Attached files
file | filename |
---|---|
EX-32.1 - EXHIBIT 2 - Worldwide Specialty Chemicals Inc. | exhibit32_ex32z1.htm |
EX-31.2 - EXHIBIT 31.2 - Worldwide Specialty Chemicals Inc. | exhibit312_ex31z2.htm |
EX-31.1 - EXHIBIT 31.1 - Worldwide Specialty Chemicals Inc. | exhibit31_ex31z1.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: June 30, 2016
COMMISSION FILE NUMBER: 000-55554
ZEC, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-5048026
_______________________________ ___________________
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1002 North Central Expressway, Suite 495
Richardson, TX 75080
Tel: (888) 344-0073
Fax: (888) 344-0073
_______________________________________
(Address and telephone number of principal executive offices)
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.
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/
The number of Registrants shares of common stock, $0.0001 par value, outstanding as of August 16, 2016 was 4,080,000.
ITEM 1. FINANCIAL STATEMENTS
ZEC, INC. | ||
BALANCE SHEETS | ||
|
|
|
ASSETS | June 30, 2016 | December 31, 2015 |
| (Unaudited) | (Audited) |
Current Assets |
|
|
Cash and cash equivalents | 21,096 | 127 |
Accounts receivable | 5,478 | 1,355 |
Inventories | 13,490 | - |
Prepaid expense | 2,500 | - |
Prepaid licenses investment | 15,611 | - |
Total Current Assets | 58,175 | 1,482 |
|
|
|
Intangible asset, net | 277,548 | - |
Total Assets | 335,723 | 1,482 |
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) |
|
|
|
|
|
Liabilities |
|
|
Accounts payable and accrued expenses | 195,234 | 37,500 |
Accrued interest payable | 16,782 | - |
Due to CBI Polymers | - | 44,233 |
Convertible notes | 670,000 | - |
Total Current Liabilities | 882,016 | 81,733 |
|
|
|
Total Liabilities | 882,016 | 81,733 |
|
|
|
Stockholders' Equity (Deficit) |
|
|
Preferred stock, $0.0001 par value, 20,000,000 shares |
|
|
authorized; no shares issued or outstanding | - | - |
Common stock, $0.0001 par value, 100,000,000 shares |
|
|
authorized; 3,580,000 shares issued and outstanding |
|
|
as of December 31, 2015 and 4,080,000 issued and |
|
|
outstanding as of June 30, 2016. | 408 | 358 |
Additional paid-in capital | - | - |
Accumulated deficit | (546,701) | (80,609) |
Total stockholders' equity (deficit) | (546,293) | (80,251) |
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) | 335,723 | 1,482 |
The accompanying footnotes are an integral part of these financial statements
ZEC, INC. | ||||
STATEMENT OF OPERATIONS | ||||
(Unaudited) | ||||
| ||||
| For the Three Months | For the Six Month | ||
| 2016 | 2015 | 2016 | 2015 |
|
|
|
|
|
Revenue | 5,478 | - | 5,478 |
|
Cost of Goods Sold | 444 | - | 444 |
|
|
|
|
|
|
Gross Profit | 5,034 | - | 5,034 |
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
Amortization Expense | 52,502 |
| 52,502 |
|
Consulting Expenses | 102,450 | - | 208,350 | - |
Professional Expenses | 35,220 | - | 65,573 | - |
Advertising and Marketing Expenses | 4,692 | - | 13,405 | - |
General & Administrative Expenses | 80,975 | - | 114,399 | - |
|
|
|
|
|
Total Operating Expenses | 275,839 | - | 454,229 |
|
|
|
|
|
|
Loss from Operation | (270,805) | - | (449,195) | - |
|
|
|
|
|
Other Income and (Loss) |
|
|
|
|
Interest Income | 2 | - | 2 |
|
Interest Expenses | (13,705) | - | (16,899) | - |
|
|
|
|
|
Total Other Income and (Loss) | (13,703) | - | (16,897) |
|
|
|
|
|
|
Net Income (loss) | $ (284,508) | - | $ (466,092) | - |
|
|
|
|
|
Basic and Diluted Earnings Income (Loss) per Share | $ (0.072) | - | (0.124) | - |
|
|
|
|
|
Weighted average shares - basic and diluted | 3,964,615 | 1,580,000 | 3,772,308 | 1,580,000 |
The accompanying footnotes are an integral part of these financial statements
