of a sales arrangement existed, (ii) the sales terms were fixed or determinable, (iii) title and risk of loss had been transferred, and (iv) collectability was reasonably assured. During the year ended December 31, 2016, 100% of the Company’s revenue was relatedexpected to the license agreement with KT.
Inventory
Inventory consisting of finished goods is stated at the lower of cost (first in, first out method) or net realizable value.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 CodificationASC Topic 740 –Income Taxes (“ASC 740”) (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 June 30, 2017March 31, 2018 and December 31, 2016.2017.
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.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred substantial operating losses during its first two years of operations resulting in an accumulated deficit of $3,016,133$5,739,968 and $1,996,042, and a deficit in equity of $1,924,451 and $945,587,$4,711,007 at June 30, 2017March 31, 2018 and December 31, 2016,2017, respectively. 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.
9 |
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.
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. Adoption of ASU 2014-09 did not have a material impact on the Company’s consolidated financial statements.
Future Accounting PronouncementsIn 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. Adoption of ASU 2017-01 did not have a material impact on the Company’s consolidated financial statements.
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. Adoption of ASU 2017-09 did not have a material impact on the Company’s consolidated financial statements.
Pronouncements Not Yet Adopted
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 MarchAugust 2016, the FASB issued ASU Update No. 2016-08, Revenue from Contracts with Customers2016-15,Statement of Cash Flows (Topic 606)230): Classification of Certain Cash Receipts and Cash Payments - a consensus of the Emerging Issues Task Force(“ASU 2016-15”). The amendmentsASU 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 Update are intended to improveguidance include - debt payments or debt extinguishment costs, contingent consideration payments made after a business combination, proceeds from the operabilitysettlement of insurance claims, distributions received from equity method investments and understandability of the implementation guidance on principal versus agent considerations by clarifying the criteriabeneficial interests in determining a principal versus agent relationship. The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following five steps: (1) identify contracts with customers, (2) identify the performance obligations in the contracts, (3) determine the transaction price, (4) allocate the transaction price to the performance obligation in the contract, and (5) recognize revenue as the entity satisfies performance obligations. The new guidancesecuritization transactions. ASU 2016-15 is effective for annual reporting periodsfiscal years beginning after December 15, 2017, including interim periods within that reporting period. Early application is permitted for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. The Company is currently evaluating what impact adoption of this guidance will have on its financial position, results of operations, cash flows and disclosures.
In March 2016, the FASB issued ASU Update No. 2016-09, Compensation – Stock Compensation (Topic 718). 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 thisfiscal years. Early adoption is permitted. ASU 2016-15 is not expected to have a significantmaterial impact on the Company’s consolidated financial statements.
3. ACCOUNTS RECEIVABLEIn 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.
Accounts receivable relate to trade receivables from product sales and commissions receivable earned on sales made by the Company. Accounts receivable consist of the following at June 30, 2017 and December 31, 2016:
2017 | 2016 | |||||||
Trade receivables | $ | 223,698 | $ | – | ||||
Commissions receivable from KT (prior to acquisition) | – | 13,600 | ||||||
$ | 223,698 | $ | 13,600 |
4.3. DUE TO / FROM
CBI
At June 30, 2017As of March 31, 2018 and December 31, 2016,2017, the Company owed CBI, $4,126a related party, $0 and $1,667,$4,463, respectively for license fees payable related to the Company’s Exclusive Patent License Agreement with CBI.
5.4. NOTES PAYABLE
On October 5, 2016,
The Company has three notes payable with separate financial institutions relating to the Company assumed $494,919purchase of convertible promissory notes from CBI. The notes are convertible into sharescertain 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.vehicles and equipment. 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 ofbalance outstanding under these notes payable was extended to June 30, 2017. On July 1, 2017, the notes went into default$135,060 and as a result, accrued interest$109,312 at the default interest rate of 15%. The principal and accrued interest balance of these notes at June 30, 2017March 31, 2018 and December 31, 2016 was $540,124 and $509,076,2017, 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 accruedpayable bear 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 rangesranging 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 notes3.95% - 5.99% 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 thesedue monthly. The notes at June 30, 2017mature in July 2020, December 2020 and December 31, 2016 was $2,961,517 and $391,111, respectively.February 2023.
See Note 12 for warrants exercised and conversion of these notes.
