x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Delaware | 58-2153309 |
(State Or Other Jurisdiction Of | (Irs Employer |
Incorporation Or Organization) | Identification No.) |
PART I. | FINANCIAL INFORMATION | |
Item 1. | Financial Statements | 2 |
Consolidated Balance Sheets | 2 | |
Consolidated Statements of Operations | 4 | |
Consolidated Statements of Cash Flows | 5 | |
Notes to Unaudited Consolidated Financial Statements | 6 | |
Item 2. | Management's Discussion and Analysis of Financial Condition | |
and Results of Operations | 12 | |
Item 3. | Controls and Procedures | 28 |
PART II. | OTHER INFORMATION | |
Item 1. | Legal Proceedings | 29 |
Item 6. | Exhibits | 29 |
March 31, 2005 restated (unaudited) | December 31, 2004 (restated) | ||||||
ASSETS | |||||||
CURRENT ASSETS: | |||||||
Cash and cash equivalents | $ | 42,905 | $ | 131,470 | |||
Accounts receivable, net | 144,128 | 94,551 | |||||
Inventory | 142,238 | 67,906 | |||||
Prepaid expenses | 6,750 | 242,110 | |||||
Loan to Tulix | 74,083 | 72,858 | |||||
Other current assets | 5,000 | — | |||||
Total current assets | 415,104 | 608,895 | |||||
Fixed Assets | 5,568 | 28,430 | |||||
Deposits | 2,575 | 2,575 | |||||
Note receivable | 250,000 | — | |||||
Investment in Tulix | 51,949 | 51,949 | |||||
Intangible assets | 986,223 | 986,223 | |||||
Less: Accumulated amortization | (361,615 | ) | (312,304 | ) | |||
Goodwill | 1,469,108 | 1,469,108 | |||||
Intangibles, net | 2,093,716 | 2,143,027 | |||||
Total assets | $ | 2,818,912 | $ | 2,834,876 | |||
LIABILITIES AND STOCKHOLDERS’ DEFICIT | |||||||
CURRENT LIABILITIES: | |||||||
Accounts payable and accrued expenses | $ | 601,822 | $ | 574,236 | |||
Loans payable | 124,631 | 182,784 | |||||
Due to officer | 89,650 | 147,309 | |||||
Current maturities of long term debt | 120,684 | 106,860 | |||||
Convertible loans payable - net of discount | 2,427,261 | 1,327,245 | |||||
Derivative conversion feature - convertible preferred stock | 842,992 | 1,050,863 | |||||
Total current liabilities | 4,207,040 | 3,389,297 | |||||
Warrant liability | 1,928,159 | 742,448 | |||||
Note payable | 250,000 | — | |||||
Long term debt | 400,000 | 415,302 | |||||
Total liabilities | 6,785,199 | 4,547,047 | |||||
Convertible preferred stock | 5,392,783 | 6,128,223 |
STOCKHOLDERS' DEFICIT: | |||||||
Common stock, $.0001 par value, 300,000,000 shares authorized, | |||||||
66,897,187 shares issued and outstanding at March 31, 2005 and | |||||||
45,895,431 shares issued and outstanding at December 31, 2004 | 6,609 | 4,590 | |||||
Preferred stock, Series H, $.01 par value, | |||||||
13,500 shares authorized, 12,000 shares | |||||||
issued and outstanding at March 31, 2005 | |||||||
and December 31, 2004, convertible, | |||||||
participating, $12,000,000 liquidation | |||||||
value at March 31, 2005 and December | |||||||
31, 2004 | 108 | 133 | |||||
Preferred stock, Series I, $.01 par value, | |||||||
490.5 shares authorized, 490.5 shares | |||||||
issued and outstanding at March 31, 2005 | |||||||
and December 31, 2004, convertible, | |||||||
participating, $49,050 liquidation value at | |||||||
March 31, 2005 | 5 | 5 | |||||
Treasury stock, 5,028,695 shares at March | |||||||
31, 2005 and December 31, 2004 | (327,484 | ) | (327,484 | ) | |||
Additional paid-in capital | 23,640,094 | 22,844,110 | |||||
Accumulated deficit | (32,678,402 | ) | (30,361,748 | ) | |||
Total stockholder deficit | (9,359,070 | ) | (7,840,394 | ) | |||
Total liabilities and stockholder deficit | $ | 2,818,912 | $ | 2,834,876 |
Three Months Ended March 31, | |||||||
2005 restated (unaudited) | 2004 restated (unaudited) | ||||||
Revenues | $ | 369,681 | $ | 620 | |||
Cost of revenues | 148,203 | 558 | |||||
Gross profit | 221,478 | 62 | |||||
Operating expenses: | |||||||
Selling, general and administrative | 612,611 | 262,566 | |||||
Depreciation and amortization | 51,268 | 49,311 | |||||
Total operating expenses | 663,879 | 311,877 | |||||
Operating loss | (442,401 | ) | (311,815 | ) | |||
Other expenses (income) | |||||||
