ITEM 1 - BUSINESS
Corporate History
We were initially incorporated as Sandalwood Ventures, Ltd. in Nevada in April 2007. On November 16, 2012, we filed a Certificate of Amendment with the Secretary of State of Nevada and changed our name to “Eco-Tek Group, Inc.”
On January 6, 2012, Edwin Slater, the Company’s then sole Director approved the filing of a Certificate of Change Pursuant to NRS 78.209 (the “Certificate of Change”). The Certificate of Change affected a 28:1 forward stock split of the Company’s (i) authorized and unissued; and (ii) issued and outstanding, shares of common stock, effective with the Secretary of State of Nevada on January 23, 2012 (the “Forward Split”), pursuant to Nevada Revised Statutes Section 78.209. The Certificate of Change was effective with FINRA at the open of business on January 26, 2012 (the “FINRA Effectiveness Date”).
Following the filing and effectiveness of the Certificate of Change and Forward Split, the Company has 7,000,000,000 shares of common stock, $0.001 par value per share authorized (compared to 250,000,000 shares of common stock, $0.001 par value per share authorized prior to the Forward Split)(“Common Stock”). Unless otherwise stated, the effects of the Forward Split have been retroactively reflected throughout this report.
Stock Purchase Agreement
On or around April 9, 2012, Edwin Slater, our then sole officer and Director and majority shareholder, and Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev (collectively, the “Purchasers”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”).
Pursuant to the Stock Purchase Agreement, each of the Purchasers agreed to purchase 1/4th of the total shares of common stock held by Mr. Slater (280,000,000 shares of common stock each or 1,120,000,000 shares of common stock in total) for $5,000, or $20,000 in aggregate. The Stock Purchase Agreement closed on May 3, 2012. Mr. Slater held 93.7% of our outstanding voting securities prior to the closing of the Stock Purchase Agreement and each Purchaser acquired rights to 23.4% of our voting securities (notwithstanding the issuance of Series A Preferred Stock, as described below) upon the closing of the Stock Purchase Agreement.
Change in Officers and Directors
Immediately upon the closing of the Stock Purchase Agreement on May 3, 2012 (the “Closing”), Mr. Slater, as the Company’s then sole Director increased the number of Directors of the Company from one (1) to four (4) and appointed Ronald Kopman; Maurizio Cochi and Barry Wohl as Directors of the Company (the “Change in Directors” and the “New Directors”). Immediately thereafter, Mr. Slater resigned as an officer and Director of the Company and the Board of Directors of the Company appointed Mr. Kopman as the President and Chief Financial Officer of the Company and Mr. Cochi as the Secretary and Treasurer of the Company.
Series A Preferred Stock/Change in Control
On or around April 9, 2012, Mr. Slater, as the sole Director of the Company, approved the filing of a Certificate of Designation of a series of 1,000 shares of Series A Preferred Stock of the Company, which designation was subsequently filed with the Secretary of State of Nevada on April 13, 2012 (the “Series A Preferred Stock”). The holders of the Series A Preferred Stock, voting separately as a class are entitled to vote in aggregate, on all shareholders matters, 51% of the total vote on such shareholder matters, no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future (the “Super Majority Voting Rights”). Additionally, the Company is prohibited from adopting any amendments to the Company’s Bylaws, Articles of Incorporation, as amended, making any changes to the Certificate of Designation establishing the Series A Preferred Stock, or effecting any reclassification of the Series A Preferred Stock, without the affirmative vote of at least 66-2/3% of the outstanding shares of Series A Preferred Stock. However, the Company may, by any means authorized by law and without any vote of the holders of shares of Series A Preferred Stock, make technical, corrective, administrative or similar changes to such Certificate of Designation that do not, individually or in the aggregate, adversely affect the rights or preferences of the holders of shares of Series A Preferred Stock.
On May 3, 2012, the Company agreed to issue Ira Morris 1,000 shares of the Company’s newly designated Series A Preferred Stock in consideration for services rendered to the Company. Upon such issuance, Mr. Morris became the majority shareholder of the Company and a change in control of the Company was deemed to have occurred as a result of the Super Majority Voting Rights (as defined above).
Change in Business Focus
On June 25, 2012, the Company entered into a Share Exchange Agreement with Eco-Tek Group Inc., an Ontario corporation (“Eco-Tek Ontario”) and its shareholders (the “Eco-Tek Ontario Shareholders”). The Eco-Tek Ontario Shareholders included Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev who in April 2012, entered into the Stock Purchase Agreement described above.
Pursuant to the Share Exchange Agreement, which closed on June 29, 2012, the Company acquired 100% of the outstanding shares of common stock of Eco-Tek Ontario in consideration for an aggregate of 125,000,000 shares of the Company’s common stock. The Company was a “shell company” with only nominal operations prior to the closing of the Share Exchange Agreement.
From the date of our incorporation until June 29, 2012, when the Share Exchange Agreement closed, we were an exploration stage company engaged in the acquisition and exploration of mineral properties. We acquired a 100% undivided interest in one mineral claim known as the "Sandalwood 1 Lode Claim,” totaling 20 acres located in the Goodsprings (Yellow Pine) Mining District situated within the southwestern corner of the State of Nevada, U.S.A. Our plan of operations was to conduct mineral exploration activities on the Sandalwood 1 Lode Claim in order to assess whether it possessed mineral deposits of lead, zinc, copper or silver in commercial quantities capable of commercial extraction.
The Company did not undertake any mineral exploration activities from incorporation to June 29, 2012.
Following the closing of the Share Exchange Agreement, the Company changed its business focus to that of Eco-Tek Ontario (the blending and sale of oil lubrication products, as described further below) and ceased undertaking any mineral exploration activities. In connection with this change in business focus, the Company let the rights to its Sandalwood 1 Lode Claim expire in September 2012, as described in greater detail below under “Properties”.
Effective June 25, 2012, Ira Morris, who then held all 1,000 shares of the Company’s outstanding Series A Preferred Stock, entered into a Stock Purchase Agreement (as amended and restated) with Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev and purchased all 1,120,000,000 of the shares of common stock originally purchased by such individuals pursuant to the Stock Purchase Agreement with Mr. Slater, which closed in May 2012 in consideration for $5,600 ($1,400 to each seller) and all 1,000 shares of the Series A Preferred Stock which he held (with 250 shares of Series A Preferred Stock being transferred to each seller). Subsequent to the closing of the purchase of the shares by Mr. Morris, Mr. Morris entered into a Cancellation of Shares Agreement with the Company and agreed to cancel 1,070,000,000 of the shares purchased in connection with the April 2012 Stock Purchase Agreement in consideration for $20,000 (the “Cancellation” and the “Cancellation Agreement”).
Name Change
On October 12, 2012 (the “Record Date”), our Board of Directors unanimously approved the filing of a Certificate of Amendment to the Company’s Articles of Incorporation to affect a name change of the Company to “Eco-Tek Group, Inc.” (the “Amendment”), and on the same date, (i) Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev (the “Preferred Shareholders”), who owned as of the Record Date (a) all one thousand (1,000) outstanding shares of the Company’s Series A Preferred Stock, giving them the right to vote fifty-one percent (51%) of the Company’s voting shares, totaling 261,057,343 voting shares and (b) an aggregate of 104,451,252 shares of the Company’s common stock, and (ii) Ira Morris (Mr. Morris, together with the Preferred Shareholders, the “Majority Shareholders”), who held 50,000,000 shares of the Company’s common stock as of the Record Date (totaling 154,451,252 shares of our outstanding common stock when added to the shares held by the Preferred Shareholders), representing in aggregate, a total of 61.6% of our outstanding common stock, 100% of our outstanding Series A Preferred Stock and 81.2% of our outstanding voting stock as of the Record Date, took action via a written consent to approve the Amendment.
On November 16, 2012, we filed the Amendment with the Secretary of State of Nevada and our name legally changed to “Eco-Tek Group, Inc.” In connection with the Amendment and name change, the Company’s CUSIP number changed to 27887Y106 and effective at the open of the market on November 21, 2012, our trading symbol on the OTCQB changed to “ETEK”.