On February 15, 2017, the Company issued a short term promissory note to KT Chemicals stockholders in the amount of $2,700,000. The note is due on December 31, 2017. On February 15, 2017, the Company paid $1,150,000. During the quarter ended June 30, 2017, the Company paid an additional $330,000 leaving an outstanding balance of $1,220,000 as of June 30, 2017 (see Note 11).
6.5. ACCRUED EXPENSES
Accrued expenses consist of the following at June 30, 2017as of March 31, 2018 and December 31, 2016:2017:
2017 | 2016 | March 31, 2018 | December 31, 2017 | |||||||||||||
Professional fees | $ | – | $ | 38,000 | ||||||||||||
Credit card payables | $ | 43,229 | $ | – | ||||||||||||
Employee payables | 12,495 | – | ||||||||||||||
Other accrued expenses | 12,304 | 1,022 | 10,000 | 19,949 | ||||||||||||
$ | 12,304 | $ | 39,022 | $ | 65,724 | $ | 19,949 |
7.6. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Leases
The Company leases various office space on a month to month basis. Rental expense for the six monthsthree-months ended June 30,March 31, 2018 and 2017, was $35,778 and 2016, was $37,648 and $15,675,$12,585, respectively.
Concentrations
As of DecemberMarch 31, 2016,2018, the entire balance inCompany had two customers which made up 31% of the outstanding accounts receivable represents commissions due from KT Chemicals and license fees due from CBI. At Decemberbalance. For the three months ended March 31, 2016,2018, the Company’s revenues consisted 100%Company had 2 customers which made up 22% of commissions due from KT Chemicals and license fees due from CBI.total revenues.
8.7. STOCKHOLDERS’ EQUITY
Common Stock and Preferred Stock
As of June 30, 2017March 31, 2018 and December 31, 2016,2017, 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.
Common Stock
The Company's first issuance
During the three months ended March 31, 2018, the Company sold 209,833 common shares at $1.50 per share for a total cash amount of $314,750. See Note 10 for additional sales of common stock, totaling 580,000 shares took place onsubsequent to March 6, 2014 pursuant to the Chapter 11 Plan of Reorganization confirmed by the U.S. Bankruptcy Court (the “Court”) in the matter of Pacific Shores Development, Inc. (“PSD”). The Court ordered the distribution of shares in the Company to all general unsecured creditors of PSD, with these creditors to receive their Pro Rata share (according to amount of debt held) of a pool of 80,000 shares in the Company. The Court also ordered the distribution of shares in the Company to all administrative creditors of PSD, with these creditors to receive one share of common stock in the Company for each $0.10 of PSD's administrative debt which they held. A total of 500,000 shares were issued to PSD’s administrative creditors.
On February 15, 2017 issued 520,000 shares of the Company’s common stock valued at $0.015 per share as part of the purchase for KT.
Preferred Stock
No preferred shares were issued or outstanding as of June 30, 2017 and December 31, 2016, respectively.2018.
Warrants
During the three months ended March 31, 2018, 80,000 warrants were exercised at $.50 per share for a total cash amount of $40,000.
As part of the reorganization plan, the Court also ordered the distribution of two million five hundred thousand warrants in the Company to all administrative creditors of PSD, with these creditors to receive five warrants in the Company for each $0.10 of PSD's 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 ofMarch 31, 2018 and December 31, 2017, 1,030,000 and 1,110,000 common stock atwarrants were outstanding, respectively, with 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 5 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. The expiration date of the warrants was extended to December 31, 2018 (see Note 12). 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 $0.
There were no warrants exercised during six-months ended June 30, 2017.$.50. See Note 1210 for additional warrants exercised subsequent to June 30, 2017.March 31, 2018.
Stock option planOption Plan
Effective February 1,During 2017, the Company established the 2016Worldwide Specialty Chemicals Inc. First Amended Stock Option Plan (the “Plan”). The Board of Directors of the Company has the authority and discretion to grant stock options. The initial maximum number of shares of stock that may be issued pursuant to the exercise of options under the Plan iswas 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. The Plan has since been amended to increase the maximum of shares that may be issued. On March 18, 2018, the Plan was amended to increase the maximum number of shares of stock that may be issued to 5,000,000.
During the sixthree months ended June 30, 2017,March 31, 2018, the Company granted 2,396,000970,000 common stock options with an exercise prices ranging from $0.00 toprice of $1.50 per share. The fair value of the common stock options granted was $56,786.$902,577 and will be amortized over the next two years.
