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SHPR > SEC Filings for SHPR > Form 10-Q on 9-Nov-2012All Recent SEC Filings

Show all filings for POLY SHIELD TECHNOLOGIES INC.

Form 10-Q for POLY SHIELD TECHNOLOGIES INC.


9-Nov-2012

Quarterly Report


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

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

Certain statements contained in this Quarterly Report constitute "forward-looking statements". These statements, identified by words such as "plan," "anticipate," "believe," "estimate," "should," "expect" and similar expressions, include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements reflect the current views of management with respect to future events and are subject to risks, uncertainties and other factors that may cause our actual results, performance or achievements, or industry results, to be materially different from those described in the forward-looking statements. Such risks and uncertainties include those set forth under this caption "Management's Discussion and Analysis" and elsewhere in this Quarterly Report. We do not intend to update the forward-looking information to reflect actual results or changes in the factors affecting such forward-looking information. We advise you to carefully review the reports and documents we file from time to time with the United States Securities and Exchange Commission (the "SEC").

OVERVIEW

We were incorporated under the laws of the State of Delaware on March 2, 2000, under the original name 411 Place.com Inc. On February 28, 2001, we changed our name to Artescope, Inc., on July 29, 2002, we changed the name to GlobeTrac Inc. and on July 11, 2012, to Poly Shield Technologies Inc. On July 11, 2012, we also effected a consolidation of our issued and outstanding common stock on a one-for-three basis (the "Reverse Split"), without decreasing our authorized capital. We currently have an authorized capital of 205,000,000 shares with a par value of $0.001, consisting of 200,000,000 shares of Common Stock and 5,000,000 shares of Preferred Stock with 33,745,005 post-reverse-split shares of Common Stock currently issued and outstanding. Our principal executive offices are headquartered in Boca Raton, Florida.

On March 12, 2012, we entered into an agreement to purchase the rights to market the products of Teak Shield Corp. ("Teak Shield"). Teak Shield has a proprietary process for the production of fluoropolymer coatings used to protect surfaces from corrosion, oxidation and ultraviolet degradation. Markets for these products include the marine industry, aerospace, onshore oil and gas, commercial architecture, general industrial, industrial maintenance, medical, household care, food processing and others. See "License Agreement" below.

In addition to our License Agreement with Teak Shield, we have a royalty agreement (the "Royalty Agreement") with WebTech Wireless Inc. ("WebTech"), under which we have a royalty right to 6% of gross qualified sales. A qualified sale consists of all of WebTech's invoiced sales of products or services to a customer that has ordered at least one product or service before November 26, 2004. On September 30, 2012, WebTech closed its UK office and significantly curtailed its European operations. As such, we do not expect to receive any further revenues from the Royalty Agreement.

During the next twelve months, we plan to refine our business and marketing plan for the Teak Shield products and expand our presence in the fluoropolymer coating market.

License Agreement

On March 12, 2012, we entered into an agreement (the "License Agreement") with Teak Shield and Robert and Marion Diefendorf (Teak Shield, Mr. Diefendorf and Ms. Diefendorf collectively being the "Licensors") for a worldwide, exclusive license (with the exception of Licensor's continuing right to sell to the Licensor's Existing Customers and any customers not generated by us) to sell specialized fluoropolymer materials (the "Shield Products").


Pursuant to the terms and conditions of the License Agreement, we issued 5,000,000 pre-reverse-split (1,666,667 post-reverse-split) shares of our common stock to the Licensors and agreed to pay a 5% royalty on all sales of the Shield Products with a minimum of $100,000 yearly royalty payment. As part of the agreement, we also paid the Licensors a total of $250,000 for a two year option (the "Teak Shield Option") to purchase 100% of the Licensors' ownership and interest in their proprietary rights and assets regarding the Shield Products including all licensed products, manufacturing, patents, intellectual property, technology, contracts, trademarks and goodwill (collectively the "Assets"). A copy of the License Agreement is filed as an exhibit to our Current Report on Form 8-K filed with the SEC on March 6, 2012.

