This annual report on Form 10-K, press releases and certain information
provided periodically in writing or verbally by our officers or our agents contain statements which constitute forward-looking
statements. The words “may”, “would”, “could”, “will”, “expect”, “estimate”,
“anticipate”, “believe”, “intend”, “plan”, “goal”, and similar expressions
and variations thereof are intended to specifically identify forward-looking statements. These statements appear in a number of
places in this Form 10-K and include all statements that are not statements of historical fact regarding the intent, belief or
current expectations of us, our directors or our officers, with respect to, among other things: (i) our liquidity and capital resources,
(ii) our financing opportunities and plans, (iii) our ability to attract customers to generate revenues, (iv) competition in our
business segment, (v) market and other trends affecting our future financial condition or results of operations, (vi) our growth
strategy and operating strategy, and (vii) the declaration and/or payment of dividends.
Investors and prospective investors are cautioned that any such
forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results
may differ materially from those projected in the forward-looking statements as a result of various factors. Factors that might
cause such differences include, among others, those set forth in Part II, Item 7 of this annual report on Form 10-K, entitled “Management’s
Discussion and Analysis of Financial Condition and Results of Operations”, and including without limitation the “Risk
Factors” section contained in Part I, Item 1A. Except as required by law, we undertake no obligation to update any of the
forward-looking statements in this annual report on Form 10-K after the date hereof.
Readers of this annual report on Form 10-K should note that, in
order to provide materially relevant disclosure regarding certain of Findex’s historical, operational expenses not otherwise
appropriately accounted for in our consolidated financial statements given the applied accounting treatment described elsewhere
in this annual report on Form 10-K, certain disclosure is contained in the text of this report relating to such expenses, including
e.g.
executive compensation, director compensation, and audit fees, that does not numerically align with the corresponding
figures contained in our consolidated financial statements.
OVERVIEW
Findex.com, Inc. is headquartered in Lake Park, Florida with its
base of business operations co-located in the same facility. The Company is currently comprised of EcoSmart and a consolidated
variable interest entity, Advanced Cement Sciences, LLC (formerly Advanced Nanofibers, LLC). EcoSmart has historically been the
driver of both operating overhead and revenue. EcoSmart was acquired by us in a merger in 2014 and centers around a proprietary
line of specialty materials coatings that have a broad range of value-adding industrial, commercial, residential and consumer applications.
Advanced Cement Sciences, LLC (“ACS”) is a variable interest entity. During the fourth quarter of 2016 management determined
the Company was the primary beneficiary of ACS, and has since been consolidating those operations in accordance with U.S. GAAP
for purposes of our financial reporting. The Company currently owns a minority 31.06% interest in ACS, which is a Florida-based,
engineered cement technology and products firm founded in mid-2016 and currently focused on globally marketing a line of proprietary
admixtures to be used in the production of ultra-lightweight, high-strength concrete and high-performance stucco. Despite our lack
of corporate control over ACS, and its lack of revenue to date, it is a venture that our management has been and continues to be
very actively involved in developing, and that is increasingly consuming a greater percentage of our financial and human resources,
a trend management expects to continue into the foreseeable future.
ECOSMART
Our core business is centered around a line of specialty industrial
glass-based “smart surface” coatings that have a wide range of uses across each of the industrial, commercial, and
household market segments and that are centered around a U.S. patented technology that, either on its own or when coupled with
any of an array of available proprietary formula additives, offers a unique combination of beneficial surface properties that allow
for a broad array of multi-surface and end-product applications. Among others, such applications include:
|
▪
|
Heavy Construction Equipment/Vehicles
|
|
▪
|
Oil and Gas Drilling and Related Heavy Equipment
|
|
▪
|
Industrial and Residential HVAC Equipment, Commercial Refrigeration Systems, and Power Generators
|
|
▪
|
Interior and Exterior Flooring and Tiling, Pavers and Hardscapes
|
Over time, EcoSmart intends to develop itself in the strategic direction
of becoming a leading research-oriented high-tech specialty “smart-surface” materials development and licensing company
centered around a highly-qualified research team and state-of-the-art research lab and applying a combination of organic and inorganic
chemistries, materials science engineering, and nanotechnology. EcoSmart currently has expertise and capabilities in each of these
areas.
Products
Broadly viewed, the surface is an integral aspect of virtually every
physical object and often plays a fundamental role in many of the processes, beyond mere connectivity and structural support, that
govern chemical and biological interactions involving the product. In some instances, the surface serves to protect the internal
elements of the object that it surrounds; in others, it provides an entry point into those chemical or biological systems. In most,
combinations of these attributes are present, and the potential variations are both vast in number and complex in structure.
Our specialty coatings business produces, markets, and distributes
a line of effectively invisible glass-based specialty coatings – “smart surfaces” – that have a wide range
of industrial, commercial, and household applications that add a competitive advantage to a given product or surface through a
variety of protective and other features. Conventional coatings, which are bonded by mechanical means to whatever surface they
are applied to, tend to fail, ultimately, in the bonding to the substrate, typically due to poor surface preparation or variation
of temperature exposures. Uniquely, EcoSmart’s products consist of inorganic and organic combinatorial chemistry that causes
them to bond chemically with the substrate, whether metal, cement-based, or organic (e.g. plastics). By utilizing covalent bonding
that penetrates into the substrate and reacts directly with the free ion within, the otherwise resulting disbondment is avoided.
The result is a much longer lasting and stronger coating, and, in turn, a longer life for the substrate that has been treated.
With an addition of only 50 millionths to 2 thousandths of an inch
in surface thickness (depending on which product is used), no loss of either hardness, on the one hand, or pliability, on the other,
and no reduction in photon (light) penetration, the patented platform technology, either on its own or when coupled with any of
an array of available proprietary formula additives, offers the following unique combination of beneficial protective, maintenance-reducing,
performance-enhancing and cosmetically-enhancing properties to most surfaces, including metals, plastics, paints, fabrics, vinyl,
wood, masonry, or concrete, in each case without regard to temperature, climate or most other environmental conditions, without
hazard to either human, animal or plant health/life, and for a period of up to as many as approximately 15-20 years:
Protective Benefits
|
|
Against Physical Surface Damage
|
|
Against Surface Appearance / Cosmetic Degradation
|
|
▪
|
Resistant to Abrasion / Scratching
|
|
▪
|
Resistant to Dust / Dirt / Grime
|
|
▪
|
Resistance to Corrosion
|
|
▪
|
Resistant to Staining
|
|
▪
|
Resistant to Oxidation
|
|
▪
|
Resistant to Color Fading
|
|
▪
|
Resistant to (Effects of) Weather / Elements
|
|
▪
|
Resistant to Fingerprints
|
|
▪
|
Resistant to (Effects of) UV
|
|
▪
|
Resistant to Marking / Graffiti
|
|
▪
|
Resistant to (Effects of) All But Most Extreme Alkaline or Acidic Chemicals
|
|
▪
|
Oleophobic (Oil-Repellent)
|
|
▪
|
Resistance to (Effects of) Acid Rain
|
|
|
|
|
▪
|
Resistance to (Effects of) Guano (excrement of birds, bats, seals, etc.)
|
|
|
|
|
▪
|
Resistance to Termite Infestation
|
|
|
|
|
|
|
|
|
|
|
Against Human Health Risks / Contagion
|
|
Against Human Physical / Safety Risks
|
|
▪
|
Resistant to Bacterial Growth / Germs (sometimes referred to as “Self-Sterilizing”)
|
|
▪
|
Slip-Resistant When Wet
|
|
▪
|
Resistant to Mold / Fungal Spore Growth
|
|
|
|
|
▪
|
Resistant to Small and Large Viruses
|
|
|
|
Maintenance-Reducing (So-Called “Self-Cleaning”)
Benefits
|
▪
|
Hydrophobic (Water-Repellent)
|
|
▪
|
Oleophobic (Oil-Repellent)
|
|
▪
|
Resistant to Dust / Dirt / Grime
|
|
▪
|
Rinses Cleans with Only Water and/or Mild Detergent
|
Performance-Enhancing Benefits
|
▪
|
Improved Hydrodynamics / Drag Reduction / Fuel Efficiency
|
|
▪
|
Improved Aerodynamics / Drag Reduction / Fuel Efficiency
|
|
▪
|
Energy Efficiency
|
Cosmetically-Enhancing Benefits
|
▪
|
Enhanced Color Clarity
|
|
▪
|
Enhanced Gloss / Sheen
|
|
▪
|
Enhanced Reflection
|
Applications
and Markets
With the extraordinary array of beneficial properties identified
above, certain but not all of which have been independently lab-tested and verified, the range of potential applications of our
specialty coatings is notably far-reaching, spanning across numerous industrial, commercial, and household segments. While we are
currently focusing our pursuit on only several of these potential applications, and there can be no assurance that we will ever
pursue any one or more of the others, we have identified the following as potential markets, among others, to be explored and possibly
pursued over time:
|
▪
|
Heavy Construction Equipment/Vehicles
|
|
▪
|
Oil and Gas Drilling and Related Heavy Equipment
|
|
▪
|
Marine Vessels and Fixtures/Infrastructure
|
|
▪
|
Industrial and Residential HVAC Equipment, Commercial Refrigeration Systems and Power Generators
|
|
▪
|
Interior and Exterior Flooring and Tiling, Pavers and Hardscapes
|
|
▪
|
Residential, Commercial, and Industrial Building/Construction
|
|
▪
|
Sewage and Highway Infrastructure, Bridges
|
|
▪
|
Solar Panels, Reflectors and Heliostats
|
|
▪
|
Wind Turbines
|
|
▪
|
Desalination and Potable Water Systems
|
To date, we have not commissioned or otherwise undertaken or obtained
any comprehensive market study in respect of any one or more of the above-listed potential product applications. Our immediate-
and near-term focus is on the following four, unrelated applications, each of which has been selected based on management’s
combined assessment of (i) the relative size, age and projected growth trend of the subject market, (ii) experience, observational/anecdotal
intelligence, and testing results previously obtained in relation to the application, (iii) the relative strength of the value
proposition to prospective customers, (iv) the comparative time-to-market, (v) the comparative cost-to-market coupled with existing
industry relationships and available resources, (vi) the relative geographic accessibility of the market, (vii) the seasonality
of the market, if any, (viii) the relative barriers-to-entry within the market, (ix) the relative, projected length of the particular
sales cycle, (x) the projected gross profit margins, (xi) both the presence within the subject market, together with the relative
quality, of competitive products, and (xii) the relative size and strength of the individual competitors:
|
▪
|
Heavy Construction Equipment/Vehicles
|
|
▪
|
Oil and Gas Drilling and Related Heavy Equipment
|
|
▪
|
Industrial and Residential HVAC Equipment, Commercial Refrigeration Systems and Power Generators
|
|
▪
|
Interior and Exterior Flooring and Tiling, Pavers and Hardscapes
|
Heavy Construction Equipment/Vehicles.
This is the market segment application involving foundational heavy terrain construction equipment fleets and individual units. It comprises a wide range of vehicles in the heavy construction industry, including gators, bulldozers, excavators, dump trucks, cement mixers, and other, similar types of equipment in relation to which our coatings offer strong prevention against rust, oxidation, corrosion and abrasion breakdown. We believe that our coatings could result in notably significant savings in maintenance costs as well as extended life for these types of equipment/vehicles used in these highly corrosive environments.
|
|
Oil and Gas Drilling, Mining and Related Heavy Equipment.
This is the market segment application surrounding a vast array of opportunities to sell certain of our coatings to prevent rust, oxidation, corrosion and abrasion breakdown in the oil, gas and mining industries. We believe that our coatings could result in notably significant savings in maintenance costs as well as extended life for equipment, tools, and infrastructure used in these highly corrosive environments. In this market segment, our coatings can be used as protective pipe linings and as protective barrier on the exteriors of storage tanks, micro-turbines, hydraulic systems, fleet vehicles, rail cars and shipping containers. Based on recent industry reports, and with industrial coatings generally comprising more than approximately a third of the worldwide aggregate coatings market, the oil and gas segment is one viewed by us as holding some of the greatest growth potential. Based on the preliminary results of early-stage field and lab tests being conducted by prospective customers, and though there can be no assurance, management believes the effectiveness of its products for this purpose is already higher than many competing products, and that the market and demand for these products is potentially very significant. We are aggressively targeting this application based on a combination of all of the factors identified above, and, to date, we have been pursuing potential distribution opportunities through select industry operators.
|
|
Industrial and Residential HVAC Equipment, Commercial Refrigeration Systems, and Power Generators.
This is the market segment application consisting of coatings for HVAC and commercial refrigeration systems intended to serve as protection from corrosion, including in salt water, acid, alkaline and chemical environments, and from clogging by particles of mold, pollen, dust, and soot. Substantial testing in this area by a variety of industry participants has shown that there is a significant efficiency loss factor on HVAC units due to natural oxidation and the restricted airflow resulting from dirt build-up on the condenser coils. With a product that repels moisture and contaminants, offers increased operating/energy efficiency of 12-15% over the life of a subject condensing unit, and substantially reduced cleaning requirements generally, management believes a significant opportunity exists for the Company within this market. Accordingly, we have targeted this application based on a combination of all of the factors identified above and are currently in the process of pursuing a strategic marketing plan aimed at this segment.
|
|
Interior and Exterior Flooring and Tiling, Pavers and Hardscapes.
This is the market segment defined by us to include applications involving surfaces consisting of pavers, poured and stamped concrete, natural stone, brick, ceramic tile and vinyl composition tile floors (“VCT”). It has been targeted based on a combination of all of the factors identified above, with a particular emphasis on (i) geographic accessibility to the regional market of South Florida, in which the Company maintains its executive offices and principal operations, and (ii) relative ease of installation. At a competitive price point, the Company’s products offer this market a high-grade, functional alternative to comparatively under-performing water-based hardscape sealants, and one with numerous unique, secondary benefits. The marketing and sales strategy being applied by us is a dual-pronged approach aimed at manufacturers of primary materials, on the one hand, and contractor installers, on the other. Our latest entrant into this market, V-Shield, is a single application ceramic coating that can last up to three years with minimal maintenance on VCT floors. Unlike traditional VCT cleaning and maintenance wax-based products, V-Shield saves time during the application as well as reduces the overall maintenance costs associated with VCT floors due to its single application process and longevity on such floors.
|
In general, though not necessarily across all segments, we intend
to pursue a strategic approach to identify market opportunities that rely on master distribution arrangements within individual
product/application industry verticals. An emphasis is being made in the immediate-term on the establishment of such master distribution
relationships with prospective sellers that already have in place an industrial customer-base with the greatest likelihood of benefitting
from our product(s) and, ideally, without there being an appreciable lag-time in customer adoption of our product because of its
potential to effectively serve as an available upgrade to their existing offerings.
For purposes of development, competitive analysis, and prioritizing
sales initiatives and resource deployment, we view our specialty coatings business in terms of numerous individual markets identified
in each case by reference to the particular combination of our product, on the one hand, and targeted surface and application,
on the other. While our complete line of individual specialty coatings products includes more than fifteen separate formulations,
the following list identifies some of our largest selling products, by name, together with their respective primary targeted surfaces
and application categories, as well certain information in each case relating to their unique benefits in relation to the target
application.