ZEC, INC. | ||
STATEMENT OF CASH FLOWS | ||
(Unaudited) | ||
|
|
|
| For the Six Months Ended June 30, 2016 | For the Six Months Ended June 30, 2015 |
|
|
|
Cash Flows from Operating Activities |
|
|
Net Loss | $ (466,092) | $ - |
|
|
|
Adjustments to reconcile net loss to |
|
|
net cash used in operating activities: |
|
|
Amortization expense | 52,502 |
|
Change in current assets and current liabilities |
|
|
Accounts Receivable | (4,123) | - |
Inventory Increase | (13,490) |
|
Prepaid Expenses | (2,500) | - |
Accounts Payable & Accrued Expenses | 157,734 |
|
Accrued Interest Payable | 16,782 | - |
|
|
|
Net cash used in operating activities | (259,187) | - |
|
|
|
Cash Flows from Investing Activities |
|
|
Prepaid liceses investment | (15,611) | - |
Purchase of intangible assets | (330,000) |
|
Total cash (used) in investing activities | (345,611) | - |
|
|
|
Cash Flows from Financing Activities |
|
|
Payment Due to CBI Polymers | (44,233) |
|
Proceeds from Convertible Note Issuance | 670,000 |
|
|
|
|
Net Cash Provided by Financing Activities | 625,767 | - |
|
|
|
|
|
|
Net change in cash & cash equivalents | 20,969 |
|
|
|
|
Cash at beginning of period | 127 | - |
|
|
|
Cash at end of period | $ 21,096 | - |
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION |
|
|
Cash paid during period for : |
|
|
Interest | 0 | - |
The accompanying footnotes are an integral part of these financial statements
ZEC, INC.
Notes to Financial Statements
June 30, 2016
(Unaudited)
NOTE 1. NATURE AND BACKGROUND OF BUSINESS
ZEC, Inc. ("the Company" or "the Issuer") was organized under the laws of the State of Delaware on March 6, 2014. The Company was established as part of the Chapter 11 Plan of Reorganization of Pacific Shores Development, Inc. ("PSD"). On September 17, 2015, the Company became a sales representative for CBI Polymers, Inc. On April 13, 2016, the Company and CBI Polymers, Inc. entered into a new sales representative agreement. Under the new agreement the Company is the exclusive, worldwide sales, marketing and distribution representative for CBI Polymers line of specialty chemicals. The agreement is for a term of two years and may be extended for another 18 years. On April 21, 2016, the Company entered into a Sole Manufacturing and Fulfillment Contract, with KT Chemicals, Inc. representing their odor elimination products. The agreement is for a term of five years and may be extended
NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
a. BASIS OF PRESENTATION
The accompanying unaudited financial statements have been prepared in United States dollars and have been prepared using the accrual method of accounting in accordance with generally accepted accounting principles in the United States of America ("US GAAP") for interim financial reporting and the instructions for Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly they do not include all information and footnote disclosures necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholders equity in conformity with US GAAP. In the opinion of management, all adjustments considered necessary for fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
The unaudited balance sheet of the Company as of June 30, 2016, and the related balance sheet of the Company as of December 31, 2015, which is derived from the Companys audited financial statements, the unaudited statement of operations and cash flows for the six months ended June 30, 2016 are included in this document. These unaudited financial statements should be read in conjunction with the audited financial statements and related notes included in the Companys most recently filed Form 10-K that was filed on March 18, 2016.
