UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

x

QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2015

 

OR

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ___________ to ______________.

 

Commission File Number 000-55057

 

ECO INTEGRATED TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

Delaware		46-3601274
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)

 

	2600 Michelson Drive, Suite 780, Irvine, California 92612
	(Address of principal executive offices)(Zip Code)
	(949) 336-6944
	(Registrant's telephone number, including area code)

 

	N/A
	(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x   No ¨

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x   No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer  ¨

Accelerated filer  ¨

Non-accelerated filer  ¨

Smaller reporting company  x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨   No x

 

As of April 28, 2015, we had 8,548,194 shares of $0.0001 par value Common Stock outstanding. 

 

 

 

ECO INTEGRATED TECHNOLOGIES, INC.

 

FORM 10-Q

 

INDEX

 

		Page No.
PART I    FINANCIAL INFORMATION			3
ITEM 1.   Financial Statements (Unaudited)			3
Condensed Consolidated Balance Sheets as of March 31, 2015 and December 31, 2014			3
Condensed Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014			4
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014			5
Notes to Condensed Consolidated Financial Statements			6
ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations			12
ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk			18
ITEM 4.  Controls and Procedures			18
PART II  OTHER INFORMATION
ITEM 6.  Exhibits			18

 

 

PART I - FINANCIAL INFORMATION

 

ITEM 1        Financial Statements

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

 

		March 31,				December 31,
		2015				2014
ASSETS
Current assets:
Cash		$	173,871			$	433,045
Prepaid expenses and other current assets			9,116				12,886
Total current assets			182,987				445,931
Furniture and equipment, net			27,510				21,167
Licensing fee			175,000				175,000
Other assets			126,623				2,500
Total assets		$	512,120			$	644,598
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses		$	75,506			$	31,498
Notes payable			51,922				51,970
Total current liabilities			127,428				83,468
Stockholders' equity:
Preferred stock, ($0.0001 par value; 20,000,000 shares authorized, 1,000,000 shares issued and outstanding)			100				100
Common stock, ($0.0001 par value; 100,000,000 shares authorized 8,360,283 and 7,899,787 shares issued and outstanding)			836				790
Additional paid-in capital			5,507,211				2,121,752
Accumulated deficit			(5,123,455	)			(1,561,512	)
Total stockholders' equity			384,692				561,130
Total liabilities and stockholders' equity		$	512,120			$	644,598

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

		For the Three Months Ended March 31,
		2015				2014
Sales		$	-			$	-
Cost of goods sold			-				-
Gross profit			-				-
Operating expenses:
General and administrative expenses			330,586				33,217
Stock-based compensation			3,116,270				-
Write down of assets			113,999				12,645
Total operating expenses			3,560,855				45,862
Loss from operations			(3,560,855	)			(45,862	)
Other income (expense):
Interest expense			(1,088	)			-
Total other income (expense)			(1,088	)			-
Loss before provision for income taxes			(3,561,943	)			(45,862	)
Provision for income taxes			-				-
Net loss		$	(3,561,943	)		$	(45,862	)
Net loss per share:
Basic		$	(0.44	)		$	(0.02	)
Diluted		$	(0.44	)		$	(0.02	)
Weighted average number of common shares outstanding:
Basic			8,064,521				3,000,000
Diluted			8,064,521				3,000,000

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

		For the Three Months Ended
		March 31,
		2015				2014
OpERATING ACtivities:
Net loss		$	(3,561,943	)		$	(45,862	)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation			1,190				-
Stock-based compensation			3,116,270				-
Write down of assets			113,999				12,645
Changes in current assets and liabilities:
Prepaid expenses and other assets			3,770				-
Accounts payable and accrued expenses			44,008				(2,500	)
Net cash used in operating activities			(282,706	)			(35,717	))
investing activities:
Issuance of notes receivable			(113,999	)			(12,645	)
Payment for furniture and equipment			(7,533	)			-
Payment for other assets			(124,123	)			-
Net cash used in investing activities			(245,655	)			(12,645	)
financing activities:
Proceeds from note payable			-				48,377
Repayment of notes payable			(48	)			-
Proceeds from issuance of common stock			269,235				-
Net cash provided by financing activities			269,187				48,377
Net increase (decrease) in cash			(259,174	)			15
Cash, beginning balance			433,045				-
Cash, ending balance		$	173,871			$	15
Cash paid for:
Income taxes		$	-			$	-
Interest			-				-

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2015 and 2014

(Unaudited)

 

Note 1 - Organization, Basis of Presentation and Significant Accounting Policies

 

The unaudited consolidated financial statements were prepared by ECO Integrated Technologies, Inc., pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results for the three months ended March 31, 2015, are not necessarily indicative of the results to be expected for the year ending December 31, 2015.

