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EX-31.2 - EXHIBIT 31.2 - ECO Integrated Technologies, Inc.t1502583_ex31-2.htm
EX-31.1 - EXHIBIT 31.1 - ECO Integrated Technologies, Inc.t1502583_ex31-1.htm
EX-32.2 - EXHIBIT 32.2 - ECO Integrated Technologies, Inc.t1502583_ex32-2.htm
EX-32.1 - EXHIBIT 32.1 - ECO Integrated Technologies, Inc.t1502583_ex32-1.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

 

FORM 10-Q

 

(Mark One)

 

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

 

For the quarterly period ended September 30, 2015

 

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 000-55057

 

ECO INTEGRATED TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

 

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

 

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

 

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

 

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

 

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

 

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

 

Large accelerated filer  ¨ Accelerated filer  ¨ Non-accelerated filer  ¨ Smaller reporting company  x

 

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

 

As of November 12, 2015, we had 10,461,640 shares of $0.0001 par value Common Stock outstanding.

 

 

 

 

 

ECO INTEGRATED TECHNOLOGIES, INC.

 

FORM 10-Q

 

INDEX

 

    Page No.  
PART I    FINANCIAL INFORMATION   3  
       
ITEM 1.   Financial Statements (Unaudited)   3  
Condensed Consolidated Balance Sheets as of September 30, 2015 and December 31, 2014   3  
Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014   4  
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014   5  
Notes to Condensed Consolidated Financial Statements   6  
ITEM 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations   13  
ITEM 3.  Quantitative and Qualitative Disclosures About Market Risk   19  
ITEM 4.  Controls and Procedures   19  
       
PART II  OTHER INFORMATION      
       
ITEM 6.  Exhibits   19  

 

2 

 

 

PART I – FINANCIAL INFORMATION

 

ITEM 1        FINANCIAL STATEMENTS

 

ECO INTEGRATED TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AS OF SEPTEMBER 30, 2015 AND DECEMBER 31, 2014

 

   September 30,   December 31, 
   2015   2014 
   (unaudited)     
ASSETS          
           
Current Assets:          
Cash  $144,618   $433,045 
Prepaid expenses and other current assets   16,000    12,886 
Total current assets   160,618    445,931 
           
Furniture and equipment, net   24,832    21,167 
Licensing fee   175,000    175,000 
Other assets   177,971    2,500 
TOTAL ASSETS  $538,421   $644,598 
           
LIABILITIES AND STOCKHOLDERS' EQUITY          
           
Current Liabilities:          
Accounts payable and accrued expenses  $137,962   $31,498 
Note payable, current portion   17,887    51,970 
Total current liabilities   155,849    83,468 
           
Note payable, net of current portion   28,741    - 
TOTAL LIABILITIES   184,590    83,468 
           
Commitments and contingencies (Note 7)          
           
STOCKHOLDERS' EQUITY:          
Preferred stock, $0.0001 par value, 20,000,000 shares authorized, 1,000,000 and 1,000,000 shares issued and outstanding   100    100 
Common stock, $0.0001 par value, 100,000,000 shares authorized, 10,461,640 and 7,899,787 shares issued and outstanding   1,046    790 
Additional paid-in capital   6,490,193    2,121,752 
Accumulated deficit   (6,137,508)   (1,561,512)
Total stockholders' equity   353,831    561,130 
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY  $538,421   $644,598 

 

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

 

3 

 

 

ECO INTEGRATED TECHNOLOGIES, INC.

CONSDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(unaudited)

 

   Three Months Ended September 30,   Nine Months Ended September 30, 
   2015   2014   2015   2014 
                 
Sales  $-   $-   $-   $- 
Cost of goods sold   -    -    -      
Gross profit   -    -    -    - 
                     
Operating expenses:                    
General and administrative expenses   381,370    119,915    1,000,414    192,192 
Stock-based compensation   37,350    -    3,335,628    - 
Write down of assets   4,677    78,228    236,663    92,898 
Total operating expenses   423,397    198,143    4,572,705    285,090 
Loss from operations   (423,397)   (198,143)   (4,572,705)   (285,090)
                     
Other income (expense)                    
Interest expense   (862)   (1,776)   (3,291)   (1,776)
Reverse merger expense   -    (100,000)        (100,000)
Total other income (expense)   (862)   (101,776)   (3,291)   (101,776)
                     
Loss before provision for income taxes   (424,259)   (299,919)   (4,575,996)   (386,866)
                     