Description of Business Operations
As described above, effective June 29, 2012, the Share Exchange Agreement closed, we acquired Eco-Tek Ontario, and we changed our operations to those of Eco-Tek Ontario. Eco-Tek Ontario was initially formed as an Ontario, Canada corporation on May 4, 2005, under the name of ClikTech Corp. The name of the corporation was changed to Eco-Tek Group Inc., on June 28, 2012. Eco-Tek Ontario is dedicated to the development and marketing of innovative and cost effective “green” products to the automotive and industrial sectors.
Currently we, through Eco-Tek Ontario (in the discussion below, references to “we”, “us” or the “Company” include Eco-Tek Ontario), are a distributor of products and do not have any exclusive rights to the products we distribute other than the Eco-Tek Bypass And Magnetic Oil Filtration For Trucks, described below, which we have exclusive distribution rights in North America in connection with, provided that we have the exclusive right to use the lubrication products created by Dr. Sabatino Nacson, Ph.D Chemistry for use in the automobile market, as described in greater detail below under “Product Development”. Our products are the result of ongoing research and development by chemists and engineers with extensive knowledge and experience in the lubrication and related automotive fields. Approximately 85% of our sales are generated in Canada, with the other 15% coming from overseas markets such as Ecuador, Argentina and Chile. We manufacture (through the blending of various ingredients) and distribute Eco-Tek synthetic lubricants, filtration systems and other products, described in greater detail below. We maintain websites at
www.eco-tekgroup.net
and
www.ecotekworldwide.com
. The information on, or that may be accessed through our websites is not incorporated by reference into this report and should not be considered a part of this report.
INDUSTRY BACKGROUND
The industry in which we compete is highly competitive. Our products are part of the automotive aftermarket and outdoor power equipment market, which includes automobiles (trucks, buses, and motorcycles), boats, lawn mowers, tractors, power washers, chain saws, leaf blowers, and hedge trimmers and a variety of equipment, both gas and diesel.
Automotive Aftermarket
The automotive aftermarket refers to the maintenance, repair, parts, accessories, chemicals and fluids for vehicles after their original sale. Pursuant to the Automotive Aftermarket Industry Association, overall aftermarket sales in the United States totaled $285.7 billion in 2010, representing a 4.2% increase over the previous year. Sales in the automotive aftermarket (cars and light trucks) totaled $215.4 billion while sales in the medium and heavy duty vehicle aftermarket totaled $70.3 billion. Aftermarket sales in Canada total approximately $18 billion pursuant to the Automotive Industries Association of Canada.
According to Hoovers, the United States automotive oil change and lubrication industry includes about 5,000 companies with combined annual revenue of about $5 billion. Major companies include Jiffy Lube, Pennzoil 10-Minute Oil Change, Valvoline Instant Oil Change, and Texaco Xpress Lube. Despite the presence of large chains, the industry is highly fragmented with the largest 50 companies representing less than 40% of the market. According to Research and Markets, major services offered include oil changes, installation of new oil filters, chassis lubrication and preventative maintenance and typically, more than 70 percent of revenue is from oil changes.
The demand for oil change services and products is largely driven by the amount of driving consumers do as oil changes are recommended to be completed upon an automobile reaching certain threshold mileages since the last oil change (e.g., 3,000 to 7,500 miles).
Outdoor Power Equipment Market
The size of the United States market for outdoor power equipment products is roughly $15 billion according to the Outdoor Power Equipment Institute.
Products
Our lubricating oil has been proven through dynamometer tests, independent laboratory tests and government approved testing facility tests, to result in the following:
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A reduction of crude oil consumption in the transport industry. High quality synthetic oil and bypass oil filtration can extend oil change intervals up to three times the usual length.
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A reduction of fuel consumption (36% average has been documented in extensive multi vehicle testing). By reducing friction and improving lubricity, efficiency of the motor and mechanical parts is increased.
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A reduction in emissions. Less friction and cleaner, better lubricated parts through the use of high quality synthetic lubricants and filtration systems allows for a cleaner running engine.
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An increase in power, reduced downtime and longer lasting equipment.
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We also hope, funding permitting, to open new environment conscious quick lube centers in southern Ontario, Canada, through Eco-Tek Lube Centres, the wholly-owned subsidiary of Eco-Tek Ontario, with the goal of expanding throughout North America and eventually worldwide. These centers are planned to offer oil changes using Eco-Tek synthetic oils and performance enhancing, eco-friendly lubricants. We anticipate that the cost of opening a new facility will be approximately $150,000 and the cost of converting an existing facility to an Eco-Tek Lube Centre will be approximately $50,000.
Currently we sell the following products
, which are currently commercially available (except as otherwise stated)
, which we either manufacture (through the blending of various ingredients) or distribute on behalf of third parties under our own “Eco-Tek” brand:
“Eco-Tek 3000 Super Synthetic 100% API Approved HP Motor Oil”
Synthetic base motor oil with anti-friction technology, high viscosity and TBN quality (additive package) has been shown to improve performance, extend the life of the oil and the engine, improve fuel economy and reduce emissions. “TBN” stands for total base number, which relates to the quality and/or strength of the additive package found in every motor oil. Our motor oil and lubricant is zinc free. Zinc is currently being regulated by governments when used in motor oil, and as such, we believe that our motor oil is better for the environment. Additionally, as higher rates of friction result in hotter engines, which increase fuel consumption and create higher emissions, our oil and lubricant, which reduce the friction in an engine when compared to traditional motor oils, has been shown to reduce fuel consumption and lower emissions.
“ECO-TEK 4 In 1 Fuel Treatments”
Fuel treatment to clean and lubricate fuel injectors, fuel pump and valves, has been shown to reduce wear and extend the life of mechanical parts, reduce fuel consumption, increase horsepower (HP) and torque, prevent freezing/gelling in winter and reduce emissions. One of the reasons for this is because a clean engine is more efficient and less prone to breakdown (the “Black Death of Sludge”, ConsumerReports.Org, last updated February 2012). Our fuel treatment product is a mild engine oil gallery cleaner, which is added to the used oil before the oil is changed and circulated throughout the system for approximately ten minutes while the engine idles, before the used oil and cleaner is drained and replaced with new oil.
“Eco-Tek Engine Flush”
A flush for engines which cleans internal engine components, extends engine life and restores lost performance due to sludge and buildup.
“Eco-Tek Heavy Duty Synthetic Oil Stabilizer”
An oil stabilizer which is added to engine oil used in engines and differentials to increase viscosity and also reduce friction. This results in lower running temperatures which equates to a longer engine life. The higher viscosity also increases compression in diesel engines and worn or older gasoline engines. This higher compression results in increased horsepower and torque. The reduced friction equates to more efficiency. This in turn results in better fuel consumption and increased horsepower and torque.
“Eco-Tek Bypass And Magnetic Oil Filtration For Trucks”
Keeps oil cleaner by drawing out metals down to 3 microns in size, therefore working to eliminate moisture, extending the life of the oil, reducing friction and improving performance, fuel economy, equipment life and emission. Our oil filtration product is an add-on bypass oil filter system that is installed on an engine in addition to the OEM oil filter. It filters particulates in the oil to a much smaller micron size (i.e., approximately 3 microns versus 50 microns on average without the additional filter) to help eliminate metal wear, moisture and keep the engine oil cleaner. We have the exclusive distributor rights in North America to these products.
“Eco-Tek Premium Orange Hand Cleaner”
Hand cleaner, which contains pumice to clean, aloe and lanolin to moisturize.
“Eco-Tek Non-Toxic Super Lubricant”
Reduces friction, fuel consumption, harmful contaminants in oil, reduces smoke, vibration and noise. This is an oil additive, which end-users can add directly to the oil in their engines.
Future Planned Products and Expansion
Funding permitting we plan to expand our product line with the following additional products:
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“Eco-Tek Fuel Saving Package” which will combine the Eco-Tek Non Toxic Super Lubricant and the Eco-Tek 4 in 1 Fuel Treatment, and is planned to also be marketed on the internet. This product has been developed, but needs to be packaged. The Company believes that this product could be ready for commercial sale in the next six months.