 

Organization and Line of Business

 

ECO Integrated Technologies, Inc., formerly known as Thunder Run Acquisition Corporation (“ECO Integrated” or “the Company”) was incorporated on July 2, 2013 under the laws of the state of Delaware to engage in any lawful corporate undertaking, including, but not limited to, selected mergers and acquisitions. ECO Waste Conversion Las Vegas, LLC (“ECO Waste”) was organized on June 29, 2012 under the laws of the state of Nevada.

 

In August 2014, (i) the Company redeemed, at par value, 19,500,000 shares of its common stock, (ii) the Company issued, at par value, 3,000,000 shares of its common stock to the sole owner of ECO Waste, (iii) the officers and directors of the Company resigned and a new officer and director was appointed, and (iv) the Company changed its name to ECO Waste Conversion Solutions Corporation (collectively, the “Change of Control”). Following the Change of Control, the Company acquired 100% ownership of ECO Waste in exchange for the issuance of ten shares of common stock (the “Share Exchange”). Upon completion of the Change of Control, the Company had an aggregate of 3,500,000 shares of common stock issued and outstanding.

 

In connection with the Change of Control, ECO Waste paid $100,000 for services in becoming a public reporting company, including the Change of Control.

 

The exchange of shares with ECO Waste was accounted for as a reverse acquisition under the purchase method of accounting since ECO Waste obtained control of the Company. Accordingly, the exchange was recorded as a recapitalization of ECO Waste, ECO Waste being treated as the continuing entity. The historical financial statements presented are the financial statements of ECO Waste. The share exchange agreement has been treated as a recapitalization and not as a business combination; therefore, no pro forma information is disclosed. At the date of this transaction, the net assets of the legal acquirer, ECO Integrated, were $0.

 

As a result of the reverse merger transactions described above the historical financial statements presented are those of ECO Waste, the operating entity.

 

The Company is focused on acquiring and/or developing and commercializing a portfolio of state-of-the-art and environmentally friendly waste handling and treatment solutions by establishing facilities and contracting with governmental and private industry entities to convert waste streams into commercial by-products. The Company’s technology portfolio presently includes (i) certain preferred pricing and other rights in SonCav – a patented water treatment technology, and (ii) a license to utilize a patented technology, referred to as “TCOM” – or Thermal Conversion of Organic Materials, to convert a wide spectrum of waste feedstock into salable by-products, principally carbon, synthetic fuel, synthetic gas and electric power, utilizing pressure, heat and a catalyst. The Company plans to deploy its technologies to (i) establish SonCav as a market leading solution for waste water treatment and desalination; and (ii) establish one or more TCOM facilities, initially targeting the Las Vegas market, to handle waste streams and produce salable by-products. The Company plans to supplement its SonCav and TCOM technology with other complementary environmentally-friendly technologies and solutions to provide a suite of solutions to ever increasing municipal and private industry waste challenges.

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2015 and 2014

(Unaudited)

 

Basis of Presentation

 

The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, ECO Waste and ECO Management, LLC, and have been prepared in conformity with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated.

 

Going Concern

 

These consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the Company obtaining necessary equity and debt financing until it can generate sustainable revenue. There is no guarantee that the Company will be able to raise adequate equity or debt financing or generate profitable operations. For the three months ended and the year ended December 31, 2014, the Company incurred a net loss of $3,561,943 and $1,381,406, respectively, and had negative cash flows from operations of $287,706 and $512,185, respectively. As of March 31, 2015 and December 31, 2014 the Company had an accumulated deficit of $5,123,455 and $1,561,512, respectively. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management intends to raise additional funds through equity or debt financing and to generate cash from the sale of the Company’s products.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions 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. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.

 

Subsequent Events

 

The Company has evaluated all transactions from March 31, 2015 through the financial statement issuance date for subsequent event disclosure consideration.

 

Recent Accounting Pronouncements

 

No accounting standards or interpretations issued recently are expected to a have a material impact on our consolidated financial position, operations or cash flows.

 

Note 2 – Furniture and Equipment

 

The following are the details of the property, equipment and improvements at March 31, 2015 and December 31, 2014:

 

		March 31,				December 31,
		2015				2014
Furniture and fixtures		$	7,582			$	7,582
Equipment			21,294				13,761
			28,876				21,343
Less accumulated depreciation			(1,366	)			(176	)
Furniture and equipment, net		$	27,510			$	21,167

 

Depreciation expense for the three months ended March 31, 2015 and 2014 was $1,190 and $0, respectively.

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2015 and 2014

(Unaudited)

 

Note 3 – Other Assets

 

Waste Conversion Facility — North Las Vegas

 

The Company entered into a Purchase and Sale Agreement in February 2015 to acquire a developed location that is expected to house its planned initial waste conversion facility in North Las Vegas, Nevada. The acquisition price for the 18.28 acre developed site is $6,750,000, of which a refundable deposit $100,000 was paid to open escrow, with an anticipated closing date of the purchase in late June subject to securing financing to support the acquisition.