Operating results for the six months ended June 30, 2016 are not necessarily indicative of the results that can be expected for the year ending December 31, 2016.
b. USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
c. BASIC AND DILUTED NET LOSS PER SHARE
Net loss per share is calculated in accordance with Codification topic 260, Earnings Per Share for the periods presented. Basic net loss per share is computed using the weighted average number of common
shares outstanding. Diluted loss per share has not been presented because there are no dilutive items. Diluted earnings loss per share is based on the assumption that all dilutive stock options, warrants, and convertible debt are converted or exercised by applying the treasury stock method. Under this method, options and warrants are assumed 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. Options, warrants and/or convertible debt will have a dilutive effect, during periods of net profit, only when the average market price of the common stock during the period exceeds the exercise or conversion price of the items.
d. FAIR VALUE OF FINANCIAL INSTRUMENTS
Codification topic 825, Financial Instruments, requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. The carrying amounts of the Companys financial instruments as of June 30, 2016 and December 31, 2015 approximate their respective fair values because of the short-term nature of these instruments.
e. CASH and CASH EQUIVALENT
For the Balance Sheet and Statement of Cash Flows, all highly liquid investments with maturity of three months or less are considered to be cash equivalents. The Company had cash equivalents $21,096 as of June 30, 2016.
f. REVENUE RECOGNITION
The Company recognizes revenue in accordance with ASC topic 605 Revenue Recognition, and other applicable revenue recognition guidance under US GAAP. Sales revenue is recognized for our retail and wholesale customers when: (i) persuasive evidence of a sales arrangement exists, (ii) the sales terms are fixed or determinable, (iii) title and risk of loss have transferred, and (iv) collectability is reasonably assured generally when products are shipped to the customer and services are rendered, except in situations in which title passes upon receipt of the products by the customer. In this case, revenues are recognized upon services rendered.
g. ACCOUNTS RECEIVABLE AND ALLOWANCE FOR DOUBTFUL ACCOUNTS
Accounts receivable are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Companys portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Companys customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At June 30, 2016, an allowance for doubtful accounts was not considered necessary as all accounts receivable were deemed collectible.
h. SHARE-BASED COMPENSATION
Codification topic 718 Stock Compensation requires that the cost resulting from all share-based transactions be recorded in the financial statements and establishes fair value as the measurement objective for share-based payment transactions with employees and acquired goods or services from non-employees. The codification also provides guidance on valuing and expensing these awards, as well as disclosure requirements of these equity arrangements. The Company adopted the codification upon
creation of the Company and will expense share based costs in the period incurred. The Company has not adopted a stock option plan or completed a share-based transaction; accordingly no stock-based compensation has been recorded to date.
i. INTANGIBLE ASSETS LICENSES
Our License with CBI Polymers, Inc., requires monthly payments during the term of the License to maintain the License. The payment is $25,000 per months for 24 months and $10,000 per month during the term for all rights related to future products and services not yet under development of the date of agreements. The payments are being capitalized as paid and will be amortized over the term of license agreement. The term of agreement is two years and shall be automatically renewable for nine additional term of two years.
Our license with KT Chemicals is for a term of 5 years and requires an initial payment of $500,000 or $600,000 depending on the date of payment. Upon payment of that fee the Company will recognize the license as an asset and depreciate it using the straight-line method over its 5 year life.
j. INCOME TAXES
Income taxes are provided in accordance with the FASB Accounting Standards Classification. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
k. PRCENT ACCOUNTING PRONOUNCEMENTS
The Companys management has evaluated all the recently issued, but not yet effective, accounting standards that have been issued or proposed by the FASB or other standards-setting bodies through the filing date of these financial statements and does not believe the future adoption of any such pronouncements will have a material effect on the Companys financial position and results of operations.
NOTE 3. GOING CONCERN
The Company's financial statements are prepared in accordance with generally accepted accounting principles applicable to a going concern. This contemplates the realization of assets and the liquidation of liabilities in the normal course of business. As of June 30, 2016, the Company did not have significant cash or other material assets, nor did it have operations or a source of revenue sufficient to cover its operating costs and allow it to continue as a going concern. The Companys CEO has committed to advancing certain operating costs of the Company.
