NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2017
NOTE 1 – DESCRIPTION OF
BUSINESS
Eco Tek 360, Inc. ("the Company") was incorporated in Nevada on March 25, 2005. As of March 31, 2017 and December
31, 2016 and 2015, the Company had 400,000,000 shares of authorized common stock.
Eco Tek 360, Inc., during the
fourth quarter, 2013, the Company changed its business plan to engage in future manufacturing and global distribution of ladies
apparel. Trident Merchant Group, Inc. is a wholly owned subsidiary which provided "value added" strategic advisory services.
Trident has since ceased operations in order to concentrate on the opportunities related to rejuvenating fibers and repurposing
them into finished products.
During the second quarter, 2014
the Company formed Leading Edge Fashions, LLC of which it controls 51%. Effective December 31, 2014 the Company's Board of Directors
determined it was in the best interest of the Company to discontinue the operations of Leading Edge Fashions, LLC.
The Company created a new limited
liability company, Pure361, LLC ("Pure361") in May 2015 for the purpose of operating the portion of the Company's business
that is involved with the collection, rejuvenation and manufacturing of garments and other accessories for the uniform marketplace
that serves the hospitality, food service, medical, manufacturing, education, military, transportation and other commercial uniform
industries. The Company owns 51% of Pure361. Pure361 entered into a license agreement with Pure System International Ltd. ("Pure"),
the minority owner of Pure 361, related to potential future operations in which Pure361 was granted the exclusive license to use
certain licensed intellectual property related to the manufacturing of uniforms from recyclable waste.
The Company created a new wholly
owned subsidiary, Progressive Fashions Inc. ("PFI") in February 2016 for the purpose of designing, producing and marketing
the EMME® Activewear Collection. PFI has had no operations to date.
Basis of Presentation: Unaudited
Interim Financial Information
The accompanying
interim condensed consolidated financial statements are unaudited. In the opinion of management, the accompanying unaudited condensed
consolidated financial statements contain all of the normal recurring adjustments necessary to present fairly the financial position
and results of operations as of and for the periods presented. The interim results are not necessarily indicative of the results
to be expected for the full year or any future period.
Certain
information and footnote disclosures normally included in the consolidated financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). The Company believes that the disclosures are adequate to make the interim
information presented not misleading. These consolidated financial statements should be read in conjunction with the Company's
audited consolidated financial statements and the notes thereto included in the Company's Report on Form 10-K filed on March 31,
2017 for the years ended December 31, 2016 and 2015.
Going Concern
The accompanying financial
statements have been prepared in accordance with U.S. generally accepted accounting principles, which contemplates
continuation of the Company as a going concern. The Company has an accumulated deficit of $30,547,178 and $29,730,893 as of
March 31, 2017 and December 31, 2016, respectively, which include losses of $816,285 and $447,883 for the three months ended
March 31, 2017 and 2016, respectively. Consequently, the aforementioned items raise substantial doubt about the
Company's ability to continue as a going concern within one year after the date that the financial statements are issued.
The Company's ability to continue as
a going concern is dependent upon its ability to repay or settle its current indebtedness, acquire an operating business and raise
capital through equity and debt financing or other means on desirable terms. If the Company is unable to obtain additional funds
when they are required or if the funds cannot be obtained on favorable terms, management may be required to restructure the Company
or cease operations. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.
NOTE 2 –SUMMARY OF SIGNIFICANT
ACCOUNTING POLICIES
Principles of Consolidation
The accompanying consolidated financial
statements include all of the accounts of the Company and its wholly owned subsidiary, Trident Merchant Group, Inc., Leading Edge
Fashion, LLC which is 51% owned, and Pure361, LLC which is 51% owned. All significant intercompany accounts and transactions
have been eliminated.
Reclassifications
Certain amounts in the prior period
financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect
on reported consolidated net (loss).
Cash and Cash Equivalents
Cash and cash equivalents include cash
on hand and investments in money market funds. The Company considers all highly-liquid instruments with an original maturity of
90 days or less at the time of purchase to be cash equivalents.
