EDGAR 10-K Filing

Company CIK: 1740695
Filing Year: 2021
Filename: 1740695_10-K_2021_0001683168-21-004611.json

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ITEM 1. BUSINESS
Item 1. BUSINESS.
General
Lux Amber, Corp. (“LAC”), formed on January 19, 2018, is an international specialty chemical company. Its corporate offices are currently located at 6136 Frisco Square Blvd., Suite 400, #237, Frisco, TX 75034. LAC’s corporate telephone number is 972-214-9764. LAC has a stock symbol of LXAM.
LAC has three wholly owned subsidiaries (collectively with LAC, the “Company”): Worldwide Specialty Chemicals, Inc. (“WSCI”), Industrial Chem Solutions, Inc. (“ICS”), and Safeway Pest Elimination, LLC (“SPE”).
Business Overview
The Company is an international specialty chemical company with many products that are friendly to the environment. The common description is “green chemicals.” The Company has degreed chemists and consultants on staff with years of successful experience in the specialty chemical industry. The term “specialty chemicals” is best defined by those chemicals whose formulas allow the chemical compounds to perform a specific function for a class of customers.
LAC and its subsidiaries serve as both producers and distributors of environmentally safe, specialty chemicals, all of which are properly registered.
LAC and its subsidiaries operate from an office, chemical production, and distribution facility, from which they produce and market a number of specialty chemicals. Most of the chemical formulas are protected by trade secrets. For certain specific markets, the Company provides customized applications systems that assure safe and proportioned product delivery.
In addition to the one facility in Texas, the Company has regional toll-blending facilities in Indiana and Florida.
The regional toll-blending facilities provide both technical and production services.
There are no leases associated with these toll-blending facilities.
Products and Services
Decontamination Products
The Company has an arrangement whereby it sells its patented decontamination products worldwide. The products have been used in the United States and internationally to remove radioactive materials and toxic industrial chemicals, including mercury and lead.
Chemical Products
ICS’ products utilize all natural and renewable resources, contain no dangerous chemicals or additives, and offer “green” solutions to its customers. The ICS product line includes asphalt release agents, industrial cleaners, environmental remediation gels, odor control agents, and consumer friendly cleaners for a wide range of uses, including construction, environmental remediation, hazardous materials cleanup, nuclear decommissioning, industrial cleaning, and odor control. ICS takes pride in noting that all of the ingredients in its products are selected from the EPA’s Design for the Environment (DfE) list. The full range of ICS’s product line is described on its website: www.industrialcsi.com.
SPE refines, packages and markets compounds derived from natural sources that are formulated to eliminate and/or control pests.
WSCI produces and markets disinfectants and related families of products.
Product research and development is an ongoing and continuous process at WSCI, ICS and SPE.
Intellectual Property
The decontamination family of products currently sold by the Company are protected by a patent held by CBI Polymers, Inc. (“CBI”). Although not explicitly addressed in the Company’s Exclusive Patent License Agreement with CBI, CBI has historically permitted the Company to use its trademarks for sales purposes.
Certain formulas of products manufactured and sold by ICS are protected by trademarks held by ICS.
Competition
The Company competes with a wide variety of companies in the specialty chemicals industry. Competition ranges from large multinational companies to local resellers.
The Company considers one or two of its small- to medium-sized business competitors to potentially be attractive acquisition targets.
Employees
As of April 30, 2021, the Company had six full-time employees and two paid consultants. The employees are not covered by a collective bargaining agreement. The Company believes that it maintains good relations with its employees. In September 2021, the Company significantly broadened its marketing team by engaging [30] specialty chemicals sales agents, all of whom are independent contractors.
Legal Proceedings
The Company is not a party to or otherwise involved in any material legal proceedings.
Government Regulation
The products sold by the Company are extensively regulated by federal and state authorities in the United States. The Company believes it is in compliance with federal and state legal and regulatory requirements, in order that it may continue to sell products to its clients.

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ITEM 1A. RISK FACTORS
Item 1A. RISK FACTORS.
The Company’s limited operating history may not serve as an adequate basis to judge its future prospects and results of operations. The Company has a relatively limited operating history. Its limited operating history makes it difficult for investors to evaluate its business. An investor in its securities must consider the risks, uncertainties and difficulties frequently encountered by companies in rapidly evolving markets.
The Company will need additional financing to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer, or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition, and results of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict the Company’s operations.
The Company may not successfully manage its growth. The Company’s success will depend upon the expansion of its operations and the effective management of its growth, which will place a significant strain on its management and on its administrative, operational, and financial resources. To manage this growth, the Company must expand its facilities, augment its operational, financial and management systems, and hire and train additional qualified personnel. If it is unable to manage its growth effectively, its business would be harmed.
The Company relies on key executive officers, and their knowledge of its business and technical expertise would be difficult to replace. The Company is highly dependent on its executive officers: its Chairman and Chief Executive Officer, E. Thomas Layton, its Vice-Chairman, President and CFO, Paul O. Williams, and Walton Ashwander, Jr, who was appointed on June 7, 2021 as President of the Company. If one or more of the Company's senior executives or other key personnel are unable or unwilling to continue in their present positions, the Company has developed a succession plan.
The Company may never pay dividends to its common stockholders. The Company currently intends to retain its future earnings to support operations and to finance expansion; accordingly, the Company does not anticipate paying any cash dividends in the foreseeable future. The declaration, payment, and amount of any future dividends on common stock will be at the discretion of the Company’s Board of Directors, and will depend upon, among other things, earnings, financial condition, capital requirements, level of indebtedness and other considerations the Board of Directors considers relevant. There is no assurance that future dividends will be paid on common stock or, if dividends are paid, the amount thereof.
The Company may be unable to successfully integrate future acquisitions with its operations or realize all of the anticipated benefits of such acquisitions. The Company hopes to be able to grow in part through acquisitions, though there can be no assurance that it will be able to do so. Failure to successfully integrate future acquisitions, if any, in a timely manner may have a material adverse effect on its business, financial condition, results of operations, and cash flows. The difficulties of combining acquired operations include, among other things:
· operating a significantly larger combined organization;
· consolidating corporate technological and administrative functions;
· integrating internal controls and other corporate governance matters; and
· diverting management’s attention from other business concerns.
In addition, the Company may not realize all of the anticipated benefits from future acquisitions, if any, such as increased earnings, cost savings, and revenue enhancements, for various reasons, including difficulties integrating operations and personnel, higher and unexpected acquisition and operating costs, unknown liabilities, and fluctuations in markets. If benefits from future acquisitions do not meet the expectations of investors or analysts, the market price of its shares of common stock may decline. However, it must be recognized that Messrs. Layton and Williams have extensive experience integrating acquired companies into operating companies.
The Company depends on its ability to maintain relationships with industry participants. The Company’s ability to maintain commercial arrangements with customers and suppliers depends on its ability to maintain close working relationships with industry participants. While there can be no assurances, the Company has every confidence that it will be able to maintain the strategic relationships developed by its CEO, E. Thomas Layton and other key executives. The Company is also confident that it will continue to establish additional necessary strategic relationships, thus, the Company will be able to maintain and continue to grow its business.
The Company’s future business of its decontamination products is largely dependent upon government spending, which is beyond the Company’s control. The Company’s DeconGel™ decontamination products have been marketed chiefly to governmental agencies, primarily the Department of Defense and the Department of Energy. The Company has demonstrated its products at the Idaho, Los Alamos, and Oak Ridge National Laboratories, and the Hanford Nuclear Site as well as at various U.S. Navy facilities. Budgets for these facilities and the departments that operate them are set by Congress and are subject to political priorities and decisions that vary from year to year. A reduction in funding for these departments and/or for decontamination services within these departments could in turn reduce demand for the Company’s decontamination products and have an adverse effect on its financial condition and results of operations.
Changes in technology may render the Company’s products or services obsolete. The decontamination chemical industry may be substantially affected by changes in technology. New and more active compounds may be discovered that weigh less or require less volume or different manufacturing, application, or disposal methods, or which have other advantages over the products we sell. As a result, the Company’s products may become obsolete and be replaced with other products. While it may attempt to adapt and develop or represent new products, there can be no assurance that it will have sufficient resources to fund these changes or that these changes will ultimately prove successful.
The industries in which the Company operates are competitive. This competition may affect its market share or prevent it from raising prices at the same pace as its costs increase, making it difficult to maintain existing business and win new business. The Company operates in competitive markets. Even in the face of this competition, the technical resources provided by its toll-blending partners may allow the Company to be competitive with any of its competition. Additionally, new competitors may enter its markets. The Company may be required to reduce prices if its competitors reduce prices, or as a result of any other downward pressure on prices for its products, which could have an adverse effect on the Company. If it is unable to compete successfully, its financial condition and results of operations could be adversely affected.
The Company’s common stock is classified as a “penny stock.” Rule 3a51-1 of the Securities Exchange Act of 1934 establishes the definition of a “penny stock,” for purposes relevant to us, as any equity security that has a minimum bid price of less than $5.00 per share, subject to a limited number of exceptions which are not available to us. Once the Company’s common stock commences active trading, it is likely that the Company’s common stock will be considered a penny stock for the immediately foreseeable future.
For any transaction involving a penny stock, unless exempt, the penny stock rules require that a broker or dealer approve a person’s account for transactions in penny stocks and the broker or dealer receive from the investor a written agreement to the transaction, setting forth the identity and quantity of the penny stock to be purchased. In order to approve a person’s account for transactions in penny stocks, the broker or dealer must obtain financial information and investment experience and objectives of the investor, make a reasonable determination that transactions in penny stocks are suitable for that person, and make a reasonable determination that that person has sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny stocks.
The broker or dealer must also provide disclosure to its customers, prior to executing trades, about the risks of investing in penny stocks in both public offerings and in secondary trading, the commissions payable to both the broker-dealer and the registered representative, and the rights and remedies available to an investor in cases of fraud in penny stock transactions.
Because of these regulations, broker-dealers may not wish to furnish the necessary paperwork and disclosures and/or may encounter difficulties in their attempt to buy or sell shares of the Company’s common stock, which may in turn affect the ability of Company stockholders to sell their shares.
Accordingly, the penny stock classification will adversely affect any market liquidity for the Company’s common stock and subjects the shares to certain risks associated with trading in penny stocks. These risks include difficulty for investors in purchasing or disposing of shares, difficulty in obtaining accurate bid and ask quotations, difficulty in establishing the market value of the shares, and a lack of securities analyst coverage.
The Company faced adversity during the 2020 pandemic. During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus (“COVID-19”). The pandemic has significantly impacted economic conditions in the U.S., accelerating during the first half of March, as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. In March 2020, we noticed a strong decline in orders from our customers, as businesses around the country began to cease their operations due to COVID-19. In an attempt to mitigate the ongoing impact of the pandemic on our cash flows, the Company took certain actions, including targeted reductions in discretionary operating expenses such as advertising and payroll expenses, reducing capital expenditures, and reducing travel for business development purposes.
The Paycheck Protection Program (“PPP”) loan is a loan from the U.S. Small Business Administration (“SBA”) that helps businesses keep their workforce employed during the COVID-19 crisis. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. On May 8, 2020, the Company received a PPP loan in the amount of $100,344. This loan was fully forgiven in November of 2020. On February 11, 2021, February 14, 2021, and March 16, 2021, the Company received additional rounds of PPP loans in the amounts of $40,625, $48,510, and $15,657. The Company believes these loans will be fully forgiven.
Continued impacts of the pandemic have had a material adverse impact on our revenues, earnings, liquidity, and cash flows, and may require additional actions in response, including, but not limited to, employee layoffs, reduced production, or further expense reductions, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity, or capital resources cannot be reasonably estimated at this time.
Cyber-attacks have become increasingly more prevalent and much harder to detect and defend against. Our network, as well as those of our customers, business partners, and third-party providers, may be subject to unauthorized access by hackers or breached due to operator error, malfeasance, or other system disruptions. It is often difficult to anticipate or immediately detect such incidents and the damage caused by such incidents. These data breaches and any unauthorized access, misuse or disclosure of our information or intellectual property could compromise our intellectual property and expose sensitive business information. Cyber-attacks on us or our customers, business partners or third-party providers could also cause us to incur significant remediation costs, result in product development delays, disrupt key business operations, and divert attention of management and key information technology resources. These incidents could also subject us to liability, expose us to significant expense and cause significant harm to our reputation and business.

