Certification
In
order to transport liquids through flexitanks, extensive
certifications and testing must to occur to obtain the required
governmental approvals. A number of the world’s highway and
train authorities require tests such as collision and drop tests to
attempt to ensure the flexitanks will not break or leak. In
addition, most of the larger transoceanic shippers require their
own tests prior to allowing flexitanks onto their ships. These
tests are expensive and time consuming but without them, it becomes
very difficult to transport on certain roads, rails and ships. EPT
also believes that such testing slows the time for a new entrant or
competing product to get to market and has spent considerable
resources obtaining such needed certifications.
The
following is a list of some of the certifications that EPT has
obtained for its flexitanks.
●
Passed Association
of American Railroad (AAR) Rail Impact Test, Pueblo,
CO.
●
Passed Association
of American Railroad (AAR) Rail Vibration Test (VTU), Pueblo,
CO
●
Passed Goerlitz
Flexitank Rail Impact Test, Brunel Railmotive, Goerlitz,
Germany
●
Passed Marine
Container Test Services DNV 2.7.1 Drop Test and EN 12079>
Vertical Impact Test, Liverpool, England
●
Received rail
certification from Bureas Veritas in Argentina
●
Authorized by the
Russian Railroad (RZD) for flexitank shipments
●
Passed China
Railroad Impact Test
●
Received Kosher
certification from Chicago Rabbinical Council (CRC)
●
EU Food Grade
Certificate
●
ISO 9001:2008
Certificate
●
Meets all COA Code
of Flexitank Requirements
Manufacturing
EPT
believes manufacturing is critical to the successful implementation
of its products in the marketplace. We assemble and manufacture
components used in our flexitanks through a contract manufacturer
based in Zeeland, Michigan. EPT has invested considerable resources
to develop our manufacturing process and has provided our contract
manufacturer with what we believe to be all of the specialized
equipment and knowledge necessary to manufacture our products in
efficient and reliable manner. We believe our current manufacturer
has the capability of expanding to meet our currently anticipated
growth.
Trends Shaping Our Markets
The
growth in the use of flexitanks in the shipping market we believe
is due to flexitanks offering significant savings when compared to
the movement of liquid products in drums, intermediate bulk
containers (IBCs), or tank containers. Flexitanks we believe are
attractive to shipping lines to facilitate the use of backhaul
cargoes from some parts of the world to avoid the costs of
repositioning empty boxes. According to a Grand View Research
report, global flexitank market demand was 800,000 units in 2014
and is expected to reach 3,135,791 units by 2022 growing at a CAGR
of 18.6% from 2015 to 2022.
The UK P&I Club projects that
in 2015, approximately 15% to 20% of global flexitank loads
emanated from South America,
with the movement of wine and
fruit juices being particularly prominent. EPT believes flexitanks
are ideally suited for this type of shipment as they:
●
Are a single use
product with little risk of cross contamination;
●
Have low
positioning costs; and
●
Exhibit a superior
cargo/load ratio
The
clients who we sell our flexitanks consists of: operators and
freight forwarding firms. Operators largely provide port to port
movement of material and in some cases a door to door delivery of
material. Freight forwarding firms offer to arrange door to door
transport of material for smaller businesses who are unable to or
do not wish to utilize operators. EPT currently sells to operators,
freight forwarding firms and directly to the end user. EPT
therefore operates primarily as a manufacturer and at times also as
a freight forwarding or logistics firm.
Growth
EPT is
seeing growth from both the Flexitank business and the BIG Red
LIQUIRIDE™ product. Growth is also occurring from additional
orders from existing customers, new customers and, most
importantly, new strategic relationships. Some of the larger
opportunities are outlined below:
●
Kumho Asiana Group
– Kumho in
Korea is currently EPT’s largest customer generating sales of
approximately 1,000 Flexitanks per month. Although Kumho has
indicated to EPT a need to increase its orders.
●
Strategic relationship with large transoceanic
shipper
– an exclusivity agreement has been reached
between EPT and a large shipper. The agreement provides for an
exclusive relationship for ocean-going reefer based freight. The
shipper has agreed to a minimum commitment of 18,000 BIG Red
LIQUIRIDE™s per year and we believe such relationship has the
potential to result in substantial future orders of BIG Red
LIQUIRIDE™ units to be ordered from such
shipper.
●
Synergie Canada LTD
– is a
Canadian based freight forwarder and logistics company based in
Quebec. We have completed an agreement with Synergie in which it is
now exclusively selling our products as part of an overall sale of
its services. In this agreement, EPT will be receiving a portion of
shipping revenues in addition to sales of Flexitanks.
●
Vedders Transportation Group
– is
a shipping and logistics company that specializes in shipping
liquids. Vedders has recently begun offering EPT’s flexitanks
to its customers as part of its over-all shipping
services.
Strategic Goals
●
Grow Revenues and Market Share through
Strategic Partnerships.
We plan to attempt to increase sales
through strategic partnerships such as those currently in place.
These relationships provide EPT with substantially expanded reach
as our three partners combined have more than 100 sales people
selling our products world-wide compared to our internal sales
force of 8 salespeople. In addition, our relationship with Synergie
is one in which we share in both revenues from shipping and in
Flexitank sales. This is a model we would like to duplicate and are
working with others to create similar relationships.
●
Expand Our Organic Growth Initiatives
.
EPT believes we have opportunities to further expand revenues with
our existing clients by marketing additional service offerings to
them, as well as by extending services to existing clients in new
geographies. We believe that some of our existing clients will have
a need for our new BIG Red LIQUIRIDE™ product and some
additional products, such as an aseptic product that we have begun
introducing in the first quarter of 2017.
●
Increase Operating Margins by Leveraging
Operating Efficiencies.
We believe that increased volume
will improve our costs to manufacture via lower material costs and
increased buying power. In addition, we are at the early planning
stages to build another manufacturing facility off-shore. Such a
facility we believe would allow EPT to both lower costs and
increase production capacity and thus better compete
globally.
●
Invest in research and developmen
t. We
believe our future success is dependent in large part on the
investments we make in research and development, either internally
or through acquisitions, and that we should continually develop and
introduce innovative solutions, enhance existing solutions and
effectively stimulate customer demand for existing and future
products.
Our History
In
2011, Environmental Packaging Technologies, Inc. was created to
purchase certain assets of Environmental Packaging Technologies,
Ltd of Hong Kong (“Ltd”) which was y founded in 2007.
Since 2011, the founders of Ltd have no on-going role in EPT and
own less than 1.0% of our common stock issued and
outstanding.
In
2015, EPT completed a restructuring in which EDP, Ltd, its then
largest investor, debtor and shareholder decided to exit the
investment. In the restructuring EDP returned the Company all of
its shares of common stock to treasury, sold $18.9 million of our
preferred stock and $13.9 million of our subordinated debt held by
EDP to OMB Acquisition Corp., LLC (“OMB”). EDP also
assumed $8.2 million of guarantees of the Company’s senior
debt owed to Huntington Bank, and the Company paid the remaining
$1.8 million to Huntington Bank to retire that debt in full. OMB
subsequently converted all of such acquired debt and preferred
stock of EPT to common stock of EPT and provided its member holders
with such shares of common stock which were converted to shares of
our common stock in the Merger.
In
April 2017, EPT entered a revolving credit facility (the
“Revolving Facility”) of up to $7.5 million, subject to
borrowing base availability, pursuant to Loan and Security
Agreements with both ExWorks and the Export/Import Bank. Borrowing
for all overseas A/R and finished goods inventory intended for use
overseas is provided by the Export/Import bank and all other
borrowing is through ExWorks. As of May 31, 2017, EPT has
drawn down a total of $4.1 million.
Our
current corporate structure is as follows:
Proprietary Rights and Technology
Our
ability to compete is dependent in part upon our proprietary rights
and technology. We rely on a combination of trademark, copyright,
trade secret and patent laws in the United States and globally as
well as confidentiality procedures and contractual provisions to
protect our proprietary technology and our brands and maintain
programs to protect and enforce our rights. These laws and
contractual provisions, however, provide only limited protection of
our proprietary rights and technology, which include confidential
information and trade secrets that we attempt to protect through
confidentiality and nondisclosure provisions in our agreements. We
typically seek to protect our confidential information and trade
secrets through these contractual provisions for the terms of the
applicable agreement and, to the extent permitted by applicable
law, for some negotiated period of time following termination of
the agreement. Listed below are the patents currently held by or
submitted by EPT:
|
Patent / Application
Number
|
Country
|
Title
|
Type
|
Filing Date
And Issue Date
|
|
12/616,825
|
U.S.
|
Shipping
Container Systems
|
Application
|
11/12/2009
|
|
CA
2686180
|
Canada
|
Shipping
Container Systems
|
Application
|
11/17/2009
|
|
12/576,684
|
U.S.
|
Methods,
Systems, and Kits for Shipping and/or Off-Loading Granular
Products
|
Application
|
10/09/2009
|
|
12/901,363
|
U.S.
|
Upright
Side Support Beam
System
for Shipping Containers Used with Bulk Liquid Cargo
|
Application
|
10/08/2010
|
Also,
EPT has filed a patent application (14/945,648
) in the
U.S. The pending patent application covers systems and methods for
shipping liquid using multiple bladders placed on a non-slip mat
and oriented in a manner such that the seams of the bladders are
aligned parallel to the sides of the shipping container (for
example, the seams can be touching the sides of the container).
This pending patent application makes up the underlying technology
around our new BIG Red LIQUIRIDE™ container.
In
addition to patents, EPT has trademarks protecting the names of
many of its products. The trademarks include BIG Red
Flexitank®, EPT Wine-Pak, and BIG Red
LIQUIRIDE™.
Competition
We
expect to experience competition from two main areas: flexitank
manufacturers and shipping logistic companies. Various flexitank
manufacturers such as Qingdao LAF Packaging Co., LTD, BLT Flexitank
Industrial Co., LTD, and MY Flexitank Industries Sdn Bhd are active
in offering flexitank solutions to the shipping carrier market.
Multiple shipping logistic firms such as Trans Ocean, Braid and
Hoyer incorporate flexitank solutions into their door to door
service offering. We expect our proven track record for reliability
and capability to offer a more flexible and economic solution with
our Liquidride offering will provide us with an advantage over our
competition.
There
are various options available to companies when it comes to
transporting bulk products, including tanks, bins, and inflatable
storage tanks. However, we believe our products help companies
ensure hygiene and cargo security and reduce overall transportation
costs in a competitively sustainable manner.
Employment
As of
March 31, 2017 EPT currently has 24 employees, of whom 4 are
executives, 1 employee is engaged in product development,
engineering and research and development, 9 employees are engaged
in sales and marketing, 6 employees are engaged in administrative
and clerical services and 4 employees are engaged in customer
service.
None of
our employees are represented by labor organizations. We consider
our relationship with our employees to be excellent.
Our Corporate Information
Our
principal executive offices are located at 6100 West by Northwest,
Suite 110, Houston, TX 77040. Our telephone number is 877-824-4733.
Our website address is
www.eptpac.com
. These are textual
references only. We do not incorporate the information on, or
accessible through, any of our websites into this prospectus, and
you should not consider any information on, or that can be accessed
through, our websites as part of this prospectus.
Risk Factors
Risks Related to Our Business, Operations and Financial
Condition
We have a substantial accumulated deficit and a history of
recurring losses and we may never achieve and or sustain
profitability. In addition, we may be unable to continue as a going
concern.