Interest expense | 1,810,560 | 82,212 | |||||
Change in fair value of warrants | 64,918 | — | |||||
Change in fair value of derivative conversion feature | — | 13,460 | |||||
Interest income | (1,225 | ) | — | ||||
Loss from continuing operations before income | |||||||
taxes | (2,316,654 | ) | (407,487 | ) | |||
Income tax provision (benefit) | — | — | |||||
Loss from continuing operations | (2,316,654 | ) | (407,487 | ) | |||
Income from discontinued operations | — | 43,189 | |||||
Net loss | $ | (2,316,654 | ) | $ | (364,298 | ) | |
Income (loss) per share - basic and diluted: | |||||||
Continuing operations | $ | (0.04 | ) | $ | (0.02 | ) | |
Discontinued operations | — | — | |||||
$ | (0.04 | ) | $ | (0.02 | ) | ||
Weighted number of shares outstanding - basic | |||||||
and diluted | 57,918,004 | 14,999,157 |
Three Months Ended March 31, | |||||||
2005 restated | 2004 restated | ||||||
(unaudited) | (unaudited) | ||||||
Cash flows from operating activities: | |||||||
Net loss | $ | (2,316,654 | ) | $ | (364,298 | ) | |
Adjustments to reconcile net income (loss) | |||||||
to cash used in operating activities: | |||||||
Depreciation | 1,957 | ||||||
Barter transaction | 20,904 | ||||||
Provision for bad debts | — | 22,537 | |||||
Amortization | 49,311 | — | |||||
Change in fair value of warrants | 64,918 | ||||||
Amortization of beneficial conversion feature | |||||||
of convertible loans | 1,786,325 | — | |||||
Change in fair value of derivative conversion feature | — | 13,460 | |||||
Common stock issued in exchange for services | |||||||
performed | 82,261 | — | |||||
Loan to Tulix | (1,225 | ) | |||||
Change in operating assets and liabilities: | |||||||
Accounts receivable | (49,577 | ) | 113,245 | ||||
Inventory | (74,332 | ) | — | ||||
Prepaid expenses | 17,250 | 15,419 | |||||
Other assets | (5,000 | ) | — | ||||
Accounts payable and accrued expenses | 20,725 | 161,086 | |||||
Net cash used in operating activities | (403,137 | ) | (38,551 | ) | |||
Cash flow from financing activities: | |||||||
Net repayments to officer | (57,659 | ) | — | ||||
Borrowings of loans payable | 5,382 | ||||||
Repayments of loans payable | (58,152 | ) | — | ||||
Proceeds from issuance of convertible loans | 425,000 | 109,000 | |||||
Net cash provided by financing activities | 314,571 | 109,000 | |||||
Net increase (decrease) in cash and cash equivalents | (88,566 | ) | 70,449 | ||||
Cash and cash equivalents at beginning of period | 131,471 | 71,818 | |||||
Cash and cash equivalents at end of period | $ | 42,905 | $ | 142,267 | |||
Non-cash investing and financing activities: | |||||||
Conversion of preferred shares | |||||||
into 19,826,606 shares of common stock | $ | 735,440 | |||||
Issuance of 1,175,150 shares of common | |||||||
stock for services rendered | $ | 82,261 | |||||
Service vehicle distributed for | |||||||
services performed | $ | 20,904 |
For The Three Months Ended March 31, 2005 | |||||||||||||
Licensed | Specialty | ||||||||||||
Technologies | Lighting | ||||||||||||
Division | Division | Eliminations | Total | ||||||||||
Total Assets | $ | 2,739,251 | $ | 323,209 | $ | (243,548 | ) | $ | 2,818,912 | ||||
Total Revenue | — | $ | 369,681 | — | $ | 369,681 | |||||||
Net Income (Loss) | $ | (2,366,639 | ) | $ | 49,985 | — | $ | (2,316,654 | ) |
Quarter Ended | ||||
March 31, 2004 | ||||
Net revenues | $ | 203,369 | ||
Net loss from continuing operations | $ | (404,529 | ) | |
Net loss | $ | (367,143 | ) | |
Net loss per share | $ | (0.025 | ) |
For The Three Months | |||||||
Ended March 31, | |||||||
2005 | 2004 | ||||||
Loss applicable to common shareholders: | |||||||
As reported | $ | (2,316,654 | ) | $ | (364,298 | ) | |
Pro forma | $ | (2,320,379 | ) | $ | (369,023 | ) | |
Basic and diluted loss per share: | |||||||
As reported | $ | (0.04 | ) | $ | (0.02 | ) | |
Pro forma | $ | (0.04 | ) | $ | (0.02 | ) |
· | Our business, as currently constituted, has limited operating history. Therefore, we may not be able to accurately forecast future results, and operating losses in future periods could be greater than expected. |