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ITEM 1B. UNRESOLVED STAFF COMMENTS
Item 1B. UNRESOLVED STAFF COMMENTS.
None

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ITEM 2. PROPERTIES
Item 2. PROPERTIES.
The Company’s corporate offices are currently located at 6136 Frisco Square Blvd., Suite 400, #237, Frisco, TX 75034. The Company also leases a facility at 371 Hostdale, Suite 1-2, Dothan, AL 36303.

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ITEM 3. LEGAL PROCEEDINGS
Item 3. LEGAL PROCEEDINGS.
The Company is not a party to or otherwise involved in any material legal proceedings.

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ITEM 4. MINE SAFETY DISCLOSURE
Item 4. MINE SAFETY.
Not applicable.
PART II

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ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY
Item 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASE OF EQUITY SECURITIES.
Market Information
The Company has established a public trading market for its common stock. The table below reflects the last 6 fiscal quarters for which trading prices were available:
Quarter ending High Low
01.31.2020 $ 4.00 $ 4.00
04.30.2020 $ 4.00 $ 4.00
07.31.2020 $ 3.88 $ 3.88
10.31.2020 $ 2.50 $ 2.50
01.31.2021 $ 4.00 $ 4.00
04.30.2021 $ 1.50 $ 1.50
Holders
The approximate number of stockholders of record of the Company’s common stock on April 30, 2020, was 123. As of April 30, 2021, the number of stockholders is approximately 149, including stockholders whose shares are held in street name.
Dividends
The Company has never paid any cash dividends on its common stock, and it is anticipated that none will be paid in the foreseeable future.
Recent Sales of Unregistered Securities
To assist the Company to obtain and preserve working capital to support its current operations, the Company entered into the following transactions:
On June 14, 2019, 70,000 warrants were exercised at $.50 per share for a total cash amount of $35,000.
On July 11, 2019, 140,000 warrants were exercised at $.50 per share for a total cash amount of $70,000.
On July 14, 2019, 50,000 warrants were exercised at $.50 per share for a total cash amount of $25,000.
On August 27, 2019, the Company sold 33,332 common shares at $1.50 per share for a total cash amount of $49,998.
On September 26, 2019, the Company sold 100,000 common shares at $1.50 per share for a total cash amount of $150,000.
On October 15, 2019, the Company sold 70,000 common shares at $1.50 per share for a total cash amount of $105,000.
On October 18, 2019, the Company sold 200,000 common shares at $1.50 per share for a total cash amount of300,000.
On December 6, 2019, the Company sold 34,000 common shares at $1.50 per share for a total cash amount of $51,000.
Repurchases of investment of equity securities
On January 2, 2020, one shareholder’s securities were repurchased for $22,394 and 17,915 shares were retained by the shareholder.
On July 17, 2020, one shareholder’s securities were repurchased for $22,703 and the Company cancelled the 18,162 shares so repurchased.
On July 17, 2020, one shareholder’s securities were repurchased for $22,610 and the Company cancelled the 18,088 shares so repurchased.

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ITEM 6. SELECTED FINANCIAL DATA
Item 6. SELECTED FINANCIAL DATA.
Not applicable.