Equipment
Property and equipment are stated at
cost. Costs of replacements and major improvements are capitalized, and maintenance and repairs are charged to operations as incurred.
Depreciation expense is provided primarily by the straight-line method over the estimated useful lives of the assets which is seven
years.
Prepaid interest and deposits
Prepaid interest and deposits consist
of debt discounts, and amounts paid for deposits on property, plant and equipment. Prepaid interest is amortized over the life
of the related liability.
Revenue Recognition
Revenue for the women's fashion division
will be recognized at the point-of-sale for retail store sales, net of estimated customer returns. Revenue is recognized at the
completion of a job or service for the consulting division. Revenue is presented on a net basis and does not include any tax assessed
by a governmental or municipal authority. Payment for merchandise at stores and through the Company's direct-to-consumer channel
will be tendered by cash, check, credit card, debit card or gift card. Therefore, the Company's need to collect outstanding accounts
receivable for its retail and direct-to-consumer channel is negligible and mainly results from returned checks or unauthorized
credit card transactions. The Company maintains an allowance for doubtful accounts for its consulting service accounts receivable,
which management reviews on a regular basis and believes is sufficient to cover potential credit losses and billing adjustments.
Deposits for consulting services are recognized as a sale upon completion of service.
The Company accounts for a gift card
transaction by recording a liability at the time the gift card is issued to the customer in exchange for consideration from the
customer. A liability is established and remains on the Company's books until the card is redeemed by the customer, at which time
the Company records the redemption of the card for merchandise as a sale or when it is determined the likelihood of redemption
is remote, based on historical redemption patterns. Revenues attributable to gift card liabilities relieved after the likelihood
of redemption becomes remote are included in sales and are not material.
Sales Return Reserve
The Company records a reserve for estimated
product returns where the sale has occurred during the period reported, but the return is likely to occur subsequent to the period
reported and may otherwise be considered in-transit. The reserve for estimated in-transit product returns is based on the Company's
most recent historical return trends. If the actual return rate or experience is materially higher than the Company's estimate,
additional sales returns would be recorded in the future.
Income Taxes
Income taxes
are accounted for under the asset and liability method as stipulated by ASC 740 "Income Taxes." Deferred tax assets and
liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying
amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carry forwards. Deferred
tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Under ASC 740, the effect on deferred tax assets and liabilities
or a change in tax rate is recognized in income in the period that includes the enactment date. Deferred tax assets are reduced
to estimated amounts to be realized by the use of a valuation allowance. A valuation allowance is applied when in management's
view it is more likely than not that such deferred tax asset will be unable to be utilized.
The Company
adopted certain provisions under ASC Topic 740, which provide interpretative guidance for the financial statement recognition and
measurement of a tax position taken or expected to be taken in a tax return. Effective with the Company's adoption of these provisions,
interest related to the unrecognized tax benefits is recognized in the financial statements as a component of income taxes.
In the unlikely
event that an uncertain tax position exists in which the Company could incur income taxes, the Company would evaluate whether there
is a probability that the uncertain tax position taken would be sustained upon examination by the taxing authorities. Reserves
for uncertain tax positions would be recorded if the Company determined it is probable that a position would not be sustained upon
examination or if payment would have to be made to a taxing authority and the amount is reasonably estimated. As of December 31,
2016 and 2015, the Company does not believe it has any uncertain tax positions that would result in the Company having a liability
to the taxing authorities. The Company's tax returns are subject to examination by the federal and state tax authorities for the
years ended 2005 through 2016.
Impairment
or Disposal of Long-Lived Assets
ASC Topic 360
(formerly FASB issued Statement No. 144), "Accounting for the Impairment or Disposal of Long-Lived Assets" ("FAS
144"), clarifies the accounting for the impairment of long-lived assets and for long-lived assets to be disposed of, including
the disposal of business segments and major lines of business. Long-lived assets are reviewed when facts and circumstances
indicate that the carrying value of the asset may not be recoverable. When necessary, impaired assets are written down to
their estimated fair value based on the best information available. No impairment was necessary as of March 31, 2017 or December
31, 2016.