We are
not profitable and have incurred losses since our inception in
2011, except for a one-time net gain in 2015 resulting from the
reorganization and forgiveness of debt. We continue to incur
research and development and general and administrative expenses
related to our operations.
We
incurred a net loss of $179,658 for the year ended December 31,
2016 and total liabilities of $ 23,948,067 from August 8, 2011
(date of inception) to December 31, 2016.
The
amount of future losses and when, if ever, we will achieve
profitability are uncertain. If our products do not achieve market
acceptance, we may never become profitable. Additionally, if we are
not successful in growing revenues and controlling costs, we will
not achieve profitability and even if we achieve profitability in
the future, we may not be able to sustain profitability in
subsequent periods.
Our recurring losses have raised substantial doubt regarding our
ability to continue as a going concern.
Our
recurring losses raise substantial doubt about our ability to
continue as a going concern. Our financial statements included
elsewhere in this prospectus include a note describing the
conditions which raise this substantial doubt. As a result, our
independent registered public accounting firm included an
explanatory paragraph in its report on our financial statements as
of and for the year ended December 31, 2016 referring to our
recurring losses and expressing substantial doubt in our ability to
continue as a going concern. Our financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
We may require substantial additional funding, which may not be
available to us on acceptable terms, or at all.
Our
cash balance at December 31, 2016 was $814,778 and in the first six
months of 2017 raised additional equity and debt capital. We
may require additional funding to fund and grow our operations and
continue developing certain products. There can be no assurance
that financing will be available in amounts or on terms acceptable
to us, if at all. In the event we required additional capital, the
inability to obtain additional capital will restrict our ability to
grow and may reduce our ability to continue to conduct business
operations. If we require and are unable to obtain additional
financing, we will likely be required to curtail our development
plans. In that event, current stockholders would likely experience
a loss of most or all of their investment. Additional funding that
we do obtain may be dilutive to the interests of existing
stockholders.
We primarily dependent on two products.
EPT
primarily has two products- the BIG Red Flexitank® and its
newest product, launched in 2016, BIG Red LIQUIRIDE™.
Therefore, the BIG Red Flexitank® and BIG Red LIQUIRIDE™
products account for a substantial portion of our revenues for the
foreseeable future. As a result, our future operating results are
dependent upon continued and further market acceptance of those
products. Factors adversely affecting the pricing of, demand for,
or market acceptance of such products, such as regulatory
complications, competition, or technological change, could have a
material adverse effect on our business, operating results, and
financial condition.
Our failure to effectively manage growth could impair our
business.
Our
business strategy contemplates a period of rapid growth which may
put a strain on our administrative and operational resources, and
our funding requirements. Our ability to effectively manage growth
will require us to successfully expand the capabilities of our
operational and management systems, and to attract, train, manage,
and retain qualified personnel during our initial product launch
and future launches of our other products. There can be no
assurance that we will be able to do so, particularly if losses
continue and we are unable to obtain sufficient financing. If we
are unable to appropriately manage growth, our business, prospects,
financial condition, and results of operations could be adversely
affected.
Although we have a substantial product liability insurance policy,
which we believe will protect us, we may be subject to product
liability claims, and may not have sufficient product liability
insurance to cover any such claims, which may expose us to
substantial liabilities.
We may
be exposed to product liability claims from consumers of our
products. It is possible that any product liability insurance
coverage we obtain will be insufficient to protect us from future
claims. Further, we may not be able to obtain or maintain insurance
on acceptable terms or such insurance may be insufficient to cover
any potential product liability claim or recall. Failure to obtain
or maintain sufficient insurance coverage could have a material
adverse effect on our business, prospects, and results of
operations if claims are made that exceed our
coverage.
Our costs will increase significantly as a result of operating as a
public company, and our management will be required to devote
substantial time to complying with public company
regulations.
Prior
to the closing of the Merger, EPT operated as a private company.
Following the closing of the Merger, the Company will be a publicly
traded company and will file various reports with the SEC including
annual reports on Form 10-K, quarterly reports on Form 10-Q and
current Reports on Form 8-K. As a result of such and other
obligations relating to us being a publicly traded issuer filing
reports with the SED, we will incur additional legal, accounting,
compliance and other expenses that EPT did not incur as a private
company.
We depend on third-party suppliers for materials and components for
our products.
We
depend on a limited number of third-party suppliers for the
materials and components required to manufacture our products and
certain of the materials and components required to produce our
products are single sourced. A delay or interruption by our
suppliers may harm our business, results of operations, and
financial condition, and could also adversely affect our future
profit margins, and/or force us to cease production altogether. In
addition, the lead time needed to establish a relationship with a
new supplier, should one exist, can be lengthy, and we may
experience significant delays in meeting demand in the event we
must change or add new suppliers, should one exist. Our dependence
on our suppliers exposes us to numerous risks, including but not
limited to the following: our suppliers may cease or reduce
production or deliveries, raise prices, or renegotiate terms; we
may be unable to locate a suitable replacement supplier on
acceptable terms or on a timely basis, or at all; and delays caused
by supply issues may harm our reputation, frustrate our customers,
and cause them to turn to our competitors for future
needs.
We may not be able to manage our strategic partners
effectively.
Our
growth strategy includes strategic partners to assist in the
selling of our products and to broaden our reach to potential
customers. The process to bring on, train and assist strategic
partners is time-consuming and costly. We expect to expend
significant resources to undertake business, financial and legal
due diligence on both existing and potential partners, and there is
no guarantee that these will be successful in ultimately increasing
our business.
Failure
to manage our partners effectively may affect our success in
executing our business plan and may adversely affect our business,
financial condition and results of operation. We may not realize
the anticipated benefits of any or all partnership, or may not
realize them in the time frame expected.
Our working capital requirements and cash flows are subject to
fluctuation, which could have an adverse effect on our financial
condition.
Our
working capital requirements and cash flows have historically been,
and are expected to continue to be, subject to quarterly and yearly
fluctuations, depending on a number of factors. Factors which could
result in cash flow fluctuations include:
●
the level of sales
and the related margins on those sales;
●
the collection of
receivables;
●
the timing and size
of purchases of inventory and related components; and
●
the timing of
payment on payables and accrued liabilities.
If we
are unable to manage fluctuations in cash flow, our business,
operating results and financial condition may be materially
adversely affected. For example, if we are unable to effectively
manage fluctuations in our cash flows, we may be unable to make
required payments on our indebtedness.
We operate in a highly competitive industry.
Our
industry is highly competitive, and we will face increased
competition from companies with strong positions in certain markets
we serve and in new markets and regions we may enter. These
companies offer new, disruptive or substitute products and services
that compete for the pool of available customer
demand.
Many of
these competitors have, and our potential competitors may have,
significantly greater financial and other resources than we do and
have spent, and may continue to spend, significant amounts of
resources to try to enter or expand their presence in the market.
Increased competition or other competitive pressures have and may
continue to result in price reductions, reduced margins or loss of
market share, any of which could have a material adverse effect on
our business, financial condition or results of
operations.
Some of
EPT’s customers are required to purchase equipment by
soliciting proposals from a number of sources and, in some cases,
are required to purchase from the lowest bidder. While we attempt
to price our products competitively based upon the relative
features they offer, our competitors’ prices and other
factors, we are often not the lowest bidder and may lose sales to
lower bidders.
Competitors
may be able to respond to new or emerging technologies and changes
in customer requirements more effectively and faster than we can or
devote greater resources to the development, promotion and sale of
products than we can. Current and potential competitors may
establish cooperative relationships among themselves or with third
parties, including through mergers or acquisitions, to increase the
ability of their products to address the needs of
customers.
EPT does not have its own manufacturing facilities and will be
dependent on third parties for product manufacture. EPT may be
unable to control the availability or cost of producing its
products.
EPT
does not have its own manufacturing facilities and has engaged a
third-party manufacturer to provide contract manufacturing
capabilities. There can be no assurance that EPT’s products
can be manufactured in sufficient commercial quantities, in
compliance with our requirements and at an acceptable cost.
Establishing a replacement source for any of EPT’s products
could require significant time and additional expense. Furthermore,
third party manufacturers may encounter manufacturing or quality
control problems. Any such failure could delay or prevent EPT from
shipping products and marketing its products. In the future EPT may
engage other contract manufacturing organizations in addition to
our current manufacturer or create its own capability.
Testing of potential products will be required and there is no
assurance of regulatory approval.
The
effect of government regulation and the need for approval may delay
marketing of new products for a considerable period of time, impose
costly procedures upon EPT’s activities and provide an
advantage to larger companies that compete with EPT. There can be
no assurance that regulatory approval for any products developed by
EPT will be granted on a timely basis or at all. Any such delay in
obtaining, or failure to obtain, such approvals would materially
and adversely affect the marketing of any contemplated products and
the ability to earn product revenue. Further, regulation of
manufacturing facilities by state, local, and other authorities is
subject to change. Any additional regulation could result in
limitations or restrictions on EPT’s ability to utilize any
of its technologies, thereby adversely affecting EPT’s
operations. Various federal and foreign statutes and regulations
also govern or influence the manufacturing, safety, labeling,
storage, record keeping and marketing of food products. The process
of obtaining these approvals and the subsequent compliance with
appropriate U.S. and foreign statutes and regulations are
time-consuming and require the expenditure of substantial
resources. In addition, these requirements and processes vary
widely from country to country.
Our suppliers may not be able to always supply components or
products to us on a timely basis and on favorable terms, and as a
result, our dependency on third party suppliers can adversely
affect our revenue.
We will
rely on our third-party suppliers for components and depend on
obtaining adequate supplies of quality components on a timely basis
with favorable terms to manufacture our products. Some of those
components that we sell are provided to us by a limited number of
suppliers. We will be subject to disruptions in our operations if
our sole or limited supply contract manufacturers decrease or stop
production of components or do not produce components and products
of sufficient quantity. Alternative sources for our components will
not always be available. Many of our components are manufactured
overseas, so they have long lead times, and events such as local
disruptions, natural disasters or political conflict may cause
unexpected interruptions to the supply of our products or
components.
To
prevent future overselling we have worked closely with our
suppliers to establish protocols to handle unexpected orders of key
products and components. In addition, it is our intention, as
mentioned in the use of proceeds, to allocate financial resources
to improve our inventory management, including establishing an
inventory buffer of components appropriate to our business.
However, we cannot assure that our attempt will be successful or
that product or component shortages will not occur in the future.
If we cannot supply products due to a lack of components, or are
unable to utilize other components in a timely manner, our business
will be significantly harmed. If inventory shortages continue, they
could be expected to have a material and adverse effect on our
future revenues and ability to effectively project future sales and
operating results.
We rely on highly skilled personnel, and, if we are unable to
attract, retain or motivate qualified personnel, we may not be able
to operate our business effectively.
Our
success depends in large part on continued employment of senior
management and key personnel who can effectively operate our
business, as well as our ability to attract and retain skilled
employees. Competition for highly skilled management, technical,
research and development and other employees is intense and we may
not be able to attract or retain highly qualified personnel in the
future. In addition, there is a limited quantity of qualified
personnel with experience in the flexitank market. In making
employment decisions, particularly in the job candidates often
consider the value of the equity awards they would receive in
connection with their employment. Our long-term incentive programs
may not be attractive enough or perform sufficiently to attract or
retain qualified personnel.
If any
of our employees leaves us, and we fail to effectively manage a
transition to new personnel, or if we fail to attract and retain
qualified and experienced professionals on acceptable terms, our
business, financial condition and results of operations could be
adversely affected.