Provision for income taxes   -    -    -    - 
                     
Net loss  $(424,259)  $(299,919)  $(4,575,996)  $(386,866)
                     
Weighted average shares outstanding:                    
Basic   9,844,060    3,907,675    8,876,820    3,305,883 
Diluted   9,844,060    3,907,675    8,876,820    3,305,883 
                     
Loss per share                    
Basic  $(0.04)  $(0.08)  $(0.52)  $(0.12)
Diluted  $(0.04)  $(0.08)  $(0.52)  $(0.12)

 

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

 

4 

 

 

ECO INTEGRATED TECHNOLOGIES, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2015 AND 2014

(unaudited)

 

   Nine Months Ended September 30, 
   2015   2014 
         
OPERATING ACTIVITIES:          
Net loss  $(4,575,996)  $(386,866)
Adjustments to reconcile net loss to net cash used in operating activities:          
Depreciation   3,868    22 
Stock-based compensation   3,335,628    - 
Write down of assets   236,663    92,898 
Note payble for interest expense        1,776 
Change in current assets and liabilities:          
Prepaid expenses and other assets   (3,114)   - 
Accounts payable and accrued expenses   106,464    22,700 
Net cash used in operating activities   (896,487)   (269,470)
           
INVESTING ACTIVITIES:          
Issuance of notes receivable   (236,663)   (92,898)
Payment for furniture and equipment   (7,533)   (1,088)
Payment for licensing fee   -    (75,000)
Payment for other assets   (175,471)   - 
Net cash used in investing activities   (419,667)   (168,986)
           
FINANCING ACTIVITIES:          
Proceeds from note payable   -    106,177 
Repayment of note payable   (5,342)   - 
Proceeds from issuance of common stock   1,033,069    882,685 
Net cash provided by financing activities   1,027,727    988,862 
           
NET INCREASE (DECREASE) IN CASH   (288,427)   550,406 
           
CASH, BEGINNING BALANCE   433,045    - 
           
CASH, ENDING BALANCE  $144,618   $550,406 
           
CASH PAID FOR:          
Interest  $-   $- 
Income taxes  $-   $- 
           
SUPPLEMENTAL DISCLOSURE OF NON-CASH FINANCING ACTIVITIES:          
Common stock for notes payable  $-   $64,176 

 

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

 

5 

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(Unaudited)

 

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

 

The unaudited condensed consolidated financial statements were prepared by ECO Integrated Technologies, Inc., pursuant to the rules and regulations of the Securities Exchange Commission (“SEC”). The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) were omitted pursuant to such rules and regulations. These condensed consolidated financial statements should be read in conjunction with the audited consolidated financial statements and footnotes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014. The results for the nine months ended September 30, 2015, are not necessarily indicative of the results to be expected for the year ending December 31, 2015.

 

Organization and Line of Business

 

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

 

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

 

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

 

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

 

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

 

The Company is focused on acquiring and/or developing and commercializing a portfolio of state-of-the-art and environmentally friendly waste handling and treatment solutions by establishing facilities and contracting with governmental and private industry entities to convert waste streams into commercial by-products. The Company’s technology portfolio presently includes (i) certain preferred pricing and other rights in SonCav – a patented water treatment technology, and (ii) a license to utilize a patented technology, referred to as “TCOM” – or Thermal Conversion of Organic Materials, to convert a wide spectrum of waste feedstock into salable by-products, principally carbon, synthetic fuel, synthetic gas and electric power, utilizing pressure, heat and a catalyst. The Company plans to acquire and/or develop and deploy a portfolio of technologies, including but not limited to SonCav and TCOM, to (i) establish the Company as a provider of market leading solutions for waste water treatment and desalination; and (ii) establish one or more facilities, initially targeting the Las Vegas market, to handle waste streams and produce salable by-products. The Company intends to continue to work with the developers of SonCav and TCOM to prove the commercial viability of those technologies and further define the Company’s rights to deploy those technologies. The Company plans to supplement its existing technologies with other complementary environmentally-friendly technologies and solutions to provide a suite of solutions to ever increasing municipal and private industry waste challenges.