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“Eco-Tek Non Toxic Windshield Washer Fluid”, for which a prototype currently exists, and which is in the final testing phase of development. The Company estimates this product is approximately sixty percent (60%) complete. The Company believes that this product could be ready for commercial sale in approximately six months.
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“Eco-Tek Non Toxic Multi-Purpose Lubricant” which will come with a non-pressurized spray applicator, which we believe will have several uses similar to WD 40, but will be “green” and nontoxic. A prototype currently exists for this product, which the Company estimates is approximately ninety-nine percent (99%) complete and needs to be packaged and labeled to be ready for commercial sale which is anticipated to happen in approximately the next four months.
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Moving forward, we plan to add on-line product ordering and fulfillment in conjunction with TV advertising and infomercials for our products. We plan to begin television advertising as soon as possible and anticipate the cost of producing an infomercial at approximately $1,000 per minute.
Manufacturing/Blending/Distribution
In order to manufacture our products, we obtain five different ingredients from four different suppliers. Ingredients are then blended and bottled by two separate International Organization for Standardization (ISO) manufacturers in Brampton, Ontario (Kleen Flow Tumbler) and Etobicoke (Humberline Packaging Inc.), Ontario, Canada. Our three synthetic motor oil products are supplied by two American and one Canadian manufacturer. We do not have any agreements in place with any suppliers or manufacturers. We currently only sell products to third parties who sell such products to end-users. The hand cleaner which we sell is sourced and prepared for us by a third-party company located in Ontario, Canada. The filters are manufactured for us in Japan and distributed exclusively to us by a company located in Ontario, Canada. We only have exclusive rights to distribute one product, the Eco-Tek Bypass And Magnetic Oil Filtration For Trucks, described above, for which we have exclusive North American distribution rights. We do not directly manufacture this product. Our other products are either a blend of other products purchased separately (e.g., the Synthetic Motor Oil, Fuel Treatment, Engine Flush, Oil Stabilizer and Lubricant) or a rebranded product purchased from a third party (e.g., the hand cleaner).
Our principal suppliers are as follows:
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Lubrizol Canada;
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Safety Kleen Canada Inc.;
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Brascorp North America LTD;
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L. V. Lomas Limited;
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Kleen Flow Tumbler;
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Humberline Packaging Inc.;
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Salbro Bottle Inc.;
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AF International;
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Apco Industries Co Limited;
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Tripler America Co. Ltd; and
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Noco Lubricants.
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Dependence On One Or A Few Major Customers
We are not dependent on one or a few major customers.
Need For Governmental Approval
We are not required to obtain government approval for any of our products or operations.
Effect of Existing or Probable Governmental Regulation
We currently believe that the effect of existing or probable governmental regulations on our products and operations is minimal. Additionally, while we will respect any and all trade embargoes imposed by the United States or Canada on countries with whom we have distribution agreements in place, we believe that the effect of such embargoes, if any, will be minimal on our results of operations.
Costs and Effects of Compliance With Environmental Laws
Currently there are no costs or effects related to our compliance with environmental laws at the federal, state or local level.
Distribution
We use independent sales agents and distributors to distribute our products. Currently, we sell products through auto centers and oil change businesses including Midas Auto Centers. We have also entered into international distribution agreements with distributors in three US states (Arizona, Florida and Texas), and various international markets including Ecuador, Chile, Israel, Italy, Columbia, and Ecuador. We currently have two corporate sales reps, two sales agents, 12 independent local distributors (who market in and around Ontario, Canada), and 12 separate foreign distributors. Our distribution agreements generally grant distributors an exclusive territory in which to distribute our products for a period of time and provide that the distributor is required to pay for advertising expenses associated with the products in the applicable territory. We set the prices that the distributors are required to pay to purchase products from us, and the distributors determine the sales price of the products in their individual markets. We require a pre-determined percentage of the sales price up front in order to ship products to the distributor. Certain distribution agreements also require the distributor to purchase a certain minimum amount of product per month.
Product Development and Market Research
The Company has two permanent and four part-time employees. Additionally, Sergey Kartsev, a shareholder of the Company, provides services to the Company as an unpaid corporate representative.
The research and development behind the unique and patent pending Non Toxic Super Lubricant product which we use in our products began in 1995 under the direction of the then President of Eco-Tek Ontario, John D’Alessandris, who became interested in the work of a scientist familiar with engine treatment lubricants. Research and Development is conducted under the supervision of Dr. Sabatino Nacson, PHD Chemistry and working with external services and facilities as necessary. Dr. Nacson is a consultant to the Company and the Company currently has an agreement in place with Dr. Nacson as described in greater detail below under “Technology Agreement”.
Dr. Nacson is presently Co-CEO and Chief Technical Officer of Teknoscan Systems Inc. TeknoScan Systems’ technology detects and identifies threat substances through the sampling and analysis of trace vapors and particles in air or on surfaces. Its advanced Rapid Trace Detection and Identification (RTDI) solutions identify compounds such as explosives, drugs and other target substances with state-of-the-art patent pending technologies. He has been in the field of new product developments since 1978, with a Master of Engineering degree from Institute Aerospace Studies, University of Toronto, a Ph.D in Analytical chemistry from the University of Toronto and he has also served as an Adjunct Professor of chemistry at University of Waterloo.
Dr. Nacson has over 50 publications and twelve patents and is well known in the field of analytical chemistry, instrumentation developments and innovative ideas for new product development and bringing them to the market.
No cash consideration has been paid in connection with research and development expenses during the last three years, instead Dr. Nacson was issued an aggregate of 249,500 shares of common stock of Eco-Tek Ontario prior to the Share Exchange Agreement (representing 1,039,583 shares in the Company following the exchange of such shares into shares of the Company’s common stock in connection with the closing of the Share Exchange Agreement) in consideration for research and development services rendered.
Eco-Tek Ontario’s total research and development costs recorded during fiscal 2012 and 2011 were approximately $nil and $35,000, respectively. Eco-Tek Ontario recorded an investment tax credit of $13,557 in fiscal 2011 against such research and development costs.
The Company, through Eco-Tek Ontario, entered into a Technology co-operation Agreement (the “Technology Agreement”) with Dr. Nacson on August 23, 2012, which was amended and restated on September 14, 2012 and further amended on November 12, 2012 (the discussion of the Technology Agreement below affects and reflects such amendments and restatements). The Technology Agreement provides for Dr. Nacson to collaborate with the Company on the development of various products used in the automotive industry, including fuel injector formulation, fuel treatment, diesel fuel enhancement, lubricating oils, and penetrating lubricant formulation. Pursuant to the Technology Agreement, Dr. Nacson agreed to provide consulting services to the Company and assist the Company in patent writing to protect new products and technology developed for the Company in the automotive market. We agreed to compensate Dr. Nacson (i) CDN$100 per hour for the development of products up to a maximum of CDN$5,000 per product upon release and acceptance of formula to us; (ii) through the issuance of 1,039,583 shares of the Company’s common stock, which have previously been issued to date; (iii) by the payment of 1% of total sales of new products sold which were exclusively developed by Dr. Nacson or in collaboration with the Company; and (iv) to repay Dr. Nacson for all expenses associated with the U.S. and Canadian patents on the lubricant oil formation, which total $30,000, and all expenses moving forward, which will be paid quarterly. As of December 31, 2012, the Company has not made any of the agreed upon payments within this agreement and all patents remain with Dr. Nacson and have not been assigned to the Company.
Dr. Nacson agreed not to develop end user products in the automotive industry, which compete with the Company. We also received the exclusive rights to market and sell products developed by Dr. Nacson in the automotive market. All products and formulae will be provided to us and remain our sole property. We will manufacture, package and market products developed by Dr. Nacson at our sole discretion. Dr. Nacson agreed to to assign all patent rights associated with the oil lubricant technology to us. The Company agreed to indemnify and hold Dr. Nacson harmless against any claims or actions arising out of the use of any product developed by Dr. Nacson. The Technology Agreement has a term of seven years, extendable for up to another seven years thereafter, provided that the Technology Agreement can be terminated by either party after the expiration of the first seven year period with 90 days written notice from either party. Although the provisional patent application relating to the formula used in our products is registered in Dr. Nacson’s name, we have the exclusive rights to use such formula and any other products and intellectual property associated therewith created by Dr. Nacson for use in the automotive industry and during the term of the Technology Agreement.