· | We have a history of operating losses, and there is no assurance that we will achieve profitability in the future. |
· | We have a going-concern qualification in the report by our registered independent public accounting firm for our financial statements for the year ended December 31, 2004, which may make capital raising more difficult and may require us to scale back or cease operations, putting our investors' funds at risk. |
· | We may be unable to obtain additional capital required to fund our operations and finance our growth. |
· | The management of our finances and the quality and timeliness of our financial reporting may be adversely affected if we are unable to increase the size and capabilities of our internal administrative and finance function as our business grows. |
· | If we fail to realize some or all of the anticipated benefits from our acquisition of True to Form, our business will suffer. |
· | We face intense competition, which could result in lower revenues and higher research and development expenditures and could adversely affect our results of operations. |
· | If we cannot effectively manage our growth, our business may suffer. |
· | We may be unable to hire and retain the skilled personnel we need to expand our operations. |
· | Our success depends on the services of our executive officers and key employees. |
· | Our business may suffer if we cannot protect our proprietary technology. |
· | Claims by others that we infringe their intellectual property rights could harm our business and financial condition. |
· | New corporate governance requirements are likely to increase our costs and make it more difficult to attract qualified directors. |
· | We are not subject to the same corporate governance standards as listed companies, including without limitation, the requirement that we have a majority of independent directors. |
· | the issuance by True To Form of a secured note in the initial principal amount of $500,000; and |
· | the issuance to Mr. Allen by Global Matrechs of 10,000,000 shares of our common stock. |
1. | Sealer Plus, which can be sprayed to coat containers or cover contaminated surfaces; |
2. | Foam, which is pumped in a range of densities to fill crevices, ducts or pipes; |
3. | Grout, applied in a pour and mix method, which can be used to make shapes for shielding or to macroencapsulate items to form an unleachable monolith for transportation or disposal; |
4. | Matrix, applied in a pour and mix method, which can be used to microencapsulate radioactive or hazardous wastes to form an elastomeric monolith for transportation or disposal; and |
5. | StoneStore, applied in a pour and mix method, which can be used to microencapsulate highly radioactive waste and will form a ceramic monolith for permanent disposal. StoneStore is still in the research and development stage. |
· | Strength. RBHM's strength characteristics, especially combined with low elongation and acquired water resistance of the material, make RBHM unique and desirable for packaging applications. |
· | Water Resistance. RBHM keeps water resistance for one week. Most of the existing biodegradable packaging products are not hydrophobic at all and will fail if wetted during use. |
· | Biodegradable Nature. Enzymes begin breaking down RBHM in the presence of moisture in natural environments such as soil. Then microorganisms decompose the material with rapidly occurring metabolic reactions. RBHM is completely converted into carbon dioxide, water, and biomass in two to three months in wet soil. |
· | Reproducible Natural Raw Materials. RBHM uses cellulose, a widely available and renewable raw material. |
· | Relatively Low Cost. The main obstacle to widespread use of biodegradable polymers has been cost. Biodegradable polymers are traditionally significantly more expensive than commodity polymers. The high costs involved in the production of biodegradable polymers means that they cannot compete favorably with conventional polymers. This high cost has deterred the widespread adoption of biodegradable plastics in major consumer applications. At an additional cost of less than 10%, and sometimes less depending on the type of material treated, materials treated with RBHM provide plastic-like performance and are biodegradable. |
