Red Cat Holdings, Inc. - Quarter Report: 2016 March (Form 10-Q)

  

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)

OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2016

OR

 [  ]     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 814-00175

ENERGYTEK CORP.

(FORMERLY BROADLEAF CAPITAL PARTNERS, INC.)

(Exact name of Registrant as specified in its charter)

 

 

 

(480) 663-8118

(Registrant's telephone number, including area code)

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.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of "large accelerated filer, "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

 

 

As of May 20, 2016 the registrant had 25,587,964 shares of common stock outstanding.

 

 

 

EnergyTek Corp.

(Formerly Broadleaf Capital Partners, Inc.)

INDEX TO FORM 10-Q

 

 

 

 

PART I

ITEM  1.      FINANCIAL STATEMENTS

 

ENERGYTEK CORP.
(FORMERLY BROADLEAF CAPITAL PARTNERS, INC.)
CONSOLIDATED BALANCE SHEETS
		For the Three Months Ended
		31-Mar-16				31-Dec-15
		"Unaudited"				"Audited
CURRENT ASSETS
Cash		$	1,428			$	6,647
Accounts receivable (net)			624				624
TOTAL CURRENT ASSETS			2,052				7,271
Property, plant and equipment, net			16,619				21,769
Intangible assets			100,000				100,000
TOTAL ASSETS			118,671				129,040
CURRENT LIABILITIES
Accounts payable and accrued expenses			61,601				59,245
Other current liabilities			0				0
Notes payable - current portion			142,942				110,942
Notes payable - related party			142,562				142,562
TOTAL OTHER CURRENT LIABILITIES			347,105				312,749
TOTAL LIABILITIES			347,105				312,749
COMMITMENTS AND CONTINGENCIES
Preferred  Stock 10,000,000 authorized all series: Series B $0.01 par value 300,000 shares issued and outstanding at March 31, 2016 and December 31, 2015			3,000				3,000
Series C $0.01 par value 890 shares issued and outstanding at March 31, 2016 and 890 at December 31, 2015.			9				9
Common Stock 500,000,000 authorized at $0.001 par value; 22,787,964 and 22,787,964 shares issued and outstanding March 31, 2016 and December 31, 2015.			22,788				22,788
Additional paid-in capital			24,727,584				24,727,584
Accumulated deficit			(24,981,815	)			(24,937,090	)
TOTAL EQUITY (DEFICIT)			(228,434	)			(183,709	)
TOTAL LIABILITIES AND EQUITY (DEFICIT)		$	118,671			$	129,040
"The accompanying notes are an integral part of these consolidated financial statements."

ENERGYTEK CORP.
(FORMERLY BROADLEAF CAPITAL PARTNERS, INC.)
CONSOLIDATED STATEMENTS OF CASH FLOWS
		For the Three Months Ended
		31-Mar-16				31-Mar-15
		"Unaudited"				"Unaudited"
CASH FLOWS FROM OPERATING ACTIVIES
Net income (loss) from continuing operations		$	(44,725	)		$	(58,080	)
Adjustments to reconcile net loss to net cash
used by operating activities :
Depreciation			5,150				5,150
Impairment expense			0				0
Loss on asset disposal			0				0
Gain on derivative liability			0				67,017
Accretion debt discount			0				18,887
(Increase) decrease in accounts receivable			0				624
Increase (decrease) in accounts payable/accrued expenses			2,356				(30,552	)
NET CASH USED IN OPERATING ACTIVITIES			(37,219	)			3,046
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of equipment			0				0
NET CASH PROVIDED (USED) IN INVESTING ACTIVITIES			0				0
CASH FLOWS FROM FINANCING ACTIVITIES
Issuance of note receivable			0				0
Issuance of notes payable			32,000				2,400
Net additional funding by related party notes			0				0
NET CASH PROVIDED BY FINANCING ACTIVITIES			32,000				2,400
NET DECREASE IN CASH			(5,219	)			5,446
CASH, BEGINNING OF PERIOD			6,647				923
CASH, END OF PERIOD			1,428				6,369
"The accompanying notes are an integral part of these consolidated financial statements."

ENERGY TEC CORP.
(FORMERLY BROADLEAF CAPITAL PARTNERS, INC. )
CONSOLIDATED STATEMENTS OF CASH FLOWS (Continued)
		For the Three Months Ended
		31-Mar-16				31-Mar-15
		"Unaudited"				"Unaudited"
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Interest paid		$	0			$	0
Income taxes paid		$	0			$	0
SUPPLEMENTAL DISCLOSURE OF
NON-CASH ACTIVITIES
Common stock issued for investment		$	0			$	2,200,000
Common stock exchanged for debt		$	0			$	33,400
"The accompanying notes are an integral part of these consolidated financial statements."

 

ITEM  2.    DESCRIPTION OF BUSINESS

   OVERVIEW

 

The Company conducts its business through its two wholly owned subsidiaries Texas Gulf Exploration and Production, Inc. ("TGEP") and Legal Capital Corp. ("LCC") as well as through the joint venture named Wagley-EnergyTEK J.V. LLC (the "Wagley JV").

