PART II
ITEM 5 MARKET FOR REGISTRANT
S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
Our common stock is quoted on the OTCQB under the symbol
KRBF
. Trading in our common stock on the OTCQB has been limited and sporadic and the quotations set forth below are not necessarily indicative of actual market conditions. These quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily reflect actual transactions. Set forth below is the range of high and low bid information for each quarter within the last two fiscal years as provided by the OTC Markets website:
|
| |
Quarter
|
High
|
Low
|
2018 Fourth Quarter
|
$0.0287
|
$0.0248
|
2018 Third Quarter
|
$0.0525
|
$0.0395
|
2018 Second Quarter
|
$0.0239
|
$0173
|
2018 First Quarter
|
$0.0035
|
$0.0031
|
2017 Fourth Quarter
|
$0.0015
|
$0.0012
|
2017 Third Quarter
|
$0.0006
|
$0.0006
|
2017 Second Quarter
|
$0.0007
|
$0.0007
|
2017 First Quarter
|
$0.0007
|
$0.0007
|
Holders
As of December 31, 2018, we had approximately 113 shareholders of record of our common stock.
Dividends
We have not paid any cash dividends to our shareholders since our inception on February 7, 2005. Future payment of dividends is within the discretion of our board of directors and will depend on our earnings, capital requirements, financial condition and other relevant factors. There are no material restrictions limiting, or that are likely to limit, our ability to pay cash dividends on our common stock. We have no present intention to pay cash dividends on our common stock.
Securities Authorized for Issuance under Equity Compensation Plans
As of the date of this Report, we do not have a compensation plan under which equity securities are authorized for issuance.
Recent Sales of Unregistered Securities
None
Stock Repurchase
As of the date of this Report, we do not have a stock repurchase plan.
ITEM 6
SELECTED FINANCIAL DATA
Not applicable.
ITEM 7
MANAGEMENT
S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Background and Overview
Kreido Biofuels, Inc. (
Kreido Biofuels,
we
or the
Company
) was incorporated on February 7, 200,5 under the name Gemwood Productions, for the purpose of marketing and selling day spa services to tourists at resort destinations throughout Mexico. On November 2, 2006, we changed our name to Kreido Biofuels, Inc. in connection with the acquisition of Kreido Laboratories, Inc., a California corporation, and the disposition of the Gemwood Leasco, Inc. subsidiary, through which entity the tourist business had been carried out. Kreido Laboratories was founded to develop proprietary technology for building micro-composite materials for electronic applications, and developed technology to improve the speed, completeness and efficiency of certain chemical reactions, including esterifications and transesterifications, in the pharmaceutical and special chemical industries. In the first quarter of 2006, Kreido Labs elected to focus exclusively on the biodiesel industry. This business was not successful, and we sold the technology and related assets to an unrelated party on March 5, 2009. After that disposition, we sought unsuccessfully for another acquisition until the present time. In November of 2017, the Company discontinued operations of its subsidiary, Kreido Labs, Inc.
Our initial registration statement on Form SB-2, became effective on June 28, 2007. Subsequent to the filing of our Annual Report on Form 10-K for the year ended December 31, 2008, we continued to file annual and quarterly reports with the Securities and Exchange Commission on a voluntary basis through the quarter ended September 30, 2009.
In November 2017, our former majority shareholder and sole officer G. Reed Petersen approached the then sole officer and director offering to pay off the debt of the Company. Mr. Petersen paid the sum of $171,509 in consideration of 142,924,167 shares of stock of the Company. On March 2, 2018, the Company filed a registration statement on Form 10 with the Securities and Exchange Commission. The registration statement on Form 10 became effective May 1, 2018.
On June 5, 2018, the Company and its sole officer and director, G. Reed Petersen, entered into that certain Stock Purchase Agreement (the
Stock Purchase Agreement
), pursuant to which Mr. Petersen agreed to sell to certain purchasers an aggregate of 142,924,167 shares of common stock of the Company (the
Control Shares
), representing approximately 73% of the issued and outstanding stock of the Company, for aggregate cash consideration of $420,000 in accordance with the terms and conditions of the Stock Purchase Agreement. The Stock Purchase Agreement was included as Exhibit 10.1 to that Amendment No. 1 to Current Report on Form 8-K filed with the Securities and Exchange Commission on June 6, 2018.