Stock-based
Compensation
We account for stock-based awards at
fair value on the date of grant, and recognize compensation over the service-period that they are expected to vest. We estimate
the fair value of stock options and stock purchase warrants using the Black-Scholes option pricing model. The estimated value of
the portion of a stock-based award that is ultimately expected to vest, taking into consideration estimated forfeitures, is recognized
as expense over the requisite service periods. The model includes subjective input assumptions that can materially affect the fair
value estimates. The expected volatility is estimated based on the most recent historical period of time, of other comparative
securities, equal to the weighted average life of the options. The estimate of stock awards that will ultimately vest requires
judgment, and to the extent that actual forfeitures differ from estimated forfeitures, such differences are accounted for as a
cumulative adjustment to compensation expenses and recorded in the period that estimates are revised.
Use of Accounting Estimates
The preparation of financial statements
in conformity with accounting principles generally accepted in the United States of America 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. Significant items subject to such estimates and assumptions include the valuation of
common stock and options issued as stock based compensation.
Fair Value
FASB ASC 820,
Fair Value Measurements
and Disclosure
s ("ASC 820") establishes a framework for all fair value measurements and expands disclosures related
to fair value measurement and developments. ASC 820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants at the measurement date.
ASC 820 requires that assets and liabilities
measured at fair value are classified and disclosed in one of the following three categories:
Level 1
—
Quoted market prices
for identical assets or liabilities in active markets or observable inputs;
Level 2
—
Significant other
observable inputs that can be corroborated by observable market data; and
Level 3
—
Significant unobservable
inputs that cannot be corroborated by observable market data.
The carrying amounts of cash, accrued
compensation, accounts payable and other liabilities, accrued interest payable, and short-term portion of notes payable approximate
fair value because of the short-term nature of these items.
Concentration of Credit Risk
The carrying value of short-term financial
instruments, including cash, restricted cash, trade accounts receivable, accounts payable, accrued expenses and short-term debt,
approximates the fair value of these instruments. These financial instruments generally expose the Company to limited credit risk
and have no stated maturities or have short-term maturities and carry interest rates that approximate market. The Company
maintains cash balances at financial institutions that are insured by the FDIC. At March 31, 2017, and December 31, 2016,
the Company had no amounts in excess of the FDIC limit.
NOTE 3 – CAPITAL STOCK
Preferred Stock
The
Company has designated a "Class B Convertible Preferred Stock" (the "Class B Preferred"). The number
of authorized shares totals 1,000,000 and the par value is $.001 per share. The Class B Preferred shareholders vote
together with the common stock as a single class. The holders of Class B Preferred are entitled to receive all notices
relating to voting as are required to be given to the holders of the Common Stock. The holders of shares of Class B
Preferred shall be entitled to 10,000 votes per share. The Class B Preferred Stock will have the rights to liquidation
as all classes of the Common Stock of the Company. The Class B Preferred stockholders are entitled to receive non-cumulative
dividends at the rate of 8% per annum, and are accrued daily. The Class B Preferred Stock shall be redeemed by the Corporation
for 100% of the original purchase price plus the amount of cash dividends accrued on the earlier of 6 months from the date of issuance,
or the date that the Corporation received its funding from any outside source in conjunction with a merger, reverse merger or any
change of control. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, the holders of the Class B Preferred Stock shall be entitled to receive, prior and in preference to any distribution
of any assets of the Corporation to the holders of the Common Stock, the amount of $.035 per share plus any and all accrued but
unpaid dividends.
During the
fourth quarter, 2011, 200,000 shares of the Series B Preferred Stock were issued to a related party for reimbursement of $7,500
of legal and accounting fees paid on behalf of the Company.
Common Stock
As of March
31, 2017 and December 31, 2016, the Company had 19,238,877 and 19,209,161 shares of its $0.001 par value common stock issued and
outstanding, respectively. In addition, as of March 31, 2017, and December 31, 2016, the Company had 871,666 and 871,666
shares of common stock issuable, respectively.