While the Company believes in the viability of its strategy to generate sufficient revenues and in its ability to raise additional funds, there can be no assurances that it will accomplish either. The Companys ability to continue as a going concern is dependent upon its ability to achieve profitable operations or obtain adequate financing. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE 4. STOCKHOLDERS' EQUITY COMMON STOCK
As of June 30, 2016, the authorized share capital of the Company consisted of 100,000,000 shares of common stock with $0.0001 par value, and 20,000,000 shares of preferred stock also with $0.0001 par value. No other classes of stock are authorized.
COMMON STOCK: As of June 30, 2016, there were a total of 4,080,000 common shares issued and outstanding.
The Company's first issuance of common stock, totaling 580,000 shares, took place on March 6, 2014, pursuant to the Chapter 11 Plan of Reorganization confirmed by the U.S. Bankruptcy Court in the matter of Pacific Shores Development, Inc. ("PSD"). The Court ordered the distribution of shares in the Company to all general unsecured creditors of PSD, with these creditors to receive their PRO RATA share (according to amount of debt held) of a pool of 80,000 shares in the Company. The Court also ordered the distribution of shares in the Company to all administrative creditors of PSD, with these creditors to receive one share of common stock in the Company for each $0.10 of PSD's administrative debt which they held. A total of 500,000 shares were issued to PSDs administrative creditors.
The Court also ordered the distribution of warrants to purchase 2,500,000 common shares in the Company to all administrative creditors of PSD, with these creditors to receive warrants to purchase five (5) common shares in the Company for each $0.10 of PSD's administrative debt which they held. These creditors received an aggregate of 2,500,000 warrants consisting of 500,000 "A Warrants" each convertible into one share of common stock at an exercise price of $4.00; 500,000 "B Warrants" each convertible into one share of common stock at an exercise price of $5.00; 500,000 "C Warrants" each convertible into one share of common stock at an exercise price of $6.00; 500,000 "D Warrants" each convertible into one share of common stock at an exercise price of $7.00; and 500,000 "E Warrants" each convertible into one share of common stock at an exercise price of $8.00. All warrants are exercisable at any time prior to August 30, 2017. As of the date of this report, no warrants have been exercised.
Also on March 6, 2014, the Company issued a total of 1,000,000 common shares for services at par value, $0.0001 per share for total value of $100. On September 16, 2015, the Company issued a total of 2,000,000 common shares for services at par value, $0.0001 per share for a total value of $200. On April 21, 2016, the Company issued a total of 500,000 common shares as partial consideration under the terms of its contract with KT Chemicals, Inc. The shares were valued at par value of $0.0001 per share for a total value of $50.
As a result of these issuances there were a total 4,080,000 common shares issued and outstanding, and warrants to acquire 2,500,000 common shares issued and outstanding, at June 30, 2016.
PREFERRED STOCK: As of June 30, 2016 no shares of preferred stock had been issued and no shares of preferred stock were outstanding.
NOTE 5. INCOME TAXES
The Company has had minimal revenues and made no U.S. federal income tax provision since its inception on March 6, 2014.
NOTE 6. LOAN FROM CBI POLYMERS, INC.
During 2015 CBI Polymers, Inc. (CBIP) loaned the Company a total of $44,233. At June 30, 2016 and December 31, 2015 the loan to ZEC consisted of the following:
| June 30, 2016 | December 31, 2015 |
Balance at Beginning of the Period | $ 44,233 | $ 0 |
Funds advanced from CBIP | 0 | 44,233 |
Repayments | (44,233) | 0 |
Balance at End of the Period | $ 0 | $ 44,233 |
These loans were non-interest bearing.