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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS
Item 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
Forward-Looking Statements
The following Management’s Discussion and Analysis of Financial Condition and Results of Operations (MD&A) is intended to help you understand the Company’s historical results of operations during the periods presented and its financial condition. This MD&A should be read in conjunction with the Company’s financial statements and the accompanying notes, and contains forward-looking statements that involve risks and uncertainties and assumptions that could cause its actual results to differ materially from management’s expectations. See the sections entitled “Forward-Looking Statements” and “Risk Factors” above.
The Company changed its fiscal year end from December 31 to April 30. The transition report was for the four-month period of January 1, 2020 through April 30, 2020. The information for the year ended April 30, 2020 is presented for comparative purposes only and is unaudited.
Comparative Consolidated Statement of Operations
(Unaudited)
For the Year Ended For the Year Ended
April 30, 2021
April 30, 2020
REVENUE $ 998,947 $ 966,023
COST OF GOODS SOLD 683,951 1,162,673
Gross profit (loss) 314,996 (196,650 )
OPERATING EXPENSES
Product Delivery 594,098 252,230
General and administrative 1,506,792 1,829,709
Selling 84,936 121,492
Depreciation and amortization 155,171 200,073
Total operating expenses 2,340,997 2,403,504
OTHER (INCOME) EXPENSE
Interest income - -
Interest expense 66,951 61,077
Other (income) expense (108,755 ) 133,919
Total other (income) expense (41,804 ) 194,996
Net loss (1,984,197 ) (2,795,150 )
Less: net loss attributable to non-controlling interest - 10,468
NET LOSS attributable to Lux Amber, Corp. Stockholders $ (1,984,197 ) (2,805,618 )
Basic and diluted loss per share $ (0.06 ) $ (0.010 )
Weighted average shares - basic and diluted 30,578,463 28,046,859
OVERVIEW
Results of operations for the years ended April 30, 2021 and 2020, were as follows:
Revenues
For the years ended April 30, 2021 and 2020, the Company’s revenues were $998,947 and $966,023, respectively.
The increase in revenue is due to an increase in sales to existing customers and an increase in the selling price of products.
Cost of Goods Sold
For the years ended April 30, 2021 and 2020, cost of goods sold was $683,951 and $1,162,673. These primarily consisted of cost of goods sold expense of $507,099 and $658,075, raw materials of $3,885 and $130,029, truck operating expenses of $2,773 and $62,289, direct labor and payroll of $37,668 and $92,106, packaging materials of $2,358 and $1,841, blending costs of $130,168 and $6,526, freight costs of $0 and $146,839, disposal of waste of $0 and $55,716, warehouse supplies of $0 and $7,998, and equipment repairs of $0 and $1,254.
The decrease in cost of goods sold is a result of a combination of a change in the raw material ingredients of a major product and price increases on each of the Company’s products.
Operating Expenses
For the years ended April 30, 2021 and 2020, operating expenses were $2,340,997 and $2,403,504. These primarily consisted of general and administrative costs of $1,506,792 and $1,829,709, product delivery costs of $594,098 and $252,230, selling expenses of $84,936 and $121,492, and depreciation/amortization expenses of $155,171 and $200,073.
For the years ended April 30, 2021 and 2020, the general and administrative expenses of $1,506,792 and $1,829,709 can be broken down into five major categories: 1) fees related to being a reporting entity, 2) start-up costs, 3) business development, 4) wages, and 5) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total $1,127,154 and $1,755,822. These fees are comprised of audit fees of $89,743 and $72,582, accounting fees of $38,523 and $44,987, legal fees of $42,410 and $47,147, consulting fees of $468,933 and $383,521, and officers’ compensation of $309,333 (unpaid) and $480,211 (paid). General and administrative expenses also included non-cash expenses, specifically $178,212 and $727,374 of stock compensation expense. Business development expenses were $48,535 and $44,044, wages were $22,149 and $23,755, and other/miscellaneous expenses were $308,954 and $6,088.
The decrease in operating expenses is due to a reduction of the number of employees, plus changes in the utilization of the Company’s former lease of property at 145 Rose Lane in Frisco, Texas, which allowed for a reduction in utilities, production supplies and maintenance costs.
General and Administrative Expenses
Year Ended April 30, 2021
LAC ICS WSCI SPE Total
Audit Fees $ 88,995 $ 748 $ - $ - $ 89,743
Accounting Fees 26,943 11,580 - - 38,523
Legal Fees 39,020 3,390 - - 42,410
Consulting Fees 391,425 77,508 - - 468,933
Stock Compensation 178,212 - - - 178,212
Officer's Compensation 309,333 - - - 309,333
Business Development 48,535 - - - 48,535
Wages 16,109 - 6,040 - 22,149
Other/Misc. 121,800 166,200 20,954 - 308,954
$ 1,220,372 $ 259,426 $ 26,994 $ - $ 1,506,792
Liquidity and Capital Resources
During the year ended April 30, 2021, the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable and the receipt of PPP loans.
The Company had total assets of $3,353,460 as of April 30, 2021. Its current assets on April 30, 2021, consisted of $112,982 in accounts receivable, $137,211 in inventory and $7,960 in prepaid expenses and other current assets, and its long-term assets were $3,095,307.
As of April 30, 2021, the Company had total liabilities of $2,468,547, including $554,588 in accounts payable, $1,201,568 of accrued expenses and $127,624 in notes payable, $479,975 in related party payables and lease liabilities, and $104,752 in PPP loans.
On April 30, 2021, the Company had stockholders’ equity of $884,913.
The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtains additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, the Company continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer, or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition, and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s cash requirements and to finance specific business initiatives.
Results of operations for the four-month transition period January 1, 2020, to April 30, 2020, were as follows:
Revenues
For the period ended April 30, 2020, the Company’s revenues were $218,963.
Cost of Goods Sold
For the period ended April 30, 2020, cost of goods sold was $329,666. These primarily consisted of cost of goods sold expenses of $41,940, raw materials of $127,044, freight of $29,205, truck operating expenses of $31,004, direct labor and payroll of $92,106, packaging materials of $1,841, and blending costs of $6,526.
Operating Expenses
For the period ended April 30, 2020, operating expenses were $1,010,694. These primarily consisted of product delivery costs of $252,230, general and administrative costs of $838,966, selling expenses of $72,148, and $99,580 of depreciation and amortization expenses.
For the period ended April 30, 2020, the general and administrative expenses of $838,966 can be broken down into five major categories: 1) fees related to being a reporting entity, 2) start-up costs, 3) business development, 4) wages, and 5) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total $630,336. These fees are comprised of audit fees of $43,247, accounting fees of $8,426, filing, legal fees of $63,332, consulting fees of $223,163, and officers’ compensation paid of $206,292. Non-cash expenses recorded also included are $79,001 of stock compensation expense and $6,875 of accrued officers’ compensation. Business development expenses were $66,538, wages were $77,074, and other/miscellaneous expenses were $65,018.
General and Administrative Expenses
Four-Month Transitioning Period Ended April 30, 2020
LAC
Formerly
“WSC”
ICS SPE PCNM Total
Audit Fees $ 35,785 $ 7,462 $ 0 $ 0 $ 43,247
Accounting Fees 8,426 - - - 8,426
Legal Fees 63,008 - - 63,332
Consulting Fees 212,262 10,241 - 223,163
Stock Compensation 79,001 - - - 79,001
Officer's Compensation Paid 206,292 - - - 206,292
Officer's Compensation Accrued 6,875 - - - 6,875
Business Development 66,538 - - - 66,538
Wages 48,883 27,601 - 77,074
Other/Misc. 11,934 47,761 5,111 65,018
$ 739,004 $ 66,378 $ 33,372 $ 212 $ 838,966
Liquidity and Capital Resources
During the period ended April 30, 2020, the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable.
The Company had total assets of $3,612,474 as of April 30, 2020. Its current assets on April 30, 2020 consisted of $49,185 in cash, $106,876 in accounts receivables, $131,205 in inventory and $9,481 in prepaid expenses and other current assets, and its long-term assets were $3,315,727.
As of April 30, 2020, the Company had total liabilities of $2,397,838, including $288,864 in accounts payable, $805,853 of accrued expenses and $790,474 in notes payable, and $512,647 in related party payable and lease liabilities.
On April 30, 2020, the Company had stockholders’ equity of $1,214,636.
The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtain additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, the Company continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer, or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition, and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s cash requirements and to finance specific business initiatives.
Results of operations for the year ended December 31, 2019, were as follows:
Revenues
For the year ended December 31, 2019, the Company’s revenues were $976,971.
Cost of Goods Sold
For the year ended December 31, 2019, cost of goods sold was $932,032. There primarily consisted of cost of goods sold expenses of $606,596, raw materials of $74,004, freight of $177,023, and direct labor and payroll of $74,409.
Operating Expenses
For the year ended December 31, 2019, its operating expenses totaled $3,681,479. These primarily consisted of general and administrative costs of $3,358,631, selling expenses of $150,602 and $172,246 of depreciation and amortization expense.
For the year ended December 31, 2019, the general and administrative costs of $3,358,631 can be broken down into four major categories: 1) fees related to being a reporting entity, 2) business development, 3) wages, and 4) other/miscellaneous expenses. The majority of the costs are fees related to being a reporting entity, which total $2,371,816. These fees comprise audit fees of $45,532, accounting fees of $95,334, filing and legal fees of $36,887, consulting fees of $174,374, and officers’ compensation paid of $177,500. Non-cash expenses recorded also include $1,650,145 of stock compensation expense and accrued officers’ compensation of $192,044. Business development expenses were $294,875, wages were $395,733, and other/miscellaneous expenses were $296,207.
General and Administrative Expenses
Year Ended December 31, 2019
WSC ICS SPE PCNM Total
Audit Fees $ 45,532 $ - $ - $ - 45,532
Accounting Fees 95,334 - - - 95,334
Filing Fees 4,197 - - - 4,197
Legal Fees 32,690 - - - 32,690
Consulting Fees 120,180 54,194 - - 174,374
Stock Compensation 1,650,145 - - - 1,650,145
Officer's Compensation Paid 177,500 - - - 177,500
Officer's Compensation Accrued 192,044 - - - 192,044
Business Development 216,935 45,991 31,159 294,875
Wages 116,838 204,688 74,207 - 395,733
Other/Misc. 98,824 195,487 (6 ) 1,902 296,207
$ 2,750,219 $ 500,360 $ 105,360 $ 2,692 3,358,631
Liquidity and Capital Resources
During the year ended December 31, 2019, the primary sources of liquidity were cash flows from financing activities, and in particular, proceeds from issuance of convertible notes payable and the sale of common stock.
As of December 31, 2019, the Company had total assets of $4,044,935, including $408,338 in cash, $85,359 in receivables, $145,747 in inventory and $92,068 in prepaid expenses and other current assets, and its long-term assets were $3,313,423.
On December 31, 2019, the Company had total liabilities of $1,899,935, including $167,539 in accounts payable, $646,410 of accrued expenses, $548,549 in notes payable, $108,058 in related party payables, and $429,379 in lease liabilities.
On December 31, 2019, the Company had stockholders’ equity of $2,145,000.
The Company has incurred net losses since inception. Its cash position is insufficient to meet its anticipated continuing operating expenses, and its independent registered public accounting firm has issued a going concern opinion. This means there is substantial doubt that it can continue as an ongoing business unless it alters its business model and/or obtain additional capital, so it can pay its ongoing operational costs. The Company has significantly altered its business model to the point where it believes these changes alone will make the Company self-sustaining, although there is no assurance that this will happen. In addition, the Company continues to seek investment capital in the belief that this will allow more rapid growth and make its ability to continue operations less doubtful.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the Company will need additional financing to fund additional material capital expenditures and to fully implement its business plan. There are no assurances that additional financing will be available on favorable terms, or at all. If additional financing is not available, the Company will need to reduce, defer or cancel development programs, planned initiatives and overhead expenditures as a way to supplement the cash flows generated by operations. The failure to adequately fund its capital requirements could have a material adverse effect on its business, financial condition and results of operations. Moreover, the sale of additional equity securities plus derivative securities to raise financing will result in additional dilution to the Company’s stockholders, and incurring additional indebtedness could involve the imposition of covenants that restrict its operations. Management, in the normal course of business, is trying to raise additional capital through sales of common stock as well as seeking financing from third parties, via both debt and equity, to balance the Company’s cash requirements and to finance specific business initiatives.
Critical Accounting Policies
Certain critical accounting policies affect the more significant judgments and estimates used in the preparation of the Company’s financial statements. These policies are contained in Note 1 to the consolidated financial statements.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management on April 30, 2020, and 2021, and December 31, 2019. The carrying value of the financial instruments included in the Company’s consolidated financial statements approximated their fair values.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.
The carrying value of the notes payable approximates fair value as they bear market rates of interest.
Revenue Recognition
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sold is recognized when obligations with the customer are satisfied, which generally occurs with the transfer or delivery of the product, signifying the point in time when the customer obtains control of the promised goods. Our performance obligation is delivering the product to the customer; and therefore, the transaction price, which is stated on the invoice, is allocated 100% to the sole performance obligation of product delivery.
Our sales policies do not provide for general rights of return, and payment is due net of 15 days. We do not record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time of the sale. We also do not record estimated reserves for product returns and credits at the time of sale and anticipated uncollectible accounts.
Sales Taxes
Sales (and similar) taxes that are imposed on the Company's sales and collected from customers are excluded from revenues.
Shipping and Handling Costs
Shipping and Handling Costs for shipping and handling activities, including those activities that occur subsequent to transfer of control to the customer, are recorded as cost of sales and are expensed as incurred. The Company accrues costs for shipping and handling activities that occur after control of the promised good has transferred to the customer.
Accounts Receivable and Allowance for Doubtful Accounts
Account’s receivables are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. On April 30, 2021 and 2020, and December 31, 2019, the allowance for doubtful accounts was $0.
Stock-Based Compensation
The Company recognizes the fair value of the stock-based compensation awards as wages in the accompanying statements of operations on a straight-line basis over the vesting period based on the Black-Scholes option pricing model based on a risk-free interest rate from 1.60-2.56% in 2019, dividend yield of 0%, expected life of 3.25 - 5 years and volatility of 71.70%. For the year ended April 30, 2021 and the transition period ended April 30, 2020, no stock-based awards have been issued.
Goodwill
Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. The Company reviews goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on the reporting unit. As a result of the certain business developments and changes in the Company's long-term projections, during the fourth quarter of fiscal 2021, the Company concluded a triggering event had occurred that required an impairment assessment to be performed. The qualitative assessment thresholds were not met. The Company calculated the quantitative impairment test of using the implied fair market value using market data and concluded there was no goodwill impairment loss. Based on annual testing, the Company has determined that there was no goodwill impairment in Fiscal 2021, 2020 or 2019.
The Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill. If after qualitatively assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below.
The quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
Off Balance Sheet Transactions and Related Matters
There are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.
Disclosure of Contractual Obligations
Effective December 31, 2016, the Company entered into an Exclusive Patent Licenses Agreement with CBI, pursuant to which the Company would sell DeconGel™ and pay 10% of the net selling price to CBI, as a license fee.
As discussed in Note 3 of the consolidated financial statements, the Company is party to certain debt instruments related to its vehicles and equipment.
Material Events
On March 26, 2020, WSC merged with Lux Amber, Corp. and WSC is now a wholly owned subsidiary of Lux Amber, Corp. The Company’s principal executive offices are located at 6136 Frisco Square Blvd., Suite 400, #237, Frisco, TX 75034. The corporate telephone number is 972-214-9764. LAC does have a stock symbol, which is LXAM.
Effective May 18, 2018, Mr. Paul Williams was appointed to the Board of Directors of the Company. Contemporaneously with such appointment, the Board of Directors of the Company appointed Mr. Williams to assume the role of Chief Financial Officer and Vice Chairman. Subsequently, on February 3, 2020, Mr. Williams was also elected as the President of the Company.

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Item 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
Not applicable.