In February
2016, the Company issued 50,000 shares of its common stock at a value of $1.00 per share for $50,000 to a board director for payment
of services.
In March 2016,
the Company issued 250,000 shares of its common stock at a value of $1.00 per share for $250,000 in payment for consulting services.
In addition, the Company granted a warrant to the consultant to purchase 250,000 shares of common stock at $0.50 per share for
a period of two years. The fair value of these warrants at the time they were granted was approximately $170,000 and was
calculated using the Black-Scholes-Merton model. The expense related to this stock option for the year ended December 31,
2016 was $77,946.
The
following assumptions were used for the warrants granted in March 2016 are as follows:
Expected term at issuance
|
|
2 years
|
|
|
|
Expected average volatility
|
|
|
70.71% to 141.42
|
%
|
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
Risk-free interest rate
|
|
.70%– 1.64%
|
|
|
|
The following table summarizes information relating to outstanding
and exercisable stock warrants as of March 31, 2017:
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Weighted Average Remaining
Contractual life (in years)
|
|
|
Weighted Average
Exercise Price
|
|
|
Number of Shares
|
|
|
Weighted Average
Exercise Price
|
|
|
275,000
|
|
|
.803
|
|
|
$
|
0.59
|
|
|
|
275,000
|
|
|
$
|
0.59
|
|
|
In March 2016,
the Company issued 50,000 shares of its common stock at a value of $1.00 per share for $50,000 as payment for consulting services.
In the three
month period ended March 31, 2016, the Company issued 200,000 shares of its common stock at a value of $1.00 per share, in conjunction
with the extension of the maturity date of the $100,000 secured note. $150,000 was amortized as of September 2016, and $50,000
is being amortized for the period ended August 31, 2017. The unamortized portion as of March 31, 2017 and December 31, 2016 was
$13,514 and $21,622, respectively.
In March 2016,
the Company issued 884,001 shares of its common stock at approximately $0.25 per share amounting to $250,000 to
two individuals for monies received in 2015 from subscription agreements that were entered into with the Company in 2015.
115,100 shares remain issuable related to these subscription agreements as of March 31, 2017.
During
the three months ended March 31, 2017, the Company issued 29,716 common stock valued at $.30 per share for $8,885 of consulting
services.
Stock Options
In the
three months ended March 31, 2017, the Company issued 2,550,000 stock options to consultants, employees, and management. All
of the options vested immediately. The fair value of these options was calculated using the Black-Scholes-Merton model.
The expense related to this stock option for the three months ended March 31, 2017 was $487,581.
The
following assumptions were used for the options granted in the period ended March 31, 2017 are as follows:
|
|
At March 31, 2017
|
Fair values
|
|
|
$0.17 - $0.44
|
|
|
|
Exercise price
|
|
|
$0.001-$1.50
|
|
|
|
Expected term at issuance
|
|
2 - 10 years
|
|
|
|
Expected average volatility
|
|
|
75.93% to 85.41%
|
|
|
|
Expected dividend yield
|
|
|
-
|
|
|
|
Risk-free interest rate
|
|
1.23%– 2.45%
|
|
|
|
NOTE 4 –
NOTES PAYABLE
Unsecured Notes Payable
During the year ended December
31, 2016, the Company received two separate payments of $12,500, totaling $25,000, as secured notes. The notes are non-interest
bearing, and have no terms of repayment.
On December 12, 2016, the Company issued an
unsecured promissory note to an investor. The note bears interest at 5% and matures on June 30, 2017. As of December 31, 2016,
payments from the investor are $2,200. On January 11, 2017 the investor loaned an additional $5,000 related to the promissory note.
The balance of this note plus accrued interest totals $7,288 as of March 31, 2017.
On March 14, 2017, the Company issued an unsecured
promissory note to an investor in the amount of $5,000. The note bears interest at 4% and matures on March 14, 2018. The balance
of this note plus interest totals $5,009 as of March 31, 2017.
Convertible Notes Payable
In
August 2015, The Company issued an unsecured promissory note to an investor in the amount of $50,000, convertible to common stock
at $1.00 per share. The note bears an interest rate of 8% per annum and matured on August 8, 2016. The note is currently
unpaid and in default. The note was also issued with a warrant for this investor to purchase 25,000 shares of common stock
at $1.50 for a period of 2 years.
