UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED: July 31, 2020
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from__________ to __________
COMMISSION FILE NUMBER: 000-55554
Lux Amber, Corp.
(Exact name of registrant as specified in its charter)
Nevada | 98-1414834 |
(State or other jurisdiction of | (I.R.S. Employer |
incorporation or organization) | Identification No.) |
145 Rose Lane, Suite 102
Frisco, TX 75036
Tel: (214) 729-4003
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading symbol(s) | Name of each exchange on which registered |
Common Stock | LXAM | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o | Accelerated Filer o |
Non-accelerated filer o | Smaller reporting company x |
Emerging Growth Company o |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No x
The number of Registrant’s shares of common stock, $0.0001 par value, outstanding as of September 16, 2020, was 30,293,316.
Page | |||
PART I. FINANCIAL INFORMATION | 3 | ||
Item 1 | Consolidated Financial Statements | 3 | |
Item 2 | Management's Discussion and Analysis of Financial Condition and Results of Operations | 18 | |
Item 4 | Controls and Procedures | 20 | |
PART II. OTHER INFORMATION | 21 | ||
Item 1 | Legal Proceedings | 21 | |
Item 1A | Risk Factors | 21 | |
Item 2 | Unregistered Sales of Equity Securities and Use of Proceeds | 21 | |
Item 3 | Defaults Upon Senior Securities | 21 | |
Item 4 | Mine Safety Disclosures | 21 | |
Item 5 | Other Information | 21 | |
Item 6 | Exhibits | 21 | |
SIGNATURES | 22 |
2 |
PART 1 - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
LUX AMBER, CORP. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED BALANCE SHEETS
July 31, 2020 | ||||||||
(Unaudited) | April 30, 2020 | |||||||
ASSETS | ||||||||
CURRENT ASSETS | ||||||||
Cash and cash equivalents | $ | 55,993 | $ | 49,185 | ||||
Accounts receivable - trade | 169,095 | 106,876 | ||||||
Inventory | 153,006 | 131,205 | ||||||
Prepaid expenses | 2,000 | 8,711 | ||||||
Other current assets | 16,501 | 770 | ||||||
Total current assets | 396,595 | 296,747 | ||||||
GOODWILL | 2,294,952 | 2,294,952 | ||||||
OTHER INTANGIBLES | 15,000 | 15,000 | ||||||
OTHER LONG-TERM ASSETS | 17,700 | 12,700 | ||||||
FIXED ASSETS | ||||||||
Furniture, fixtures, and office equipment | 28,740 | 26,191 | ||||||
Vehicles and trailers | 261,487 | 194,140 | ||||||
Equipment | 616,925 | 608,274 | ||||||
Leasehold improvements | 12,192 | 12,190 | ||||||
Assets in process | 45,402 | 44,551 | ||||||
964,746 | 885,345 | |||||||
Accumulated depreciation | (353,371 | ) | (316,086 | ) | ||||
Fixed assets, net | 611,375 | 569,259 | ||||||
RIGHT OF USE ASSETS | 380,864 | 423,815 | ||||||
TOTAL ASSETS | $ | 3,716,486 | $ | 3,612,474 | ||||
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||||||
CURRENT LIABILITIES | ||||||||
Accounts payable | $ | 348,323 | $ | 288,864 | ||||
Accrued expenses | 884,079 | 805,853 | ||||||
Related party payables | 108,948 | 85,603 | ||||||
Notes payable – current portion | 538,389 | 762,889 | ||||||
Right of use – current portion | 200,056 | 190,262 | ||||||
Total current liabilities | 2,079,795 | 2,133,471 | ||||||
NON-CURRENT LIABILITIES | ||||||||
Notes payable | 23,150 | 27,585 | ||||||
Right of use liabilities | 196,857 | 236,782 | ||||||
TOTAL LIABILITIES | 2,299,802 | 2,397,838 | ||||||
COMMITMENTS AND CONTINGENCIES | ||||||||
STOCKHOLDERS’ EQUITY | ||||||||
Common stock, $0.0001 par value, 75,000,000 shares authorized; 30,293,316 issued and outstanding shares as of July 31, 2020 and 29,441,708 issued and outstanding shares April 30, 2020 | 3,027 | 2,943 | ||||||
Additional paid-in capital | 14,857,575 | 14,095,093 | ||||||
Accumulated deficit | (13,443,918 | ) | (12,884,427 | ) | ||||
Total Lux Amber Corp. stockholders' equity | 1,416,684 | 1,213,609 | ||||||
Non-controlling interest | – | 1,027 | ||||||
TOTAL EQUITY | 1,416,684 | 1,214,636 | ||||||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 3,716,486 | $ | 3,612,474 |
The accompanying footnotes are an integral part of these consolidated financial statements.
3 |
LUX AMBER, CORP. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
For the Three Months Ended July 31, 2020 | For the Three Months Ended July 31, 2019 | |||||||
Revenues | $ | 290,260 | $ | 381,503 | ||||
Cost of goods sold | 214,432 | 225,185 | ||||||
Gross profit | 75,828 | 156,318 | ||||||
Operating expenses | ||||||||
Product delivery | 141,981 | 68,391 | ||||||
General and administrative | 492,329 | 377,255 | ||||||
Selling | 19,491 | 39,362 | ||||||
Depreciation | 37,284 | 24,818 | ||||||
Total operating expenses | 691,085 | 509,826 | ||||||
Other (income)/expense | ||||||||
Interest income | – | (15 | ) | |||||
Interest expense | 3,308 | 2,854 | ||||||
Other income | (57,956 | ) | (31,074 | ) | ||||
Total other income | (54,648 | ) | (28,205 | ) | ||||
Net loss | $ | (560,609 | ) | $ | (325,303 | ) | ||
Less: net income/(loss) attributable to non-controlling interest | – | (304 | ) | |||||
Net loss attributable to Lux Amber, Corp. | $ | (560,609 | ) | $ | (324,999 | ) | ||
Basic and diluted - loss per share | $ | (0.02 | ) | $ | (0.01 | ) | ||
Basic and diluted - weighted average shares | 29,592,296 | 26,229,293 |
The accompanying footnotes are an integral part of these consolidated financial statements.
4 |
LUX AMBER, CORP. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
(Unaudited)
For the Three Months Ended July 31, 2020 and July 31, 2019
Number of Shares Issued and Outstanding | Common Stock Par Value Amount | Additional Paid-in Capital | Accumulated Deficit | Non-Controlling Interest | Total | |||||||||||||||||||
Balance as of April 30, 2020 | 29,441,708 | $ | 2,943 | $ | 14,095,093 | $ | (12,884,427 | ) | $ | 1,027 | $ | 1,214,636 | ||||||||||||
Common stock repurchased | (36,250 | ) | (5 | ) | (45,308 | ) | – | – | (45,313 | ) | ||||||||||||||
Notes payable with interest converted | 887,858 | 89 | 763,237 | – | – | 763,326 | ||||||||||||||||||
Dissolution of PCNM | – | – | – | 1,118 | (1,027 | ) | 91 | |||||||||||||||||
Share based compensation | – | – | 44,553 | – | – | 44,553 | ||||||||||||||||||
Net loss | – | – | – | (560,609 | ) | – | (560,609 | ) | ||||||||||||||||
Balance as of July 31, 2020 | 30,293,316 | $ | 3,027 | $ | 14,857,575 | $ | (13,443,918 | ) | $ | – | $ | 1,416,684 |
Number of Shares Issued and Outstanding | Common Stock Par Value Amount | Additional Paid-in Capital | Accumulated Deficit | Non-Controlling Interest | Total | |||||||||||||||||||
Balance as of April 30, 2019 | 25,969,293 | $ | 2,597 | $ | 10,767,919 | $ | (8,461,391 | ) | $ | (27,918 | ) | $ | 2,281,207 | |||||||||||
Warrants exercised | 260,000 | 26 | 129,974 | – | – | 130,000 | ||||||||||||||||||
Share based compensation | – | – | 119,095 | – | – | 119,095 | ||||||||||||||||||
Net loss | – | – | – | (324,999 | ) | (304 | ) | (325,303 | ) | |||||||||||||||
Balance as of July 31, 2019 | 26,229,293 | $ | 2,623 | $ | 11,016,987 | $ | (8,786,389 | ) | $ | (28,223 | ) | $ | 2,204,999 |
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LUX AMBER, CORP. AND SUBSIDIARIES
INTERIM CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months Ended July 31, 2020 | For the Three Months Ended July 31, 2019 | |||||||
Cash Flows from Operating Activities | ||||||||
Net loss | $ | (560,609 | ) | $ | (325,303 | ) | ||
Adjustments to reconcile net loss to net cash used in operating activities | ||||||||
Depreciation and amortization | 80,235 | 28,848 | ||||||
Share based compensation | 44,553 | 119,095 | ||||||
Right of use interest | 5,039 | 394 | ||||||
Change in current assets and current liabilities | ||||||||
Accounts receivable - trade | (62,219 | ) | (96,839 | ) | ||||
Inventory | (21,801 | ) | (48,966 | ) | ||||
Prepaid expenses | 6,711 | 18,696 | ||||||
Other current assets | (15,731 | ) | 3,086 | |||||
Accounts payable and accrued expenses | 151,103 | 152,957 | ||||||
Due to related parties | 23,345 | (72,885 | ) | |||||
Net cash used in operating activities | (349,374 | ) | (220,917 | ) | ||||
Cash Flows from Investing Activities | ||||||||
Deposit paid | (5,000 | ) | (200 | ) | ||||
Expenditures for property and equipment | (79,400 | ) | (34,837 | ) | ||||
Total cash used in investing activities | (84,400 | ) | (35,037 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Proceeds from convertible notes payable | 525,500 | – | ||||||
Payments on notes payable | (4,435 | ) | (3,942 | ) | ||||
Payments on right of use liabilities | (35,170 | ) | (5,344 | ) | ||||
Payments for repurchase of common stock | (45,313 | ) | – | |||||
Proceeds from the execution of warrants | – | 130,000 | ||||||
Net cash provided by financing activities | 440,582 | 120,714 | ||||||
Net change in cash and cash equivalents | 6,808 | (135,240 | ) | |||||
Cash at beginning of period | 49,185 | 251,454 | ||||||
Cash at end of period | $ | 55,993 | $ | 116,214 | ||||
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION | ||||||||
Cash paid during period for: | ||||||||
Interest | $ | 10,568 | $ | 2,854 | ||||
Taxes | $ | – | $ | – | ||||
Noncash Financing Activities | ||||||||
Convertible notes and accrued interest converted to common stock | $ | 763,326 | $ | – |
The accompanying footnotes are an integral part of these consolidated financial statements.