The sale of the Control Shares consummated on June 29, 2018. As a result, the purchasers hold a controlling interest in the Company and may unilaterally determine the election of the Board and other substantive matters requiring approval of the Company
s stockholders.
In connection with the sale of the Control Shares, G. Reed Petersen resigned from his positions as the sole executive officer and director of the Company, effective June 29, 2018. Mr. Petersen
s departure was not due to any dispute or disagreement with the Company on any matter related to the Company
s operations, policies or practices. Concurrently, the Board of Directors appointed Wai Lim Wong to fill the vacancies created by Mr. Petersen
s resignation, and to serve as the Company
s sole Director, Chief Executive Officer, Chief Financial Officer and Secretary.
Results of Operations
Following is management
s discussion of the relevant items affecting results of operations for the years ended 2018 and 2017.
Revenues.
The Company generated revenues of $-0- during the year ended December 31, 2018 as compared to $-0- for the year ended December 31, 2017.
Operating Expenses.
Operating expenses for the year ended December 31, 2018 were $38,958, consisting primarily of professional fees, compared to $22,410 for the year ended December 31, 2017. The increase is mainly the result of an increase in legal and professional expenses.
Operating expenses consisted of professional fees and general and administrative fees. The increase in operating expenses resulted from increased professional and general and administrative fees arising from the sale of the Control Shares. The filing of the Company
s Form 10 also added to the increased professional fees. We expect operating expenses to increase as we continue our process of identifying prospective acquisition targets and hopefully successfully consummate such an acquisition.
Other Income (Expense)
. The Company had net other income of $ -0- for the year ended December 31, 2018 compared to $ 7,416 during the year ended December 31, 2017.
Net Loss
. For the year ended December 31, 2018, the Company had a net loss of $38,958, as compared to $14,994 for the year ended December 31, 2017. The increase in net loss was due to the increase in professional fees and general and administrative fees incurred by the Company.
Liquidity and Capital Resources
As of December 31, 2018, our primary source of liquidity consisted of $-0- in cash and cash equivalents. Since inception, we have financed our operations through a combination of short and long-term loans, and through the private placement of our common stock.
Going Concern Uncertainties.
We have sustained significant net losses which have resulted in a total stockholders
deficit at December 31, 2018 of ($24,458) and are currently experiencing a substantial shortfall in operating capital which raises doubt about our ability to continue as a going concern. Until we successfully consummate an acquisition with an operating company, we expect to continue to incur net losses. Depending upon the financial profile of our acquired company, we may continue in our net loss position even after the acquisition of an operating company. With the expected cash requirements for the coming months, without additional cash inflows from an increase in revenues combined with continued cost-cutting or a receipt of cash from capital investment, there is substantial doubt as to the Company
s ability to continue operations.
There is presently no agreement in place with any source of financing for the Company, and we cannot be assured that the Company will be able to raise any additional funds, or that such funds will be available on acceptable terms. Funds raised through future equity financing will likely be substantially dilutive to current shareholders. Lack of additional funds will materially affect the Company and its business and may cause us to cease operations. Consequently, shareholders could incur a loss of their entire investment in the Company.
Net Cash Used in Operating Activities.
For the year ended December 31, 2018, net cash used in operating activities was $9,427, which consisted primarily of a net loss of $38,958, and increase in account payable of $11,325, an increase in related party payables of $12,233, an increase in notes payable - short term of $3,973 and an increase in prepaid expenses of $2,000.
For the year ended December 31, 2017, net cash used in operating activities was $20,733, which consisted primarily of a net loss of $14,994, a decrease in gain on discontinued operations of $1,616, a decrease in prepaid expenses of 2,000, a decrease in notes payable- short term of $3,973, a decrease due from relate party of $1,382.
Net Cash Used In/Provided By Investing Activities.
