Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark
One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
quarterly period ended
June 30,
2017
or
☐
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
0-5703
Environmental Packaging Technologies
Holdings, Inc.
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(Exact Name of
Registrant as Specified in its Charter)
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Nevada
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45-5634033
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(State or Other
Jurisdiction of Incorporation or Organization)
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(I.R.S.
Employer Identification No.)
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6100 West by Northwest, Suite 110, Houston, Texas
77040
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(Address of
Principal Executive Offices) (Zip Code)
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(646) 229-3639
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(Registrant’s
Telephone Number, Including Area Code)
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(Former Name,
Former Address and Former Fiscal Year, if Changed Since Last
Report)
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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
☐ 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
☐ 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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting
company” in Rule 12b-2 of
the Exchange Act.
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Large
Accelerated Filer ☐
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Accelerated
Filer ☐
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Non-Accelerated
Filer ☐
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Smaller
Reporting Company ☒
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Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act).
Yes
☐ No ☒
Indicate
the number of shares outstanding of each of the issuer’s classes of common stock, as of the
latest practicable date: As of March 14, 2018 there were 67,437,023
shares of Common Stock, par value $0.01 per share,
outstanding.
Part I
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Financial Information
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Page
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Item
1.
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Financial
Statements
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Consolidated
Balance Sheets as of June 30, 2017 (unaudited) and December 31,
2016
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3
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Consolidated
Statements of Operations and Comprehensive (Loss) Income for the
Three and Six Months Ended June 30, 2017 (unaudited) and
2016
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4
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Consolidated
Statement of Changes in Stockholders’ Deficit for the Six
Months Ended June 30, 2017 (unaudited) and December 31,
2016
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5
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Consolidated
Statements of Cash Flows for the Six Months Ended June 30, 2017 and
2016 (unaudited)
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6
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Notes to
Consolidated Financial Statements
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7
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Item
2.
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Management’s
Discussion and Analysis of Results of Operations and Financial
Condition
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20
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Item
3.
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Quantitative and
Qualitative Disclosures About Market Risk
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23
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Item
4.
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Controls and
Procedures
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23
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Part II
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Other Information
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Item
1.
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Legal
Proceedings
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25
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Item
1A.
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Risk
Factors
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31
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Item
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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31
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Item
5.
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Other
Information
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31
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Item
6.
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Exhibits
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31
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SIGNATURE
PAGE
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32
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
ENVIRONMENTAL PACKAGING TECHNOLOGIES HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
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June 30,
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December 31,
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2017
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2016
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(unaudited)
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Assets
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Cash
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$780,858
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$814,778
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Restricted
cash
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1,075,000
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-
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Accounts
receivable, net
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2,672,925
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2,878,469
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Inventories,
net
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2,139,505
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2,217,674
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Short-term
deposits
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245,250
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-
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Prepaid expense and
other current assets
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1,313,362
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92,163
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Total
Current Assets
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8,226,900
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6,003,084
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Fixed Assets,
net
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116,833
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-
|
|
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Total
Assets
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$8,343,733
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$6,003,084
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Liabilities
and Stockholders' Deficit
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Current
liabilities
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Accounts
payable
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$2,831,272
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$3,026,480
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Accounts payable -
related parties
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68,105
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130,552
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Accrued
liabilities
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1,231,791
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1,141,849
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Short-term
notes
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575,000
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4,720,000
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Short-term line of
credit, net
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3,513,393
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-
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Advance from
customer
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497,689
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497,689
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Other short-term
liabilities
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524,178
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418,500
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Short-term
investment loan
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-
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13,964,664
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Total
Current Liabilities
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9,241,428
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23,899,734
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Other long-term
liabilities
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65,810
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48,333
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Total
Liabilities
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9,307,238
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23,948,067
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Commitments and
Contingencies (Note 16)
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Stockholders'
Deficit
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Preferred stock,
$.001 par value; authorized shares - 1,000,000; 998 shares issued
or outstanding at June 30, 2017; no shares issued and outstanding
at December 31, 2016
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1
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-
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Additional paid-in
capital - Preferred Stock
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997,999
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-
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Common stock, $.001
par value; authorized shares - 90,000,000; 60,596,023 shares issued
and outstanding at June 30, 2017 and 29,195,260 shares issued and
outstanding at December 31, 2016
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60,596
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40,232
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Additional paid-in
capital - Common Stock
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41,683,535
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25,422,750
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Additional paid-in
capital-Warrants
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106,668
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-
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Accumulated
deficit
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(46,325,317)
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(43,460,290)
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Obligation to issue
shares
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2,585,156
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-
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Accumulated other
comprehensive income
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(72,143)
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52,325
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Total
Stockholders' Deficit
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(963,505)
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(17,944,983)
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Total
Liabilities and Stockholders' Deficit
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$8,343,733
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$6,003,084
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The accompanying
notes are an integral part of these consolidated financial
statements.
-1-
ENVIRONMENTAL PACKAGING TECHNOLOGIES HOLDINGS, INC.
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CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE (LOSS)
INCOME
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(unaudited)
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For
the three months ended June 30,
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For
the six months ended June 30,
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2017
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2016
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2017
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2016
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Revenues
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$4,121,020
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$4,543,393
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$9,084,334
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$8,480,546
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Cost of goods
sold
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(3,487,896)
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(3,825,878)
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(7,776,173)
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(4,584,541)
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Gross
profit
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633,124
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717,515
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1,308,161
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3,896,005
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Selling, general
and administrative expenses
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(1,262,295)
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(976,640)
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(2,293,124)
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(1,995,875)
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Operating
(loss) income
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(629,171)
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(259,125)
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(984,963)
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1,900,130
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Interest and
finance expense, net
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(1,472,890)
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(185,800)
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(1,783,858)
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(328,295)
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Amortization
expense
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(93,985)
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(116,009)
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(98,992)
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(232,019)
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Other
income
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111,828
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-
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160,555
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-
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Other
expenses
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(17,571)
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(17,929)
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-
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10,861
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Other
taxes
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(57,372)
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(494)
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(104,917)
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(12,514)
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(Loss)
Income before income taxes
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(2,159,161)
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(579,357)
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(2,812,175)
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1,338,163
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Income tax
(expense) benefit
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(65,950)
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92,032
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(44,219)
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(129,531)
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Net
(loss) / income
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$(2,225,111)
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$(487,325)
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$(2,856,394)
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$1,208,632
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|
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Comprehensive
(loss) / income
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|
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Net (loss) /
income
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$(2,225,111)
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$(487,325)
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$(2,856,394)
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$1,208,632
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Foreign currency
translation adjustments
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(167,631)
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17,693
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(124,468)
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(52,050)
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|
|
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Comprehensive
(loss) / income
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$(2,392,742)
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$(469,632)
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$(2,980,862)
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$1,156,582
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|
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Weighted
average shares outstanding (basic)
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36,217,426
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16,984,179
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36,217,426
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16,984,179
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Weighted
average shares outstanding (dilutive)
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38,215,866
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29,184,271
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38,215,866
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29,184,271
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|
|
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Earnings
(loss) per share (primary)
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$(0.06)
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$(0.03)
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$(0.08)
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$0.07
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Earnings
(loss) per share (dilutive)
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$(0.06)
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$(0.02)
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$(0.07)
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$0.04
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The accompanying
notes are an integral part of these consolidated financial
statements.
-2-
ENVIRONMENTAL PACKAGING TECHNOLOGIES HOLDINGS, INC.