9.8. RELATED PARTY TRANSACTIONS
As discussed
During the three months ended March 31, 2018, the Company incurred consulting fees of $85,490 to three current and one former shareholders. The unpaid balance due was $135,000 and $77,000 as of March 31, 2018 and December 31, 2017, respectively, and is included in Note 1,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.
Additionally, theThe 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 11).on February 15, 2017.
Throughout 2016, theThe Company paid consulting fees of $21,503 tohas a company named Maine Consultants Inc. (Maine)49% ownership in PCNM. PCNM’s remaining 51% ownership is owned by an employee and shareholder of the spouse of E. Thomas Layton. As of October 2016,Company. During the Company no longer relied on Maine for any consulting services.three months ended March 31, 2018, PCNM did not engage in material transactions.
Throughout 2016, the Company incurred consulting fees of $80,000 to a former executive and current shareholder. The unpaid balance due was $50,000 and $80,000 as of June 30, 2017 and December 31, 2016, respectively and is included in accounts payable in the accompanying financial statements.
10.
13 |
9. INCOME TAXES
For the six monthsthree-months ended June 30,March 31, 2018 and 2017, and 2016, the effective tax rate of 0% varies from the U.S. federal statutory rate primarily due to net losses and the valuation allowance associated with the net operating loss carryforwards. The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. The Company continues to record a full valuation allowance against its net deferred tax assets. The Company assessed whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Future sources of taxable income were also considered in determining the amount of the recorded valuation allowance. Based on the Company’s review of this evidence at June 30, 2017,March 31, 2018, management determined that a full valuation allowance against all of the Company’s deferred tax assets at June 30, 2017March 31, 2018 was appropriate.
11. 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.
The transaction resulted in recording assets, liabilities and goodwill at preliminary estimated fair value as follows (unaudited):
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 | |||
Notes payable | 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) | Six Months Ended June 30, 2017 | Six Months Ended June 30, 2016 | ||||||
Revenues | $ | 538,751 | $ | 260,783 | ||||
Net loss | $ | (1,088,819 | ) | $ | (607,028 | ) | ||
Loss per share | $ | (.15 | ) | $ | (.16 | ) |
The unaudited pro forma information is 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.
12.10. SUBSEQUENT EVENTS
In July 2017,
Subsequent to March 31, 2018, the Company granted a total500,000 common stock options with an exercise price of 1,900,000 of common shares for services provided to Company executives and other consultants at $0.00$1.50 per share. The Company has recorded the expense at afair value of $150,666.the common stock options granted was $454,423.
In August 2017,Additionally, the Company sold 500,000 shares at $0.50 per share, 300,000 shares at $0.75 per share, 300,000 shares at $1.00 per share and 50,000 shares at $1.25 per share for a total cash amount of $837,500.
On November 20, 2017, the Plan was amended to increase the maximum number of shares of stock that may be issued to 3,500,000. 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. On March 18, 2018, the Plan was amended to increase the maximum number of shares of stock that may be issued to 5,000,000. As of the date of this report, options to acquire 4,543,083 shares of stock have been granted, with exercise prices ranging from $0.00 to $1.50 per share.
In December 2017, the Company issued a total of 7,500,000 common shares for services provided to Company executives and other consultants at $0.00 per share. The Company has recorded the expense at a value of approximately $465,000.
Effective December 31, 2017, the Company issued a total of 3,877,931 common shares as settlement of all outstanding convertible debt instruments, 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.
Effective December 31, 2017, the Company issued a total of 2,375,000 common shares as settlement for warrants exercised for a total cash amount of $1,187,500.
Effective December 31, 2017, the Company issued a total of 126,668 common shares as settlement for options exercised for a total cash amount of $190,000.
On December 22, 2017, the Tax Cuts and Jobs Act (the “Act”) was signed into United States tax law, which among other provisions will lower the corporate tax rate to 21%. Given this date of enactment, the Company’s financial statements as of and for the period ended June 30, 2017 do not reflect the impact of the Act. The Company is in the process of analyzing the potential aggregate impact of the Act and will reflect any such impact in the quarterly report for the period in which the law was enacted.
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 33,333146,734 common shares at $1.50 per share for a total cash amount of $50,000.