Our
success also depends on our having highly trained financial,
technical, recruiting, sales and marketing personnel. We will need
to continue to hire additional personnel as our business grows. A
shortage in the number of people with these skills or our failure
to attract them to our company could impede our ability to increase
revenues from our existing products and services, ensure full
compliance with international and federal regulations, or launch
new product offerings and would have an adverse effect on our
business and financial results.
We may have difficulty in entering into and maintaining strategic
alliances with third parties.
EPT has
entered into, and we may continue to enter into, strategic
alliances with third parties to gain access to new and innovative
technologies and markets. These parties are often large,
established companies. Negotiating and performing under these
arrangements involves significant time and expense, and we may not
have sufficient resources to devote to our strategic alliances,
particularly those with companies that have significantly greater
financial and other resources than we do. The anticipated benefits
of these arrangements may never materialize, and performing under
these arrangements may adversely affect our results of
operations.
We may not be able to obtain patents or other intellectual property
rights necessary to protect our proprietary technology and
business.
We will
seek to patent concepts, components, processes, designs and
methods, and other inventions and technologies that we consider to
have commercial value or that will likely give us a technological
advantage. Despite devoting resources to the research and
development of proprietary technology, we may not be able to
develop technology that is patentable or protectable. Patents may
not be issued in connection with pending patent applications, and
claims allowed may not be sufficient to allow them to use the
inventions that they create exclusively. Furthermore, any patents
issued could be challenged, re-examined, held invalid or
unenforceable or circumvented and may not provide sufficient
protection or a competitive advantage. In addition, despite efforts
to protect and maintain patents, competitors and other third
parties may be able to design around their patents or develop
products similar to the EPT work products that are not within the
scope of their patents. Finally, patents provide certain statutory
protection only for a limited period of time that varies depending
on the jurisdiction and type of patent.
Prosecution
and protection of the rights sought in patent applications and
patents can be costly and uncertain, often involve complex legal
and factual issues and consume significant time and resources. In
addition, the breadth of claims allowed in our patents, their
enforceability and our ability to protect and maintain them cannot
be predicted with any certainty. The laws of certain countries may
not protect intellectual property rights to the same extent as the
laws of the United States. Even if our patents are held to be valid
and enforceable in a certain jurisdiction, any legal proceedings
that we may initiate against third parties to enforce such patents
will likely be expensive, take significant time and divert
management’s attention from other business matters. We cannot
assure that any of the issued patents or pending patent
applications of EPT provide any protectable, maintainable or
enforceable rights or competitive advantages to us.
In
addition to patents, we will rely on a combination of copyrights,
trademarks, trade secrets and other related laws and
confidentiality procedures and contractual provisions to protect,
maintain and enforce our proprietary technology and intellectual
property rights in the United States and other countries. However,
our ability to protect our brands by registering certain trademarks
may be limited. In addition, while we will generally enter into
confidentiality and nondisclosure agreements with our employees,
consultants, contract manufacturers, distributors and resellers and
with others to attempt to limit access to and distribution of our
proprietary and confidential information, it is possible
that:
●
misappropriation of
our proprietary and confidential information, including technology,
will nevertheless occur;
●
our confidentiality
agreements will not be honored or may be rendered
unenforceable;
●
third parties will
independently develop equivalent, superior or competitive
technology or products;
●
disputes will arise
with our current or future strategic licensees, customers or others
concerning the ownership, validity, enforceability, use,
patentability or registrability of intellectual property;
or
●
unauthorized
disclosure of our know-how, trade secrets or other proprietary or
confidential information will occur.
We
cannot assure that we will be successful in protecting, maintaining
or enforcing our intellectual property rights. If we are
unsuccessful in protecting, maintaining or enforcing our
intellectual property rights, then our business, operating results
and financial condition could be materially adversely affected,
which could
●
adversely affect
our reputation with customers;
●
be time-consuming
and expensive to evaluate and defend;
●
cause product
shipment delays or stoppages;
●
divert
management’s attention and resources;
●
subject us to
significant liabilities and damages;
●
require us to enter
into royalty or licensing agreements; or
●
require us to cease
certain activities, including the sale of products.
If it
is determined that we have infringed, violated or are infringing or
violating a patent or other intellectual property right of any
other person or if we are found liable in respect of any other
related claim, then, in addition to being liable for potentially
substantial damages, we may be prohibited from developing, using,
distributing, selling or commercializing certain of our
technologies unless we obtain a license from the holder of the
patent or other intellectual property right. We cannot assure that
we will be able to obtain any such license on a timely basis or on
commercially favorable terms, or that any such licenses will be
available, or that workarounds will be feasible and cost-efficient.
If we do not obtain such a license or find a cost-efficient
workaround, our business, operating results and financial condition
could be materially adversely affected and we could be required to
cease related business operations in some markets and restructure
our business to focus on our continuing operations in other
markets.
If we are unable to anticipate customer preferences and
successfully develop attractive products, we might not be able to
maintain or increase our revenue or achieve
profitability
Our
success depends on our ability to anticipate and react to the
demands and preferences of customers in a timely manner. If we are
unable to introduce new solutions or products in a timely manner or
our new offers are not accepted by our customers, our competitors
may introduce more attractive offers which would adversely impact
our competitive position. Failure to respond in a timely manner to
changing consumer preferences could lead to, among other things,
lower revenues and excess inventory positions of outdated
products.
We may be unable to keep pace with changes in technology as our
business and market strategy evolves.
We will
need to respond to technological advances in a cost-effective and
timely manner in order to remain competitive. The need to respond
to technological changes may require us to make substantial,
unanticipated expenditures. There can be no assurance that we will
be able to respond successfully to technological
change.
Risks Related to Our Common Stock
There is currently a limited public trading market for our common
stock and one may never develop. We voluntarily file reports with
the SEC.
Our
common stock currently is eligible for quotation on the OTC Pink
Marketplace. There currently is a limited trading market for our
shares of common stock, and no assurances can be given that any
public market will develop in the foreseeable future, or even if it
does, that an active trading market will develop or be sustained.
As a result, our investors may have limited or no ability to
liquidate their investments.
The OTC
Pink Marketplace is a less recognized market than the registered
securities exchanges and are often characterized by low trading
volume and significant price fluctuations. These and
other factors may further impair our stockholders’ ability to
sell their shares when they want to and/or could depress our stock
price. As a result, stockholders could find it difficult to dispose
of, or obtain accurate quotations of the price of our securities
because smaller quantities of shares could be bought and sold,
transactions could be delayed and security analyst and news
coverage of our Company may be limited. If a public
market for our common stock does develop, these factors could
result in lower prices and larger spreads in the bid and ask prices
for our shares of common stock. These factors could impact the
value of the Company and impair the value of our common
stock.
Because we were a “shell company,” Rule 144 is
unavailable until one year has elapsed from the date that we have
filed “Form 10 information” with the SEC, including
current financial statements.
Rule
144 provides, as indicated above, that sales of securities of a
former shell company may only be made once the applicable waiting
period has terminated and only if appropriate current information
is available by the company and that it has filed all relevant
periodic reports that it is required to file. Rule 144 will be
unavailable to holders of restricted securities until one year has
elapsed from the date that we filed “Form 10
information” (as defined in Rule 144) with the SEC along with
audited financial statements. Since, as indicated above, we have
not included unaudited financial statements for the three (3)
months ended March 31, 2017, Rule 144 will not be available and
holders of shares of our common stock that are deemed
“restricted securities” under the Securities Act will
not be able to sell such shares under Rule 144 until the date one
(1) year from the date we file an amendment to this Current Report
on Form 8-K which includes such unaudited financial statements.
Once we become current, no assurance can be made that the Company
will be able to remain current with its reports. In addition to the
above, because we voluntarily file SEC reports with the SEC,
following the one (1) year period discussed above, holders will not
be permitted to rely on Rule 144 for sales of our shares, unless
and until such time as we are mandatorily required under SEC laws,
rules and regulations to file periodic reports with the
SEC.
The market price of our common stock may be highly volatile and
such volatility could cause you to lose some or all of your
investment.
The
market price of our common stock may fluctuate significantly in
response to numerous factors, some of which are beyond our control,
such as:
●
the announcement of
new products or product enhancements by us or our
competitors;
●
developments
concerning intellectual property rights;
●
changes in legal,
regulatory, and enforcement frameworks impacting our
products;
●
variations in our
and our competitors’ results of operations;
●
fluctuations in
earnings estimates or recommendations by securities analysts, if
our common stock is covered by analysts;
●
the results of
product liability or intellectual property lawsuits;
●
future issuances of
common stock or other securities;
●
the addition or
departure of key personnel;
●
announcements by us
or our competitors of acquisitions, investments or strategic
alliances; and
●
general market
conditions and other factors, including factors unrelated to our
operating performance.
Further,
the general stock market has recently experienced price and volume
fluctuations. The volatility of our common stock could be further
exacerbated due to low trading volume. Continued market
fluctuations could result in extreme volatility in the price of our
common stock, which could cause a decline in the value of our
common stock and the loss of some or all of our investors’
investment. Sales of shares of our common stock could also depress
the then price of our shares.
Because our common stock may be a “penny stock,” it may
be more difficult for investors to sell shares of our common stock,
and the market price of our common stock may be adversely
affected.
Our
common stock may be a “penny stock” if, among other
things, the stock price is below $5.00 per share, it is not listed
on a national securities exchange, or it has not met certain net
tangible asset or average revenue requirements. Broker-dealers who
sell penny stocks must provide purchasers of these stocks with a
standardized risk-disclosure document prepared by the SEC. This
risk-disclosure document provides information about penny stocks
and the nature and level of risks involved in investing in the
penny-stock market. A broker must also give a purchaser, orally or
in writing, bid and offer quotations and information regarding
broker and salesperson compensation, make a written determination
that the penny stock is a suitable investment for the purchaser and
obtain the purchaser’s written agreement to the purchase.
Broker-dealers must also provide customers that hold penny stock in
their accounts with such broker-dealer a monthly statement
containing price and market information relating to the penny
stock. If a penny stock is sold to an investor in violation of the
penny stock rules, the investor may be able to cancel its purchase
and get their money back.
If
applicable, the penny stock rules may make it difficult for
stockholders to sell their shares of our common stock. Because of
the rules and restrictions applicable to a penny stock, there is
less trading in penny stocks and the market price of our common
stock may be adversely affected. Also, many brokers choose not to
participate in penny stock transactions. Accordingly, stockholders
may not always be able to resell their shares of our common stock
publicly at times and prices that they feel are
appropriate.
Because we became public by means of a reverse merger, we may not
be able to attract the attention of brokerage firms.
Additional
risks may exist because we became public through a “reverse
merger.” Securities analysts of brokerage firms may not
provide coverage of our company since there is little incentive for
brokerage firms to recommend the purchase of our common
stock. No assurance can be given that brokerage firms will
want to conduct secondary offerings on our behalf in the
future
.
Compliance with the reporting requirements of federal securities
laws can be expensive.
We are
a public reporting company in the United States, and accordingly,
subject to the information and reporting requirements of the
Exchange Act and other federal securities laws. The costs of
preparing and filing annual and quarterly reports and other
information with the SEC and furnishing audited reports to
stockholders are substantial. Failure to comply with the
applicable securities laws could result in private or governmental
legal action against us or our officers and directors, which could
have a detrimental impact on our business and financials, the value
of our stock, and the ability of stockholders to resell their
stock.