6 |
LUX AMBER, CORP. AND SUBSIDIARIES
Notes to Interim Condensed Consolidated Financial Statements
July 31, 2020
(Unaudited)
NATURE OF BUSINESS
Lux Amber, Corp. (the “Company”) a Nevada corporation, is an international specialty chemical company. Its principal executive offices are located at 145 Rose Lane, Suite 102, Frisco, Texas 75036.
The Company has three (3) wholly owned subsidiaries: Worldwide Specialty Chemicals, Inc. (“WSCI”), Industrial Chem Solutions, Inc. (“ICS”), and Safeway Pest Elimination, LLC, (“SPE”); a fourth entity, PCNM, LLC (“PCNM”), is 49% owned. SPE was formed July 16, 2018. Each of ICS and SPE serves as both a producer and distributor of environmentally safe, specialty chemicals. PCNM was a Service-Disabled Veteran owned small business that sells to government agents, which was legally dissolved in the three months ended July 31, 2020. The Company and its subsidiaries are located at 145 Rose Lane, Suite 102, Frisco, TX 75036.
The products sold by the Company and its subsidiaries utilize all-natural and renewable resources, contain no dangerous chemicals or additives, and offer “green” solutions to its customers. ICS’ product line includes asphalt release agents, industrial cleaners, environmental remediation gels, odor control agents, and consumer friendly cleaners for a wide range of uses, including construction, environmental remediation, hazardous materials clean-up, nuclear decommissioning, industrial cleaning, and odor control. SPE products are designed for the elimination and control of pests.
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting polices consistently applied in the preparation of the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) is as follows.
Basis of Consolidation
The consolidated financial statements include the accounts of Industrial Chem Solutions, Inc. (ICS), Safeway Pest Elimination, LLC (SPE), both of which are the Company’s wholly owned subsidiaries, and PCNM, LLC (PCNM), a 49% investment. The Company evaluated its investment in PCNM to determine if it represented a variable interest in a Variable Interest Entity (VIE). The Company determined that it had a variable interest in a VIE, and that it was the primary beneficiary of the VIE. During the three months ended July 31, 2020, PCNM did not enter into any material transactions and was legally dissolved.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial reporting and the instructions for Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they include all information and footnote disclosures necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholder’s equity in conformity with GAAP. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
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The unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s most recently filed Form 10-KT (as amended) as of and for the transitional period ended April 30, 2020 that was filed on August 18, 2020.
Operating results for the three-months ended July 31, 2020, are not necessarily indicative of the results that can be expected for the year ending April 30, 2021.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management at July 31, 2020 and April 30, 2020. The carrying value of the financial instruments included in the Company’s financial statements approximated their fair values.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.
The carrying value of the notes payable approximates fair value as they bear market rates of interest.
Basic and Diluted Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted loss per share has not been presented because there are no dilutive items. Diluted earnings loss per share is based on the assumption that all dilutive stock options, warrants, and convertible debt are converted or exercised by applying the treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options, warrants and/or convertible debt will have a dilutive effect, during periods of net profit, only when the average market price of the common stock during the period exceeds the exercise or conversion price of the items.
For the three months ended July 31, 2020 and 2019, approximately 82,668 and 82,668 common stock warrants, respectively, and 6,469,750 and 4,883,083 common stock options, respectively, were not added to the diluted average shares because inclusion of such warrants and options would be antidilutive.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
8 |
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are trade receivables from product sales recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At July 31, 2020 and April 30, 2020, an allowance for doubtful accounts was $0.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Committee 606 (“ASC 606”), Revenue from Contracts with Customers, which provides guidance on how revenue with customers should be recognized.
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sold is recognized when obligations with the customer are satisfied, which generally occurs with the transfer or delivery of the product, signifying the point in time when the customer obtains control of the promised goods. Our performance obligation is delivering the product to the customer; and therefore, the transaction price, which is stated on the invoice, is allocated 100% to the sole performance obligation of product delivery. Revenue from service, if applicable, would be recognized when the services are provided, or the customer receives the benefit, which is over time. For the period ended July 31, 2020 and 2019, all revenue was from products sold.
Our sales policies do not provide for general rights of return, and payment is due net of 60 days. We do not record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time of the sale. We also do not record estimated reserves for product returns and credits at the time of sale and anticipated uncollectible accounts.
Inventory
Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in first-out basis. The carrying value of inventory is reduced for estimated obsolescence. The Company evaluates the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand.
The following table sets forth the components of the Company’s inventory balances as of:
July 31, 2020 | April 20, 2020 | |||||||
Finished goods | $ | 92,568 | $ | 92,568 | ||||
Raw materials | 77,728 | 55,927 | ||||||
Obsolescence | (17,290 | ) | (17,290 | ) | ||||
$ | 153,006 | $ | 131,205 |
9 |
Prepaid Expenses
Prepaid expenses consist of expenses the Company has paid for prior to the service or good being provided. These prepaid expenses will be recorded as expense at the time the service has been provided.
Fixed Assets
Fixed assets consist of furniture, fixtures and office equipment, vehicles and trailers, equipment and leasehold improvements that are stated at cost, less accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to earnings over their estimated service lives (3 – 10 years) under the straight-line method.
Maintenance and repairs are charged to expenses as incurred; major repairs and replacements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Property and equipment operated under material leases which transfer substantially all benefits and risks associated with the assets to the Company are capitalized. An asset and liability equal to the present or fair value, if appropriate, of minimum payments over the term of the leases are recorded. Depreciation of the asset is computed using the straight-line method over the life of the asset. Costs associated with operating leases are expensed as incurred.
Goodwill
Goodwill represents the excess of the value of the purchase price and related costs over the identifiable assets from business acquisitions. The Company conducts an annual impairment assessment, at the reporting unit level, of its recorded goodwill. The Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The qualitative factors evaluated by the Company include macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than the carrying amount, management determines if the reporting unit’s carrying value exceeds its fair value and records an impairment for such amounts. Management determined, by assessing the qualitative factors, that it is more likely than not that the fair value of the reporting unit is greater than the carrying value. Management does not consider the value of goodwill recorded for ICS in the accompanying consolidated balance sheet to be impaired as of July 31, 2020 and April 30, 2020.
License Fee
ICS pays 10% of the net selling price to CBI Polymers, Inc., as a mutually acceptable license fee. E. Thomas Layton, Chairman and CEO of the Company, is also the Chairman and CEO and controlling shareholder of CBI Polymers, Inc. See discussion of expenses incurred at Note 7.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation — Stock Compensation, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award. The fair value at the measurement date of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the vesting period based on the estimated number of stock options that are expected to vest. The Company estimates forfeitures to be 50% for options that vest over time.
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Income Taxes
The Company accounts for Federal and state income taxes using the asset and liability approach for financial accounting and reporting for income taxes based on tax effects of differences between the financial statement and tax basis of assets and liabilities.
The Company accounts for all uncertain tax positions in accordance with ASC Topic 740 – Income Taxes (ASC 740). ASC 740 provides guidance on de-recognition, classification, interest and penalties and disclosure related to uncertain income tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties as of July 31, 2020 and April 30, 2020.
From time to time, the Company may be audited by taxing authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes. The Company’s federal returns since 2016 are still subject to examination by taxing authorities.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred substantial operating losses resulting in an accumulated deficit of $13,443,918 and $12,884,427 at July 31, 2020 and April 30, 2020, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are being issued. As such, the Company will need to arrange for additional financing to fully implement its business plan, including continued growth and establishment of a stronger brand.
The Company is actively seeking growth of its service offerings, both organically and via new client relationships. In the ordinary course of the Company’s business, management is trying to raise additional capital through sales of common stock as well as seeking debt financing from third parties. There are current indications that additional financing will be available on favorable terms. In addition, the company is working to establish creditworthiness by establishing a line-of-credit and entering into a sale-lease back on certain assets. If additional financing is not available, the Company will need to reduce salaries, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations, including potential discontinuance of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders. Additionally, incurring additional indebtedness could involve an increased debt service cash obligation, as well as the imposition of covenants that restrict the Company’s operations or the Company’s ability to perform on its current debt service requirements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. While the company recognizes the significant impact of additional financing, the company is an emerging growth company serving large and growing markets and it will continue to sell securities and enter into financing programs which are deemed to be prudent.
Recently Issued Accounting Pronouncements
Pronouncements Recently Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. Adoption of this guidance in the four-month period ended April 30, 2020 did not impact the Company’s financial statements.
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Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements.
2. ACCOUNTS RECEIVABLE
Accounts receivable relate to trade receivables from product sales made by the Company. Accounts receivable consist of the following at July 31, 2020 and April 30, 2020:
July 31, 2020 | April 30, 2020 | |||||||
Trade receivables | $ | 169,095 | $ | 106,876 |
3. NOTES PAYABLE
Convertible Promissory Notes Payable
During the period ended April 30, 2020 the Company issued a round of convertible debentures worth $750,000. The debentures are convertible into shares of the Company's common stock at the maturity date of June 15, 2020 and pay any unpaid interest at a rate of 8%. As of July 31, 2020, this round of debentures has been converted into 872,093 shares of common stock at a price of $0.86 per share and the accrued interest unpaid amount of $13,326 was converted into 15,765 shares of common stock at a price of $0.86 per share. The remaining $1,666 of accrued interest was paid as of August 11, 2020.
During period ending July 31, 2020, the Company issued a round of convertible debentures worth $1,000,000, of which $525,500 had been issued. The debentures are convertible into shares of the Company's common stock at the maturity date of September 15, 2020 and pay any unpaid interest at a rate of 8%. As of July 31, 2020, this round of debentures had not been converted and the accrued interest unpaid amounted to $311.
Vehicles and Equipment Notes Payable
The Company has one note payable relating to the purchase of a Company vehicle as of July 31, 2020. The balance outstanding under the note payable was $36,039 as of July 31, 2020. The note payable bears interest of 5.99% with principal and interest due monthly. The note matures in September 2023. The Company had the same note payable relating to the purchase of a Company vehicle as of April 30, 2020 with a balance outstanding of $40,474.
The Company’s future minimum principal payments as of July 31, 2020 are as follows:
2021 | $ | 9,666 | ||
2022 | 12,889 | |||
2023 | 12,889 | |||
2024 | 595 | |||
$ | 36,039 |
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4. ACCRUED EXPENSES
Accrued expenses, consisting of accrued salaries for officers and executive management, include the following balance at July 31, 2020 and April 30, 2020:
July 31, 2020 | April 30, 2020 | |||||||
Accrued Compensation | $ | 660,841 | $ | 469,004 | ||||
Other Accrued Expenses | 223,238 | 336,849 | ||||||
$ | 884,079 | $ | 805,853 |
5. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Leases
The Company adopted the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) ASU 2016-02, Leases on January 1, 2019 on a modified retrospective basis. The initial adoption of the standard recognized right-of-use assets of $493,832 and lease liabilities of $498,361 on the Company’s consolidated balance sheet with no impact on the Company's results of operations. The Company elected the hindsight practical expedient and the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.
