NOTES
TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March
31, 2018
NOTE 1 – DESCRIPTION OF BUSINESS
Eco Tek 360, Inc. ("the Company") was incorporated
in Nevada on March 25, 2005. As of March 31, 2018 and December 31, 2017, the Company had 400,000,000 shares of authorized common
stock.
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. Pure361 has had no operations to date nor did it have assets or liabilities as of March 31, 2018 and December
31, 2017, respectively.
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. On June 5, 2017 the Company and True Beauty, LLC (the
company that controls the EMME® trademark) terminated the license agreement. PFI has had no operations to date nor did it
have assets or liabilities as of March 31, 2018 and December 31, 2017, respectively.
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 condensed 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 condensed 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 April 2, 2018 for the years ended December 31, 2017 and 2016.
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 $30,701,389 and $30,578,048 as of March 31, 2018 and December 31,
2017 and a working capital deficit of approximately $1.5 million and 1.4 million, 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. Management plans to raise additional debt or equity and continue to settle obligations by issuing
stock. Management plans to continue to raise additional debt and equity until the Company has positive cash flows from an operating
company.
The Company's ability to continue as
a going concern is dependent upon its ability to repay or settle its current indebtedness, generate positive cash flow from an
operating company, and/or 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 subsidiaries, Trident Merchant Group, Inc. and Progressive
Fashions Inc., and its majority owned subsidiaries, Leading Edge Fashion, LLC and Pure361, LLC which are 51% owned. All significant
intercompany accounts and transactions have been eliminated. As noted above in Note 1, our 51% owned subsidiaries, Pure361
and Leading Edge Fashions, LLC, had no operations, assets or liabilities as of March 31, 2018, or December 31, 2017. Because of
this, a non-controlling interest is not reflected in these financial statements.
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. Depreciation expense amounted to $95 and $95 for the three months ended March 31, 2018, and 2017, respectively.
Prepaid interest and deposits
Prepaid interest and deposits consist
of prepaid consulting fees, debt discounts, amounts paid for deposits on property, plant and equipment and other prepaid items.
Prepaid interest is amortized over the life of the related liability.
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 March 31, 2018 and December 31, 2017, 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 2006 through 2017.
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, 2018, or December
31, 2017.
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
stock based awards issued.
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, 2018, and December 31, 2017,
the Company had no amounts in excess of the FDIC limit.
New Accounting Pronouncements
In January 2018, the Financial
Accounting Standards Board (FASB) issued Accounting Standards Update No. 2018-01,
Land Easement Practical Expedient for
Transition to Topic 842,
which amends ASC Topic 842. Among other things, the new standard requires us to recognize a right
of use asset and a lease liability on our balance sheet for leases. It also changes the presentation and timing of lease-related
expenses. This ASU is effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early
adoption is permitted. The Company is currently evaluating the effect this guidance may have on its financial position, results
of operations, comprehensive income, cash flows and disclosures.
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, 2018 and December 31, 2017, the Company had 18,898,927 and 18,738,927 shares of its $0.001 par value common stock
issued and outstanding, respectively. In addition, as of March 31, 2018, and December 31, 2017, the Company had 1,601,166
and 1,761,166 shares of common stock issuable, respectively.
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 exercisable 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 warrants have expired as of March 31, 2018.
In the year
ended December 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 note. $150,000 was amortized as of September 2016, and $50,000 was amortized
for the period ended August 31, 2017.
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, 2018.
During
the year ended December 31, 2017, the Company issued 29,766 common stock valued at $0.30 per share for $8,915 of consulting services.
In
June 2017, the Company entered into a consulting agreement and agreed to issue 300,000 shares of fully vested common stock valued
at $0.23 per share as of the execution date of the agreement. The consulting firm is required to provide services for one year
from the date of its agreement with the Company. The total value of the common stock to be issued at $0.23 per share totaling
$69,000 is amortized over the one year service period. As of March 31, 2018, prepaid consulting expense related to this agreement
was $17,250. In February 2018, 150,000 shares of common stock were issued to the consulting firm and 150,000 shares remain issuable
as of the date these financial statements.