Our investors’ ownership in the Company may be diluted in the
future.
In the
future, we may issue additional authorized but previously unissued
equity securities, resulting in the dilution of ownership interests
of our present stockholders. We may issue a substantial number of
shares of common stock or other securities convertible into or
exercisable for common stock in connection with capital raising
activity, hiring or retaining employees, future acquisitions,
raising additional capital in the future to fund our operations,
and other business purposes. We expect to authorize in the future a
substantial number of shares of our common stock for issuance under
a stock option or similar plan, and may issue equity awards to
management, employees and other eligible persons. Additional shares
of common stock issued by us in the future will dilute an
investor’s investment in the Company. In addition, we may
seek stockholder approval to increase the amount of the
Company’s authorized stock, which would create the potential
for further dilution of current investors.
Directors, executive officers, principal stockholders and
affiliated entities own a significant percentage of our capital
stock, and they may make decisions that our stockholders do not
consider to be in their best interests.
As of
the date of this Current Report, our directors, executive officers,
principal stockholders and affiliated entities may be deemed to
beneficially own, in the aggregate, approximately 45% of our
outstanding voting securities as of the date hereof. As a result,
if some or all of such parties acted together, they would have the
ability to exert substantial influence over the election of our
board of directors and the outcome of issues requiring approval by
our stockholders. This concentration of ownership may also have the
effect of delaying or preventing a change in control of the Company
that may be favored by other stockholders. This could prevent
transactions in which stockholders might otherwise recover a
premium for their shares over current market prices. This
concentration of ownership and influence in management and board
decision-making could also harm the price of our capital stock by,
among other things, discouraging a potential acquirer from seeking
to acquire shares of our capital stock (whether by making a tender
offer or otherwise) or otherwise attempting to obtain control of
our Company.
Our board of directors has significant control over the Company. We
have no committees comprised of independent directors.
We
currently only have one (1) director, Mr. Skriloff. At such time as
we obtain director and officer liability insurance we may appoint
additional directors. Because Mr. Skriloff is our sole director, he
has significant control over all corporate issues. In addition, Mr.
Skriloff is our CEO. We have no board committees comprised of
independent members, and we do not have an audit or compensation
committee comprised of independent directors.
If we fail to maintain an effective system of internal controls, we
may not be able to accurately report our financial results or
detect fraud. Consequently, investors could lose confidence in our
financial reporting and this may decrease the trading price of our
stock.
We must
maintain effective internal controls to provide reliable financial
reports and to detect and prevent fraud. If we cannot provide
reliable financial reports or prevent fraud, we may not be able to
manage our business as effectively as would be possible with an
effective control system in place. We have not performed an
in-depth analysis to determine if historical undiscovered failures
of internal controls exist, and may in the future discover areas of
our internal control that need improvement.
We
continue to assess our internal controls to identify areas that
need improvement. We are in the process of implementing changes to
internal controls, but have not yet completely implemented these
changes. Failure to implement these changes to our internal
controls or any others that we identify as necessary to maintain an
effective system of internal controls could harm our operating
results and cause investors to lose confidence in our reported
financial information. Any such loss of confidence would have
a negative effect on the trading price of our common
stock.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
You should read the following discussion and analysis of our
financial condition and results of operations together with
“Selected Financial Data” and our financial statements
and the related notes appearing elsewhere in this document. In
addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks,
uncertainties and assumptions. See “Cautionary Statements
Regarding Forward-Looking Statements and Industry Data” for a
discussion of the uncertainties and assumptions associated with
these statements. Our actual results may differ materially from
those discussed below. Factors that could cause or contribute to
such differences include, but are not limited to, those identified
below, and those discussed in the section titled “Risk
Factors” included elsewhere in this prospectus.
Financial Discussion
You should read the following discussion and analysis of our
financial condition and results of operations together with
“Selected Financial Data” and our financial statements
and the related notes appearing elsewhere in this document. In
addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks,
uncertainties and assumptions. See “Cautionary Statements
Regarding Forward-Looking Statements and Industry Data” for a
discussion of the uncertainties and assumptions associated with
these statements. Our actual results may differ materially from
those discussed below. Factors that could cause or contribute to
such differences include, but are not limited to, those identified
below, and those discussed in the section titled “Risk
Factors” included elsewhere in this prospectus.
Overview
Environmental Packaging Technologies, Inc., or EPT, is a specialty
packaging company manufactures, markets and sells a single use
system
to safely transport bulk, non-hazardous liquids,
offering products that provide innovative solutions to meet growing
global demand. It has created a patented transportation system that
consists of a two-ply plastic tube encased in a woven material that
can be filled with up to 6,340 gallons of liquid. EPT primarily has
two separate products – the BIG Red Flexitank® and its
newest product BIG Red LIQUIRIDE™, launched in 2016.
EPT’s products have been used to ship hundreds of different
products from bio diesel, wine, juice, milk, high-fructose corn
syrup, and even liquid latex.
Growth through Joint Ventures and Strategic Partners
Our
growth strategy includes a combination of internal growth from the
hiring of additional sales people and from the use of partners to
sell our products as part of a single shipping solution. In
2016, we closed on a joint venture with Synergie Canada and an
exclusive sales relationship with one of the world’s largest
shipping firms in which each will sell our products as part of an
overall, one-stop, shipping solution. We believe that this
will greatly propel sales as we are in essence increasing our sales
force from the 8 internal salespeople we currently have to more
than 100 that are being utilized by our partners. Over the
course of 2017, we believe that we will finalize several other
similar relationships.
We also
plan to build an addition manufacturing facility that should lower
our costs and increase our gross margins.
As a
result, we believe we will be able to achieve significant increases
in revenues while simultaneous reductions in our costs of revenue
and selling, general and administrative expenses from the levels
currently incurred as a percentage of revenues, thereby increasing
our EBITDA and cash flows.
Financial Overview
For 2016, EPT generated revenues of $17.3 million, an increase of
$1.1 million from 2016 revenues of $16.2 million. Most of
this was created from the establishment of our two strategic
relationships and an increase in business from several of our
longstanding customers. Also, in 2016 our operating
gain/(loss) increased from a loss of $2.0 million in 2015 to a gain
of $1.4 million in 2016. This was primarily a result of
increased volume and a reduction in our SG&A. In
2016, we had net loss of ($179,658) as compared to a gain of
$7,785,824 in 2015. The gain in 2015 was attributed to gains
from the retirement of debt and from its restructuring in October
of 2015. For 2016, the Company outperformed 2015 on an
operating basis but did not realize any one-time gains as it had in
2015.
JOBS Act
On April 5, 2012, the JOBS Act was enacted. Section 107 of the JOBS
Act provides that an “emerging growth company” can take
advantage of the extended transition period provided in Section
7(a)(2)(B) of the Securities Act of 1933, as amended (the
Securities Act), for complying with new or revised accounting
standards. In other words, an “emerging growth
company” can delay the adoption of certain accounting
standards until those standards would otherwise apply to private
companies. We have elected to use the extended transition
period for complying with new or revised accounting standards under
Section 102(b)(1) of the JOBS Act. This election allows us to
delay the adoption of new or revised accounting standards that have
different effective dates for public and private companies until
those standards apply to private companies. As a result of
this election, our financial statements may not be comparable to
companies that comply with public company effective
dates.
We are in the process of evaluating the benefits of relying on
other exemptions and reduced reporting requirements provided by the
JOBS Act. Subject to certain conditions set forth in the JOBS
Act, as an “emerging growth company,” we intend to rely
on certain of these exemptions, including without limitation, (i)
providing an auditor’s attestation report on our system of
internal controls over financial reporting pursuant to Section
404(b) of the Sarbanes-Oxley Act and (ii) complying with any
requirement that may be adopted by the PCAOB regarding mandatory
audit firm rotation or a supplement to the auditor’s report
providing additional information about the audit and the financial
statements, known as the auditor discussion and analysis. We
will remain an “emerging growth company” until the
earliest of (i) the last day of the fiscal year in which we have
total annual gross revenues of $1 billion or more; (ii) the last
day of our fiscal year following the fifth anniversary of the date
of the completion of this offering; (iii) the date on which we have
issued more than $1 billion in nonconvertible debt during the
previous three years; or (iv) the date on which we are deemed to be
a large accelerated filer under the rules of the Securities and
Exchange Commission.
Results of Operations
Comparison of the Year Ended December 31, 2016 and the Year Ended
December 31, 2015
The following table summarizes our results of operations for the
years ended December 31, 2016 and 2015, together with the changes
in those items in dollars and as a percentage:
|
|
|
|
|
|
Revenues
|
$
17,301,708
|
$
16,234,894
|
6.6
%
|
|
Cost
of Sales
|
11,656,784
|
13,053,164
|
-10.7
%
|
|
Gross
Profit
|
5,644,924
|
3,181,730
|
77.4
%
|
|
SG&A
|
4,285,721
|
5,197,846
|
-17.5
%
|
|
Interest
Expense
|
995,435
|
889,396
|
11.9
%
|
|
Net
Income (Loss)
|
$
(179,658
)
|
$
7,785,824
|
n/a
|
Revenues
Consolidated
revenue increased $1.1 million from 2015 to 2016, primarily the
establishment of its two strategic relationship in 2016 along with
an increase business from several longtime
customers.
Cost of Sales
Cost of
sales decreased year over year despite higher revenues as a result
of a concerted effort to reduce costs in its manufacturing
process. It also decreased due to the recognition of
inventory that had previously been written off.
SG&A Expenses
Sales,
general and administrative expenses decreased by 17.5% from 2015 to
2016 primarily as a result of charges associated with the
restructuring that occurred in October 2015 that did not exist for
2016.
Interest Expenses
Interest
expenses remained fairly constant from 2015 through 2016 although
our debt increased by approximately $1.4 million. Most of
that increase occurred in November 2016 with the closing of the
$795,000 convertible notes and thus had little effect on annual
interest expenses.
Net Income (Loss)
In
2015, the one-time gain from the reorganization and forgiveness in
debt in 2015 created gains that were not present for 2016.
Without such one-time gains, 2016 net income improved from
2015.
Liquidity and Capital Resources
Sources of Liquidity
In 2016, besides cash from operations, we generated liquidity
primarily from a $795,000 bridge loan completed in November 2016
and several short term loans.
In 2015, we generated liquidity primarily from a $3.5 million
senior secured loan in October of which $1.8 million of that was
used to repay a previous bank loan.
Based on our current level of operations along the new A/R and
Inventory based borrowing facility with ExWorks and the
Export/Import Bank and with the proceeds from a financing that we
expect to close in the next 30 days, we believe these sources will
be adequate to meet our liquidity needs for at least the next 12
months.
Cash Flows
The following table sets forth the significant sources and uses of
cash for the periods set forth below:
|
|
|
|
|
Cash
used in Operating Activity
|
$
(1,251,189
)
|
$
(876,932
)
|
|
Cash
used in Investing Activity
|
-
|
-
|
|
Cash
provided by Financing Activity
|
1,063,500
|
1,445,545
|
Operating Activities
The change in cash from operating activities from 2015 to 2016 was
due from the better performance in 2016, an increase in inventory
by $1.7 million in 2016 and from the gain from recovery of bad debt
in 2015.
Investing Activities
For 2015 and 2016 there no cash from financing
activities.
Financing Activities
For 2016, the Company raised $2.4 million in debt, the largest
single amount in a convertible note for $795,000. For 2015,
the Company raised $3.5 million senior secured financing and repaid
$1.8 million as part of the restructuring of October
2015.