As of July 31, 2020, the weighted average remaining lease term and weighted average discount rate for financing leases was 2.6 years and 4.09%, respectively. The Company's future financing lease obligations that have not yet commenced are immaterial. For three months ending July 31, 2020 and 2019, the Company's cash paid for financing leases was $35,170 and $4,007, and short-term lease costs were $0 and $32,273, respectively.
The Company’s undiscounted annual future minimum lease payments as of July 31, 2020 consist of:
2021 | $ | 147,417 | ||
2022 | 161,431 | |||
2023 | 85,699 | |||
2024 | 11,483 | |||
2025 | 10,526 | |||
Total lease payments | 416,558 | |||
Interest | (19,645 | ) | ||
Present value of lease liabilities | $ | 396,913 |
Concentrations
As of July 31, 2020, the Company had two customers which made up 41% of the outstanding accounts receivable balance. For the three months ended July 31, 2019, the Company had three customers which made up 38% of the outstanding accounts receivable balance.
For the three months ended July 31, 2020, the Company had two customers which made up 41% of total revenues. For the three months ended July 31, 2019, the Company had two customers which made up 34% of total revenues.
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6. STOCKHOLDERS’ EQUITY
Common Stock and Preferred Stock
As of July 31, 2020, and 2019, the authorized share capital of the Company consisted of 75,000,000 shares of common stock, $0.0001 par value. No other classes of stock are authorized.
Common Stock
During the three months ended July 31, 2020, the Company has 36,250 common shares returned at $1.25 per share for a total cash payment amount of $45,313 plus interest.
Warrants
During the three months ended July 31, 2020 and 2019, there were 0 and 260,000 warrants exercised at $.50 per share for a total cash amount of $0 and $130,000, respectively.
As of July 31, 2020, and 2019, there were 82,668 and 82,668 common stock warrants outstanding, respectively, with an exercise price of $.50.
Stock option plan
On the effective date of the March 23, 2020 merger transaction, the Company assumed all of WSCI’s rights and obligations under WSCI’s Second Amended Stock Option Plan (the “Plan”), as well as WSCI’s obligations under the stock options granted on or prior to March 23, 2020. The Board of Directors of the Company has the authority and discretion to grant stock options. The maximum number of shares of stock that may be issued pursuant to the exercise of options under the Plan is 10,000,000. Eligible individuals include any employee or director of the Company and any consultant providing services to the Company. The expiration date and exercise price for each stock option grant are as established by the Board of Directors of the Company. No option may be issued under the Plan after February 1, 2027.
During the three months ended July 31, 2020 and 2019, there were 0 and 150,000 common stock options granted. The options granted have an exercise price of $1.50 and vested immediately.
Stock option activity during the period ended July 31, 2020 is summarized as follows:
Shares Under Option | Price Per Share | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | |||||||||||||
Outstanding - beginning of period | 7,309,750 | $ | 0.00 - 1.50 | $ | 1.18 | 113 months | ||||||||||
Granted | – | $ | – | $ | – | – | ||||||||||
Exercised | – | $ | – | $ | – | – | ||||||||||
Canceled or expired | – | $ | – | – | – | |||||||||||
Outstanding - end of period | 7,309,750 | $ | 0.00 - 1.50 | $ | 1.15 | 109 months | ||||||||||
Exercisable - end of period | 6,469,750 | $ | 0.91 | 92 months |
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Stock option activity during the period ended June 30, 2019 is summarized as follows:
Shares Under Option | Price Per Share | Weighted Average Exercise Price | Weighted Average Remaining Contractual Life | |||||||||||||
Outstanding - beginning of period | 5,386,418 | $ | 0.00 - 1.50 | $ | 0.77 | 101 months | ||||||||||
Granted | 150,000 | $ | 1.50 | $ | 1.50 | – | ||||||||||
Exercised | 0 | $ | – | $ | – | – | ||||||||||
Canceled or expired | – | $ | – | $ | – | – | ||||||||||
Outstanding - end of period | 5,536,418 | $ | 0.00 - 1.50 | $ | 0.79 | 98 months | ||||||||||
Exercisable - end of period | 4,883,083 | $ | 0.74 | 98 months |
The fair value of each option grant is calculated using the following assumptions:
July 31, 2020 | July 31, 2019 | |||||||
Expected life – years | NA | 5 | ||||||
Interest rate | NA | 1.78-2.03% | ||||||
Volatility | NA | 71.70% | ||||||
Dividend yield | –% | –% |
7. RELATED PARTY TRANSACTIONS
During the three months ended July 31, 2020 and 2019, the Company incurred consulting fees of $52,675 and $46,265 to four separate entities owned by four current shareholders. The total related party consulting fees unpaid balance due was $28,550 and $176,000 as of July 31, 2020 and April 30, 2020, respectively, and is included in accounts payable in the accompanying consolidated financial statements.
The Company is in effect a sales representative of CBI Polymers, Inc. pursuant to the Exclusive Patent License Agreement between the Company and CBI Polymers. CBI Polymers and the Company are companies under the common control of E. Thomas Layton, the Company’s chairman and chief executive officer. There are no other transactions or contracts between CBI Polymers and the Company other than those discussed in this report. There was $0 due to CBI Polymers as of July 31, 2020 and April 30, 2020, respectively.
In fiscal year April 2020, the Company received $35,000 from a related party, Maine Consultants, Inc. and in exchange therefor, issued a promissory note to Maine Consultants. On May 13, 2020, the promissory note was paid in full.
Two separate related parties are allowing the Company to rent vehicles for a monthly fee of $1,650 and $2,957. For the three months ended July 31, 2020, the Company paid a total of $3,300 and $2,957. For the three-month period ended July 31, 2019, the Company had not yet entered into these agreements, thus $0 and $0 was paid.
The Company has a 49% ownership in PCNM. PCNM’s remaining 51% ownership is owned by an employee and shareholder of the Company. During the three months ended July 31, 2020, PCNM did not engage in material transactions. Further, on June 15, 2020 PCNM was legally dissolved.
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8. INCOME TAXES
For the three-months ended July 31, 2020 and 2019, the effective tax rate of 0% varies from the U.S. federal statutory rate primarily due to net losses and the valuation allowance associated with the net operating loss carryforwards. The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. The Company continues to record a full valuation allowance against its net deferred tax assets. The Company assessed whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Future sources of taxable income were also considered in determining the amount of the recorded valuation allowance. Based on the Company’s review of this evidence at July 31, 2020, management determined that a full valuation allowance against all of the Company’s deferred tax assets at July 31, 2020 was appropriate.
The following table summarizes the difference between the actual tax provision and the amounts obtained by applying the statutory tax rates to the income or loss before income taxes for the period ending July 31, 2020 and 2019:
July 31, 2020 | July 31, 2019 | |||||||
Tax benefit calculated at statutory rate | 21.00 | % | 21.00 | % | ||||
Expense not deductible | (0.02 | ) | (0.01 | ) | ||||
Changes to valuation allowance | (20.98 | ) | (20.99 | ) | ||||
Provision for income taxes | 0 | % | 0 | % |
9. VARIABLE INTEREST ENTITIES
As of April 30, 2020, the Company owned 49% of the entity PCNM. As the Company was directly involved with the management of the entity, the Company considered itself to be the primary beneficiary, thus requiring consolidation. On June 15, 2020, PCNM was legally dissolved.
10. CORONA VIRUS
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus ("COVID-19"). The pandemic has significantly impacted the economic conditions in the U.S., accelerating during the first half of March, as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. In March 2020, we noticed a strong decline in orders from our customers, as businesses around the country began to cease their operations due to COVID-19. In an attempt to mitigate the ongoing impact of the pandemic on our cash flows certain actions were taken. The actions include targeted reductions in discretionary operating expenses such as advertising and payroll expenses, reducing capital expenditures, and reducing travel for business development purposes. As of July 31, 2020, we have noticed an increase in monthly orders as businesses have reopened, coupled with the spring/summer construction season. We have begun to increase our associated expenses including business travel and development.
The Paycheck Protection Program (“PPP”) provides loans from the U.S. Small Business Administration (“SBA”) to help businesses keep their workforce employed during the Coronavirus (COVID-19) crisis. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. On May 8, 2020, the Company received a PPP loan in the amount of $100,344. The Company expects the loan will be fully forgiven and has not yet begun the process of filing for said forgiveness.
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Continued impacts of the pandemic have had a material adverse impact on our revenues, earnings, liquidity and cash flows, and may require additional actions in response, including, but not limited to, employee layoffs, reduced production, or further expense reductions, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., and the related /impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time.
11. SUBSEQUENT EVENTS
On August 14, 2020, the Company entered into a license and distribution agreement with Spectra Shield in which it will be fulfilling orders for and distributing specialty chemical disinfectants. The Company will pay 10% commission to the licensor. The agreement has a term of 5 years. During the month of August, the Company began fulfilling orders for two product lines of these specialty chemical disinfectants.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the Company’s financial condition and results of operations should be read in conjunction with its unaudited interim condensed consolidated financial statements and related notes included in this Quarterly Report on Form 10-Q and the audited financial statements and notes thereto as of and for the transitional period ended April 30, 2020.
FORWARD-LOOKING STATEMENTS
The discussion contained herein contains "forward-looking statements" that involve risk and uncertainties. These statements may be identified by the use of terminology such as "believes," "expects," "may," "should" or anticipates" or expressing this terminology negatively or similar expressions or by discussions of strategy. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. The Company’s actual results could differ materially from those discussed in this report.
BUSINESS AND PLAN OF OPERATION
Lux Amber, Corp., based in Frisco, Texas, is an international specialty chemical company with many products that are friendly to the environment. The common description is “green chemicals.” The Company has degreed chemists on staff with years of successful experience in the specialty chemical industry. The term “specialty chemicals” is best defined by those chemicals whose formulas allow the chemical compounds to perform a specific function for a class of customers. The Company’s products have been used successfully in a diverse array of applications, including:
· | Chemicals to protect surfaces in asphalt handling equipment |
· | Chemicals to control the reproduction of pests |
· | Military Chemical, Biological, Radiological, Nuclear, and Explosives (CBRNE) sites |
· | Commercial nuclear power plants and nuclear-powered ships |
· | Hazardous toxic industrial chemical and toxic industrial material clean-up |
The Company currently operates from a 12,000 square foot chemical production and distribution facility in Frisco, TX. Most of the chemical formulas are protected by patents or trade secrets. For certain specific markets, the Company provides customized applications systems that assure safe and proportioned product delivery. The Company may elect to apply for patents on one or more of the application systems.