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Item 8. CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Lux Amber, Corp. and Subsidiaries
April 30, 2021 and 2020, and December 31, 2019
Page
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED STATEMENTS OF OPERATIONS
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
CONSOLIDATED STATEMENTS OF CASH FLOWS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Lux Amber, Corp.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Lux Amber, Corp. and subsidiaries (the “Company”), as of April 30, 2021, April 30, 2020 and December 31, 2019 , and the related consolidated statements of operations, changes in stockholders’ equity, and cash flows for the year ended April 30, 2021, the period from January 1, 2020 through April 30, 2020, and the year ended December 31, 2019. In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of April 30, 2021, April 30, 2020, and December 31, 2019, and the results of their operations and their cash flows for the year ended April 20, 2021, the period from January 1, 2020 through April 30, 2020, and the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matter
The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our consolidated opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Goodwill Impairment Assessment
Description of the Matter
The Company’s evaluation of goodwill for impairment involves the comparison of the estimated fair value of the reporting unit to its carrying value. The annual impairment test of goodwill at a reporting unit level is performed annually during the fourth quarter, or more frequently if events or circumstances indicate the fair value of a reporting unit may be below its respective carrying value. The Company uses data from market prices in sales to third parties to estimate the fair value of its reporting unit, which requires management to make significant estimates and assumptions related to non-affiliated shares and market prices. Changes in these assumptions could have a significant impact on either the fair value, the amount of any goodwill impairment charge, or both.
The Company performed its annual impairment test of goodwill during the fourth quarter. The Company identified circumstances that caused it to evaluate the goodwill associated with its reporting unit for potential impairment. Because the estimated fair values of the Company’s reporting unit exceeded its carrying values, no impairment was recorded. Given that the Company used market prices of recent transactions in its shares to calculate a fair value of its reporting unit, and this calculation is highly sensitive to changes in demand for the Company’s common stock, auditing management’s assumptions involved especially subjective judgment.
As a result, we identified the Company’s evaluation of goodwill impairment as a critical audit matter due to the high degree of auditor judgment and the increased extent of effort that was required when performing audit procedures to evaluate the reasonableness of management’s estimates and assumptions related to market capitalization calculations.
How We Addressed the Matter in Our Audit
Our audit procedures related to the calculation of the fair market value of the Company’s reporting unit included the following, among others:
· We evaluated management’s ability to accurately calculate the fair value of its reporting unit using market capitalization as a corroboration of fair value by reviewing market prices paid by third parties during the year ended April 30, 2021.
· With the assistance of our fair value specialists, we evaluated the reasonableness of management’s fair value estimate by:
· Obtaining an understanding of management’s process for developing the fair value estimate;
· Testing management’s process to develop the estimates, which included evaluating the methods, data, and significant assumptions used in developing the estimate;
· Testing the mathematical accuracy of estimate calculations.
We have served as the Company’s auditor since 2020.
/s/ Whitley Penn LLP
Plano, Texas
September 29, 2021
Lux Amber, Corp. and Subsidiaries
Consolidated Balance Sheets
April 30, 2021 and 2020, and December 31, 2019
April 30,
April 30,
December 31,
ASSETS
CURRENT ASSETS
Cash and cash equivalents $ - $ 49,185 $ 408,338
Accounts receivable 112,982 106,876 85,359
Inventory 137,211 131,205 145,747
Prepaid expenses 2,000 8,711 1,298
Other current assets 5,960 90,770
Total current assets 258,153 296,747 731,512
GOODWILL 2,294,953 2,294,953 2,294,953
INTANGIBLES 15,000 15,000 15,000
OTHER LONG-TERM ASSETS - 12,700 12,700
FIXED ASSETS
Furniture, fixtures, and office equipment 36,256 26,191 -
Vehicles and trailers 284,650 194,140 194,140
Equipment 649,910 608,274 573,267
Leasehold improvements 12,190 12,190 12,190
Assets in process 14,259 44,551 41,061
997,265 885,345 820,658
Accumulated depreciation (484,568 ) (316,086 ) (269,128 )
Fixed assets, net 512,697 569,259 551,530
RIGHT OF USE ASSETS 272,657 423,815 439,240
TOTAL ASSETS $ 3,353,460 $ 3,612,474 $ 4,044,935
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 554,588 $ 288,864 $ 167,539
Accrued expenses 1,201,568 805,853 646,410
Related party payables 208,756 85,603 108,058
Notes payable - current portion 112,889 762,889 512,889
Right of use liabilities - current portion 172,498 190,262 186,805
Total current liabilities 2,250,299 2,133,471 1,621,701
NON-CURRENT LIABILITIES
Notes payable 14,735 27,585 35,660
Right of use liabilities 98,761 236,782 242,574
Paycheck Protection Program loans 104,752 - -
TOTAL LIABILITIES $ 2,468,547 $ 2,397,838 $ 1,899,935
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY
Common stock, $0.0001 par value, 75,000,000 shares authorized: 31,111,659 issued and outstanding as of April 30, 2021; 29,441,708 issued and outstanding as of April 30, 2020, and 28,053,167 issued and outstanding as of December 31, 2019 3,107 2,943 2,806
Additional paid-in-capital 15,750,430 14,095,093 13,538,623
Accumulated deficit (14,868,624 ) (12,884,427 ) (11,390,098 )
Total Lux Amber, Corp. stockholders' equity 884,913 1,213,609 2,151,331
Non-controlling interest - 1,027 (6,331 )
Total equity 884,913 1,214,636 2,145,000
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 3,353,460 $ 3,612,474 $ 4,044,935
The accompanying notes are an integral part of these consolidated financial statements.
Lux Amber, Corp. and Subsidiaries
Consolidated Statements of Operations
For the
Year Ended
April 30,
For the Four
Months Ended
April 30,
For the
Year Ended
December 31,
REVENUE $ 998,947 $ 218,963 $ 976,671
COST OF GOODS SOLD 683,951 329,666 932,032
Gross profit (loss) 314,996 (110,703 ) 44,639
OPERATING EXPENSES
Product Delivery 594,098 252,230 -
General and administrative 1,506,792 838,966 3,358,631
Selling 84,936 72,148 150,602
Depreciation and amortization 155,171 99,580 172,246
Total operating expenses 2,340,997 1,010,694 3,681,479
OTHER (INCOME) EXPENSE
Interest income - - (255 )
Interest expense 66,951 28,784 22,596
Other (income) expense (108,755 ) 336,790 (66,989 )
Total other (income) expense (41,804 ) 365,574 (44,648 )
Net loss (1,984,197 ) (1,486,971 ) (3,592,192 )
Less: net income attributable to non-controlling interest - 7,358 19,869
NET LOSS attributable to Lux Amber, Corp. Stockholders $ (1,984,197 ) $ (1,494,329 ) $ (3,612,061 )
Basic and diluted loss per share $ (0.06 ) $ (0.05 ) $ (0.14 )
Weighted average shares - basic and diluted 30,578,463 28,046,859 26,221,108
The accompanying notes are an integral part of these consolidated financial statements.
Lux Amber, Corp. and Subsidiaries
Consolidated Statements of Changes in Stockholders' Equity
For the years ending April 30, 2021, and December 31, 2019, and the interim period ending April 30, 2020
Number of Shares
Issued and
Outstanding Common Stock
Par Value
Amount
Additional
Paid-in
Capital
Accumulated
Deficit Non-Controlling Interest Total
Balance as of December 31, 2018 25,531,293 $ 2,553 $ 10,020,231 $ (7,778,037 ) $ (26,200 ) $ 2,218,547
Warrants exercised 260,000 129,974 - - 130,000
Common stock issued for cash 825,332 1,237,917 - - 1,238,000
Options exercised 50,000 - -
Notes payable converted to common stock 1,386,542 499,861 - - 500,000
Share based compensation - - 1,650,145 - - 1,650,145
Net loss - - - (3,612,061 ) 19,869 (3,592,192 )
Balance as of December 31, 2019 28,053,167 $ 2,806 $ 13,538,623 $ (11,390,098 ) $ (6,331 ) $ 2,145,000
Common stock repurchased - (2 ) (22,392 ) - - (22,394 )
Existing LXAM shares outstanding when acquired 2,000 - - - - -
Notes payable converted to common stock 1,386,541 499,861 - - 500,000
Share based compensation - - 79,001 - - 79,001
Net loss - - - (1,494,329 ) 7,358 (1,486,971 )
Balance as of April 30, 2020 29,441,709 $ 2,943 $ 14,095,093 $ (12,884,427 ) $ 1,027 $ 1,214,636
Common stock repurchased (36,250 ) (4 ) (45,309 ) - - (45,313 )
Options exercised (cashless) 20,000 (2 ) - - -
Notes payable converted with interest 1,686,467 1,507,246 - - 1,507,415
Share based compensation - - 178,212 - - 178,212
Adjustment (267 ) (3 ) 15,190
15,187
Dissolution of PCNM
(1,027 ) (1,027 )
Net loss - - - (1,984,197 ) - (1,984,197 )
Balance as of April 30, 2021 31,111,659 $ 3,107 $ 15,750,430 $ (14,868,624 ) $ - $ 884,913
The accompanying notes are an integral part of these consolidated financial statements.
Lux Amber, Corp. and Subsidiaries
Consolidated Statements of Cash Flows
For the
Year Ended
April 30,
For the Four
Months Ended
April 30,
For the
Year Ended
December 31,
CASH FLOW FROM OPERATING ACTIVITIES
Net loss
$ (1,984,197)
$ (1,486,971)
$ (3,592,192)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization
264,216
99,580
172,246
Bad debt expense
-
-
5,709
Loss on sale of asset
7,683
1,215
35,743
Share based compensation
178,212
79,001
1,650,145
Other expenses
28,927
4,319
5,960
Gain on extinguishment of Paycheck Protection Program loans
(100,344)
Accounts receivable
(6,106)
(21,517)
(39,071)
Inventory
(6,006)
14,542
(76,550)
Prepaid expenses
6,711
(7,413)
26,014
Other current assets
7,510
-
1,995
Accounts payable and accrued expenses
688,551
280,768
518,049
Due to related parties
123,153
(22,455)
(353,855)
Net cash used in operating activities
(791,690)
(1,058,931)
(1,645,807)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of licenses
-
-
(15,000)
Expenditures for property and equipment
(106,292)
(65,904)
(218,933)
Net cash used in investing activities
(106,292)
(65,904)
(233,933)
CASH FLOWS FROM FINANCING ACTIVITIES
Borrowing on convertible notes payable
730,300
840,000
910,000
Borrowing on notes payables
100,000
Payments on notes payable
(12,850)
(8,075)
(17,121)
Proceeds from Paycheck Protection Program loans
205,136
-
-
Proceeds from the sale of common stock
-
-
1,238,000
Right of use financing lease payments
(128,476)
(43,853)
(78,113)
Payments on the repurchase of common stock
(45,313)
(22,394)
-
Proceeds from execution of warrants
-
-
130,000
Proceeds from stock options exercised
-
-
Net cash provided by financing activities
848,797
765,678
2,183,266
TOTAL (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS
(49,185)
(359,153)
303,526
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR/PERIOD
49,185
408,338
104,812
CASH AND CASH EQUIVALENTS AT END OF YEAR/PERIOD
$ -
$ 49,185
$ 408,338
NONCASH INVESTING AND FINANCING ACTIVITIES:
Convertible notes payable and accrued interest converted to common stock
$ 1,507,415
$ 500,000
$ 500,000
Non-cash trade in of vehicle and associated debt
$ 56,753
$ 30,905
$ 26,000
Convertible notes payable in other assets
$ -
$ -
$ (90,000)
Right of use asset addition
$ 65,008
$ 68,104
$ -
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid for interest
$ 42,791
$ 5,232
$ 8,842
The accompanying notes are an integral part of these consolidated financial statements.
Lux Amber, Corp. and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NATURE OF BUSINESS
Worldwide Specialty Chemicals Inc. (“WSC”), a Delaware corporation formed on March 26, 2014, is an international specialty chemical company. On March 26, 2020, WSC was acquired by Lux Amber, Corp. (“LAC”), a Nevada corporation and successor to WSC’s business, and WSC is now a wholly owned subsidiary of LAC. The Company’s corporate offices are located at 6136 Frisco Square Blvd., Suite 400, #237, Frisco, Texas 75034.
LAC has three (3) wholly owned subsidiaries (collectively with LAC, the “Company”): Worldwide Specialty Chemicals, Inc. (“WSC”), Industrial Chem Solutions, Inc. (“ICS”), and Safeway Pest Elimination, LLC, (“SPE”), which was formed July 16, 2018. LAC and its subsidiaries serve as both producers and distributors of environmentally safe, specialty chemicals. The Company formerly held a 49% interest in PCNM LLC, a Service-Disabled Veteran owned small business that sold the Company’s products to government agencies. PCNM was legally dissolved on July 31, 2020.
The Company’s products utilize all-natural and renewable resources, contain no dangerous chemicals or additives, and offer “green” solutions to its customers. ICS’ product line includes asphalt release agents, industrial cleaners, environmental remediation gels, odor control agents, and consumer friendly cleaners for a wide range of uses, including construction, environmental remediation, hazardous materials clean-up, nuclear decommissioning, industrial cleaning, and odor control. SPE’s products are designed for the elimination and control of pests.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting polices consistently applied in the preparation of the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (GAAP) is as follows.
Basis of Consolidation
The consolidated financial statements include the accounts of LAC, WSC, ICS, SPE, and PCNM. All significant intercompany accounts and transactions have been eliminated in consolidation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, related party payables, notes payable, and Paycheck Protection Program loans. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management on April 30, 2021, 2020, and December 31, 2019. The carrying value of the financial instruments included in the Company’s consolidated financial statements approximated their fair values.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable, and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.
The carrying value of the notes payable approximates fair value as they bear market rates of interest.
Basic and Diluted Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted loss per share has not been presented because there are no dilutive items. Diluted earnings loss per share is based on the assumption that all dilutive stock options, warrants, and convertible debt are converted or exercised by applying the treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options, warrants and/or convertible debt will have a dilutive effect, during periods of net profit, only when the average market price of the common stock during the period exceeds the exercise or conversion price of the items.