On March 2, 2018, the Company sold 16,500$220,101 and issued 332,332 common shares upon the exercise of warrants at $1.50$.50 per share for a total cash amount of $24,750.$166,166.
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 34,000 common shares at $1.50 per share for a total cash amount of $51,000.
On April 13, 2018, the Company sold 13,400 common shares at $1.50 per share for a total cash amount of $20,100.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with its unaudited interim condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2016.2017.
FORWARD-LOOKING STATEMENTS
The discussion contained herein contains "forward-looking statements" that involve risk and uncertainties. These statements may be identified by the use of terminology such as "believes," "expects," "may," "should" or anticipates" or expressing this terminology negatively or similar expressions or by discussions of strategy. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Company’s actual results could differ materially from those discussed in this report.
BUSINESS AND PLAN OF OPERATION
Worldwide Specialty Chemicals Inc., based in downtown Dallas, Texas, 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 orconsidered 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 chemical formulas and application systems.
The parent company, Worldwide Specialty Chemicals Inc.,Company, is a Delaware corporation formed in March of 2014. On February 15, 2017, the Company acquired 100% ownership of KT Chemicals, Inc., a Texas corporation founded in February 2014. WSCIn 2018, the Company founded Safeway Pest Elimination LLC and PCNM LLC. The Company anticipates continuing to acquire, merge with, and/or start other industry specific specialty chemical subsidiaries.
KT Chemicals, Inc. is also a specialty chemicals company, serving as both manufacturer and distributor of environmentally safe, specialty chemicals. KT Chemicals is located at 1002 North Central Expressway, Suite 499, Richardson, Texas 75080. 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 clean-up, 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.
LIQUIDITY AND CAPITAL RESOURCES
During the three-month and six-month period ended June 30, 2017,March 31, 2018, 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.
As of June 30, 2017,March 31, 2018, the Company had total assets of $3,087,460,$3,223,686, consisting of current assets of $4,597$83,308 in cash, $223,698$137,025 in receivables, $51,499$74,089 in inventory, and long term assets of $2,294,952 in goodwill and $512,714$609,928 in fixed assets. As of December 31, 2016,2017, the Company had total assets of $77,228,$3,316,644, consisting of current assets $50,202of $267,986 in cash, $13,600$49,603 in receivables, $7,684$69,247 in inventory, and $5,742$8,205 in prepaid expenses.expenses and $31,102 in other current assets. The increasedecrease in total assets of $3,010,232,$87,587 was largelyprimarily due to the decrease in its cash of $192,578 offset by the increase in its accounts receivable of $87,422 as a result of the purchase of KT.KT’s increase in sales.
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As of June 30,March 31, 2018, the Company had total liabilities totaling $472,109 including $372,822 in current payables and accrued expenses, and $99,287 in notes payable. As of December 31, 2017, the Company had total liabilities totaling $5,011,911$357,968 including $190,751$244,193 in accounts payable and accrued expenses $4,721,641 in convertible notes and $95,393 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, $900,187$35,650 in convertible notes. The increase in liabilities of $3,989,096,$114,141 was largely the result of issuing convertible notes payable toan increase in its operating expenses, employee payables, and the purchase KT and to provide working capital for the Company’s operations related to its sales, marketing and operating efforts.of new equipment under a financing agreement.
At June 30, 2017,March 31, 2018, the Company had an accumulated stockholders’ equity deficit of $1,924,451$2,751,577 and $945,587an accumulated stockholders’ equity of $2,953,305 at December 31, 2016.2017. The increase is the result of the items discussed above.
RESULTS OF OPERATIONS
The Company had realized only modest revenues from sales of products during the past year. On February 15, 2017, the Company acquired KT Chemicals, Inc. and as a result, revenues duringthe operations of the Company include three months of KT’s operations for the quarter ended June 30, 2017, were $500,504March 31, 2018 compared to one and revenues duringhalf months of operations for the quarter ended June 30, 2016, were $5,478. During the quarter ended June 30, 2017, theMarch 31, 2017. The Company concentratedcontinued to concentrate its efforts on (a) testing and marketing of its products; (b) customer acquisition; and (c) sourcing and developing new products to fulfill customers’ requirements.requirements; and (d) start other specific industry chemical subsidiaries.
Comparison of the threethree-month period ended March 31, 2018 and six-month periods ended June 30, 2017 and June 30, 2016. March 31, 2017.