 

Subject to securing funding to finance the site acquisition, site modifications and equipment purchases, the Company intends to initially install four 3.5 ton TCOM Processors with an output consisting of synthetic fuel, synthetic gas, and various grades of carbon. Final design and engineering are underway and the exact configuration and specifications are not yet completed. The estimated timeline for manufacturing and installation of the required equipment and certain building modifications to meet the operational requirements of a TCOM facility is approximately nine months from securing the funding required.

 

At March 31, 2015, other assets consisted of the $100,000 deposit mentioned above and $26,623 of engineering, consulting and other costs associated with the Las Vegas waste conversion facility.

 

Note 4 – Notes Receivable

 

Notes receivable at March 31, 2015 and December 31, 2014 consisted of the following:

 

		March 31,				December 31,
		2015				2014
CGTC/Lurvey		$	123,313			$	88,979
EETIL			139,288				116,123
Brasil Plus			89,013				32,513
			351,614				237,615
Allowance for uncollectible balances			(351,614	)			(237,615	)
Total notes receivable		$	-			$	-

 

Carbon Geo-Tek Consultants, Inc. (“CGTC”) and Lurvey Advances

 

The Company has, from time to time, advanced funds to GCTC and Mr. Lurvey to facilitate efforts to upgrade a facility in Hawaii, securing third party certification and advance the planned business of the Hawaiian joint venture pending receipt of third party financing. The loans are undocumented, unsecured and have no specific repayment terms. Balance of $123,313 and 88,979 at March 31, 2015 and December 31, 2014, respectively, was written off by the Company.

 

ECO Enviro Technologies International Limited (“EETIL”) Loan

 

Under the EETIL Loan Agreement, the Company agreed to provide certain loans for use in development of facilities in international markets pending receipt of third party financing. The loans bear interest at 10% per annum and are repayable on December 31, 2016 or earlier from operating profits or the receipt of third party financing.

 

As further consideration for the loans, the Company was issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in EETIL at the rate of 0.5% for each $10,000 of principal amount loaned. Balance of $139,288 and $116,123 at March 31, 2015 and December 31, 2014, respectively, was written off by the Company.

 

Brasil Plus Loan

 

Under the Brasil Plus Loan Agreement, the Company agreed to provide certain loans for use in development of facilities in South American markets pending receipt of third party financing. The loans bear interest at 10% per annum and are repayable on December 31, 2016 or earlier from operating profits or the receipt of third party financing.

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2015 and 2014

(Unaudited)

 

As further consideration for the loans, the Company was issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in Brasil Plus at the rate of 0.5% for each $10,000 of principal amount loaned. Balance of $89,013 and $32,513 at March 31, 2015 and December 31, 2014, respectively was written off by the Company.

 

In connection with our lending arrangements with CGTC/Lurvey, EETIL and Brasil Plus, the Company has certain rights to either convert loans to equity or to acquire equity in two of those entities. Because each of those entities is in a development stage and currently lacks sufficient assets or operating cash flows to repay the amounts advanced, the Company has recorded a charge to fully write down the amounts advanced to those entities.

 

Note 5 – Notes Payable

 

Notes payable at March 31, 2015 and December 31, 2014 consisted of a note payable to an unaffiliated individual that is payable upon demand, bears interest at 12% per annum and is unsecured. The balance of this note payable at March 31, 2015 and December 31, 2014 was $51,922 and $51,970, respectively. 

 

Note 6 – Stockholders’ Equity

 

Common stock

 

The Company has authorized the issuance of 100,000,000 shares of common stock, $0.0001 par value. At March 31, 2015 and December 31, 2014, the Company had 8,360,283 and 7,899,787, respectively, shares of common stock issued and outstanding.

 

During the three months ended March 31, 2015, the Company issued 460,496 shares of common stock for cash proceeds of $269,235.

 

Stock options and warrants

 

The following is a summary of stock option and warrant activity:

 

										Weighted
						Weighted				Average
		Options/				Average				Remaining				Aggregate
		Warrants				Exercise				Contractual				Intrinsic
		Outstanding				Price				Life				Value
Outstanding, December 31, 2014			-
Granted			10,983,400			$	0.535
Forfeited			-
Exercised			-
Outstanding, March 31, 2015			10,983,400			$	0.535				4.96			$	3,450
Exercisable, March 31, 2015			10,133,400			$	0.535				4.96			$	3,450

 

The exercise price for options/warrants outstanding and exercisable at March 31, 2015 is as follows:

 

Outstanding								Exercisable
Number of								Number of
Options/				Exercise				Options/				Exercise
Warrants				Price				Warrants				Price
	230,000			$	0.520				230,000			$	0.520
	10,753,400				0.535				9,903,400				0.535
	10,983,400								10,133,400

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2015 and 2014

(Unaudited)

 

For options granted during 2015 where the exercise price equaled the stock price at the date of the grant, the weighted-average fair value of such options was $0.31 and the weighted-average exercise price of such options was $0.535.   No options were granted during 2015, where the exercise price was greater than the stock price at the date of grant or the exercise was less than the stock price at the date of grant

 

The fair value of the stock options is being amortized to stock option expense over the vesting period. The Company recorded stock option expense of $3,116,270 and $0 during the three months ended March 31, 2015 and 2014, respectively. At March 31, 2015, the unamortized stock option expense was $284,204 which will be amortized to expense through March 31, 2017.