 

Due to the tremendous drop in oil prices over the last twelve months, the Company has developed a new plan to take advantage of the opportunity of the crisis in energy market conditions.  The Company intends to become a licensed operator of wells for both its own portfolio and other entities, via our wholly owned subsidiary, TGEP.  We will do turnarounds of troubled production assets for banks and investment groups in underperforming oil & gas properties, using state of the art technology to improve economic operating costs and performance on wells acquired or under management.  The Company intends to negotiate an equity interest as well as recovery of all operating costs in return for assuming the plugging and abandonment liability mandated by the Texas Railroad Commission for leases that the Company takes over as the operator or records for these groups of non-operating owners.  We will seek to negotiate joint ventures, whereby the Company would retain a 25% working interest in each oil & gas property and the investors or bankers would retain a 75% working interest.  Outside of these individual lease joint ventures, the Company is seeking additional investment capital to acquire troubled assets for its own account.

Additionally, we have recently entered into the joint venture with Wagley Offshore-Onshore, Inc., the Wagley JV, which has been capitalized with 20 million shares of the Company's common stock.  The mission of the Wagley JV is to acquire distressed energy assets in exchange for shares of such common stock.  Our target is smaller, independent producers who cannot find a traditional cash buyer for their leases, equipment or production in the current liquidity-short energy market environment.  The inherent risks to the success of the Wagley JV are competitors who have cash to buy the distressed energy assets, the limited liquidity of the Company's common stock which the sellers of the assets would receive in exchange for the assets and the dilution of the Company's current shareholders in purchasing the energy-related assets that may lose much or all of their value.

The business model of LCC is a development stage litigation finance company, whose predecessor entity, Litigation Capital, Inc., was founded by veteran trial attorneys Wes Christian and Alan Pollack, and their associate Robert Hackney, who is the President of LCC. They have successfully represented Plaintiffs on a contingency basis with legitimate claims against major defendants, such as Goldman Sachs, Depository Trust Corporation and others, including major banks and mortgage lenders. Their current focus is on the naked shorting of publicly traded securities, and have already settled three of these major cases. Additional research is also being done today on behalf of entities damaged by LIBOR rate manipulation and other cases with significant damage multi-million dollar damage models.   These cases are time consuming and expensive, and the defendants are well funded major companies who fight mightily to avoid paying damages for their bad acts. LCC believes that many major cases of this type with merit as to their multi-million dollar claims are going unheard due to the lack of financing available. LCC has been founded to develop funding sources to allow professionals to take on more of these cases.

 

The Company's goal is to provide a unique and much needed service in what LCC believes to be an untapped, growing market by providing access to capital for prejudgment lawsuit funding, particularly commercial claims in the securities and consumer fraud areas.  Financing by LCC will be made only to attorneys, and not directly to plaintiffs.  In addition, initially such financing will only be made on cases pending in either state courts or federal courts in Florida, with expansion to become a national litigation financing provider being the ultimate goal.

 

 To date, LCC has found limited funding for its startup.  However, there is no assurance that LCC, on its own or through the efforts of its parent, EnergyTEK, will be able to secure additional funding to permit LCC to pursue its business plan.

  

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

The following is a discussion of certain factors affecting Registrant's results of operations, liquidity and capital resources. You should read the following discussion and analysis in conjunction with the Registrant's consolidated financial statements and related notes that are included herein under Item 7 below. 

CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

The statements contained in the section captioned Management's Discussion and Analysis of Financial Condition and Results of Operations which are historical are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements represent the Registrant's present expectations or beliefs concerning future events. The Registrant cautions that such forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of the Registrant to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among other things, the uncertainty as to the Registrant's future profitability; the uncertainty as to the demand for Registrant's services; increasing competition in the markets that Registrant conducts business; the Registrant's ability to hire, train and retain sufficient qualified personnel; the Registrant's ability to obtain financing on acceptable terms to finance its growth strategy; and the Registrant's ability to develop and implement operational and financial systems to manage its growth.

 

The following discussion and analysis should be read in conjunction with the audited financial statements and notes thereto appearing elsewhere in this quarterly report on Form 10-Q.

Results of Operations

The Company intends to operate its business primarily through its parent company, as described above, as well as entities that may be formed or acquired in the future.

 

Results of Operations 2016-2015

 

Analysis of the three months ended March 31, 2016 and 2015.

Revenues

           For the three months ended March 31, 2016 we had $0 in revenue and $26,142 in revenue for the quarter ending March 31, 2015 a decrease of $26,142.  This is a result of all the inability to sell oil due to the severe depression in the price of oil.

Cost of Sales

For the three months ended March 31, 2016 we had $0 in cost of revenue and $0 in cost of revenue for the quarter ending March 31, 2015. This is a result of the lack of oil sales.

Operating Expenses

          Operating expense increased to $44,666 for the three months ended March 31, 2016 from $37,633 for the three months ended March 31, 2015, an increase of $7,003. The increase was attributable to increases in administrative expenses.

 

Other income and expenses

            Other items of income were $0 for the three months ended March 31, 2016 from net other income of $58,002 for the three months ended March 31, 2015, a decrease of $58,002.  The decrease was due to the lack of the gain on derivative liability in the  more recent period.  Interest expense was $59 in the three months ended March 31, 2016 compared to $79,906 of interest expense in the three months ended March 31, 2015, a decrease of $79,847.