For the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019, approximately 82,668, 82,668, and 82,668 common stock warrants, respectively, and 6,519,750, 6,469,750 and 6,366,417 common stock options, respectively, were not added to the diluted average shares because inclusion of such warrants and options would be antidilutive.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivables are recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. On April 30, 2021 and 2020, and December 31, 2019, the allowance for doubtful accounts was $0.
Revenue Recognition
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sold is recognized when obligations with the customer are satisfied, which generally occurs with the transfer or delivery of the product, signifying the point in time when the customer obtains control of the promised goods. Our performance obligation is delivering the product to the customer; and therefore, the transaction price, which is stated on the invoice, is allocated 100% to the sole performance obligation of product delivery. For the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019, all revenue was from products sold.
Our sales policies do not provide for general rights of return, and payment is due net of 15 days. We do not record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions, and other volume-based incentives at the time of the sale. We also do not record estimated reserves for product returns and credits at the time of sale and anticipated uncollectible accounts.
Sales Taxes
Sales (and similar) taxes that are imposed on the Company's sales and collected from customers are excluded from revenues.
Shipping and Handling Costs
Costs for shipping and handling activities, including those activities that occur subsequent to transfer of control to the customer, are recorded as cost of sales and are expensed as incurred. The Company accrues costs for shipping and handling activities that occur after control of the promised good has transferred to the customer.
Inventory
Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in first-out basis. The carrying value of inventory is reduced for estimated obsolescence. The Company evaluates the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand.
The following table sets forth the components of the Company’s inventory balances as of:
April 30,
April 30,
December 31,
Finished goods $ 93,203 $ 92,568 $ 89,033
Raw materials 61,298 55,927 74,004
Obsolescence (17,290 ) (17,290 ) (17,290 )
$ 137,211 $ 131,205 $ 145,747
Fixed Assets
Fixed assets consist of furniture, fixtures and office equipment, vehicles and trailers, equipment and leasehold improvements that are stated at cost, less accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to earnings over their estimated service lives (3 - 10 years) under the straight-line method.
Maintenance and repairs are charged to earnings as incurred; major repairs and replacements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Goodwill
Goodwill represents the difference between the enterprise value/cash paid less the fair value of all recognized net asset fair values including identifiable intangible asset values in a business combination. The Company reviews goodwill for impairment annually during the fourth quarter or whenever events or changes in circumstances indicate the carrying value of goodwill may not be recoverable. The Company considered the current and expected future economic and market conditions surrounding COVID-19 and its impact on the reporting unit. As a result of the certain business developments and changes in the Company's long-term projections, during the fourth quarter of fiscal 2021, the Company concluded a triggering event had occurred that required an impairment assessment to be performed. The qualitative assessment thresholds were not met. The Company calculated the quantitative impairment test of using the implied fair market value using market data and concluded there was no goodwill impairment loss. Based on annual testing, the Company has determined that there was no goodwill impairment in Fiscal 2021, 2020 or 2019.
The Company first evaluates qualitative factors to determine whether it is more likely than not (that is, a likelihood of more than 50 percent) that the fair value of the reporting unit is less than its carrying amount, including goodwill. If after qualitatively assessing the totality of events or circumstances, the Company determines that it is not more likely than not that the fair value of the reporting unit is less than its carrying amount, then further testing is unnecessary. If after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of the reporting unit is less than its carrying amount, the Company then estimates the fair value of the reporting unit and compares the fair value of the reporting unit with its carrying amount, including goodwill, as discussed below.
The quantitative goodwill impairment test involves a two-step process. In the first step, the Company compares the fair value of each reporting unit to its carrying value. If the fair value of the reporting unit exceeds its carrying value, goodwill is not impaired and no further testing is required. If the fair value of the reporting unit is less than the carrying value, the Company must perform the second step of the impairment test to measure the amount of impairment loss. In the second step, the reporting unit's fair value is allocated to all of the assets and liabilities of the reporting unit, including any unrecognized intangible assets, in a hypothetical analysis that calculates the implied fair value of goodwill in the same manner as if the reporting unit was being acquired in a business combination. If the implied fair value of the reporting unit's goodwill is less than the carrying value, the difference is recorded as an impairment loss.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation - Stock Compensation, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award. The fair value at the measurement date of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the vesting period based on the estimated number of stock options that are expected to vest.
Income Taxes
The Company accounts for Federal and state income taxes using the asset and liability approach for financial accounting and reporting for income taxes based on tax effects of differences between the financial statement and tax basis of assets and liabilities.
The Company accounts for all uncertain tax positions in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification 740 - Income Taxes (“ASC 740”). ASC 740 provides guidance on de-recognition, classification, interest and penalties and disclosure related to uncertain income tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties as of April 30, 2021 and 2020, and December 31, 2019.
From time to time, the Company may be audited by taxing authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes. The Company’s federal returns since 2016 are still subject to examination by taxing authorities.
License Fee
ICS pays 10% of the net selling price of $9.50 a gallon to CBI, as a mutually acceptable license fee. E. Thomas Layton, Chairman and CEO of LAC, is also the Chairman and CEO and controlling shareholder of CBI. During the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019, the Company incurred $2,015, $590, and $3,307 of license fees for those sales to CBI. As of April 30, 2021, the Company owed $1,670 which is reported in accounts payable on the balance sheet.
Advertising Costs
The Company recognizes expenses for advertising costs as they are incurred. Advertising costs were $24,589, $12,538, and $22,099 for the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019.
Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred substantial operating losses, resulting in an accumulated deficit of $14,868,624 on April 30, 2021. The Company has a working capital deficit of $1,997,246 as of April 30, 2021. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are being issued. Accordingly, the Company is arranging for additional financing to fully implement its business plan, including continued growth and establishment of a stronger brand.
The Company is actively seeking growth of its service offerings, both organically and via new client relationships. In the ordinary course of the Company’s business, management is trying to raise additional capital through sales of common stock as well as seeking debt financing from third parties. There are current indications that additional financing will be available on favorable terms. If additional financing is not available, the Company will need to reduce salaries, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition, and results of operations, including potential discontinuance of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders. Additionally, incurring additional indebtedness could involve an increased debt service cash obligation, as well as the imposition of covenants that restrict the Company’s operations or the Company’s ability to perform on its current debt service requirements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. While the Company recognizes the significant impact of additional financing, the Company is a smaller reporting company serving large and growing markets and it will continue to sell securities and enter into financing programs which are deemed to be prudent.
Recently Issued Accounting Pronouncements
Pronouncements Recently Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. Adoption of this guidance in the year ended April 30, 2021, did not impact the Company’s financial statements.
Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivables relate to trade receivables from product sales made by the Company. Accounts receivables consist of the following on:
April 30,
April 30,
December 31,
Trade receivables $ 112,982 $ 106,876 $ 85,359
3. NOTES PAYABLE
Convertible Promissory Notes Payable
Throughout August 2019, the Company issued $500,000 of convertible debentures. The debentures were convertible into shares of the Company's common stock at the maturity date of November 15, 2019 and pay any unpaid interest at a rate of 8%. On November 15, 2019, the debentures were converted into 1,386,542 shares of common stock at a rate of $0.3606093 per share. Accrued interest paid amounted to $7,310.
During the year ended December 31, 2019, the Company issued a second round of $500,000 of convertible debentures. The debentures were convertible into shares of the Company's common stock at the maturity date of April 15, 2020, and pay any unpaid interest at a rate of 8%. As of December 31, 2019, $90,000 had not yet been funded and is recorded in other current assets on the balance sheet. The second round of debentures had not been converted and the accrued interest unpaid amounted to $1,035 as of December 31, 2019. In April 2020, the debentures noted above were converted to 1,386,541 shares of common stock at a price of $0.3606093 per share and all accrued interest was paid in the amount of $11,566.
During the transition period ended April 30, 2020, the Company issued a third round of convertible debentures in the principal amount of $750,000. The debentures were convertible into shares of the Company's common stock at the maturity date of June 15, 2020 and pay any unpaid interest at a rate of 8%. As of April 30, 2021, the debentures noted above had been converted to 872,093 shares of common stock at a price of $0.86 per share and the accrued interest unpaid amount of $13,326 was converted into 15,495 shares of common stock at a price of $0.86 per share. The remaining $1,666 of accrued interest was paid as of August 11, 2020.
During the year ended April 30, 2021, the Company issued a fourth round of convertible debentures in the principal amount of $525,500. The debentures were convertible into shares of the Company’s common stock at the maturity date of September 15, 2020, and pay any unpaid interest at a rate of 8%. The debentures were converted into 611,047 shares of common stock at a price of $0.86 per share and the accrued interest unpaid amount of $16,459 was converted into 19,138 shares of common stock at a price of $0.86 per share
During the year ended April 30, 2021, the Company issued a fifth round of convertible debentures in the principal amount of $204,800. The debentures were convertible into shares of the Company’s common stock at the maturity date of January 15, 2021 and pay any unpaid interest at a rate of 8%. This round of debentures was converted 163,890 shares of common stock at a price of $1.25 per share and accrued interest of $2,074 was converted into 1,660 shares of common stock at a price of $1.25 per share.
Vehicles and Equipment Notes Payable
The Company has one note payable relating to the purchase of a Company vehicle as of April 30, 2021. The balance outstanding under the note payable was $27,624 as of April 30, 2021. The note payable bears interest of 5.99% with principal and interest due monthly. The note matures in September 2023. The Company had the same note payable relating to the purchase of a Company vehicles as of April 30, 2020. The balance outstanding under the note payable was $40,474 on April 30, 2020, and $48,549 on December 31, 2019.
The Company’s future minimum principal payments related to the vehicle as of April 30, 2021, are as follows:
$ 12,889
12,889
1,846
$ 27,624
Other Notes Payable
On May 8, 2020, the Company received $100,344 from the Paycheck Protection Program. This PPP loan has a two-year term and bears interest at a rate of 1% per annum and does not require collateral. The loan was fully forgiven in November of 2020 by the SBA and a gain on extinguishment of debt of $100,344 was recorded within other income on the accompanying consolidated statements of operations.
On February 01, 2021, the Company received $50,000 from an investor and in turn issued a promissory note with an 8% interest rate, with collateral of 8 drag slat application units, and is to be paid in full by February 28, 2022. During the year ended April 30, 2021, the Company had paid $666 in interest for this note.
On February 11, 2021, WSC received $40,625 from the Paycheck Protection Program. The PPP Loan has a five-year term and bears interest at a rate of 1% per annum and does not require collateral. Monthly principal and interest payments are deferred for ten months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. WSC has not yet applied for forgiveness but believes it will be forgiven.