Revolving Credit Facility
In April 2017, we closed a revolving credit facility (the
“Revolving Facility”) of up to $7.5 million, subject to
borrowing base availability, pursuant to Loan and Security
Agreements with both ExWorks and the Export/Import Bank. Borrowing
for all overseas A/R and finished goods inventory intended for use
overseas is provided by the Export/Import bank and carries an
interest rate of prime plus 4%. All other borrowing is
through ExWorks and carries an interest rate of 2% per month.
The maturity date of loans under the Revolving Facility will be one
year from closing.
The Revolving Facility is secured by a first priority security
interest in all assets including receivables and inventory with the
exception of receivables from our Korean
subsidiary.
The Revolving Facility is subject to mandatory prepayments if the
aggregate amount of the outstanding advances exceeds either $7.5
million or the borrowing base, in an amount equal to such excess.
Additionally, the Revolving Facility is subject to various
covenants requiring minimum financial and asset coverage ratios,
and additional borrowing may be limited by these ratios. The
Revolving Facility is also subject to other covenants and events of
default. Failure to comply with these covenants and other
provisions could result in an event of default under the Loan
Agreement. If an event of default occurs, the bank could elect to
declare all amounts outstanding under the Revolving Facility to be
immediately due and payable, enforce their interest in collateral
pledged under the Loan Agreement or cease advancing money or
extending credit to EPT under the Revolving Facility.
Future Funding Requirements
EPT believe that it will require one additional financing of
approximately $5 million in order to provide the capital it needs
to hit its growth targets. This includes, but is not limited
to creating a second manufacturing facility to service our business
in the Far East and build an additional assembly line in its
current manufacturing facility. It is currently in the midst
of this financing and has had an initial close of approximately
$2.8 million.
Off-Balance Sheet Arrangements
We did not have during the periods presented, and we do not
currently have, any off-balance sheet arrangements as defined under
Securities and Exchange Commission rules.
Critical Accounting Policies and Estimates
Our management’s discussion and analysis of our financial
condition and results of operations is based on our financial
statements, which we have prepared in accordance with generally
accepted accounting principles in the United States, or U.S.
GAAP. The preparation of these financial statements requires
us to make estimates and assumptions that affect the reported
amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, as
well as the reported revenues and expenses during the reporting
periods. We evaluate these estimates and judgments on an
ongoing basis. We base our estimates on historical experience
and on various other factors that we believe are reasonable under
the circumstances, the results of which form the basis for making
judgments about the carrying value of assets and liabilities that
are not readily apparent from other sources. Our actual
results may differ from these estimates under different assumptions
or conditions.
While our significant accounting policies are more fully described
in Note [3] to our financial statements appearing elsewhere in this
8k, we believe that the following accounting policies are the most
critical for fully understanding and evaluating our financial
condition and results of operations.
Significant Accounting Policies
Basis of Presentation
We have
prepared the accompanying unaudited consolidated financial
statements in accordance with accounting principles generally
accepted in the United States of America for interim financial
information. In our opinion, all adjustments (consisting of normal
recurring accruals) considered necessary for a fair presentation
have been included. Operating results for the years ended December
31, 2016 and 2015 are not necessarily indicative of the results
that may be expected for future years.
The
accompanying consolidated financial statements are presented in
U.S. dollars in conformity with accounting principles generally
accepted in the United State of America (“U.S. GAAP”)
and pursuant to the rules and regulations of the Securities and
Exchange Commission.
Principles of Consolidation
The
consolidated financial statements include the accounts of
Environmental Packaging Technologies, Inc and its wholly-owned
subsidiaries, in Korea, the Netherlands, China and
Argentina.
Use of Estimates
The
preparation of consolidated financial statements in conformity with
accounting principles generally accepted in the United States
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 consolidated
financial statements and reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Tax
The
Company uses the liability method of accounting for income taxes in
accordance with US GAAP. Deferred taxes, if any, are recognized for
the future tax consequences of temporary differences between the
tax basis of assets and liabilities and their reported amounts in
the consolidated financial statements. A valuation allowance is
provided against deferred tax assets if it is more likely than not
that the asset will not be utilized in the future.
The
Company recognizes the tax benefit from an uncertain tax position
only if it is more likely than not that the tax position will be
sustained on examination by the taxing authorities, based on the
technical merits of the position. The Company recognizes interest
and penalties, if any, related to unrecognized tax benefits as
income tax expense.
Revenue Recognition
We
recognize revenue, including freight charged to customers, net of
applicable rebates, estimates for sales returns and allowances and
discounts, when the earnings process is complete. This occurs when
products have been shipped to, or received by, the customer, in
accordance with the terms of the agreement entered into between us
and such customer, title and risk of loss has been transferred,
pricing is fixed or determinable, and collectability is reasonably
assured.
Cash and Cash Equivalents
For
purposes of cash flow, the Company considers all cash accounts
which are not subject to withdrawal restrictions or penalties, and
highly liquid debt instruments purchased with a maturity of three
months or less to be cash equivalents.
Restricted Cash
The
Company considers cash or highly liquid debt instruments on deposit
with financial institutions which are held to secure an obligation
by the Company to be restricted cash.
Accounts Receivable
Trade
accounts receivable are recorded at the invoiced amount and do not
bear interest.
The
Company will establish an allowance for doubtful accounts based
upon factors surrounding the credit risk of specific customers,
historical trends and other relevant information. Management
believes that its contract acceptance, billing and collection
policies are adequate to minimize the potential credit risk
associated with accounts receivable. The Company considers
the current accounts receivable balance to be very
collectible. Accordingly, the Company has recorded an
allowance for bad debt of $20,773 at December 31,
2016.
Property and Equipment
At the
end of 2013, the Company wrote off all PP&E that was on its
balance sheet. Subsequently, it made no large capital
expenditures in property nor equipment. All small
expenditures such as replacement parts for equipment is
expensed.
Intangibles
The
Company does not have any intangibles for financial reporting
purposes, however, an intangible remains on the tax books and is to
be amortized for income tax purposes.
Fair Value of Financial Instruments
The
Company does not have any assets or liabilities measured at fair
value on a recurring or non-recurring basis.
Recent Accounting Pronouncements
In May
2014, the Financial Accounting Standards Board (the
“FASB”) issued Accounting Standards Update No. 2014-09
(ASU 2014-09), Revenue from Contracts with Customers. ASU 2014-09
will eliminate transaction- and industry-specific revenue
recognition guidance under current GAAP and replace it with a
principle based approach for determining revenue recognition. ASU
2014-09 will require that companies recognize revenue based on the
value of transferred goods or services as they occur in the
contract. ASU 2014-09 also will require additional disclosure about
the nature, amount, timing and uncertainty of revenue and cash
flows arising from customer contracts, including significant
judgments and changes in judgments and assets recognized from costs
incurred to obtain or fulfill a contract. Based on the FASB’s
Exposure Draft Update issued on April 29, 2015, and approved in
July 2015, Revenue from Contracts With Customers (Topic 606):
Deferral of the Effective Date, ASU 2014-09 is now effective for
reporting periods beginning after December 15, 2017, with early
adoption permitted only as of annual reporting periods beginning
after December 15, 2016, including interim reporting periods within
that reporting period. Entities will be able to transition to the
standard either retrospectively or as a cumulative-effect
adjustment as of the date of adoption. The adoption of ASU 2014-09
is not expected to have any impact on the Company’s
consolidated financial statement presentation or
disclosures.
In
August 2014, the FASB issued Accounting Standards Update No.
2014-15 (ASU 2014-15), Presentation of Financial Statements - Going
Concern (Subtopic 205-10). ASU 2014-15 provides guidance as to
management’s responsibility to evaluate whether there is
substantial doubt about an entity’s ability to continue as a
going concern and to provide related footnote disclosures. In
connection with preparing financial statements for each annual and
interim reporting period, an entity’s management should
evaluate whether there are conditions or events, considered in the
aggregate, that raise substantial doubt about the entity’s
ability to continue as a going concern within one year after the
date that the financial statements are issued (or within one year
after the date that the financial statements are available to be
issued when applicable). Management’s evaluation should be
based on relevant conditions and events that are known and
reasonably knowable at the date that the financial statements are
issued (or at the date that the financial statements are available
to be issued when applicable). Substantial doubt about an
entity’s ability to continue as a going concern exists when
relevant conditions and events, considered in the aggregate,
indicate that it is probable that the entity will be unable to meet
its obligations as they become due within one year after the date
that the financial statements are issued (or available to be
issued). ASU 2014-15 is effective for the annual period ending
after December 15, 2016, and for annual periods and interim periods
thereafter. Early application is permitted. The adoption of ASU
2014-15 is not expected to have any impact on the Company’s
consolidated financial statement presentation and
disclosures.
In
January 2015, the FASB issued Accounting Standards Update No.
2015-01 (ASU 2015-01), Income Statement - Extraordinary and Unusual
Items (Subtopic 225-20). ASU 2015-01 eliminates from GAAP the
concept of extraordinary items. Subtopic 225-20, Income Statement -
Extraordinary and Unusual Items, required that an entity separately
classify, present, and disclose extraordinary events and
transactions. Presently, an event or transaction is presumed to be
an ordinary and usual activity of the reporting entity unless
evidence clearly supports its classification as an extraordinary
item. Paragraph 225-20-45-2 contains the following criteria that
must both be met for extraordinary classification: (1) Unusual
nature. The underlying event or transaction should possess a high
degree of abnormality and be of a type clearly unrelated to, or
only incidentally related to, the ordinary and typical activities
of the entity, taking into account the environment in which the
entity operates. (2) Infrequency of occurrence. The underlying
event or transaction should be of a type that would not reasonably
be expected to recur in the foreseeable future, taking into account
the environment in which the entity operates. If an event or
transaction meets the criteria for extraordinary classification, an
entity is required to segregate the extraordinary item from the
results of ordinary operations and show the item separately in the
income statement, net of tax, after income from continuing
operations. The entity also is required to disclose applicable
income taxes and either present or disclose earnings-per-share data
applicable to the extraordinary item. ASU 2015-01 is effective for
fiscal years, and interim periods within those fiscal years,
beginning after December 15, 2015. A reporting entity may apply the
guidance prospectively. A reporting entity also may apply the
guidance retrospectively to all prior periods presented in the
financial statements. Early adoption is permitted provided that the
guidance is applied from the beginning of the fiscal year of
adoption. The adoption of ASU 2015-01 is not expected to have any
impact on the Company’s consolidated financial statement
presentation or disclosures.
In
February 2015, the FASB issued Accounting Standards Update No.
2015-02 (ASU 2015-02), Consolidation (Topic 810). ASU 2015-02
changes the guidance with respect to the analysis that a reporting
entity must perform to determine whether it should consolidate
certain types of legal entities. All legal entities are subject to
reevaluation under the revised consolidation mode. ASU 2015-02
affects the following areas: (1) limited partnerships and similar
legal entities; (2) evaluating fees paid to a decision maker or a
service provider as a variable interest; (3) the effect of fee
arrangements on the primary beneficiary determination; (4) the
effect of related parties on the primary beneficiary determination;
and (5) certain investment funds. ASU 2015-02 is effective for
public business entities for fiscal years, and for interim periods
within those fiscal years, beginning after December 15, 2015. Early
adoption is permitted, including adoption in an interim period. If
an entity early adopts the guidance in an interim period, any
adjustments should be reflected as of the beginning of the fiscal
year that includes that interim period. A reporting entity may
apply the amendments in this guidance using a modified
retrospective approach by recording a cumulative-effect adjustment
to equity as of the beginning of the fiscal year of adoption. A
reporting entity also may apply the amendments retrospectively. The
adoption of ASU 2015-02 is not expected to have any impact on the
Company’s consolidated financial statement presentation or
disclosures.