 

6 

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(Unaudited)

 

Basis of Presentation

 

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

 

Going Concern

 

These condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company will continue to realize its assets and discharge its liabilities in the normal course of business. The Company is unlikely to pay dividends or generate significant earnings in the immediate or foreseeable future. The continuation of the Company as a going concern is dependent upon the Company obtaining necessary equity and debt financing until it can generate sustainable revenue. There is no guarantee that the Company will be able to raise adequate equity or debt financing or generate profitable operations. For the nine months ended September 30, 2015 and the year ended December 31, 2014, the Company incurred a net loss of $4,575,996 and $1,381,406, respectively, and had negative cash flows from operations of $896,487 and $512,185, respectively. As of September 30, 2015 and December 31, 2014 the Company had an accumulated deficit of $6,137,508 and $1,561,512, respectively. The Company has posted a non-refundable deposit of $100,000 against the $6.75 million purchase price of a facility in North Las Vegas, Nevada. The Company expects that its capital expenditures with respect to the North Las Vegas facility will be approximately $34 million, consisting of $6.75 million payable for the site presently under contract and approximately $27.25 million for facilities upgrades and equipment installation. These condensed consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. Management intends to raise additional funds through equity or debt financing and to generate cash from the sale of the Company’s products, including products derived from the planned operation of the Las Vegas facility.

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. It is possible that accounting estimates and assumptions may be material to the Company due to the levels of subjectivity and judgment involved.

 

Basic and Diluted Earnings Per Share

 

Earnings per share is calculated in accordance with ASC Topic 260, “Earnings Per Share.” Basic earnings per share (“EPS”) is based on the weighted average number of common shares outstanding. Diluted EPS is based on the assumption that all dilutive convertible shares and stock warrants were converted or exercised. Dilution is computed by applying the treasury stock method. Under this method, options and warrants are assumed to be exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. There were 10,988,400 potentially dilutive securities outstanding at September 30, 2015 that are all anti-dilutive.

 

Subsequent Events

 

The Company has evaluated all transactions from September 30, 2015 through the financial statement issuance date for subsequent event disclosure consideration.

 

Recent Accounting Pronouncements

 

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

 

7 

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(Unaudited)

 

Note 2 – Furniture and Equipment

 

The following are the details of the property, equipment and improvements at September 30, 2015 and December 31, 2014:

 

   September 30,   December 31, 
   2015   2014 
         
Furniture and fixtures  $7,582   $7,582 
Equipment   21,294    13,761 
    28,876    21,343 
Less accumulated depreciation   (4,044)   (176)
Furniture and equipment, net  $24,832   $21,167 

 

Depreciation expense for the nine months ended September 30, 2015 and 2014 was $3,868 and $22, respectively.

 

Note 3 – Other Assets

 

Waste Conversion Facility — North Las Vegas

 

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

 

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

 

At September 30, 2015, other assets consisted of the $100,000 deposit mentioned above and $77,971 of engineering, consulting and other costs associated with the Las Vegas waste conversion facility.

 

Note 4 – Notes Receivable

 

Notes receivable at September 30, 2015 and December 31, 2014 consisted of the following:

 

   September 30,   December 31, 
   2015   2014 
CGTC/Lurvey  $123,313   $88,979 
EETIL   193,315    116,123 
Brasil Plus   132,650    32,513 
SonCav, LLC   25,000    - 
    474,278    237,615 
Allowance for uncollectible balances   (474,278)   (237,615)
Total notes receivable  $-   $- 

 

8 

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(Unaudited)

 

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

 

The Company has, from time to time, advanced funds to GCTC and Mr. Lurvey to facilitate efforts to upgrade a facility in Hawaii, securing third party certification and advance a planned Hawaiian joint venture. The loans are undocumented, unsecured and have no specific repayment terms. Balance of $123,313 and 88,979 at September 30, 2015 and December 31, 2014, respectively, was written off by the Company.

 

ECO Enviro Technologies International Limited (“EETIL”) Loan

 

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

 

As further consideration for the loans, the Company was issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in EETIL at the rate of 0.5% for each $10,000 of principal amount loaned. Balance of $193,315 and $116,123 at September 30, 2015 and December 31, 2014, respectively, was written off by the Company.

 

Brasil Plus Loan

 

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

 

As further consideration for the loans, the Company was issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in Brasil Plus at the rate of 0.5% for each $10,000 of principal amount loaned. Balance of $132,650 and $32,513 at September 30, 2015 and December 31, 2014, respectively was written off by the Company.