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CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS'
DEFICIT
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FOR THE SIX MONTHS ENDED JUNE 30, 2017 (unaudited) AND YEAR ENDED
DECEMBER 31, 2016
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|
Preferred
Stock
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Additional Paid-in
Capital
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Common
Stock
|
Additional Paid-in
Capital - Common Stock
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Additional Paid-in
Capital -
Warrants
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Obligation to issue
Shares
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Accumulated
Deficit
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Accumulated Other
Comprehensive Income
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Total Stockholders' Deficit
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||
|
Shares
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Amount
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|
Shares (1)(2)
|
Amount
|
|
|
|
|
|
|
Balance as of December
31,2015
|
189,920
|
$190
|
$18,991,834
|
3,789,970
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$3,769
|
$6,464,647
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$-
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$2,418
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$(43,280,632)
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$72,574
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$(17,745,200)
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Conversion of preferred shares to common
shares
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(189,920)
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(190)
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(18,991,834)
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18,991,830
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18,992
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18,992,024
|
-
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(18,992)
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-
|
-
|
-
|
Issuance of shares under short-term debt
agreement
|
-
|
-
|
-
|
3,184,460
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3,184
|
-
|
-
|
(3,184)
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-
|
-
|
-
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Issuance of shares for payment of
expenses
|
-
|
-
|
-
|
3,250,000
|
3,250
|
-
|
-
|
(3,126)
|
-
|
-
|
124
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Foreign currency
translation
|
-
|
-
|
|
-
|
-
|
-
|
-
|
-
|
-
|
(20,249)
|
(20,249)
|
Net (loss) for the year ended December
31, 2016
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(179,658)
|
-
|
(179,658)
|
Balance as of December 31,
2016
|
-
|
$-
|
$-
|
29,195,260
|
$29,195
|
$25,456,671
|
$-
|
$(22,884)
|
$(43,460,290)
|
$52,325
|
$(17,944,983)
|
Issuance of shares for payment of
expenses
|
-
|
-
|
-
|
875,000
|
875
|
-
|
-
|
50,000
|
-
|
-
|
50,875
|
Issuance of preferred shares under debt
conversion
|
998
|
1
|
997,999
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
998,000
|
Issuance of shares under subordinated
note conversion
|
-
|
-
|
-
|
9,879,740
|
9,880
|
13,954,784
|
-
|
-
|
-
|
-
|
13,964,664
|
Conversion of
warrants
|
-
|
-
|
-
|
1,010,000
|
1,010
|
-
|
-
|
-
|
-
|
-
|
1,010
|
Issuance of shares under debt
conversion
|
-
|
-
|
-
|
2,016,000
|
2,016
|
755,984
|
-
|
-
|
-
|
-
|
758,000
|
Issuance of shares from
merger
|
-
|
-
|
-
|
12,000,023
|
12,000
|
(12,000)
|
-
|
-
|
-
|
-
|
-
|
Issuance of shares under Private
Placement
|
-
|
-
|
-
|
5,620,000
|
5,620
|
2,804,380
|
-
|
2,552,000
|
-
|
-
|
5,362,000
|
Payment of expenses related to the
merger
|
-
|
-
|
-
|
-
|
-
|
(550,000)
|
-
|
-
|
-
|
-
|
(550,000)
|
Payment of expenses related to
fundraising
|
-
|
-
|
-
|
-
|
-
|
(427,016)
|
-
|
-
|
-
|
-
|
(427,016)
|
Issuance costs
|
-
|
-
|
-
|
-
|
-
|
(192,600)
|
-
|
-
|
-
|
-
|
(192,600)
|
Issuance of shares for payment of
compensation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
6,040
|
-
|
-
|
6,040
|
Conversion of
warrants
|
|
|
|
|
|
(106,668)
|
106,668
|
-
|
-
|
-
|
-
|
Foreign currency
translation
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(124,468)
|
(124,468)
|
Prior Period
Adjustments
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(8,633)(3)
|
-
|
(8,633)
|
Net (loss) for the six months ended June
30, 2017
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
(2,856,394)
|
-
|
(2,856,394)
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of June 30,
2017
|
998
|
$1
|
$997,999
|
60,596,023
|
$60,596
|
$41,683,535
|
$106,668
|
$2,585,156
|
$(46,325,317)
|
$(72,143)
|
$(963,505)
|
(1)
This schedule
incorporates the reduction of the total number of common and
preferred shares issued and outstanding via a 100-to-1 reverse
split in March of 2016.
(2)
This schedule
incorporates the increase of the total number of common shares
issued and outstanding via a 10-to-1 stock split in April of
2017.
(3)
Due to U.S. F/X
adjustment as a result of 2016 audit and Korea prior period
adjustments made as a result of expenses/AP, sales/AR, and
inventory count updates
Arising
from Q2 2017 accounting system implementation/review.
|
The
accompanying notes are an integral part of these consolidated
financial statements.
|
-3-
ENVIRONMENTAL
PACKAGING TECHNOLOGIES HOLDINGS, INC.
|
||
CONSOLIDATED
STATEMENTS OF CASH FLOWS (Unaudited)
|
||
|
For
the six months ended June 30,
|
|
|
2017
|
2016
|
Operating
Activities
|
|
|
Net (loss) /
income
|
$(2,856,394)
|
$1,208,632
|
Adjustment to
reconcile net (loss) / income to net cash used in operating
activities
|
|
|
Depreciation
|
11,791
|
-
|
Amortization of
debt issuance costs
|
-
|
232,019
|
Recovery of bad
debt
|
4,263
|
-
|
Inventory
obsolescence
|
57,853
|
50,513
|
Provision for
warranty cost
|
4,933
|
(1,615)
|
Accounts
receivable
|
201,281
|
(492,953)
|
Inventories
|
20,316
|
(2,004,670)
|
Short-term
Deposits
|
(245,250)
|
-
|
Prepaid expense and
other current assets
|
(453,699)
|
(7,304)
|
Fixed
Assets
|
(128,624)
|
-
|
Accounts
payable
|
(257,655)
|
(62,916)
|
Accrued
expenses
|
-
|
18,610
|
Accrued
liabilities
|
85,009
|
-
|
Other short-term
liabilities
|
116,222
|
(10,971)
|
Other long-term
liabilities
|
17,477
|
(5,695)
|
Net cash used in
operating activities
|
(3,422,477)
|
(1,076,350)
|
|
|
|
Financing
Activities
|
|
|
Proceeds from
short-term borrowings
|
453,364
|
150,000
|
Proceeds from other
short-term liabilities
|
955,000
|
775,000
|
Proceeds from
short-term line of credit
|
3,513,393
|
-
|
Issuance of shares
under private placement
|
4,594,500
|
-
|
Payment of expenses
related to the merger
|
(550,000)
|
-
|
Payment of expenses
related to fundraising
|
(427,016)
|
-
|
Repayments of
short-term borrowings
|
(3,858,364)
|
(300,000)
|
Repayments of other
short-term liabilities
|
(965,544)
|
(168,654)
|
Net cash provided
by financing activities
|
3,715,333
|
456,346
|
Effect of exchange
rate fluctuations on cash
|
(326,776)
|
51,266
|
|
|
|
Net decrease in
cash
|
(33,920)
|
(568,738)
|
Cash at beginning
of period
|
814,778
|
1,022,716
|
Cash at end of
period
|
$780,858
|
$453,978
|
Supplemental
disclosures of cash flow information:
|
|
|
Cash paid during
the period for:
|
|
|
Interest
|
$928,578
|
$131,482
|
Income
taxes
|
$44,219
|
$129,531
|
Non-cash financing
activities:
|
|
|
Issuance of shares
under subordinated note conversion
|
$14,704,664
|
-
|
Conversion of
preferred shares to common shares
|
$-
|
$18,992,024
|
Issuance of shares
under short-term debt agreement
|
$12,000
|
$3,184
|
Issuance of shares
for payment of expenses
|
$875
|
$3,250
|
|
||
The
accompanying notes are an integral part of these consolidated
financial statements.
|
-4-
ENVIRONMENTAL PACKAGING TECHNOLOGIES HOLDINGS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. ORGANIZATION AND NATURE OF BUSINESS
Environmental
Packaging Technologies, Inc. (the “Company” and, or
“EPT”) is a Delaware corporation incorporated August 8,
2011 with operations in Holland, Michigan, and is currently
headquartered in Houston, Texas. The Company engages in the
manufacturing and sale of flexitanks, a specialty product that is
being used for the transport of bulk liquid cargo. The Company
conducts its business primarily through its U.S. operation in
Michigan, and its subsidiaries in Korea and the Netherlands. The
Company’s main products include Big Red Flexitanks and
Liquirides; and they are sold in various countries around the
world.
2.
INTERIM FINANCIAL STATEMENTS
The
interim Consolidated Financial Statements of Environmental
Packaging Technologies Holdings, Inc. and its subsidiaries ("EPTI"
or the "Company") have been prepared in accordance with the
instructions to Form 10-Q and Article 10 of Regulation S-X.
Accordingly, they do not include all information and disclosures
necessary for a presentation of the Company's financial position,
results of operations, and cash flows in conformity with accounting
principles generally accepted in the United States of America. In
the opinion of management, these financial statements reflect all
normal recurring adjustments and accruals necessary for a fair
statement of the Company's financial position, results of
operations, and cash flows for such periods. The results of
operations for any interim period are not necessarily indicative of
the results for the full year. The December 31, 2016 Consolidated
Balance Sheet data were derived from audited financial statements,
but do not include all disclosures required by accounting
principles generally accepted in the United States of America.
These financial statements should be read in conjunction with the
financial statements and notes thereto contained in the
Company’s Annual Report within Form 8-K for the year ended
December 31, 2016.
3.
GOING CONCERN
The
Company has an accumulated deficit as of June 30, 2017 of
($46,325,317). This accumulated deficit is primarily the result of
non-cash write-off of impaired assets of $29,272,766. At June 30,
2017, the Company’s total current liabilities of $9.3 million
exceeded its total current assets of $8.3 million, resulting in a
working capital deficit of $1.0 million, while at December 31,
2016, the Company’s total current liabilities of $23.9
million exceeded its total current assets of $6 million, resulting
in a working capital deficit of $17.9 million. The $16.9 million
increase in the working capital deficit is primarily related to
decreases in current liabilities as of June 30, 2017 due to the
conversion of a subordinated note to shares of common stock and by
increases in current assets, primarily other assets.
The
Company’s continuation as a going concern is dependent on
management’s ability to develop profitable operations and/or
obtain additional financing from shareholders and/or other third
parties. In order to address the need to satisfy continuing
obligations and realize its long-term strategy, management’s
plans include continuing to fund operations with cash received from
financing activities, however, there are no guarantees that
any of future financings will close.
The
accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern,
however, the above conditions raise substantial doubt about the
Company’s ability to do so. The consolidated financial
statements do not include any adjustments to reflect the possible
future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result
should the Company be unable to continue as a going
concern.
4.
SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
(a)
Basis
of Presentation
The
consolidated financial statements are unaudited; however, in the
opinion of management, they contain all the adjustments (consisting
of those of a normal recurring nature) considered necessary to
present fairly the financial position, results of operations and
cash flows for the periods presented in conformity with U.S.
generally accepted accounting principles (“GAAP”)
applicable to interim periods. The consolidated financial
statements should be read in conjunction with the audited
consolidated financial statements of EPT included in the
Company’s Annual Report on Form 8-K for the year ended
December 31, 2016.