Other Applications for Eco-Tek Non-Toxic Super Lubricant
Eco-Tek NonToxic Super Lubricant is a versatile product that has a variety of uses and applications. It can be used with synthetic and other gear lubricants. When added to differentials, it protects vital parts such as crown and pinion, bearings and clutches in limited slip applications. In manual transmissions, it protects gears through reduction of friction when shifting and it has been known to fix problematic automatic transmissions due to sticky valve bodies.
In addition to cars, vans, sport utility vehicles (SUV’s) and light trucks, Eco-Tek products are recommended for:
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Heavy-duty industrial equipment such as excavators, bulldozers, cranes, front-end loaders and forklift trucks;
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Commercial and heavy Transport vehicles;
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Farm Equipment;
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4-cylinder lawn and garden equipment;
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Compressors; and
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Generators.
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Synthetic lubricants are superior compared to traditional petroleum oils. Traditional petroleum oils have to be changed about every 3,000 miles for most vehicles. We believe that synthetics can be run two to three times that.
Patents
Dr. Nacson filed a provisional patent application (No. 61/527,486) with the United States Patent and Trademark Office for the formation of the lubricating oil used in the Eco-Tek products in October 2011. As described above, we currently have a Technology Agreement in place with Dr. Nacson to use the lubricant and the patent during the term of the agreement and we will receive an assignment of all of the rights associated with the formation of the lubricating oil once the Company pays Dr. Nacson the consideration due to him as described in greater detail above under “Technology Agreement”.
COMPETITION
Motor oil marketers continue to look to higher-priced specialized and high-performance formulations to lessen the price-driven, commodity nature of the business. Synthetic motor oils and synthetic blends remain the most promising development. They have strong appeal to marketers and retailers alike because of the much higher prices they command. Marketers are thus devoting much of their marketing and new product development efforts to synthetic and blended oils.
Because we are a small company with a limited operating history, we are at a competitive disadvantage against the large and well-capitalized companies in the automotive aftermarket, and outdoor power equipment industries. In addition, the “green” products which we distribute are generally more expensive than traditional, non-“green” products. Therefore, our primary method of competition involves promoting the benefits of using our distributed products over those of our competitors, including the quality and effectiveness of our distributed products based on independent tests.
An investment in our common stock is highly speculative, and should only be made by persons who can afford to lose their entire investment in us. You should carefully consider the following risk factors and other information in this report before deciding to become a holder of our common stock. If any of the following risks actually occur, our business and financial results could be negatively affected to a significant extent.
We Have Future Capital Needs And Without Adequate Capital We May Be Forced To Cease Or Curtail Our Business Operations. We May Not Have Sufficient Funds To Repay The Convertible Notes When Due And The Conversion Of Such Notes May Cause Dilution To Our Existing Shareholders.
Our growth and continued operations could be impaired by limitations on our access to capital markets. Furthermore, the limited capital we have raised, and the capital we hope will be available to us from our principals, if any, may not be adequate for our long-term growth. If financing is available, it may involve issuing securities senior to our common stock or equity financings, which are dilutive to holders of our common stock, similar to the Convertible Notes (described below under “Management’s Discussion And Analysis Of Financial Condition And Results Of Operations” – “Liquidity and Capital Resources” - “Convertible Notes” and “Promissory Notes”, collectively the “Notes”). In addition, in the event we do not raise additional capital from conventional sources, such as our existing investors or commercial banks, there is every likelihood that our growth will be restricted and we may be forced to scale back or curtail implementing our business plan. Furthermore, we currently owe an aggregate of $399,935 (not including accrued and unpaid interest) under the Notes which amount is due on various dates between October 2011 and December 2013, including an aggregate of $
225
,000 which is past due and has not been repaid or extended to date. In the event we are unable to repay the Notes when due or extend such Notes, we may be forced to curtail or abandon our business plan. Additionally, the Convertible Notes are convertible into shares of our common stock at a conversion price of $0.00035714 per share and the Promissory Notes are convertible into shares of our common stock, upon an event of default, equal to 70% of the volume weighted average closing prices of the Company’s common stock during the 10 trading days prior to the conversion date, and the conversion of such Notes (and accrued and unpaid interest thereon) could cause substantial dilution to our then shareholders.
Even if we are successful in raising capital in the future, we will likely need to raise additional capital to continue and/or expand our operations and to repay the Notes. If we do not raise the additional capital, the value of any investment in our Company may become worthless. In the event we do not raise additional capital from conventional sources, it is likely that we may need to scale back or curtail implementing our business plan.
T
here Is Substantial Doubt As To Whether We Can Continue As A Going Concern.
We had a working capital deficit of $
927,508
and an accumulated deficit of $2,212,926
as of December 31, 2012. These factors among others indicate that there is substantial doubt as to whether we may be able to continue as a going concern. The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty and if we cannot continue as a going concern, your investment could become devalued or even worthless.
The Success Of The Company Depends Heavily On Ronald Kopman; Maurizio Cochi and Barry Wohl, Our Officers And Directors.
The success of the Company will depend on the ability of Ronald Kopman; Maurizio Cochi and Barry Wohl, our officers and Directors. The loss of
Ronald Kopman; Maurizio Cochi or Barry Wohl
will have a material adverse effect on the business, results of operations (if any) and financial condition of the Company. In addition, the loss of
Ronald Kopman; Maurizio Cochi or Barry Wohl
may force the Company to seek a replacement who may have less experience, fewer contacts, or less understanding of the business. Further, we may not be able to find a suitable replacement for
Ronald Kopman; Maurizio Cochi or Barry Wohl
, which could force the Company to curtail its operations and/or cause any investment in the Company to become worthless. The Company does not have an employment agreement with
Ronald Kopman; Maurizio Cochi or Barry Wohl
.
Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev Exercise Majority Voting Control Over The Company And Therefore Will Exercise Control Over Corporate Decisions Including The Appointment Of New Directors.
Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev can vote in aggregate 1,000 shares of our outstanding Series A Preferred Stock. T
he Series A Preferred Stock, voting separately as a class is entitled to vote in aggregate, on all shareholders matters, 51% of the total vote on such shareholder matters, no matter how many shares of common stock or other voting stock of the Company are issued or outstanding in the future (the “Super Majority Voting Rights”).
Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev therefore exercise control in determining the outcome of all corporate transactions or other matters, including the election of Directors, mergers, consolidations, the sale of all or substantially all of our assets, and also the power to prevent or cause a change in control. Any investor who purchases shares in the Company will be a minority shareholder and as such will have little to no say in the direction of the Company and the election of Directors. Additionally, it will be difficult if not impossible for investors to remove any person from our Board of Directors without the consent of Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev, which will mean Luciana D’Alessandris, Jim Vogiatzis, Michael Zitser and Sergey Kartsev will have significant say in determining who serves as officers of the Company as well as whether any changes are made in the Board of Directors. As a potential investor in the Company, you should keep in mind that even if you own shares of the Company's common stock and wish to vote them at annual or special shareholder meetings, your shares will likely have little effect on the outcome of corporate decisions.
Our Officers And Directors Have Other Employment Outside Of The Company, And As Such, May Not Be Able To Devote Sufficient Time To Our Operations.
Our officers and Directors all have employment outside of and separate from the Company; and as such, may not be able to devote a sufficient amount of time to our operations.
Currently our Chief Financial Officer, and Director, Ronald Kopman, devotes approximately 30 hours per week to the Company; our Treasurer, Secretary and Director, Maurizio Cochi, devotes approximately 45 hours per week to the Company; and our Director, Barry Wohl devotes approximately 5 hours per week to the Company.
If our officers and Directors are not able to spend a sufficient amount of their available time on our operations, we may not ever generate any revenue and/or any investment in the Company could become worthless.