 

SonCav, LLC Loan

 

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

 

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

 

Note 5 – Notes Payable

 

Notes payable at September 30, 2015 and December 31, 2014 consisted of the following:

 

   September 30,   December 31, 
   2015   2014 
         
Payable to an unaffiliated individual; the note was modified to call for monthly payments of $1,602 with any unpaid principal and interest due on April 30, 2018; interest at 12% per annum and unsecured  $46,628   $51,970 
Total   46,628    51,970 
Less current portion   17,887    51,970 
Long-term portion  $28,741   $- 

 

9 

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(Unaudited)

 

Note 6 – Stockholders’ Equity

 

Common stock

 

The Company has authorized the issuance of 100,000,000 shares of common stock, $0.0001 par value. At September 30, 2015 and December 31, 2014, the Company had 10,461,640 and 7,899,787, respectively, shares of common stock issued and outstanding.

 

During the nine months ended September 30, 2015, the Company issued 2,261,853 shares of common stock for cash proceeds of $1,033,069. In addition, the Company also issued 150,000 shares of common stock to employees and 150,000 shares to consultants for services rendered valued at $60,000 each or a total of $120,000. The value of the shares was determined based on the recent price for which the Company sold shares of common stock.

 

Stock options and warrants

 

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

 

           Weighted     
       Weighted   Average     
   Options/   Average   Remaining   Aggregate 
   Warrants   Exercise   Contractual   Intrinsic 
   Outstanding   Price   Life   Value 
Outstanding, December 31, 2014   -                
Granted   10,988,400   $0.535           
Forfeited   -                
Exercised   -                
Outstanding, September 30, 2015   10,988,400   $0.535    4.47   $- 
Exercisable, September 30, 2015   10,138,400   $0.535    4.47   $- 

 

The exercise price for options/warrants outstanding and exercisable at September 30, 2015 is as follows:

 

Outstanding   Exercisable 
Number of       Number of     
Options/   Exercise   Options/   Exercise 
Warrants   Price   Warrants   Price 
 230,000   $0.520    230,000   $0.520 
 10,753,400    0.535    9,903,400    0.535 
 5,000    1.500    5,000    1.500 
 10,988,400         10,138,400      

 

For options/warrants granted during 2015 where the exercise price equaled the stock price at the date of the grant, the weighted-average fair value of such options/warrants was $0.31 and the weighted-average exercise price of such options/warrants was $0.535.   For options/warrants granted during 2015 where the exercise price was greater than the stock price at the date of the grant, the weighted-average fair value of such options/warrants was $0.23 and the weighted-average exercise price of such options/warrants was $1.50.   No options/warrants were granted during 2015 where the exercise price was less than the stock price at the date of grant.

 

The fair value of the stock options/warrants is being amortized to stock option expense over the vesting period. The Company recorded stock option expense of $3,215,628 and $0 during the nine months ended September 30, 2015 and 2014, respectively. At September 30, 2015, the unamortized stock option expense was $211,648 which will be amortized to expense through September 30, 2017.

 

10 

 

 

ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(Unaudited)

 

Note 6 – Stockholders’ Equity, continued

 

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

 

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

 

Note 7 – Commitments and Contingencies

 

Lease agreement

 

The Company currently leases approximately 2,400 square feet of office space in Irvine, California as its executive offices under a sublease agreement. The terms of the agreement are month-to-month, at the option of the Company, through October 31, 2016. The current monthly rental under the lease is $4,958, which increased to $5,100 as of August 1, 2015 and increases to $5,264 if the Company elects to stay beyond July 31, 2016.

 

Rent expense for the nine months ended September 30, 2015 and 2014 was $45,611 and $3,805, respectively.

 

Employment Agreements

 

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

 

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

 

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

 

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ECO INTEGRATED TECHNOLOGIES, INC. AND SUBSIDIARIES

Notes to Condensed Consolidated Financial Statements

September 30, 2015

(Unaudited)

 

Note 7 – Commitments and Contingencies, continued

 

License Fees

 

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

 

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

 

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

 

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

 

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

 

As of September 30, 2015 and December 31, 2014, the Company had prepaid a licensing fee of $175,000 relating to the planned North Las Vegas facility.

 

Note 8 – Subsequent Events

 

The following events occurred subsequent to September 30, 2015 and through the date of the release of these financial statements.

 

On October 23, 2015, the Company entered into a Secured Convertible Bridge Loan Agreement (the “Bridge Loan”) with a non-affiliated individual. Pursuant to the Bridge Loan, the lender loaned $75,000 to the Company, which funds will be used by the Company to acquire three (3) demonstration units from EMOH LLC (“EMOH”), to support the Company’s ongoing efforts to establish a commercial relationship with, and ownership interest in, EMOH.