Product Name:
|
|
ECT-1090 Metal Coating
|
Primary Targeted Surfaces:
|
|
Steel and other metal substrates
|
Primary Target Application Categories:
|
|
Industrial equipment
|
Featured Properties For Target Application:
|
|
Extreme protection against oxidation, microbial intrusion, chemical corrosion, and ultra violet degradation; friction across the coated surface decreases on average of 18-20%, resulting in an increased durability and longevity of the coated surface; demonstrates an increased flow rate of both liquid and gaseous substances across its surface versus a metal surface that is not coated, resulting, among other things, in making the coated surface very easy to keep clean
|
* * *
Product Name:
|
|
ECT-1110 Interior Coating
|
Primary Targeted Surfaces:
|
|
Indoor tile, masonry, paint, cement, plastics, fabric, flame-exposed, cryogenic
|
Primary Target Application Categories:
|
|
Interior flooring and tiling
|
Featured Properties For Target Application:
|
|
Hydrophobic (water-repellent) and oleophobic (oil-repellent); slip-resistant when wet; protective barrier at all temperatures resistant to abrasion/scratching, corrosion, oxidation, microbials, (effects of) weather/elements, UV, guano, acid rain, staining, color fading, mold/fungal spore growth
|
* * *
Product Name:
|
|
ECT-1390 HVAC Anti-Corrosion Energy Coating
|
Primary Targeted Surfaces:
|
|
All surfaces of condensing unit, including coils, copper lines, compressor and cabinet
|
Primary Target Application Categories:
|
|
HVAC, refrigeration condensing units, cooling towers, and other HVAC equipment
|
Featured Properties For Target Application:
|
|
“Glassifying surface treatment”; condensing unit protection from corrosion, including in salt water, acid, alkaline and chemical environments; protection from clogging by particles of mold, pollen, dust, and soot; increased operating/energy efficiency of 12-15% over life of condensing unit; reduced cleaning requirements generally, and condensing units easily cleaned with only water and/or mild soap eliminating need for caustic coil cleaners; reduced maintenance for cooling towers and chiller barrels
|
* * *
Product Name:
|
|
ECT-1000 Universal Micro-Coating
|
Primary Targeted Surfaces:
|
|
Glass, mirrors, fiberglass, paints, plastics, metals, fabrics, granites
|
Primary Target Application Categories:
|
|
Automotive/motorcycle/marine interior and exteriors, countertops, sunglasses, surfboards, water and snow skis
|
Featured Properties For Target Application:
|
|
Ultra-thin (50 millionths of an inch) gasified glass layer version of ECT-1000 that be easily applied directly by consumers and last for 6-8 months; hydrophobic (water-repellent) and oleophobic (oil-repellent); repels dirt and dust, including brake dust; exceptional clarity on glass and mirrors by filling in microscopic voids in the surface (tests conducted by the Ford Motor Company showed improvement in the “Distinction of Image” measurement (clarity of a glossy surface) of 10% on new, and 20% on old, automotive paint); protective barrier at all temperatures resistant to abrasion/scratching, corrosion, oxidation, microbials, (effects of) weather/elements, UV, guano, acid rain, acid damage from insects, staining, color fading, mold/fungal spore growth
|
* * *
Product Name:
|
|
ECT-1470 Hardscape Coating
|
Primary Targeted Surfaces:
|
|
Pavers, concrete, roofing tile, ceramic tile, and other porous surfaces
|
Primary Target Application Categories:
|
|
Floors, walls, decorative panels, swimming pools
|
Featured Properties For Target Application:
|
|
Able to be applied in heavy coats; hydrophobic (water-repellent) and oleophobic (oil-repellent); slip-resistant when wet; protective barrier at all temperatures resistant to abrasion/scratching, corrosion, oxidation, microbials, (effects of) weather/elements, UV, guano, acid rain, staining, color fading, mold/fungal spore growth
|
* * *
Product Name:
|
|
V-Shield Vinyl Surface Treatment
|
Primary Targeted Surfaces:
|
|
Indoor vinyl composition tile (VCT), luxury vinyl tile, quality vinyl tile, sheet vinyl, vinyl plank, and welded seam vinyl
|
Primary Target Application Categories:
|
|
Interior flooring
|
Featured Properties For Target Application:
|
|
Single application to be applied in a thin coat; hydrophobic (water-repellent) and oleophobic (oil-repellent); slip-resistant when wet with non-slip additive; protective barrier at all temperatures resistant to abrasion/scratching, corrosion, oxidation, microbials, (effects of) weather/elements, UV, guano, acid rain, staining, color fading, mold/fungal spore growth
|
Certain
of the Science Behind Our Technology
The most unique feature shared by our coatings, and the specific
focal point of a patent held by us and considered by management to be the centerpiece of our smart surface technology, is the positive
surface charge they possess once applied. It is this positive surface charge that is responsible for their most unique and valuable
properties identified above, including the hydrophobicity, oleophobicity, microbial and fungal resistance, dust-repellance, and
the enhanced aerodynamics and hydrodynamics.
Hydrophobicity is a term largely unfamiliar to many outside scientific
circles, but that describes a quality with which most everybody has a basic familiarity. Surfaces may be characterized as either
hydrophilic or hydrophobic depending on whether or not they attract or repel water or other water-based liquids. Hydrophilic and
hydrophobic surfaces are abundant in both nature as well as in synthetic materials, and they exist both organically and inorganically
in terms of chemical composition. A hydrophilic surface can be wet and may adsorb water; a hydrophobic surface cannot and will
not – it is compositionally incapable of becoming wet. An example of a hydrophilic surface encountered routinely in daily
life are sponges, which, of course, readily soak up whatever water with which they come into contact, at least to the point of
saturation. Hydrophobic materials and coatings, by contrast, prevent water from pooling on their surfaces. In scientific terms,
hybrophobicity is caused by surfaces that disrupt the hydrogen bonding in water; so as to minimize the disruption in its molecular
makeup, the water droplet pushes itself away from the surface to minimize its contact area, thus becoming very tightly bound. Hydrophobic
materials are generally easy to identify because water forms into droplets upon contact with them after which they tend to roll
around freely, like marbles on a flat Formica countertop, as occurs commonly on the freshly waxed exterior of a car or recently
cleaned windshield with new wiper blades. The more hydrophobic the material (all the way up to and including so-called “superhydrophobic”
surfaces), the stronger this effect, until the water effectively floats or skims across the surface with what amounts to very low
friction. Naturally occurring hydrophobic surfaces include many species of plant leaves and flower petals, as well as many types
of bird feathers and the outer body parts of a variety of insects; the lotus leaf is among the most hydrophobic of naturally occurring
hydrophobic surfaces. Synthetic hydrophobic surfaces include such household-name brands as Scotchgard
™
™
treated fabric, Teflon
®
® coated metal, or Rain-X
®
® coated glass.
Oleophobicity is a property very comparable to hydrophobicity, but
it relates to oil-repellancy, not water-repellancy. There are important technical differences, but, for practical and basic observational
purposes, they are very similar.
In terms of chemistry, our platform smart surface, and the coating
variations identified above for which it serves as a basis, are inorganic, formed as they are of chemically “grown”
glass. The process by which they form upon application can be likened to the process, witnessed by many daily in science classrooms,
labs, or at home with popular science kits, whereby quartz crystals are effectively “grown” in a solution. This is
important because it results in the establishment of a uniquely firm chemical bond between the coating and the surface, far stronger
than would exist through either a mechanical or light bonding (the traditional alternatives), fundamentally setting the coatings
apart from most others. When coupled with the unusually thin layer they inhabit – approximately 50 millionths to 1-2 thousandths
of an inch – the combination of properties leaves them notably flexible, permitting their use in connection with such items
as fabrics, plastics, and pliable floor-boards, yet hard, durable, and resilient, particularly when refined with select additives.
The additives used in our various coating formulations available
to customers fall into three basic categories. In the first category are color tints, which, in recent years, have seen major technology
advancements in terms of durability, variety and depth of color, reflectivity, and fade-resistance. We have available to us a wide
range of the most advanced offerings in this regard. In the second category are additives intended to provide increased hardness
and wear-resistance. Here, too, we have access to what we believe are some of the most superior materials available. In the third
category are EPA-approved, “on-contact” mechanical microbial germ and virus (so-called) “quat” (industrial
and commercial quaternary ammonium) killers. These additives work in such a way as to prohibit the mutation of microbials which
can otherwise become resistant over time to chemical kill mechanisms such as antibiotics and are capable of fortifying any of our
coatings with additional protection against bacteria and relatively large viruses/microbials, including, for example, Methicillin-resistant
Staphylococcus Aureus (more commonly known as “MRSA), Clostridium difficile bacterial infection (more commonly known as “C-diff”),
and Influenza A virus subtype H1N1 (more commonly known as “H1N1” or “Swine Flu”). By combining our coatings
– which, based on their positive surface charge, already powerfully discourage the growth of many of the smaller, more common
viruses which can exist between active elements of existing “on-contact” killers (such as the Norovirus, for example,
a concern long plaguing the vacation cruise ship industry) – with a quat and certain other additives available to us, a unique,
broader spectrum of microbial protection is afforded, un-matched, in the belief of the Company’s management, by any other
product in anti-microbial effectiveness.
Long-Term Strategic Direction
Although there can be no assurance, over time, we intend to progress
in the strategic direction of becoming a leading research-oriented high-tech specialty “smart-surface” materials development
and licensing company centered around a highly qualified research team and state-of-the-art research lab and applying a combination
of organic and inorganic chemistries, materials science engineering, and nanotechnology. We currently have developing expertise
and capabilities in each of these areas.
Organic chemistry is a chemistry sub-discipline involving the scientific
study of the structure, properties, and reactions of organic compounds and organic materials (i.e., matter in its various forms
that contain carbon atoms). Inorganic chemistry, by contrast, refers to the chemistry sub-discipline aimed at understanding the
synthesis and behavior of inorganic and organometallic compounds, generally focused on the silicon atom. Nanotechnology is the
creation of functional materials, devices and systems through control of matter (atoms and molecules) on the nanometer length scale
(1-500 nanometers), and exploitation of novel phenomena and properties (physical, chemical, biological, mechanical, electrical)
at that length scale. Materials science engineering has as its focus, among others, the development of new products based on materials
whose properties and behavior are controlled at the micrometer and nanometer scales, and through microfabrication technologies.
Manufacturing and Fulfillment
We currently conduct all manufacturing and fulfillment operations
on our own at our facility in Lake Park, FL. Though output capacity is currently limited, we intend to expand in-house capacity
in the near future, subject to our having available to us the requisite capital investment. The manufacturing process is comprised
largely of combining and blending raw materials and chemicals, including additives, in each case consistent with our proprietary
formulations, and bottling of final product into labeled, quart, gallon and larger containers. In general, on-hand inventory is
kept to a minimum and built up based on forecasted near-term sales.
Backlog
In general, we do not manufacture our products against a backlog
of orders and do not consider backlog to be a significant indicator of the level of future sales activity. Production and inventory
levels are based on the level of incoming orders as well as projections of future demand. Accordingly, we do not believe that backlog
information is material to an understanding of our overall business and should not be considered a reliable indicator of our ability
to achieve any particular level of revenue or other metric of financial performance.
Product Returns
Policies and Warranties
Our product returns policies and warranties differ materially based
on the type of surface to which our products are being applied as well as the anticipated performance life of the particular product.
In general, we maintain a consistent return policy relative to any
products in relation to which there is either no associated installation or, if there is an installation involved, it is one in
which we have no participation or for which we have any responsibility (as may be the case in relation to our paver application
specialty coating products). The policy under such circumstances requires that the subject products be returned unopened within
no more than 30 days of purchase, and that all shipping charges associated with the return be borne by the customer. For a period
of up to five years from purchase, a warranty is extended in such cases to customers relative to both the chemical integrity (as
represented upon sale) and the performance integrity of the coatings based on the specific characteristics of the subject product
and application, and the corresponding representations made by the Company in relation thereto.
Our returns policies and product warranties are general policies
and warranties and are subject to change in relation to any particular sale. Further, the general policies and warranties themselves
are subject to change from time to time and are likely to evolve as our operations and revenues develop.
Significant
Customers and Vendors
During the years ended December 31, 2017 and 2016, we generated
a significant portion of our revenues from certain customers as follows:
|
|
% of Total Revenues
|
Customer
|
|
2017
|
|
2016
|
Infiniti Coatings, LLC.
|
|
|
18.35
|
%
|
|
|
14.80
|
%
|
Umbrella Surface Technologies/Dekko Concrete
|
|
|
17.30
|
%
|
|
|
15.46
|
%
|
Signature Associations, Inc.
|
|
|
12.46
|
%
|
|
|
—
|
|
During the years ended December 31, 2017 and 2016, our significant
product and chemical raw material purchases were as follows:
|
|
% to Total Products
|
|
|
2017
|
|
2016
|
Vendor A
|
|
|
24.97
|
%
|
|
|
—
|
|
Vendor B
|
|
|
18.41
|
%
|
|
|
5.48
|
%
|
Vendor C
|
|
|
17.33
|
%
|
|
|
54.73
|
%
|
We currently have no long-term written agreements with any of these
vendors. The payment terms are generally net 30 days, and we are not substantially dependent upon any one or more of them; all
are easily replaceable with any locally or nationally available supplier.
Research
and Development
Though a substantial and growing percentage of our operating expense,
our research and development (“R&D”) has been very modest in recent years, in real dollar terms, due to a lack
of allocable funds. The limited R&D activities that have been pursued over this period have been conducted exclusively in-house.
Our R&D objective is to leverage our unique, integrated, emerging
science capabilities to drive revenue and margin growth. Our R&D initiatives are principally focused on our strategic priority
of achieving a leadership position across the relatively higher margin, science-driven segments of the specialized coatings and
surfaces markets in which it operates by developing and refining differentiated, advanced industrial and related coatings and surface
materials. We believe that our specialized scientific expertise, together with our developing R&D program, combine to provide
us with distinctive, competitive advantages that position us to establish broad global reach over time and deep market penetration
in our market verticals.
Our EcoSmart R&D team consists of one full-time employee and
two part-time personnel.
We continue to protect our R&D investments and assets through
pursuit of a comprehensive intellectual property strategy. See discussion under “Intellectual Property.”
Regulation
We are subject to an extensive array of stringent regulations arising
under a broad range of U.S. federal, state, local and foreign environmental, health and safety laws relating to the generation,
storage, handling, discharge, disposition and stewardship of hazardous wastes and other harmful materials. These regulations have
potential implications for us in terms of our manufacturing operations, product handling and use by customers and agents, as well
as installation processes. In this regard, we will likely have to expend substantial amounts to comply with such laws and regulations
as well as establish and maintain an evolving set of policies to minimize and control our environmental discharge and emissions.
Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential laws and regulations pertaining
to climate change) may make it difficult for us to project future spending for these purposes and, if there is an acceleration
in new regulatory requirements, we may be required to expend substantial additional funds to remain in compliance.
Competition
Product performance, technology, cost effectiveness, quality and
technical and customer service are major competitive factors in the industrial coatings businesses. We are unaware of any one or
more products possessing the same combination of physical properties, and that, on the whole, offers the same array of benefits,
as its proprietary line of specialty smart surface coatings. There can be no assurance, however, that there not products under
development or already in existence and in the early stages of market introduction of which management is not yet aware. The market
for industrial and product performance coatings is extremely large, broad in scope, and consists of many different segments and
sub-segments, each of which involves a range of product applications. It is also increasingly characterized by rapidly evolving
technology. Precisely because of the wide array of beneficial properties they possess, and notwithstanding the U.S. patent held
by us on our platform smart surface technology, the specialty coatings produced and distributed by us should be viewed as competing
with other coatings products across a wide variety of the various existing market segments and sub-segments. Hydrophobic, anti-corrosion
and antimicrobial coatings, for example, are each segments in which numerous companies are aggressively competing with one another
worldwide, both in terms of technology and market share, but that, combined, represent only a minor portion of the aggregate competition
that we should be viewed as meaningfully confronting.
The competition faced by us in relation to our proprietary line
of specialty smart surface coatings includes both public and private organizations and collaborations among academic institutions
and large companies, both domestic and foreign, most of which have significantly greater experience and financial resources than
us. We expect that our most significant competitors will tend to be larger, more established companies, including many major multinational
corporations such as Akzo Nobel N.V., PPG Industries, Inc., Axalta Coating Systems, and Valspar Corporation. In general, these
companies are all developing products that, at some level or in one or more ways, compete with ours and, in addition to many existing
issued and pending patents, they have significantly greater capital and other resources available to them for research and development,
testing, seeking and obtaining any required regulatory approvals, marketing and distribution. In addition, many smaller coatings
and related nanotechnology companies have formed strategic alliances or collaborative arrangements, partnerships, and other types
of joint ventures with larger, well-established industry competitors that afford these companies’ potential research and
development and commercialization advantages, and may be aided in becoming significant competitors through rapid evolution of new
technologies. Academic institutions, governmental agencies, and other public and private dedicated research organizations are also
financing and conducting research and development activities that could result in the introduction of products directly competitive
to our own.