Net income (loss)

           Net Income (loss) decreased to a loss of $44,725 for the three months ended March 31, 2016 from a net loss of $58,080 for the three months ended March 312, 2015, a decrease of $13,355. The three month decrease was mostly related to reduction in interest expense.

Liquidity and Capital Resources

On March 31, 2016 we had cash and cash equivalents totaling $1,428. At this time, those balances were not sufficient to fund our operations for extended periods into the future.

  

The Company has acquired substantial assets in addition to forming two new subsidiaries that are expected to generate sufficient liquidity for the coming twelve months.  We continually seek additional opportunities through potential acquisitions or investments. Our working capital and additional funding requirements will depend upon numerous factors to be determined on a case by case basis as these opportunities arise.

 

Critical Accounting Policies and Estimates

Our significant accounting policies are more fully described in Note 2 to our consolidated financial statements. In preparing our financial statements in accordance with accounting principles generally accepted in the United States of America, management is required to make estimates and assumptions that, among other things, affect the reported amounts of assets and liabilities and reported amounts of revenues and expenses. These estimates are most significant in connection with our critical accounting policies, namely those of our accounting policies that are most important to the portrayal of our financial condition and results and require management's most difficult, subjective or complex judgments. These judgments often result from the need to make estimates about the effects of matters that are inherently uncertain. Actual results may differ from those estimates under different assumptions or conditions. We believe that the following represents our critical accounting policies:

 

 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Our carrying values of cash, marketable securities, accounts payable, accrued expenses and debt are a reasonable approximation of their fair value. The estimated fair values of financial instruments have been determined by us using available market information and appropriate valuation methodologies. We have not entered into and do not expect to enter into, financial instruments for trading or hedging purposes. We do not currently anticipate entering into interest rate swaps and/or similar instruments. 

 

Our primary market risk exposure with regard to financial instruments is to changes in interest rates, which would impact interest income earned on such instruments. We have no material currency exchange or interest rate risk exposure as of June 30, 2015. Therefore, there will be no ongoing exposure to a potential material adverse effect on our business, financial condition or results of operation for sensitivity to changes in interest rates or to changes in currency exchange rates.

 

ITEM 4. CONTROLS AND PROCEDURES

 

Management is responsible for establishing and maintaining adequate internal control over financial reporting of the Company. Management, with the participation of our principal executive officer and principal financial officer, has evaluated the effectiveness of our internal control over financial reporting as of June 30, 2015 based on the criteria established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, because of the Company's limited resources and limited number of employees, management concluded that, as of March 31, 2016, our internal control over financial reporting is not effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with U.S. generally accepted accounting principles.

To mitigate the current limited resources and limited employees, we rely heavily on direct management oversight of transactions, along with the use of legal and accounting professionals. As we grow, we expect to increase our number of employees, which will enable us to implement adequate segregation of duties within the internal control framework. This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to temporary rules of the SEC that permit the company to provide only management's report in this annual report.

There was no change in our internal controls over financial reporting identified in connection with the requisite evaluation that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Our management, including our Principal Executive Officer and Principal Financial Officer, does not expect that our disclosure controls or internal controls over financial reporting will prevent all errors or all instances of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system's objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls is based in part upon certain assumptions about the likelihood of future events, and any design may not succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures. Because of the inherent limitation of a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

 

 

 

 

A significant deficiency is a deficiency, or a combination of deficiencies, in internal control over financial reporting that is less severe than a material weakness, yet important enough to merit attention by those responsible for oversight of the company's financial reporting  A material weakness is a deficiency (within the meaning of the Public Company Accounting Oversight Board (PCAOB) auditing standard 5) or combination of deficiencies in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.  Management has determined that a material weakness exists due to the items stated above, resulting from the Company's limited resources and personnel.

PART II

 

ITEM 1.    LEGAL PROCEEDINGS

The Company currently has no open or pending legal proceedings. In addition management is unaware of any pending situations that could eventually lead to legal proceedings. All prior legal proceedings have been settled and the Company currently still has small liabilities outstanding with the total amounts due recorded as liabilities in the included financial statements.

 

ITEM 1A.    RISK FACTORS

 

We are a "smaller reporting Company" as defined by Rule 12b-2 of the Securities Exchange Act of 1934 (the "Exchange Act") and are not required to provide information under this item.

ITEM 2.  RECENT SALES OF UNREGISTERED SECURITIES

 

None.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

None.

 

ITEM  5. OTHER INFORMATION

None.

 

ITEM  6.   EXHIBITS, REPORTS ON FORM  8-K AND FINANCIAL STATEMENT SCHEDULES

      (a)   Exhibits

Exhibits required to be attached by Item 601 of Regulation S-B are listed in the Index to Exhibits and are incorporated herein by this reference.

      (b)   Reports on Form 8-K.

 

 

 

*     Incorporated herein by reference from filings previously made by the Company

 

SIGNATURES

In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, hereunto duly authorized, this 23rd day of May, 2016.