On February 14, 2021, ICS received $48,510 from the Paycheck Protection Program. The PPP Loan has a five-year term and bears interest at a rate of 1% per annum and does not require collateral. Monthly principal and interest payments are deferred for ten months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. ICS has not yet applied for forgiveness but believes it will be forgiven.
On March 16, 2021, SPE received $15,657 from the Paycheck Protection Program. The PPP Loan has a five-year term and bears interest at a rate of 1% per annum and does not require collateral. Monthly principal and interest payments are deferred for ten months after the date of disbursement. The PPP Loan may be prepaid at any time prior to maturity with no prepayment penalties. SPE has not yet applied for forgiveness but believes it will be forgiven.
On April 19, 2021, the Company received $50,000 from an investor and in turn issued a promissory note with an 8% interest rate to reduce debt. This note does not require collateral and is to be paid in full by May 19, 2022.
4. ACCRUED EXPENSES
Accrued expenses, consisting of accrued salaries for officers and executive management, include the following balance on April 30, 2021 and 2020, and December 31, 2019:
April 30,
April 30,
December 31,
Accrued Compensation $ 934,104 $ 469,004 $ 237,000
Other Accrued Expenses 267,464 336,849 409,410
$ 1,201,568 $ 805,853 $ 646,410
5. INCOME TAXES
The Company elected C Corporation tax status upon inception in 2014. Net operating losses (“NOL”) totaled $14,873,076 as of April 30, 2021, and it may be carried forward to offset future taxable income. As future taxable income is uncertain, a full valuation allowance has been recorded and accordingly, no current provision for income tax has been recorded in the accompanying statements of operations. NOL carry-forward benefits begin to expire in 2035.
The following table summarizes the difference between the actual tax provision and the amounts obtained by applying the statutory tax rates to the income or loss before income taxes for the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019:
April 30,
April 30,
December 31,
Tax benefit calculated at statutory rate 21.00% 21.00% 21.00%
Expense not deductible (0.07 ) (0.06 ) (0.15 )
Changes to valuation allowance (20.93 ) (20.94 ) (20.85 )
Provision for income taxes 0% 0% 0%
A deferred tax liability or asset is determined based on the difference between the financial statement and tax bases of assets and liabilities as measured by the enacted tax rates which will be in effect when these differences reverse. Deferred tax expense or benefit in the accompanying consolidated statements of operations are the result of changes in the assets and liabilities for deferred taxes. The measurement of deferred tax assets is reduced, if necessary, by the amount for any tax benefits that, based on available evidence, are not expected to be realized. Income tax expense is the current tax payable or refundable for the year plus or minus the net change in the deferred tax assets and liabilities. Deferred income taxes of the Company arise from the temporary differences between financial statement and income tax recognition of NOL carry-forwards.
The deferred tax assets and liabilities in the accompanying consolidated balance sheets include the following components:
April 30,
April 30,
December 31,
Net non-current deferred tax assets (liabilities):
Net operating loss carry-forward $ 3,123,346 $ 2,739,937 $ 2,418,457
Fixed assets (40,325 ) 13,929 23,147
Intangible assets 8,518 (9,293 ) (10,067 )
Net 3,074,502 2,744,573 2,431,537
Less valuation allowance (3,074,502 ) (2,744,573 ) (2,431,537 )
Net deferred taxes $ - $ - $ -
6. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Impact of COVID-19
Continued impacts of the pandemic have had a material adverse impact on our revenues, earnings, liquidity, and cash flows, and may require additional actions in response, including, but not limited to, employee layoffs, reduced production, or further expense reductions, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., and the related impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity, or capital resources cannot be reasonably estimated at this time.
Leases
The Company adopted the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) ASU 2016-02, Leases on January 1, 2019, on a modified retrospective basis. The initial adoption of the standard recognized right-of-use assets of $493,832 and lease liabilities of $498,361 on the Company’s consolidated balance sheet with no impact on the Company's results of operations. The Company elected the hindsight practical expedient and the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.
As of April 30, 2021, the weighted average remaining lease term and weighted average discount rate for financing leases was 2 years and 4.03%, respectively. The Company's future financing lease obligations that have not yet commenced are immaterial. For the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019, the Company's cash paid for financing leases was $132,028, $40,757, and $77,618, and short-term lease costs were $0, $0, and $82,579, respectively. The Company incurred $151,163 and $32,925 for amortization and interest expenses during the year ended April 30, 2021. The Company incurred $46,982 and $10,736 for amortization and interest expenses for the transition period ended April 30, 2020, and incurred $151,504 and $8,357 for amortization and interest expenses for the year ended December 31, 2019.
The Company’s undiscounted annual future minimum lease payments as of April 30, 2021, consist of:
$ 170,583
89,925
14,916
14,134
Total lease payments 289,558
Interest (18,339 )
Present value of lease liabilities $ 271,219
Concentrations
For the year ended April 30, 2021, the Company had two customers that represented 13% and 24% of total sales.
For the transition period ended April 30, 2020, the Company had one customer that represented 12% of total sales.
For the year ended December 31, 2019, the Company had two customers that represented 19% and 14% of total sales.
As of April 30, 2021, the Company had two customers that accounted for 13% and 24%, respectively of accounts receivable. As of April 30, 2020, the Company had two customers that accounted for 30% and 11%, respectively of accounts receivable. As of December 31, 2019, the Company had three customers that accounted for 38%, 22%, and 15% of accounts receivable. The loss of these customers could have a material adverse effect on the Company.
7. STOCKHOLDERS’ EQUITY
Common Stock
As of April 30, 2021, and 2020, and December 31, 2019, the authorized share capital of the Company consisted of 75,000,000 shares of common stock with $0.0001 par value. No other classes of stock are authorized.
Warrants
On March 31, 2017, the Company issued 600,000 warrants at an exercise price of $.50 for services provided to a consultant. The warrants expire on March 31, 2024. The fair value of these warrants upon issuance was $302.
There were 260,000 warrants exercised during the year ended December 31, 2019, at $.50 per share for a total cash amount of $130,000.
As of April 30, 2021, and 2020, December 31, 2019, there were 82,668 common stock warrants outstanding, respectively, with an exercise price of $0.50.
Period Beg. Balance Issued Exercised Expired End. Balance
Q1 2019 342,668 - - - 342,668
Q2 2019 342,668 - 70,000 - 272,668
Q3 2019 272,668 - 190,000 - 82,668
Q4 2019 82,668 - - - 82,668
April 30, 2020 82,668 - - - 82,668
April 30, 2021 82,668 - - - 82,668
Stock option plan
Effective February 1, 2017, the Company established the 2016 Stock Option Plan (the “Plan”). The Board of Directors of the Company has the authority and discretion to grant stock options. The maximum number of shares of stock that may be issued pursuant to the exercise of options under the Plan is 10,000,000. Eligible individuals include any employee or director of the Company and any consultant providing services to the Company. The expiration date and exercise price for each stock option grant are as established by the Board of Directors of the Company. No option may be issued under the Plan after February 1, 2027. On March 18, 2018, the Plan was amended to increase the maximum number of shares of stock that may be issued to 5,000,000. On July 10, 2018, the Plan was amended to increase the maximum number of shares of stock that may be issued to 5,500,000. In November of 2019, the Plan was further amended to increase the shares of stock that may be issued to 10,000,000.
During Fiscal 2021, the Company issued 20,000 shares of common stock upon the cashless exercise of 50,000 stock options.
Stock option activity for the year ended April 30, 2021, is summarized as follows:
Shares Under Option Price Per Share Weighted Average Exercise Price Weighted Average Remaining
Contractual Life
Outstanding - beginning of year 7,309,750 $ 0.00 - 1.50 $ 1.18 113 months
Granted - - -
Exercised (50,000 ) 0.02 1.50
Canceled or expired - - -
Outstanding - end of year 7,289,750 $ 0.00 - 1.50 $ 1.11 95 months
Exercisable - end of year 6,259,750
$ 0.92 83 months
Stock option activity during the transition period ended April 30, 2020, is summarized as follows:
Shares Under Option Price Per Share Weighted Average Exercise Price Weighted Average Remaining
Contractual Life
Outstanding - beginning of period 7,309,750 $ 0.00 - 1.50 $ 1.18 117 months
Granted - - -
Exercised - - -
Canceled or expired - - -
Outstanding - end of period 7,309,750 $ 0.00 - 1.50 $ 1.18 113 months
Exercisable - end of period 6,469,750
$ 0.91 95 months
Stock option activity during the year ended December 31, 2019, is summarized as follows:
Shares Under Option Price Per Share Weighted Average Exercise Price Weighted Average Remaining
Contractual Life
Outstanding - beginning of year 5,059,750 $ 0.00 - 1.50 $ 0.39 104 months
Granted 2,300,000 1.50 $ 1.50
Exercised (50,000 ) 0.01 $ 0.01
Canceled or expired - - -
Outstanding - end of year 7,309,750 $ 0.00 - 1.50 $ 1.18 117 months
Exercisable - end of year 6,366,417
$ 0.91 99 months
The fair value of each option grant is calculated using the following assumptions:
April 30,
April 30,
December 31,
Expected life - years NA NA 3.25 - 5
Interest rate NA NA 1.60-2.56%
Volatility NA NA 71.70%
Dividend yield -% -% -%
Aggregate intrinsic value for all options outstanding as of April 30, 2021, and 2020, and December 31, 2019, respectively, was $2,831,303, $2,339,120, and $2,339,120. Aggregate intrinsic value for all options exercisable as of April 30, 2021, April 30, 2020, and December 31, 2019, respectively, was $3,781,455, $3,817,152, and $3,756,186.
Total share-based compensation expense (including stock grants) included in salaries and wages was $178,212 and $79,001 for the year ended April 30, 2021, the transition period ended April 30, 2020, respectively, and the year ended December 31, 2019, was $1,650,145. Unamortized share-based compensation expense as of April 30, 2021, amounted to $282,169, which is expected to be recognized over the next 19 months.
8. RELATED PARTY TRANSACTIONS
Throughout the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019, the Company incurred consulting fees of $468,933, $217,000, and $299,710, respectively, to three current shareholders. The unpaid balance due was $160,696, $176,000, and $80,000 as of April 30, 2021, April 30, 2020, and December 31, 2019, respectively, and is included in accounts payable in the accompanying consolidated balance sheets.
The Company has a consulting agreement with an entity owned by an officer of the Company. During the year ended April 30, 2021, the Company paid this entity $8,000 and owes $72,000 to the same entity. During the four-month transition period April 30, 2020, and December 31, 2019, the Company paid $24,000 and $75,262 to the same entity.
The Company is in effect a sales representative of CBI pursuant to the Exclusive Patent License Agreement between the Company and CBI. CBI and the Company are companies under the common control of E. Thomas Layton, the Company’s chairman and chief executive officer. There are no other transactions or contracts between CBI and the Company other than those discussed in this report. During the year ended April 30, 2021, the transition period April 30, 2020, and the year ended December 31,2019 the Company incurred $2,015, $590, and $3,307 license fees for those sales to CBI. At the year ended April 30, 2021, the Company owed $1,670 which is reported in accounts payable on the consolidated balance sheet.
One separate related party is allowing the Company to rent vehicles for a monthly fee of $1,650 and $2,957. For the year ended April 30, 2021, the Company paid a total of $19,393 and $35,484 for those vehicles. For the transition period ended April 30, 2020, the Company paid a total of $17,991 and $30,695 for those same vehicles.
During the year ended April 30, 2021, the Company has received $80,255 in advances from the CEO for working capital. During the transition period ended April 30, 2020, the Company had outstanding payables to the CEO of $208,756 and $85,608 respectively.
9. SUBSEQUENT EVENTS
As of April 30, 2021, Robert Moreland resigned as President of Industrial Chem Solutions, Inc.
In May of 2021, the Company received $75,000 and in exchange therefor, issued a promissory note to be paid back in October 2021 with an 8% interest rate due monthly.
Effective May 1, 2021, Mr. Layton and Mr. Williams entered into revised employment agreements with the Company, providing for monthly compensation of $6,346 ($165,000 per year) for Mr. Layton and $5,679 ($150,000 per year) for Mr. Williams.
In June 2021, the Company received $52,000 and in exchange therefor, issued a promissory note to be paid back in October 2021 with an 8% interest rate due monthly.
As of June 7, 2021, the Company appointed Walton Anderson Ashwander, Jr. as President of the Company. He will be awarded a stock option grant of 500,000 shares.
As of June 28, 2021, the Company entered into a Marketing Partnership Agreement with Blackstone Marketing Group for the sales and marketing of SpectraKill disinfectants.
On July 23rd, three investors paid $200,000 in total for 400,000 shares of Company common stock.
On August 1st, the Company leased a regional facility at 371 Hostdale Road #1-#2, Dothan, AL 36303. The landlord is a related party to Walton Ashwander Jr.
On September 6, 2021, Walton Anderson Ashwander, Jr. was appointed to the Board of Directors of the Company.