 

The assumptions used in calculating the fair value of options granted using the Black-Scholes option- pricing model for options granted are as follows:

 

Risk-free interest rate		0.25%
Expected life of the options		2.5 to 3.5 years
Expected volatility		100%
Expected dividend yield		0%

 

Note 7 – Commitments and Contingencies

 

Lease agreement

 

The Company currently leases approximately 2,400 square feet of office space in Irvine, California as our executive offices. The average monthly rental under the lease, which expires on April 30, 2015, is $4,958, after which we expect to continue to use the space on a month to month basis.

 

Rent expense for the three months ended March 31, 2015 and 2014 was $15,095 and $0, respectively.

 

Employment Agreements

 

In 2015, the Company appointed additional officers and entered into employment agreements with each of its four executive officers, Jess Rae Booth, Steve Rockey, Walter Carlson and Kristin Johnston.

 

The Employment Agreement of Mr. Booth has a term of four years and the Employment Agreements of Messrs. Rockey and Carlson and Ms. Johnston each have a term of three years. Following the initial terms of those agreements, unless extended, each of the subject officers’ employment continues on an “at-will” basis. Each of the agreements provides for an annual salary, participation in all employment benefit plans maintained by the Company, including a group medical plan and severance pay ranging from one to five months, depending upon the term of service, in the event the Company terminates employment without cause or the employee terminates for good reason. Additionally, the officers may participate in any incentive compensation plan and performance bonus plan adopted by the Company.

 

The Employment Agreements fix base salaries of the officers at levels escalating on a quarterly basis during 2015 and semi-annually during 2016 and 2017. Annualized base salaries of the officers are: Jess Rae Booth — $134,500 in 2015; $180,000 in 2016; and $219,000 in 2017; each of Messrs. Rockey and Carlson and Ms. Johnston — $110,000 in 2015; $138,000 in 2016; and $177,000 in 2017.

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

March 31, 2015 and 2014

(Unaudited)

 

Note 8 – Subsequent Events

 

The following events occurred subsequent to March 31, 2015 and through the date of the release of these financial statements.

 

In April 2015, the Company loaned an additional $25,000 to SonCav LLC. The loan is repayable, at 110% of face amount, on September 30, 2015 and is convertible, at the Company’s option, into a 0.25% interest in SonCav LLC. Pursuant to that loan, the Company’s rights to acquire SonCav Generators at preferred pricing was increased from five units to ten units per year from 2015 through 2019.

 

 

ITEM 2

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated financial statements and the notes to those financial statements appearing elsewhere in this report.

 

This discussion and analysis contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, our actual results may differ materially from those anticipated in these forward-looking statements. In light of these risks and uncertainties, there can be no assurance that the forward-looking statements contained in this report will in fact occur. You should not place undue reliance on the forward-looking statements contained in this report. The forward-looking statements speak only as of the date on which they are made, and, except to the extent required by U.S. federal securities laws, we undertake no obligation to update any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. Further, the information about our intentions contained in this report is a statement of our intention as of the date of this report and is based upon, among other things, the existing regulatory environment, industry conditions, market conditions and prices, and our assumptions as of such date. We may change our intentions, at any time and without notice, based upon any changes in such factors, in our assumptions or otherwise.

 

Overview

 

ECO Integrated Technologies, Inc. is a development stage company focused on acquiring and/or developing and commercializing a portfolio of state-of-the-art and environmentally friendly waste handling and treatment solutions by establishing facilities and contracting with governmental and private industry entities to convert waste streams into commercial by-products. Our technology portfolio presently includes (i) certain preferred pricing and other rights in SonCav – a patented water treatment technology, and (ii) a license to utilize a patented technology, referred to as “TCOM” — or Thermal Conversion of Organic Materials, to convert a wide spectrum of waste feedstock into salable by-products, principally carbon, synthetic fuel, synthetic gas and electric power, utilizing pressure, heat and a catalyst. We plan to deploy our technologies to (i) establish SonCav as a market leading solution for waste water treatment and desalination; and (ii) establish one or more TCOM facilities, initially targeting the Las Vegas market, to handle waste streams and produce salable by-products. We plan to supplement our SonCav and TCOM technology with other complementary environmentally-friendly technologies and solutions to provide a suite of solutions to ever increasing municipal and private industry waste challenges.