In
December 2017, the Company agreed to issue 10,000 shares of fully vested common stock valued at $0.22 per share for $2,200 of consulting
services. In January 2018, the 10,000 shares of common stock were issued to the consulting firm.
On
February 14, 2017, the Chief Technical Officer resigned. On June 8, 2017, the Company authorized the cancellation of 500,000 shares
held by the Chief Technical Officer. The shares were voluntarily returned, and were cancelled by the Company in August 2017.
Stock Options
In the three months ended March
31, 2017 the Company granted 2,550,000 options to consultants, employees and management. One hundred thousand of those options
had an exercise price of $.0001, and 250,000 options at an exercise price of $0.01 vested immediately and were valued at the fair
value of the Company’s stock at the measurement date less the exercise price. The value of the options was $151,490 and recorded
as stock based compensation. The other 2,200,000 of options vested immediately and the fair value of these options were calculated
using the Black-Scholes-Merton model. The stock compensation expense related to these options for the three months ended March
31, 2017 was $428,637. No options were granted in the three months ended March 31, 2018.
The
following assumptions were used for the options granted in the three months ended March 31, 2017:
Fair values
|
|
|
$0.25 - $0.44
|
|
Exercise price
|
|
|
$0.17-$1.50
|
|
Expected term at issuance
|
|
|
2 - 10 years
|
|
Expected average volatility
|
|
|
75.93% to 85.91%
|
|
Expected dividend yield
|
|
|
—
|
|
Risk-free interest rate
|
|
|
1.23%– 2.45%
|
|
NOTE 4 –
NOTES PAYABLE
Unsecured Notes Payable
On November
25, 2014, the Company issued an unsecured promissory note to an individual in the amount of $100,000 at 10% interest and due on
April 1, 2015. On April 1, 2016 the Company entered into a forbearance agreement. The lender was issued an additional 50,000
shares valued at $50,000 to extend the note to August 31, 2017. The note and accrued interest was $145,105 and $134,333 as
of March 31, 2018, and December 31, 2017. The initial extension fee was amortized ratably over the extension period of 180
days. The subsequent extension fee was amortized over the period of the extension. A second extension was signed in October 2017
to extend the note to March 30, 2018 and the interest rate was increased to 17% per annum. The note remains unpaid as of March
31, 2018, and is currently in default.
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. The balance of the notes was $25,000 as of March 31, 2018.
On December 12, 2016, the Company
issued an unsecured promissory note to an investor for $2,200. The note bears interest at 5% and matured on June 30, 2017. 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 $7,639 as of March 31, 2018. The notes are currently unpaid and in default.
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 matured on March 14, 2018. The balance
of this note plus interest totals $5,169 as of March 31, 2018 and is currently in default.
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 balance of this note plus accrued interest totals were $60,500 and $59,500 at March 31,
2018 and December 31, 2017, 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 March 31, 2018, and December
31, 2017 current liabilities from discontinued operations includes $84,281 accounts payable.
NOTE 6 – RELATED PARTY TRANSACTIONS
During the three months ended March
31, 2018 the Company’s President paid on behalf of the Company $109,158 of expenses. The President of the Company was owed
$234,396 and $125,238 at March 31, 2018 and December 31, 2017, respectively.
During 2016, the Company received loans
from the CEO and a member of the board of directors totaling $284,900. In the year ended December 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 matured on June
30, 2017 and September 30, 2017. During the year ended December 31, 2017, $241,059 of the notes and interest was converted at approximately
$0.19 for 580,000 common shares. The conversion of debt resulted in a gain on extinguishment of debt in the amount of $130,859.
The balance of these loans plus accrued interest was $226,466 and $223,880 at March 31, 2018 and December 31, 2017, respectively.
These loans are currently unpaid and are in default.
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. During the year ended December 31, 2017, $14,463
was repaid. As of March 31, 2018, an amount of $5,636 is receivable.