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None

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ITEM 9A. CONTROLS AND PROCEDURES
Item 9A. CONTROLS AND PROCEDURES.
Evaluation of Disclosure Controls and Procedures
The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Responsibility, estimates, and judgments by management are required to assess the expected benefits and related costs of control procedures. The objectives of internal control include providing management with reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States. Its chief executive officer assessed the effectiveness of its internal control over financial reporting as of April 30, 2021. In making this assessment, its management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control Integrated Framework. Its chief executive officer reviewed the results of his assessment with its board of directors. In 2021, the chief executive officer had determined that the internal control over financial reporting was not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of, financial statements for external purposes in accordance with US generally accepted accounting principles.
Based on its evaluation under this framework in 2021, management concluded that its internal control over financial reporting was not effective due to the factors stated below.
· Insufficient Resources: The Company has inadequate number of personnel with requisite expertise in the key functional areas of finance and accounting to be able to have appropriately designed and operating entity level controls including risk assessment; information and communication; monitoring; and financial reporting.
· Inadequate Segregation of Duties: The Company has inadequate number of personnel to properly segregate duties to implement control procedures.
· Lack of Audit Committee and Outside Directors on the Company’s Board of Directors: The Company does not have a functioning audit committee or outside directors on its board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures.
This annual report does not include an attestation report of its Company’s independent registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s independent registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit the Company to provide only management’s report in this annual report.
Inherent Limitations on Effectiveness of Controls
Internal control over financial reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance, interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel factors. Internal control over financial reporting is a process that involves human diligence and compliance and is subject to lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements on a timely basis, however these inherent limitations are known features of the financial reporting process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial Reporting
During the year covered by this report, there were no changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

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ITEM 9B. OTHER INFORMATION
Item 9B. OTHER INFORMATION
None.
PART III

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ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Item 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE.
Directors and Executive Officers
Set forth below is certain information regarding each person who served as an officer or director at any time during fiscal year ended April 30, 2021.
Name Age Positions with the Company
E. Thomas Layton Chairman of the Board, Chief Executive Officer
Paul O. Williams Vice Chairman, Chief Financial Officer, and President
Jeannine M. Dupuis Vice President of Marketing Services
Michael S. Preston Vice President Corporate Compliance and Organization
Dean Hamada Vice President of Business Development Hawaii
E. Thomas Layton, 85, has been Chairman, CEO of the Company since September 2015. From January 2014 until May of 2018, he also served as the Company’s Chief Financial Officer and Chief Accounting Officer. From January 2014 until September 2015, he was the senior advisor to KT Chemicals, Inc. From 2013, he was CEO and is currently the Chairman of CBI Polymers, Inc., and for nine months in 2012 he was Acting CEO of LAXAIOSR, a clinical research organization. From 1998 until 2014 he was also an independent consultant to a variety of companies. From 1998 until 2009 most of his consulting clients were in the chemical industry, although beginning in 2009 and continuing through 2010, 2011 and 2012 he was consulting primarily to real estate related businesses including hotels and commercial developments, assisting them with restructuring and refinancing. In the course of this work, he also served as a court authorized debtor-in-possession manager, shepherding real property projects through Chapter 11 Bankruptcy. From 1994 to 1998 he was CEO of Deepwater Iodide (now Deepwater Chemicals), and from 1976 to 1990 he was CEO of Bishopric, Inc., a construction engineering, and manufacturing business which he grew from sales of $9 million to $122 million. Prior to that he managed the worldwide chemical business of G.D. Searle, and prior to that he worked in positions of increasing responsibility at Mallinckrodt Chemical, ultimately reporting directly to the Chairman of the Board. He holds an AB Degree from Central Methodist College with a major in Chemistry. Mr. Layton is CEO and a Director of the Company because of his long and successful history in sales and management, especially in the chemical industry.
Mr. Layton’s specific experience, qualifications, attributes, or skills that led to the conclusion that he should serve as a director for the Company:
· Has served as CEO and Chairman of the Company since September 2015
· A seasoned manager
Executive Officer
Paul O. Williams, 65, has been the Vice Chairman, President and Chief Financial Officer since May 18, 2018.
Mr. Williams graduated from Austin College in Sherman, Texas is 1978 and the Institute for Organization Management in Washington, DC in 1982. Since 2007, Mr. Williams has served as Chief Executive Officer of Bison Financial Group, Inc. in Plano, Texas, a corporate financial advisory and business development firm serving middle market growth companies. Mr. Williams personally provides corporate financial advisory and business development consulting services.
In addition, Mr. Williams also serves as an officer and director of two other public companies. Mr. Williams currently serves as Vice Chairman of the Board, Chief Financial Officer, and Treasurer of Financial Gravity Companies, Inc. (OTCQB: FGCO) in Austin, Texas since 2015. Mr. Williams also currently serves as Chairman of the Board & Chief Financial Officer of Curtis Mathes Corp. (OTC: CMEZ) in Frisco, Texas since 2017.
Mr. Williams also serves as Vice Chairman of the Board of Dynamic Chemical Solutions, Inc. in Frisco, Texas since 2016.
Mr. Williams served five years on the Board of the Texas Economic Development Council in Austin. He is a past Chairman of the Board of the Frisco Chamber of Commerce and recently completed his 12th year on their Board of Directors. He is also a recipient of the CFO of the Year award for North Texas by the Dallas Business Journal.
The breadth of Mr. Williams’ entrepreneurial and financial services experience led the Board of Directors to the conclusion that he is qualified to serve as a director for the Company. Mr. Williams’ specific experience qualifications, attributes or skills that led to the conclusion that he should serve as a director for the Company:
· Over 42 years of business experience, primarily in capital markets and mergers & acquisitions.
· Chief Executive Officer of Bison Financial Group, Inc., a corporate financial advisory and business development firm serving middle market growth companies.
· Has served as both an officer and director of other public companies.
Executive Officer, Significant Subsidiary
Jeannine M. Dupuis, 77, has been the Vice President of Marketing Services for the Company since February 2019. In this role, Ms. Dupuis is responsible for establishing and maintaining business systems, including communications with all of the Company’s customers and vendors, as well as the toll blending partners that are the core of ICS’s Regional Service Centers.
Ms. Dupuis’ successful business career has included owning and operating vocational schools and twenty-five years of service in management roles with JC Penney’s Financial Division and with the Aegon Insurance Company, which was the successor to the JC Penney’s Insurance business unit. With JC Penney and Aegon, Ms. Dupuis’ responsibilities included managing teams that were responsible for new product and business systems development and in auditing of marketing partners’ compliance with the broad range of insurance industry regulations.
Michael S. Preston, 61, Joined the Company in December of 2017 as a consultant to the Chairman and Chief Executive Officer. He was elected a Vice President of the Company and continues to serve as a Senior Executive Officer, working closely with the Shareholders, Board of Directors, vendors, and customers.
Dean Hamada, 62, Vice President of Business Development for Worldwide Specialty Chemicals, Inc. in Hawaii. Mr. Hamada has over 35 years of business experience in helping companies with their financing, corporate negotiations, sales, business development, customer relations and investor relations, and investments/construction/management and consulting of commercial real estate for clients and personal interests.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), requires officers, directors and persons who beneficially own more than 10% of a class of its equity securities registered under the Exchange Act to file reports of ownership and changes in ownership with the Securities and Exchange Commission. Mr. Layton did not meet his Form 3 filing responsibilities in a timely manner but did file his Form 3 on April 14, 2017. The Company has notified all known beneficial owners of more than 10% of its common stock of their requirement to file ownership reports with the Securities and Exchange Commission.
Delinquent Section 16(a) Report
E. Thomas Layton, CEO of the Company, failed to file on a timely basis reports required by Section 16(a) of the Exchange Act during the 2021 fiscal year. Mr. Layton entered into --25 transactions that were not reported on a timely basis, via the filing of a Form 4 or Form 5. Mr. Layton will undertake to report each of such transactions on a Form 5 within 10 days following the date of filing of this annual report.
Code of Ethics
The Company has adopted a code of ethics that applies to its principal executive officer, principal financial officer, and persons performing similar functions. The code of ethics is filed is incorporated by reference.
No Committees of the Board of Directors
The Company does not presently have a separately constituted audit committee, compensation committee, nominating committee, executive committee, or any other committees of its Board of Directors. At present, its entire Board of Directors acts as its audit committee. The Company believes that the present members of its Board of Directors, taken as a whole, have sufficient knowledge and experience in financial affairs to effectively perform their duties.