Intellectual Property
Patents and Licenses
The competitive environment in which we operate is largely driven
by technology, proprietary or otherwise. In general, companies in this environment seek to develop competitive advantages –
both offensive and defensive – through the obtaining and maintaining of relevant patents relating to their respective technological
advancements. As a science and technology based company, we believe that securing intellectual property is an important part of
protecting our research, and that, in particular, patent, as well as related trade secret, protection, is critical for the new
specialty coatings technologies we develop, as well as any products and processes derived through them.
By way of assignment, we currently hold a United States patent relating
to our smart surface specialty coatings technology:
Title
|
|
Awarded
|
|
Pending
|
|
Expiration
|
Method of Treating Surfaces For Self-Sterilization and Microbial Growth Resistance
|
|
X
|
|
|
|
2025
|
Over time, we may apply for additional patents relating to advancements
we achieve through our research and development initiatives. There can be no assurance however, that any the patent currently held,
or any obtained in the future, will prove adequate to protect our technologies or that we will have sufficient financial and other
resources to keep others from infringing the exclusive rights we possess in relation to our technologies. The fields in which we
operate have been characterized by significant efforts by competitors to establish dominant or blocking patent rights to gain a
competitive advantage, and by considerable differences of opinion as to the value and legal legitimacy of competitors’ purported
patent rights and the technologies they actually utilize in their businesses.
Because we may license our technology and products in foreign markets,
we may also seek foreign patent protection for some specific patents. With respect to foreign patents, the patent laws of other
countries may differ significantly from those of the United States as to the patentability of our products or technology.
It is possible that competitors in both the United States and foreign
countries, many of which have substantially greater resources and have made substantial investments in competing technologies,
may have applied for, or may in the future apply for and obtain, patents, which will have an adverse impact on our ability to make
and sell our products. There can also be no assurance that competitors will not infringe on our patents or will not claim that
we are infringing on their patents. Defense and prosecution of patent infringement suits, even if successful, are both costly and
time consuming. An adverse outcome in the defense of a patent infringement suit could subject us to significant liabilities to
third parties, require disputed rights to be licensed from third parties or potentially even require us to cease our operations.
Trade Secrets
Certain aspects of our know-how and technology are not patentable,
or, for strategic reasons, are best protected in the determination of management by leaving them unpatented. In this regard, trade
secrets play an important part in our intellectual property strategy, and we vigilantly seek to protect them. To protect our proprietary
position in trade secrets, we require all employees, consultants, advisors and collaborators with access to our technology to enter
into confidentiality and invention ownership agreements with us. There can be no assurance, however, that these agreements will
provide meaningful protection for our trade secrets, know-how or other proprietary information in the event of any unauthorized
use or disclosure. Further, in the absence of patent protection, competitors who independently develop substantially equivalent
technology, or otherwise acquire it, may adversely impact our business. If and when we discover that any trade secrets have been
misappropriated, it is expected that we will, unless we otherwise determine for strategic or similar reasons, report the matter
to governmental authorities for investigation and potential criminal action, as appropriate. In addition, and to the extent that
we have the available financial resources, we intend to take all reasonably required measures in an effort to mitigate any potential
adverse economic impact, which may include civil actions seeking redress, restitution and/or damages based on losses sustained
by us and/or unjust enrichment by a counter-party.
We are currently in the process of evaluating our options in connection
with the registering of trademarks for our specialty coatings business, and this process is expected to be ongoing. Unlike patent
rights, ownership rights in trademarks do not expire if the trademarks are continued in use and properly protected.
ADVANCED CEMENT SCIENCES (VARIABLE INTEREST
ENTITY)
Advanced Cement Sciences LLC (“ACS”) is a variable interest
entity of which the Company owned a minority 31.06% interest at December 31, 2017. During the fourth quarter of 2016 management
determined that the Company was the primary beneficiary based on qualitative and quantitative factors, and has since been consolidating
the entity in accordance with U.S. GAAP for purposes of our financial reporting. ACS is a Florida-based, engineered cement technology
and products firm founded in September 2016 and currently focused on globally marketing a line of proprietary admixtures it has
acquired the rights to and further internally developed to be used in the production of ultra-lightweight, high-strength concrete
and high-performance stucco. The business of ACS has undergone a gradual but fundamental transformation since the second quarter
of 2017 (following the negotiated withdrawal of one of its founding members) from having as its primary focus the development and
enhancement of applied nanotechnologies to materials development generally, on the one hand, to the development, manufacturing
and sales of very competitively-priced, premium-performance concrete- and stucco-enhancing admixture products that rely on certain
nanotechnologies, on the other. Management believes the prospects for ACS are extraordinary based on its advanced, engineered and
proprietary cement chemistry coupled with the sheer magnitude of the global markets in relation to which they offer a meaningful
value proposition. Specifically, ACS views its products as having the capability to substantially improve the net economics of
any business:
|
▪
|
building or making products from concrete or stucco;
|
|
▪
|
where there is additional economic value to be mined by using a concrete or stucco that has either:
|
|
|
▪
|
a substantially increased per unit strength than that currently being used,
|
|
|
▪
|
a substantially reduced per unit weight/density, or
|
|
|
▪
|
both.
|
Although it is still in the earliest stage of products commercialization
and revenue development, our management team and certain members of our operations personnel devote a very significant and growing
percentage of their working time to the business of ACS. Our president and chief executive officer, Steven Malone, serves as a
managing member of ACS with what is effectively the senior-most level of fiscal and operational responsibility for the firm.
Technology
The ACS core technology centers around what are believed by management
to be two meaningfully proprietary advances in concrete materials engineering:
|
▪
|
Industrial chemistry formulations that result in multi-functional, ultra-high-performance concrete and stucco end-products that possess physical, flexural, chemical, and structural properties believed by management to be unparalleled in their respective U.S. domestic and global markets.
|
|
|
|
|
▪
|
Methodologies for the custom blending, bonding and assimilation of base catalytic chemistries with a variety of industrial nanofibers and nanoparticles such that the net results are concrete and stucco end-products carrying a broad array of application-specific, custom-enhanced properties and high-performance characteristics.
|
Taken as a whole, management believes that the ACS platform technology
is not merely a finite assortment of formulations from which certain useful products have been derived, but rather an ever-evolving
continuum of custom-blended concrete and stucco admixture variations subtly adaptable to meet an endless array of specific industrial
applications and needs.
ACS is achieving results in the performance and other characteristics
of its nano-engineered catalytic chemistry that management believes are unparalleled in a variety of ways, and in some of those
ways by a wide margin. It is doing this by using internally developed, largely unconventional and proprietary combinations of materials
and chemistry, including advanced compound assimilation methodologies believed by management to be unique to ACS.
Beyond its unique and proprietary concrete and stucco admixture
formulations themselves, ACS has additionally developed an advanced product delivery system unparalleled in the industry that dramatically
simplifies the process associated with mixing and preparing end-product, effectively rendering it mistake-proof. ACS’s “AdPacks,”
named for their novel combining of the concrete industry admixture concept with that of a pre-mixed, ready-to-go package, contain
a dense, viscous cake-mix style assortment of pre-measured and combined contents constituting a base product which, when combined
on a production line or job site with cement, water and most commonly used concrete or stucco aggregates in accordance with provided
instructions and supplemental videos, results in an end-product with notably superior characteristics for its particular purposes.
The ACS AdPacks are available in off-the-shelf SKUs as well as custom formulations, and can be delivered in bag-sizes, totes or
drums to meet quantity requirements at all industry levels.
Intellectual Property
ACS’s proprietary base concrete and stucco-enhancement intellectual
property formulations have been acquired by one of the principals of one of its founding members, and improved upon through internal
research and development initiatives.
Products and Markets
At the broadest industrial level, and at each of the U.S. domestic
and global levels, there are two basic customer categories within the concrete and stucco family of products, both of which ACS
intends to serve:
|
▪
|
Manufacturers who rely on concrete to make precast products they sell for use by property owners, developers, contractors, and builders; and
|
|
|
|
|
▪
|
Developers, contractors and builders who rely on ready-mix or mix-on-site concrete and stucco for pour-in-place and tilt-up construction projects they develop, manage, and build.
|
With end-product that tends to be very bulky, heavy and prone to
breakage in transport, and with only minor exception, those in the first group are believed by management to naturally covet a
concrete that is many times lighter in weight than standard concrete, and that features a flexural strength that preserves the
integrity of their product where it would otherwise fail (crack or break), but only if the cost of using it is meaningfully lower
on a net, all-in basis. Although there are others, some of which are very large, initially targeted markets by ACS within this
group include the following, in relation to which ACS believes it can most rapidly achieve meaningful revenue growth and market
penetration:
|
▪
|
Producers of concrete interior and exterior “manufactured stone” panels and veneers, architectural trim and decorative pieces (Product: ACS Ultra-Lightweight Design Formula AdPack); and
|
|
|
|
|
▪
|
Concrete block (Product: ACS Ultra-Lightweight Block Formula AdPack).
|
With end-product that consumes vast amounts of concrete to achieve
required compressive and tensile strength levels, those in the second group are believed by management to covet concrete and stucco
materials that are substantially stronger than standard offerings, thus enabling the use of substantially less material to achieve
comparable strength, but, here too, only if the cost of using it is meaningfully lower on a net, all-in basis. Although the largest
markets within this group consist of those developers, contractors and builders using ready-mix or mix-on-site concrete for pour-in-place
and tilt-up construction projects, and ACS intends to pursue those markets in time with products currently under development and
testing, initially targeted markets by ACS within this group are limited solely to stucco, in relation to which ACS believes it
can most rapidly achieve meaningful revenue growth and market penetration. For this vertical, ACS offers its Ultra-High-Performance
Stucco Formula AdPack.
Sales initiatives for ACS product have been underway for only several
months as of the date of this Annual Report on Form 10-K, and such initiatives have been, intentionally due to production constraints,
slow to develop and limited to those aimed strictly at the “manufactured stone” market and, more recently, the stucco
market. Given the realities of new product introductions generally, and the need in the case of ACS products to not only evidence
product compliance with existing building codes and related industrial standards, but also demonstrate product workability and
efficacy through showcase projects, positive customer experiences, and industry expert references and endorsements, ACS is yet
to achieve any meaningful degree of sales traction for either of those product lines and, to date, sales have been very limited
and deliberately targeted towards customers that view their use of the product as part of a series of final-stage, semi-pilot projects.
In the meantime, steady efforts have been underway towards enabling ACS’s ability to systematically provide evidence of product
compliance with existing building codes and related industrial standards within identified markets, as well as to readily demonstrate
product workability and efficacy through showcase projects, positive customer experiences, and industry expert references and endorsements
within such markets.
Manufacturing and Marketing
To date, and beyond that associated with continuing product research
and development, manufacturing and packaging of ACS product has been low-rate, batch only (i.e. non-automated). Systems design
and planning for automated production and packaging are currently in the early stages of development, though implementation will
be dependent on the availability of required financing. In the meantime, acceptance of purchase orders will necessarily be constrained
by very limited production capacity.
Subject to the availability of required financing, for which there
can be no assurance, ACS’s 2-year manufacturing and marketing development plan is highlighted by the following key objectives:
|
▪
|
implementing strategic intellectual property initiatives aimed at minimizing vulnerabilities for all product lines;
|
|
|
|
|
▪
|
building out manufacturing capacity and operations for each of the Ultra-Lightweight Formula AdPack (including concrete block) as well as Ultra High-Performance Stucco Formula AdPack product lines;
|
|
|
|
|
▪
|
building out the marketing and sales operations organization for those same product lines; and
|
|
|
|
|
▪
|
continuing R&D initiatives in respect of all product lines.
|
Historically, the handling of nanofibers and nanoparticles has been
widely recognized as posing significant health and safety concerns and challenges stemming from the potentially hazardous particulates
emitted into the air during the production, transport, and use of these materials. These emissions occur because, in the absence
of industry-appropriate methods, processes and practices for the containment of otherwise loose, airborne particulates, such matter
can get drawn into the eyes, the throat and lungs, and onto the skin, of those individuals handling or otherwise being exposed
to these materials. Such exposure can lead to a variety of health and safety concerns. In relation to the production of those ACS
admixture products that rely on the incorporation of nanoparticle-enhanced nanofibers, therefore, and although there can be no
assurance that any safety precautions will prove reliable against any and all vulnerabilities in all instances, ACS has adopted
and utilizes what it has deemed to be reasonably suitable methods and practices for the containment of these hazardous substances.
Backlog
In general, ACS does not manufacture its products against a backlog
of orders and does not consider backlog to be a significant indicator of the level of future sales activity. Production and inventory
levels are based on the level of incoming orders as well as projections of future demand. Accordingly, we do not believe that ACS
backlog information is material to an understanding of our overall business and should not be considered a reliable indicator of
ACS’s or our ability to achieve any particular level of revenue or other metric of financial performance.
Strategic Alliance with FIND
In pursuing its stated objectives, and since ACS’s inception,
a strategic relationship has been gradually evolving between the Company and ACS that affords certain benefits to each. Increasingly,
and because of ACS’s lack of independent resources and certain of FIND’s available resources, ACS has come to rely
on FIND to perform virtually all of its business functions. Specifically, this has included commercializing, manufacturing, packaging,
inventorying, globally marketing, distributing, and - strictly as an agent for ACS - selling, for the account of ACS, all ACS products.
The general rationale behind the development of this strategic alliance is based upon the existence of the following factors:
|
▪
|
Alignment of economic interests through our percentage ownership of ACS;
|
|
▪
|
Flex-availability for ACS for an indeterminate period of:
|
|
|
►
|
qualified and capable managerial and operational talent in relation to each of manufacturing, marketing, and sales;
|
|
|
►
|
qualified and capable operational, office and administrative
support; and
|
|
|
►
|
underutilized physical operational/production resources/capacity;
|
|
▪
|
Access for ACS to public capital markets; and
|
|
▪
|
Core-competency synergies between our existing business and operations and those of ACS: industrial chemical and compounds development, manufacturing and distribution.
|
Although steps have been taken in the direction of formalizing this
relationship with a much more comprehensive definitive agreement between the two entities, and it is expected by us that such an
agreement will be established in the near future, for the time being, FIND is, as it has been since September, 2016, performing
its services for ACS, as well as financing expenditures on behalf of ACS, on what has recently been agreed to between the entities
as a cost-plus-10% basis. As of December 31, 2017, and subject to potential future adjustment for unaccounted-for allocations,
the principal-only amount owed by ACS to FIND associated with this obligation was $94,425. See Note 3 “Consolidated Variable
Interest Entity” of the Footnotes to the Financial Statements included in this Annual Report on Form 10-K.
CORPORATE INFORMATION
Corporate Formation, Legacy,
History & Subsidiaries
We were incorporated in the State of Nevada on November 7, 1997
as EJH Entertainment, Inc. On December 4, 1997, a predecessor corporation with the same name as our own but domiciled in Idaho
was merged with and into us. Although the predecessor Idaho corporation was without material assets or operations as of the time
of the merger, since being organized in 1968, it had historically been involved in mining and entertainment businesses unrelated
to our current business.