The fair value of these warrants was approximately $3,909 as of December 31,
2016 and was calculated using the Black-Scholes-Merton model. The note does not contain a beneficial conversion feature.
The
balance of this note plus accrued interest totals were $56,500 and $55,500 at March 31, 2017 and December 31, 2016, respectively.
NOTE 5 – DISCONTINUED OPERATIONS
During 2014, the Company's Leading
Edge Fashions, LLC retail businesses, of which it owned 51%, was classified as discontinued operations. Based on the
Company's strategy to allocate resources to its businesses relative to their growth potential and those with the greater right
to win in the marketplace, the Company determined that this business did not align with the Company's long-term growth plans.
As of December 31, 2016 and
December 31, 2015, $870,045 of current liabilities from discontinued operations includes $0 and $785,764 loan payable,
respectively, and $84,281 accounts payable. The loan payable was converted to common stock in July 2016, which resulted
in a gain on the extinguishment of debt related to discontinued operations in the amount of $635,764. The accounts payable
related to discontinued operations was $84,281 as of March 31, 2017.
NOTE 6 – RELATED PARTY
TRANSACTIONS
During the three months ended March 31, 2017, the Company
repaid advances from related parties in the amount of $39,048. The President was owed $0 and $39,048 March 31, 2017 and
December 31, 2016, respectively.
During 2016, the Company received loans from the CEO and a
member of the board of directors totaling $284,900. In the three months ended March 31, 2017, the Company received additional loans
from these individuals in the amount of $160,650. The loans bear interest at 5% per annum and mature on June 30, 2017 and September
30, 2017. The balance of these loans plus accrued interest was $453,851 and $289,741 at March 31, 2017 and December 31, 2016, respectively.
In March 2017, the Company loaned a related party $20,000.
The loan bears interest at the rate of 5% per annum and has a term of six months.
NOTE 7 – COMMITMENTS AND
CONTINGENCIES
On
March 15, 2015 the Company entered into a trademark license agreement with True Beauty, LLC which controls the trademark
EMME. EMME is a market pioneer and trusted voice of the "Full-Figured" market. Under this licensing agreement
the Company has the right to design, produce and market the EMME® Activewear Collection. On April 13, 2016, the
agreement was amended regarding the term and minimum royalties. The royalty expense was $38,500 for the three months
ended March 31, 2017.
The additional
minimum royalties are as follows:
Year
|
|
|
2017
|
|
|
112,500
|
2018
|
|
|
250,000
|
2019
|
|
|
250,000
|
Total
|
|
$
|
612,500
|
The
license agreement is renewable for five consecutive one year terms commencing on January 1, 2020 if certain sales targets of
the previous year are attained.
As of the date of this filing,
the Company is a party to three pending litigation matters.
One matter is entitled Randazzo
LLC v. Avani Holdings LLC & Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff in
order to evict Avani Holdings LLC from its rented premises in California and to recover unpaid rent. ECTX does not operate
out of the premises in question and has never signed any leases or other documents with the plaintiff. A judgment of
eviction was entered, but ECTX does not operate out of the premises in question and therefore did not appear in the matter to oppose
the judgment of eviction. The plaintiff is also seeking unpaid rent in the amount of $26,595.
The second matter is entitled Patricia
Witthuhn v. Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff in order to collect
wages allegedly due pursuant to her employment with Avani Holdings LLC. The Company never hired Ms. Witthuhn and never
acquired Avani Holdings, LLC. Consequently, there is no legitimate cause of action against the Company. However, due
to cash flow constraints, the Company is unable to hire outside counsel for this litigation. The amount being sought
by the plaintiff is approximately $15,000.
The third matter is entitled William
Corso v. Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff in order to collect wages
allegedly due pursuant to his employment with Avani Holdings LLC. The Company never hired Mr. Corso and never acquired Avani
Holdings, LLC. Consequently, there is no legitimate cause of action against the Company. However, due to cash flow
constraints, the Company is unable to hire outside counsel for this litigation. The amount being sought by the plaintiff
is approximately $40,000.