The Company’s principal executive offices are located at 145 Rose Lane, Suite 102, Frisco, TX 75036. The Company’s corporate telephone number is 214-729-4003. The Company’s stock symbol is LXAM.
The Company has three wholly owned subsidiaries: Worldwide Specialty Chemicals, Inc. (“WSCI”), Industrial Chem Solutions, Inc. (“ICS”), and Safeway Pest Elimination, LLC (“SPE”); a fourth entity, PCNM, LLC (“PCNM”), is 49% owned. Each of ICS and SPE serves as both a producer and distributor of environmentally safe, specialty chemicals. PCNM is a Service-Disabled Veteran owned small business that sells to government agencies. The Company and its subsidiaries are located at 145 Rose Lane, Suite 102, Frisco, TX 75036.
18 |
ICS’ products utilize all-natural and renewable resources, contain no dangerous chemicals or additives, and offer “green” solutions to its customers. ICS’ product line includes asphalt release agents, industrial cleaners, environmental remediation gels, odor control agents, and consumer friendly cleaners for a wide range of uses, including construction, environmental remediation, hazardous materials clean-up, nuclear decommissioning, industrial cleaning, and odor control.
SPE refines, packages and markets compound derived from natural sources that are formulated to eliminate and/or control pests.
LIQUIDITY AND CAPITAL RESOURCES
During the three-month period ended July 31, 2020, the primary sources of liquidity were cash flows from financing activities, and in particular, promissory notes from a related party.
As of July 31, 2020, the Company had total assets of $3,716,486 consisting of current assets of $55,993 in cash, $169,095 in receivables, $153,006 in inventory, $18,501 in other current assets, and long term assets of $2,309,952 in goodwill and other intangibles, $611,375 in fixed assets, $17,700 on other long term assets, and $380,864 in right of use assets. As of April 30, 2020, the Company had total assets of $3,612,474, consisting of current assets of $49,185 in cash, $106,876 in receivables, $131,205 in inventory, $9,481 in prepaid expenses and other current assets. The increase in total assets of $104,012, was primarily due to the increase in its account receivable of $62,219 and inventory of $21,801 as a result of slower customer pay times due to cash flow issues industry wide as a result of COVID-19 and a buildup of inventory to accommodate the increase in sales.
As of July 31, 2020, the Company had total liabilities totaling $2,299,802 including $1,232,402 in current payables and accrued expenses, $83,948 in related party payables, $563,389 in notes payable, and $200,056 in right of use liabilities. Long term liabilities total $220,007 and included both notes payable and right of use liabilities. As of April 30, 2020, the Company had total liabilities totaling $2,397,838 including $1,094,717 in accounts payable and accrued expenses, $85,603 in related party payables, $762,889 in notes payable and $190,262 in right of use liabilities. Long term liabilities totaled $264,367 and included both notes payable and right of use liabilities. The decrease in liabilities of $105,395, was largely the result of a decrease in notes payable of $199,500 and right of use liabilities of $30,131, with the remainder being offset by an increase in operating expenses.
At July 31, 2020, the Company had an accumulated stockholders’ equity of $1,416,684 and $1,214,636 at April 30,2020. The decrease is result of the items discussed above.
RESULTS OF OPERATIONS
Comparison of the three-month period ended July 31, 2020 and July 31, 2019.
Revenues
For the three-month period ended July 31, 2020, the Company had revenues of $290,260, and $381,503 for the same period in 2019. The decrease in sales is primarily the result of the decrease in SPE’s sales by $103,000. SPE was selling a proprietary product to a single customer. Due to a change in the marketing strategy of the single customer, that customer’s requirement for the product was discontinued. From time-to-time there will be other opportunities for the Company to produce custom products for specific customers, which may not have continuing revenues from one financial period to another.
19 |
Operating Expenses
For the three-month period ended July 31, 2020, the Company’s operating expenses totaled $691,085, and $509,826 for the same period in 2019. The increase of $181,259 is primarily related to 1) increased officer salary expense; 2) professional fees relating to consulting, audit and legal; and 3) increased product delivery costs.
GOING CONCERN
The accompanying consolidated financial statements are presented on a going concern basis. The Company's financial condition raises substantial doubt about the Company's ability to continue as a going concern. The Company has limited cash, its current liabilities exceed its current assets as of July 31, 2020 and has incurred reoccurring losses from operations during the three months ended July 31, 2020. The Company is relying on capital from investors to meet the majority of its operating expenses.
OFF-BALANCE SHEET ARRANGEMENTS
There are no off-balance sheet transactions, arrangements, obligations (including contingent obligations), or other relationships with unconsolidated entities or other persons that have, or may have, a material effect on financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources of the Company.
ITEM 4. CONTROLS AND PROCEDURES
EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
The Company’s management, with the participation of its President and Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934), as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on such evaluation, the Company’s Chief Executive Officer and Chief Financial Officer have concluded that, as of such date, its disclosure controls and procedures are not effective.
INTERNAL CONTROL OVER FINANCIAL REPORTING
As indicated in the Company’s Form 10-KT filed on August 18, 2020 the Company’s Principal Executive Officer and Principal Financial Officer concluded that its internal control over financial reporting was not effective during the 2019 fiscal year.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING
During the period covered by this report, there were not changes in the Company’s internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
20 |
None.
There have been no material changes to the risks to the Company’s business from those described in its Form 10-KT (as amended) for the transitional period ended April 30, 2020, as filed with the SEC on August 18, 2020.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
To assist the Company to obtain and preserve working capital to support its current operations the Company entered into the following transactions:
The Company’s third round of debentures was converted into 872,093 shares of common stock at a price of $0.86 per share and the accrued interest unpaid amount of $13,326 was converted into 15,765 shares of common stock at the same conversion rate.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Date: September 21, 2020
Lux Amber, Corp. | ||
By: | /s/ E. Thomas Layton | |
E. Thomas Layton, CEO and Director | ||
By: | /s/ Paul O. Williams | |
Paul O. Williams, CFO and Director |
22 |
EXHIBIT 31.1
RULE 13a-14(a)/15d-14(a) - CERTIFICATION
I, E. Thomas Layton, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Lux Amber, Corp.; |
2. |
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. |
Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. |
The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: |
(a) |
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) |
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) |
Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) |
Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and |
5. |
The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions): |
(a) |
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and |
(b) |
Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
Date: September 21, 2020 |
By: |
/s/ E. Thomas Layton |
|
|
E. Thomas Layton | ||
|
Chief Executive Officer |
EXHIBIT 31.2
RULE 13a-14(a)/15d-14(a) - CERTIFICATION
I, Paul O. Williams, certify that:
1. |
I have reviewed this quarterly report on Form 10-Q of Lux Amber, Corp.; |
2. |
Based on my knowledge, this quarterly report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this quarterly report; |
3. | Based on my knowledge, the financial statements, and other financial information included in this quarterly report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this quarterly report; |
4. | The small business issuer’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the small business issuer and have: |
(a) | Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; |
(b) | Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; |
(c) | Evaluated the effectiveness of the small business issuer’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and |
(d) | Disclosed in this report any change in the small business issuer’s internal control over financial reporting that occurred during the small business issuer’s most recent fiscal quarter (the small business issuer’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer’s internal control over financial reporting; and |
5. | The small business issuer’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer’s auditors and the audit committee of the small business issuer’s board of directors (or persons performing the equivalent functions): |
(a) | All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer’s ability to record, process, summarize and report financial information; and |
(b) | Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer’s internal control over financial reporting. |
Date: September 21, 2020 |
By: |
/s/ Paul O. Williams |
|
|
Paul O. Williams |
| |
| Chief Financial Officer |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lux Amber, Corp. (the “Company”) on Form 10-Q for the quarter ending July 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report). I, E. Thomas Layton, Chief Executive Officer of the company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief.
(1) | The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: September 21, 2020 | By: | /s/ E. Thomas Layton |
|
|
| E. Thomas Layton, |
|
|
| Chief Executive Officer (Principal Executive Officer) |
|
EXHIBIT 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Lux Amber, Corp. (the “Company”) on Form 10-Q for the quarter ending July 31, 2020 as filed with the Securities and Exchange Commission on the date hereof (the “Report). I, Paul O. Williams, Chief Financial Officer of the company, certify, pursuant to 18 USC Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to the best of my knowledge and belief.
(1) | The Report fully complies with the requirements of Section 13 (a) or 15 (d) of the Securities Exchange Act of 1934; and |
(2) | The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company. |
Dated: September 21, 2020 | By: | /s/ Paul O. Williams |
|
|
| Paul O. Williams, |
|
|
| Chief Financial Officer (Principal Financial Officer) |
|
3. Notes Payable |
3 Months Ended | |||||||||||||||||||||||||
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Jul. 31, 2020 | ||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||
Notes Payable | 3. NOTES PAYABLE
Convertible Promissory Notes Payable During the period ended April 30, 2020 the Company issued a round of convertible debentures worth $750,000. The debentures are convertible into shares of the Company's common stock at the maturity date of June 15, 2020 and pay any unpaid interest at a rate of 8%. As of July 31, 2020, this round of debentures has been converted into 872,093 shares of common stock at a price of $0.86 per share and the accrued interest unpaid amount of $13,326 was converted into 15,765 shares of common stock at a price of $0.86 per share. The remaining $1,666 of accrued interest was paid as of August 11, 2020.
During period ending July 31, 2020, the Company issued a round of convertible debentures worth $1,000,000, of which $525,500 had been issued. The debentures are convertible into shares of the Company's common stock at the maturity date of September 15, 2020 and pay any unpaid interest at a rate of 8%. As of July 31, 2020, this round of debentures had not been converted and the accrued interest unpaid amounted to $311.
Vehicles and Equipment Notes Payable
The Company has one note payable relating to the purchase of a Company vehicle as of July 31, 2020. The balance outstanding under the note payable was $36,039 as of July 31, 2020. The note payable bears interest of 5.99% with principal and interest due monthly. The note matures in September 2023. The Company had the same note payable relating to the purchase of a Company vehicle as of April 30, 2020 with a balance outstanding of $40,474.
The Company’s future minimum principal payments as of July 31, 2020 are as follows:
|
4. Accrued Expenses |
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Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||
Accrued Expenses | 4. ACCRUED EXPENSES
Accrued expenses, consisting of accrued salaries for officers and executive management, include the following balance at July 31, 2020 and April 30, 2020:
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5. Commitments, Contingencies and Concentrations |
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Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Commitments, Contingencies and Concentrations | 5. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS
Leases
The Company adopted the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Updates (“ASU”) ASU 2016-02, Leases on January 1, 2019 on a modified retrospective basis. The initial adoption of the standard recognized right-of-use assets of $493,832 and lease liabilities of $498,361 on the Company’s consolidated balance sheet with no impact on the Company's results of operations. The Company elected the hindsight practical expedient and the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs for all leases.