Beginning in 1997, and although we were not then a reporting company
under the Securities Exchange Act, our common stock was quoted on the OTC Bulletin Board (originally under the symbol “TIXX”,
which was later changed to “TIXXD”). On May 13, 1999, we changed our name to FINdex.com, Inc. On March 7, 2000, in
an effort to satisfy a then recently imposed NASD Rule eligibility requirement that companies quoted on the OTC Bulletin Board
be fully reporting under the Securities Exchange Act (thereby requiring recently audited financial statements) and current in their
filing obligations, we acquired, as part of a share exchange in which we issued 150,000 shares of our common stock, all of the
outstanding capital stock of Reagan Holdings, Inc., a Delaware corporation. At the time of this transaction, Reagan Holdings was
subject to the requirements of having to file reports pursuant to Section 13 of the Securities Exchange Act, had recently audited
financial statements and was current in its reporting obligations. Having no operations, employees, revenues or other business
plan at the time, however, it was a public shell company. As a result of this transaction, Reagan Holdings, Inc. became our wholly
owned subsidiary and we became the successor issuer to Reagan Holdings for reporting purposes pursuant to Rule 12g-3 of the Securities
Exchange Act. Shortly thereafter, we changed our stock symbol to “FIND”. Though it does not currently have any operations,
employees, or revenues, Reagan Holdings remains our wholly-owned subsidiary.
In addition to Reagan Holdings, we also have one other wholly owned
subsidiary, Findex.com, Inc. (i.e. the same name as our own), a Delaware corporation. Like Reagan Holdings, this entity, too, does
not currently have any operations, employees, or revenues. This subsidiary resulted from an acquisition on April 30, 1999 pursuant
to which we acquired all of the issued and outstanding capital stock of FINdex Acquisition Corp., a Delaware corporation, from
its then stockholders in exchange for 4,700,000 shares of our common stock, which, immediately following the transaction, represented
55% of our total outstanding common stock. Our purpose for this acquisition (under a previous management) was to broaden our then-existing
stockholder base, an important factor in our effort to develop a strong market for our common stock. On May 12, 1999, in exchange
for the issuance of 457,625 shares of FINdex Acquisition Corp. common stock, FINdex.com, Inc., another Delaware corporation (originally
incorporated in December 1995 as FinSource, Ltd.), was merged with and into FINdex Acquisition Corp., with FINdex Acquisition Corp.
remaining as the surviving entity. Our purpose for this merger (under a previous management) was to acquire a proprietary financial
information search engine for the Internet which was to serve as the cornerstone for a Web-based development-stage business, but
which has since been abandoned. As part of the certificate of merger relating to this transaction, FINdex Acquisition Corp. changed
its name to FINdex.com, Inc. We currently own 4,700,000 shares of FINdex.com, Inc. (the Delaware corporation), representing 100%
of its total outstanding common stock.
On July 23, 2014, we merged with EcoSmart Surface & Coating
Technologies, Inc., a Florida corporation (“EcoSmart Florida”). Because, for accounting purposes, this merger was treated
in accordance with ASC 805-40, Reverse Acquisitions, and Findex was recognized as the accounting acquiree in relation thereto with
EcoSmart Florida as the accounting acquirer, our consolidated financial statements for the reporting period from January 1, 2013
through July 23, 2014 were those of EcoSmart Florida, not the enterprise historically recognized as Findex. Accordingly, our consolidated
financial statements for the periods since July 24, 2014, the day after which the merger was consummated, recognize Findex and
EcoSmart Florida as a single operating enterprise and entity for accounting and reporting purposes, albeit with a carryover capital
structure inherited from Findex (attributable to the legal structure of the transaction). Readers of this annual report on Form
10-K should note that, in order to provide materially relevant disclosure regarding certain of Findex’s historical, operational
expenses not otherwise appropriately accounted for in our consolidated financial statements given the applied accounting treatment
described herein, certain disclosure is contained in the text of this report relating to such expenses, including e.g. executive
compensation, director compensation, and audit fees, that does not numerically align with the corresponding figures contained in
our consolidated financial statements.
Prior to the merger with EcoSmart Florida, and since 1999, our business
had been developing, publishing, marketing, distributing and direct-selling off-the-shelf consumer and organizational software
products for the Windows platform. Following divestitures of two software titles which had consistently accounted for the overwhelming
majority of our revenues while owned by us, including our Membership Plus product line, which we sold in late 2007, and our flagship
QuickVerse product line, which we sold during 2011, and title acquisitions during the same period that, in the aggregate, had been
relatively insignificant in offsetting the loss of revenues associated with those major divestitures, our continuing operations,
while not nominal, had been very limited and insubstantial in terms of revenue, both relative to what they had been prior thereto
and by any appropriate standalone measure. Specifically, our operations immediately prior to the merger with EcoSmart Florida consisted
exclusively of those relating to the FormTool line of products which we acquired in February 2008, as well as two language tutorial
products, which were retained after the sale of the QuickVerse product line. Due to a continuing lack of capital over a number
of years, we were unable to meaningfully grow the FormTool line and develop related products, and our business and financial prospects
became increasingly challenged. Since the merger with EcoSmart Florida, our primary focus has shifted away from the continued development
of our FormTool line and much more intently in the direction of our surfaces and coatings business, where we believe the opportunities
for our future growth are greater and have significantly more to offer economically.
In its most recent corporate form, EcoSmart Florida was organized
in 2012. The patents and other intellectual property forming the foundation of the EcoSmart business were originally developed
during a preceding period dating back to 2003 in which it was operated by the developers of the Company’s technologies as
Surface Modification Technologies, Inc. (“SMT”), a Florida corporation, and EcoSmart, LLC, a Florida limited liability
company, which were sold together to The Renewable Corporation, a Florida based company with its common stock then traded in the
over-the-counter market (“TRC”) in 2012. On January 20, 2012, EcoSmart Coating Technologies, Inc., a Florida corporation,
was organized as a wholly-owned subsidiary of TRC. Simultaneously, EcoSmart Surface Technologies, Inc., also a Florida corporation,
was formed as a wholly-owned subsidiary of TRC. With common ownership by TRC, the assets of each of SMT and EcoSmart, LLC were
thereafter transferred in part to EcoSmart Coating Technologies, Inc. with the remainder to EcoSmart Surface Technologies, Inc.
On September 18, 2012, EcoSmart Surface Technologies, Inc. changed its name to EcoSmart Surface & Coating Technologies, Inc.
On October 19, 2012, EcoSmart Coating Technologies, Inc. was merged with and into EcoSmart Surface & Coating Technologies,
Inc., leaving EcoSmart Surface & Coating Technologies, Inc. as the surviving corporation.
The Company became the holder of its minority equity stake in ACS
in mid-September, 2016. Through two private holding entities owned jointly with our general counsel, Michael Membrado, and exclusive
of indirect interests held through ownership of Company common stock (disclosed elsewhere in this Annual Report on Form 10-K),
our president and chief executive officer, Steven Malone, currently holds a combined approximate 13% equity interest in ACS, primarily
through an ownership interest in one of its founding members, Nanotech Fibers, LLC.
Employees
As of April 17, 2018, we had seven full-time and one part-time
employees/contractors. Three full-time employee/contractors are part of the senior-level executive team, one full-time employees/contractors
and two part-time employee/contractor are part of the product research and development and business development team, one part-time
employee/contractor is part of the marketing, customer service and sales team, one full-time employee/contractor is part of the
manufacturing team, and one full-time employee/contractor is part of the financial management and administration team.
We rely heavily on our current officers and directors in operating
the business. We are not subject to any collective bargaining agreements and believe that our relationships with our employees/contractors
are good.
Principal
Executive Offices and Contact Information
Our executive offices are located at 1313 South Killian Drive, Lake
Park, FL 33403, and our main telephone number at that address is 561-328-6488. The Internet address for our website is
http://www.ecosmartsurfaces.com
.
The contents of our website are not incorporated by reference into this Annual Report on Form 10-K and should not be relied on
by investors for the accuracy of the information set forth therein.
Several of the matters discussed in this annual report on Form 10-K
for the fiscal year ended December 31, 2017 contain forward-looking statements that involve risks and uncertainties. Factors associated
with the forward-looking statements that could cause actual results to differ from those projected or forecast are included in
the statements below. In addition to other information contained in this annual report, readers should carefully consider the following
cautionary statements and risk factors.
An investment in our securities is speculative and involves a
high degree of risk.
Company Liquidity and Related Risks
If we are required to repay our outstanding
debt as and when required, we may not be able to without either depleting our working capital or raising additional funds, and
any failure on our part to repay such debt could result in legal action against us, which could require the sale of material assets,
including our smart surface patent.
As of December 31, 2017, and in addition to $448,624 in trade and
related accounts payables, we owed an aggregate of $2,440,208 in principal face amount of combined notes payable and notes payable,
related parties. In accordance with the respective terms of these notes, $300,000 is required to be serviced with quarterly interest
payments (calculated on the basis of a 10% annual percentage rate) and have been overdue and payable since August 1, 2015, and
$1,286,425 is payable by us upon demand by the holders of the notes (i.e. our creditors). The extent of this debt, when coupled
with our limited revenue production during recent reporting periods, presents a situation in which our ability to service that
debt is in serious question. The Company recognized revenue of $380,553 for the period ended December 31, 2017 and our ongoing
operating costs and capital investment requirements, has us under financial pressures that materially threaten our near-term viability
and sustainability. In the event that we are required to repay some or all of these notes and/or other payables in the near-term
(and potentially beyond), in whole or substantial part, the funds available to us for this purpose would have to come from either
working capital or funds on hand in excess of working capital at that time. No assurance can be provided, however, that any such
required funds would be available to us for this purpose, and, historically, we have never had any such surplus funds. If funds
are not available to us for this purpose, we would likely need to undertake a financing transaction of some kind. No assurance
can be provided, however, that we would be able to complete any such financing between the date hereof and the date by which we
would be required to satisfy our obligations, or that, if we are able, that it would be on the basis of terms that are not unfavorable
to us. Among other reasons, this is true because investors in early-stage technology companies such as ours generally look unfavorably
on the allocation of funds invested by them towards the repayment of debt to third parties as opposed to growing the business.
In the event that we are required to repay some or all of the outstanding principal or interest, in whole or in part, and we have
insufficient funds to meet and satisfy the obligation, legal action is likely to be taken against us, which could lead to our having
to sell some or all of our material assets, including our smart surface technology patent, or potentially even to our having to
liquidate the Company.
We are operating at a substantial
working capital deficit and our liquidity and capital resources are very limited.
For the year ended December 31, 2017, we generated $380,553 in total
revenue while incurring $1,571,443 in combined sales, marketing, general and administrative expenses. This represents a substantial
working capital deficit that is severely constraining our ability to operate, both near-term and long-term and our ability to meet
our obligations as they become due. Our ability to fund working capital, as well as anticipated capital expenditures, will depend
on both our ability to raise much-needed capital and our future performance, which is subject to general economic conditions, our
customers, actions of our competitors and other factors that are beyond our control. Our ability to fund operating activities is
also dependent upon (i) the extent and availability of bank and other credit facilities, (ii) our ability to access external sources
of financing, and (iii) our ability to effectively manage our expenses in relation to revenues.
The
Company’s cash on hand as of December 31, 2017 was insufficient to support our operations for the next twelve months.
Therefore, it is likely to become necessary for us to raise additional capital to support growth and/or otherwise finance potential
acquisitions. Furthermore, there can be no assurance that our operations or access to external sources of financing will continue
to provide resources sufficient to satisfy our liabilities arising in the ordinary course of business, and while it may be possible
to borrow funds as required, any such additional capital is likely to require that we sell and issue additional equity and/or convertible
securities, including shares issuable upon exercise of currently outstanding warrants, any of which issuances would have a dilutive
effect on holdings of existing shareholders. See “Management’s Discussion and Analysis of Financial Condition and Results
of Operations - Liquidity and Capital Resources” included in this Annual Report on Form 10-K.
There is uncertainty as to our ability
to continue as a going concern.
Our audited financial statements for the period ending December
31, 2017, including the footnotes thereto, call into question our ability to continue as a going concern. This conclusion was drawn
from the fact that, as of the date of those financial statements, we had a negative current ratio and total liabilities in excess
of total assets. Those factors, combined with the Company’s operating deficits, have resulted in uncertainty regarding our
ability to continue as a going concern. See Note 2 in the Notes to the Consolidated Financial Statements for the year ended December
31, 2017 included in this Annual Report on Form 10-K.
We owe an aggregate amount of $66,815
to various third parties which, under state escheat laws, could subject us to substantial additional liabilities for penalties
and interest.
We are carrying certain liabilities on our balance sheet in the
aggregate amount of $62,487 for trade payables and royalties payable in connection with services and content licenses associated
with certain of our former software titles extending back up to fourteen years but in relation to which we have been unable to
locate the parties to whom we owe such trade payables and royalties and no effort to collect such obligations by such parties or
any successors-in-interest have been made. We are additionally carrying certain liabilities on our balance sheet in the aggregate
amount of $4,328 for amounts payable to customers for product return refunds extending back up to nine years many of whom we expect,
without actually knowing at this point one way or the other, to similarly be unable to locate and in connection with which no effort
to date to collect such obligations has been made. Under the escheat laws of the various states in which these creditors were last
known to have an address based on our records, we are or may be required to pay to such states the aggregate amounts owed for these
obligations – in both categories – even though we cannot locate the actual parties to whom they are owed. Moreover,
we are likely to be additionally liable for substantial penalties, both individually and in the aggregate, for not having previously
reported such obligations and paid such amounts to such various states, which reporting obligations and associated penalties for
non-compliance vary significantly among states, as well as interest for amounts deemed past due. It is likely that these additional
liabilities, neither the individual nor collective extent of which are known at this time and as such have not been accrued, will
be material in the aggregate and have a material adverse effect on our financial condition and our results of operations, including
our liquidity.
Depending on how quickly we can generate
a sufficient level of sales, assuming that we, inclusive of ACS, can accomplish that, we will likely require additional funding,
potentially substantial, and any failure to raise additional capital necessary to support growing sales and expand our operations
could reduce our ability to compete and adversely affect our business.
At December 31, 2017, we had $3,179 in cash and cash equivalents.
Given ongoing cash constraints, we currently need to raise substantial additional capital, through either equity, debt and/or hybrid
(combination equity and debt) financing. Specifically, an infusion of cash is now necessary for the following:
|
▪
|
insuring the integrity of, and/or continuing to develop, our technologies, products, and related systems;
|
|
▪
|
commercially exploiting our technologies, products, and related systems;
|
|
▪
|
policing and enforcing potential infringements to our existing patent and/or other intellectual property rights;
|
|
▪
|
establishing and maintaining suitable manufacturing capacity to meet anticipated demand for our products;
|
|
▪
|
fully developing and exploiting sales, marketing, and distribution channels for our products;
|
|
▪
|
fulfilling our contractual obligations to provide substantial financial, operational and personnel support to the business and development ACS;
|
|
▪
|
maintaining and meeting our general and administrative expenses at required levels, including the hiring and training of personnel, and the securing of outside technical and other consultants;
|
|
▪
|
developing and expanding our operations and business infrastructure;
|
|
▪
|
responding to competitive pressures;
|
|
▪
|
making strategic acquisitions of complementary technologies and/or product lines; or
|
|
▪
|
meeting unanticipated capital requirements.
|
There can be no assurance that any such financing, be it through
strategic collaborations, public or private equity financings or other financing sources, will be available to us as and when required,
either on acceptable terms or at all. To the extent that financing is only available through the sale of equity or convertible
securities, or that a determination is made by management that the sale of equity or convertible securities is otherwise in our
best interests, any such financing could and likely would result in significant dilution to our existing stockholders. To the extent
that financing is only available through the divestiture of some or all of our interest in ACS, or other assets (including proprietary
rights), or that a determination is made by management that any such divestiture of assets is otherwise in our best interests,
any such sale would result in the loss of otherwise existing potential revenue and/or earnings opportunities for us achievable
through retained ownership of such assets. Further, if funds are obtained through arrangements with collaborative partners or other
third parties, these arrangements may require us to relinquish rights to some of our technologies, product candidates or products
that we would otherwise seek to develop and commercialize on our own, thereby similarly resulting in a loss of otherwise existing
potential revenue and/or earnings opportunities for us achievable through the retention of such rights. If sufficient capital is
not available, we, inclusive of ACS, may be required to delay, reduce the scope of, or eliminate one or more of our development
programs or product lines, or be unable to adequately protect our intellectual property or other competitive advantages, any of
which could have a material adverse effect on our financial condition or business prospects.