-5-
(b)
Organization
and principals of Consolidation
The
consolidated financial statements include the accounts of the
Company and its subsidiaries. The 100% owned subsidiaries include
Environmental Packaging Latin America South S.R.L located in Buenos
Aires, Argentina, EPT Packaging Europe B.V. located in Rotterdam,
The Netherlands, and EPTPAC Korea Co. Ltd., located in Seoul,
Korea.
For all
periods presented, all significant inter-company accounts and
transactions have been eliminated in the consolidated financial
statements. In the opinion of management, all adjustments
considered necessary to give a fair presentation have been
included.
(c)
Fair
Value of Financial Instruments
The
Company follows the provisions of ASC 820, Fair Value Measurements
and Disclosures, which clarifies the definition of fair value,
prescribes methods for measuring fair value, and establishes a fair
value hierarchy to classify the inputs used in measuring fair value
as follows:
●
Level 1: Observable
inputs such as unadjusted quoted prices in active markets for
identical assets or liabilities available at the measurement
date.
●
Level 2: Inputs
other than quoted prices that are observable for the asset or
liability in active markets, quoted prices for identical or similar
assets and liabilities in markets that are not active, inputs other
than quoted prices that are observable, and inputs derived from or
corroborated by observable market data.
●
Level 3:
Unobservable inputs that reflect management’s assumptions
based on the best available information.
The
carrying value of accounts receivable, inventories, prepaid
expenses and other current assets, accounts payable, accrued
liabilities, advance from customer, other short-term liabilities,
and short-term investment loan approximate their fair values
because of the short-term nature of these instruments. The carrying
value of the long-term investment loan and other long-term
liabilities approximates fair value based on market rates and terms
currently available to the Company. The Company did not identify
any assets or liabilities that are required to be re-measured at
fair value at a recurring basis in accordance with ASC
820.
(d)
Use
of Estimates and Assumptions
The preparation of the consolidated financial statements in
conformity with US GAAP 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 dates of the consolidated financial statements and the reported
amounts of revenues and expenses during the reporting
periods. Estimates are adjusted to reflect actual experience
when necessary. Significant accounting estimates reflected in the
Company’s consolidated financial statements include allowance
for doubtful accounts, provision for income taxes, product
warranty, and valuation of deferred tax assets. Since the use of estimates is an integral
component of the financial reporting process, actual results could
differ from those estimates.
(e)
Translation
of Foreign Currency
The
accounts of the Company and its subsidiaries are measured using the
currency of the primary economic environment in which the entity
operates (the “functional currency”). The
Company’s functional currency is the U.S. dollars
(“USD”) and the accompanying consolidated financial
statements are presented in USD. Foreign currency transactions are
translated into USD using the fixed exchange rates in effect at the
time of the transaction. Generally, foreign exchange gains and
losses resulting from the settlement of such transactions are
recognized in the consolidated statements of operations. The
Company translates foreign currency financial statements of its
subsidiaries in accordance with ASC 830-10, “Foreign Currency
Matters”. Assets and liabilities are translated at current
exchange rates quoted by the US Treasury at the balance sheet dates
and revenues and expenses are translated at average exchange rates
in effect during the year. Resulting translation adjustments are
recorded as other comprehensive income (loss) and accumulated as a
separate component of equity of the Company.
-6-
(f)
Cash
and Cash Equivalents
Cash
and cash equivalents consist of cash on hand, and other highly
liquid investments which are unrestricted as to withdrawal or use,
and which have maturities of three months or less when purchased.
The Company maintains cash with various financial institutions
mainly in the U.S., Korea and the Netherlands. As of June 30, 2017,
and December 31, 2016, cash balances of $780,858 and $814,778,
respectively, are not insured by the Federal Deposit Insurance
Corporation or other programs. As of June 30, 2017, and December
31, 2016 the Company did not have any cash
equivalents.
As of
June 30, 2017, the Company had a balance of $1,075,000 designated
as restricted cash. The funds are held in an escrow account and
were released to the company in the third quarter of
2017.
(g)
Accounts
Receivable
Accounts
receivable are presented at net realizable value. The Company
maintains allowances for doubtful accounts for estimated losses.
The Company reviews its accounts receivable on a periodic basis and
makes general and specific allowances when there is doubt as to the
collectability of individual balances. In evaluating the
collectability of individual receivable balances, the Company
considers many factors, including the age of the balances,
customers’ historical payment history, their current
credit-worthiness and current economic trends. Accounts are written
off after exhaustive efforts at collection. As of June 30, 2017,
and December 31, 2016, the allowance for doubtful accounts totaled
$25,037 and $20,773, respectively.
(h)
Inventories
Inventories,
consisting of raw materials and finished goods, are stated at the
lower of cost or market, with cost determined under the weighted
average method. An allowance is established when management
determines that certain inventories may not be saleable. If
inventory costs exceed expected market value due to obsolescence or
slow-moving or quantities in excess of expected demand, the Company
will record reserves for the difference between the cost and the
market value. These reserves are recorded based on estimates and
reflected in cost of revenues. The Company recorded a reserve for
slow-moving inventory of $91,544 and $88,959 at June 30, 2017 and
December 31, 2016, respectively.
(i)
Revenue
Recognition
The
Company generates revenue primarily from the sales of flexitanks
and delivery of related services. The Company recognizes revenue
from product sales when persuasive evidence of a sale exists: that
is, a product is shipped under an agreement with a customer, risk
of loss and title has passed to the customer; the fee is fixed or
determinable; and collection of the resulting receivable is
reasonably assured. Sales allowances are estimated based upon
historical experience of sales returns.
Advance
payments and deposits received from customers prior to the
provision of services and recognition of the related revenues are
presented as advance from customer in the accompanying consolidated
balance sheet.
(j)
Product
Warranty
The
Company provides warranty on sales of its flexitanks; in general,
the warranty is effective one-year from the date of shipment. The
Company records a liability for an estimate of costs that it may
incur under its basic limited warranty when product revenue is
recognized. Factors affecting the Company’s warranty
liability include the number of flexitanks sold and historical and
anticipated rates of claims and costs per claim. The Company
periodically assesses the adequacy of its warranty liability based
on changes in these factors. Based upon historical trends and
warranties provided by the Company’s suppliers and
sub-contractor’s the company has made provision for warranty
cost based on .75% of product sales. The Company has made a
provision for warranty cost of $70,526 and $65,593 as of June 30,
2017 and December 31, 2016, respectively, within accrued
liabilities in the accompanying consolidated balance
sheet.
|
Six
months ended June 30, 2017
|
Year
ended
December
31, 2016
|
|
Product warranty
liability:
|
|
|
|
Opening
balance
|
$65,593
|
$64,195
|
|
Accruals for
product warranties issued in the period
|
4,933
|
1,398
|
|
Ending
liability
|
$70,526
|
$65,593
|
|
|
|
|
|
-7-
(k)
Shipping
and Handling
In
accordance with FASB ASC 605-45 (Emerging Issues Task Force (EITF)
Issue No. 00-10, “Accounting for Shipping and Handling Fees
and Costs”), the Company includes shipping and handling fees
billed to customers in net revenues. Amounts incurred by the
Company for freight are included in cost of goods
sold.
(l)
Segment
Reporting
“Disclosure About Segments of an Enterprise and Related
Information” requires use of the “management
approach” model for segment reporting. The management
approach model is based on the way a company’s management
organizes segments within the company for making operating
decisions and assessing performance. Reportable segments are based
on products and services, geography, legal structure, management
structure, or any other manner in which management disaggregates a
company. The Company’s management considers its business to
comprise three segments for reporting purposes. (See Note
15)
(m)
Computation
of Earnings (Loss) per Share
Basic net income (loss) per common share is computed by dividing
net income (loss) attributable to common stockholders by the
weighted average number of shares of common stock outstanding
during the period. Average outstanding primary shares was
36,217,426 and 16,984,179 for the six months ended June 30,
2017 and 2016, respectively. On a dilutive basis, the average
outstanding dilutive shares was 38,215,866 and 29,184,271 for the
six months ended June 30, 2017 and 2016, respectively. Net income (loss) per common share attributable to
common stockholders assuming dilution is computed by dividing net
income by the weighted average number of shares of common stock
outstanding plus the number of additional common shares that
would have been outstanding if all
dilutive potential common shares had been
issued.
(n)
Taxation
Because
the Company and its subsidiaries are incorporated in different
jurisdictions, they file separate income tax returns. The Company
uses the liability method of accounting for income taxes in
accordance with US GAAP. Deferred taxes, if any, are recognized for
the future tax consequences of temporary differences between the
tax basis of assets and liabilities and their reported amounts in
the consolidated financial statements. A valuation allowance is
provided against deferred tax assets if it is more likely than not
that the asset will not be utilized in the future.
The
Company recognizes the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the
technical merits of the position. The Company recognizes interest
and penalties, if any, related to unrecognized tax benefits as
income tax expense. The Company had no uncertain tax positions as
of June 30, 2017 and December 31, 2016,
respectively.
(o)
Comprehensive
Income
The
Company reports comprehensive income in accordance with the FASB
issued authoritative guidance that establishes standards for
reporting comprehensive income and its component in consolidated
financial statements. Comprehensive income, as defined, includes
all changes in equity during a period from non-owner
sources.