In
January 2016, the FASB issued ASU 2016-01, Financial
Instruments–Overall (Subtopic 825-10): Recognition and
Measurement of Financial Assets and Financial Liabilities, which
makes targeted improvements in the recognition, measurement,
presentation, and disclosure of financial instruments. For public
entities, ASU 2016-01 is effective for fiscal years beginning after
December 15, 2017, and interim periods within those fiscal years.
The Company is still evaluating the impact ASU 2016-01 will have on
its consolidated financial statements.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842),
which, among other things, requires the recognition of lease assets
and lease liabilities on the balance sheets of lessees, along with
the disclosure of key information about leasing arrangements. When
effective, the ASU will supersede, and add Topic 842, Leases to the
FASB ASC. In addition to replacing FASB ASC 840 with FASB ASC 842,
it also amends and supersedes a number of other paragraphs
throughout the FASB ASC. The ASU is effective for public business
entities for fiscal years beginning after December 15, 2018, and
interim periods within those fiscal years. Early adoption is
permitted. The Company is still evaluating the impact ASU 2016-02
will have on its consolidated financial statements.
In
March 2016, the FASB issued ASU 2016-09, Compensation-Stock
Compensation (Topic 718): Improvements to Employee Share-Based
Payment Accounting, changing how entities account for certain
aspects of share-based payments to employees. The new guidance
requires excess tax benefits and tax deficiencies to be recognized
as income tax expense or benefit in the income statement, and could
introduce volatility to the Company’s provision for income
taxes. Excess tax benefits must be presented as an operating
activity on the statement of cash flows rather than a financing
activity. ASU 2016-09 requires companies to make an accounting
policy election at the time of adoption to either estimate the
number of awards that are expected to vest (consistent with
existing U.S. GAAP) or account for forfeitures when they occur. The
forfeiture election provision must be applied using a retrospective
transition approach, with a cumulative-effect adjustment recorded
to retained earnings as of the beginning of the period of adoption.
The new guidance is effective for fiscal years beginning after
December 15, 2016, including interim periods within those fiscal
years. The adoption of ASU 2016-09 is not expected to have any
impact on the Company’s consolidated financial
statements.
In June
2016, the FASB issued ASU 2016-13, Financial Instruments - Credit
Losses, which is included in ASC Topic 326, Measurement of Credit
Losses on Financial Instruments. The new guidance revises the
accounting requirements related to the measurement of credit losses
and will require entities to measure all expected credit losses for
financial assets based on historical experience, current conditions
and reasonable and supportable forecasts about collectability.
Assets must be presented in the financial statements at the net
amount expected to be collected. The guidance will be effective for
the fiscal years beginning after December 15, 2019, including
interim periods within those fiscal years. Early adoption is
permitted with fiscal years beginning after December 15, 2018. The
Company is evaluating the impact this standard will have on its
consolidated financial statements.
In
August 2016, the FASB issued ASU 2016-15, Classification of Certain
Cash Receipts and Cash Payments, which is included in FASB
Accounting standards Codification (ASC) Topic 230, Statement of
Cash Flows. The new guidance clarifies how companies present and
classify certain cash receipts and cash payments in the statement
of cash flows, including contingent consideration payments made
after a business combination and distributions received from equity
method investees. The guidance is effective for fiscal years
beginning after December 15, 2017, including interim periods within
those fiscal years, with early adoption permitted. The Company does
not plan to early adopt and is currently evaluating the impact this
standard will have on its consolidated financial
statements.
In
October 2016, the FASB issued ASU 2016-16, Income Taxes (Topic
740): Intra-Entity Transfers of Assets Other Than Inventory,
requiring entities to recognize the income tax consequences of an
intra-entity transfer of an asset other than inventory when the
transfer occurs. The new guidance is effective for fiscal years
beginning after December 15, 2017, including interim periods within
those fiscal years. Early adoption is permitted if in the first
interim period an entity issues interim financial statements. ASU
2016-16 must be applied on a modified retrospective basis through a
cumulative-effect adjustment directly to retained earnings as of
the beginning of the period of adoption. The Company is currently
evaluating the impact this standard will have on its consolidated
financial statements.
In
November 2016, the FASB issued ASU 2016-18, Restricted Cash, which
is included in FASB Accounting Standards Codification (ASC) Topic
230, Statement of Cash Flows. The new guidance requires that
amounts generally described as restricted cash and restricted cash
equivalents be included with cash and cash equivalents when
reconciling the beginning-of-period and end-of-period total amounts
shown on the statement of cash flows. The guidance is effective for
fiscal years beginning after December 15, 2017, including interim
periods within those fiscal years, with early adoption permitted.
The Company is currently evaluating the impact this standard will
have on its consolidated financial statements.
In
January 2017, the FASB issued ASU 2017-01, Business Combinations
(Topic 805): Clarifying the Definition of a Business, providing a
framework for entities to use when determining whether a set of
assets and activities constitutes a business. The guidance is
effective for fiscal years beginning after December 15, 2017,
including interim periods within those fiscal years, and should be
applied prospectively. Early adoption is permitted. The Company is
currently evaluating the impact this standard will have on its
consolidated financial statements.
In
January 2017, the FASB issued ASU No. 2017-04, Intangibles -
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill
Impairment, which eliminates step two from the goodwill impairment
test. Instead, if the carrying amount of a reporting unit exceeds
its fair value, an impairment loss should be recognized in an
amount equal to the excess, but limited to the total amount of
goodwill allocated to the reporting unit. The guidance must be
applied on a prospective basis and disclosure of the nature of and
reason for the change in accounting principle is required upon
transition. ASU 2017-04 is effective for fiscal years beginning
after December 15, 2019. Early adoption is permitted for interim or
annual goodwill impairment tests performed on testing dates after
January 1, 2017. The Company is currently evaluating the impact
this standard will have on its consolidated financial
statements.
Management
does not believe that any other recently issued, but not yet
effective, authoritative guidance, if currently adopted, would have
a material impact on the Company’s consolidated financial
statement presentation or disclosures.
Quantitative and Qualitative Disclosures about Market
Risk
Not
applicable.
DESCRIPTION OF PROPERTIES
The
Company owns no properties and leases several properties. The
Company leases its principal corporate offices which are located at
6100 West by Northwest, Suite 110, Houston, TX 77025. These offices
consist of approximately 1,000 square feet of office space and
15,000 square feet of warehouse that we lease on a month-to-month
basis that was renewed in October 2016. The monthly rent for these
offices is $5,596.
In
addition, the Company has sales and administration offices located
in Seoul, South Korea; The Netherlands; and in Buenos Aries,
Argentina to support its foreign subsidiaries and overseas
operations. The total rent on these overseas offices is
approximately $2,550 per month.
The
Company also leases a 200 square foot office for administrative
staff in Allendale, Michigan; 10,000 square foot storage depots in
Long Beach, California and Savannah, Georgia. The leases are all on
a month-to-month basis. The aggregate monthly rent for these
offices is approximately $1,000.
The
Company believes its leased office and warehouse facilities are
adequate for its current needs.
MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECUTITIES.
(a)
MARKET INFORMATION. The Company common stock is listed for
quotation on the OTC Pink marketplace. Beginning on February 28,
2017, the trading symbol for the OTC Markets became "EPTI". Prior
to February 28, 2017, the trading symbol for the common stock was
"IMST". The following table sets forth based upon Bloomberg Markets
the range of high and low prices for the Company's common stock for
the periods indicated. These prices represent reported transactions
between dealers that do not include retail markups, markdowns or
commissions, and do not necessarily represent actual transactions
and include intra-day prices.
|
|
|
Year/Fiscal Period
|
|
|
|
|
|
|
|
2017 (through June
14, 2017)
|
1.34
|
0.24
|
Based
upon quotations provided by Bloomberg Markets, on June 14, 2017,
the opening and closing price of the Company's common stock was
$1.29 and $1.27, respectively.
*
Based
upon quotations provided by Bloomberg Markets.
(b)
HOLDERS. As of May 31, 2017, the Company had approximately 144
shareholders of record of its common stock.
(c)
DIVIDENDS. The Company has not declared cash dividends on its
common stock since its inception, and the Company does not
anticipate paying any dividends in the foreseeable future. The B
Shares when issued place certain restrictions on the
Company’s ability to pay dividends until such preferred stock
is redeemed or fully converted. Additionally, the Company’s
credit agreement with its lenders contains additional restrictions
on the Company’s ability to pay dividends.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
Security ownership of certain beneficial owners and
management
The
following table sets forth certain information with respect to the
beneficial ownership of our common stock as of June 13, 2017,
for:
●
each of our
directors and nominees for director;
●
each of our named
executive officers;
●
all of our current
directors and executive officers as a group; and
●
each person, entity
or group, who beneficially owned more than 5% of each of our
classes of securities.
We have
based our calculations of the percentage of beneficial ownership on
52,000,000 shares of our common stock.
|
Named Executives
Officers and Directors (1)
|
Number of
SharesBeneficially
Owned
(2)
|
|
|
|
|
|
|
David Skriloff
(4)(5)(6)
|
8,800,000
|
14.5
%
|
|
Shane
Sims
|
600,000
|
<1
%
|
|
|
|
|
|
All Executive
Officers and Directors as a group (4 person)
|
|
15.5
%
|
|
|
|
|
|
5%
Shareholders
|
|
|
|
David Belding
(5)
|
9,500,000
|
15.6
%
|
|
MKM Opportunity
Master Fund, Ltd (5)
|
8,200,000
|
13.4
%
|
|
Partizipant, LLC
(5)
|
8,675,000
|
14.2
%
|
|
(1)
(2)
(3)
|
Unless
otherwise noted, the address for each of the named beneficial
owners is: 6100 West by Northwest, Suite 110 Houston, Texas
77040.
Beneficial
ownership is determined in accordance with the rules of the SEC
generally and includes voting or investment power with respect to
securities. Under the rules of the SEC, a person (or group of
persons) is deemed to be a “beneficial owner” of a
security if he or she, directly or indirectly, has or shares a
power to vote or to direct the voting of such security.
Accordingly, more than one person may be deemed to be a beneficial
owner of the same security. In accordance with SEC rules, shares of
common stock that may be acquired upon exercise of stock options or
warrants which are currently exercisable or which become
exercisable within 60 days of the date of the table are deemed
beneficially owned by the optionees. Subject to community property
laws, where applicable, we believe the persons or entities named in
the table above have sole voting and investment power with respect
to all shares of the common stock indicated as beneficially owned
by them.
In
determining percentage of outstanding, we included shares issued
and outstanding, shares obligated to be issued and the securities
identified (if consisting of derivative securities) as if issued.
As of June 13, 2017, we had 60,761,023 shares of common stock
issued and outstanding.
|
|
(4)
|
Includes
8,200,000 shares held by MKM Opportunity Master Fund, Ltd.
(“MKM”). Mr. Skriloff, who is a member of the general
partner of MKM, may be deemed an affiliate of MKM. However, Mr.