Our accumulated deficit makes it
harder for us to borrow funds.
As of December 31, 2017, and as a result of historical losses both
during the year ended December 31, 2017 and prior years, our accumulated deficit was $7,706,052. The fact that we maintain an accumulated
deficit, as well as the extent of our accumulated deficit relative to recent earnings, negatively affects our ability to borrow
funds because lenders – and particularly commercial and other market rate lenders – generally view an accumulated deficit
as a negative factor in evaluating creditworthiness, and ours is roughly 20 times our total 2017 revenues. Any inability on our
part to borrow funds if and when required, or any reduction in the favorability of the terms upon which we are able to borrow funds
if and when required, including amount, applicable interest rate and collateralization, would likely have a material adverse effect
on our business, our financial condition, including liquidity and profitability, and our results of operations. See “Management’s
Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources” included in this
Annual Report on Form 10-K.
Risks Associated with Our Businesses and
Industries
Ours businesses are early-stage with
highly speculative prospects.
Although we, inclusive of ACS, have certain operations and revenues,
both our coatings business and the ACS concrete- and stucco- enhancing admixture products business have been slow to develop and,
taken as a whole, we remain an early-stage enterprise insofar as (i) our management expects to devote a very substantial percentage
of our efforts and resources to commercializing our coatings and ACS concrete- and stucco-enhancing technologies, products, and
related systems, and (ii) our planned principal operations associated with both our coatings business and the ACS concrete- and
stucco-enhancing admixture products business are only still ramping up. Accordingly, our primary business segments remain characterized
by largely unproven, relatively new-to-the-market technologies and related systems, and subject to some or all of the attendant
risks and uncertainties associated with early-stage technology companies more generally, including without limitation:
|
▪
|
failures in technologies and systems performance and reliability;
|
|
▪
|
unanticipated costs in getting technologies and systems commercialized;
|
|
▪
|
high costs of ongoing research and development;
|
|
▪
|
technologies and systems obsolescence;
|
|
▪
|
business model non-feasibility;
|
|
▪
|
inability to manufacture or obtain from third-party manufacturers sufficient quantities of product at an acceptable quality level and at an acceptable cost to meet market demand;
|
|
▪
|
inability to establish potential markets;
|
|
▪
|
unanticipated costs in establishing potential markets;
|
|
▪
|
inability to adequately protect intellectual property;
|
|
▪
|
potential infringement on the intellectual property rights of others;
|
|
▪
|
intense market competition from other technologies and systems;
|
|
▪
|
competition for employee talent; and
|
|
▪
|
inability to manage rapid growth.
|
The market for industrial and consumer
coatings, as well as concrete- and stucco-enhancing, products is highly competitive.
Ease of use, product quality and performance, technology, cost-effectiveness,
and technical and customer service are major competitive factors in both the industrial coatings business and the concrete- and
stucco-enhancement products business. We are aware of only several other products possessing the same combination of physical properties,
and that, on the whole, offer a similar array of benefits as our proprietary line of specialty smart surface coatings, and we are
unaware of any products that offer the same array of benefits as those being marketed by ACS. There can be no assurance, however,
that there are not products, whether coatings or cement-enhancement, under development by others, or already in existence and in
the early stages of market introduction, of which our management is not yet aware.
The market for industrial and product performance coatings is extremely
large, broad in scope, and consists of many different segments and sub-segments, each of which involves a range of product applications,
and each of which is also increasingly characterized by rapidly evolving technology. Precisely because of the wide array of beneficial
properties they possess, and notwithstanding the U.S. patent held by us on our smart surface coating technology, the specialty
coatings produced and distributed by us should be viewed as competing with other coatings products across a wide variety of the
various existing market segments and sub-segments. Hydrophobic and antimicrobial coatings, for example, are each segments in which
numerous companies are aggressively competing with one another worldwide, both in terms of technology and market share, but that,
combined, represent only a minor portion of the aggregate competition that we should be viewed as meaningfully confronting in relation
to our coatings business.
The competition faced by us in relation to our proprietary line
of specialty smart surface coatings includes both public and private organizations and collaborations among academic institutions
and large companies, both domestic and foreign, most of which have significantly greater experience and financial resources than
us. Management expects that our most significant competitors in our coatings business will tend to be larger, more established
companies, including many major multinational corporations such as Akzo Nobel N.V., PPG Industries, Inc., Axalta Coating Systems,
BASF Corporation, and Valspar Corporation. In general, these companies are all developing products that, at some level or in one
or more ways, compete with our own and, in addition to many existing issued and pending patents, they have significantly greater
capital and other resources available to them for research and development, testing, seeking and obtaining any required regulatory
approvals, marketing and distribution. In addition, many smaller coatings and related nanotechnology and materials companies have
formed strategic alliances or collaborative arrangements, partnerships, and other types of joint ventures with larger, well-established
industry competitors that afford these companies’ potential research and development and commercialization advantages, and
may be aided in becoming significant competitors through rapid evolution of new technologies. Academic institutions, governmental
agencies, and other public and private dedicated research organizations, moreover, are also financing and conducting research and
development activities that could result in the introduction of products directly competitive to those of ours.
The market for cement-enhancement additives and admixtures is extremely
large, broad in scope, and consists of many different segments and sub-segments, each of which involves a range of product applications,
and each of which is also increasingly characterized by rapidly evolving technology. Precisely because of the wide array of beneficial
properties they possess, the products manufactured and distributed by ACS should be viewed as competing with other concrete- and
stucco-enhancement and admixture products across a wide variety of the various existing market segments and sub-segments. Concrete
admixtures promising increased strength and compressed curing times, for example, are each segments in which numerous companies
are aggressively competing with one another worldwide, both in terms of technology and market share, but that, combined, represent
only a minor portion of the aggregate competition that ACS should be viewed as meaningfully confronting in relation to its concrete
and stucco-enhancing products.
The competition faced by ACS in relation to its proprietary line
of specialty concrete and stucco admixture products includes many large companies, both public and private and both domestic and
foreign, most of which have significantly greater experience and financial resources than us. Management expects that ACS’s
most significant competitors will tend to be larger, more established companies, including many major multinational corporations
such as Sika, BASF, Cemex, Old Castle, Cementaid Group, GCP Applied Technologies, Oscrete, Krete Industries, and CarpenterCrete.
In general, these companies are all developing products that, at some level or in one or more ways, compete with those of ACS and,
in addition to many existing issued and pending patents, they have significantly greater capital and other resources available
to them for research and development, testing, seeking and obtaining any required regulatory approvals, marketing and distribution.
Our and ACS’s products, and
ultimately our businesses, are based on technologies with only limited testing, independent verification, and commercial history.
Although certain limited testing conducted (i) by us internally
on our coatings products and ACS internally on their concrete- and stucco-enhancing products, (ii) by independent laboratories,
and (iii) by actual and prospective customers have provided positive indications of their reliably yielding performance results
consistent with internal management expectations, to date, such technologies have not been extensively tested or independently
evaluated and assessed in a comprehensive way, and have only recently developed any meaningful commercial history. Although we
have no reason to suspect that either our coatings or ACS’s concrete- and stucco-enhancing technologies will not ultimately
meet reliability, efficiency, or other performance targets, and that their efficacy will exceed minimally acceptable qualitative
standards given benchmark economic objectives, there can be no assurance of this result. If either of these technologies fail to
consistently perform at levels that enable cost-effective solutions for customers, or fail to do so without undesirable environmental
consequences, or we or ACS, respectively, are unable to effectively manage the implementation of the technologies despite their
otherwise satisfactory performance capabilities, it would likely have a material adverse effect on our financial condition and
prospects.
There can be no assurances that either
our coatings products or ACS’s admixture products will be accepted in the marketplace.
The degree of market acceptance of both our coatings products and
ACS’s concrete- and stucco-enhancing admixture products will depend on many factors. We cannot predict or guarantee the degree
to which targeted customers will accept or utilize some or even any of these products. Failure to achieve market acceptance would
limit our ability to generate revenue and would have a material adverse effect on our business. In addition, even if any one or
more of these products do achieve a degree of market acceptance, that market acceptance may not be able to be sustained over time
if competing products or technologies are introduced that are superior in efficiently achieving targeted results, received more
favorably by customers, or more cost-effective.
New products markets take time to
develop and many of the applications markets for our smart surface specialty coatings and ACS’s admixture products should
be viewed as separate, new market opportunities that will only ever be cultivated over time.
Commercialization of new technology products often has a very long
lead-time and a multiplicity of risks. The confluence of materials engineering and nanotechnology is in its very early stages and
acceptance and demand for products in this developing area can often be a long, evolutionary process. In general, new products
markets – even those surrounding innovative, revolutionary, and so-called ‘break-through’ or ‘game-changing’
technologies – develop gradually over time; despite advancements offering meaningful benefits, they tend to be resistant
to change and slow to adapt, evolve, and keep pace with the rate of those advancements. Many of the applications markets potentially
served by our smart surface specialty coatings, and many of the markets potentially served by ACS’s concrete- and stucco-enhancing
admixture products, are new – either brand new or recently emerging – and should thus be viewed as likely to take significant
time to develop and cultivate. Moreover, each should be viewed individually, separate and distinct from all others in terms of
development-life. If one or more of these applications markets takes longer to develop and cultivate than we expect, it will likely
have an adverse effect on the pace with which we are able to grow revenues, as well as on our prospects more generally, outcomes
which, in turn, are likely to lead to a downward adjustment in our publicly quoted stock price.
We and ACS may make strategic determinations
to allocate capital towards the pursuit of particular markets that turn out to be less receptive to either our or their products,
or more difficult to penetrate, than expected.
We perceive our smart surface technology as having a wide array
of potential product applications, spanning across numerous industrial, consumer, and household segments. Similarly, we perceive
ACS’s concrete- and stucco-enhancing technologies as having a wide array of applications as well. As we grow our coatings
business, and ACS grows its business, we and they, respectively, will thus be faced with the challenges – as we and they
are currently – of having to select certain of these potential product applications markets over others for purposes of focusing
our and their human and financial resources because those resources are necessarily limited and would be less apt to bring about
meaningfully positive results if allocated across too many separate market initiatives concurrently. The considerations involved
in making these determinations are complex and involve many factors, including the following:
|
▪
|
the relative size, age and projected growth trend of the subject market;
|
|
▪
|
experience, observational/anecdotal intelligence, and lab and field testing results previously obtained in relation to the application;
|
|
▪
|
the relative strength of the value proposition to prospective customers;
|
|
▪
|
the comparative time-to-market;
|
|
▪
|
the comparative cost-to-market coupled with existing, internal, industry relationships and available resources;
|
|
▪
|
the relative geographic accessibility of the market;
|
|
▪
|
the seasonality of the market, if any;
|
|
▪
|
the relative barriers-to-entry within the market;
|
|
▪
|
the relative, projected length of the particular sales cycle;
|
|
▪
|
the projected gross profit margins;
|
|
▪
|
both the presence within the subject market, together with the relative quality, of competitive products; and
|
|
▪
|
the relative size and strength of the individual competitors.
|
While management will exercise its best judgment in making these
determinations, there can be no assurance that the determinations it makes in this regard will turn out to have been the most productive
or otherwise best ones for us or ACS all things considered. Some of the potential applications markets will inevitably be more
receptive to our and ACS’s products than others due to the inherent vagaries of product markets generally, and it may turn
out that strategic determinations we or ACS make along the way to forego the pursuit of certain applications markets in the immediate-
and near-term – in favor of pursuing others that our or ACS’s management expects to be comparatively more promising
or susceptible to penetration by us or them in that timeframe – are proven incorrect. If this should occur, it would be an
indication that, despite our or ACS’s intentions and prudence in assessing future demand, we or ACS had not allocated our
or their capital as effectively as we or they might have otherwise, and this could have a material adverse effect on our returns
on capital and/or be reflected in a downward adjustment in our publicly quoted stock price.
For strategic reasons, we and ACS
may pursue more applications markets for our and their products in the near-term and concurrently than we or they can most effectively
penetrate given our and their available resources.
As noted in the risk factor immediately above, given the notably
wide array of industrial and consumer products that we and ACS perceive our and their technology as potentially benefitting, we
and ACS are and will continue to be faced with important decisions as to which of these applications markets to pursue in each
of the immediate-, near- and long-term. As also noted in the risk factor immediately above, the considerations involved in making
these determinations are complex and involve many factors. While management, both our own and that of ACS, seeks to exercise sound
judgment in making these determinations, there can be no assurance that, in hindsight, the determinations made in this regard will
turn out to have been the most productive or otherwise best ones for us. For purposes of achieving a degree of so-called ‘first-mover
advantage,’ for example, we or ACS may pursue some markets in the immediate- or near-term that we or it might otherwise wait
to pursue until sometime in the future when we or they are better equipped to do so effectively. Further, some applications markets
may be targeted by management, both our own and that of ACS, to be pursued in the immediate- or near-term because of their perceived
likelihood, whether accurate or inaccurate, to generate revenues sooner than others, even though such others are expected to be
larger in the aggregate and/or to offer higher gross margin opportunities. If the strategic determinations that management, both
our own and that of ACS, makes in this regard prove after the fact not to have been the most productive or otherwise best ones
for the Company, it will likely have an adverse effect on the pace with which we are able to grow revenues, as well as on our prospects
more generally, outcomes which, in turn, are likely to lead to a downward adjustment in our publicly quoted stock price.
Our smart surface technology may
turn out to be less effective for one or more applications than we expect.
Our current view of the potential applications markets for our smart
surface specialty coatings is intentionally broad and far-reaching, spanning numerous potential industrial, consumer, and household
segments in relation to which we believe our technology may provide a range of meaningful benefits. To date, however, we have not
commissioned or otherwise undertaken or obtained any comprehensive market study in respect of any one or more of these applications
markets. Whether before or after we undertake any such market study, it may turn out to be the case that our coatings are not as
effective for any one or more of these applications as we have preliminarily concluded and pursued accordingly, and we may make
a subsequent determination at some point to abandon any continued pursuit of the corresponding market or markets for this reason.
If this should occur, it will likely have an adverse effect on the pace with which we are able to grow revenues, as well as on
our prospects more generally, outcomes which, in turn, are likely to lead to a downward adjustment in our publicly quoted stock
price.
It is conceivable that the coatings
products of others – including those having fewer attributes than ours that could reasonably be expected to make them attractive
to manufacturers and customers – will be adopted more broadly than ours within one or more applications markets.
The applications markets that we are targeting for our smart surface
specialty coatings are perceived by management to present substantial, attractive economic opportunities for us because of the
unique array of benefits the coatings are expected to be able to provide. With many different companies in the industrial coatings
market all vying for market share, ranging from small and specialized, on the one hand, to large and diversified, on the other,
and each selling products with coatings that offer many of the same benefits as ours, however, there can be no assurance that the
coatings products marketed by others will not become the preferred choice among manufacturers of end-products and/or customers
over time with respect to any one or more individual applications markets category. For many different reasons the particular combination
of which is not consistent in each case, category leaders are not always necessarily the most effective products in a given market
segment. Well-established brand recognition, industry ‘marketing muscle,’ and credibility, for example, and especially
when coupled with relative financial strength, can often be more important than technological superiority in a head-to-head market
competition. If it turns out that one or more other companies are able to achieve a dominant market position in any one or more
applications markets potentially served by our smart surface specialty coatings, and whether on the basis of broad market strength
or otherwise, it will likely have an adverse effect on the pace with which we are able to grow revenues, as well as on our prospects
more generally, outcomes which, in turn, are likely to lead to a downward adjustment in our publicly quoted stock price.