There was no net cash used in or provided by investing activities during the year ended December 31, 2018, and 2017.
Net Cash Provided By Financing Activities.
For the year ended December 31, 2018, net cash provided by financing activities was $9,427, consisting primarily of proceeds of $21,350 from a related party, offset by repayments of $11,923 on an outstanding note payable.
For the year ended December 31, 2017, net cash provided by financing activities was $20,733, consisting primarily of proceeds of $21,435 from a related party, offset by repayments of $702 on an outstanding note payable.
Off-Balance Sheet Arrangements
We do not have any 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 investors.
Contractual Obligations
As a
smaller reporting company
as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.
Critical accounting policies
The preparation of our financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the 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. On an on-going basis, management evaluates its estimates and judgments which are based on historical experience and on various other factors that are believed to be reasonable under the circumstances. The results of their evaluation form the basis for making judgments about the carrying values of assets and liabilities. Actual results may differ from these estimates under different assumptions and circumstances. Our significant accounting policies are more fully discussed in Note 2 to our financial statements contained herein.
Recent accounting pronouncements
The recent accounting standards that have been issued or proposed by the FASB or other standards-setting bodies that do not require adoption until a future date are not expected to have a material impact on our unaudited condensed consolidated financial statements upon adoption.
NOTE 1 - ORGANIZATION AND BUSINESS OPERATIONS
Nature of Business
Kreido
Biofuels, Inc. was incorporated as
Gemwood
Productions, Inc. under the laws of the State of Nevada on February 7, 2005.
Gemwood
Productions, Inc. changed its name to
Kreido
Biofuels, Inc. on November 2, 2006. The Company took its current form on January 12, 2007 when
Kreido
Laboratories (
Kreido
Labs
), completed a reverse triangular merger with
Kreido
Biofuels, Inc.
Kreido
Labs, formerly known as Holl Technologies Company, was incorporated on January 13, 1995 under the laws of the State of California. Since incorporation,
Kreido
Labs has been engaged in activities required to develop, patent and commercialize its products.
Kreido
Labs was the creator of reactor technology that was designed to enhance the manufacturing of a broad range of chemical products.
The cornerstone of
Kreido
Labs
technology was its patented STT
®
(Spinning Tube in Tube) diffusional chemical reacting system, which were both a licensable process and a licensable system. In 2005, the Company demonstrated how the STT
®
could make biodiesel from vegetable oil rapidly with almost complete conversion and less undesirable by-products. The Company had continued to pursue this activity, built and tested a pilot biodiesel production unit and, prior to June 20, 2008, was in the process of developing the first of its commercial biodiesel production plants in the United States that, if constructed and put into operation, was expected to produce approximately 33 million to 50 million gallons per year. On June 20, 2008, the Company announced that due to the weakening of the economy, the continued financial market turmoil and the inability to raise needed capital to finance site construction and plant start-up costs, the Company was suspending work regarding its flagship biodiesel production plant at the Port of Wilmington, North Carolina. In November of 2017, the Company discontinued operations of its subsidiary,
Kreido
Labs, Inc.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.
Principles of Consolidation
The accompanying consolidated financial statements for the years ended December 31, 2018 and 2017 include the accounts of the Company and its wholly-owned subsidiary, Kreido Laboratories, Inc. All significant intercompany balances and transactions have been eliminated in consolidation.
Accounting Estimates
The preparation of the financial statements in conformity with generally accepted accounting principles 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.
Fair Value of Financial Instruments
Financial instruments, including cash and accrued expenses and other liabilities are carried at amounts, which reasonably approximate their fair value due to the short-term nature of these amounts or due to variable rates of interest, which are consistent with market rates.
Loss per Common Share
Basic loss per share is calculated by dividing the Company
s net loss applicable to common shareholders by the weighted average number of common shares during the period. Diluted earnings per share is calculated by
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
dividing the Company
s net income available to common shareholders by the diluted weighted average number of shares outstanding during the year.