Revenues
For the three-month periodthree months ended June 30, 2017,March 31, 2018, the Company had revenues of $424,344,$224,536, and $76,160 for the same period in 2016, the Company had revenues of $5,478. For the six-month period ended June 30, 2017, the Company had revenues of $500,504, and for the same period in 2016 it had $5,478.2017. The increase in revenuessales is primarily the result of the acquisitionCompany recording three months of KT.KT’s operations for the quarter ended March 31, 2018 compared to one and half months of operations for the quarter ended March 31, 2017 as the Company acquired KT on February 15, 2017.
Operating Expenses
For the three-month and six-month periodthree months ended June 30, 2017,March 31, 2018, the Company’s operating expenses totaled $624,229$1,070,577, and $1,185,777, respectively. During$561,548 for the same periodsperiod in 2016, the Company’s operating expenses totaled $275,839 and $454,229, respectively.2017. The increase in each period is primarily related an increase into 1) three months of KT’s operating expenses being recorded during 2018; 2) professional fees relating to marketing and business development bad debt expense and payroll cost due to the acquisition of KT and3) stock compensation expense.
GOING CONCERN
The accompanying consolidated financial statements are presented on a going concern basis. The Company's financial condition raises substantial doubt about the Company's ability to continue as a going concern. The Company has limited cash, its current liabilities exceed its current assets as of March 31, 2018 and other material assets and minimal revenuesthe Company has incurred reoccurring losses from operations during the three months and nine months periods ended June 30, 2017.March 31, 2018. The Company is relying on capital from investors to meet the majority of its operating expenses.
OFF-BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of its President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, its disclosure controls and procedures are not effective.
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INTERNAL CONTROL OVER FINANCIAL REPORTING
As indicated in the Company’s Form 10-K/A10-K filed on February 15,July 17, 2018, the Company’s Principal Executive Officer and Principal Financial Officer concluded that its internal control over financial reporting was not effective during the 20162017 fiscal year at the reasonable assurance level, as a result of a material weakness primarily related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America (GAAP), inadequate segregation of duties, and lack of audit committee and outside directors.
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.
The Company believes that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
None.
There have been no material changes to the risks to the Company’s business from those described in its Form 10-K/A10-K for the year end December 31, 20162017 as filed with the SEC on February 15,July 17, 2018.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On January 3, 2018, 80,000To assist the Company obtain and preserve working capital to support its current operations the Company entered into the following transactions:
The Company sold 146,734 common shares at $1.50 per share for a total cash amount of $220,101 and issued 332,332 common shares upon the exercise of warrants were exercised at $.50 per share for a total cash amount of $40,000.$166,166.
On February 28, 2018,The sales of the securities identified above were made pursuant to privately negotiated transactions that did not involve a public offering of securities and, accordingly, the Company sold 33,333believes that these transactions were exempt from the registration requirements of the Securities Act pursuant to Section 4(2) thereof or Regulation D promulgated under the Securities Act. Each investor represented that such investor either (A) is an “accredited investor,” (B) has such knowledge and experience in financial and business matters that the investor is capable of evaluating the merits and risks of acquiring the shares of Company common stock, or (C) appointed an appropriate person to act as the investor’s purchaser representative in connection with evaluating the merits and risks of acquiring the shares at $1.50 per shareof Company common stock. The investors received written disclosures that the securities had not been registered under the Securities Act and that any resale must be made pursuant to a registration or an available exemption from such registration. All of the foregoing securities are deemed restricted securities for a total cash amountpurposes 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.Securities Act.
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 34,000 common shares at $1.50 per share for a total cash amount of $51,000.
On April 13, 2018, the Company sold 13,400 common shares at $1.50 per share for a total cash amount of $20,100.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
On July 1, 2017, certain of the Company’s convertible notes with maturity dates of June 30, 2017 went into default. On December 31, 2017, the Company issued a total of 3,877, 931 common shares as settlement of all outstanding convertible debt instruments principal and accrued interest. Upon conversion of the convertible debt into the common stock, the Company cured the event of default.None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
ITEM 6. - EXHIBITS
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: May 21,August 6, 2018
Worldwide Specialty Chemicals Inc. | ||
By: | /s/ E. Thomas Layton | |
E. Thomas Layton, | ||
CEO | ||
By: | /s/ Paul O. Williams | |
Paul O. Williams, | ||
CFO and Director |