 

History and Development

 

We were originally incorporated in July 2013, as Thunder Run Acquisition Corporation, under the laws of the State of Delaware. Thunder Run was formed with an initial principal business objective of achieving a business combination with a target company desiring to become a reporting company with a class of securities registered under the Securities Exchange Act of 1934.

 

In August 2014, (i) Thunder Run redeemed, at par value, 19,500,000 of the 20,000,000 shares then outstanding, (ii) Thunder Run issued, at par value, 3,000,000 shares of common stock to the sole owner of ECO Waste, (iii) the officers and directors of Thunder Run resigned and a new officer and director was appointed, and (iii) the name of Thunder Run was changed to ECO Waste Conversion Solutions Corporation. Following the Change of Control, we acquired 100% ownership of ECO Waste in exchange for ten shares of common stock. In December 2014, we changed the name of our Company to ECO Integrated Technologies, Inc.

 

ECO Waste is a Nevada limited liability company, formed in 2012. ECO Waste is a development stage company that has initially acquired certain commercial rights in a water treatment technology and a license to utilize the TCOM technology and is in the process of executing a strategy to commercialize a portfolio of technologies through the construction and operation of facilities to convert waste streams and produce salable commercial by-products.

 

The Share Exchange was accounted for as a reverse acquisition under the purchase method of accounting since the shareholders of ECO Waste obtained control of the combined entity. Accordingly, the exchange was recorded as a recapitalization of ECO Waste, with ECO Waste being treated as the continuing entity. The historical financial statements presented are the financial statements of ECO Waste. As neither Thunder Run nor Eco Waste had any material assets or operations prior to the Share Exchange, pro forma financial information reflecting the Share Exchange would not be material and is not included herewith.

 

Plan of Operations

 

Prior to the Share Exchange, and as of March 31, 2015, we had not yet realized any operating revenues.

 

 

Our plan of operations is presently two-fold. First, we plan to become a preferred provider of state-of-the-art environmentally friendly water remediation, desalination and waste handling and treatment solutions. Second, as an integral component of our waste handling and treatment solutions offered, we plan to derive salable by-products from the conversion of waste streams.

 

In order to execute on our plan of operations, we intend to assemble and integrate a portfolio of class leading environmentally friendly technologies. To that end, during 2014, we acquired certain rights relating to the commercialization of a patented water treatment technology — SonCav – and a license to utilize, in the United States, the TCOM System. TCOM utilizes a patented proprietary process to convert, rather than combust, waste streams. Unlike combustion treatment solutions, TCOM is environmentally friendly, producing little or no emissions or waste by-products but does produce salable by-products. SonCav is a proprietary patented process using ultrasound to produce purified water from waste water using a controlled cavitation process.

 

We intend to supplement our TCOM and SonCav technologies with other compatible environmentally friendly waste treatment technologies and are actively engaged in evaluations of potential technology solutions for addition to our offerings.

 

We plan to target governmental and private industry entities with known waste handling and treatment concerns, initially focusing on municipalities, and to package our solutions as a cost effective and environmentally superior solution to existing waste solutions. Where we obtain “buy-in” from the municipality, or other entities, we expect to contractually secure a specific waste stream and plan to design and construct a facility for the specific conversion of that waste stream into salable by-products. Subject to availability of funding and suitable waste stream supplies, our business is scalable by adding facilities in multiple municipalities and/or to multiple industrial entities.

 

Typical TCOM facilities are expected to require capital expenditures of $25+ million and nine months to develop and bring operational from receipt of funding. As of March 31, 2015, we did not have available funding, or commitments to provide funding, to support the development and operation of any TCOM facilities.

 

In addition to offering a solution to waste handling and treatment concerns of municipalities and private industry customers, our facilities are expected to generate salable by-products. Depending on the waste feedstock, principal salable by-products are expected to include various grades of carbon, synthetic fuel, synthetic gas and electricity as well as potable water.

 

Our business model contemplates multiple revenue streams, principally (i) sales of carbon; (ii) sales of synthetic fuel; (iii) tipping fees from acceptance of certain customer or municipal waste; and (iv) upon commercial deployment of SonCav, water treatment fees to be determined. While not central to our business model, we may also derive benefits from the generation of synthetic gas and electrical power — whether for sale or internal use — and possible tax and financial incentives associated with “green” technology programs.

 

Operating costs are expected to consist, principally, of labor costs, facilities maintenance and related costs, transportation and related costs and licensing fees associated with use of our technologies. License fees associated with use of the TCOM System include one-time license fees associated with the development and start-up of facilities, totaling $375,000 per TCOM facility and royalties of five percent (5%) of net profits from by-product sales payable over the first five years of operations of each TCOM facility.