Our Articles Of Incorporation, And Bylaws, As Amended, Limit The Liability Of, And Provide Indemnification For, Our Officers And Directors.
Our Articles of Incorporation, generally limit our officer’s and Director’s personal liability to the Company and its stockholders for breach of fiduciary duty as an officer or Director except for breach of the duty of loyalty or acts or omissions not made in good faith or which involve intentional misconduct or a knowing violation of law. Our Articles of Incorporation, as amended, and Bylaws, as amended, provide indemnification for our officers and Directors to the fullest extent authorized by the Nevada General Corporation Law against all expense, liability, and loss, including attorney's fees, judgments, fines, excise taxes or penalties and amounts to be paid in settlement reasonably incurred or suffered by an officer or Director in connection with any action, suit or proceeding, whether civil or criminal, administrative or investigative (hereinafter a "Proceeding") to which the officer or Director is made a party or is threatened to be made a party, or in which the officer or Director is involved by reason of the fact that he is or was an officer or Director of the Company, or is or was serving at the request of the Company as an officer or director of another corporation or of a partnership, joint venture, trust or other enterprise whether the basis of the Proceeding is an alleged action in an official capacity as an officer or Director, or in any other capacity while serving as an officer or Director. Thus, the Company may be prevented from recovering damages for certain alleged errors or omissions by the officers and Directors for liabilities incurred in connection with their good faith acts for the Company. Such an indemnification payment might deplete the Company's assets. Stockholders who have questions regarding the fiduciary obligations of the officers and Directors of the Company should consult with independent legal counsel. It is the position of the Securities and Exchange Commission that exculpation from and indemnification for liabilities arising under the Securities Act of 1933, as amended, and the rules and regulations thereunder is against public policy and therefore unenforceable.
As We Are A Public Reporting Company, We Will Incur Significant Costs In Connection With Compliance With Section 404 Of The Sarbanes Oxley Act, And Our Management Will Be Required To Devote Substantial Time To New Compliance Initiatives.
We are subject to among other things, the periodic reporting requirements of the Securities Exchange Act of 1934, as amended, and will incur significant legal, accounting and other expenses in connection with such requirements. The Sarbanes-Oxley Act of 2002 (the "Sarbanes-Oxley Act") and new rules subsequently implemented by the SEC have imposed various new requirements on public companies, including requiring changes in corporate governance practices. As such, our management and other personnel will need to devote a substantial amount of time to these new compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly. In addition, the Sarbanes-Oxley Act requires, among other things, that we report on the effectiveness of our internal controls for financial reporting and disclosure of controls and procedures. Our compliance with Section 404 will require that we incur additional accounting expense and expend significant management efforts. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge to have effective internal controls for financial reporting. Additionally, due to the fact that we only have three persons who serve as our officers and Directors, who have no experience as officers or Directors of a reporting company, such lack of experienced personnel may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders. Moreover, if we are not able to comply with the requirements of Section 404 in a timely manner, or if we or our independent registered public accounting firm identify deficiencies in our internal controls over financial reporting that are deemed to be material weaknesses, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities, which would require additional financial and management resources.
Our Officers And Directors Lack Experience In And With The Reporting And Disclosure Obligations Of Publicly-Traded Companies.
While we rely heavily on
Ronald Kopman; Maurizio Cochi and Barry Wohl
, they lack experience in and with the reporting and disclosure obligations of publicly-traded companies and with serving as an officer or Director of a publicly-traded company. Such lack of experience may impair our ability to maintain effective internal controls over financial reporting and disclosure controls and procedures, which may result in material misstatements to our financial statements and an inability to provide accurate financial information to our stockholders. Consequently, our operations, future earnings and ultimate financial success could suffer irreparable harm due to our officers and directors ultimate lack of experience in our industry and with publicly-traded companies and their reporting requirements in general. Additionally, due to the fact that all of our officers and Directors are currently located in Canada; having employment outside of the Company; and lacking experience with companies in our industry, we may be unable to successfully implement our business plan, and/or manage our future growth if any. Our officers and Directors do not currently believe that their outside employment affects the day to day operations of the Company. While the Company believes that the time and resources that our officers and Directors are able to provide to the Company, and/or which they may be willing to provide to us in the future, as well as our outside consultants are adequate to support the Company’s business plan, our operations and growth (if any) may be adversely affected by the fact that our officers and Directors are located in another country, only being able to provide a limited number of hours of service to the Company per week and/or their outside employment.
T
here Is Uncertainty As To Our Ability To Enforce Civil Liabilities Both In And Outside Of The United States Due To The Fact That Our Officers, Directors And Certain Of Our Assets Are Not Located In The United States
.
Our office is not located in the United States.
Our officers and Directors are located in Canada and the operations and assets of the Company are located in Canada. As a result, it may be difficult for shareholders to effect service of process within the United States on our officers and Directors. In addition, investors may have difficulty enforcing judgments based upon the civil liability provisions of the securities laws of the Unites States or any state thereof, both in and outside of the United States.
Risks Relating To the Operations of the Company
We depend on a limited number of key suppliers for our products and to provide us with ancillary supply chain services. If our key suppliers cannot provide us with a sufficient quantity of high quality products on a timely basis, our reputation may be impaired, which, in turn, could adversely impact our business, results of operations and financial condition.
We do not have any agreements (other than one non-disclosure agreement with Kleen Flow Tumbler) in place with our suppliers or manufacturers. If our relationship with our key suppliers were to terminate, we may not be able to find another supplier that could provide us with comparable replacement product. In addition, if any of these suppliers fail to provide us with product in a timely manner or in sufficient quantities or if the quality of the product they produce is below that which our customers expect, our ability to satisfy customer demand will be adversely impacted and our reputation will be harmed. In turn, this may adversely impact our ability to generate revenues and profits. A number of factors may affect the timely delivery of our products including labor issues (such as strikes, slow-downs and lock-outs), natural phenomena (such as inclement weather, tornados and earthquakes) and service disruptions (such as gas leaks and power outages). Similarly, the quality of our products may be adversely affected if our suppliers fail to blend the ingredients properly, if there are shortages of key ingredients or if we have to use a different supplier or suppliers. The loss of any one of these supplier relationships could have an adverse material impact on our business as we may not be able to quickly find a replacement for any of these suppliers and any replacements we do find may charge us more for such ingredients. We cannot assure you that our relationship with any of our suppliers will continue or that the services they provide to us will be adequate. We cannot assure you that there are other suppliers that have the know-how or capability to supply us with a sufficient quantity of products of comparable quality. Products produced from a different supplier are likely to have a different formulation with different characteristics and may be inferior in terms of their performance. This could have a material adverse impact on our reputation, which could negatively affect our revenues.
Our future success depends on broad market acceptance of our products, which may not happen.
Our entire business is based on the assumption that the demand for our products will develop and grow. We cannot assure you that this assumption is or will be correct. The market for “green” lubricating products is relatively new and currently is quite small. As is typical of a new and rapidly evolving industry, the demand for, and market acceptance of, “green-based” products is highly uncertain. In order to be successful, we must be able to keep our understandings in place with the suppliers of our products, convince retailers to stock our products and educate consumers that our products perform as well as the products they currently use and that the benefit of using our products is worth any additional cost. We plan to spend a considerable amount of our marketing budget educating consumers on the benefits associated with using our products as well as proving that our products work as well as the existing products they are accustomed to using. We can provide no assurances that these efforts will be successful or result in increased revenue. Similarly, we cannot assure you that the demand for our products will become widespread. If the market for our products fails to develop or develops more slowly than we anticipate, our business could be adversely affected.
We may not succeed in further promoting the “Eco-Tek” brand, which could prevent us from acquiring customers and increasing our revenues.