Recent Corporate Developments

The following corporate developments have occurred since the end of our second fiscal quarter dated June 30, 2012:

Name Change and 1-for-3 Reverse Stock Split

Effective July 11, 2012, we changed our name to Poly Shield Technologies Inc. (the "Name Change").

Also effective July 11, 2012, we effected a consolidation of our issued and outstanding common stock on a one-for-three basis (the "Reverse Split"), without decreasing our authorized capital. Accordingly, our issued and outstanding shares were decreased from 100,183,198 shares of common stock to 33,395,005 shares of common stock.

The Name Change and Reverse Split were approved by shareholders owning approximately 53.23% of our issued and outstanding common stock on May 14, 2012.

As a result of the Name Change and the Reverse Split, effective as of August 20, 2012, we changed our ticker symbol to "SHPR".

Issuance of 350,000 shares of our common stock

On September 28, 2012, we issued 350,000 shares of our common stock at a price of $0.30 per share to one subscriber pursuant to Regulation S of the United States Securities Act, as amended (the "Securities Act"). The subscriber represented that she was not a "U.S. Person" as that term is defined in Regulation S of the Securities Act.

Acamar Loan Extension

On November 2, 2012, we received a letter from Acamar Investments, Inc. ("Acamar") dated October 17, 2012, certifying that Acamar has agreed to extend the maturity date of the $260,000 loan (the "Loan") from October 19, 2012, to April 19, 2013. Acamar advanced the Loan to us in accordance with the terms of a loan agreement (the "Loan Agreement") dated April 19, 2012, between Acamar and us. All remaining terms and conditions of the Loan Agreement remain unchanged.

RESULTS OF OPERATIONS

                             Three Months Ended         Percentage          Nine Months Ended          Percentage
                               September 30,            Increase /            September 30,            Increase /
                             2012          2011          Decrease           2012          2011          Decrease
Royalty income            $     (929 )   $   5,092           (118.0 )%   $    4,548     $  33,332            (86.4 )%
Operating expenses:
General and
administrative               115,129        24,535            369.2 %       258,608        78,442            229.7 %
Net loss before other
items                       (116,058 )     (19,443 )          496.9 %      (254,060 )     (45,110 )          463.2 %
Amortization of license      (71,875 )           -            100.0 %      (131,770 )           -            100.0 %
Interest                     (32,325 )        (922 )         3406.0 %       (58,820 )     (16,470 )          257.1 %
Gain on extinguishment
of debt                            -             -                0 %             -        49,463           (100.0 )%
Royalty fee                  (25,000 )           -            100.0 %       (45,833 )           -            100.0 %
Net income (loss)         $ (245,258 )   $ (20,365 )        (1104.3 )%   $ (490,483 )   $ (12,117 )        (3947.9 )%


Revenues

Our royalty revenue decreased by $28,784 or 86.4% from $33,332 for the nine months ended September 30, 2011, to $4,548 for the nine months ended September 30, 2012. During the three months ended September 30, 2012, our revenue decreased from $5,092 to negative revenue of $929.

All of our revenue was the result of the 6% royalty under the Royalty Agreement with WebTech. The decrease resulted from a decline of WebTech's European operations followed by the closure of the UK office on September 30, 2012, and from an over accrual of revenue in the first two quarters of the current fiscal year.

Due to WebTech's closure of its UK office and the significant curtailing of WebTech's European operations, effective September 30, 2012, we do not expect to earn any further revenues from this royalty agreement. Future revenues are expected to be dependent on generating sales of the Shield Products. However, we do not currently have any sales or revenue history with respect to the Shield Products or the fluoropolymer product industry. As such, there is no assurance that our business efforts in this area will prove to be successful.

Operating Expenses

During the nine months ended September 30, 2012, our operating expenses increased by $180,166 or 229.7% from $78,442 for the nine months ended September 30, 2011, to $258,608 for the nine months ended September 30, 2012. This increase was primarily caused by increases in professional fees of $59,106, management fees of $22,000 and administration expenses of $45,182. In addition, during the same period we recorded advertising and promotion expenses of $30,691 and travel and entertainment expenses of $10,383.