 

Recent Developments

 

Las Vegas TCOM Facility Site

 

In February 2015, we entered into a Purchase and Sale Agreement to acquire an 18.28 acre site that is expected to house our initial TCOM facility, in North Las Vegas, Nevada. The site is developed and presently zoned for industrial use but will require a Conditional Use Permit and satisfaction of various municipal requirements before operations can commence. The site contains three tilt-up concrete constructed buildings, including a 62,720 square foot building housing 28,160 square feet of two-story office space and 34,560 square feet of production area; an 8,000 square foot repair shop; and a 30,000 square foot warehouse. In addition, the site has two 18,000 square foot sheds where walls could be added to the existing roof systems for added enclosed storage space and the entire perimeter of the site is enclosed with a chain link fence. The site also includes a rail spur that can accommodate nine rail cars. The contract purchase price of the site is $6.75 million, of which $100,000 was paid to open escrow. The escrow deposit is refundable, at the Company’s option, if it should elect not to close the purchase of the property. Subject to securing necessary purchase money financing, closing is contemplated in the second quarter of 2015.

 

Subject to our closing of the purchase of the North Las Vegas site and securing necessary financing to support site modifications and equipment purchase and installation, we intend to initially install four 3.5 ton TCOM Processors with an output consisting of synthetic fuel, synthetic gas, and various grades of carbon. Final design and engineering are underway and the exact configuration and specifications are not yet completed. The estimated timeline for manufacturing and installation of the required equipment and certain building modifications to meet the planned operational requirements is approximately nine months from securing the funding required, which is expected to total approximately $20.8 million above and beyond the acquisition price of the site.

 

 

Additional Loans to SonCav

 

In April 2015, we loaned an additional $25,000 to SonCav LLC. The loan is repayable, at 110% of face amount, on September 30, 2015 and is convertible, at our option, into a 0.25% interest in SonCav LLC. Pursuant to that loan, our rights to acquire SonCav Generators at preferred pricing was increased from five units to ten units per year from 2015 through 2019.

 

Employment Agreements

 

In 2015, we appointed additional officers and entered into employment agreements with each of our four executive officers, Jess Rae Booth, Steve Rockey, Walter Carlson and Kristin Johnston.

 

The Employment Agreement of Mr. Booth has a term of four years and the Employment Agreements of Messrs. Rockey and Carlson and Ms. Johnston each have a term of three years. Following the initial terms of those agreements, unless extended, each of the subject officers’ employment continues on an “at-will” basis. Each of the agreements provides for an annual salary, participation in all employment benefit plans maintained by the Company, including a group medical plan and severance pay ranging from one to five months, depending upon the term of service, in the event the Company terminates employment without cause or the employee terminates for good reason. Additionally, the officers may participate in any incentive compensation plan and performance bonus plan adopted by the Company.

 

The Employment Agreements fix base salaries of the officers at levels escalating on a quarterly basis during 2015 and semi-annually during 2016 and 2017. Annualized base salaries of the officers are: Jess Rae Booth — $134,500 in 2015; $180,000 in 2016; and $219,000 in 2017; each of Messrs. Rockey and Carlson and Ms. Johnston — $110,000 in 2015; $138,000 in 2016; and $177,000 in 2017.

 

Stock Option Grants

 

During the quarter ended March 31, 2015, we granted stock options and warrants to key employees and consultants to purchase a total of 10,983,400 shares of common stock at an average exercise price of $0.535 per share. We recorded a charge totaling $3,116,270 associated with the grant of the options and warrants.

 

Stock Issuances

 

During the quarter ended March 31, 2015, we issued a total of 460,496 shares of common stock for gross proceeds of $269,235.

 

Loans

 

During the quarter ended March 31, 2015, we made additional advances to CGTC/Michael Lurvey of $34,334, Brasil Plus of $56,500 and EETIL of $23,165. While we continue to advance funds to each of those entities in connection with ongoing efforts to commercialize TCOM, we have written off each of those advances as of March 31, 2015.

 

Results of Operations

 

Three Months ended March 31, 2015 Compared to the Three Months ended March 31, 2014

 

Sales

 

We have not commenced selling our products as of March 31, 2015; therefore our sales for both the three months ended March 31, 2015 and 2014 were $0.

 

General and Administrative Expenses

 

General and administrative expenses consisted primarily of consulting fees and related costs, rental expenses, and travel expenses. General and administrative expenses were $330,586 for the three months ended March 31, 2015 as compared to $33,217 for three months ended March 31, 2014. The increase for the three months ended March 31, 2015 compared to the same period in 2013 was $297,369, or 895%. The increase in general and administrative expenses was mainly due to acceleration of execution on our business plan and costs associated with our public reporting obligations. Specifically, our consulting fees and related costs increased by approximately $115,000 and our professional fees increased by approximately $140,000. We anticipate that our general and administrative expenses will increase over the next twelve months as we further execute our business plan.