A significant element of our business strategy is to build market share by continuing to promote and establish our “Eco-Tek” brand. In connection with such strategy, we have budgeted approximately $135,000 in advertising costs over the next 12 months including creating an internet sales strategy for the Eco-Tek Non Toxic Multi-Purpose Spray Lubricant and Eco-Tek Fuel Savings Package, creating an infomercial for television advertising, and general product advertising including advertisements in magazines, on the internet, at trade shows, and providing free samples and promotional packages. If we cannot establish our brand identity, we may fail to build the critical mass of customers required to substantially increase our revenues. Promoting and positioning our brand will depend largely on the success of our sales and marketing efforts and our ability to provide a consistent, high quality customer experience. To promote our brand, we expect that we will incur substantial expenses related to advertising and other marketing efforts. If our brand promotion activities fail, our ability to attract new customers and maintain customer relationships will be adversely affected, and, as a result, our financial condition and results of operations will suffer. Gaining market share for our Eco-Tek-branded products may prove to be extremely difficult as many of our competitors – including major oil and consumer products companies – are larger and better capitalized. Consequently, the rate of growth for sales of our Eco-Tek-branded performance and cleaning products may be slower than we have anticipated. If we are unable to successfully achieve market acceptance of our products, our future results of operations and financial condition will be adversely affected.
As public awareness of the health risks and economic costs of non-“green” products grow, we expect competition to increase, which could make it more difficult for us to grow and achieve profitability.
We expect competition to increase as awareness of the environmental and health risks associated with non-“green” products increases and as we demonstrate the success of efficacy of our “green” products. A rapid increase in competition could negatively affect our ability to develop new and retain our existing clients and the prices that we can charge. Many of our competitors and potential competitors have substantially greater financial resources, customer support, technical and marketing resources, larger customer bases, longer operating histories, greater name recognition and more established relationships than we do. We cannot be sure that we will have the resources or expertise to compete successfully. Compared to us, our competitors may be able to:
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develop and expand their products and services more quickly;
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adapt faster to new or emerging technologies and changing customer needs and preferences;
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take advantage of acquisitions and other opportunities more readily;
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negotiate more favorable agreements with vendors and customers;
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devote greater resources to marketing and selling their products or services; and
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address customer service issues more effectively.
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Some of our competitors may also be able to increase their market share by providing customers with additional benefits or by reducing their prices. We cannot be sure that we will be able to match price reductions by our competitors. In addition, our competitors may form strategic relationships to better compete with us. These relationships may take the form of strategic investments, joint-marketing agreements, licenses or other contractual arrangements that could increase our competitors’ ability to serve customers. If our competitors are successful in entering our market, our ability to grow or even sustain our current business could be adversely impacted.
If we or our suppliers fail to keep up with changes in our industry, we will become less competitive, limiting our ability to generate new business and increase our revenues.
In order to remain competitive, serve our customers effectively and increase our revenue, we must respond on a timely and cost-efficient basis to changes in technology, industry standards and procedures and customer preferences. We need to continuously develop and/or seek to distribute new products and technologies that address new developments in the market segments we serve and the regions in which we operate, as well as laws, regulations, rules, standards, guidelines, releases and other pronouncements that are periodically issued by legislatures, government agencies, courts, professional associations and others. In some cases these changes may be significant and the cost to comply with these changes may be substantial. We cannot assure you that we or our suppliers will be able to adapt to any changes in the future, that we will have the financial resources to keep up with changes in the marketplace or that we will be able to offset those costs with increases in revenues through price increases or additional product sales. Our inability to keep pace with changes and developments in the markets we serve may have an adverse impact on our business, results of operation and financial condition.
We may not be able to manage our growth effectively, create operating efficiencies or achieve or sustain profitability.
Our efforts to grow have placed, and we expect will continue to place, a significant strain on our personnel, management systems, infrastructure and other resources. Our ability to manage future growth effectively will also require us to continue to update and improve our operational, financial and management controls and procedures. If we do not manage our growth effectively, we could be faced with slower growth and a failure to achieve or sustain profitability.
We may pursue acquisition opportunities, which may subject us to considerable business and financial risk.
We may pursue acquisitions of companies, assets or complementary technologies in the future. Acquisitions may expose us to business and financial risks that include, but are not limited to:
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diverting management’s attention;
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incurring additional indebtedness;
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dilution of our common stock due to issuances of additional equity securities;
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assuming liabilities, known and unknown;
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incurring significant additional capital expenditures, transaction and operating expenses, and non-recurring acquisition-related charges;
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the adverse impact on our earnings of the amortization of identifiable intangible assets recorded as a result of acquisitions;
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the adverse impact on our earnings of impairment charges related to goodwill recorded as a result of acquisitions should we ever make such a determination that the goodwill or other intangibles related to any of our acquisitions was impaired;
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failing to integrate and assimilate the operations of the acquired businesses, including personnel, technologies, business systems and corporate cultures;
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poor performance and customer dissatisfaction with the acquired company;
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entering new markets;
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failing to achieve operating and financial synergies anticipated to result from the acquisitions; and
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failing to retain key personnel of, vendors to and customers of the acquired businesses.
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If we are unable to successfully address the risks associated with acquisitions, or if we encounter unforeseen expenses, difficulties, complications or delays frequently encountered in connection with the integration of acquired entities and the expansion of operations, our growth may be impaired, we may fail to achieve anticipated acquisition synergies and we may be required to focus resources on the integration of acquired operations rather than on our primary business.
We Face Risks Associated With Increases In Raw Materials Prices.
The raw materials for our products and lubricants consist primarily of base oil and additives which we purchase from third parties. Our profitability is sensitive to changes in the costs of these commodity-like raw materials caused by changes in supply or other market conditions, over which we have little or no control. Furthermore, our profitability is sensitive to increases in the prices of the third party products we acquire, re-brand and distribute. When there are sudden or sharp increases in the cost of base oil or additives and/or other products that we distribute, we may not be able to pass on these increases in whole or in part to customers through product and lubricant price increases, or we may be significantly delayed in our ability to do so. In addition, any rapid or unexpected increase in the price of crude oil, other ingredients we use and/or the third party products we distribute directly or indirectly resulting from war, armed hostilities, terrorist acts or other incidents could cause a sudden or sharp increase in our cost of goods sold. We may not be able to pass on to our customers any future increased base oil or additive costs or third party product costs in the form of price increases for our products or lubricants. Any inability to pass on these costs as price increases to our customers will reduce the profit margin we receive for our products.
We Face Risks Associated With Downturns In The Economy.
Many factors affect the level of consumer spending in the automotive lubricants and consumer products industries, including, among others, general business conditions, interest rates, gasoline prices, the availability of consumer credit and consumer confidence in future economic conditions. Consumer purchases of lubricants, automotive engine treatments and fuel additives and automotive appearance products generally are reduced during recessionary periods when disposable income is lower. Moreover, consumer purchases of discretionary items could decline even more rapidly for many consumers during recessionary periods. A downturn in the economies in which the Company sells its products could adversely affect revenues.
We Face Risks Associated With A Reduction In Demand For Lubricants And Oil Change Services.
A reduction in the frequency of oil changes could adversely affect the revenues of the lubricants and oil change centers segments. When the retail cost of gasoline increases, the number of miles driven by automobile owners typically decreases, which results in fewer oil changes. In addition, some automotive manufacturers are increasing the recommended mileage interval between oil changes for newer cars, which could lead to changes in consumer maintenance patterns. A change in consumer maintenance patterns could result in oil changes becoming less frequent.
We Face Risks Associated With Responses To Consumer Demands.
Our success in the consumer products segment depends on our ability and in some cases the ability of the companies which produce the products we distribute, to identify, originate and define automotive consumer product trends as well as to anticipate, gauge and react to changing consumer demands in a timely manner. Our automotive consumer products must appeal to a broad range of consumers whose preferences cannot be predicted with certainty and are subject to rapid change.
In categories in which we compete, there are frequent introductions of new products and line extensions. If we and the third parties whose products we distribute are not able to identify emerging consumer and technological trends and to maintain and improve the competitiveness of our products, we would lose our market position. Continued product development and marketing efforts have all the risks inherent in the development of new products and line extensions, including development delays, the failure of new products and line extensions to achieve anticipated levels of market acceptance and the cost of failed product introductions.
We Face Risks Associated With Our Foreign Operations.