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ITEM 11. EXECUTIVE COMPENSATION
Item 11. EXECUTIVE COMPENSATION.
Summary Compensation Table
The particulars of compensation paid to the following persons during the year ended April 30, 2021, the transition period ended April 30, 2020, and the year ended December 31, 2019, are set out in the summary compensation table below:
·
The Company’s Chairman, Chief Executive Officer, Vice Chairman, President, Chief Financial Officer, Executive Vice President, Vice President of Corporate Compliance and Organization, and Vice President of Business Development Hawaii.
SUMMARY COMPENSATION TABLE
Name and Principal Position Year Salary
($) Bonus
($) Stock Awards
($) Option Awards
($) All Other Compensation
($) Total
($)
E. Thomas Layton, CEO $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
$ 58,336 $ -0- $ -0- $ -0- $ -0- $ 58,366
$ 96,250 $ -0- $ -0- $ -0- $16,000 (1) $ 112,250
Paul O. Williams, CFO and President $ -0- $ -0- $ -0- $ -0- $ -0- $ -0-
$ 52,750 $ -0- $ -0- $ -0- $ -0- $ 52,750
$ 81,250 $ -0- $ -0- $ -0- $ -0- $ 81,250
Michael Preston, VP Corporate $ 52,929 $ -0- $ -0- $ -0- $ -0- $ 52,929
Compliance and Organization $ 94,562 $ -0- $ -0- $ -0- $ -0- $ 94,562
$ 87,946 $ -0- $ -0- $ -0- $ -0- $ 87,946
Dean Hamada, VP Business $ 8,680 $ -0- $ -0- $ -0- $ -0- $ 8,680
Development Hawaii $ 96,430 $ -0- $ -0- $ -0- $ -0- $ 96,430
$ 125,250 $ -0- $ -0- $ -0- $ -0- $ 125,250
____________________
(1) Other compensation consisted of $0 and $16,000 of medical reimbursements paid to Mr. Layton during 2020 and 2019, respectively.
Effective January 1, 2020, Mr. Layton entered into an employment agreement with the Company, providing for monthly compensation of $29,167 ($350,000 per year) plus a discretionary bonus premised upon Company performance, in consideration of his services as Chairman and Chief Executive Officer.
Effective January 1, 2020, Mr. Williams entered into an employment agreement with the Company, providing for monthly compensation of $25,000 ($300,000 per year) plus a discretionary bonus premised upon Company performance, in consideration of his services as Director, the Company’s Vice-Chairman, President, and the Chief Financial Officer.
Effective May 1, 2021, Mr. Layton and Mr. Williams entered into revised employment agreements with the Company, providing for monthly compensation of $6,346 ($165,000 per year) for Mr. Layton and $5,679 ($150,000 per year) for Mr. Williams.
On January 13, 2021, Mr. Layton and Mr. Williams waived the monthly compensation due to them for the period January 1, 2021 through April 30, 2021.
There are no other agreements in place or contemplated to provide additional compensation to any officer or director. The Company does not have retirement, pension, profit sharing, or insurance programs or other similar programs for the benefit of its officers and directors.
Summary Compensation
Except as described above, the Company has no employment agreements with any director or executive officer.
For the year ended April 30, 2021, and the transition period ended April 30, 2020, no outstanding stock options or other equity-based awards were repriced or otherwise materially modified. No stock appreciation rights have been granted to any director or executive officer and no director or executive officer exercised any stock options or stock appreciation rights. With the exception of the discretionary bonus contained in Mr. Layton’s and Mr. Williams’ agreement, there are no nonequity incentive plan agreements with any director or Named Executive Officer.
Outstanding Equity Awards at Fiscal Year-end
For the year ended April 30, 2021, and the transition period ended April 30, 2020, no outstanding stock options or other equity-based awards were repriced or otherwise materially modified. No stock appreciation rights have been granted to any director or executive officer and no director or executive officer exercised any stock options or stock appreciation rights. With the exception of the discretionary bonus contained in Mr. Layton’s and Mr. Williams’ employment agreements, there are no nonequity incentive plan agreements with any director or Named Executive Officer.
Director Compensation Table
During the year ended April 30, 2021, Mr. Layton was the Company’s Chairman and CEO. Paul O. Williams is a Director and the Company’s Vice-Chairman, President and Chief Financial Officer. None of the Company’s directors received compensation in their role as directors.
Employment Contracts, Termination of Employment, Change-in-Control Arrangements
Except as described above, there are no employment or other contracts or arrangements with officers or Directors. There are no compensation plans or arrangements, including payments to be made by us, with respect to its officers, Directors or consultants that would result from the resignation, retirement, or any other termination of service in respect of such Directors, officers, or consultants. There are no arrangements for Directors, officers, employees, or consultants that would result from a change in control.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
Security Ownership of Certain Beneficial Owners and Management
The following table sets forth certain information with respect to the beneficial ownership of the Company’s common stock, as of April 30, 2021. The Company’s common stock is the only outstanding class of voting securities, and the following table sets forth the voting power resulting from such beneficial ownership, by
· each stockholder known by the Company to be the beneficial owner of more than 5% of the Company’s outstanding common stock;
· each director of the Company;
· each executive officer of the Company; and
· all directors and executive officers of the Company as a group.
Amount of Beneficial Ownership
Beneficial Owner (1) Shares Percentage of Shares
E. Thomas Layton, CEO, director (2) 3,618,750 (3) 11.1%
Paul O. Williams, CFO, director (2) 3,900,000 (4) 12.3%
Ernest K. F. Lum
Honolulu, Hawaii
4,710,618 (5) 15.0%
Karl M. Taft III
Dallas, Texas
5,390,000 (6) 16.6%
Directors and executive officers as a group (two persons) 7,518,750 (2) 22.8%
____________________
(1) Except as noted below, each beneficial owner has sole voting and investment power with respect to all shares attributable to that owner.
(2) The address for each such beneficial owner is 6136 Frisco Square Blvd., Suite 400, #237 Frisco, TX 75034.
(3) Includes 1,300,000 shares of Common Stock issuable upon the exercise of stock options which are exercisable within 60 days. Also includes 100,000 shares of Common Stock issuable upon the exercise of stock options owned by Mr. Layton’s spouse and which are exercisable within 60 days. Ownership of such shares is attributed to Mr. Layton.
(4) Includes 400,000 shares of Common Stock issuable upon the exercise of stock options which are exercisable within 60 days. Also includes 100,000 shares of Common Stock issuable upon the exercise of stock options owned by Mr. Williams’ spouse and which are exercisable within 60 days. Ownership of such shares is attributed to Mr. Williams.
(5) Includes 300,000 shares of Common Stock issuable upon the exercise of stock options which are exercisable within 60 days.
(6) Includes 1,020,000 shares of Common Stock owned by Mr. Taft’s spouse. Ownership of such shares is attributed to Mr. Taft. Also includes 400,000 shares of Common Stock issuable upon the exercise of stock options which are exercisable within 60 days.
Changes in Control
The Company is unaware of any contract or other arrangement the operation of which may at a subsequent date result in a change of control of the Company.
Securities authorized for issuance under equity compensation plans
As of the end of the most recently completed fiscal year, the Company has not adopted a compensation plan (including individual compensation arrangements) under which equity securities of the Company are authorized for issuance.

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ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
Transactions with Related Persons, Promoters and Certain Control Persons
Except as set forth below, none of the Company’s directors or officers, nor any person who beneficially owns, directly or indirectly, shares carrying more than 10% of the voting rights attached to the Company’s shares, nor any relative or spouse of any of the foregoing persons, has had any material interest, direct or indirect, in any transaction to which the Company was a party, and in which the amount involved exceeds the lesser of (i) $120,000 or (ii) one percent of the average of the Company’s total assets at year-end for the last two completed fiscal years.
The Company is in effect a sales representative of CBI pursuant to the Exclusive Patent License Agreement between the Company and CBI. CBI and the Company are companies under the common control of E. Thomas Layton, the Company’s chairman and chief executive officer. There are no other transactions or contracts between CBI and the Company other than those discussed in this report.
Director Independence; Board Leadership Structure
For purposes of determining whether members of the Company’s Board of Directors are “independent,” the Company’s Board utilizes the standards set forth in the NASDAQ Stock Market Marketplace Rules. At present, the Company’s entire Board serves as its Audit, Compensation and Nominating Committees. E. Thomas Layton is not an “independent director” since he currently serves as Chief Executive Officer of the Company.
The Company’s Board of Directors is of the view that the current leadership structure is suitable for the Company at its present stage of development, and that the interests of the Company are best served by the combination of the roles of Chairman of the Board and Chief Executive Officer.
As a matter of regular practice, and as part of its oversight function, the Company’s Board of Directors undertakes a review of the significant risks in respect of the Company’s business. Such review is conducted in concert with outside professionals (including legal counsel) with expertise in substantive areas germane to the Company’s business. With the Company’s current governance structure, the Company’s Board of Directors and senior executives are, by and large, the same individuals, and consequently, there is not a significant division of oversight and operational responsibilities in managing the material risks facing the Company.

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ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
Fiscal Year 2021
The following information summarizes the fees billed by Whitley Penn LLP for professional services rendered for the fiscal year ended April 30, 2021.
Audit Fees. $88,995
Audit-Related Fees. None
Tax Fees. None
All Other Fees. None
Transition Period Year 2020
The following information summarizes the fees billed by Whitley Penn LLP for professional services rendered for the transition period ended April 30, 2020.
Audit Fees. $35,400
Audit-Related Fees. None
Tax Fees. None
All Other Fees. None
Fiscal Year 2019
The following information summarizes the fees billed by Whitley Penn LLP for professional services rendered for the fiscal year ended December 31, 2019.
Audit Fees. $45,532
Audit-Related Fees. None
Tax Fees. None
All Other Fees. None
PART IV

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ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) Financial Statements and financial statement schedules
(1) and (2) The financial statements and financial statement schedules required to be filed as part of this report are set forth in Item 8 of Part II of this report.
(3) Exhibits. See Item 15(b) below.
(b) Exhibits required by Item 601 of Regulation S-K
Exhibit Number Description Form File Number Exhibit Number Filing Date Filed with this 10-K
31.1 Sarbanes-Oxley Section 302(a) Certification of E. Thomas Layton
X
31.2 Sarbanes-Oxley Section 302(a) Certification of Paul O. Williams
X
32.1 Sarbanes-Oxley Section 906 Certification of E. Thomas Layton
X
32.2 Sarbanes-Oxley Section 906 Certification of Paul O. Williams
Interactive Data Files for Form 10-K for the year ended April 30, 2021.
X
101.INS XBRL Instances Document
101.SCH XBRL Taxonomy Extension Schema Document
101.CAL XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF XBRL Taxonomy Extension Definition Linkbase Document
101.LAB BRL Taxonomy Extension Label Linkbase Document
101.PRE XBRL Taxonomy Extension Presentation Linkbase Document