NOTE 7. PREPAID LICENSES INVESTMENT
During the six months ended June 30, 2016 the Company advanced CBI Polymers, Inc. (CBIP) a total of $15,612. This advance was accounted for as a prepayment of funds due from ZEC to CBIP under ZECs exclusive marketing, sales and distribution agreement. This agreement requires monthly payments to CBIP of $35,000. At June 30, 2016 and December 31, 2015 the prepayment to CBIP consisted of the following:
| March 31, 2016 | December 31, 2015 |
Balance at Beginning of the Period | $ 0 | $ 0 |
Add: Fund advance to CBIP | 120,612 | 0 |
Less: License payment | (105,000) | 0 |
|
|
|
Balance at End of the Period | $ 15,612 | $ 0 |
NOTE 8. INTANGIBLE ASSETS, NET
On April 13, 2016 the Company entered into a license agreement with CBI Polymers, Inc. (CBIP) which grants the Company exclusive world-wide marketing, sales and distribution rights to DeconGel, PrestorPro and all future products developed and/or acquired by CBIP. The agreement is for a term of two years and is renewable. ZEC has agreed to pre-pay consideration in cash or other consideration equal to $25,000 per month for the first two years of the Agreement for all rights related to existing products and has agreed to pay currently in cash or other consideration equal to $10,000 per month for all rights related to future products and services, and has agreed to pay a royalty of 10% based on gross sales at the distribution price to CBIP. As of June 30, 2016 the Company has recognized an asset of $105,000 for this license agreement and has amortized by $29,167, leaving an asset balance of $75,833.
On April 21, 2016 the Company entered into a license agreement with KT Chemicals, Inc. (KT) which gives the Company the right to market, sell and distribute, throughout the United States and its territories, an odor eliminating chemical manufactured by KT under the trade names WZ and PurSent. The agreement is for a term of five years and is renewable. The agreement required ZEC to issue 500,000 shares of its common stock to KT and to pay KT cash consideration of either $500,000, if paid by August 31, 2016, or $600,000. if paid by November 30, 2016. As of June 30, 2016 the Company has booked KT a total of $225,000 for this license agreement and has amortized by $23,335, leaving an asset balance of $201,715.
|
| June 30, 2016 |
|
| License-CBI Polymers, net | 75,833 |
|
| License-KT Chemicals, net | 201,715 |
|
| Total | 277,548 |
|
|
|
|
|
NOTE 9. RELATED PARTY TRANSACTIONS
On March 6, 2014, the Company issued a total of 1,000,000 shares of common stock in a private placement for services valued at par value of $0.0001 per share. These shares were issued to officers and advisors of the Company and to persons who were already shareholders as a result of the bankruptcy (see Note 4 above). On September 16, 2015, the Company issued a total of 2,000,000 shares of common stock in a private placement for services valued at par value of $0.0001 per share. These shares were issued to an officer of the Company and to an advisor to the Company. On April 21, 2016, the Company issued a total of 500,000 shares of common stock to KT Chemicals, Inc. in partial fulfillment of the agreement between the Company and KT Chemicals, Inc. entered on that date.
Our CEO has been employed by the Company with monthly compensation salary of $12,500 per month since October 1, 2015, but has agreed that he will only accept payment when the Companys cash position permits. As of June 30, 2016, he had submitted invoices totaling $112,500, and he had been paid a total of $43,750. As a result, he was owed $68,750 at June 30, 2016.
Albert Pleus, a shareholder who owns approximately 12% of the Companys issued and outstanding stock, is also a consultant to the Company. He provided consulting service for the Company during the six months ending June 30, 2016 in the amount of $60,000. As of June 30, 2016, $20,000 is unpaid.
KT Chemicals, Inc. (KT) owns approximately 12% of ZECs issued and outstanding stock. The Company subleases a facility from KT of approximately 1,900 square feet in Richardson, Texas, paying rent of $2,612.50 per month. ZEC markets and distributes one of KTs chemical products, an odor absorber. The current sublease commenced on June 1, 2016, and will terminate on May 31, 2017. The facility is believed to be adequate for the Companys needs for at least the term of the sublease.
The Company also has an agreement with KT under which KT provides administrative services to the Company and also provides technical support for the chemical products sold by the Company. The Company pays KT $7,000 per month for these services. In addition, KT is the manufacturer of the odor absorbent which ZEC sells under a license agreement with KT. (See Note 8 above) The Company is obligated to pay KT a license fee of either $500,000 or $600,000 depending on the date of payment and is further obligated to meet a minimum sales commitment of $20,000 per month through March 2017.