As of July 31, 2020, the weighted average remaining lease term and weighted average discount rate for financing leases was 2.6 years and 4.09%, respectively. The Company's future financing lease obligations that have not yet commenced are immaterial. For three months ending July 31, 2020 and 2019, the Company's cash paid for financing leases was $35,170 and $4,007, and short-term lease costs were $0 and $32,273, respectively.
The Company’s undiscounted annual future minimum lease payments as of July 31, 2020 consist of:
Concentrations
As of July 31, 2020, the Company had two customers which made up 41% of the outstanding accounts receivable balance. For the three months ended July 31, 2019, the Company had three customers which made up 38% of the outstanding accounts receivable balance.
For the three months ended July 31, 2020, the Company had two customers which made up 41% of total revenues. For the three months ended July 31, 2019, the Company had two customers which made up 34% of total revenues. |
6. Stockholders' Equity |
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Equity [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Stockholders' Equity | 6. STOCKHOLDERS’ EQUITY
Common Stock and Preferred Stock
As of July 31, 2020, and 2019, the authorized share capital of the Company consisted of 75,000,000 shares of common stock, $0.0001 par value. No other classes of stock are authorized.
Common Stock
During the three months ended July 31, 2020, the Company has 36,250 common shares returned at $1.25 per share for a total cash payment amount of $45,313 plus interest.
Warrants
During the three months ended July 31, 2020 and 2019, there were 0 and 260,000 warrants exercised at $.50 per share for a total cash amount of $0 and $130,000, respectively.
As of July 31, 2020, and 2019, there were 82,668 and 82,668 common stock warrants outstanding, respectively, with an exercise price of $.50.
Stock option plan
On the effective date of the March 23, 2020 merger transaction, the Company assumed all of WSCI’s rights and obligations under WSCI’s Second Amended Stock Option Plan (the “Plan”), as well as WSCI’s obligations under the stock options granted on or prior to March 23, 2020. The Board of Directors of the Company has the authority and discretion to grant stock options. The maximum number of shares of stock that may be issued pursuant to the exercise of options under the Plan is 10,000,000. Eligible individuals include any employee or director of the Company and any consultant providing services to the Company. The expiration date and exercise price for each stock option grant are as established by the Board of Directors of the Company. No option may be issued under the Plan after February 1, 2027.
During the three months ended July 31, 2020 and 2019, there were 0 and 150,000 common stock options granted. The options granted have an exercise price of $1.50 and vested immediately.
Stock option activity during the period ended July 31, 2020 is summarized as follows:
Stock option activity during the period ended June 30, 2019 is summarized as follows:
The fair value of each option grant is calculated using the following assumptions:
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7. Related Party Transactions |
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Jul. 31, 2020 | |
Related Party Transactions [Abstract] | |
Related Party Transactions | 7. RELATED PARTY TRANSACTIONS
During the three months ended July 31, 2020 and 2019, the Company incurred consulting fees of $52,675 and $46,265 to four separate entities owned by four current shareholders. The total related party consulting fees unpaid balance due was $28,550 and $176,000 as of July 31, 2020 and April 30, 2020, respectively, and is included in accounts payable in the accompanying consolidated financial statements.
The Company is in effect a sales representative of CBI Polymers, Inc. pursuant to the Exclusive Patent License Agreement between the Company and CBI Polymers. CBI Polymers and the Company are companies under the common control of E. Thomas Layton, the Company’s chairman and chief executive officer. There are no other transactions or contracts between CBI Polymers and the Company other than those discussed in this report. There was $0 due to CBI Polymers as of July 31, 2020 and April 30, 2020, respectively.
In fiscal year April 2020, the Company received $35,000 from a related party, Maine Consultants, Inc. and in exchange therefor, issued a promissory note to Maine Consultants. On May 13, 2020, the promissory note was paid in full.
Two separate related parties are allowing the Company to rent vehicles for a monthly fee of $1,650 and $2,957. For the three months ended July 31, 2020, the Company paid a total of $3,300 and $2,957. For the three-month period ended July 31, 2019, the Company had not yet entered into these agreements, thus $0 and $0 was paid.
The Company has a 49% ownership in PCNM. PCNM’s remaining 51% ownership is owned by an employee and shareholder of the Company. During the three months ended July 31, 2020, PCNM did not engage in material transactions. Further, on June 15, 2020 PCNM was legally dissolved. |
8. Income Taxes |
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Income Taxes | 8. INCOME TAXES
For the three-months ended July 31, 2020 and 2019, the effective tax rate of 0% varies from the U.S. federal statutory rate primarily due to net losses and the valuation allowance associated with the net operating loss carryforwards. The Company continually reviews the realizability of its deferred tax assets, including an analysis of factors such as future taxable income, reversal of existing taxable temporary differences, and tax planning strategies. The Company continues to record a full valuation allowance against its net deferred tax assets. The Company assessed whether a valuation allowance should be established against its deferred tax assets based on consideration of all available evidence, using a “more likely than not” standard. In assessing the need for a valuation allowance, the Company considered both positive and negative evidence related to the likelihood of realization of deferred tax assets. In making such assessment, more weight was given to evidence that could be objectively verified, including recent cumulative losses. Future sources of taxable income were also considered in determining the amount of the recorded valuation allowance. Based on the Company’s review of this evidence at July 31, 2020, management determined that a full valuation allowance against all of the Company’s deferred tax assets at July 31, 2020 was appropriate.
The following table summarizes the difference between the actual tax provision and the amounts obtained by applying the statutory tax rates to the income or loss before income taxes for the period ending July 31, 2020 and 2019:
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9. Variable Interest Entities |
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Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Variable Interest Entities | 9. VARIABLE INTEREST ENTITIES
As of April 30, 2020, the Company owned 49% of the entity PCNM. As the Company was directly involved with the management of the entity, the Company considered itself to be the primary beneficiary, thus requiring consolidation. On June 15, 2020, PCNM was legally dissolved. |
10. Corona Virus |
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Corona Virus | |
Corona Virus | 10. CORONA VIRUS
During March 2020, a global pandemic was declared by the World Health Organization related to the rapidly growing outbreak of a novel strain of coronavirus ("COVID-19"). The pandemic has significantly impacted the economic conditions in the U.S., accelerating during the first half of March, as federal, state and local governments react to the public health crisis, creating significant uncertainties in the U.S. economy. In March 2020, we noticed a strong decline in orders from our customers, as businesses around the country began to cease their operations due to COVID-19. In an attempt to mitigate the ongoing impact of the pandemic on our cash flows certain actions were taken. The actions include targeted reductions in discretionary operating expenses such as advertising and payroll expenses, reducing capital expenditures, and reducing travel for business development purposes. As of July 31, 2020, we have noticed an increase in monthly orders as businesses have reopened, coupled with the spring/summer construction season. We have begun to increase our associated expenses including business travel and development.
The Paycheck Protection Program (“PPP”) provides loans from the U.S. Small Business Administration (“SBA”) to help businesses keep their workforce employed during the Coronavirus (COVID-19) crisis. SBA will forgive loans if all employees are kept on the payroll for eight weeks and the money is used for payroll, rent, mortgage interest, or utilities. On May 8, 2020, the Company received a PPP loan in the amount of $100,344. The Company expects the loan will be fully forgiven and has not yet begun the process of filing for said forgiveness.
Continued impacts of the pandemic have had a material adverse impact on our revenues, earnings, liquidity and cash flows, and may require additional actions in response, including, but not limited to, employee layoffs, reduced production, or further expense reductions, all in an effort to mitigate such impacts. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration of the spread of the outbreak within the U.S., and the related /impact on consumer confidence and spending, all of which are highly uncertain and cannot be predicted. This situation is rapidly changing and additional impacts to the business may arise that we are not aware of currently. While the disruption is currently expected to be temporary, there is uncertainty around the duration. The ultimate impact of the pandemic on the Company’s results of operations, financial position, liquidity or capital resources cannot be reasonably estimated at this time. |
11. Subsequent Events |
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Subsequent Events [Abstract] | |
Subsequent Events | 11. SUBSEQUENT EVENTS
On August 14, 2020, the Company entered into a license and distribution agreement with Spectra Shield in which it will be fulfilling orders for and distributing specialty chemical disinfectants. The Company will pay 10% commission to the licensor. The agreement has a term of 5 years. During the month of August, the Company began fulfilling orders for two product lines of these specialty chemical disinfectants. |
1. Summary of Significant Accounting Policies (Policies) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Basis of Consolidation | Basis of Consolidation
The consolidated financial statements include the accounts of Industrial Chem Solutions, Inc. (ICS), Safeway Pest Elimination, LLC (SPE), both of which are the Company’s wholly owned subsidiaries, and PCNM, LLC (PCNM), a 49% investment. The Company evaluated its investment in PCNM to determine if it represented a variable interest in a Variable Interest Entity (VIE). The Company determined that it had a variable interest in a VIE, and that it was the primary beneficiary of the VIE. During the three months ended July 31, 2020, PCNM did not enter into any material transactions and was legally dissolved.
All significant intercompany accounts and transactions have been eliminated in consolidation. |
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Basis of Presentation | Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial reporting and the instructions for Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they include all information and footnote disclosures necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholder’s equity in conformity with GAAP. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
The unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s most recently filed Form 10-KT (as amended) as of and for the transitional period ended April 30, 2020 that was filed on August 18, 2020.
Operating results for the three-months ended July 31, 2020, are not necessarily indicative of the results that can be expected for the year ending April 30, 2021. |
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Use of Estimates | Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. |
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Fair Value of Financial Instruments | Fair Value of Financial Instruments
FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management at July 31, 2020 and April 30, 2020. The carrying value of the financial instruments included in the Company’s financial statements approximated their fair values.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.
The carrying value of the notes payable approximates fair value as they bear market rates of interest. |
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Basic and Diluted Net Loss Per Share | Basic and Diluted Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted loss per share has not been presented because there are no dilutive items. Diluted earnings loss per share is based on the assumption that all dilutive stock options, warrants, and convertible debt are converted or exercised by applying the treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options, warrants and/or convertible debt will have a dilutive effect, during periods of net profit, only when the average market price of the common stock during the period exceeds the exercise or conversion price of the items.
For the three months ended July 31, 2020 and 2019, approximately 82,668 and 82,668 common stock warrants, respectively, and 6,469,750 and 4,883,083 common stock options, respectively, were not added to the diluted average shares because inclusion of such warrants and options would be antidilutive. |
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Cash and Cash Equivalents | Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents. |
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Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are trade receivables from product sales recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At July 31, 2020 and April 30, 2020, an allowance for doubtful accounts was $0. |
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Revenue Recognition | Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Committee 606 (“ASC 606”), Revenue from Contracts with Customers, which provides guidance on how revenue with customers should be recognized.