(p)
Derivative
Financial Instruments
When the Company issues debt that contains a conversion feature,
the Company first evaluates whether the conversion feature meets
the requirements to be treated as a derivative: a) one or more
underlying’s, typically the price of the Company's stock; b)
one or more notional amounts or payment provisions or both,
generally the number of shares upon conversion; c) no initial net
investment, which typically excludes the amount borrowed; and d)
net settlement provisions, which in the case of convertible debt
generally means the stock received upon conversion can be readily
sold for cash. There are certain scope exceptions from derivative
treatment, but these typically exclude conversion features that
provide for a variable number of shares.
-8-
When the Company issues warrants to purchase our common stock, we
must evaluate whether they meet the requirements to be treated as a
derivative. Generally, warrants would be treated as a derivative if
the provisions of the warrant agreement create uncertainty as to a)
the number of shares to be issued upon exercise; or b) whether
shares may be issued upon exercise.
If the conversion feature within convertible debt or warrants meet
the requirements to be treated as a derivative, we estimate the
fair value of the derivative liability using the Black-Scholes
Option Pricing Model upon the date of issuance. If the fair value
of the derivative liability is higher than the face value of the
convertible debt, the excess is immediately recognized as interest
expense. Otherwise, the fair value of the derivative liability is
recorded as a liability with an offsetting amount recorded as a
debt discount, which offsets the carrying amount of the debt. The
derivative liability is revalued at the end of each reporting
period and any change in fair value is recorded as a change in fair
value in the consolidated statement of operations. The debt
discount is amortized through interest expense over the life of the
debt. Derivative instrument liabilities and the host debt agreement
are classified on the balance sheet as current or non-current based
on whether settlement of the derivative instrument could be
required within twelve months of the balance sheet
date.
The accounting treatment of derivative financial instruments
requires that the Company record the embedded conversion option and
warrants at their fair values as of the inception date of the
agreement and at fair value as of each subsequent balance sheet
date. Any change in fair value is recorded as non-operating,
non-cash income or expense for each reporting period at each
balance sheet date. The Company reassesses the classification of
its derivative instruments at each balance sheet date. If the
classification changes as a result of events during the period, the
contract is reclassified as of the date of the event that caused
the reclassification.
As of June 30, 2017, the Company does not consider any of the
convertible debt and related warrants issued in 2017 to be
considered derivatives and therefore there is no requirement to
record the convertible debt and related warrants at their estimated
fair values.
(q)
Recent
Accounting Pronouncements
In May 2014, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update No. 2014-09
(ASU 2014-09), Revenue from Contracts with
Customers. ASU 2014-09 will
eliminate transaction- and industry-specific revenue recognition
guidance under current GAAP and replace it with a principle based
approach for determining revenue recognition. ASU 2014-09 will
require that companies recognize revenue based on the value of
transferred goods or services as they occur in the contract. ASU
2014-09 also will require additional disclosure about the nature,
amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and
changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. Based on the FASB’s Exposure
Draft Update issued on April 29, 2015, and approved in July 2015,
Revenue from Contracts With Customers (Topic 606): Deferral of the
Effective Date, ASU 2014-09 is now effective for reporting periods
beginning after December 15, 2017, with early adoption permitted
only as of annual reporting periods beginning after December 15,
2016, including interim reporting periods within that reporting
period. Entities will be able to transition to the standard either
retrospectively or as a cumulative-effect adjustment as of the date
of adoption. The adoption of ASU 2014-09 is not expected to have
any impact on the Company’s consolidated financial statement
presentation or disclosures.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), which, among other things, requires
the recognition of lease assets and lease liabilities on the
balance sheets of lessees, along with the disclosure of key
information about leasing arrangements. When effective, the ASU
will supersede, and add Topic to the FASB ASC. In addition to
replacing with FASB ASC 842, it also amends and supersedes a number
of other paragraphs throughout the FASB ASC. The ASU is effective
for public business entities for fiscal years beginning after
December 15, 2018, and interim periods within those fiscal years.
Early adoption is permitted. The Company is still evaluating the
impact ASU 2016-02 will have on its consolidated
financial statements.
Management does not believe that any other recently issued, but not
yet effective, authoritative guidance, if currently adopted, would
have a material impact on the Company’s consolidated
financial statement presentation or disclosures.
-9-
5.
ACCOUNTS RECEIVABLE, NET
The
Company’s net accounts receivable is as follows:
|
June
30,
|
December
31,
|
|
2017
|
2016
|
Trade accounts
receivable
|
$2,697,962
|
$2,899,242
|
Less: allowance for
doubtful accounts
|
(25,037)
|
(20,773)
|
Total accounts
receivable, net
|
$2,672,925
|
$2,878,469
|
6.
INVENTORIES, NET
The
Company’s inventories are as follows:
|
June
30,
|
December
31,
|
|
2017
|
2016
|
Raw
materials
|
$364,498
|
$533,132
|
Finished
goods
|
1,866,551
|
1,773,501
|
Less: allowance for
slow-moving inventories
|
(91,544)
|
(88,959)
|
Total inventories,
net
|
$2,139,505
|
$2,217,674
|
7.
ACCRUED LIABILITIES
The
Company’s accrued liabilities are comprised of the
following:
|
June
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Warranty
reserve
|
$70,526
|
$65,593
|
Accrued
taxes
|
416,794
|
73,991
|
Accrued
interest
|
-
|
71,182
|
Accrued legal
settlement
|
278,196
|
661,667
|
Accrued
professional fees
|
34,071
|
42,125
|
Other accrued
liabilities
|
25,479
|
31,556
|
Accrued Big Red
Resources invoices
|
214,125
|
195,735
|
Equity Issuance
Cost Liability
|
192,600
|
-
|
Total
|
$1,231,791
|
$1,141,849
|
8.
RELATED PARTY TRANSACTIONS
Transactions
with related parties not disclosed elsewhere in these consolidated
financial statements are described below.
The
Company does business with Zip Line Transportation, LLC which is
owned by the Company’s President. Zipline is a local
transportation company based in Houston that is used to move
product from the Houston location. The Company paid Zipline for
trucking services in the amounts $575,608 and $484,676 for the six
months ended June 30, 2017 and 2016, respectively. As of June 30,
2017, and December 31, 2016, the Company had outstanding payables
to Zipline of $68,105 and $130,552, respectively. Also, as of
December 31, 2016, the Company had an outstanding payable to David
Skriloff of $15,000, which was paid off during the six months ended
June 30, 2017.
-10-
In
addition, several of the Company’s lenders are also large
shareholders. The table below provides a listing of such investors
including percentage ownership and amount owed. It also provides a
list of the Company’s directors who were also lenders to the
Company.
Investor
|
|
Relationship
|
|
Debt Held
|
|
Percentage Ownership
|
|
|
As of December 31, 2016
|
|
|
|
|
|
|
|
|
GPB Debt Holding II, LLCC
|
|
Senior
Lender
|
|
$
|
2,911,818
|
|
9.8%
|
|
David Belding
|
|
Director
|
|
$
|
150,000
|
|
17.7%
|
|
Joseph Kowal
|
|
Director
|
|
$
|
-
|
|
14.4%
|
|
MKM Opportunity Master Fund, Ltd.
|
|
Shareholder/debtor
|
(1)
|
$
|
-
|
|
17.7%
|
|
OMB Acquisition Corp, LLC
|
|
Shareholder/debtor
|
$
|
14,339,664
|
|
7.7%
|
(2)
|
|
Ranmor, LLC
|
|
Shareholder/debtor
|
$
|
200,000
|
|
2.8%
|
(3)
|
|
|
|
|
|
|
|
|
|
|
As of June 30, 2017
|
|
|
|
|
|
|
|
|
GPB Debt Holding II, LLCC
|
|
Senior
Lender
|
|
$
|
-
|
|
5.2%
|
|
David Belding
|
|
Director
|
|
$
|
150,000
|
|
15.5%
|
|
Joseph Kowal
|
|
Director
|
|
$
|
-
|
|
14.2%
|
|
MKM Opportunity Master Fund, Ltd.
|
|
Shareholder/debtor
|
$
|
-
|
|
13.4%
|
|
|
OMB Acquisition Corp, LLC
|
|
Shareholder/debtor
|
$
|
375,000
|
|
0.0%
|
|
|
Ranmor, LLC
|
|
Shareholder/debtor
|
$
|
-
|
|
0.0%
|
|
|
Aegis Capital Corporation
|
|
Shareholder/debtor
|
|
$
|
50,000
|
|
0.0%
|
|
|
|
|
|
|
|
|
|
|
(1)
In January, 2016 David Skriloff, a member at MKM Opportunity Master
Fund joined the board and in June, 2016 became interim CEO, and
then in April, 2017 became CEO.
(2)
OMB Acquisition Corp is 1/3 owned by David Belding, 1/3 owned by
Joseph Kowal and 1/3 owned by MKM Opportunity Master
fund.
(3)
Assumes the conversion of Ranmor's convertible note.
During
the quarterly periods ended June 30, 2017 and 2016, the Company
incurred $192,333 and $182,999 respectively as compensation for all
directors and officers.
All
related party transactions involving provision of services or
tangible assets were recorded at the exchange amount, which is the
value established and agreed to by the related
parties.
9.
ADVANCE FROM CUSTOMER
The
Company received an advance payment of $500,000 from a customer in
connection with flexitanks purchase in 2015. In June 2015, the
Company shipped an order based on this advance in the amount of
$2,311 and recognized that as revenues. The Company has not
received any orders since. Consequently, the remaining $497,689 is
still recorded as an advance from customer as at June 30,
2017.