NOTE 8 – NET LOSS PER SHARE
Potentially
dilutive securities are excluded from the calculation of net loss per share when their effect would be anti-dilutive. For all periods
presented in the consolidated financial statements, all potentially dilutive securities have been excluded from the diluted share
calculations as they were anti-dilutive as a result of the net losses incurred for the respective periods. Accordingly, basic shares
equal diluted shares for all periods presented.
Potentially dilutive securities
were comprised of the following:
|
|
March 31,
|
|
|
December 31,
|
|
|
2017
|
|
|
2016
|
Warrants
|
|
|
275,000
|
|
|
|
275,000
|
Options
|
|
|
2,550,000
|
|
|
|
-
|
Convertible notes payable, including accrued interest
|
|
|
50,000
|
|
|
|
50,000
|
Contingently issuable shares
|
|
|
-
|
|
|
|
-
|
|
|
|
2,875,000
|
|
|
|
325,000
|
NOTE 9 – SUBSEQUENT EVENTS
Management
has evaluated events occurring after the date of these financial statements through the date that these financial statements were
issued, and noted no subsequent events to disclose.
|
Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
|
The following discussion
is intended to assist you in understanding our business and the results of our operations. It should be read in conjunction with
the Condensed Consolidated Financial Statements and the related notes that appear elsewhere in this report as well as our Report
on Form 10K filed with the Securities and Exchange Commission for the period ending December 31, 2016. Statements made in this
Form 10-Q that are not historical or current facts are "forward-looking statements". These statements often can be identified
by the use of terms such as "may," "will," "expect," "believe," "anticipate,"
"estimate," "approximate" or "continue," or the negative thereof. We wish to caution readers not
to place undue reliance on any such forward-looking statements, which speak only as of the date made. Any forward-looking statements
represent management's best judgment as to what may occur in the future. However, forward-looking statements are subject to risks,
uncertainties and important factors beyond our control that could cause actual results and events to differ materially from historical
results of operations and events and those presently anticipated or projected. We disclaim any obligation subsequently to revise
any forward-looking statements to reflect events or circumstances after the date of such statement or to reflect the occurrence
of anticipated or unanticipated events.
Company Overview
Eco Tek 360 Inc. (“ECTX”,
‘We” or the “Company”) is a development stage rejuvenation technology company which will be offering branded
fabrics, apparel and uniforms to the corporate, hotel, hospital and military markets. We will achieve this by utilizing a patented
and proprietary process for rejuvenating textile waste into high quality fabrics and apparel.
The Women’s Apparel
Segment
On March 15, 2015 the Company entered
into a trademark license agreement with True Beauty, LLC which controls the trademark EMME®. Under this licensing agreement
the Company has the right to design, produce and market the EMME® Activewear Collection. The Company created a new wholly-owned
subsidiary, Progressive Fashions Inc. in February 2016 for the purpose of desgining, producing and marketing the EMME® Activewear
Collection.
The Rejuvenated Uniform Segment
In April 2015, we entered into
a joint venture and license agreement with Pure Systems International, Ltd. to produce and market garments and other accessories
for the commercial uniform marketplace and other market verticals by utilizing Pure Systems International, Ltd.’s patented
processes to up-cycle pre-consumer textile waste into reusable fiber of equal or better quality than the original fabric. (the
“Rejuvenated Fiber”)
In May of 2015, the Company created
a new limited liability company, Pure361, LLC (“Pure361”) of which the Company owns 51% and Pure Systems International,
Ltd. owns 49%. Pure361 has the exclusive licensee to use Pure System International Ltd.’s patented Rejuvenated Fiber in
conjunction with the commercial uniform marketplace and other market verticals.
The Rejuvenated Cardboard
Segment
In conjunction with its focus on
rejuvenated technologies, the Company is exploring the possibility of also manufacturing a rejuvenated cardboard product, and
is in the early stages of exploring this potential opportunity.