Cash and Cash Equivalents
The Company considers all highly liquid investment with an original maturity of three months or less to be cash equivalents. At December 31, 2018 and 2017, cash and cash equivalents include cash on hand and cash in the bank.
Stock-based compensation
The Company recognizes compensation expense for all stock-based compensation awards based on the grant-date fair value estimated in accordance with the provisions of ASC 718.
Income Taxes
Under ASC 740,
Income Taxes,
deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. Valuation allowances are established when it is more likely than not that some or all of the deferred tax assets will not be realized. As of December 31, 2018 there were no deferred taxes as there was a full valuation allowance due to the uncertainty of the realization of net operating loss carry forward prior to expiration.
Fair Value of Financial Instruments
The Company follows guidance for accounting for fair value measurements of nonfinancial items that are recognized or disclosed at fair value in the financial statements on a recurring basis. Additionally, the Company adopted guidance for fair value measurement related to nonfinancial items that are recognized and disclosed at fair value in the financial statements on a nonrecurring basis. The guidance establishes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to measurements involving significant unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are as follows:
Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date.
Level 2 inputs are inputs other than quoted prices included within Level 1that are observable for the asset or liability, either directly or indirectly.
Level 3 inputs are unobservable inputs for the asset or liability. The carrying amounts of financial assets such as cash approximate their fair values because of the short maturity of these instruments.
Recent Accounting Pronouncements
The FASB established the Accounting Standards Codification (
Codification
or
ASC
) as the source of authoritative accounting principles recognized by the FASB to be applied by nongovernmental entities in the preparation of financial statements in accordance with generally accepted accounting principles in the United States (
GAAP
).
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Rules and interpretative releases of the Securities and Exchange Commission (
SEC
) issued under authority of federal securities laws are also sources of GAAP for SEC registrants.
Other accounting standards that have been issued or proposed by FASB that do not require adoption until a future date are not expected to have a material impact on the financial statements upon adoption. The Company does not discuss recent pronouncements that are not anticipated to have an impact on or are unrelated to its financial condition, results of operations, cash flows or disclosures.
NOTE 3 - GOING CONCERN
In order to continue as a going concern, the Company will need, among other things, additional capital resources. Management's plan is to obtain such resources for the Company by obtaining capital from management sufficient to meet its minimal operating expenses and seeking equity and/or debt financing. However, Management cannot provide any assurances that the Company will be successful in accomplishing any of its plans, which raises substantial doubt about the ability of the Company to continue as a going concern.
The ability of the Company to continue as a going concern is dependent upon its ability to successfully accomplish the plans described in the preceding paragraph and eventually secure other sources of financing and attain profitable operations. The accompanying consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4
STOCKHOLDERS
EQUITY
Common Stock
The Company
s Articles of Incorporation authorize the issuance of up to 300,000,000 common shares, par value $0.001 per share, and 10,000,000 preferred shares, also $.0001 par value. There were 195,645,159 shares of common stock outstanding at December 31, 2018 and 2017, respectively. There were no preferred shares outstanding during any periods presented.
2017 Equity Issuances
On November 10, 2017, the Company issued to a related party 142,924,167 shares of stock in conversion of $150,074 of debt and $21,435 of accounts payable
related party for payment of the Company
s expenses.
2018
During 2018, a related party forgave an outstanding balance of $21,350 and the forgiveness of related party debt was recorded in additional paid-in capital.
NOTE 5
INCOME TAXES
On December 22, 2017, the 2017 Tax Cuts and Jobs Act (
the Tax Act
) was enacted into law including a one-time mandatory transition tax on accumulated foreign earnings and a reduction of the corporate income tax rate to 21% effective January 1, 2018, among others. We are required to recognize the effect of the tax law changes in the period of enactment, such as determining the transition tax, remeasuring our U.S. deferred tax assets and liabilities as well as reassessing the net realizability of our deferred tax assets and liabilities. The Company does not have any foreign earnings and therefore, we do not anticipate the impact of a transition tax.