-11-
10.
SHORT-TERM NOTES
The
Company’s short-term notes payable are as
follows:
|
June
30,
|
December
31,
|
|
2017
|
2016
|
|
|
|
Senior secured
notes (A)
|
$50,000
|
$3,200,000
|
Secured convertible
notes (B)
|
-
|
795,000
|
Preferred note
(C)
|
375,000
|
375,000
|
Subordinated
convertible note (D)
|
-
|
200,000
|
Promissory notes
(E)
|
150,000
|
150,000
|
|
|
|
Total
|
$575,000
|
$4,720,000
|
(A)
Pursuant to a
Securities Purchase Agreement dated October 15, 2015, the Company
sold an aggregate of $3,500,000 in principal amount of 12% senior
secured one- year notes secured by all assets of the Company, and
318,446 post-split common shares of the Company’s common
stock to GBP Debt Holdings II, LLC and Riverside Merchant Partners,
Inc. (“GBP/Riverside”). The Senior Secured Notes were
sold at a price of approximately $943 for each $1,000 of principal
amount and as a consequence net proceeds before other expenses was
$3,300,000; and the Company recognized an upfront interest charge
of $200,000. In conjunction with this financing, the Company paid
its agent Aegis Capital Corp. (“Aegis”), $280,000 and
140,000 common shares.
Effective October
15, 2016 the Company’s $3,841,183 senior secured notes with
GPB Holdings II, LLC (“GBP”) and Riverside Merchant
Partners, LLC (“Riverside”) became due and payable but
were not repaid. Effective October 19, 2016, GPB and Riverside
agreed to forbear from taking any remedial action.
In the
months of April 2017 and May 2017, the Company has repaid the
majority of the loan and refinanced the remaining amount of the
note.
i.
In May 2017, the
remaining amounts of the GPB Debt Holdings II, LLC and Riverside
Merchant Partners principal, accrued interest and default interest
that was not repaid during the ExWorks initial drawdown was
restructured in the following manner:
a.
The Company entered
into short-term promissory note agreements with GPB Debt Holdings
II, LLC, Riverside Merchant Partners, and Aegis Capital Corporation
(as the placement agent) for the amounts of $143,158, $10,206,
$50,000, respectively, totaling $203,364. Interest on each of the
notes is 1.15% per annum and is compounded monthly. The notes
mature on the earlier of June 26, 2017 or the date on which the
Company completes a financing generating aggregate gross proceeds
equal to or exceeding $750,000. See subsection (E) below for
promissory notes. The notes with GPB Debt Holdings II and Riverside
Merchant Partners was paid in full on June 29, 2017, and the note
with Aegis was paid in full in July 2017.
b.
The Company issued
998 shares of Series B Convertible Preferred Stock, $.001 par
value, to GPB Debt Holdings II, LLC and Riverside Merchant
Partners, which are convertible into shares of Common Stock, $.001
par value, as payment of all default interest and payment premiums
remaining. The preferred stock is convertible at $.50 per share and
carries a dividend of 6% that can be accrued at the Company’s
option.
(B)
In November 2016,
the Company closed a financing of $795,000 in six month Secured
Convertible Notes with select accredited investors. The notes
mature six months from date of issuance, carry a 12% interest rate,
and are convertible into common stock at any time prior to maturity
at the option of the holder at a price of $5 per share. In
addition, the notes carry a warrant to purchase 79,500 shares at an
exercise price of $0.01 per share. The notes are secured by a
second-priority secured interest in all assets of the Company.
During the six months ended June 30, 2017, $305,000 was paid and
financing of an additional $50,000 was received from an accredited
investor with the same terms noted previously. The note carries a
warrant to purchase 50,000 shares at an exercise price of $0.001
per share. In addition, during the months of April 2017 and May
2017, the accredited investors of the six month Secured Convertible
Note made their decisions to convert $540,000 of unpaid principal
and $24,000 of unpaid interest into 1,116,000 shares of common
stock and the obligation to issue 6,000 shares of common
stock.
-12-
(C)
On October 15,
2015, the Company issued a preferred note to OMB Acquisition Corp.,
LLC (“OMB”) with a principal sum of $375,000. Interest
on the note has been waived by the lender. The note matured on
November 15, 2016 and was automatically extended for one year as
elected by the Company.
(D)
On November 15,
2015, the Company issued a subordinated convertible note with a
principal sum of $200,000 to Ranmor, LLC. Interest on the note is
8% per annum. The note will mature on November 20, 2017 and it is
convertible at any time at the holder’s election prior to its
maturity into 90,000 post-split common shares of the Company. If
the note is repaid in cash the Company will pay Ranmor 22,500
post-split common shares of the Company. During April 2017,
$200,000 was converted to 900,000 shares of common
stock.
(E)
In June 2016, David
Belding, a member of the Company’s Board of Directors and a
major shareholder loaned the Company $150,000 pursuant to a
one-year unsecured promissory note with automatic one-year renewals
at the Company’s option. Interest rate is stated at 10% per
annum at a simple rate.
On
March 21, 2017, the Company issued a $200,000 six-month unsecured
promissory note. Interest rate is stated at 10% per annum at a
simple rate. The notes mature on the earlier of September 21, 2017
or the date on which the Company completes a financing generating
aggregate gross proceeds equal to or exceeding $250,000. The note
is convertible into common stock at any time prior to maturity at
the option of the holder at a price of $.50 per share. In addition,
the notes carry a warrant to purchase 200,000 shares at an exercise
price of $0.001 per share. In May 2017, the Company repaid the
$200,000 principal amount of the note.
(F)
Effective October
16, 2015, the Company’s major shareholder, EDP EPT, LLC
(“EDP”) assigned its investment loans to OMB and the
Company issued a subordinated Promissory Note to OMB in the
principal amount of $13,964,664 (the “Note”). The
maturity date of the Note was October 15, 2017. Interest on the
loan was waived by the lender. On April 17, 2017, OMB converted
$13,964,664 of its Subordinated notes into 9,879,740 shares of
common stock.
Interest
expense for the short-term notes was $176,532 and $139,228 for the
six months ended June 30, 2017 and 2016, respectively.
11.
SHORT-TERM LINE OF CREDIT
On April 28,
2017, the Company closed on a $7.5 million joint senior secured
line of credit through the Export/Import Bank and ExWorks Capital
Fund I, LP (“ExWorks”). This agreement allows the
Company to draw from the line of credit against certain domestic
and international accounts receivable and inventory. The loan
consists of two lines of credit. The first is the Export Line of
Credit in the amount of up to $4 million and has an interest rate
of prime plus 4% per annum. The second is the Domestic Line of
Credit in the amount of up to $3.5 million and has an interest of
2% per month. There is a first priority security interest over all
assets of the Company including receivables and inventory with the
exception of receivables from our Korean subsidiary. The maturity
date of loans under the agreement is one year from the closing
date. On the initial drawdown, the Company borrowed a net total of
$3,639,033, which includes $12,830 paid to ExWorks during the
closing. The initial proceeds were primarily used to repay
$2,927,829 of debt held by GPB Debt Holdings II, LLC and $294,084
of debt held by Riverside Merchant Partners. The remaining
proceeds were paid to Aegis Capital Corporation or the placement
agent fee in the amount of $250,000, and to ExWorks for various
legal and financing fees in the amount of $179,950. ExWorks charged
the Company a Guaranty Fee of $15,100 in May, and brings the total
debt issuance cost on the line of credit to be $445,050, which is
being amortized over the term of the line of credit. In addition to
the initial drawdown of $3,639,033, the Company borrowed an
additional $1,465,100, of which $1,233,481 was repaid during the
quarter ended June 30, 2017. Amortization of debt issuance costs
was $87,791 for the quarter ended June 30, 2017.
12.
OTHER SHORT-TERM LIABILITIES
During
2016 and 2017, the Company entered into various agreements with
multiple parties to receive advances on future receivables. The
balance of these advances at December 31, 2016 was $418,500. During
the months of January, February, and March 2017, the Company
received additional advances of $955,000, and repaid 964,322,
leaving a remaining balance of $409,178 at June 30, 2017.
Additionally, there was an amount due to investor of $115,000 at
June 30, 2017.
During
the six months ended June 30, 2017 and 2016, the interest expense
that was incurred and paid on these advances was $372,063 and
$59,254, respectively.
-13-
13.
STOCKHOLDERS’ DEFICIT
In
October 2016, the Company entered into a strategic relationship
with The Vedder Group (“Vedders”), one of the largest
Canadian logistics and shipping company focusing exclusively on the
shipping of liquids. The agreement calls for Vedders to sell and
install EPT’s flexitanks as part of their respective product
offerings to their clients in addition to providing strategic
advice and consulting services. In February 2017, under the terms
of the agreement, the Company issued to Vedders 750,000 shares of
pre-split $0.001 par value common stock. As of June 30, 2017, and
December 31, 2016, the Company did not have any Stock Option
Plans.
During
May 2017, investors from the six month Secured Convertible Note and
the six-month unsecured promissory note made the decision to
exercise their warrants to purchase 1,010,000 shares of common
stock at $.001 per share. Proceeds were $1,010 from the exercising
of the warrants.
In June
2017, EPT completed an equity financing where it issued 5,620,000
shares of common stock at $0.50 per share for a total $2,810,000.
Colorado Financial acted as placement agent and was paid a fee of
$281,000 and warrants to purchase 281,000 shares of stock at a
strike price of $0.60 per share.