 

 

Stock-Based Compensation

 

Stock-based compensation consisted of the fair value of the stock options and warrants issued to employees and third party service providers. Stock-based compensation was $3,116,270 for the three months ended March 31, 2015 as compared to $0 for the three months ended March 31, 2014. The increase in stock-based compensation is due to the issuance of 10,983,400 options and warrants to purchase common stock issued during the three months ended March 31, 2015. There were no such issuances in 2014.

 

Write down of assets

 

In connection with our efforts to commercialize our TCOM technology, we have entered into lending arrangements with three development stage entities involved in the development or international commercialization of TCOM. We advanced $113,999 and $12,645 to those entities during three months ended March 31, 2015 and 2014, respectively. In connection with our lending arrangements with those entities, we have certain rights to either convert loans to equity or to acquire equity in two of those entities. Because each of those entities is in a development stage and currently lacks sufficient assets or operating cash flows to repay the amounts advanced, we have recorded an expense reflecting a write down in full of the amounts advanced to those entities.

 

Interest Expense

 

Interest expense for the three months ended March 31, 2015 was $1,088 as compared to $0 for the three months ended March 31, 2014. The increase is due to the increase in interest bearing notes payable in 2015 as compared to 2014.

 

Financial Condition

 

Liquidity and Capital Resources

 

Our principal sources of liquidity include cash from the issuance of notes payable and the sale of common stock. During the three months ended March 31, 2015 and the year ended December 31, 2014, we received cash of $269,235 and $1,470,485, respectively, from the issuance of shares of our common stock. Also, during the years ended December 31, 2013 and 2014 we received cash of $106,718 and $104,971, respectively, from the issuance of notes payable.

 

As of March 31, 2015, our cash totaled $173,871 and our working capital totaled $55,559 as compared to a cash balance of $433,045 and working capital of $362,463 as of December 31, 2014.

 

Cash Flows

 

The following table sets forth a summary of our cash flows for the periods indicated:

 

		Three months ended March 31,
		2015				2014
Net cash used in operating activities		$	(282,706	)		$	(35,717	)
Net cash used in investing activities			(245,655	)			(12,645	)
Net cash provided by financing activities			269,187				48,377

 

Operating Activities. Net cash used in operating activities was $282,706 for the three months ended March 31, 2015, an increase of $246,989, compared to $35,717 for the three months ended March 31, 2014. The increase in cash used in operating activities was mainly attributable to the increase in the net loss; partially offset by an increase in non-cash stock option expense, write down of assets and an increase in accounts payable, all associated with acceleration of our business plan.

 

Investing Activities. Net cash used in investing activities for the three months ended March 31, 2015 was $245,655, an increase of $233,010, compared to $12,645 for the three months ended March 31, 2014. The increase in cash used in investing activities related to increase in issuance of notes receivable to third parties; purchases of furniture and equipment and the deposit and other costs paid associated with the Las Vegas conversion facility.

 

Financing Activities. Net cash provided by financing activities for the three months ended March 31, 2015 was $269,187 compared to $48,377 for the three months ended March 31, 2014. During the three months ended March 31, 2015, we received $269,235 from the sale of 460,496 shares of our common stock. During the three months ended March 31, 2014, we received $48,377 from the issuance of notes payable.

 

 

Notes and advances receivable

 

During the three months ended March 31, 2015 and the years ended December 31, 2014 and 2013, we advanced funds to various entities with which we have existing or potential strategic relationship. Two of those loans included the grant of certain equity rights.

 

Carbon Geo-Tek Consultants, Inc. (“CGTC”) and Lurvey Advances.   We have, from time to time, advanced funds to CGTC and Lurvey to facilitate efforts to upgrade a facility in Hawaii, secure third party certification and advance the planned business of our Hawaiian joint venture pending receipt of third party financing. The advances are undocumented unsecured loans with no specific repayment terms. At March 31, 2015 and December 31, 2014, advances to CGTC and Mr. Lurvey totaled $123,313 and $88,979, respectively.

 

ECO Enviro Technologies International Limited (“EETIL”) Loan.   Under the EETIL Loan Agreement, we agreed to provide certain loans for use in development of facilities in international markets pending receipt of third party financing. The loans bear interest at 10% per annum and are repayable on December 31, 2016 or earlier from operating profits or the receipt of third party financing. As further consideration for the loans, we were issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in EETIL at the rate of 0.5% for each $10,000 of principal amount loaned. At March 31, 2015 and December 31, 2014, advances under the EETIL Loan Agreement totaled $139,288 and $116,123, respectively.

 

Brasil Plus Loan.   Under the Brasil Plus Loan Agreement, we agreed to provide certain loans for use in development of facilities in South American markets pending receipt of third party financing. The loans bear interest at 10% per annum and are repayable on December 31, 2016 or earlier from operating profits or the receipt of third party financing. As further consideration for the loans, we were issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in Brasil Plus at the rate of 0.5% for each $10,000 of principal amount loaned. At March 31, 2105 and December 31, 2014, advances under the Brasil Plus Loan Agreement totaled $89,013 and $32,513, respectively.