We have remeasured our U.S. deferred tax assets at a statutory income tax rate of 21%. Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over the next 12 months, we consider the accounting of any transition tax, deferred tax re-measurements, and other items to be incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax
positions. We expect to complete our analysis within the measurement period in accordance with SAB 118, no later than 2018.
The cumulative tax effect at the expected rate of 21% as of December 31, 2018 and 35% as of December 31, 2017 of significant items comprising our net deferred tax amount is as follows:
|
| |
|
|
|
|
2018
|
2017
|
Net operating loss carryover
|
49,011,291
|
$ 48,972,333
|
Deferred tax asset
|
10,292,371
|
17,140,316
|
Impact of rate changes
|
-
|
(6,854,026)
|
Less: valuation allowance
|
(10,292,371)
|
(10,286,290)
|
Net deferred tax asset
|
$ -
|
$ -
|
At December 31, 2018, the Company had net operating loss carry forwards of approximately $49,011,291 that may be offset against future taxable income. The Tax Act also changed the rules on net operating loss carry forwards. The 20-year limitation was eliminated, giving the taxpayer the ability to carry forward losses indefinitely. However, NOL carry forward arising after January 1, 2018, will now be limited to 80 percent of taxable income.
No tax benefit has been reported in the December 31, 2018, consolidated financial statements since the potential tax benefit is offset by a valuation allowance of the same amount. The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards for federal income tax reporting purposes are subject to annual limitations. A change in ownership may limit net operating loss carry forwards in future years. The last three years of tax returns are open for examination by taxing authorities.
NOTE 6
RELATED PARTY TRANSACTIONS
As of December 31, 2018, the Company has a related party payable in the amount of $12,233. At the year ended December 31, 2017, the Company had a related party receivable in the amount of $3,973. As mentioned in Note 4, the Company issued 142,924,167 shares of common stock valued at $171,509 for conversion of debt and related party payables. The related party payable is a shareholder in the Company. The related party payable of $21,435 was comprised of various accounts payable balances that the related party agreed to pay on behalf of the Company. As of December 31, 2017, the related party had paid down $17,462 of the outstanding balances, leaving a receivable of $3,973.
During 2018,, a related party paid a total of $21,350 for professional fees and paying off outstanding note payable balances on behalf of the Company. The related party forgave the entire amount of $21,350 and the forgiveness of related party debt was recorded in additional paid-in capital.
NOTE 7
NOTE PAYABLE
The Company issued a note payable to its transfer agent in November 2017 in the amount of $12,625 in satisfaction of past due amounts due to the transfer agent. The Note requires payments of $526 per month for 24 months and is non-interest bearing. On June 28, 2018, the Note was paid off in full.
NOTE 8
SUBSEQUENT EVENTS
The Company has evaluated subsequent events from December 31, 2018 through the date the financial statements were issued and there have been no subsequent events for which disclosure is required.
ITEM 9 CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A
CONTROLS AND PROCEDURES
Management
s Evaluation on Disclosure Controls and Procedures
We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the
Securities Exchange Act of 1934
, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management, to allow for timely decisions regarding required disclosure.
As of December 31, 2018, we carried out an evaluation, under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on the foregoing, we concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report. Our board of directors has only one member. We do not have a formal audit committee.
Management
s Annual Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting for our company. Our control system is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles. Our internal control over financial reporting includes those policies and procedures that:
●
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and disposition of our assets;
●
provide reasonable assurance that the transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that receipts and expenditures are being made only with proper authorizations of management and directors; and
●
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of company assets that could have a material effect on the financial statements.
Because of inherent limitations, internal control over financial reporting may not prevent or detect all misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management, including our principal executive officer and principal financial officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2018. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in the 2013
Internal Control Over Financial Reporting
Guidance for Smaller Public Companies.
Based on our assessment and those criteria, our management concluded that our internal control over financial reporting was not effective as of December 31, 2018.
Changes in Internal Control over Financial Reporting
There have been no significant changes in our internal controls over financial reporting that occurred during the year ended December 31, 2018, that have materially or are reasonably likely to materially affect, our internal controls over financial reporting.
ITEM 9B
OTHER INFORMATION
None.