 

The Bridge Loan matures on June 23, 2016, is repayable at 108% of the amount funded on maturity, is to be secured by the Company’s interest in demonstration units anticipated to be delivered to the Company by EMOH and is convertible, at the lender’s option into Company common stock at $0.40 per share.

 

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ITEM 2     MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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

 

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

 

Overview

 

ECO Integrated Technologies, Inc. is a development stage company focused on acquiring and/or developing and commercializing a portfolio of state-of-the-art and environmentally friendly waste handling and treatment solutions by establishing facilities and contracting with governmental and private industry entities to convert waste streams into commercial by-products. We have identified, and are presently focused on identifying and securing rights to technologies targeting, three principal market segments: waste conversion; water remediation; and, waste-to-energy. Our technology portfolio presently includes (i) certain preferred pricing and other rights in a patented water treatment technology, and (ii) a license to utilize a patented technology to convert a wide spectrum of waste feedstock into salable by-products, principally carbon, synthetic fuel, synthetic gas and electric power, utilizing pressure, heat and a catalyst. Neither of our existing technologies have, as yet, been commercially deployed. We plan to further evaluate those technologies as well as competing technologies and, as appropriate, further define and secure rights to selected technologies and to establish and deploy our selected technologies as market leading solutions for (i) wastewater treatment and desalination; (ii) conversion of waste streams to salable by-products; and (iii) conversion of waste to energy. We plan to continually supplement and/or upgrade our technology portfolio with other complementary environmentally-friendly technologies and solutions to provide a suite of solutions to ever increasing municipal and private industry waste challenges.

 

History and Development

 

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

 

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

 

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

 

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

 

Plan of Operations

 

Prior to the Share Exchange, and as of September 30, 2015, we had not yet realized any operating revenues and were in the development stage.

 

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

 

In order to execute on our plan of operations, we intend to assemble and integrate a portfolio of class leading environmentally friendly technologies, initially focusing on three market segments: (i) water remediation; (ii) waste conversion; and (iii) waste-to-energy. To that end, during 2014, we acquired certain rights relating to the commercialization of a patented water treatment technology — SonCav – and a license to utilize a waste conversion technology – TCOM – in the United States. TCOM utilizes a patented proprietary process to convert, rather than combust, waste streams. Unlike combustion treatment solutions, TCOM is environmentally friendly, producing little or no emissions or waste by-products but does produce salable by-products. SonCav is a proprietary patented process using ultrasound to produce purified water from waste water using a controlled cavitation process. We intend to continue work with the developers of TCOM and SonCav to prove the commercial viability of those technologies and further define our rights to deploy those technologies while continually evaluating competing technologies with a view to securing market leading technologies in both the waste conversion and water remediation markets.

 

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

 

Typical waste conversion facilities are expected to require capital expenditures of $25+ million and nine months to develop and bring operational from receipt of funding. As of September 30, 2015, we did not have available funding, or commitments to provide funding, to support the development and operation of any waste conversion facilities.

 

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

 

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

 

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

 

In addition to our planned domestic operations, we have, from time to time, loaned funds to two foreign entities, Brasil Plus and EETIL, engaged in efforts to commercialize environmental technologies in certain non-U.S. markets. We intend to provide additional funding to support those efforts and to establish arrangements with those foreign entities pursuant to which we expect to participate in the commercial exploitation of those technologies in foreign markets.

 

Las Vegas Facility Site

 

In February 2015, we entered into a Purchase and Sale Agreement to acquire an 18.28 acre site that is expected to house our initial waste conversion facility in North Las Vegas, Nevada. The site is developed and presently zoned for industrial use but will require a Conditional Use Permit and satisfaction of various municipal requirements before operations can commence. The site contains three tilt-up concrete constructed buildings, including a 62,720 square foot building housing 28,160 square feet of two-story office space and 34,560 square feet of production area; an 8,000 square foot repair shop; and a 30,000 square foot warehouse. In addition, the site has two 18,000 square foot sheds where walls could be added to the existing roof systems for added enclosed storage space and the entire perimeter of the site is enclosed with a chain link fence. The site also includes a rail spur that can accommodate nine rail cars. The contract purchase price of the site is $6.75 million, of which $100,000 was paid to open escrow. Subject to securing necessary purchase money financing, closing is contemplated before the end of 2015.