During the three months ended September 30, 2012, our operating expenses increased by $90,594 or 369.2% from $24,535 for the three months ended September 30, 2011, to $115,129 for the three months ended September 30, 2012. This increase was primarily caused by increases in professional fees of $28,958, management fees of $9,000 and administration expenses of $26,592. In addition, during the same period we recorded advertising and promotion expenses of $12,223 and travel and entertainment expenses of $6,928.

The increase to our administrative expenses during the three and nine months ended September 30, 2012, was associated with our acquisition of the license to the Shield Products, relocation of our head office, development and maintenance of our website, update of our business plan and the efforts we took to research and implement new marketing strategies for the Shield Products.

The increase in professional fees related primarily to the acquisition of our license rights to the Shield Products and the resultant change in our business focus and the completion of the Name Change and Reverse Split.

Other Items

We recorded amortization of our license and option rights under the License Agreement of $131,770, accrual of royalty fee payable to Teak Shield of $45,833 and interest expenses of 58,820 during the nine months ended September 30, 2012. During the three months ended September 30, 2012, we recorded amortization of our license and option rights under the License Agreement of $71,875, accrual of royalty fee payable to Teak Shield of $25,000 and interest expenses of $32,325.


LIQUIDITY AND CAPITAL RESOURCES

Working Capital

                                                                   Percentage
                           At September 30,       At December      Increase /
                                 2012              31, 2011          Decrease
Current Assets            $          111,294     $       5,706            1850 %
Current Liabilities                 (796,807 )        (187,506 )           325 %
Working Capital Deficit   $         (685,513 )   $    (181,800 )           277 %

As of September 30, 2012, we had a cash balance of $100,617, a working capital deficit of $685,513 and negative cash flows from operations of $245,237 for the nine months then ended. During the nine months ended September 30, 2012, we primarily funded our operations with $490,147 in loans and advances received this year and $105,000 received from the sale of shares of our common stock.

Cash Flows

                                                  Nine Months         Nine Months
                                                     Ended               Ended
                                                 September 30,       September 30,
                                                      2012                2011
Cash Flows Used in Operating Activities         $      (245,237 )   $        (5,248 )
Cash Flows Used in Investing Activities                (250,000 )                 -
Cash Flows Provided by Financing Activities             595,147                   -
Net Increase (Decrease) in Cash During Period   $        99,910     $        (5,248 )

Net Cash Used in Operating Activities

Net cash used in operating activities during the nine months ended September 30, 2012, was $245,237. This cash was primarily used to cover our net loss of $490,483 and increase prepaid expenses by $10,051. These uses of cash were offset by increases in accounts payable of $48,116, accrued liabilities of $41,995, amounts do to related parties of $6,873, and accrued interest of $22,170; decrease in accounts receivable of $4,373 also contributed to offsetting the cash used in our operating activities. During the same period we recorded a non-cash item of $131,770 for amortization of the license and option to purchase.

Net cash used in operating activities during the nine months ended September 30, 2011, was $5,248. This cash was primarily used to cover our net loss of $12,117 and to decrease our accounts payable by $50,408. These uses were offset primarily by an increase in accrued liabilities and amounts due to related parties of $5,989 and $35,056, respectively. During this period we recorded $12,033 in the non-cash transactions of shares issued for accrued interest and gain on currency exchange.

Net Cash Used in Investing Activities

During the nine months ended September 30, 2012, we invested $250,000 in a two year option to purchase 100% of the Licensors' ownership and interest in its proprietary rights and assets (the "Teak Shield Option") including all licensed products, manufacturing, patents, intellectual property, technology, contracts, trademarks and goodwill. To exercise the Teak Shield Option we must pay an additional $2,750,000.

We did not have any investing activities during the nine months ended September 30, 2011.


Net Cash Provided by Financing Activities

During the nine months ended September 30, 2012, we received $463,147 and $12,000 in loans from unrelated and related parties, respectively. In addition, we recorded $15,000 in advances received from related parties.

On September 28, 2012, we issued 350,000 shares of our common stock at a price of $0.30 per share for total proceeds of $105,000 to one subscriber pursuant to Regulation S of the Securities Act of 1933, as amended (the "Act"). The subscriber represented that she was not a "U.S. Person" as that term is defined in Regulation S of the Act.