Either individually or collectively,
and without infringing on our smart surface patent or other proprietary rights, one or more technologies owned by others may be
able to effect the same or similar results as our own.
We believe that our smart surface proprietary technology affords
us a competitive advantage in a wide variety of product applications markets that we are either currently pursuing or intend to
fully evaluate as potential targets in the future. There can be no assurance, however, that other technologies, whether existing
or developed in the future, and whether individually or combined with others, will not be able to effect the same or similar results
as our own, thereby potentially neutralizing whatever unique market advantage we had theretofore believed we possessed. This could
potentially occur, moreover, without any infringement on the part of others as it relates to our smart surface technology patent
or our other, related proprietary intellectual property rights. It is not at all uncommon for meaningfully different technologies
– each protectable in their own right – to produce the same or a very similar result, albeit through an alternate means.
If any such other technologies are determined to exist, or are developed in the future, that effect the same or a similar result
as our own, and particularly if they can do so at a reduced cost, it will likely have an adverse effect on the pace with which
we are able to grow revenues, as well as on our prospects more generally, outcomes which, in turn, are likely to lead to a downward
adjustment in our publicly quoted stock price.
Our smart surface coatings technology
and ACS’s concrete- and stucco-enhancing technologies are, or will become, components within many end-products marketed and
sold by others, and the success of our and ACS’s products is and will be, accordingly, dependent on the success of such end-products.
The need for effective solutions-based coatings such as those featuring
our smart surface technology will depend to some degree upon industrial and commercial needs going forward and the related demand
for such products as components. Similarly, the need for concrete or stucco that is substantially lighter and/or stronger than
non-premium-priced products available in the market will depend to some degree upon precast and other building needs going forward
and the related demand for such products as components. The success of our smart surface specialty coatings products, and ACS’s
admixture products, will thus depend largely upon the continuing need for the end-user products into which they become incorporated,
and the market demand this engenders. If a significant percentage of the products into which these products are incorporated are
not embraced by end-users, it will likely have an adverse effect on the pace with which we are able to grow revenues, as well as
on our prospects more generally, outcomes which, in turn, are likely to lead to a downward adjustment in our publicly quoted stock
price.
We depend, as ACS does, on strategic
relationships with commercial and industrial collaborators to help develop and test products, and our, and ACS’s, ability
to develop and commercialize products may be impaired or delayed if collaborations are unsuccessful.
Our strategy for the development, testing and commercialization
of products requires in many cases that we enter into collaborations with actual and potential corporate partners, licensors, licensees
and others. ACS employs a comparable strategy. Wherever possible, and in order to benefit from their resources and abilities, both
the Company and ACS seek collaborators in this regard with established lines of business and more substantial financial resources.
We, and they, are dependent upon the subsequent success of these other parties in performing their respective responsibilities
as well as the continued cooperation and interest of these parties. Under agreements with collaborators, both the Company and ACS
may rely significantly on such collaborators to, among other things, (i) fund research, development and testing activities either
with or for us or them, and (ii) market with us any commercial products that result from our or their collaborations. There can
be no assurance, however, that collaborators will cooperate with us or them or perform their obligations under agreements reached
with them, even where such matters are provided for within such agreements. Moreover, neither we nor ACS can control the amount
and timing of our collaborators’ resources that will be devoted to research, development and testing activities related to
our or their collaborative agreements with them. Such collaborators may not place the same degree of relative importance that we
or ACS do on product lines that rely on our or their products to meet benchmark performance standards because the success or failure
of such product lines is unlikely to be as material to their business, taken as a whole, as it is to ours or ACS’s. If our
or ACS’s collaborators fail to cooperate with us or ACS as desired, devote the requisite resources to agreed-upon joint initiatives,
or meet their obligations under agreements that are established, or if they choose for any reason to pursue existing or alternative
technologies in preference to those being developed in collaboration with us or ACS, it will likely have an adverse effect on the
pace with which we are able to grow revenues, as well as on our prospects more generally, outcomes which, in turn, are likely to
lead to a downward adjustment in our publicly quoted stock price.
Our and ACS’s reliance on the
activities of non-employee consultants, research institutions, and scientific contractors, whose activities are not wholly within
our or their control, may lead to delays in development of proposed products.
Both the Company and ACS rely extensively upon and have relationships
with outside consultants and contract research organizations having specialized skills to conduct research and to help develop
and test our respective products, and each expect to have to continue to rely on these types of relationships for the indefinite
future. The consultants and contract research organizations we and ACS engage, or that we and they may engage, provide us and them,
or may provide us and them as the case may be, critical skills and resources otherwise unavailable. These consultants are not,
or may not be, our or ACS’s employees and may have commitments to, or consulting or advisory contracts with, other entities
that may limit their availability. We, inclusive of ACS, have, or would have, limited control over the activities or operations
of these consultants and, except as otherwise required by our collaboration and consulting agreements to the extent they exist,
can expect only limited amounts of their time to be dedicated to our activities and our research and development goals. These research
facilities may have commitments to other commercial and non-commercial entities.
Both the Company and ACS have limited
resources with which to pursue and manage development activities, and because of the numerous risks and uncertainties associated
with our respective product development and commercialization efforts, we are unable to predict the extent of our future reporting
losses or when or if we will become profitable.
Our and ACS’s limited resources with which to conduct and
manage development activities might prevent us and them from successfully developing or exploiting potential markets for our and
their existing products. If we, inclusive of ACS, do not succeed in conducting and managing our development activities, we may
not be able to commercialize our products, or may encounter significant delays in doing so, either of which is likely to materially
harm our business. Our ability to generate revenues from any of our products, including ACS’s, moreover, will depend on a
number of factors, including our and ACS’s ability to successfully complete and implement our commercialization strategies.
Our or ACS’s failure to successfully commercialize our products or to become and remain profitable would likely depress the
market price of our common stock and impair our ability to raise capital, expand our business, diversify our product offerings
and continue our operations.
Our ability to commercially develop our technologies, inclusive
of ACS’s, will be dictated in large part by forces outside our and ACS’s control which cannot be predicted, including,
but not limited to, general economic conditions. Other such forces include the success of our and ACS’s research and field-testing,
the availability of collaborative partners to finance our and their work in pursuing applications markets for our respective technologies
or other developments in the field which, due to efficiencies or technological breakthroughs, may render one or more areas of commercialization
more attractive, obsolete or competitively unattractive. It is possible that one or more areas of commercialization will not be
pursued at all if a collaborative partner or entity willing to fund research and development cannot be located. Our decisions regarding
the ultimate products we pursue, including those of ACS, could have a material adverse effect on our ability to earn revenue if
we misinterpret trends, underestimate development costs and/or pursue technologies, products, or applications markets that turn
out to have lesser market appeal and demand than expected. Any of these factors, either alone or in concert, could materially harm
our ability to earn revenues or could result in a loss of any investment in the Company.
If we, inclusive of ACS, are unable
to keep up with rapid technological changes in the coatings and cement-enhancing products field, we will be unable to effectively
compete.
Both the coatings and cement-enhancing admixtures and other products
industries are engaged in activities in the organic and inorganic chemistry, materials engineering, and nanotechnology fields,
which are generally characterized by extensive research efforts and rapid technological progress. Materials engineering and the
manipulation of materials of nanometer sizes and dimensions is a relatively new science and the creation of new products is dependent
upon new and different properties of such materials created that will result in many uncertain applications and rapid change. The
evolution of nanotechnology as a new science adds greater uncertainty to new applications and new and improved product introductions
are unpredictable. If we, inclusive of ACS, fail to anticipate or respond adequately to scientific or technological advancements,
our ability to attain and/or sustain profitability could suffer. Moreover, we cannot assure you that research and discoveries by
other companies will not render our or ACS’s technologies or potential products or services uneconomical or result in products
superior to those we or they have or develop or that any technologies, applications, or products we or they have or develop will
be preferred to any existing or newly-developed technologies, applications, or products.
Our coatings business has historically
depended on a disproportionate percentage of its revenues being attributable to only a few customers.
Although our marketing and sales focus has been evolving rapidly,
and aggregate revenues have been modest, during the year ended December 31, 2017, and the year ended December 31, 2016, and as
reflected in the table below, our coatings business generated a significant portion of its revenues from a select few customers.
|
|
% of Total Revenues
|
Customer
|
|
2017
|
|
2016
|
Infiniti Coatings, LLC.
|
|
|
18.35
|
%
|
|
|
14.80
|
%
|
Umbrella Surface Technologies/Dekko Concrete
|
|
|
17.30
|
%
|
|
|
15.46
|
%
|
Signature Associations, Inc.
|
|
|
12.46
|
%
|
|
|
—
|
|
In general, any concentration of customer base for a business creates
a risk that the continuity of the business is more dependent on such customer or customers than is desirable and that the loss
of that customer or customers for any reason would have a material adverse effect on the business. Although management believes
that the planned direction of our coatings business going forward will result in an expanded and more diverse customer base over
time, and a discontinuance of this trend in reliance on only a few customers, there can be no assurance that we will be successful
in achieving this targeted objective and any failure in this regard would likely have a material adverse effect on our financial
condition and prospects.
The business model to be applied
to monetizing our and ACS’s technologies may be highly capital intensive.
The definitive business model going forward for both our coatings
product lines and ACS’s product lines are currently subject to further research, development and change. As a result, there
can be no assurance as to what such business models will ultimately be. While there is a possibility that we, and/or ACS, will
ultimately determine to focus our strategies exclusively on the exploitation of our technologies through a model that contemplates
our involvement and risk solely to the extent of our exploitation of licensing opportunities to third parties, in the meantime,
and quite possibly as a long-term plan either in whole or in part, we are manufacturing and marketing our own products to customers
both directly and through distribution channels. Some contemplated business models in this regard, including those that involve
any manufacturing and stocking of product, are considerably more capital intensive than others. Accordingly, there can be no assurance
as to the degree of capital intensity of our or ACS’s business model. Although it may be possible to rely to a significant
extent on debt financing over time, substantial debt financing is unlikely to be a realistic option in the near-term given our
lack of financial strength (both balance sheet and income statement) and a high degree of capital intensity could lead to the need
to raise additional equity financing, thereby resulting in dilution to the interests of existing stockholders.
The patent we hold on our platform
coatings smart surface technology comes off patent in approximately seven years.
We currently own only a single patent, which is a United States
patent and relates to our platform smart surface coating technology. Once filed, patents in the United States provide exclusive
rights for a period of only twenty years, not indefinitely. As a result, and because the patent was filed in 2005, whatever exclusive
rights we have in this flagship proprietary technology, including all associated licensing rights, will only benefit us, at most,
for another approximately seven years. Once it comes off patent, the resulting loss of our exclusive rights could have a material
adverse effect on our gross profit margins and/or our ability to generate or sustain revenues.
We may not be able to protect our
proprietary technology, which could harm our ability to become profitable.
We believe that our intellectual property with respect to our specialty
smart surface technology and ACS’s intellectual property with respect to its cement-enhancing technologies are critical to
our future success. Patent and trade secret protection is critical, more generally, for our technologies, as well as the products
and processes derived through them. The fields in which we, inclusive of ACS, operate have been characterized by significant efforts
by competitors to establish dominant or blocking patent rights to gain a competitive advantage, and by considerable differences
of opinion as to the value and legal legitimacy of competitors’ purported patent rights and the technologies they actually
utilize in their businesses. Our success will depend, to a substantial degree, on our ability to obtain and enforce patent protection
for our products, preserve our and ACS’s trade secrets, and operate without infringing the proprietary rights of others.
We cannot assure you that:
|
▪
|
we will succeed in obtaining any targeted patents in a timely manner or at all, or that the breadth or degree of protection of any such patents will protect our interests;
|
|
▪
|
the use of our or ACS’s technology will not infringe on the proprietary rights of others;
|
|
▪
|
patent applications relating to our potential products or technologies will result in the issuance of any patents or that, if issued, such patents will afford adequate protection to us or not be challenged, invalidated or infringed;
|
|
▪
|
patents will not issue to other parties, which may be infringed by our or ACS’s potential products or technologies; or
|
|
▪
|
we will have the financial resources necessary to pay maintenance fees on existing patents and patent applications, or file patent applications on new inventions.
|
Efforts to patent critical technologies
in our coatings business may not be successful.
New patent activity from other companies could affect and alter
the ability to obtain and/or license what we believe to be our own patentable intellectual property. Additionally, the possibility
exists that our efforts could infringe on the proprietary rights of third parties. Competitive patent activity is always a risk,
and U.S. patent applications are unpublished for at least one year. Although we intend to reasonably protect our rights with respect
to what we believe to be our intellectual property, there can be no assurance that such initiatives will be successful or that,
in any event, such initiatives would not divert management’s attention away from operational matters and indirectly result
in adverse consequences to our financial condition and results of operation.
Certain aspects of our and ACS’s
business technologies are not protectable by patent.
Certain aspects of our and ACS’s know-how and technology are
either not patentable, or, for strategic reasons, best protected in the determination of management by leaving them unpatented.
In this regard, trade secrets play an important part in our and ACS’s intellectual property strategy, and we and they vigilantly
seek to protect them. To protect our proprietary positions in trade secrets, we, inclusive of ACS, require all employees, consultants,
advisors and collaborators with access to our technologies to enter into confidentiality, and, wherever possible, invention ownership,
agreements with us. There can be no assurance, however, that these agreements will provide meaningful protection for these trade
secrets, know-how or other proprietary information in the event of any unauthorized use or disclosure. Further, in the absence
of patent protection, competitors who independently develop substantially equivalent technology, or otherwise acquire it, may adversely
impact our business.
Intellectual property litigation
presents an ongoing threat to our s businesses, including ACS, in terms of both outcome and cost.
It is possible that litigation over patent or other intellectual
property matters with one or more competitors could arise in relation to which we and/or ACS is named as a party defendant. We,
inclusive of ACS, could incur substantial litigation or interference costs in defending ourselves against any such lawsuits, or,
additionally, in pursuing lawsuits in which we assert our patent or other intellectual property rights offensively against others.
If the outcome of any such litigation is unfavorable, our business could be materially adversely affected. To determine the priority
of inventions, should that become necessary, we or ACS, as the case may be, may also have to participate in interference proceedings
declared by the United States Patent and Trademark Office, the associated expense of which could become substantial. In such event,
there can be no assurance that we or ACS will have available the requisite financial resources to aggressively, or even adequately,
defend, initiate, or pursue this type of litigation.
Patents obtained by other persons
may result in infringement claims against us and/or ACS that are costly to defend and which may limit our and/or their ability
to use the disputed technologies and prevent us and/or them from pursuing research and development or commercialization of potential
products and/or applications markets.
If third party patents or patent applications contain claims infringed
by either our or ACS’S technology or other technology required to make and use our or their potential products, and such
claims are ultimately determined to be valid, there can be no assurance that we or ACS would be able to obtain licenses to these
patents at a reasonable cost, if at all, or be able to develop or obtain alternative technology. If, under such circumstances,
we or ACS are unable to obtain any such licenses at a reasonable cost, we or they, as the case may be, may not be able to develop
some products commercially, and, further, we or they may be required to defend ourselves or themselves in court against allegations
of infringement of third party patents. Patent litigation is generally very expensive and can consume substantial resources and
create significant uncertainties. Any adverse outcome in such a suit could subject us and/or ACS to significant liabilities to
third parties, require disputed rights to be licensed from third parties, or require us and/or ACS to cease using such technology.
Neither we nor ACS may be able to
adequately defend against piracy of intellectual property in foreign jurisdictions.
Considerable research in the areas of organic and inorganic chemistry,
materials engineering, and nanotechnology is being performed in countries outside of the United States, and a number of potential
competitors of the Company and ACS are located in these countries. The laws protecting intellectual property in some of those countries
may not provide adequate protection to prevent such competitors from misappropriating our and ACS’s intellectual property
within those jurisdictions and elsewhere. Several of these potential competitors may be further along in the process of product
development and also operate large, company-funded research and development programs. As a result, our and ACS’s international
competitors may develop more competitive or affordable products, or achieve earlier patent or other intellectual property protection
or product commercialization than we or ACS are able to achieve. Any such competitive products may render any products or product
candidates that we or ACS develop obsolete.