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 $0 for the three months ended March 31, 2018. On June 5,
2017, the Company and True Beauty, LLC, entered into an agreement to terminate the agreement. The Company is scheduled to make
twelve repayments totaling of $37,500 to resolve all amounts
outstanding. As of March 31, 2018, $10,394 is outstanding.
As of the date of this filing,
the Company is a party to three pending litigation matters. The Company does not believe it has any liability nor has it accrued
any liability as of December 31, 2017 and 2016 for the following:
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,
|
|
March 31,
|
|
|
2018
|
|
2017
|
Warrants
|
|
|
—
|
|
|
|
275,000
|
|
Options
|
|
|
2,650,000
|
|
|
|
2,550,000
|
|
Convertible notes payable, including accrued interest
|
|
|
60,500
|
|
|
|
56,500
|
|
|
|
|
2,710,500
|
|
|
|
2,881,500
|
|
|
Item 2.
|
Management's Discussion and Analysis of Financial Condition or Plan of Operation
|
FORWARD-LOOKING STATEMENTS
This quarterly report
contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases,
you can identify forward-looking statements by terminology such as “may”, “should”, “expects”,
“plans”, “anticipates”, “believes”, “estimates”, “predicts”, “potential”
or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions
and involve known and unknown risks, uncertainties and other factors that may cause our or our industry's actual results, levels
of activity, performance or achievements to be materially different from any future results, levels of activity, performance or
achievements expressed or implied by these forward-looking statements. Although we believe that the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.
Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the
forward-looking statements to conform these statements to actual results.
Our consolidated unaudited
financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally Accepted
Accounting Principles. The following discussion should be read in conjunction with our financial statements and the related notes
that appear elsewhere in this quarterly report. The following discussion contains forward-looking statements that reflect our plans,
estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors
that could cause or contribute to such differences include, but are not limited to, those discussed below and elsewhere in this
quarterly report.
Unless otherwise specified
in this quarterly report, all dollar amounts are expressed in United States dollars and all references to “common stock”
refer to shares of our common stock.
As used in this quarterly
report, the terms “we”, “us”, “our company”, mean Eco Tek 360, Inc. a Nevada corporation, and
our wholly-owned subsidiary Progressive Fashions Inc., and our majority-owned subsidiaries Pure361, LLC and Leading Edge Fashions,
LLC, unless otherwise indicated.
Corporate Overview
Eco Tek 360, Inc. was incorporated in the State
of Nevada on March 25, 2005 under the name "Premier Publishing Group, Inc." our fiscal year end is December 31. Our company's
administrative address is 50 Division Street, Suite 501, Somerville, New Jersey 08876. Our telephone number is (973) 291-8900.
We are a development stage company with a plan
to operate a fiber rejuvenation technology company. We plan on 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.
Business of the Company
We are a development stage fiber 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 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, we created a new limited
liability company, Pure361, LLC (“Pure361”) of which our 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.
Ms Joy Nunn, our former CTO and Board
member resigned as of February 14, 2017, but our company still maintains a license with Pure System International, Ltd.
To further strengthen its capabilities
in the Rejuvenated Uniform segment our company has identified alternative technologies to those under license from Pure Systems.
We will be developing customers using this alternative technology by working with equipment vendors and toll manufacturers to produce
sales samples.
The Rejuvenated Cardboard Segment
In conjunction with its focus on rejuvenated
technologies, our company is exploring the possibility of also manufacturing a rejuvenated cardboard product, and is in the early
stages of exploring this potential opportunity.
Results of Operations
We have not earned any revenues
from our inception on March 25, 2005 through March 31, 2017.