Disclosure Controls and Procedures
Our principal executive officer, who is also our principal financial officer, has concluded that our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) were not effective as of March 31, 2005 based an evaluation of our disclosure controls and procedures, as further described below:
| • | Our historical financial information related to fiscal 2001 through fiscal 2003 and for the first three fiscal quarters of 2004 accounted incorrectly for certain convertible preferred stock instruments. As such, management has concluded that our historical financial statements should no longer be relied upon. |
| • | We have restated historical financial information for the periods required to be presented in this annual report on Form 10-KSB for the year ended December 31, 2004, as amended, to reflect the correct accounting treatment. We have also included in this report four years of restated financial information highlighting the differences resulting from the application of the change in accounting treatment to its historical financial statements. |
| • | Finally, we have restated certain financial information contained in this quarterly report on Form 10-QSB. |
| Late Reports |
Due to the significant commitment of Company time and resources required in connection with the review of our financial statements and the auditing of our 2004 financial statements, we did not timely file our annual report on Form 10-KSB for the fiscal year ended December 31, 2004 or this quarterly report on Form 10-QSB.
| Other Issues |
The review also observed other issues that may have contributed to the misstatement. These issues relate to staffing, competence and segregation of duties in our accounting and financial reporting functions and insufficient analysis, documentation and review of the selection and application of generally accepted accounting principles to significant non-routine transactions. We plan to address these issues by hiring additional personnel promptly after we raise additional financing.
| Remedial measures |
Management believes that at this time, in light of the recent addition of an outside consultant to assist with some of the highly technical issues relating to its capital structure, the risks associated with a lack of segregation of duties and limited staff have been largely mitigated. Management believes that additional progress in strengthening its controls and procedures will continue through the end of fiscal year 2005. Furthermore, management intends to hire an accounting professional to increase the our capabilities related to interpretive research into complex accounting issues promptly after we raise sufficient financing to permit it to do so. Finally, management will periodically reevaluate the situation, and as necessary, will put in place additional internal staff and controls to prevent a lack of discipline around policies and procedures in our administrative and financial matters.
Changes in Internal Control over Financial Reporting
As described above, management believes that our recent addition of an outside consultant to assist with some of the highly technical issues relating to our capital structure, we have significantly mitigated the risks associated with a lack of segregation of duties that had existed previously.
Exhibit No. | Description | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |
GLOBAL MATRECHS, INC. | ||
Date: October 7, 2005 | By: | /s/ Michael Sheppard |
Name: Michael Sheppard | ||
Title: President, Chief Executive Officer, and Acting Chief Financial Officer |
Exhibit No. | Description | |
31.1 | Certification pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 | |
32.1 | Certification pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 |