 

Sonic Cavitation Ltd. Convertible Bridge Loan.   Under the Sonic Convertible Bridge Loan Agreement, we agreed to provide $200,000 to Sonic Cavitation Ltd. (“SCLtd”) and Sonic Cavitation LLC, (“SonCav”). The loans provided for interest at 10% per annum and were repayable on November 30, 2015. The loans were convertible, at our option, into a non-diluting 3% interest in SonCav and a non-diluting 0.25% interest in SCLtd. In December 2014, we converted the full amount owing under the Sonic Convertible Bridge Loan into a non-diluting 3% equity ownership interest in SonCav and a non-diluting 0.25% equity ownership interest in SCLtd. In April 2015, we loaned an additional $25,000 to SonCav LLC. The loan is repayable, at 110% of face amount, on September 30, 2015 and is convertible, at our option, into a 0.25% interest in SonCav LLC. Pursuant to that loan, our rights to acquire SonCav Generators at preferred pricing was increased from five units to ten units per year from 2015 through 2019.

 

While we intend to continue to advance funds to CGTC, EETIL and Brasil Plus as part of our plans to commercialize our TCOM technology and intend to make additional investments in SonCav, because of the uncertainty of future collection of such advances and realization of value from investments, we have fully written down all amounts loaned to each of CGTC, EETIL and Brasil Plus and our investment in SonCav. Accordingly, the notes balances and investment are reflected on our balance sheet at zero.

 

Commitments

 

We entered into a license agreement with the developer and patent-holder on the TCOM technology. As consideration for the license and associated services, we are obligated to pay the following fees with respect to TCOM facilities:

 

•

Prepaid License Fee:   A prepaid license fee of  $125,000 for site specific design and equipment specification work for each licensed facility, payable on initial draw of funding for construction of the facility;

 

•

Additional Licensing Fee:   An additional license fee of  $250,000 per facility, payable $150,000 on commencement of construction of a TCOM facility and $100,000 following completion of the first full calendar month of commercial operations of each TCOM facility; provided that the quantity and quality of salable by-products from such operations are substantially in compliance with the facility operating specifications;

 

•

Production Royalties:   Royalties in an amount equal to five percent of net profits from the sale of by-products from each TCOM facility, payable on a quarterly basis for a period of five years; and

 

•

Las Vegas Prepaid License Fee:   With respect to the initial facility, planned in North Las Vegas, the fees otherwise payable, as described above, are modified to provide that total applicable license fees of  $375,000 are payable (i) $175,000 in advance; and (ii) $200,000 in the month following the first full calendar quarter of commercial operations.

 

As of March 31, 2015 and December 31, 2014, we had prepaid a licensing fee of $175,000 relating to the planned North Las Vegas TCOM Facility.

 

 

Capital Requirements

 

In order to implement our business plan, we will require substantial funding beyond our current resources. With respect to our planned TCOM facility in North Las Vegas, Nevada, we expect that our capital expenditures will be approximately $27.5 million, consisting of $6.75 million payable for the site presently under contract and approximately $20.8 million for facilities upgrades and equipment installation. Future TCOM facilities can be expected to cost $25+ million to acquire, develop and bring operational.

 

In addition to funding of capital expenditures, we will also require operating capital to support overhead and facilities operations until such time, if ever, as cash flows from operations support operations. The amount of operating capital required will depend on the number and size of facilities operated, among other factors, and the time period required to attain profitability. We anticipate that the minimum requirements for additional operating capital over 2015 will be approximately $1.2 million.

 

We are presently engaged in discussions with financing sources with respect to providing funding to support capital expenditures relating to our planned North Las Vegas TCOM facility and other facilities and to support our operating capital requirements. We do not presently have sufficient capital to acquire, develop or operate our planned North Las Vegas TCOM facility, or any other facilities, and do not have any commitments to provide such capital. If we are unable to secure the financing required to complete the acquisition, development and bring operational the North Las Vegas Facility, or other facilities, or to secure the needed funding on acceptable terms, we will be unable to execute, in part or in whole, our business plan and we may be required to curtail or cease operations.

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Inflation

 

We believe that inflation has not had a significant impact on our operations since inception.

 

 

ITEM 3

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4

CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation as of March 31, 2015 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of March 31, 2015.

 

Changes in Internal Control over Financial Reporting

 

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

ITEM 6

EXHIBITS

 

Exhibit No.		Description
31.1		Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2		Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1		Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2		Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
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

 

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on behalf by the undersigned thereunto duly authorized.

 

	ECO INTEGRATED TECHNOLOGIES, INC.
Date:  April 30, 2015
	By:	/s/ Jess Rae Booth
		Jess Rae Booth
		Chief Executive Officer
	By:	/s/ Walter Carlson
		Walter Carlson
		Chief Financial Officer