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sold is recognized when obligations with the customer are satisfied, which generally occurs with the transfer or delivery of the product, signifying the point in time when the customer obtains control of the promised goods. Our performance obligation is delivering the product to the customer; and therefore, the transaction price, which is stated on the invoice, is allocated 100% to the sole performance obligation of product delivery. Revenue from service, if applicable, would be recognized when the services are provided, or the customer receives the benefit, which is over time. For the period ended July 31, 2020 and 2019, all revenue was from products sold.
Our sales policies do not provide for general rights of return, and payment is due net of 60 days. We do not record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time of the sale. We also do not record estimated reserves for product returns and credits at the time of sale and anticipated uncollectible accounts. |
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Inventory | Inventory
Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in first-out basis. The carrying value of inventory is reduced for estimated obsolescence. The Company evaluates the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand.
The following table sets forth the components of the Company’s inventory balances as of:
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Prepaid Expenses | Prepaid Expenses
Prepaid expenses consist of expenses the Company has paid for prior to the service or good being provided. These prepaid expenses will be recorded as expense at the time the service has been provided. |
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Fixed Assets | Fixed Assets
Fixed assets consist of furniture, fixtures and office equipment, vehicles and trailers, equipment and leasehold improvements that are stated at cost, less accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to earnings over their estimated service lives (3 – 10 years) under the straight-line method.
Maintenance and repairs are charged to expenses as incurred; major repairs and replacements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Property and equipment operated under material leases which transfer substantially all benefits and risks associated with the assets to the Company are capitalized. An asset and liability equal to the present or fair value, if appropriate, of minimum payments over the term of the leases are recorded. Depreciation of the asset is computed using the straight-line method over the life of the asset. Costs associated with operating leases are expensed as incurred. |
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Goodwill | Goodwill
Goodwill represents the excess of the value of the purchase price and related costs over the identifiable assets from business acquisitions. The Company conducts an annual impairment assessment, at the reporting unit level, of its recorded goodwill. The Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The qualitative factors evaluated by the Company include macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than the carrying amount, management determines if the reporting unit’s carrying value exceeds its fair value and records an impairment for such amounts. Management determined, by assessing the qualitative factors, that it is more likely than not that the fair value of the reporting unit is greater than the carrying value. Management does not consider the value of goodwill recorded for ICS in the accompanying consolidated balance sheet to be impaired as of July 31, 2020 and April 30, 2020. |
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License Fee | License Fee
ICS pays 10% of the net selling price to CBI Polymers, Inc., as a mutually acceptable license fee. E. Thomas Layton, Chairman and CEO of the Company, is also the Chairman and CEO and controlling shareholder of CBI Polymers, Inc. See discussion of expenses incurred at Note 7. |
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Share-Based Compensation | Share-Based Compensation
The Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation — Stock Compensation, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award. The fair value at the measurement date of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the vesting period based on the estimated number of stock options that are expected to vest. The Company estimates forfeitures to be 50% for options that vest over time. |
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Income Taxes | Income Taxes
The Company accounts for Federal and state income taxes using the asset and liability approach for financial accounting and reporting for income taxes based on tax effects of differences between the financial statement and tax basis of assets and liabilities.
The Company accounts for all uncertain tax positions in accordance with ASC Topic 740 – Income Taxes (ASC 740). ASC 740 provides guidance on de-recognition, classification, interest and penalties and disclosure related to uncertain income tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties as of July 31, 2020 and April 30, 2020.
From time to time, the Company may be audited by taxing authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes. The Company’s federal returns since 2016 are still subject to examination by taxing authorities. |
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Going Concern | Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred substantial operating losses resulting in an accumulated deficit of $13,443,918 and $12,884,427 at July 31, 2020 and April 30, 2020, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are being issued. As such, the Company will need to arrange for additional financing to fully implement its business plan, including continued growth and establishment of a stronger brand.
The Company is actively seeking growth of its service offerings, both organically and via new client relationships. In the ordinary course of the Company’s business, management is trying to raise additional capital through sales of common stock as well as seeking debt financing from third parties. There are current indications that additional financing will be available on favorable terms. In addition, the company is working to establish creditworthiness by establishing a line-of-credit and entering into a sale-lease back on certain assets. If additional financing is not available, the Company will need to reduce salaries, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations, including potential discontinuance of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders. Additionally, incurring additional indebtedness could involve an increased debt service cash obligation, as well as the imposition of covenants that restrict the Company’s operations or the Company’s ability to perform on its current debt service requirements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. While the company recognizes the significant impact of additional financing, the company is an emerging growth company serving large and growing markets and it will continue to sell securities and enter into financing programs which are deemed to be prudent. |
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Recently Issued Accounting Pronouncements | Recently Issued Accounting Pronouncements
Pronouncements Recently Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. Adoption of this guidance in the four-month period ended April 30, 2020 did not impact the Company’s financial statements. |
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Pronouncements Not Yet Adopted | Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements. |
Cover - shares |
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Sep. 16, 2020 |
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Cover [Abstract] | ||
Document Type | 10-Q | |
Amendment Flag | false | |
Document Period End Date | Jul. 31, 2020 | |
Document Fiscal Period Focus | Q1 | |
Document Fiscal Year Focus | 2021 | |
Current Fiscal Year End Date | --04-30 | |
Entity File Number | 333-225545 | |
Entity Registrant Name | Lux Amber, Corp. | |
Entity Central Index Key | 0001740695 | |
Entity Current Reporting Status | Yes | |
Entity Interactive Data Current | Yes | |
Entity Filer Category | Non-accelerated Filer | |
Entity Small Business | true | |
Entity Emerging Growth Company | false | |
Entity Shell Company | false | |
Entity Common Stock, Shares Outstanding | 30,293,316 | |
Entity State of incorp | NV |
1. Summary of Significant Accounting Policies (Tables) |
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Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of property and equipment | The following table sets forth the components of the Company’s inventory balances as of:
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2. Accounts Receivable (Tables) |
3 Months Ended | ||||||||||||||||||
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Jul. 31, 2020 | |||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||
Schedule of accounts receivable | Accounts receivable relate to trade receivables from product sales made by the Company. Accounts receivable consist of the following at July 31, 2020 and April 30, 2020:
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3. Notes Payable (Tables) |
3 Months Ended | |||||||||||||||||||||||||
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Jul. 31, 2020 | ||||||||||||||||||||||||||
Debt Disclosure [Abstract] | ||||||||||||||||||||||||||
Schedule of future minimum debt payments | The Company’s future minimum principal payments as of July 31, 2020 are as follows:
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4. Accrued Expenses (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||
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Jul. 31, 2020 | |||||||||||||||||||||||||||||||||||||
Payables and Accruals [Abstract] | |||||||||||||||||||||||||||||||||||||
Schedule of accrued expenses | Accrued expenses, consisting of accrued salaries for officers and executive management, include the following balance at July 31, 2020 and April 30, 2020:
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5. Commitments, Contingencies and Concentrations (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||
Commitments and Contingencies Disclosure [Abstract] | |||||||||||||||||||||||||||||||||||||||||
Schedule of future minimum lease payments | The Company’s undiscounted annual future minimum lease payments as of July 31, 2020 consist of:
|
6. Stockholders' Equity (Tables) |
3 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Equity [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Schedule of option activity | Stock option activity during the period ended July 31, 2020 is summarized as follows:
Stock option activity during the period ended June 30, 2019 is summarized as follows:
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Schedule of assumptions | The fair value of each option grant is calculated using the following assumptions:
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8. Income Taxes (Tables) |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Income Tax Disclosure [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Schedule of income tax reconciliation | The following table summarizes the difference between the actual tax provision and the amounts obtained by applying the statutory tax rates to the income or loss before income taxes for the period ending July 31, 2020 and 2019:
|
1. Summary of Significant Accounting Policies (Details - Inventory) - USD ($) |
Jul. 31, 2020 |