Skriloff denies beneficial ownership of all 8,200,000 shares owned
by MKM.
|
|
(5)
|
Acquired
such shares as a result of being a member of OMB.
|
|
(6)
|
Includes
600,000 shares owned by Mr. Skriloff.
|
MANAGEMENT
Current Management
The
following table sets forth the names and ages of the incoming
directors and executive officers:
|
Name
|
|
Positions Held
|
|
David
Skriloff*
|
51
|
Chief Executive
Officer and Director
|
|
Shane
Sims*
|
45
|
President and Chief
Operating Officer
|
____________
|
*
|
Denotes
an executive officer
|
David
Skriloff
–
CEO
and
Director
David Skriloff serves as the Portfolio Manager of MKM, a
multi-million dollar hedge fund that has historically invested in
microcap public companies as well as private companies. Before
forming MKM in 2008, Mr. Skriloff served as the Managing Director
– Research and Investments at Vision Capital Advisors, LLC
from January 2006 to December 2007. At Vision Capital
Advisors, he participated in the growth of assets under management
from $12 million in January 2006 to $625 million in December
2007. Prior to Vision Capital, he served as an Executive
Vice President of Business Development for Millivision, Inc., and
served as the Chief Financial Officer and Chief Administrative
Officer of eGlobe, Inc., a global telecommunications Nasdaq listed
company. Prior to joining eGlobe, he served with Gerard Klauer
Mattison & Co., a registered investment bank and eGlobe's
financial banker, where he held the position of Senior Associate
before being promoted to Vice President of Corporate Finance.
He also served as an Associate at The American Acquisition Company,
a venture capital group and was a co-founder and Senior Vice
President of Sales and Marketing at Performance Technologies, Inc.,
a computer software company.
Mr.
Skriloff received a B.S. degree in Electrical Engineering from
Carnegie-Mellon University in 1987 and an M.B.A. from New York
University in 1992.
Shane Sims – President and Chief Operating
Officer
Mr. Sims has been with EPT since 2007 working in various positions
within the Company’s sales and engineering functions and
working his way to his current position. Mr. Sims is the primary
inventor and architect of the Company’s BIG Red
LIQUIRIDE™ product along with most of the entire
manufacturing process. Prior to EPT, Mr. Sims has been an
entrepreneur and business owner of several logistic and
distribution companies.
Director Independence
At this time, there a no independent directors.
Employment
Agreements
Board Leadership Structure and Role in Risk Oversight
Our Board of Directors is primarily responsible for overseeing our
risk management processes on behalf of the Company. The Board of
Directors intends going forward to receive and review periodic
reports from management, auditors, legal counsel, and others, as
considered appropriate regarding our assessment of risks. The Board
of Directors intends to focus on the most significant risks facing
the Company and our general risk management strategy, and also will
attempt to ensure that risks undertaken by the Company are
consistent with the board’s appetite for risk. While the
board oversees our risk management, management is responsible for
day-to-day risk management processes.
Involvement in Certain Legal Proceedings
To our knowledge, our directors and executive officers have not
been involved in any of the following events during the past ten
years:
a)
any
bankruptcy petition filed by or against such person or any business
of which such person was a general partner or executive officer
either at the time of the bankruptcy or within two years prior to
that time;
b)
any
conviction in a criminal proceeding or being subject to a pending
criminal proceeding (excluding traffic violations and other minor
offenses);
c)
being
subject to any order, judgment, or decree, not subsequently
reversed, suspended or vacated, of any court of competent
jurisdiction, permanently or temporarily enjoining him from or
otherwise limiting his involvement in any type of business,
securities or banking activities or to be associated with any
person practicing in banking or securities activities;
d)
being
found by a court of competent jurisdiction in a civil action, the
SEC or the Commodity Futures Trading Commission to have violated a
federal or state securities or commodities law, and the judgment
has not been reversed, suspended, or vacated;
e)
being
subject of, or a party to, any federal or state judicial or
administrative order, judgment decree, or finding, not subsequently
reversed, suspended or vacated, relating to an alleged violation of
any federal or state securities or commodities law or regulation,
any law or regulation respecting financial institutions or
insurance companies, or any law or regulation prohibiting mail or
wire fraud or fraud in connection with any business entity;
or
f)
being
subject of or party to any sanction or order, not subsequently
reversed, suspended, or vacated, of any self-regulatory
organization, any registered entity or any equivalent exchange,
association, entity or organization that has disciplinary authority
over its members or persons associated with a member.
Board Committees
Currently, the Board does not have any audit, nominating or
compensation committees, or committees performing similar
functions.
Director Relationships
There are no family relationships between or among any of the
incoming directors or executive officers.
EXECUTIVE COMPENSATION
EPT became
our
wholly owned subsidiary as a result of
the consummation of the Merger on
or about June 9,
2017
. The following table
summarizes all compensation earned in each of EPT’s last two
fiscal years ended December 31, 2015 and 2016 by: (i) its principal
executive officer; and (ii) its two most highly compensated
executive officers other than the principal executive officers who
were serving as executive officers at the end of the last completed
fiscal year.
Summary Compensation Table
|
Name and principal position
|
Year
|
Salary($)
|
Bonus($)
|
Stock awards($)
|
Total($)
|
|
(a)
|
(b)
|
(c)
|
(d)
|
(e)
|
(f)
|
|
David
Skriloff
|
2015
|
0
|
0
|
0
|
0
|
|
Chief
Executive Officer and Treasurer
|
2016
|
90,000
|
0
|
0
|
90,000
|
|
Shane
Sims
|
2015
|
132,000
|
250
|
0
|
132,250
|
|
President
and Secretary
|
2016
|
145,500
|
20,500
|
60
|
166,060
|
|
Chad
Schreiber
|
2015
|
80,000
|
250
|
0
|
80,250
|
|
Corporate
Controller
|
2016
|
83,077
|
8,000
|
0
|
91,077
|
The Company has no written employment agreements with any of the
above persons. The oral agreements are month to month and such
persons can be fired at any time.
All bonuses are at the discretion of the Board.
In 2016, the Board awarded Shane Sims 60,000 shares of EPT stock
which converted to 600,000 shares of our common stock in the
Merger.
The current salaries of the named executive officers are $180,000,
$150,000 and $91,384.70, however the Board may from time to time
increase such salaries depending on performance.
Employment Agreement
There are currently no employment agreements. The Company in the
future may enter into such agreements.
Director Compensation
None.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
Certain Relationships and Related Transactions
Other
than cash compensation arrangement to our officers discussed above
under “Executive Compensation,” there are no
transactions since March 1, 2013, to which we have been a party in
which the amount involved exceeded or will exceed $120,000 and in
which any of our directors, executive officers, beneficial holders
of 5% or more of our capital stock, or entities affiliated with
them, had or will have a direct or indirect material
interest.
EPT
paid Joe Kowal, a director of EPT prior to the Merger and the owner
of Partizipant, LLC, consulting fees as follows: 2015 - $100,000;
2016 – $62,000 and 2017 - $35,000. Mr. Kowal’s ongoing
consulting agreement with EPT could potentially require EPT to pay
him up to $125,000 in certain circumstances.
EPT
has outstanding a $150,000 promissory note issued to Mr. Belding
that bears interest at the rate of 10% per annum and matures on
December, 2017.
EPT
has outstanding a $375,000 promissory note issued to OMB which
bears interest at the rate of 6% per annum and matures on October
15, 2018.
Director Independence
LEGAL PROCEEDINGS
The
Company is a party to various litigation in the normal course of
its business. The Company intends to vigorously pursue and defend
its position in these matters. Management cannot predict or
determine the outcome of this matter or reasonably estimate the
amount or range of amounts of any fines or penalties that might
result from an adverse outcome. It is possible, however, that an
adverse outcome could have a material adverse impact on our
consolidated results of operations, liquidity, and financial
position.
During
2015, a few shareholders initiated legal proceedings for claims
about ownership rights. The parties entered into an agreement in
March 2016 whereby the Company would pay the plaintiffs $445,000.
On November 30, 2016, the Company made an initial payment of
$25,000 leaving a balance of $420,000, which is accrued as of
December 31, 2016 within accrued liabilities in the accompanying
consolidated balance sheet. On April 4, 2017, the Company made a
second payment in the amount of $100,000 leaving a balance of
$320,000. The Company is working to facilitate a remaining payment
schedule.
In
April 2014, a former investor filed a suit against the Company
claiming ownership. The Company’s lawyers estimated that the
settlement will be $290,000 and is accrued as of December 31, 2016
within accrued liabilities and other long-term liabilities in the
accompanying consolidated balance sheet. This matter was resolved
and finalized on April 7, 2017 and the Company’s final
settlement was a total payment of $290,000 to the former investor.
A total of $120,833 remains to be paid.
RECENT SALES OF UNREGISTERED SECURITIES
See
Section 3.02 of the 6/12/2017 Current Report on Form
8-K.
CONTROLS AND PROCEDURES
This
report does not include a report of management’s assessment
regarding internal control over financial reporting or an
attestation report of the company’s registered public
accounting firm due to a transition period established by rules of
the Securities and Exchange Commission for newly public
companies.
DESCRIPTION OF CAPITAL STOCK
Our
authorized capital stock consists of 108,539,500 shares of common
stock, par value $0.001 per share.
Common Stock
Of the
authorized common stock, 60,761,023 shares are outstanding as of
immediately after the closing of the Merger and after giving effect
to the shares to be issued to the former EPT shareholders as a
result of the Merger. The holders of our common stock are entitled
to receive dividends from our funds legally available therefor only
when, as and if declared by our Board, and are entitled to share
ratably in all of our assets available for distribution to holders
of our common stock upon the liquidation, dissolution or winding-up
of our affairs. Holders of our common stock do not have any
preemptive, subscription, redemption or conversion rights. Holders
of our common stock are entitled to one vote per share on all
matters which they are entitled to vote upon at meetings of
stockholders or upon actions taken by written consent pursuant to
Nevada corporate law. The holders of our common stock do not have
cumulative voting rights, which mean that the holders of a
plurality of the outstanding shares can elect all of our directors.
All of the shares of our common stock currently issued and
outstanding are fully-paid and nonassessable. No dividends have
been paid to holders of our common stock since our incorporation,
and no cash dividends are anticipated to be declared or paid in the
reasonably foreseeable future.
Series B Preferred Stock
In
conjunction with the Merger, we will issue 998 shares of our Series
B Preferred to certain parties previously holding equivalent shares
of EPT’s preferred stock. The Series B Preferred include the
following terms:
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Stated Value:
$1,000 per share.
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Ranking: The Series
B Preferred are the senior-most equity securities of the
Company.
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Dividends: The
Series B Preferred accrue dividends at the rate of six percent (6%)
per annum and are payable on October 24, 2018, which is the
maturity date for the redemption of the Series B
Preferred.
●
Conversion: The
Series B Preferred are convertible into shares of the
Company’s common stock at a conversion price of $.50 per
share at the option of the holder or mandatorily in the event that
certain conditions related to the trading price and volume of the
Company’s common stock are met.
The
above terms are not meant to be exhaustive or to list all the
material terms of the Series B Preferred. The certificate of
designations to be filed with the Secretary of State of Nevada will
contain the full rights and privileges of the Series B
Preferred.
Equity Compensation Plan Information
While
the Company does not currently have any equity compensation and/or
similar or other plans, the Company in the future may adopt one or
more such plans.