Our and ACS’s products are
currently more expensive to manufacture because of the small scale at which they are being produced, and they may not be profitable
if we or they are unable to reduce our costs to produce them.
Our and ACS’s products are significantly more expensive to
manufacture than most comparable products on the market today. This is because our sales to date have been modest, as have ACS’s,
causing both of our raw materials purchasing volumes and manufacturing output volumes to be correspondingly low, and our corresponding
costs for each relatively high. Both the Company and ACS have only been exploring and experimenting for a relatively short period
with purchasing and manufacturing processes and procedures enabling our respective production capacity to reach commercial volumes.
Although there can be no assurance, it is our intention, and ACS’s as well, to substantially reduce manufacturing costs through
process improvements, increases in manufacturing scale, and outsourcing to experienced manufacturers. If either we or ACS are not
able to make these or other improvements, and depending on the pricing of the subject product, our and ACS’s profit margins
may be significantly less than that of our respective competitors. In addition, neither we nor ACS may be able to command a high
enough price from customers for products within some or all applications markets to generate a profit. If either we or ACS are
unable to realize significant profits from our respective products, our businesses would be materially harmed.
We will likely be required to spend
large amounts of money for environmental compliance in connection with our and ACS’s manufacturing operations.
As a manufacturer of applied specialty coating and surfacing materials,
and a contract manufacturer for ACS of its concrete- and stucco-enhancing admixture products, we are subject to a variety of stringent
regulations under numerous U.S. federal, state, local and foreign environmental, health and safety laws and regulations relating
to the generation, storage, handling, discharge, disposition and stewardship of hazardous wastes and other materials. In this regard,
we will likely have to expend substantial amounts to comply with such laws and regulations as well as establish a policy to minimize
our environmental emissions. Nevertheless, legislative, regulatory and economic uncertainties (including existing and potential
laws and regulations pertaining to climate change) may make it difficult for us to project future spending for these purposes and,
if there is an acceleration in new regulatory requirements, we may be required to expend substantial additional funds to remain
in compliance.
Our production operations involve
our having to work with dangerous materials that can potentially injure our employees, damage our facilities, and disrupt our work
flow.
Some of our operations, including those we undertake on behalf of
ACS, involve the handling of hazardous materials that may pose the risk of fire, explosion, or the release of hazardous substances
into the surrounding environment. Such events could result from operational failures, natural disasters, or terrorist attacks,
and might cause injury or loss of life to our employees and others, environmental contamination, and property damage. Any such
events might cause a temporary shutdown of an affected plant, or portion thereof, or a customer’s premises, or a portion
thereof, and we could be subject to penalties, civil claims, or both, as a result. A disruption of our operations caused by any
of these or other events could have a material adverse effect on our financial condition and results of operations.
Historically, the handling of nanofibers and nanoparticles has been
widely recognized as posing significant health and safety concerns and challenges stemming from the potentially hazardous particulates
emitted into the air during the production, transport, and use of these materials. These emissions occur because, in the absence
of industry-appropriate methods, processes and practices for the containment of otherwise loose, airborne particulates, such matter
can get drawn into the eyes, the throat and lungs, and onto the skin, of those individuals handling or otherwise being exposed
to these materials. Such exposure can lead to a variety of health and safety concerns. In relation to the production of those ACS
admixture products that rely on the incorporation of nanoparticle-enhanced nanofibers, therefore, and although there can be no
assurance that any safety precautions will prove reliable against any and all vulnerabilities in all instances, ACS has adopted
and utilizes what it has deemed to be reasonably suitable methods and practices for the containment of these hazardous substances.
Our and ACS’s product sales
could expose us and them to product liability claims, which, in turn, could diminish our assets and adversely affect our operations.
Both the Company and ACS may be held liable or incur expenses to
settle product liability claims if our or their products cause injury, directly or indirectly, or are found unsuitable during product
testing, manufacturing, marketing, sale or use. These risks exist even with respect to any products that have received, or may
in the future receive, regulatory approval, registration or clearance for commercial use. There can be no assurance that either
we or ACS will be able to avoid product liability exposure.
Neither the Company nor ACS currently maintain product liability
insurance of any kind, and we and they will both likely need to obtain such insurance coverage in the very near future at levels
determined to be sufficient and consistent with industry standards for companies such as ours and theirs respectively. It is possible
that such insurance coverage may not be available to us or ACS on commercially reasonable terms or at all, and a product liability
claim could potentially result in liability to us or them greater than our respective assets and insurance coverage, if any, at
such time. Whether or not a product liability insurance policy is obtained or maintained in the future, any product liability claim
could harm our business and financial condition. Moreover, even if we and/or ACS have adequate insurance coverage, product liability
claims or recalls could result in negative publicity or force us and/or them to devote significant time and attention to matters
other than those that arise in the normal course of business.
Our and ACS’s insurance policies
may be inadequate and potentially expose us and them to unrecoverable risks.
Neither the Company nor ACS carry director and officer insurance
and only the Company has limited general liability insurance coverage. Any significant insurance claims against either us or them
would have a material adverse effect on our business, financial condition and results of operations. Insurance availability, coverage
terms and pricing continue to vary with market conditions. Both the Company and ACS endeavor to obtain appropriate insurance coverage
as soon as practicable given available financial resources for insurable risks that we identify, however, either we and/or they
may fail to correctly anticipate or quantify insurable risks, or be unable to obtain appropriate insurance coverage, and insurers
may be unwilling to cover insurable events for which we seek coverage. We have observed rapidly changing conditions in the insurance
markets relating to nearly all areas of traditional corporate insurance. Such conditions have resulted in higher premium costs,
higher policy deductibles, and lower coverage limits. For some risks, we, and ACS as well, may not have or maintain insurance coverage
because of cost or availability.
Conditions in the global economy
and global capital markets may adversely affect our results of operations, financial condition, and cash flows.
Our business and operating results, including those of ACS, may
in the future be adversely affected by global economic conditions, including instability in credit markets, declining consumer
and business confidence, fluctuating commodity prices and interest rates, volatile exchange rates, and other challenges such as
the changing financial regulatory environment that could affect the global economy. Our and ACS’s customers may experience
deterioration of their businesses, cash flow shortages, and difficulty obtaining financing. As a result, existing or potential
customers may delay or cancel plans to purchase products and may not be able to fulfill their obligations in a timely fashion.
Further, suppliers could experience similar conditions, which could impact their ability to fulfill their obligations to us, inclusive
of ACS. Because we intend to have significant international operations, and so, too, does ACS, there are expected to be a large
number of currency transactions that result from international sales, purchases, investments and borrowings. And although we also
intend to actively manage currency exposures that are associated with net monetary asset positions, committed currency purchases
and sales, foreign currency-denominated revenues and other assets and liabilities created in the normal course of business, there
can be no assurances that such initiatives will be effective. Future weakness in the global economy and failure to manage these
risks could adversely affect our results of operations, financial condition and cash flows in future periods.
Changes in government policies and
laws could adversely affect our financial results.
Although there can be no assurance, our and ACS’s product
sales to customers outside the U.S. are expected over time to account for a material percentage of gross revenues. As a result,
our financial results could be affected by changes in trade, monetary and fiscal policies, laws and regulations, or other activities
of U.S. and non-U.S. governments, agencies and similar organizations. These conditions include, but are not limited to, changes
in a country’s or region’s economic or political conditions, trade regulations affecting production, pricing and marketing
of products, local labor conditions and regulations, reduced protection of intellectual property rights in some countries, changes
in the regulatory or legal environment, restrictions on currency exchange activities, burdensome taxes and tariffs and other trade
barriers. International risks and uncertainties, including changing social and economic conditions as well as terrorism, political
hostilities and war, could lead to reduced sales and profitability.
Increases in prices and declines
in the availability of raw materials could negatively impact our financial results.
Our financial results, including those of ACS, are significantly
affected by the cost of raw materials. Product raw materials, both organic and inorganic, generally comprise a significant percentage
of our cost of goods sold in most formulations and represent our single largest production cost component.
Most of the raw materials used in production are purchased from
outside sources, and we intend in the near future to begin making supply arrangements from time to time to meet our planned operating
requirements for the future, including those established on behalf of ACS. Supply of critical raw materials is managed by qualifying
multiple and local sources of supply, sometimes including suppliers from outside the U.S., establishing contracts, procuring from
multiple sources, and identifying alternative materials or technology whenever possible. We are continuing our aggressive sourcing
initiatives to support our continuous efforts to find the lowest raw material costs.
Increases in the cost of raw materials may have an adverse effect
on our earnings or cash flow in the event we are unable to offset these higher costs in a timely manner. Any inability to obtain
critical raw materials would adversely impact our ability to produce both our products and those of ACS.
General Business Risks
The loss of key personnel could adversely
affect our business.
We are presently dependent to a great extent upon the experience,
abilities and continued services of our management team. Currently, our only executive under contract is Mr. Malone, our president
and chief executive officer. In accordance with its terms, this agreement expires on July 22, 2020. Beyond the obligations expressly
set forth in Mr. Malone’s employment agreement (a copy of which is included as Exhibit 10.1 to our Current Report on Form
8-K filed July 29, 2014), no assurances can be given that either he or any other executive will remain with us for any particular
duration or that any of such other executives will enter into employment agreements with us. The loss of services of any of the
management personnel could have a material adverse effect on our business, financial condition or results of operation.
Failure to effectively manage acquisitions,
divestitures, strategic ventures, alliances and other portfolio actions could adversely impact our future results.
From time to time, we expect to be evaluating and pursuing acquisition
or strategic venture candidates that may strategically fit our business and/or growth objectives. If we are unable to successfully
integrate and develop acquired businesses, we could fail to achieve anticipated synergies and cost savings, including any expected
increases in revenues and operating results, which could materially and adversely affect our financial results. We intend to continually
review our portfolio of operational assets to assess their respective contributions to our larger objectives and alignment with
our broader growth strategy. However, we may not be successful in separating underperforming or non-strategic assets and gains
or losses on the divestiture of, or lost operating income from, such assets may affect our results of operations. Moreover, we
may incur asset impairment charges related to acquisitions or divestitures that reduce any otherwise reportable earnings.
Our results of operations and financial
condition could be seriously impacted by business disruptions and security breaches, including cybersecurity incidents.
Business and/or supply chain disruptions, plant and/or power outages
and information technology system and/or network disruptions, regardless of cause including acts of sabotage, employee error or
other actions, geo-political activity, weather events and natural disasters could seriously harm our operations as well as the
operations of our customers and suppliers. Failure to effectively prevent, detect and recover from security breaches, including
attacks on information technology and infrastructure by hackers, viruses, breaches due to employee error or actions, or other disruptions
could result in misuse of our assets, business disruptions, loss of property including trade secrets and confidential business
information, legal claims or proceedings, reporting errors, processing inefficiencies, negative media attention, loss of sales
and interference with regulatory compliance. Though our resources are meaningfully limited, we intend to actively manage the risks
within our reasonable control that could lead to any such business disruptions and security breaches. As these threats continue
to evolve, particularly around cybersecurity, and particularly as our business grows, however, we may be required to expend significant
resources to enhance our control environment, processes, practices and other protective measures. Despite these efforts, such events
could materially adversely affect our business, financial condition or results of operations.
Our business, including our results
of operations and reputation, could be adversely affected by process safety and product stewardship issues.
Failure to appropriately manage safety, human health, product liability
and environmental risks associated with our products, product life cycles and production processes could adversely impact employees,
communities, stakeholders, the environment, as well as our reputation and results of operations. Public perception of the risks
associated with our products and production processes could impact product acceptance and influence the regulatory environment
in which we operate. While we have in place procedures and controls to manage process safety risks, issues could be created by
events outside of our control including natural disasters, severe weather events, acts of sabotage and substandard performance
by our external partners.
Our results of operations could be
adversely affected by litigation and other commitments and contingencies.
We face risks arising from various asserted and unasserted litigation
matters, including, but not limited to, product liability, patent infringement, and claims for third party property damage or personal
injury stemming from alleged environmental torts. We have observed and noted a nationwide trend in purported class actions against
manufacturers of chemical and materials-based products generally seeking relief such as medical monitoring, property damages, off-site
remediation and punitive damages arising from alleged environmental torts without claiming present personal injuries. We have further
observed and noted a trend in public and private nuisance suits being filed on behalf of states, counties, cities and utilities
alleging harm to the general public. Various factors or developments can lead to changes in current estimates of liabilities such
as a final adverse judgment, significant settlement or changes in applicable law. A future adverse ruling or unfavorable development
could result in future charges that could have a material adverse effect on us. An adverse outcome in any one or more of these
matters would likely have a material adverse effect on our business, financial condition or results of operations.
In the ordinary course of business, we may make certain commitments,
including representations, warranties and indemnities relating to current and past operations, including those related to products
we sell, divested businesses, and issue guarantees of third party obligations. If we were required to make payments as a result,
they could exceed the amounts accrued, thereby adversely affecting our results of operations.
Risks Uniquely Associated with Our Minority Interest
in Advanced Cement Sciences (“ACS”)
Although we currently own a 31% equity
interest in ACS, that percentage is likely to be reduced in the near future.
As of September, 2016, and as more fully disclosed in the Description
of Business section of this Annual Report on Form 10-K we have held a minority equity interest in a private technology firm formerly
known as Advanced Nanofibers, LLC and now known as Advanced Cement Sciences, LLC (“ACS”). As of the date of this Annual
Report on Form 10-K, we own 31.06% of the firm. Because ACS is a relatively early-stage company, however, and likely to require
near-term investment capital, on the one hand, and establishing strategic relationships, on the other, investors in our shares
should expect that our percentage interest will be reduced in the future, possibly significantly, as equity in that company is
issued in exchange for cash, economic interests in strategic partnerships, or other value. Although we expect that management of
ACS will limit any such issuances of equity to those in which the exchange of underlying intrinsic value is favorable, or at least
not unfavorable, thereby resulting in no actual dilution of economic value in the firm, valuing technology firms is challenging
at best and to some degree, at least, subjective, and there can be no assurance that any such transactions will not result in some
dilution of economic value.
Our chief executive officer is allocating
increasing amounts of his time and focus to matters associated with ACSs, a business in which we currently hold less than a 32%
interest.
Since September 2016, when we became one of the founding co-venturers
in ACS, our chief executive officer, Steven Malone, has been allocating increasing amounts of his time and focus to the business,
operational, legal and administrative matters associated with ACS, a trend that we currently expect to continue indefinitely. Although
we currently hold less than a 32% interest in ACS, Mr. Malone’s increasing allocation of his time and focus in the direction
of this pursuit reflects our senior management’s belief in the growth prospects for ACS, both top-line and bottom-line, and
the fact that earnings from that venture, if and when achieved. While our management team remains as optimistic as ever relative
to the prospects surrounding our core coatings business, it views the opportunities associated with the business of ACS –
even though we currently hold less than a 32% minority interest in it – as presenting a uniquely promising economic opportunity
given the value proposition posed by the proprietary technology it possesses coupled with the magnitude of the markets in relation
to which it can be applied. Moreover, our active role and involvement in ACS is understood by all of those involved in ACSs as
being strategically, operationally and administratively vital to its development. For these reasons, and despite the fact that
there can be no assurance, our management team believes that Mr. Malone’s increasing focus on ACS represents the optimal
allocation of his time on behalf of the Company.
Because our chief executive officer
holds a significant interest in ACSs separate from the interest he holds indirectly through the Company, there exists a conflict
of interest which may cause him to make decisions surrounding the allocation of our limited resources with which you may disagree.
Our chief executive officer, Steven Malone, beneficially holds 23,940,848
shares of our common stock (and 105,936,069 shares if taking into account all outstanding convertible debt holdings), which currently
represents 4.51% of our total shares outstanding (or 13.38% if taking into account all outstanding convertible debt holdings).