Three months ended March
31, 2018 compared to three months ended March 31, 2017.
|
|
Three months
ended
March 31, 2018
|
|
|
Three months
ended
March 31, 2017
|
|
Revenue
|
$
|
-
|
|
$
|
-
|
|
Operating expenses
|
$
|
108,991
|
|
$
|
799,689
|
|
Other expenses
|
$
|
14,350
|
|
$
|
16,596
|
|
Net loss
|
$
|
(123,341)
|
|
$
|
(816,285)
|
|
Our operating expenses, for the three
months ended March 31, 2018 were $108,991 compared to $799,689 for the same period in 2017. The decrease in operating expenses
was due to $487,581 stock based compensation and $8,915 consulting fees share expense for the three months ended March 31, 2017,
as well as a decrease in general and administrative expenses of $194,202 for the three months ended March 31, 2018 compared to
the three months ended March 31, 2017.
Our other expenses, for the three months
ended March 31, 2018 were $14,350 compared to $16,596 for the same period in 2017.
We
incurred a net loss of $123,241 and $
816,285
for the three months ended March 31,
2018 and March 31, 2017, respectively.
Liquidity and Capital Resources
The following table provides
selected financial data about our company as of March 31, 2018 and December 31, 2017, respectively.
Working Capital
|
|
As at
March 31,
2018
|
|
As at
December 31, 2017
|
Total current assets
|
|
$
|
31,219
|
|
|
$
|
40,870
|
|
Total current liabilities
|
|
$
|
1,537,614
|
|
|
$
|
1,424,019
|
|
Working capital (deficit)
|
|
$
|
(1,506,395
|
)
|
|
$
|
(1,383,149
|
)
|
Our working capital decreased as
of March 31, 2018, as compared to December 31, 2017, primarily due to our total current liabilities as of March 31, 2017, which
were $1,537,614 as compared to total current liabilities of $1,424,019 as of December 31, 2017. The increase was primarily due
to an increase in advances from related parties and accrued interest.
Cash Flows
|
|
Three Months Ended
|
|
|
March 31, 2018
|
|
March 31, 2017
|
Cash Flows used in Operating Activities
|
|
$
|
—
|
|
|
$
|
(166,580
|
)
|
Cash Flows from Investing Activities
|
|
|
—
|
|
|
|
—
|
|
Cash Flows from Financing Activities
|
|
|
—
|
|
|
|
131,602
|
|
Net Decrease in Cash During Period
|
|
$
|
—
|
|
|
$
|
(34,978
|
)
|
Cash Flow from Operating Activities
During the three months ended March
31, 2018, our company used $0 in cash from operating activities, compared to $166,580 cash used in operating activities during
the three months ended March 31, 2017. For the three months ended March 31, 2018 the Company incurred a net loss of $123,341, decrease
in accounts payable and accrued liabilities of $10,012, depreciation of $95, expenses paid by a related party of $109,158, increase
in accrued interest of $14,449, decrease in prepaid expenses of $9,750, and increase in loans and interest receivable of $99, which
resulted in no cash being used in operations.
Cash Flow from Investing Activities
The company did not use any funds for
investing activities in the three months ended March 31, 2018 or the three months ended March 31, 2017.
Cash Flow from Financing Activities
Net cash from financing activities was
$0 for the three months ended March 31, 2018 compared to net cash provided by financing activities of $131,602 for the three months
ended March 31, 2017.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements
that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
The report of our auditors
on our audited financial statements for the fiscal year ended December 31, 2017, contains a going concern qualification as we have
suffered losses since our inception. We have not attained profitable operations and are dependent upon obtaining financing to pursue
any extensive acquisitions and activities. For these reasons, our auditors stated in their report on our audited financial statements
that they have substantial doubt that we will be able to continue as a going concern without further financing.
Limited Operating History;
Need for Additional Capital
There is no historical financial information
about us upon which to base an evaluation of our performance. We are a development stage company and have not generated any revenues
from operations to fully implement our business plan. We cannot guarantee we will be successful in our business operations. Our
business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources, and
competition from larger organizations. We will require equity and/or debt financing to provide for the capital required to implement
our plans. We will require additional funds to operate for the next year.