NOTE 10. COVERTIBLE NOTES
On January 25, 2016 the Company commenced an offering of convertible promissory notes to investors under the exemption from registration provided by Regulation D, Rule 506(b).
On January 25, 2016, the Company issued a convertible note in the amount of $75,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $75,000 and accrued interest is $4,093.
On January 25, 2016, the Company issued a convertible note in the amount of $50,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $50,000 and accrued interest is $2,104.
On February, 2016, the Company issued a convertible note in the amount of $30,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at
$0.30 per share. As of June 30, 2016, the unpaid principal balance is $30,000 and accrued interest is $1,184.
On March 16, 2016 the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, is due on June 30, 2016, and is convertible into common shares at the rate of $0.30 per share. As of March 31, 2016, the unpaid principle balance is $25,000 and accrued interest is $823.
On March 16, 2016, the Company issued a convertible note in the amount of $50,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $50,000 and accrued interest is $1,726.
On March 27, 2016, the Company issued a convertible note in the amount of $30,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $30,000 and accrued interest is $927.
On April 4, 2016, the Company issued a convertible note in the amount of $50,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $50,000 and accrued interest is $1,266.
On April 4, 2016, the Company issued a convertible note in the amount of $50,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $50,000 and accrued interest is $1,069.
On April 14, 2016, the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $25,000 and accrued interest is $624.
On April 14, 2016, the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.30 per share. As of June 30, 2016, the unpaid principal balance is $25,000 and accrued interest is $633.
On April 28, 2016, the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.40 per share. As of June 30, 2016, the unpaid principal balance is $25,000 and accrued interest is $509.
On May 2, 2016, the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at
$0.40 per share. As of June 30, 2016, the unpaid principal balance is $25,000 and accrued interest is $485.
On May 8, 2016, the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.40 per share. As of June 30, 2016, the unpaid principal balance is $25,000 and accrued interest is $427.
On June 2, 2016, the Company issued a convertible note in the amount of $100,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.40 per share. As of June 30, 2016, the unpaid principal balance is $100,000 and accrued interest is $690.
On June 13, 2016, the Company issued a convertible note in the amount of $10,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.40 per share. As of June 30, 2016, the unpaid principal balance is $10,000 and accrued interest is $49.
On June 10, 2016, the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.40 per share. As of June 30, 2016, the unpaid principal balance is $25,000 and accrued interest is $74.
On June 21, 2016, the Company issued a convertible note in the amount of $50,000. The note bears interest at the rate of 12% per annum, was set to mature on June 30, 2016, but has been extended by the Company per the terms of the notes to December 31, 2016, and is convertible into common stock at $0.40 per share. As of June 30, 2016, the unpaid principal balance is $50,000 and accrued interest is $99.
As of June 30, 2016, the Company had a total indebtedness from issuance of these notes of $670,000 and total accrued interest is $16,782.
NOTE 11. WARRANTS
On March 6, 2014 (inception), the Company issued 2,500,000 warrants exercisable into 2,500,000 shares of the Company's common stock. These warrants were issued per order of the U.S. Bankruptcy Court to the administrative creditors of PSD. These creditors received an aggregate of 2,500,000 warrants issued in the series and exercise prices as set forth above at Note 4. As of the date of this report, no warrants have been exercised.
NOTE 12. COMMITMENT AND CONTIGENTCY
On June 1, 2016, the Company signed a sublease agreement with a third party for office space. The term of the Sublease began on June 1, 2016 and will terminate on May 31, 2017 and requires monthly rental payments of $2,612. At June 30, 2016 there were eleven months remaining on the Sublease for a remaining contingency liability of $28,738 for the duration of the Sublease.
Under the Companys license with CBI Polymers the Company must pay $35,000 per month through March 2018. Its obligation during the next 12 months is thus $420,000.
Under the Companys license with KT Chemicals, license total payment is either $500,000 or $600,000 depending on the date of payment must make. As of June 30, 2016, the Company has obligation $350,000or $450,000 payment to KT if paid before August 31, 2016, or after.