In June
2017, EPT completed an additional equity financing where there is
an obligation to issue 5,104,000 shares of common stock at $0.50
per share for a total $2,552,000. Colorado Financial acted as
placement agent and was paid a fee of 255,152 and warrants to
purchase 255,152 shares of stock at a strike price of $0.60 per
share.
14.
EARNINGS PER SHARE
The
following table summarizes basic and diluted earnings per share
(EPS). Basic EPS excludes all potentially dilutive securities and
is computed by dividing net income attributable to the Company by
the weighted average number of common shares outstanding during the
period. Diluted EPS includes the effect of stock options and
restricted stock as calculated under the treasury stock
method.
|
June 30 2017
|
June 30, 2016
|
Net income
(loss)
|
$(2,856,394)
|
$1,208,632
|
Weighted average
shares outstanding:
|
|
|
Basic
|
36,217,426
|
16,984,179
|
Diluted
|
38,215,866
|
29,814,271
|
Basic
EPS
|
(0.08)
|
$0.07
|
Diluted
EPS
|
(0.07)
|
$0.04
|
15. SEGMENTS
When
management examines the business, all analysis is based on
flexitanks sold. All other product sales flow from this one
statistic. It does not break down the business by different
products such as either logistics revenues or ancillary product
sales. Also, management does not analyze the business based on
locations of its subsidiaries. The subsidiaries are primarily
established to minimize tariffs and taxes and operate as a sales
organization as all products are manufactured out of our Michigan
based contract manufacturer. In the case that demand exceeds
production for a specific month, management makes decisions on
where to send product based on margins for specific customers as
opposed to regional breakdowns. Although EPT does not analyze its
business based on geographic breakdowns, the following table shows
gross revenues generated based on locations:
Location
|
June
30, 2017
|
June
30, 2016
|
|
|
|
United
States
|
$4,857,667
|
$4,149,767
|
Korea
|
3,298,966
|
3,382,684
|
Rest of the
World
|
927,701
|
948,095
|
Total
|
$9,084,334
|
$8,480,546
|
-14-
The
following table shows assets held at each of the Company’s
locations:
Location
|
June 30, 2017
|
December 31, 2016
|
|
|
|
United
States
|
$4,801,098
|
$2,774,026
|
Korea
|
2,472,692
|
2,181,799
|
Europe
|
1,043,236
|
1,027,955
|
Rest of the
World
|
26,707
|
19,304
|
Total
|
$8,343,733
|
$6,003,084
|
16. COMMITMENTS AND CONTINGENCIES
(a) Office leases
The
Company and its subsidiaries lease certain office premises through
October 2016. The lease was subsequently extended through
October 2019. Future minimum lease payments under operating
lease agreements are as follows:
|
Amount
|
Twelve months
ending December 31,
|
|
2017
|
$100,387
|
2018
|
79,489
|
2019
|
66,437
|
Thereafter
|
—
|
|
$246,313
|
Rent
expense for the six months ended June 30, 2017 and 2016 was
$111,026 and $70,095, respectively.
(b) Litigation
The
Company is a party to various litigation in the normal course of
its business. The Company intends to vigorously pursue and defend
its position in these matters. Management cannot predict or
determine the outcome of this matter or reasonably estimate the
amount or range of amounts of any fines or penalties that might
result from an adverse outcome. It is possible, however, that an
adverse outcome could have a material adverse impact on our
consolidated results of operations, liquidity, and financial
position.
During
2015, a few shareholders initiated legal proceedings for claims
about ownership rights. The parties entered into an agreement in
March 2016 whereby the Company would pay the plaintiffs $445,000.
On November 30, 2016, the Company made an initial payment of
$25,000 and a second payment in the amount of $100,000 leaving a
balance of $320,000, which is accrued as of June 30, 2017 within
accrued liabilities in the accompanying consolidated balance The
Company is working to facilitate a remaining payment
schedule.
On
April 7, 2017, the Company settled a lawsuit with a former
investor. The parties reached a complex settlement agreement where
the consideration included payment of monies in the amount of
$290,000. On April 4, 2017, the Company made the initial payment of
$145,000. Pursuant to the agreement, the Company has a remaining
payment obligation in the amount of $145,000 to be paid in twelve
(12) equal monthly installments (with a contingency for
acceleration). The Company paid the remaining $145,000 over the
course of Q2 2017 and all obligations have been met.
In
September 2016, a former director of EPT and the representative of
EDP EPT, LLC pled guilty to two counts of fraud in relationship to
his duties as President of EDP Management. He has had no
involvement in the Company since his resignation on January 5,
2016. The Company does not believe that any of this fraud is
related to his actions as a director.
The
Company expensed the legal fees as they were incurred for these
litigations. During the six months ended June 30, 2017 and 2016 the
Company incurred $413,678 and $130,613, respectively for legal
costs associated with these loss contingencies.
-15-
17. INCOME TAXES
The
Company is subject to U.S. federal, state, and foreign income
taxes. The Company’s income tax (benefit) expense for the six
months ended June 30, are as follows:
|
2017
|
2016
|
Current
|
|
|
Federal
|
$—
|
$—
|
State
|
293
|
223
|
Foreign
|
43,926
|
129,308
|
Total
|
$44,219
|
$129,531
|
The
Company's effective tax rate was 1.57 and 9.7% for the six months
ended June 30, 2017 and 2016, respectively. The Company's effective
tax rate for the six months ended June 30, 2017 was positively
impacted by operating losses incurred in both domestic and foreign
jurisdictions giving rise to a net tax expense of $44,219. The
Company's effective tax rate for the six months ended June 30, 2016
was negatively impacted by operating profits earned in foreign
jurisdictions resulting in net tax expenses of
$129,531.
18. CONCENTRATION OF RISK
Major Customer
For the
six months ended June 30, 2017 and 2016, seven customers accounted
for approximately 54% of the Company’s revenues and eight
customers accounted for approximately 54% of the Company’s
revenues, respectively. As of June 30, 2017, and December 31, 2016,
one customer accounted for approximately 41% of the Company’s
accounts receivable and one customer accounted for approximately
34% of the Company’s accounts receivable,
respectively.
Our
largest customer is based out of Korea and accounted for 35% and
31% of sales for the six months ended June 30, 2017 and 2016,
respectively. Total revenue for this customer was $3,165,950 and
$2,638,530 for the six months ended June 30, 2017 and 2016,
respectively.
Major Suppliers
For the
six months ended June 30, 2017 and 2016, seven suppliers accounted
for 35% and 30% of the total cost of revenues,
respectively.
Major Lenders
For the
six months ended June 30, 2017 and year ended December 31, 2016,
three lenders accounted for $4,038,393 and $17,539,664,
respectively, of the Company’s total debt of $4,497,571 and
$19,103,164, respectively.
-16-
19. FINANCIAL INSTRUMENTS
The
FASB ASC topic 820 on fair value measurement and disclosures
establishes three levels of inputs that may be used to measure fair
value: quoted prices in active markets for identical assets or
liabilities (referred to as Level 1), observable inputs other than
Level 1 that are observable for the asset or liability either
directly or indirectly (referred to as Level 2), and unobservable
inputs to the valuation methodology that are significant to the
measurement of fair value of assets or liabilities (referred to as
Level 3).
The
carrying values and fair values of our financial instruments are as
follows:
|
|
June 30, 2017
|
December 31, 2016
|
||
|
|
Carrying
|
Fair
|
Carrying
|
Fair
|
|
Level
|
Value
|
Value
|
Value
|
Value
|
Cash
|
1
|
$780,858
|
$780,858
|
$814,778
|
$814,778
|
Cash in
Escrow
|
1
|
$1,075,000
|
1,075,000
|
$--
|
--
|
Accounts
receivable
|
2
|
$2,672,925
|
$2,672,925
|
$2,878,469
|
$2,878,469
|
Short-term
deposits
|
1
|
$245,250 S
|
245,250
|
--
|
--
|
Accounts
payable
|
2
|
$2,899,377
|
$2,899,377
|
$3,157,032
|
$3,157,032
|
Accrued
liabilities
|
2
|
$1,231,791
|
$1,231,791
|
$1,141,849
|
$1,141,849
|
Short-term
notes
|
2
|
$575,000
|
$575,000
|
$4,720,000
|
$4,720,000
|
Short-term line of
credit
|
2
|
$3,513,393
|
$3,513,393
|
$--
|
$--
|
Advance from
customer
|
2
|
$497,689
|
$497,689
|
$497,689
|
$497,689
|
Other short-term
liabilities
|
2
|
$524,178
|
$524,178
|
$418,500
|
$418,500
|
Short-term investment
loan
|
2
|
$--
|
$--
|
$13,964,664
|
$13,964,664
|
Other long-term
liabilities
|
2
|
$65,810
|
$65,810
|
$48,333
|
$48,333
|
The
following method was used to estimate the fair values of our
financial instruments:
The
carrying amount of level 1 and level 2 financial instruments
approximates fair value because of the short maturity of the
instruments. There were no changes in valuation techniques for the
six months ended June 30, 2017 and year ended December 31,
2016.
Financial
assets are considered Level 3 when their fair values are determined
using pricing models, discounted cash flow methodologies, or
similar techniques, and at least one significant model assumption
or input is unobservable. Level 3 financial assets also include
certain investment securities for which there is limited market
activity such that the determination of fair value requires
significant judgment or estimation. During the six months ended
June 30, 2017 and year ended December 31, 2016 the Company had no
Level 3 financial instruments.