Apr. 30, 2020 |
---|---|---|
Accounting Policies [Abstract] | ||
Finished goods, gross | $ 92,568 | $ 92,568 |
Raw materials, gross | 77,728 | 55,927 |
Inventory obsolescence | (17,290) | (17,290) |
Inventory, net | $ 153,006 | $ 131,205 |
1. Summary of Significant Accounting Policies (Details Narrative) - USD ($) |
3 Months Ended | 4 Months Ended | |
---|---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
Apr. 30, 2020 |
|
Allowance for doubtful accounts | $ 0 | $ 0 | |
Accumulated deficit | $ (13,443,918) | $ (12,884,427) | |
PCNM [Member] | |||
Ownership Percentage | 49.00% | 49.00% | |
Warrants [Member] | |||
Antidilutive shares | 82,668 | 82,668 | |
Options [Member] | |||
Antidilutive shares | 6,469,750 | 4,883,083 |
2. Accounts Receivable (Details) - USD ($) |
Jul. 31, 2020 |
Apr. 30, 2020 |
---|---|---|
Receivables [Abstract] | ||
Trade receivables | $ 169,095 | $ 106,876 |
3. Notes Payable (Details - Minimum debt payments) |
Apr. 30, 2020
USD ($)
|
---|---|
Debt Disclosure [Abstract] | |
2021 | $ 9,666 |
2022 | 12,889 |
2023 | 12,889 |
2024 | 595 |
Total future minimum payments | $ 36,039 |
3. Notes Payable (Details Narrative) - USD ($) |
3 Months Ended | 4 Months Ended |
---|---|---|
Jul. 31, 2020 |
Apr. 30, 2020 |
|
Convertible Debentures [Member] | ||
Convertible debt issued | $ 750,000 | |
Debt maturity date | Jun. 15, 2020 | |
Debt interest rate | 8.00% | |
Debt converted, shares issued | 872,093 | |
Accrued interest unpaid amount converted, shares issued | 15,765 | |
Interest expense paid | $ 1,666 | |
Convertible Debentures [Member] | ||
Convertible debt issued | $ 525,500 | |
Debt maturity date | Sep. 15, 2020 | |
Debt interest rate | 8.00% | |
Debt converted, shares issued | 1,386,541 | |
Interest expense paid | $ 11,566 | |
Accrued interest | $ 311 | |
Vehicle Note Payable [Member] | ||
Debt maturity date | Sep. 30, 2023 | |
Debt interest rate | 5.99% | |
Note payable outstanding | $ 36,039 | $ 40,474 |
4. Accrued Expenses (Details) - USD ($) |
Jul. 31, 2020 |
Apr. 30, 2020 |
---|---|---|
Payables and Accruals [Abstract] | ||
Accrued compensation | $ 660,841 | $ 469,004 |
Other accrued expenses | 223,238 | 336,849 |
Accrued expenses | $ 884,079 | $ 805,853 |
5. Commitments, Contingencies and Concentrations (Details - Minimum Lease payments) - USD ($) |
Jul. 31, 2020 |
Jan. 02, 2019 |
---|---|---|
Commitments and Contingencies Disclosure [Abstract] | ||
2021 | $ 147,417 | |
2022 | 161,431 | |
2023 | 85,699 | |
2024 | 11,483 | |
2025 | 10,526 | |
Total lease payments | 416,558 | |
Interest | (19,645) | |
Present value of lease liabilities | $ 396,913 | $ 498,361 |
5. Commitments, Contingencies and Concentrations (Details Narrative) - USD ($) |
3 Months Ended | |||
---|---|---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
Apr. 30, 2020 |
Jan. 02, 2019 |
|
Right to use asset | $ 380,864 | $ 423,815 | $ 493,832 | |
Right to use liability | $ 396,913 | $ 498,361 | ||
Weighted average remaining lease term | 2 years 7 months 6 days | |||
Weighted average discount rate | 4.09% | |||
Finance lease cost | $ 35,170 | $ 4,007 | ||
Short term lease cost | $ 0 | $ 32,273 | ||
Accounts Receivable [Member] | Two Customers [Member] | ||||
Concentration risk percentage | 41.00% | |||
Accounts Receivable [Member] | Three Customers [Member] | ||||
Concentration risk percentage | 38.00% | |||
Sales Revenue Net [Member] | Two Customers [Member] | ||||
Concentration risk percentage | 41.00% | 34.00% |
6. Stockholders' Equity (Details - Assumptions) |
3 Months Ended | |
---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
|
Equity [Abstract] | ||
Expected life - years | NA | 5 years |
Interest rate - minimum | 1.78% | |
Interest rate - maximum | 2.03% | |
Volatility | 71.70% | |
Dividend yield | 0.00% | 0.00% |
6. Stockholders' Equity (Details Narrative) - USD ($) |
3 Months Ended | |
---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
|
Common stock repurchased, shares | 36,250 | |
Common stock repurchased, value | $ 45,313 | |
Share Price | $ 1.25 | |
Warrants exercised | 0 | 260,000 |
Proceeds from warrant exercises | $ 0 | $ 130,000 |
Warrants outstanding | 82,668 | 82,668 |
Options granted | 0 | 150,000 |
Option granted exercise price | $ 1.50 | |
2016 Stock Option Plan [Member] | ||
Stock authorized under the plan | 10,000,000 |
7. Related Party Transactions (Details Narrative) - USD ($) |
3 Months Ended | 4 Months Ended | |
---|---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
Apr. 30, 2020 |
|
Due to related parties | $ 108,948 | $ 85,603 | |
PCNM [Member] | |||
Ownership Percentage | 49.00% | 49.00% | |
Vehicle Rental [Member] | |||
Lease expense | $ 3,300 | $ 0 | |
Vehicle Rental [Member] | |||
Lease expense | 2,957 | 0 | |
Four Shareholders [Member] | |||
Consulting fees | 52,675 | $ 46,265 | |
Due to related parties | 28,550 | $ 176,000 | |
CBI [Member] | |||
Due to related parties | $ 0 | 0 | |
Maine Consultants [Member] | |||
Proceeds from related party | 35,000 | ||
Repayment to related party | $ 35,000 | ||
Employee and shareholder [Member] | |||
Ownership Percentage | 51.00% |
8. Income Taxes (Details - Income tax reconciliation) |
3 Months Ended | |
---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
|
Income Tax Disclosure [Abstract] | ||
Tax benefit calculated at statutory rate | 21.00% | 21.00% |
Expense not deductible | (0.02%) | (0.01%) |
Changes to valuation allowance | (20.98%) | (20.99%) |
Provision for income taxes | 0.00% | 0.00% |
Interim Condensed Consolidated Balance Sheets (Unaudited) (Parenthetical) - $ / shares |
Jul. 31, 2020 |
Apr. 30, 2020 |
---|---|---|
Statement of Financial Position [Abstract] | ||
Common stock, par value | $ 0.0001 | $ 0.0001 |
Common stock, shares authorized | 75,000,000 | 75,000,000 |
Common stock, shares issued | 30,293,316 | 29,441,708 |
Common stock, shares outstanding | 30,293,316 | 29,441,708 |
8. Income Taxes (Details Narrative) |
3 Months Ended | |
---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
|
Income Tax Disclosure [Abstract] | ||
Effective tax rate | 0.00% | 0.00% |
9. Variable Interest Entities (Details Narrative) |
3 Months Ended | 4 Months Ended |
---|---|---|
Jul. 31, 2020 |
Apr. 30, 2020 |
|
PCNM [Member] | ||
Ownership Percentage | 49.00% | 49.00% |
10. Corona Virus (Details Narrative) |
3 Months Ended |
---|---|
Jul. 31, 2020
USD ($)
| |
Corona Virus | |
Proceeds from loans | $ 100,344 |
Interim Condensed Consolidated Statements of Operations (Unaudited) - USD ($) |
3 Months Ended | |
---|---|---|
Jul. 31, 2020 |
Jul. 31, 2019 |
|
Income Statement [Abstract] | ||
Revenues | $ 290,260 | $ 381,503 |
Cost of goods sold | 214,432 | 225,185 |
Gross profit | 75,828 | 156,318 |
OPERATING EXPENSES | ||
Product delivery | 141,981 | 68,391 |
General and administrative | 492,329 | 377,255 |
Selling | 19,491 | 39,362 |
Depreciation | 37,284 | 24,818 |
Total operating expenses | 691,085 | 509,826 |
OTHER (INCOME) EXPENSE | ||
Interest income | 0 | (15) |
Interest expense | 3,308 | 2,854 |
Other income | (57,956) | (31,074) |
Total other income | (54,648) | (28,205) |
Net loss | (560,609) | (325,303) |
Less: net income (loss) attributable to non-controlling interest | 0 | (304) |
Net loss attributable to Lux Amber, Corp. | $ (560,609) | $ (324,999) |
Basic and diluted - loss per share | $ (0.02) | $ (0.01) |
Basic and diluted - weighted average shares | 29,592,296 | 26,229,293 |
Interim Condensed Consolidated Statements Changes in Stockholders' Equity (Deficit) (Unaudited) - USD ($) |
Common Stock |
Additional Paid-In Capital |
Accumulated Deficit |
Noncontrolling Interest |
Total |
---|---|---|---|---|---|
Beginning balance, shares at Apr. 30, 2019 | 25,969,293 | ||||
Beginning balance, value at Apr. 30, 2019 | $ 2,597 | $ 10,767,919 | $ (8,461,391) | $ (27,918) | $ 2,281,207 |
Warrants exercised, share | 260,000 | ||||
Warrants exercised, value | $ 26 | 129,974 | 130,000 | ||
Share based compensation | 119,095 | 119,095 | |||
Net loss | (324,999) | (304) | (325,303) | ||
Ending balance, shares at Jul. 31, 2019 | 26,229,293 | ||||
Ending balance, value at Jul. 31, 2019 | $ 2,623 | 11,016,987 | (8,786,389) | (28,223) | 2,204,999 |
Beginning balance, shares at Apr. 30, 2020 | 29,441,708 | ||||
Beginning balance, value at Apr. 30, 2020 | $ 2,943 | 14,095,093 | (12,884,427) | 1,027 | 1,214,636 |
Common stock repurchased, shares | (36,250) | ||||
Common stock repurchased, value | $ (5) | (45,308) | (45,313) | ||
Notes payable with interest converted, shares | 887,858 | ||||
Notes payable with interest converted, value | $ 89 | 763,237 | 763,326 | ||
Dissolution of PCNM | 1,118 | (1,027) | 91 | ||
Share based compensation | 44,553 | 44,553 | |||
Net loss | (560,609) | (560,609) | |||
Ending balance, shares at Jul. 31, 2020 | 30,293,316 | ||||
Ending balance, value at Jul. 31, 2020 | $ 3,027 | $ 14,857,575 | $ (13,443,918) | $ 1,416,684 |
Nature of Business |
3 Months Ended |
---|---|
Jul. 31, 2020 | |
Organization, Consolidation and Presentation of Financial Statements [Abstract] | |
Nature of Business | NATURE OF BUSINESS
Lux Amber, Corp. (the “Company”) a Nevada corporation, is an international specialty chemical company. Its principal executive offices are located at 145 Rose Lane, Suite 102, Frisco, Texas 75036.
The Company has three (3) wholly owned subsidiaries: Worldwide Specialty Chemicals, Inc. (“WSCI”), Industrial Chem Solutions, Inc. (“ICS”), and Safeway Pest Elimination, LLC, (“SPE”); a fourth entity, PCNM, LLC (“PCNM”), is 49% owned. SPE was formed July 16, 2018. Each of ICS and SPE serves as both a producer and distributor of environmentally safe, specialty chemicals. PCNM was a Service-Disabled Veteran owned small business that sells to government agents, which was legally dissolved in the three months ended July 31, 2020. The Company and its subsidiaries are located at 145 Rose Lane, Suite 102, Frisco, TX 75036.
The products sold by the Company and its subsidiaries utilize all-natural and renewable resources, contain no dangerous chemicals or additives, and offer “green” solutions to its customers. ICS’ product line includes asphalt release agents, industrial cleaners, environmental remediation gels, odor control agents, and consumer friendly cleaners for a wide range of uses, including construction, environmental remediation, hazardous materials clean-up, nuclear decommissioning, industrial cleaning, and odor control. SPE products are designed for the elimination and control of pests. |
1. Summary of Significant Accounting Policies |
3 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||
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Jul. 31, 2020 | ||||||||||||||||||||||||||||||||||||||||||||||
Accounting Policies [Abstract] | ||||||||||||||||||||||||||||||||||||||||||||||
Summary of Significant Accounting Policies | 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of the significant accounting polices consistently applied in the preparation of the accompanying consolidated financial statements in accordance with accounting principles generally accepted in the United States of America (“GAAP”) is as follows.
Basis of Consolidation
The consolidated financial statements include the accounts of Industrial Chem Solutions, Inc. (ICS), Safeway Pest Elimination, LLC (SPE), both of which are the Company’s wholly owned subsidiaries, and PCNM, LLC (PCNM), a 49% investment. The Company evaluated its investment in PCNM to determine if it represented a variable interest in a Variable Interest Entity (VIE). The Company determined that it had a variable interest in a VIE, and that it was the primary beneficiary of the VIE. During the three months ended July 31, 2020, PCNM did not enter into any material transactions and was legally dissolved.