In addition, and through various other entities, Mr. Malone also currently holds an indirect 13% beneficial interest in ACS through
indirect, personal holdings. Because, by contrast, our core coatings business is owned 100% by us, there exists a risk that Mr.
Malone could make decisions on our behalf to allocate human and financial resources of ours, including his own time, to the development
and operations of ACS with which you may not agree.
Risk Associated with the Prospective Dilution
of Our Common Stock
Future issuances of our common stock
or preferred stock are likely and may dilute your economic interest.
We are likely to issue additional shares of our common stock in
the future in connection with various financings, which will likely have to do repeatedly until such time, if at all, that our
revenues attain a consistent level at which they can support both our operating and capital investment requirements. While any
such financings may involve registered or unregistered sales of securities, in the case of unregistered sales, the subject securities
may, and likely will – given our relatively early stage of development – be either preferred stock or debt, convertible
into common stock on the basis of a given ratio. We may also issue shares of our common stock or preferred stock in connection
with acquisitions and/or business combinations, and here, too, in either registered or unregistered, exempted transactions. Although
we intend to limit any financings or acquisitions in relation to which we issue shares to those for which the implied value of
our shares are equal to or greater than our most reasoned estimate of our intrinsic value, thereby avoiding dilution to our existing
stockholders in terms of economic value, there can be no assurance in this regard because (i) intrinsic value is, to at least some
degree, an inherently subjective benchmark range in relation to which reasonable minds can differ, and (ii) financings may be critical
at a time when we are unable to attract the interest of potential investors willing to invest on the basis of a valuation considered
by us to be within our intrinsic value range.
Other Risks Associated with an Investment
in our Common Stock
A holder of certain of our debt has
veto power over the filling of vacant board seats, which we have agreed to limit to five until that debt is retired.
Our corporate bylaws currently provide for a classified board of
directors consisting of up to 15 members, as determined from time to time within the discretion of our board of directors through
the due execution of appropriate resolutions and procedures. As of the date of this Memorandum, we have a 5-person classified board
of directors with three sitting members and two vacancies. Of the three sitting members, one, John Kuehne, is a Class I member,
whose current term expired on July 22, 2018, one, Donald Schoenfeld, is a Class II member, whose current term expires on July 22,
2019, and one, Steven Malone, is a Class III member, whose current term expires on July 22, 2020. In accordance with a debt restructuring
effected concurrently with the consummation of the Merger, however, and since amended, we have agreed to limit the size of our
board of directors to no more than five sitting members until such time as that debt is satisfied and to obtain the consent of
the holder of such debt to any directorship appointments effectively filling the two existing vacancies in the meantime. As a result
of this agreement, and though still possessing all of the same voting rights relative to the constitution of our board of directors,
holders of our common stock, individually and collectively, are deprived for the time being of the same right to influence and
effect such constitution as otherwise entitled under Nevada corporate law and our articles of incorporation and bylaws, and there
can be no assurance that the constitution of our board of directors will be consistent with what it would be in the absence of
this agreement and/or that any actions taken or not taken by our board of directors during the effectiveness of this agreement
will be consistent with those that would have occurred were it not in place.
Future issuances of our common stock
or preferred stock are likely and may depress our stock price.
We may issue additional shares of our common stock in the future
in connection with financings, which we expect to do in the very near-term and will likely have to do repeatedly until such time,
if at all, that our revenues attain a consistent level at which they can support both our operating and capital investment requirements.
While any such financings may involve registered or unregistered sales of securities, in the case of unregistered sales, the subject
securities may, and likely will – given our relatively early stage of development – be either preferred stock or debt,
convertible into common stock on the basis of a given ratio. We may also issue shares of our common stock or preferred stock in
connection with acquisitions and/or business combinations, and here, too, in either registered or unregistered, exempted transactions.
Although we intend to limit any financings or acquisitions in relation to which we issue shares to those for which the implied
value of our shares are equal to or greater than our most reasoned estimate of our intrinsic value, thereby avoiding dilution to
our existing stockholders in terms of economic value, there can be no assurance in this regard because (i) intrinsic value is,
to at least some degree, an inherently subjective benchmark range in relation to which reasonable minds can differ, and (ii) financings
may be critical at a time when we are unable to attract the interest of potential investors willing to invest on the basis of a
valuation considered by us to be within our intrinsic value range. In any event, future issuances of shares may have the effect
of depressing our stock price for any one or more of the following reasons, among others:
|
▪
|
the market perceives our shares as having been issued below intrinsic value, thereby diluting the economic interests of our shareholders, who, thereafter sell for that reason, thereby putting downward pressure on the stock price;
|
|
|
|
|
▪
|
the market will perceive an “overhang” in shares soon to be entering the float via resale registration or exemption, and discount the current value accordingly, thereby putting downward pressure on the stock price;
|
|
|
|
|
▪
|
investors that acquire substantial blocks of common stock in connection with a private financing subsequently determine to sell out their position rapidly once the shares become eligible for resale, particularly if they are professional investors that acquired their shares at a price below current market, but in any event putting downward pressure on the stock price;
|
|
|
|
|
▪
|
recipients of shares in a business combination subsequently determine to sell out their position rapidly once the shares become eligible for resale, particularly if they are individual investors that had held the shares throughout an extended period of illiquidity, but in any event putting downward pressure on the stock price.
|
Future sales of our common stock
by our officers or directors may depress our stock price.
Our officers and directors are not contractually obligated to refrain
from selling any of their shares; therefore, our officers and directors may sell any shares owned by them which are registered
under the Securities Act, or which otherwise may be sold without registration to the extent permitted by Rule 144 or other exemptions.
Because of the perception by the investing public that a sale by such insiders may be reflective of their own lack of confidence
in our prospects, the market price of our common stock could decline as a result of a sell-off following sales of substantial amounts
of common stock by our officers and directors into the public market, or even the mere perception that these sales could occur.
Though our common stock is quoted
on the OTC Markets, there is no liquidity and no established public market for our common stock, which means that it will likely
be difficult to sell shares.
Our common stock is quoted over the counter on the OTC Markets under
the symbol “FIND.” The OTC Markets is not an exchange and the over-the-counter market is a significantly more limited
market than established trading markets and national exchanges such as the New York Stock Exchange and Nasdaq, including the Nasdaq
Global Select Market. Broker dealers may not be willing to make a market in shares quoted solely over the counter such as ours.
In addition, many of the issues traded on the OTC Markets, including our own, are often characterized by low trading volumes and
price volatility, which may make it difficult for an investor holding shares to sell them on acceptable terms.
Although we are an Exchange Act reporting company, there is no active
trading market for our common stock. There can be no assurance that an active trading market will ever develop for our common stock
or, if it does develop, that it will be maintained. Failure to develop or maintain an active trading market will generally result
in relatively low-priced shares, which may, in turn, cause an investor to be unable to sell its shares or to attempt to sell its
shares with the effect of lowering the market price, all of which could lead to a complete or partial loss of investment. Unless
an active trading market develops for our common stock, for which there can be no assurance, investors may not be able to sell
their shares.
We cannot assure you that our common
stock will ever be listed on one of the national securities exchanges.
Although it is our intention to seek the listing of our common stock
on Nasdaq (Global or Capital Markets) or another stock exchange as soon as we are able, there can be no assurance that we will
be able to meet the initial listing standards of either of those or any other stock exchange in the foreseeable future, or ever,
or that, if we do, and we become listed, that we will be able to maintain such listing for any given period through continuing
eligibility. Until our common stock is listed on one of the national stock exchanges, for which there can be no assurance, we expect
that our common stock would continue to trade in the OTC Markets.
Since our common stock is thinly
traded, it is more susceptible to extreme rises or declines in price, and you may not be able to sell your shares at or above the
price you paid.
Investors in our common shares may have difficulty reselling them,
either at or above the price paid, or even at a fair market value. The stock markets often experience significant price and volume
changes that are not related to the operating performance of individual companies, and because our common stock is thinly traded,
it is particularly susceptible to such changes. These broad market changes may cause the market price of our common stock to decline
regardless of how well we perform as a company, and, depending on when you determine to sell, you may not be able to obtain a price
at or above the price you paid.
We were once a shell company, which,
coupled with other factors, makes resale of our restricted shares unusually challenging.
For stockholders of ours that hold restricted shares (typically
because they were acquired in private offerings), the most common means for reselling their shares requires reliance by them on
Rule 144 under the Securities Act, which provides an exemption from the otherwise applicable requirements of SEC registration.
Given the current securities brokerage environment, however, selling restricted shares of microcap penny stocks pursuant to Rule
144 is proving increasingly difficult because fewer and fewer brokerage firms are dealing in these securities and those that continue
to do so are charging transaction fees that are exorbitant to the point of making them prohibitive as a practical matter. This
reality renders the prospect of selling restricted shares of our stock through anything other than an effective registration statement
daunting at best. Complicating matters even further for our shareholders, however, is the fact that, as a former shell company,
we are subject to certain heightened regulations under Rule 144 that, as a practical matter, make the process of selling restricted
shares of our stock all the more administratively challenging. For this reason, and unless their resale is registered through an
effective registration statement, holders of restricted shares of our stock (shares purchased in an offering directly from us,
or, in any event, not purchased in the open market) are likely to encounter major challenges in selling their shares, even if and
when they otherwise qualify for resale under Rule 144.
If you require dividend income, you
should not rely on an investment in our common stock.
Because we have very limited cash resources, significant cash needs,
and a substantial accumulated deficit, we have not declared or paid any dividends on our common stock since our inception and we
do not anticipate declaring or paying any dividends on our common stock in the foreseeable future. Rather, we intend to retain
earnings, if any, for the continued operation and expansion of our business. It is unlikely, therefore, that holders of our common
stock will have an opportunity to profit from anything other than potential appreciation in the value of our common stock held
by them. If you require dividend income, you should not rely on an investment in our common stock.
If we are unable to establish appropriate
internal controls over financial reporting, it could cause us to fail to meet our reporting obligations, result in the restatement
of our financial statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose
confidence in our reported financial information and have a negative effect on the market price for shares of our common stock.
Effective internal controls are necessary for us to provide reliable
financial reports and to effectively prevent fraud. We maintain a system of internal control over financial reporting, which is
defined as a process designed by, or under the supervision of, our principal executive officer and principal financial officer,
or persons performing similar functions, and effected by our board of directors, management and other personnel, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles.
As a public company that files reports under the Exchange Act, we
have significant additional requirements for enhanced financial reporting and internal controls. We are required to document and
test our internal control procedures in order to satisfy the requirements of Section 404 of the Sarbanes-Oxley Act of 2002, which
requires annual management assessments of the effectiveness of our internal controls over financial reporting. Our disclosure controls
and procedures are not effective as a result of the material weakness in internal control over financial reporting because of inadequate
segregation of duties over authorization, review and recording of transactions as well as the financial reporting of such transactions.
Management is attempting to develop a plan to mitigate the above material weaknesses. The process of designing and implementing
effective internal controls is a continuous effort that requires us to anticipate and react to changes in our business and the
economic and regulatory environments and to expend significant resources to maintain a system of internal controls that is adequate
to satisfy our reporting obligations as a public company under the Exchange Act.
We cannot assure you that we will not, in the future, identify areas
requiring improvement in our internal control over financial reporting. We cannot assure you that the measures we will take to
address any areas in need of improvement will be successful or that we will implement and maintain adequate controls over our financial
processes and reporting in the future as we continue our growth. If we are unable to establish appropriate internal financial reporting
controls and procedures, it could cause us to fail to meet our reporting obligations, result in the restatement of our financial
statements, harm our operating results, subject us to regulatory scrutiny and sanction, cause investors to lose confidence in our
reported financial information and have a negative effect on the market price for shares of our common stock.
Unless and until we garner analyst
research coverage, we are unlikely to create long-term market value in our common stock.
Although we are an Exchange Act reporting company and our common
stock is quoted on the OTC Markets, we are unaware of any investment banking firms, large or small, that currently provide analyst
research coverage on the Company and, given our relatively small size within the public securities markets, it is unlikely that
any investment banks will begin doing so in the near future. Without continuing research coverage by reputable investment banks
or similar firms, it is considerably more difficult to attract the interest of most institutional investors, which are generally
considered to be very important in achieving a desirable balance in shareholder composition and long-term market value (as distinct
from intrinsic value) in a stock. While we intend to continue to aggressively pursue investor relations initiatives designed to
create visibility for the Company and common stock, and hope to garner analyst coverage in the future, there can be no assurance
that we will succeed in this regard and any inability on our part to develop such coverage is likely to materially impede the realization
of long-term market value in our common stock.
Our common stock is subject to the
“penny stock” regulations, which is likely to make it more difficult to sell.
Our common stock is considered a “penny stock,” which
generally is a stock trading under $5.00 and not registered on any national securities exchanges under applicable securities laws.
The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. This regulation
generally has the result of reducing trading in such stocks, restricting the pool of potential investors for such stocks, and making
it more difficult for investors to sell their shares. Prior to a transaction in a penny stock, a broker-dealer is required to:
|
▪
|
deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market;
|
|
▪
|
provide the customer with current bid and offer quotations for the penny stock;
|
|
▪
|
explain the compensation of the broker-dealer and its salesperson in the transaction;
|
|
▪
|
provide monthly account statements showing the market value of each penny stock held in the customer’s account; and
|
|
▪
|
make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction.
|
These requirements may have the effect of reducing the level of
trading activity in the secondary market for a stock that is subject to the penny stock rules. For this reason, investors in our
common stock may find it more difficult to sell their shares.
As an issuer of “penny stock,”
we do not currently benefit from the protection provided by the federal securities laws relating to forward-looking statements.
Although, generally, federal securities laws provide a safe harbor
for forward-looking statements made by a public company that files reports under the federal securities laws, this safe harbor
is not available to issuers of penny stocks. As a result, and since our common stock has consistently traded in recent years at
a level at which it is considered to constitute a “penny stock,” we do not have the benefit of this safe harbor protection
in the event of any legal action based upon a claim that any forward-looking statements contained in any one or more of our public
filings proved to be inaccurate. Any such legal action could hurt our financial condition.
Our stock price could be volatile,
and your investment could suffer a decline in value.
The trading price of our common stock is likely to be highly volatile
and could be subject to extreme fluctuations in price in response to various factors, many of which are beyond our control, including:
|
▪
|
the trading volume of our shares;
|
|
▪
|
the number of securities analysts, market-makers and brokers following our common stock;
|
|
▪
|
changes in, or failure to achieve, financial estimates by securities analysts;
|
|
▪
|
new products introduced or announced by us or our competitors;
|
|
▪
|
announcements of technological innovations by us or our competitors;
|
|
▪
|
actual or anticipated variations in quarterly operating results;
|
|
▪
|
announcements by us of significant acquisitions, strategic partnerships, joint ventures, or capital commitments;
|
|
▪
|
additions or departures of key personnel;
|
|
▪
|
sales of our common stock; and
|
|
▪
|
stock market price and volume fluctuations of publicly-traded, particularly microcap, companies generally.
|
The volatility of our common stock is illustrated by reference to
the fact that, during the twelve months ended December 31, 2017, the market trading price of our common stock has fluctuated from
a low of $0.005 to a high of $0.04 per share.
The stock market has recently experienced significant price and
volume fluctuations. Volatility in the market price for particular companies has often been unrelated or disproportionate to the
operating performance of those companies. These broad market and industry factors may seriously harm the market price of our common
stock, regardless of our operating performance. In addition, securities class action litigation has often been initiated following
periods of volatility in the market price of a company’s securities. A securities class action suit against us could result
in substantial costs, potential liabilities and the diversion of management’s attention and resources from our business.
Moreover, and as noted above, our common stock is currently quoted on the OTC Market and, further, sales of our shares are subject
to the penny stock regulation. Price fluctuations in such shares are particularly volatile and subject to manipulation by market
makers, short-sellers and option traders.