The
Company reviews the fair value hierarchy classification on a
quarterly basis. Changes in the ability to observe valuation inputs
may result in a reclassification of levels for certain securities
within the fair value hierarchy. The Company’s policy is to
recognize transfers into and out of levels within the fair value
hierarchy at the end of the fiscal quarter in which the actual
event or change in circumstances that caused the transfer occurs.
There were no significant transfers between Level 1, or Level 2
during the six months ended June 30, 2017 and year ended December
31, 2016, respectively.
-17-
20. MERGER AGREEMENT
Merger
Agreement – On December 28, 2016 the Company agreed to
complete a Reverse Merger (the “Merger”) into
Environmental Packaging Technologies Holdings, Inc. (formerly
International Metals Streaming Corp), a Nevada Corporation
(“Pubco”). At the conclusion of the Merger EPT shall be
the surviving corporation and a direct wholly owned subsidiary of
Pubco.
Terms
of the Merger include:
i.
At the effective
date of the Merger EPT shall pay $500,000 to the shareholder of the
controlling block of Pubco common stock for the cancellation of
11,810,830 shares of Parent common stock and for services related
to the completion of the Merger.
ii.
Immediately
prior to the Merger, Pubco shall have issued and outstanding
12,000,000 shares of Pubco Common Stock and no other securities (as
defined under the Securities Act).
iii.
Immediately
following the Merger, Pubco shall have issued and outstanding (i)
52,000,000 shares of Pubco Common Stock of which (a) 40,000,000
such shares will be owned by the former EPT Stockholders, and (b)
12,000,000 shares will be owned by the Pubco shareholders
immediately prior to the Merger, (ii) warrants to purchase
approximately 795,000 shares of Pubco Common Stock issuable upon
exercise of EPT warrants, and (iii) EPT convertible notes
convertible into shares of Pubco Common Stock (consisting of (A)
approximately 1,590,000 shares upon conversion of $795,000
aggregate principal amount of EPT convertible notes, and (B)
approximately 160,000 shares issuable upon conversion of a $200,000
aggregate principal amount of EPT convertible note) shares of Pubco
Common Stock (the “$200,000 EPT Convertible Note”). The
200,000 EPT Convertible Note shall be converted prior to the Merger
and the converted shares shall be included in the 40,000,000 shares
to be issued to EPT Stockholders.
iv.
In June 2017, the
Company completed the merger into the public company, Environmental
Packaging Technologies Holdings Corp (formerly International Metals
Streaming Corp) and began trading under the symbol EPTI. The
Company did an exchange offering of 1 share of the Company for 10
shares of EPTI. As part of the merger, the Company paid a
shareholder of EPTI $550,000 for the retirement of his shares.
After the offering, EPTI shareholders were left with 12 million
shares outstanding, and shareholders of the Company had 40 million
shares for a total of 62 million shares outstanding. See 8k filed
June 12, 2017 for detailed discussion of the merger.
20. SUBSEQUENT EVENTS
i.
Commencing June 28,
2017, the SEC suspended trading in the Company’s common stock
on the OTC Link (previously the Pink Sheets) operated by the OTC
Markets Group, Inc. pursuant to an Order of Suspension of Trading
issued by the Securities and Exchange Commission (the
“SEC”), captioned, In the Matter of Environmental
Packaging Technologies Holdings, Inc., File No. 500-1, dated June
27, 2017 (the “Order”). On July 13, 2017, the
Company’s common stock began trading again on the Grey
Market. According to the Order, such trading suspension was issued
because of concerns regarding: “(i) the accuracy and adequacy
of publicly available information in the marketplace since at least
June 9, 2017 regarding statements in third party stock promotion
materials [(the “3rd Party Promotional Report”)]
pertaining to the Company’s 2016 revenues, projected 2017
revenues, and the Company’s buyout potential; and (ii) recent
trading activity in the common stock that potentially reflects
manipulative or deceptive activities.” The Company believes
such trading suspension resulted in large part from the 3rd Party
Promotional Report believed to be prepared and distributed by a 3rd
party group named “Profit Play Stock”. The Company had
no prior knowledge and did not participate in the preparation
and/or distribution of such 3rd Party Promotional Report. As a
result of the above, no assurances can be given that the SEC and/or
any other governmental and/or regulatory authority will not bring
charges against the Company and/or any of its affiliates for
violations of the Federal Securities Laws. Moreover, trading of
stocks in the Grey Market is highly volatile, unpredictable,
largely unregulated, generally illiquid with limited information
available about the stocks, trading in and the issuer thereof and
Grey Market stocks often have been targets of manipulative
conduct.
ii.
In August 2017, EPT
settled a lawsuit with former shareholders (Collette suit) for a
total payment of $135,000. To the knowledge of EPT, there are no
lawsuits or threatened lawsuits outstanding.
-18-
Item 2. Management’s Discussion and Analysis of Financial
Condition and Results of Operations
COMPARISON OF THE QUARTER ENDED JUNE 30, 2017 AND THE QUARTER ENDED
JUNE 30, 2016
The following table summarizes our results of operations for the
quarters ended June 30, 2017 and 2016, together with the changes in
those items in dollars and as a percentage:
|
2017
|
2016
|
%
Change
|
Revenues
|
$4,121,020
|
$4,543,393
|
(9.3)%
|
Cost
of Sales
|
3,487,896
|
3,825,878
|
(8.8)%
|
Gross
Profit
|
633,124
|
717,515
|
(11.8%)
|
SG&A
|
1,262,295
|
976,640
|
29.3%
|
Interest
Expense
|
1,472,890
|
185,800
|
680.1%
|
Net
Income (Loss)
|
$(2,225,111)
|
$(487,325)
|
n/a
|
Revenues
Consolidated
revenue decreased $400,000 in second quarter 2017 as compared to
second quarter of 2016. This decrease was due production issues at
the manufacturing facility where we could not manufacture enough
product to satisfy certain orders – primarily orders from our
Korean office. Those issues have subsequently been
resolved.
Cost of Sales
Cost of
Sales for the quarters ended June 2017 and 2016 decreased by
approximately $350,000, primarily due the reduction in revenues. As
a percentage of revenues, cost of goods remained
constant.
SG&A Expenses
Sales,
general and administrative expenses increased by approximately
$300,000 in the second quarter of 2017 as compared to the second
quarter of 2016 primarily because of an increase in professional
fees associated with the refinancing of debt that closed in April
2017 and the reverse merger into a public shell that closed in June
2017. SG&A as it related sole to the operations of the business
remained essentially the same as second quarter of
2016.
Interest Expenses
Interest
expenses increased from the same quarter in 2016 by $1.3 million as
we had interest from the $795,000 bridge loan that was closed in
November 2016 and was repaid and/or converted to common stock in
May 2017, repayment and refinancing costs associated with the
senior secured facility with ExWorks and Export/Import Bank and
associated repayment, including penalties, with the GPB loans and
financing costs associated with the closing of the equity financing
arranged by Colorado Financial.
Net Income (Loss)
In the
second quarter of 2017, the reduction in revenues along with the
large one-time expense associated with interest and financing
expenses created a significant loss as compared to the same quarter
in 2016.
Liquidity and Capital Resources
Sources of Liquidity
In second quarter of 2017, we generated cash from the closing an
equity financing arranged by Colorado Financial that closed at the
end of the second quarter.
Based on our current level of operations along the new A/R and
Inventory based borrowing facility with ExWorks and the
Export/Import Bank and with the proceeds from a financing that we
closed in the second quarter of 2017, we believe that we will still
require several million in financing over the next twelve months to
be able to expand our manufacturing facility to satisfy what we
believe to be an increase in demand over that period.
-19-
Cash Flows
The following table sets forth the significant sources and uses of
cash for the periods set forth below:
|
2017
|
2016
|
Cash
provided by/used in Operating Activity
|
$(984,444)
|
$(359,724)
|
Cash
used in Investing Activity
|
-
|
-
|
Cash
provided by Financing Activity
|
(286,460)
|
313,827
|
Operating Activities
The change in cash from operating activities from first quarter of
2017 as compared to the similar quarter in 2016 was due from
increased net losses.
Investing Activities
For the six months ended June 2017 and 2016, there were no cash
from investing activities.
Financing Activities
In second quarter of 2017, we generated cash from financing
activities the sale of approximately $5 million in additional
shares. In addition, we also restructured our debt in which we
replaced a senior secured short term note with a new line of credit
issued to us by ExWorks and the Export/Import Bank.
Supplement disclosure
During the quarter, and concurrent with the debt restructuring,
$14.7 million of subordinated notes were converted to common stock
of the Company.
The following table summarizes our results of operations for the
six months ended June 30, 2017 and 2016, together with the changes
in those items in dollars and as a percentage:
|
2017
|
2016
|
%
Change
|
Revenues
|
$9,084,334
|
$8,480,546
|
7.1%
|
Cost
of Sales
|
7,776,173
|
4,584,541
|
69.6%
|
Gross
Profit
|
1,308,161
|
3,896,005
|
(66.4%)
|
SG&A
|
2,293,124
|
1,995,875
|
14.9%
|
Interest
and Finance Expense
|
1,783,858
|
328,295
|
443.4%
|
Net
Income (Loss)
|
$(2,856,394)
|
$1,208,632
|
n/a
|
Revenues
Consolidated
revenue increased by $600,000 in the first half of 2017 as compared
to the first half of 2016. This increase was due to additional
sales resulting from our joint venture with a major shipping
line.