All significant intercompany accounts and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim financial reporting and the instructions for Form 10-Q pursuant to the rules and regulations of the Securities and Exchange Commission. Accordingly, they include all information and footnote disclosures necessary for a complete presentation of the financial position, results of operations, cash flows, and stockholder’s equity in conformity with GAAP. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
The unaudited interim condensed financial statements should be read in conjunction with the audited financial statements and related notes included in the Company’s most recently filed Form 10-KT (as amended) as of and for the transitional period ended April 30, 2020 that was filed on August 18, 2020.
Operating results for the three-months ended July 31, 2020, are not necessarily indicative of the results that can be expected for the year ending April 30, 2021.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Fair Value of Financial Instruments
FASB ASC 825-10 requires disclosure of fair value information about certain financial instruments, including, but not limited to, cash and cash equivalents, accounts receivable, prepaid expenses, accounts payable, accrued expenses and notes payable. Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management at July 31, 2020 and April 30, 2020. The carrying value of the financial instruments included in the Company’s financial statements approximated their fair values.
The carrying value of cash and cash equivalents, accounts receivable, accounts payable and accrued liabilities are carried at, or approximate, fair value as of the reporting date because of their short-term nature.
The carrying value of the notes payable approximates fair value as they bear market rates of interest.
Basic and Diluted Net Loss Per Share
Basic net loss per share is computed using the weighted average number of common shares outstanding. Diluted loss per share has not been presented because there are no dilutive items. Diluted earnings loss per share is based on the assumption that all dilutive stock options, warrants, and convertible debt are converted or exercised by applying the treasury stock method. Under this method, options and warrants are assumed exercised at the beginning of the period (or at the time of issuance, if later), and as if funds obtained thereby were used to purchase common stock at the average market price during the period. Options, warrants and/or convertible debt will have a dilutive effect, during periods of net profit, only when the average market price of the common stock during the period exceeds the exercise or conversion price of the items.
For the three months ended July 31, 2020 and 2019, approximately 82,668 and 82,668 common stock warrants, respectively, and 6,469,750 and 4,883,083 common stock options, respectively, were not added to the diluted average shares because inclusion of such warrants and options would be antidilutive.
Cash and Cash Equivalents
The Company considers all highly liquid investments with an initial maturity of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at several financial institutions located throughout the United States, which at times may exceed insured limits. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk on cash and cash equivalents.
Accounts Receivable and Allowance for Doubtful Accounts
Accounts receivable are trade receivables from product sales recorded at invoiced amount and generally do not bear interest. An allowance for doubtful accounts is established, as necessary, based on past experience and other factors which, in management's judgment, deserve current recognition in estimating bad debts. Such factors include growth and composition of accounts receivable, the relationship of the allowance for doubtful accounts to accounts receivable, and current economic conditions. The determination of the collectability of amounts due requires the Company to make judgments regarding future events and trends. Allowances for doubtful accounts are determined based on assessing the Company’s portfolio on an individual customer and on an overall basis. This process consists of a review of historical collection experience, current aging status of the customer account, and the financial condition of the Company’s customers. Based on a review of these factors, the Company establishes or adjusts the allowance for specific customers and the accounts receivable portfolio as a whole. At July 31, 2020 and April 30, 2020, an allowance for doubtful accounts was $0.
Revenue Recognition
On January 1, 2018, we adopted Accounting Standards Committee 606 (“ASC 606”), Revenue from Contracts with Customers, which provides guidance on how revenue with customers should be recognized.
Revenue is measured as the amount of consideration expected to be received in exchange for transferring goods or providing service. Revenue from product sold is recognized when obligations with the customer are satisfied, which generally occurs with the transfer or delivery of the product, signifying the point in time when the customer obtains control of the promised goods. Our performance obligation is delivering the product to the customer; and therefore, the transaction price, which is stated on the invoice, is allocated 100% to the sole performance obligation of product delivery. Revenue from service, if applicable, would be recognized when the services are provided, or the customer receives the benefit, which is over time. For the period ended July 31, 2020 and 2019, all revenue was from products sold.
Our sales policies do not provide for general rights of return, and payment is due net of 60 days. We do not record estimated reductions to revenue for customer programs and incentive offerings including pricing arrangements, promotions and other volume-based incentives at the time of the sale. We also do not record estimated reserves for product returns and credits at the time of sale and anticipated uncollectible accounts.
Inventory
Inventory is stated at the lower of cost or net realizable value, with cost determined on a first-in first-out basis. The carrying value of inventory is reduced for estimated obsolescence. The Company evaluates the inventory carrying value for potential excess and obsolete inventory exposures by analyzing historical and anticipated demand.
The following table sets forth the components of the Company’s inventory balances as of:
Prepaid Expenses
Prepaid expenses consist of expenses the Company has paid for prior to the service or good being provided. These prepaid expenses will be recorded as expense at the time the service has been provided.
Fixed Assets
Fixed assets consist of furniture, fixtures and office equipment, vehicles and trailers, equipment and leasehold improvements that are stated at cost, less accumulated depreciation. Depreciation is provided in amounts sufficient to relate the cost of depreciable assets to earnings over their estimated service lives (3 – 10 years) under the straight-line method.
Maintenance and repairs are charged to expenses as incurred; major repairs and replacements are capitalized. When items of property or equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is included in operations.
Property and equipment operated under material leases which transfer substantially all benefits and risks associated with the assets to the Company are capitalized. An asset and liability equal to the present or fair value, if appropriate, of minimum payments over the term of the leases are recorded. Depreciation of the asset is computed using the straight-line method over the life of the asset. Costs associated with operating leases are expensed as incurred.
Goodwill
Goodwill represents the excess of the value of the purchase price and related costs over the identifiable assets from business acquisitions. The Company conducts an annual impairment assessment, at the reporting unit level, of its recorded goodwill. The Company assesses qualitative factors in order to determine whether it is more likely than not that the fair value of a reporting unit is less than the carrying amount. The qualitative factors evaluated by the Company include macro-economic conditions of the local business environment, overall financial performance, and other entity specific factors as deemed appropriate. If, through this qualitative assessment, the conclusion is made that it is more likely than not that a reporting unit’s fair value is less than the carrying amount, management determines if the reporting unit’s carrying value exceeds its fair value and records an impairment for such amounts. Management determined, by assessing the qualitative factors, that it is more likely than not that the fair value of the reporting unit is greater than the carrying value. Management does not consider the value of goodwill recorded for ICS in the accompanying consolidated balance sheet to be impaired as of July 31, 2020 and April 30, 2020.
License Fee
ICS pays 10% of the net selling price to CBI Polymers, Inc., as a mutually acceptable license fee. E. Thomas Layton, Chairman and CEO of the Company, is also the Chairman and CEO and controlling shareholder of CBI Polymers, Inc. See discussion of expenses incurred at Note 7.
Share-Based Compensation
The Company recognizes compensation expense for all share-based payments in accordance with FASB Codification Topic 718, Compensation — Stock Compensation, (ASC 718). Under the fair value recognition provisions of ASC 718, the Company recognizes share-based compensation expense, net of an estimated forfeiture rate, over the requisite service period of the award. The fair value at the measurement date of stock options is estimated using the Black-Scholes option-pricing model. Compensation expense is recognized on a straight-line basis over the vesting period based on the estimated number of stock options that are expected to vest. The Company estimates forfeitures to be 50% for options that vest over time.
Income Taxes
The Company accounts for Federal and state income taxes using the asset and liability approach for financial accounting and reporting for income taxes based on tax effects of differences between the financial statement and tax basis of assets and liabilities.
The Company accounts for all uncertain tax positions in accordance with ASC Topic 740 – Income Taxes (ASC 740). ASC 740 provides guidance on de-recognition, classification, interest and penalties and disclosure related to uncertain income tax positions. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. There were no accrued interest or penalties as of July 31, 2020 and April 30, 2020.
From time to time, the Company may be audited by taxing authorities. These audits could result in proposed assessments of additional taxes. The Company believes that its tax positions comply in all material respects with applicable tax law. However, tax law is subject to interpretation, and interpretations by taxing authorities could be different from those of the Company, which could result in the imposition of additional taxes. The Company’s federal returns since 2016 are still subject to examination by taxing authorities.
Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. The Company has incurred substantial operating losses resulting in an accumulated deficit of $13,443,918 and $12,884,427 at July 31, 2020 and April 30, 2020, respectively. These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year after the date the financial statements are being issued. As such, the Company will need to arrange for additional financing to fully implement its business plan, including continued growth and establishment of a stronger brand.
The Company is actively seeking growth of its service offerings, both organically and via new client relationships. In the ordinary course of the Company’s business, management is trying to raise additional capital through sales of common stock as well as seeking debt financing from third parties. There are current indications that additional financing will be available on favorable terms. In addition, the company is working to establish creditworthiness by establishing a line-of-credit and entering into a sale-lease back on certain assets. If additional financing is not available, the Company will need to reduce salaries, defer or cancel development programs, planned initiatives and overhead expenditures. The failure to adequately fund its capital requirements could have a material adverse effect on the Company’s business, financial condition and results of operations, including potential discontinuance of operations. Moreover, the sale of additional equity securities to raise financing will result in additional dilution to the Company’s stockholders. Additionally, incurring additional indebtedness could involve an increased debt service cash obligation, as well as the imposition of covenants that restrict the Company’s operations or the Company’s ability to perform on its current debt service requirements. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. While the company recognizes the significant impact of additional financing, the company is an emerging growth company serving large and growing markets and it will continue to sell securities and enter into financing programs which are deemed to be prudent.
Recently Issued Accounting Pronouncements
Pronouncements Recently Adopted
In January 2017, the FASB issued ASU No. 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill impairment (“ASU 2017-04”), which removes Step 2 of the goodwill impairment test. A goodwill impairment will now be determined by the amount by which a reporting unit’s carrying value exceeds its fair value, not to exceed the carrying amount of goodwill. ASU 2017-04 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2019, with early adoption permitted. Adoption of this guidance in the four-month period ended April 30, 2020 did not impact the Company’s financial statements.
Pronouncements Not Yet Adopted
In June 2016, the FASB issued ASU 2016-13 Financial Instruments-Credit Losses, which amends how entities will measure credit losses for most financial assets and certain other instruments that are not measured at fair value through net income, which applies to trade accounts receivable and the calculation of the allowance for uncollectible accounts receivable. The new standard will become effective for the Company for annual and interim periods beginning after December 15, 2021, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this accounting guidance will have on the consolidated financial statements. |
2. Accounts Receivable |
3 Months Ended | ||||||||||||||||||
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Jul. 31, 2020 | |||||||||||||||||||
Receivables [Abstract] | |||||||||||||||||||
Accounts Receivable | 2. ACCOUNTS RECEIVABLE
Accounts receivable relate to trade receivables from product sales made by the Company. Accounts receivable consist of the following at July 31, 2020 and April 30, 2020:
|
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