NOTE 13. SUBSEQUENT EVENTS
Issuance of Notes to Investors.
On July 9, 2016, the Company issued a convertible note in the amount of $10,000. The note bears interest at the rate of 12% per annum, will mature on December 31, 2016, and is convertible into common stock at $0.40 per share.
On July 25, 2016, the Company issued a convertible note in the amount of $20,000. The note bears interest at the rate of 12% per annum, will mature on December 31, 2016, and is convertible into common stock at $0.40 per share.
On August 2, 2016, the Company issued a convertible note in the amount of $10,000. The note bears interest at the rate of 12% per annum, will mature on December 31, 2016, and is convertible into common stock at $0.40 per share.
On July 27, 2016, the Company issued a convertible note in the amount of $25,000. The note bears interest at the rate of 12% per annum, will mature on December 31, 2016, and is convertible into common stock at $0.40 per share.
On August 8, 2016, the Company issued a convertible note in the amount of $10,000. The note bears interest at the rate of 12% per annum, will mature on December 31, 2016, and is convertible into common stock at $0.40 per share.
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 unaudited condensed financial statements and related notes included in
this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the year ended December 31, 2015.
FORWARD-LOOKING STATEMENTS
The discussion contained herein contains "forward-looking statements" that involve risk and uncertainties. These statements may be identified by the use of terminology such as "believes," "expects," "may," "should" or anticipates" or expressing this terminology negatively or similar expressions or by discussions of strategy. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. Our actual results could differ materially from those discussed in this report.
BUSINESS AND PLAN OF OPERATION
ZEC, Inc. (ZEC or the Company) is engaged in the business of selling specialty chemicals for use in a wide range of decontamination activities. ZEC operates strictly as a sales representative company, with no responsibility for developing, manufacturing, stocking or shipping products or for invoicing or collections. We have exclusive sales agreements with two chemical companies.
Our sales representative agreement with CBI Polymers, Inc. (CBIP), gives us the worldwide, exclusive right to sell a family of products which are proven, professional, military-grade, safe to use and handle, water soluble, and environmentally friendly hydrogels with a near neutral pH. They are tailored to meet the requirements of the U.S. Department of Defense, the Department of Energy, the Department of Homeland Security and the Environmental Protection Agency. They are designed for extreme, hard-to-clean contamination challenges and are effective against radioactive isotopes for nuclear plant decommissioning and nuclear medicine spills, and against toxic industrial chemicals and materials such as mercury, PCB, acids, lead, asbestos, and methamphetamines.
Our sole manufacturing and fulfillment agreement with KT Chemicals, Inc. (KT), gives us the right to market, sell and distribute, throughout the United States and its territories, an odor eliminating chemical manufactured by KT under the trade names WZ and PurSent. Unlike many products which are essentially perfumes designed to mask unpleasant odors, WZ/PurSent has been found effective in the elimination of odors such as tobacco smoke, pet odors, and food and cooking odors including garbage odors from restaurants, apartment and office buildings, hotels, automobiles, and similar spaces.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 2016, we had total assets of $335,723 and at December 31, 2015, our last year end, we had total assets of $1,482. Our current assets at June 30, 2016, included $21,096 in cash, $5,478 in receivables, $13,490 in inventory, $2,500 in prepaid expense and $15,611 in prepaid license investment. Our intangible assets consisted of $277,548 in licenses to sell the chemical products we represent. Our current assets at December 31, 2015 consisted of $127 in cash and $1,355 in receivables. Also at June 30, 2016, we had liabilities totaling $882,016 including $195,234 in accounts payable and accrued expenses, $16,782 in accrued interest and $670,000 in convertible notes. At June 30, we had an accumulated deficit of $546,701, and at December 31, 2015, we had an accumulated deficit of $80,609. Our increase in liabilities from $81,733 at December 31, 2016 to $882,016 at June 30, 2016 was largely the result of two factors: Personnel expenses related to our sales and marketing efforts, and debts incurred to investors participating in our private placement of convertible promissory notes.