Trident Merchant Group, Inc.
Trident
Merchant Group, Inc. is an operating subsidiary which is a “value added” strategic advisory services company specializing
in rendering expertise in the areas of capital planning and procurement, licensing and branding as well as financial engineering
and restructuring of its client company’s balance sheet and going public process.
Liquidity, Capital Resources and Material
Changes in Financial Condition
As of March 31, 2017, our current assets were
$53,118 as compared to $57,830 in current assets as of December 31, 2016.
As of March 31, 2017, our current liabilities
were $1,684,861 as compared to $1,369,879 in current liabilities as of December 31, 2016. This change in the Company’s financial
condition was primarily related to an increase in accounts payable of $111,851, increase in accrued compensation of $63,000, and
an increase in related party loans and accrued interest of $164,110, offset by a decrease in advances from related party of $39,048.
Net cash used in operating activities for the
three months ended March 31, 2017 was $166,580 compared to net cash used in operating activities for the three month period ended
March 31, 2016 of $19,211. Cash provided by or used by operating activities is driven by our net loss and adjusted by non-cash
items as well as changes in operating assets and liabilities. Non-cash adjustments for the three months ended March 31, 2017 include
depreciation of $95, amortization of debt discount of $8,108, stock based compensation of $487,581, and stock issued for services
of $8,915. In addition, changes in operating assets and liabilities provided $174,851 from accounts payable and accrued expenses,
and $8,529 from accrued interest, offset by prepaid interest and deposits that used $18,333, and loans and interest receivable
that used $20,041 of cash.
There were no cash flows used in investing
activities for the periods ended March 31, 2017 and 2016.
Net cash provided by financing activities of
$131,602 for the three month period ended March 31, 2017 was due to related party loans of $160,650, proceeds from unsecured notes
of $10,000, offset by repayment of related party advance of $39,048. During the three months ended March 31, 2016, $11,058 was
used in the repayment of related party advances.
We are currently dependent upon receiving loans
from our shareholders. We expect to raise additional capital to continue moving the Company towards profitability.
The Company does not currently have any substantial
revenues, and is reliant on its ability to raise additional capital to continue execution of its business plan to move the Company
forward towards profitability.
Results of Operations for the three months
ended March 31, 2017 and 2016
The Company experienced a net loss of $816,285
in the three months ended March 31, 2017 compared to net loss of $447,883 in the three months ended March 31, 2016.
Net loss for the three months ended March 31,
2017 consisted of operating expenses of $799,689 that consisted of general and administrative expenses of $303,193, consulting
fees share expense of $8,915, and stock based compensation of $487,581.
The increase in operating expenses
of $355,306 was primarily due to an increase in stock based compensation of $437,581 and an increase in general and
administrative expense of $222,982, offset by a decrease in consulting fees share expense of $305,257.
Interest expense and financing costs were $12,158
and $3,500 for the three months ended March 31, 2017 and 2016, respectively. For the three months ended March 31, 2017 and 2016,
$4,438 and $0 of interest expense – related parties were incurred, respectively.
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Item 3.
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Quantitative and Qualitative Disclosures About Market Risk.
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The Company qualifies as a smaller
reporting company as defined by §229.10(f)(1) and therefore is not required to provide the information required by this Item.
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Item 4.
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Controls and Procedures.
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Our management is responsible for
establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under
the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file or submit
under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s
rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure
that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated
and communicated to the issuer’s management, including its principal executive officer or officers and principal financial
officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was conducted under
the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure
controls and procedures as of March 31, 2017. Based on that evaluation, our management concluded that our disclosure controls and
procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or
submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the three month
period ended March 31, 2017 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART
II -- OTHER INFORMATION
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Item 1.
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Legal Proceedings.
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As of the date of this filing,
the Company is a party to three pending litigation matters.
One matter is entitled Randazzo
LLC v. Avani Holdings LLC & Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff in
order to evict Avani Holdings LLC from its rented premises in California and to recover unpaid rent. ECTX does not
operate out of the premises in question and has never signed any leases or other documents with the plaintiff. A judgment
of eviction was entered, but ECTX does not operate out of the premises in question and therefore did not appear in the matter
to oppose the judgment of eviction. The plaintiff is also seeking unpaid rent in the amount of $26,595.