Currently our operations are conducted in Canada and approximately 85% of our revenues come from sales of our products in Canada, with the other 15% coming from oversea markets such as Ecuador, Argentina and Chile. As a result, we face and believe that we will continue to face risks created by having foreign operations including:
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economic or political instability in Canada or other overseas markets in which we sell products; and
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fluctuations in foreign currency exchange rates that may make our products more expensive to produce or to sell in foreign markets or negatively impact our sales or earnings.
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These risks could have a significant impact on our ability to sell products on a timely and competitive basis in foreign markets and may have a material adverse effect on our results of operations or financial position. Our operations are also subject to the risk of new and different legal and regulatory requirements in local jurisdictions, potential difficulties in staffing and managing local operations, credit risk of local customers and distributors, and potentially adverse tax consequences. In addition, our ability to identify, originate and define automotive consumer product trends, as well as gauge and react to changing consumer demands, may be more difficult in foreign markets.
Competition In The Markets In Which We Compete Is Intense And Our Competitors May Develop Products More Popular With Consumers.
We face intense competition in the product lines and markets in which we compete, including the rights to distribute the third party products which we distribute. Our lubricants and consumer products compete with other brands within their product category and with private label products sold by retailers. We compete with numerous manufacturers, importers and distributors of competing products for the limited space available for the display of these products to the consumer. Moreover, the general availability of contract manufacturing allows new entrants easy access to the consumer products markets in which we compete, which may increase the number of our competitors and adversely affect our competitive position and our business. Many of our competitors' financial, distribution, marketing and other resources are substantially greater than those that we possess. Additionally, we only have exclusive rights (and only in North America) to one of the products we distribute. As such, competitors may freely distribute the third party products which we rebrand and distribute and may further enter into exclusive arrangements with our suppliers, prohibiting us from continuing to supply such products. If this were to occur, we may be forced to curtail or abandon our operations.
Business Disruptions Could Seriously Harm our Operations And Financial Performance.
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Business disruptions, including those related to natural disasters, severe weather conditions, supply disruptions, increasing costs for energy, temporary plant and/or power outages, information technology systems and network disruptions, terrorist attacks, armed conflict, war, pandemic diseases or other catastrophic events, could seriously harm our operations, as well as the operations of our customers and suppliers, and adversely impact our financial performance. Although it is impossible to predict the occurrence or consequences of any such events, they could result in reduced demand for our products, make it difficult or impossible for us to manufacture our products or deliver products and services to our customers or to receive raw materials from suppliers, or create delays and inefficiencies in the supply chain.
While we maintain business continuity plans that are intended to allow us to continue operations or mitigate the effect of events that could disrupt our business, we cannot provide assurances that our plans would fully protect us from all such events. In addition, insurance maintained by us to protect against loss of business and other related consequences resulting from business disruptions is subject to coverage limitations, depending on the nature of the risk insured. This insurance may not be sufficient to cover all of our damages or damages to others in the event our business is disrupted. In addition, insurance related to these types of risks may not be available now or, if available, may not be available in the future at commercially reasonable rates.
The Owner of the Company’s Intellectual Property Rights
May Reclaim
The
Intellectual Property
Rights
That Have Been Assigned to the Company In The Event That He Does Not Receive All of the Compensation That He Is Entitled
To.
We currently have a Technology Agreement (as described above) in place with Dr. Nacson which provides for the assignment of all patent rights held by Dr. Nacson in the lubricating oil and other technology created by Dr. Nacson for use in automobiles to the Company as long as Dr. Nacson receives all compensation which he is entitled to pursuant to the Technology Agreement (described above under “Technology Agreement”). In the event that Dr. Nacson does not receive all of the compensation that he is due pursuant to the Technology Agreement, all rights and title to the intellectual property revert back to Dr. Nacson and will be his sole property. If this were to occur we would lose our rights to the patents, our business may be significantly harmed, we may be forced to cease our operations, and the value of any investment in the Company may be impaired or become worthless.
We May Not Be Able To Effectively Protect Or Enforce Our Future Intellectual Property Rights.
We plan to rely on the patent, trademark, trade secret and copyright laws of the United States and other countries to protect our future intellectual property rights. The laws of some countries may not protect our intellectual property rights to the same extent as the laws of the United States. Failure of foreign countries to have laws to protect our intellectual property rights or an inability to effectively enforce such rights in foreign countries could result in the loss of valuable proprietary information, which could have an adverse effect on our business and results of operations.
Even in circumstances in the future where we have a patent on certain technologies, such patents may not provide meaningful protection against competitors or against competing technologies. In addition, any patent applications submitted by us may not result in an issued patent. There can be no assurance that our future intellectual property rights will not be challenged, invalidated, circumvented or rendered unenforceable. We could also face claims from third parties alleging that our products or processes infringe on their proprietary rights. If we are found liable for infringement, we could be responsible for significant damages, prohibited from using certain products or processes or required to modify certain products and processes. Any such infringement liability could adversely affect our product and service offerings, profitability and results of operations.
We also have plans to protect our know-how and trade secrets by entering into confidentiality and non-disclosure agreements with most of our employees and third parties. There can be no assurance that such agreements will not be breached or that we will be able to effectively enforce them. Any unauthorized disclosure of any of our material know-how or trade secrets could adversely affect our business and results of operations.
Risks Relating To the Company’s Securities
We Have Never Paid Cash Dividends In Connection With Our Common Stock And Have No Plans To Pay Dividends In The Future.
We have paid no cash dividends on our common stock to date and it is not anticipated that any cash dividends will be paid to holders of our common stock in the foreseeable future. While our dividend policy will be based on the operating results and capital needs of our business, it is anticipated that any earnings will be retained to finance our future expansion.
Investors May Face Significant Restrictions On The Resale Of Our Common Stock Due To Federal Regulations Of Penny Stocks.
Our common stock will be subject to the requirements of Rule 15g-9, promulgated under the Securities Exchange Act of 1934, as amended (the “
Exchange Act
”) as long as the price of our common stock is below $5.00 per share. Under such rule, broker-dealers who recommend low-priced securities to persons other than established customers and accredited investors must satisfy special sales practice requirements, including a requirement that they make an individualized written suitability determination for the purchaser and receive the purchaser's consent prior to the transaction. The Securities Enforcement Remedies and Penny Stock Reform Act of 1990, also requires additional disclosure in connection with any trades involving a stock defined as a penny stock. Generally, the Commission defines a penny stock as any equity security not traded on an exchange or quoted on NASDAQ that has a market price of less than $5.00 per share. The required penny stock disclosures include the delivery, prior to any transaction, of a disclosure schedule explaining the penny stock market and the risks associated with it. Such requirements could severely limit the market liquidity of the securities and the ability of purchasers to sell their securities in the secondary market.
In addition, various state securities laws impose restrictions on transferring "
penny stocks
" and as a result, investors in the common stock may have their ability to sell their shares of the common stock impaired.
Shareholders May Be Diluted Significantly Through Our Efforts To Obtain Financing And Satisfy Obligations Through The Issuance Of Additional Shares Of Our Common Stock.
We have no committed source of financing. Wherever possible, our Board of Directors will attempt to use non-cash consideration to satisfy obligations. In many instances, we believe that the non-cash consideration will consist of restricted shares of our common stock. Our Board of Directors has authority, without action or vote of the shareholders, to issue all or part of the authorized but unissued shares of common stock. In addition, if a trading market develops for our common stock, we may attempt to raise capital by selling shares of our common stock, possibly at a discount to market. These actions will result in dilution of the ownership interests of existing shareholders, may further dilute common stock book value, and that dilution may be material. Such issuances may also serve to enhance existing management’s ability to maintain control of the Company because the shares may be issued to parties or entities committed to supporting existing management.
We have recently become aware that spam emails referencing the Company are being disseminated by third parties and that third parties have recently paid for investment relations campaigns and promotional activities relating to the Company’s Securities.