RESULTS OF OPERATIONS
The Company has realized only minor revenues from sales of products during the past year. Revenues from sales during the quarter ended June 30, 2016, were $5,478 and sales of $2,495 during the year ended December 31, 2015. During that quarter ended June 30, the Company concentrated its efforts on (a) testing and marketing of its products; (b) conclusion of contracts with CBI Polymers and KT
Chemicals (new agreements with both of these manufacturers were executed in April, 2016); and (c) discussions with private placement investors. Our marketing efforts are now beginning to result in sales, though smaller than those we hope to achieve in the future.
Comparison of the three and six monthes periods ended June 30, 2016 and June 30, 2015
Revenue
For the three month period ended June 30, 2016, we had sales of $5,478, and for the same period in 2015 we had no revenues. For the six month period ended June 30, 2016, our sales were also $5,478, and for the same period in 2015 we had no revenues.
Operating Expenses
For the three month period ended June 30, 2016, our operating expenses totaled $275,839 and for the six month period ended June 30, 2016, our operating expenses totaled $454,229. These consisted of amortization expenses of $52,502 for both the three and six month periods, professional consulting fees which were chiefly related to the marketing of our products of $102,450 for the three month period and $208,350 for the six month period; professional expenses of $35,220 for the three month period and $65,573 for the six month period; travel, advertizing and marketing expenses related to the marketing and sale of our products of $4,692 for the three month period and $13,405 for the six month period; and general and administrative expenses of $80,975 for the three month period and $114,399 for the six month period. During the same periods in 2015 we had no expenses.
GOING CONCERN
The accompanying financial statements are presented on a going concern basis. The company's financial condition raises substantial doubt about the Company's ability to continue as a going concern. The Company has limited cash and other material assets and minimal revenues from operations during the three months and six months periods ended June 30, 2016. It is relying on loans from investors to meet its operating expenses.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
Our management, with the participation of our President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, our disclosure controls and procedures were not effective for the same reasons that our internal controls over financial reporting were not adequate.
INTERNAL CONTROL OVER FINANCIAL REPORTING
As indicated in our Form 10-K filed on March 17, 2016, and our Form 10-Q filed on May 26, 2016, our Principal Executive Officer and Principal Financial Officer concluded that our internal control over
financial reporting was not effective during the 2015 fiscal year at the reasonable assurance level, as a result of a material weakness primarily related to a lack of a sufficient number of personnel with appropriate training and experience in accounting principles generally accepted in the United States of America, or GAAP.
We are currently in the process of evaluating the steps necessary to remediate this material weakness.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
There was no change in our internal control over financial reporting that occurred during the quarterly period ended June 30, 2016, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 1A. RISK FACTORS
There have been no material changes to the risks to our business from those described in our Form 10-K for the year end December 31, 2015 as filed with the SEC on March 17, 2016.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
During the quarter ended June 30, 2016, the Company issued 500,000 shares of its common stock to KT Chemicals as partial consideration for the license to be the exclusive U.S. sales representative for KT Chemicals odor elimination products.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. REMOVED AND RESERVED
ITEM 5. OTHER INFORMATION
None.
ITEM 6. - EXHIBITS
No.
Description
---
-----------
31.1
Certification of Chief Executive Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2
Certification of Chief Financial Officer required by Rule 13a-14(a) or Rule 15d-14(a) of the
Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32
Certifications of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials from the Companys Quarterly Report on Form 10-Q for
the quarter ended June 30, 2016, formatted in XBRL (extensible Business Reporting Language); (i) Balance Sheets at June 30, 2016 and December 31, 2015, (ii) Statement of Operations for the three months and six months ended June 30, 2016 and 2015, (iii) Statement of Cash Flows for the six months ended June 30, 2016 and 2015, and (iv) Notes to Financial Statements.
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.
Date: August 19, 2016
ZEC, INC.
By: /s/ E. Thomas Layton
_________________________________
E. Thomas Layton
CEO and Director
By: /s/ E. Thomas Layton
_________________________________
E. Thomas Layton
CFO and Director