 

Subject to our closing of the purchase of the North Las Vegas site and securing necessary financing to support site modifications and equipment purchase and installation, we intend to initially install four 3.5 ton waste processors with an output consisting of synthetic

 

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fuel, synthetic gas, and various grades of carbon. Final design and engineering are underway and the exact configuration and specifications are not yet completed. The estimated timeline for manufacturing and installation of the required equipment and certain building modifications to meet the planned operational requirements is approximately nine months from securing the funding required, which is expected to total approximately $27.25 million above and beyond the acquisition price of the site.

 

Employment Agreements

 

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

 

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

 

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

 

Stock Option Grants

 

During the nine months ended September 30, 2015, we granted stock options and warrants to key employees, consultants and an investor to purchase a total of 10,988,400 shares of common stock at an average exercise price of $0.535 per share. We recorded a charge totaling $3,215,628 associated with the grant of the options and warrants.

 

Stock Issuances

 

During the nine months ended September 30, 2015, we issued 2,261,853 shares of common stock for cash proceeds of $1,033,069. In addition, we also issued 300,000 shares of common stock for services rendered valued at $120,000. The value of the shares was determined based on the recent price for which we sold shares of common stock.

 

Loans

 

During the nine months ended September 30, 2015, we made additional advances to CGTC/Michael Lurvey of $34,334, Brasil Plus of $100,137, EETIL of $77,192 and SonCav, LLC of $25,000.

 

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

 

While we continue to advance funds to each of those entities in connection with ongoing efforts to commercialize our technologies, we have written off each of those advances as of September 30, 2015.

 

On October 23, 2015, we entered into a Secured Convertible Bridge Loan Agreement (the “Bridge Loan”) with a non-affiliated individual. Pursuant to the Bridge Loan, we received a loan of $75,000, which funds will be used by the Company to acquire three (3) demonstration units from EMOH LLC (“EMOH”), to support our ongoing efforts to establish a commercial relationship with, and ownership interest in, EMOH.

 

The Bridge Loan matures on June 23, 2016, is repayable at 108% of the amount funded on maturity, is to be secured by our interest in demonstration units anticipated to be delivered by EMOH and is convertible, at the lender’s option into our common stock at $0.40 per share.

 

Termination of Hawaii Joint Venture

 

In June 2015, we were notified of the dissolution of the company holding rights relating to a $40 million special revenue bond targeted for use in financing the development and operation of multiple TCOM facilities in Hawaii, which facilities were the subject of a joint

 

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venture of which we were a party. As a result of the unavailability of the special revenue bond to finance the planned joint venture facilities, we consider the existing joint venture to develop and operate a TCOM facility in Hawaii to be effectively terminated.

 

Results of Operations

 

Three months ended September 30, 2015 Compared to the Three months ended September 30, 2014

 

Sales

 

We have not yet commenced selling our products as of September 30, 2015; therefore our sales for both the three months ended September 30, 2015 and 2014 were $0.

 

General and Administrative Expenses

 

General and administrative expenses consisted primarily of employee salaries, consulting fees and related costs, rental expenses, and travel expenses. General and administrative expenses were $381,370 for the three months ended September 30, 2015 as compared to $119,915 for three months ended September 30, 2014. The increase for the three months ended September 30, 2015 compared to the same period in 2014 was $261,455, or 218%. The increase in general and administrative expenses was mainly due to acceleration of execution on our business plan and costs associated with our public reporting obligations. Specifically, our employee salaries, consulting fees and related costs increased by approximately $162,000 and our professional fees increased by approximately $61,000. We anticipate that our general and administrative expenses will increase over the next twelve months as we further execute our business plan.

 

Stock-Based Compensation

 

Stock-based compensation consisted of the fair value of the stock options and warrants issued to employees and third party service providers and common stock issued for services. Stock-based compensation was $37,350 for the three months ended September 30, 2015 as compared to $0 for the three months ended September 30, 2014. The increase in stock-based compensation is due to the expensing of the options/warrants issued earlier in 2015 based on their vesting terms. There were no options/warrants issued or outstanding in 2014.

 

Write down of assets

 

In connection with our efforts to commercialize our SonCav and TCOM technologies, we have entered into lending arrangements with a development stage entity involved in the development of SonCav and three development stage entities involved in the development or international commercialization of TCOM. We advanced $4,677 and $78,228 to those entities during three months ended September 30, 2015 and 2014, respectively. In connection with our lending arrangements with those entities, we have certain rights to either convert loans to equity or to acquire equity in two of those entities. Because each of those entities is in a development stage and currently lacks sufficient assets or operating cash flows to repay the amounts advanced, we have recorded an expense reflecting a write down in full of the amounts advanced to those entities.