Cost of Sales
Cost of
Sales for the first half ended June 2017 and 2016 increased
approximately $3.2 million primarily due to a negative adjustment
of approximately $2.2 million to the Q1 2016 cost of goods sold due
to the inability of the auditors to perform audit procedures to
verify inventory balances. This inventory was subsequently recorded
during Q1 2016 after the Company performed procedures to verify the
inventory that was written off for the 2015 audit. The additional
increase occurred due to the increase in sales for the six months
ended 2017 as compared to 2016.
-20-
SG&A Expenses
Sales,
general and administrative expenses increased by approximately
$300,000 in the first half of 2017 as compared to the second
quarter of 2016 primarily because of an increase in professional
fees associated with the refinancing of debt that closed in April
2017 and the reverse merger into a public shell that closed in June
2017. SG&A as it related sole to the operations of the business
remained essentially the same as first half of 2016.
Operating Income (Loss)
Operating
Losses increased by approximately $2.9 million primarily as a
result of the anomaly of cost of sales during the first half of
2016. In addition, the increase of losses resulted from the
increase of professional fees during the second quarter of 2017 in
order to complete the debt restructuring and the equity
financing.
Interest and Financing Expenses
Interest
expenses increased from the same first half in 2016 by $1.4 million
as we had interest from the $795,000 bridge loan that was closed in
November 2016 and was repaid and/or converted to common stock in
May 2017, repayment and refinancing costs associated with the
senior secured facility with ExWorks and Export/Import Bank and
associated repayment, including penalties, with the GPB loans and
financing costs associated with the closing of the equity financing
arranged by Colorado Financial.
Net Income (Loss)
In the
first half of 2017 as compared to the first half of 2016, the
increased losses were primarily due to the $2.2 million in changes
to cost of sales for 2016 due to the adjustment of inventory as
described above and from the large increase in interest and
financing expenses in the second quarter of 2017.
Liquidity and Capital Resources
Sources of Liquidity
In first half of 2017, we generated cash primarily from the closing
an equity financing arranged by Colorado Financial that closed at
the end of the second quarter.
Based on our current level of operations along the new A/R and
Inventory based borrowing facility with ExWorks and the
Export/Import Bank and with the proceeds from a financing that we
closed in the second quarter of 2017, we believe that we will still
require several million in financing over the next twelve months to
be able to expand our manufacturing facility to satisfy what we
believe to be an increase in demand over that period.
Cash Flows
The following table sets forth the significant sources and uses of
cash for the first half ended June 30 as set forth
below:
|
2017
|
2016
|
Cash
used in Operating Activity
|
$90,916
|
$(1,076,350)
|
Cash
used in Investing Activity
|
-
|
-
|
Cash
provided by Financing Activity
|
201,940
|
456,346
|
Operating Activities
The change in cash from operating activities from first six month
of 2017 as compared to the similar half in 2016 was primarily due
to the increased cash from the creation of the credit facility in
the second quarter of 2017.
-21-
Investing Activities
For 2015 and 2016 there no cash from investing
activities.
Financing Activities
In second quarter of 2017, we generated cash from financing
activities the sale of approximately $5 million in additional
shares. In addition, we also restructured our debt in which we
replaced a senior secured short term note with a new line of credit
issued to us by ExWorks and the Export/Import Bank
Item 3. Quantitative and Qualitative Disclosures About Market
Risk
Not Applicable
Item 4. Controls and Procedures
Conclusion Regarding the Effectiveness of Disclosure Controls and
Procedures
We
maintain disclosure controls and procedures that are designed to
ensure that information required to be disclosed in our Exchange
Act reports is recorded, processed, summarized and reported within
the time periods specified in the SEC’s rules and forms, and
that such information is accumulated and communicated to our
management, including our Chief Executive Officer and our
Treasurer, as appropriate, to allow timely decisions regarding
required disclosure. In designing and evaluating the disclosure
controls and procedures, management recognizes that any controls
and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control
objectives, and management necessarily is required to apply its
judgment in evaluating the cost-benefit relationship of possible
controls and procedures.
As of
June 30, 2018, our Chief Executive Officer and Treasurer evaluated
the effectiveness of our disclosure controls and procedures (as
defined in Rule 13a-15(e) under the Securities Exchange Act). Based
on such evaluation, our Chief Executive Officer and Treasurer
concluded that our disclosure controls and procedures were
effective as of June 30, 2018.
Changes in Internal Control over Financial Reporting
Our
management has evaluated whether any change in our internal control
over financial reporting occurred during the last fiscal quarter.
Based on that evaluation, management concluded that there has been
no change in our internal control over financial reporting during
the relevant period that has materially affected, or is reasonably
likely to materially affect, our internal control over financial
reporting.
-22-
Part
II - OTHER INFORMATION
Item 1. Legal
Proceedings
From
time to time we may become party to litigation or other legal
proceedings that we consider to be a part of the ordinary course of
business. We are not currently involved in legal proceedings that
we believe could reasonably be expected to have a material adverse
effect on our business, prospects, financial condition or results
of operations.
Item 1A. Risk
Factors
Commencing June 28, 2017, the Securities and Exchange Commission
(the “SEC”) suspended trading in the Company’s
common stock on the OTC Link (previously the Pink Sheets) operated
by the OTC Markets Group, Inc. pursuant to an Order of Suspension
of Trading issued by the SEC, captioned, In the Matter of
Environmental Packaging Technologies Holdings, Inc., File No.
500-1, dated June 27, 2017 (the “Order”). On July 13,
2017, the Company’s common stock began trading again on the
Grey Market. According to the Order, such trading suspension was
issued because of concerns regarding: “(i) the accuracy and
adequacy of publicly available information in the marketplace since
at least June 9, 2017 regarding statements in third party stock
promotion materials [(the “3rd Party Promotional
Report”)] pertaining to the Company’s 2016 revenues,
projected 2017 revenues, and the Company’s buyout potential;
and (ii) recent trading activity in the common stock that
potentially reflects manipulative or deceptive activities.”
The Company believes such trading suspension resulted in large part
from the 3rd Party Promotional Report believed to be prepared and
distributed by a 3rd party group named “Profit Play
Stock”. The Company had no prior knowledge and did not
participate in the preparation and/or distribution of such 3rd
Party Promotional Report. As a result of the above, no assurances
can be given that the SEC and/or any other governmental and/or
regulatory authority will not bring charges against the Company
and/or any of its affiliates for violations of the Federal
Securities Laws. Moreover, trading of stocks in the Grey Market is
highly volatile, unpredictable, largely unregulated, generally
illiquid with limited information available about the stocks,
trading in and the issuer thereof and Grey Market stocks often have
been targets of manipulative conduct.
Item 2. Unregistered Sales Of Equity Securities And Use Of
Proceeds.
During the second quarter of fiscal 2017, the Company issued
1,045,000 shares upon exercise of 522,500 options held by
shareholders. The Company received proceeds $1,045
During the second quarter of fiscal 2017, the Company issued
1,120,000 shares of common stock upon the conversion of $560,000
aggregate principal amount of EPT convertible notes
During the second quarter of fiscal 2017, the Company issued 998
shares of Series B Convertible Preferred stock as partial payment
equating to $998,000 for the retirement of outstanding debentures
and associates penalties and fees.
During the second quarter of fiscal 2017, the Company issued
1,000,474 shares of common stock in exchange for the retirement of
$13.965 million of subordinated debt.
During the second quarter of fiscal 2017, the Company issued
900,000 shares of common stock from the conversion of $200,000 of
Convertible Notes
During the second quarter of fiscal 2017, an employee of the
company was issued 50,000 shares of common stock as a
bonus
During the second quarter of fiscal 2017, the Company issued
10,723,040 shares of common stock and received proceeds of
$5,361,520
During the second quarter of fiscal 2017, the Company issued 40
million shares of common stock for the acquisition of Environmental
Packaging Technologies, Inc.
-23-
During the fourth quarter of fiscal 2017, the Company issued
$400,000 of Convertible Notes at a conversion price of $0.50 per
share and an accompanying warrant to purchase an additional 600,000
shares of common stock at an exercise price of $0.50 per share for
a period of 18 months.
Item 3. Defaults Upon Senior Securities.
Not Applicable
Item 4. Mine Safety Disclosures.
Not Applicable
Item 5. Other Information.
None
-24-
SIGNATURES
Pursuant to the
requirements of the Securities Exchange Act of 1934, the registrant
has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
|
Environmental Packaging Technologies Holdings, Inc.
|
||
|
|
|
|
Dated:
March 15, 2018
|
By:
|
/s/ David Skriloff
|
|
|
|
|
|
|
|
David
Skriloff
(Principal
Executive Officer and Principal
Financial
and Accounting Officer)
|
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of
the registrant and in the capacities and on the dates
indicated:
Dated:
March 15, 2018
|
By:
|
/s/ David Skriloff
|
|
|
|
|
|
|
|
David
Skriloff
(Principal
Executive Officer and Principal
Financial
and Accounting Officer)
|
|
-25-
Item 6. Exhibits
Exhibit No.
|
|
Description Of Document
|
|
|
|
|
Certification of David Skriloff pursuant to Exchange Act Rules 13a-14(a) and
15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley
Act of 2002.
|
|
|
|
|
|
Certification of David Skriloff of Periodic Financial Report under Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase
|
-26-