The second matter is entitled Patricia
Witthuhn v. Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff in order to collect wages
allegedly due pursuant to her employment with Avani Holdings LLC. The Company never hired Ms. Witthuhn and never acquired Avani
Holdings, LLC. Consequently, there is no legitimate cause of action against the Company. However, due to cash flow constraints,
the Company is unable to hire outside counsel for this litigation. The amount being sought by the plaintiff is approximately $15,000.
The third matter is entitled William
Corso v. Global Fashion Technologies, Inc. This litigation was initiated by the plaintiff in order to collect wages
allegedly due pursuant to his employment with Avani Holdings LLC. The Company never hired Mr. Corso and never acquired Avani Holdings,
LLC. Consequently, there is no legitimate cause of action against the Company. However, due to cash flow constraints, the Company
is unable to hire outside counsel for this litigation. The amount being sought by the plaintiff is approximately $40,000.
The Company qualifies as a smaller
reporting company as defined by §229.10(f)(1) and therefore is not required to provide the information required by this Item.
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Item 2.
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Unregistered Sales of Equity Securities and Use of Proceeds.
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The Company issued 29,716 shares
of its common stock in the first quarter of 2017.
All of the shares described
above were issued by the Company in reliance upon an exemption from the registration requirements of the Securities Act of 1933,
as amended, provided by Section 4(2). All of the purchasers of the unregistered securities were all known to us and our management,
through pre-existing business relationships, as long standing business associates, friends, and employees. All purchasers were
provided access to all material information, which they requested, and all information necessary to verify such information and
were afforded access to our management in connection with their purchases. All purchasers of the unregistered securities acquired
such securities for investment and not with a view toward distribution, acknowledging such intent to us. All certificates or agreements
representing such securities that were issued contained restrictive legends, prohibiting further transfer of the certificates
or agreements representing such securities, without such securities either being first registered or otherwise exempt from registration
in any further resale or disposition.
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Item 3.
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Defaults Upon Senior Securities.
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The Company is in default with
respect to a note issued to a related party that matured on August 16, 2016. The balance of this note plus accrued interest totaled
$56,500 as of March 31, 2017.
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Item 4.
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Mine Safety Disclosures.
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None.
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Item 5.
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Other Information.
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For the period covered by this
Form 10-Q, there was no information required to be disclosed in a report on Form 8-K that was not reported. In addition, there
were no material changes to the procedures by which security holders may recommend nominees to the Company’s board of directors.
Exhibit
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Description
|
3.1(i)
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|
Articles of Incorporation*
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32.(ii)
|
|
By-Laws**
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31.1
|
|
Rule 13a-14(a) / 15d-14(a) Certification of Principal Executive Officer.***
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31.1
|
|
Rule 13a-14(a) / 15d-14(a) Certification of Principal Financial Officer.***
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32.1
|
|
Section 1350 Certification of the Principal Executive Officer.***
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32.2
|
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Section 1350 Certification of the Principal Financial Officer.***
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101.1
|
|
Interactive data files pursuant to Rule 405 of Regulation S-T.****
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*
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Incorporated by reference to the Registration Statement filed with the Commission on November 29, 2005
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**
|
Incorporated by reference to Form 8-K filed with the Commission on February 22, 2017
|
***
|
Filed herewith. In addition, in accordance with SEC Release 33-8238, Exhibits 32.1 and 32.2 are being furnished and not filed.
|
****
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Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.
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SIGNATURES
In accordance with Section 13 or 15(d)
of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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ECO TEK 360, INC.
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By:
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/s/
Christopher
Giordano
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Christopher Giordano
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Date: May 12, 2017
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President, Director and Principal Executive Officer
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ECO TEK 360, INC.
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By:
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/s/
Paul Serbiak
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Paul Serbiak
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Date: May 12, 2017
|
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CEO, Treasurer, Director and Principal Financial Officer
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