 

Interest Expense

 

Interest expense for the three months ended September 30, 2015 was $862 as compared to $0 for the three months ended September 30, 2014. The increase is due to the issuance during the end 2014 of an interest bearing note payable.

 

Nine months ended September 30, 2015 Compared to the Nine months ended September 30, 2014

 

Sales

 

Our sales for both the nine months ended September 30, 2015 and 2014 were $0.

 

General and Administrative Expenses

 

General and administrative expenses were $1,000,414 for the nine months ended September 30, 2015 as compared to $192,192 for nine months ended September 30, 2014. The increase for the nine months ended September 30, 2015 compared to the same period in 2014 was $808,222, or 421%. The increase in general and administrative expenses was mainly due to acceleration of execution on our business plan and costs associated with our public reporting obligations. Specifically, our employee salaries, consulting fees and related costs increased by approximately $433,000 and our professional fees increased by approximately $253,000. We anticipate that our general and administrative expenses will increase over the next twelve months as we further execute our business plan.

 

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Stock-Based Compensation

 

Stock-based compensation consisted of the fair value of the stock options and warrants issued to employees and third party service providers and common stock issued for services. Stock-based compensation was $3,335,628 for the nine months ended September 30, 2015 as compared to $0 for the nine months ended September 30, 2014. The increase in stock-based compensation is due to the issuance of 10,988,400 options and warrants to purchase common stock issued during the nine months ended September 30, 2015 and the issuance of 300,000 shares of common stock for services rendered. There were no such issuances in 2014.

 

Write down of assets

 

In connection with our efforts to commercialize our SonCav and TCOM technologies, we have entered into lending arrangements with a development stage entity involved in the development of SonCav and three development stage entities involved in the development or international commercialization of TCOM. We advanced $236,663 and $92,898 to those entities during nine months ended September 30, 2015 and 2014, respectively. In connection with our lending arrangements with those entities, we have certain rights to either convert loans to equity or to acquire equity in two of those entities. Because each of those entities is in a development stage and currently lacks sufficient assets or operating cash flows to repay the amounts advanced, we have recorded an expense reflecting a write down in full of the amounts advanced to those entities.

 

Interest Expense

 

Interest expense for the nine months ended September 30, 2015 was $3,291 as compared to $1,776 for the nine months ended September 30, 2014. The increase is due to the issuance during 2014 of an interest bearing note payable.

 

Financial Condition

 

Liquidity and Capital Resources

 

Our principal sources of liquidity include cash from the issuance of notes payable and the sale of common stock. During the nine months ended September 30, 2015 and the year ended December 31, 2014, we received cash of $1,0330,69 and $1,470,485, respectively, from the issuance of shares of our common stock. Also, during the years ended December 31, 2013 and 2014 we received cash of $106,718 and $104,971, respectively, from the issuance of notes payable.

 

As of September 30, 2015, our cash totaled $144,648 and our working capital totaled $7,269 as compared to a cash balance of $433,045 and working capital of $362,463 as of December 31, 2014.

 

Cash Flows

 

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

 

   Nine months ended September 30, 
   2015   2014 
Net cash used in operating activities  $(896,487)  $(269,470)
Net cash used in investing activities   (419,667)   (168,986)
Net cash provided by financing activities   1,027,727    988,862 

 

Operating Activities. Net cash used in operating activities was $896,487 for the nine months ended September 30, 2015, an increase of $627,017, compared to $269,470 of cash used in operating activities for the nine months ended September 30, 2014. The increase in cash used in operating activities was mainly attributable to the increase in the net loss; partially offset by an increase in non-cash stock option expense, write down of assets and an increase in accounts payable, all associated with acceleration of our business plan.

 

Investing Activities. Net cash used in investing activities for the nine months ended September 30, 2015 was $419,667, an increase of $250,681, compared to $168,986 of cash used in investing activities for the nine months ended September 30, 2014. The increase in cash used in investing activities related to an increase in advances to third parties; purchases of furniture and equipment and the deposit and other costs paid associated with the Las Vegas conversion facility.

 

Financing Activities. Net cash provided by financing activities for the nine months ended September 30, 2015 was $1,027,727 compared to $988,862 for the nine months ended September 30, 2014. During the nine months ended September 30, 2015, we received $1,033,069 from the sale of 2,261,853 shares of our common stock. During the nine months ended September 30, 2014, we received $91,177 from the issuance of notes payable and we received $882,685 from the sale of 1,789,228 shares of our common stock.