It has come to our attention that certain spam-emails containing information about our Company and our securities, which information may be false and misleading, have been disseminated over the internet by third parties. We have also become aware that certain unknown third parties have paid for investor relations campaigns and stock promotional activities relating to the Company’s securities. The spam-emails distributed by third parties and investor relations campaigns and stock promotional activities are not associated with the Company or its officers or directors and have not been authorized, sanctioned or paid for by the Company.
We caution investors to review our most recent Form 8-Ks filed with the Securities and Exchange Commission, our official press releases and our periodic filings (including the financial statements and results of operations contained therein), before making any investment in the Company. We further caution investors to not trust as accurate or complete any information, emails or reports touting the Company or its securities, which have not been authorized, approved or sanctioned by the Company.
These spam-emails, investor relation campaigns and stock promotional activities, which are not associated with the Company could lead to an artificial spike in the trading price of our common stock, could be associated with third parties trying to artificially inflate the price of and trading volume of our common stock and could furthermore result in a sharp and precipitous decline in the value of our common stock once such unauthorized stock promotional activities have ceased.
If We Are Late In Filing Our Quarterly Or Annual Reports With The Securities And Exchange Commission Or A Market Maker Fails To Quote Our Common Stock On The Over-The-Counter Bulletin Board For A Period Of More Than Four Days, We May Be De-Listed From The Over-The-Counter Bulletin Board.
Pursuant to Over-The-Counter Bulletin Board ("OTCBB") rules relating to the timely filing of periodic reports with the Securities and Exchange Commission (“SEC”), any OTCBB issuer which fails to file a periodic report (Form 10-Q or 10-K) by the due date of such report (not withstanding any extension granted to the issuer by the filing of a Form 12b-25), three times during any 24 month period is automatically de-listed from the OTCBB. Such removed issuer would not be re-eligible to be listed on the OTCBB for a period of one year, during which time any subsequent late filing would reset the one-year period of de-listing. Additionally, if a market maker fails to quote our common stock on the OTCBB for a period of more than four consecutive days, we will be automatically delisted from the OTCBB. If we are late in our filings three times in any 24 month period and are de-listed from the OTCBB or are automatically delisted for failure of a market maker to quote our stock, our securities may become worthless and we may be forced to curtail or abandon our business plan.
State Securities Laws May Limit Secondary Trading, Which May Restrict The States In Which And Conditions Under Which You Can Sell Shares.
Secondary trading in our common stock may not be possible in any state until the common stock is qualified for sale under the applicable securities laws of the state or there is confirmation that an exemption, such as listing in certain recognized securities manuals, is available for secondary trading in the state. If we fail to register or qualify, or to obtain or verify an exemption for the secondary trading of, the common stock in any particular state, the common stock cannot be offered or sold to, or purchased by, a resident of that state. In the event that a significant number of states refuse to permit secondary trading in our common stock, the liquidity for the common stock could be significantly impacted.
Because We Are Not Subject To Compliance With Rules Requiring The Adoption Of Certain Corporate Governance Measures, Our Stockholders Have Limited Protections Against Interested Director Transactions, Conflicts Of Interest And Similar Matters.
The Sarbanes-Oxley Act of 2002, as well as rule changes proposed and enacted by the SEC, the New York and American Stock Exchanges and the Nasdaq Stock Market, as a result of Sarbanes-Oxley, require the implementation of various measures relating to corporate governance. These measures are designed to enhance the integrity of corporate management and the securities markets and apply to securities that are listed on those exchanges or the Nasdaq Stock Market. Because we are not presently required to comply with many of the corporate governance provisions and because we chose to avoid incurring the substantial additional costs associated with such compliance any sooner than legally required, we have not yet adopted these measures.
Because our Directors are not independent directors, we do not currently have independent audit or compensation committees. As a result, our Directors have the ability to, among other things, determine their own level of compensation. Until we comply with such corporate governance measures, regardless of whether such compliance is required, the absence of such standards of corporate governance may leave our stockholders without protections against interested director transactions, conflicts of interest, if any, and similar matters and any potential investors may be reluctant to provide us with funds necessary to expand our operations.
We intend to comply with all corporate governance measures relating to director independence as and when required. However, we may find it very difficult or be unable to attract and retain qualified officers, Directors and members of board committees required to provide for our effective management as a result of the Sarbanes-Oxley Act of 2002. The enactment of the Sarbanes-Oxley Act of 2002 has resulted in a series of rules and regulations by the SEC that increase responsibilities and liabilities of Directors and executive officers. The perceived increased personal risk associated with these recent changes may make it more costly or deter qualified individuals from accepting these roles.
The Market For Our Common Stock is Illiquid, Sporadic and Subject to Wide Fluctuations.
While our common stock currently trades on the OTCQB market under the symbol “ETEK”, historically only a limited number of shares of our common stock have traded to date; however, recently the trading of our common stock has increased in volume and frequency. There may not be an active public market for our common stock in the future. If there is an active market for our common stock in the future, we anticipate that such market would be illiquid and would be subject to wide fluctuations in response to several factors, including, but not limited to:
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actual or anticipated variations in our results of operations;
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(2)
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our ability or inability to generate new revenues;
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(3)
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the number of shares in our public float;
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(4)
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increased competition; and
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(5)
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conditions and trends in the market for our products.
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Furthermore, our stock price may be impacted by factors that are unrelated or disproportionate to our operating performance. These market fluctuations, as well as general economic, political and market conditions, such as recessions, interest rates or international currency fluctuations may adversely affect the market price of our common stock. Additionally, moving forward we anticipate having a limited number of shares in our public float, and as a result, there could be extreme fluctuations in the price of our common stock. Further, due to the limited volume of our shares which trade and our limited public float, we believe that our stock prices (bid, ask and closing prices) will be entirely arbitrary, will not relate to the actual value of the Company, and will not reflect the actual value of our common stock. Shareholders and potential investors in our common stock should exercise caution before making an investment in the Company, and should not rely on the publicly quoted or traded stock prices in determining our common stock value, but should instead determine the value of our common stock based on the information contained in the Company's public reports, industry information, and those business valuation methods commonly used to value private companies.
Nevada Law And Our Articles Of Incorporation Authorize Us To Issue Shares Of Stock, Which Shares May Cause Substantial Dilution To Our Existing Shareholders.
We have authorized capital stock consisting of 7,000,000,000 shares of common stock, $0.001 par value per share and 50,000,000 shares of preferred stock, $0.001 par value per share (“Preferred Stock”). We have 250,819,800 shares of common stock issued and outstanding (which number does not include 333,333 shares of common stock which we have agreed to issue to Ira Morris in exchange for the forgiveness of debt as described below under “Item 5 - Market For Registrant’s Common Equity, Related Stockholder Matters, And Issuer Purchases Of Equity Securities” - “Recent Sales Of Unregistered Securities”, which shares have not been physically issued to date) and 1,000 shares of Series A Preferred Stock issued and outstanding which vote 51% on all shareholder matters as of the filing of this report. Our Board of Directors has the ability to issue a large number of additional shares of common stock without shareholder approval, which if issued could cause substantial dilution to our then shareholders. Additionally, shares of Preferred Stock may be issued by our Board of Directors without shareholder approval with voting powers, and such preferences and relative, participating, optional or other special rights and powers as determined by our Board of Directors, which may be greater than the shares of common stock currently outstanding. As a result, shares of Series A Preferred Stock have been issued by our Board of Directors which cause the holders to have super majority voting power over our shares. Shares of Preferred Stock may be issued in the future which provide the holders of the Preferred Stock the right to convert the shares of Preferred Stock they hold into shares of our common stock, which may cause substantial dilution to our then common stock shareholders and/or have other rights and preferences greater than those of our common stock shareholders. Investors should keep in mind that the Board of Directors has the authority to issue additional shares of common stock and Preferred Stock, which could cause substantial dilution to our existing shareholders. Additionally, the dilutive effect of any Preferred Stock, which we may issue may be exacerbated given the fact that such Preferred Stock may have super majority voting rights and/or other rights or preferences which could provide the preferred shareholders with voting control over us and/or give those holders the power to prevent or cause a change in control. As a result, the issuance of shares of common stock and/or Preferred Stock may cause the value of our securities to decrease and/or become worthless.