Anti-Takeover Effects of Certain Provisions of our Certificate of
Incorporation, our By-Laws and Delaware Law
Anti-takeover Effects of Nevada Law
Business
Combination
The
“business combination” provisions of Sections 78.411 to
78.444, inclusive, of the Nevada Revised Statutes
(“NRS”), generally prohibit a Nevada corporation with
at least 200 stockholders from engaging in various
“combination” transactions with any interested
stockholder for a period of three years after the date of the
transaction in which the person became an interested stockholder,
unless the transaction is approved by the board of directors prior
to the date the interested stockholder obtained such status; and
extends beyond the expiration of the three-year period,
unless:
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the
transaction was approved by the board of directors prior to the
person becoming an interested stockholder or is later approved by a
majority of the voting power held by disinterested stockholders,
or
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if the
consideration to be paid by the interested stockholder is at least
equal to the highest of: (a) the highest price per share paid by
the interested stockholder within the three years immediately
preceding the date of the announcement of the combination or in the
transaction in which it became an interested stockholder, whichever
is higher, (b) the market value per share of common stock on the
date of announcement of the combination and the date the interested
stockholder acquired the shares, whichever is higher, or (c) for
holders of preferred stock, the highest liquidation value of the
preferred stock, if it is higher.
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A
“combination” is generally defined to include mergers
or consolidations or any sale, lease exchange, mortgage, pledge,
transfer or other disposition, in one transaction or a series of
transactions, with an “interested stockholder” having:
(a) an aggregate market value equal to 5% or more of the aggregate
market value of the assets of the corporation, (b) an aggregate
market value equal to 5% or more of the aggregate market value of
all outstanding shares of the corporation, (c) 10% or more of the
earning power or net income of the corporation, and (d) certain
other transactions with an interested stockholder or an affiliate
or associate of an interested stockholder.
In
general, an “interested stockholder” is a person who,
together with affiliates and associates, owns (or within three
years, did own) 10% or more of a corporation’s voting stock.
The statute could prohibit or delay mergers or other takeover or
change in control attempts and, accordingly, may discourage
attempts to acquire the Company even though such a transaction may
offer our stockholders the opportunity to sell their stock at a
price above the prevailing market price.
Control
Share Acquisition
The
“control share” provisions of Sections 78.378 to
78.3793, inclusive, of the NRS apply to “issuing
corporations,” which are Nevada corporations with at least
200 stockholders, including at least 100 stockholders of record who
are Nevada residents, and which conduct business directly or
indirectly in Nevada. The control share statute prohibits an
acquirer, under certain circumstances, from voting its shares of a
target corporation’s stock after crossing certain ownership
threshold percentages, unless the acquirer obtains approval of the
target corporation’s disinterested stockholders. The statute
specifies three thresholds: one-fifth or more but less than
one-third, one-third but less than a majority, and a majority or
more, of the outstanding voting power. Generally, once an acquirer
crosses one of the above thresholds, those shares in an offer or
acquisition and acquired within 90 days thereof become
“control shares” and such control shares are deprived
of the right to vote until disinterested stockholders restore the
right. These provisions also provide that if control shares are
accorded full voting rights and the acquiring person has acquired a
majority or more of all voting power, all other stockholders who do
not vote in favor of authorizing voting rights to the control
shares are entitled to demand payment for the fair value of their
shares in accordance with statutory procedures established for
dissenters’ rights.
A
corporation may elect to not be governed by, or “opt
out” of, the control share provisions by making an election
in its articles of incorporation or bylaws, provided that the
opt-out election must be in place on the tenth day following the
date an acquiring person has acquired a controlling interest, that
is, crossing any of the three thresholds described above. We have
not opted out of the control share statutes, and will be subject to
these statutes if we are an “issuing corporation” as
defined in such statute.
At this
time, we do not have 100 stockholders of record resident in Nevada.
Therefore, the provisions of the control share acquisition act do
not apply to acquisitions of our shares and will not until such
time as these requirements have been met. At such time as they may
apply to us, the provisions of the control share acquisition act
may discourage companies or persons interested in acquiring a
significant interest in or control of the Company, regardless of
whether such acquisition may be in the interest of our
stockholders.
Shares Eligible for Future Sale
As of
the date hereof, there were 60,761,023 shares of our common stock
outstanding. We are authorized to issue by our Articles of
Incorporation, an aggregate of 108,539,500 shares of common stock,
par value $0.001 per share.
Rule
144
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Pursuant
to Rule 144 of the Securities Act, a person who has beneficially
owned restricted shares of our common stock or warrants for at
least six months (or longer in the case of former shell companies
as described below and/or companies that voluntarily file periodic
reports with the SEC like us) would be entitled to sell their
securities provided that (1) such person is not deemed to have been
one of our affiliates at the time of, or at any time during the
three months preceding, a sale, (2) we are subject to the Exchange
Act reporting requirements for at least 90 days before the sale and
(3) if the sale occurs prior to satisfaction of a one-year holding
period, we provide current information at the time of
sale.
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Persons
who have beneficially owned restricted shares of our common stock
or warrants for at least six months but who are our affiliates at
the time of, or at any time during the three months preceding, a
sale, would be subject to additional restrictions, by which such
person would be entitled to sell within any three-month period only
a number of securities that does not exceed the greater of: 1% of
total shares outstanding and the average weekly trading volume of
such securities during the four calendar weeks preceding the filing
of a 144 notice with respect to such sale (which average volume
criteria only applies if the company’s securities become
listed on NASDAQ or an exchange).
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These
provisions are, in each case, dependent on the Company being
subject to the Exchange Act periodic reporting requirements for at
least three months before the sale. However, since our shares are
quoted on the OTC Markets, which is not an “automated
quotation system,” our stockholders will not be able to rely
on the market-based volume limitation described in the second
bullet above. If, in the future, our securities are listed on an
exchange or quoted on NASDAQ, then our stockholders would be able
to rely on the market-based volume limitation. Unless and until our
stock is so listed or quoted, our stockholders can only rely on the
percentage based volume limitation described in the first bullet
above.
Such
sales by affiliates must also comply with the manner of sale,
current public information and notice provisions of Rule 144. The
selling stockholders will not be governed by the foregoing
restrictions when selling their shares pursuant to this
prospectus.
Restrictions
on the Use of Rule 144 by Shell Companies or Former Shell
Companies
IMST
was a shell company prior to the filing of this Current Report on
Form 8-K. The SEC staff has taken the position that Rule 144 is not
available for the resale of securities initially issued by
companies that are, or previously were, blank check companies, like
us. The SEC has codified and expanded this position in the
amendments discussed above by prohibiting the use of Rule 144 for
resale of securities issued by any shell companies (other than
business combination related shell companies) or any issuer that
has been at any time previously a shell company. The SEC has
provided an exception to this prohibition, however, if the
following conditions are met:
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the
issuer of the securities that was formerly a shell company has
ceased to be a shell company;
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the
issuer of the securities is subject to the reporting requirements
of Section 13 or 15(d) of the Exchange Act;
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the
issuer of the securities has filed all Exchange Act reports and
material required to be filed, as applicable, during the preceding
12 months (or such shorter period that the issuer was required to
file such reports and materials), other than Current Reports on
Form 8-K; and
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at
least one year has elapsed from the time that the issuer filed
current comprehensive disclosure with the SEC reflecting its status
as an entity that is not a shell company.
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INDEMNIFICATION OF DIRECTORS AND OFFICERS
Nevada
law and certain provisions of our bylaws under certain
circumstances provide for indemnification of our officers,
directors and controlling persons against liabilities which they
may incur in such capacities. A summary of the circumstances in
which such indemnification is provided for is contained herein, but
this description is qualified in its entirety by reference to our
bylaws and to the statutory provisions.
In
general, any officer, director, employee or agent may be
indemnified against expenses, fines, settlements or judgments
arising in connection with a legal proceeding to which such person
is a party, if that person’s actions were in good faith, were
believed to be in our best interest, and were not unlawful. Unless
such person is successful upon the merits in such an action,
indemnification may be awarded only after a determination by
independent decision of our Board, by legal counsel, or by a vote
of the stockholders, that the applicable standard of conduct was
met by the person to be indemnified.
The
circumstances under which indemnification is granted in connection
with an action brought on our behalf is generally the same as those
set forth above; however, with respect to such actions,
indemnification is granted only with respect to expenses actually
incurred in connection with the defense or settlement of the
action. In such actions, the person to be indemnified must have
acted in good faith and in a manner believed to have been in our
best interest, and have not been adjudged liable for negligence or
misconduct.
Indemnification
may also be granted pursuant to the terms of agreements which may
be entered into in the future or pursuant to a vote of stockholders
or directors. The statutory provision cited above also grants the
power to us to purchase and maintain insurance which protects our
officers and directors against any liabilities incurred in
connection with their service in such a position, and such a policy
may be obtained by us.
A
stockholder’s investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against
directors and officers as required by these indemnification
provisions. At present, there is no pending litigation or
proceeding involving any of our directors, officers or employees
regarding which indemnification is sought, nor are we aware of any
threatened litigation that may result in claims for
indemnification.
Insofar
as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling us
pursuant to the foregoing provisions, we have been informed that,
in the opinion of the SEC, this indemnification is against public
policy as expressed in the Securities Act and is therefore
unenforceable.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The
financial statements set forth in Item 9.01(a) of this Current
Report on Form 8-K are incorporated by reference into this
item.
Item
9.01.
Financial
Statements and Exhibits.
(a)
Financial
Statements of EPT
In
accordance with Item 9.01(a): (i) EPT’s audited financial
statements for the years ended December 31, 2016 and 2015 are filed
as Exhibit 99.1 to this Current Report on Form 8-K
The
exhibits listed in the following Exhibit Index are filed as part of
this Current Report on Form 8-K.
EXHIBITS, FINANCIAL STATEMENT SCHEDULES
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Exhibit Number
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Description
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3.1
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Articles
of Incorporation (1)
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3.2.
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Certificate
of Amendment to Articles of Incorporation (2)
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3.2.1
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Certificate
of Amendment to Articles of Incorporation (4)
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3.2.2
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Certificate
of Change filed February 2, 2017 (4)
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3.2
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By-Laws
(1)
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10.1
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Agreement
of Merger and Plan of Reorganization, dated as of December, 28
2016, by and among International Metals Streaming Corp., EPT
Acquisition Corporation and Environmental Packaging Technologies,
Inc. (3)
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10.2
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Amendment
to Merger Agreement (5)
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10.3
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Amendment
No. 2 to Merger Agreement (6)
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Subsidiaries
of the Registrant
*
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Audited
consolidated financial statements of Environmental Packaging
Technologies Holdings, Inc. for the years ended December 31, 2016
and December 31, 2015
*
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_________
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*
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Filed
herewith
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(1)
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Incorporated
by reference from the registrant's Registration Statement on Form
S-1 filed on July 11, 2012
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(2)
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Incorporated
by reference from the registrant's Current Report on Form 8-K filed
on September 26, 2013
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(3)
(4)
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Incorporated
by reference from the registrant's Current Report on Form 8-K filed
on December 29, 2016
Incorporated
by reference from the registrant's Annual Report on Form 10-K filed
on February 17, 2017
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(5)
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Incorporated
by reference from the registrant’s Current Report on Form 8-K
filed with the SEC on April 18, 201
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(6)
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Incorporated
by reference to the registrant’s Current Report on Form 8-K
dated on June 12, 2017
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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 its behalf by the
undersigned, thereunto duly authorized.
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Environmental Packaging Technologies Holdings, Inc.
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Date:
June 21, 2017
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/s/
David Skriloff
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Chief
Executive Officer
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41
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