 

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Notes and advances receivable

 

During the nine months ended September 30, 2015 and the years ended December 31, 2014 and 2013, we advanced funds to various entities with which we have existing or potential strategic relationship. Three of those loans included the grant of certain equity rights.

 

Carbon Geo-Tek Consultants, Inc. (“CGTC”) and Lurvey Advances.    We have, from time to time, advanced funds to CGTC and Lurvey to facilitate efforts to upgrade a facility in Hawaii, secure third party certification and advance the planned business of our Hawaiian joint venture pending receipt of third party financing. The advances are undocumented unsecured loans with no specific repayment terms. At September 30, 2015 and December 31, 2014, advances to CGTC and Mr. Lurvey totaled $123,313 and $88,979, respectively.

 

ECO Enviro Technologies International Limited (“EETIL”) Loan.    Under the EETIL Loan Agreement, we agreed to provide certain loans for use in development of facilities in international markets pending receipt of third party financing. The loans bear interest at 10% per annum and are repayable on December 31, 2016 or earlier from operating profits or the receipt of third party financing. As further consideration for the loans, we were issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in EETIL at the rate of 0.5% for each $10,000 of principal amount loaned. At September 30, 2015 and December 31, 2014, advances under the EETIL Loan Agreement totaled $193,315 and $116,123, respectively.

 

Brasil Plus Loan.    Under the Brasil Plus Loan Agreement, we agreed to provide certain loans for use in development of facilities in South American markets pending receipt of third party financing. The loans bear interest at 10% per annum and are repayable on December 31, 2016 or earlier from operating profits or the receipt of third party financing. As further consideration for the loans, we were issued a five year warrant to acquire, at $0.01 per share, a non-diluting equity ownership interest in Brasil Plus at the rate of 0.5% for each $10,000 of principal amount loaned. At September 30, 2105 and December 31, 2014, advances under the Brasil Plus Loan Agreement totaled $132,650 and $32,513, respectively.

 

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

 

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

 

Commitments

 

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

 

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

 

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

 

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

 

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

 

As of September 30, 2015 and December 31, 2014, we had prepaid a licensing fee of $175,000 relating to the planned North Las Vegas TCOM Facility.

 

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Capital Requirements

 

In order to implement our business plan, we will require substantial funding beyond our current resources. With respect to our planned waste conversion facility in North Las Vegas, Nevada, we expect that our capital expenditures will be approximately $34 million, consisting of $6.75 million payable for the site presently under contract and approximately $27.25 million for facilities upgrades and equipment installation. Future waste conversion facilities can be expected to cost $30+ million to acquire, develop and bring operational.

 

In addition to funding of capital expenditures, we will also require operating capital to support overhead and facilities operations until such time, if ever, as cash flows from operations support operations. The amount of operating capital required will depend on the number and size of facilities operated, among other factors, and the time period required to attain profitability. We anticipate that the minimum requirements for additional operating capital over the twelve months period ending September 30, 2016 will be approximately $1.2 million.

 

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

 

Off-Balance Sheet Arrangements

 

We do not have any off-balance sheet arrangements.

 

Inflation

 

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

 

ITEM 3     QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable

 

ITEM 4     CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation as of September 30, 2015 of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective as of September 30, 2015.

 

Changes in Internal Control over Financial Reporting

 

No change in our internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities Exchange Act of 1934) occurred during the quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

PART II

 

ITEM 6     EXHIBITS

 

Exhibit No.   Description
     
31.1   Certification of CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2   Certification of CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1   Certification of CEO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2   Certification of CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101.INS   XBRL Instance Document
101.SCH   XBRL Taxonomy Extension Schema Document
101.CAL   XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF   XBRL Taxonomy Extension Definition Linkbase Document
101.LAB   XBRL Taxonomy Extension Label Linkbase Document
101.PRE   XBRL Taxonomy Extension Presentation Linkbase Document

 

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SIGNATURES

 

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

 

  ECO INTEGRATED TECHNOLOGIES, INC.
Date:  November 12, 2015    
  By: /s/ Jess Rae Booth
    Jess Rae Booth
    Chief Executive Officer
     
  By: /s/ Walter Carlson
    Walter Carlson
    Chief Financial Officer

 

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