We have no assurance that future financing
will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue,
develop or expand our operations.
|
Item 3.
|
Quantitative and Qualitative Disclosures About Market Risk
|
As a “smaller reporting
company”, we are not required to provide the information required by this Item.
|
Item 4.
|
Controls and Procedures
|
Our management is responsible
for establishing and maintaining a system of disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e)
under the Exchange Act) that is designed to ensure that information required to be disclosed by us in the reports that we file
or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the 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, 2018. Based on that evaluation, our management concluded that our disclosure controls and
procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or
submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and
forms. Such officer also confirmed that there was no change in our internal control over financial reporting during the three month
period ended March 31, 2018 that has materially affected, or is reasonably likely to materially affect, our internal control over
financial reporting.
PART II - OTHER INFORMATION
|
Item 1.
|
Legal Proceedings
|
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.
As a “smaller reporting
company”, we are not required to provide the information required by this Item.
|
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
None.
|
Item 3.
|
Defaults Upon Senior Securities
|
We are 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 $60,500
as of March 31, 2018.
On November 25, 2014, the Company
issued an unsecured promissory note to an individual in the amount of $100,000 at 10% interest and due on April 1, 2015. On April
1, 2016 the Company entered into a forbearance agreement. The Company was granted an extension of the note through September
30, 2016 in consideration of 150,000 shares of common stock valued at $150,000 with interest accruing after March 29, 2016 at 12%.
The lender was issued an additional 50,000 shares valued at $50,000 to extend the note to August 31, 2017. The note and accrued
interest was $145,105 and $134,333 as of March 31, 2018, and December 31, 2017. The initial extension fee was amortized ratably
over the extension period of 180 days. The subsequent extension fee was amortized over the period of the extension. A second extension
was signed in October 2017 to extend the note to March 30, 2018. The note remains unpaid as of March 31, 2018, and is currently
in default.
On December 12, 2016, the Company issued an
unsecured promissory note to an investor for $2,200. The note bears interest at 5% and matured on June 30, 2017. 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
$7,639 as of March 31, 2018. The notes are currently unpaid and in default.
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 matured on March 14, 2018. The balance
of this note plus interest totals $5,169 as of March 31, 2018 and is currently in default.
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 balance of this note plus accrued interest totals were $60,500 and $59,500 at March 31,
2018 and December 31, 2017, respectively.
|
Item 4.
|
Mine Safety Disclosures
|
Not Applicable.
|
Item 5.
|
Other Information
|
None.
The following exhibits are included
as part of this report:
Exhibit Number
|
Description
|
(3)
|
(i) Articles of Incorporation
(ii) Bylaws
|
3.1(i
)
|
Articles of Incorporation
(1)
|
3.2(ii)
|
By-Laws
(2)
|
(31)
|
Rule 13a-14(a)/15d-14(a) Certification
|
31.1
|
Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
|
31.2
|
Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer
|
(32)
|
Section 1350 Certification
|
32.1*
|
Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
|
32.2*
|
Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer
|
101
|
Interactive Data Files
|
101.INS**
|
XBRL Instance Document
|
101.SCH**
|
XBRL Taxonomy Extension Schema Document
|
101.CAL**
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
101.DEF**
|
XBRL Taxonomy Extension Definition Linkbase Document
|
101.LAB**
|
XBRL Taxonomy Extension Label Linkbase Document
|
101.PRE**
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
(1)
Incorporated by reference to the Registration Statement filed with the Commission on November 29, 2005
(2)
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.
** XBRL Information is furnished
and not filed or a part of a registration statement or prospectus 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.
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.
|
|
ECO TEK 360, INC.
|
|
|
(Registrant)
|
Dated: May 14, 2018
|
|
/s/ Christopher Giordano
|
|
|
Christopher Giordano
|
|
|
President and Director
|
|
|
(Principal Executive Officer)
|
|
|
|
Dated: May 14, 2018
|
|
/s/ Paul Serbiak
|
|
|
Paul Serbiak
|
|
|
Chief Executive Officer and Director
|
|
|
(Principal Financial Officer)
|
|
|
|