We did not have any financing activities during the nine months ended September 30, 2011.

Going Concern

The notes to our financial statements for the nine months ended September 30, 2012, disclose our uncertain ability to continue as a going concern. We were in the business of selling, marketing, distributing and installing global wireless tracking and telematics equipment in Europe until November 1, 2004, when we exchanged our rights to sell, market, distribute and install global wireless tracking and telematics equipment in Europe as well as specific assets and liabilities, for a royalty of 6% on future gross sales to current customers and qualified potential customers in Europe. We do not expect to receive future royalties from this agreement since WebTech has closed its UK office and significantly curtailed its European operations. We have accumulated a deficit of $2,007,696 since inception and additional financing will be required to fund and support our operations. We plan to create net income and positive cash flow in future years by selling the Shield Products in a number of markets as well as controlling our operating expenses. However, there is no assurance that we will be able to obtain additional financing, control our operating expenses or receive sufficient revenue from our new business. The financial statements do not include any adjustments that might result from the outcome of these uncertainties.

Off-Balance Sheet Arrangements

None.

Critical Accounting Policies

An appreciation of our critical accounting policies is necessary to understand our financial results. These policies may require management to make difficult and subjective judgments regarding uncertainties, and as a result, such estimates may significantly impact our financial results. The precision of these estimates and the likelihood of future changes depend on a number of underlying variables and a range of possible outcomes. Other than our accounting for our royalty revenue, our critical accounting policies do not involve the choice between alternative methods of accounting. We have applied our critical accounting policies and estimation methods consistently.

Revenue Recognition

Revenue is recognized when pervasive evidence of an agreement exists, when it is received or when the income is determinable and collectability is reasonably assured.

Accounts Receivable

Receivables represent valid claims against debtors for royalties arising on or before the balance sheet date and are reduced to their estimated net realizable value. An allowance for doubtful accounts is based on an assessment of the collectability of all past due accounts. At September 30, 2012, and December 31, 2011, our allowance for doubtful accounts was $0.

At September 30, 2012, accounts receivable consisted of royalty revenue for the months of May through September 2012. As of the date of the filing, we have not received payment of the recorded royalty.


Foreign Exchange Risk

We are subject to foreign exchange risk on our royalty revenue which is denominated in British pounds and some purchases which are denominated in Canadian dollars. Foreign currency risk arises from the fluctuation of foreign exchange rates and the degree of volatility of these rates relative to the U.S. dollar. Foreign exchange rate fluctuations may adversely impact our results of operations as exchange rate fluctuations on transactions denominated in currencies other than our functional currency result in gains and losses that are reflected in our Statement of Operations. To the extent the U.S. dollar weakens against foreign currencies, the translation of these foreign currency-denominated transactions will result in increased net revenue. Conversely, our net revenue will decrease when the U.S. dollar strengthens against foreign currencies. We do not believe that we have any material risk due to foreign currency exchange.

Fair Value of Financial Instruments

Our financial instruments include cash, accounts receivable, accounts payable and accrued liabilities. We believe the fair value of these financial instruments approximate their carrying values due to their short maturities.

Concentration of Credit Risk

Financial instruments that potentially subject us to significant concentrations of credit risk consist principally of cash and trade accounts receivable.

At September 30, 2012, we had approximately $100,617 in cash on deposit with a large chartered Canadian bank; $94,368 of this cash was insured. As part of our cash management process, we perform periodic evaluations of the relative credit standing of this financial institution. We have not experienced any losses in cash balances and do not believe we are exposed to any significant credit risk on our cash.

Accounts receivable consists of royalty income from one source and is not collateralized. We continually monitor the financial condition of our customer to reduce the risk of loss. We routinely assess the financial strength of our source of revenue income and as a consequence, concentration of credit risk is limited. At September 30, 2012, we had $626 in royalties receivable from this source.

Recent Accounting Standards and Pronouncements

Recent accounting pronouncements issued by the Financial Accounting Standards Board or other authoritative standards groups with future effective dates are either not applicable or are not expected to be significant to our financial statements.

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