XOTC:HCTI Hybrid Coating Technologies Inc Quarterly Report 10-Q Filing - 6/30/2012

Effective Date 6/30/2012

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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: June 30, 2012

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: 000-53459

HYBRID COATING TECHNOLOGIES INC.
(Exact name of registrant as specified in its charter)

NEVADA 20-3551488
(State of other jurisdiction of incorporation or organization) (IRS Employer Identification Number)

950 John Daly Blvd. Suite 260
Daly City, CA 94015
(Address of principal executive offices)

(650) 491-3449
(Registrant's telephone number, including area code)

Securities registered under Section 12(b) of the Exchange Act: None

Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $ 0.001 par value

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 [   ]

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

Large accelerated filer [   ] Accelerated filer [   ] Non-accelerated filer [   ] Smaller reporting  company [X]

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDS DURING THE PRECEDING FIVE YEARS

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13, or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court.

Yes [   ]                            No [    ]

APPLICABLE TO CORPORATE ISSUERS:

6,481,068 shares of the issuer’s common shares, par value $.001 per share, were issued and outstanding as of August 14 , 2012.


TABLE OF CONTENTS

  PART I. FINANCIAL INFORMATION  
     
Item 1. Consolidated Financial Statements  
  Consolidated Balance Sheets (Unaudited) 1
  Consolidated Statements of Operations (Unaudited) 2
  Consolidated Statements of Cash Flows (Unaudited) 3-4
  Notes to Consolidated Financial Statements (Unaudited) 5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 10
Item 3 Quantitative and Qualitative Disclosures About Market Risk 12
Item 4. Controls and Procedures 13
     
  PART II. OTHER INFORMATION  
     
Item 1. Legal Proceedings 13
Item 1a. Risk factors 13
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 13
Item 3. Defaults Upon Senior Securities 13
Item 4. Removed 13
Item 5. Other Information 13
Item 6. Exhibits 14


PART I

ITEM 1. FINANCIAL STATEMENTS

The accompanying unaudited consolidated balance sheet of Hybrid Coating Technologies Inc. as at June 30, 2012 and the related unaudited consolidated statements of operations, and cash flows for the three and six months ended June 30, 2012 and the period from July 8, 2010 (inception) to June 30, 2012 have been prepared by management in conformity with accounting principles generally accepted in the United States. 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. Operating results for the period ended June 30, 2012, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2012 or any other subsequent period.


Hybrid Coating Technologies Inc.
(A Development Stage Company)
Consolidated Balance Sheets
June 30, 2012 and December 31, 2011

 

  June 30     December 31  

  2012     2011  

 

  (Unaudited)        

ASSETS

           

 

           

Current assets

           

Samples and supplies

$  8,359   $  37,836  

 Total current assets

  8,359     37,836  

 

           

Intangible asset, net

  736,223     845,543  

 

           

TOTAL ASSETS

$  744,582   $  883,379  

 

           

LIABILITIES AND STOCKHOLDERS’ DEFICIT

           

 

           

Current liabilities

           

Bank indebtedness

$  -   $  40,013  

Accounts payable and accrued liabilities

  466,282     293,214  

Accounts payable and accrued liabilities-related parties

  280,446     172,695  

Senior Secured Convertible Debentures, net of unamortized discount of $1,827 and $21,566 at June 30,2012 and December 31, 2011 respectively

  198,173     178,434  

Loans payable

  241,325     27,500  

Loans payable -shareholders net of unamortized discounts and premiums of $20,496 and $30,632 at June 30 2012 and December 31, 2011 respectively

  895,668     697,568  

Note payable – NTI (related party)

  993,581     1,126,831  

     Total current liabilities

  3,075,475     2,536,255  

 

           

Convertible Debentures, net of unamortized discount of $422,607 and $461,225 at June 30, 2012 and December 31, 2011 respectively

  897,893     739,775  

 

           

Derivative liabilities

  183,988     480,461  

 

           

TOTAL LIABILITIES

  4,157,356     3,756,491  

Commitments

           
             

STOCKHOLDERS’ DEFICIT

           

 

           

Common stock, $0.001 par value, 75,000,000 shares authorized, 6,481,068 shares and 5,816,733 shares issued and outstanding at June 30, 2012 and December 31, 2011, respectively

  6,481     5,817  

 

           

Additional paid in capital

  6,485,928     5,849,115  

 

           

Deficit accumulated during development stage

  (9,905,183 )   (8,728,044 )

 

           

Total stockholders’ deficit

  (3,412,774 )   (2,873,112 )

 

           

TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT

$  744,582   $  883,379  

The accompanying notes are an integral part of these consolidated financial statements

-1-


Hybrid Coating Technologies Inc.
(A Development Stage Company)
Consolidated Statements of Operations
For the Three and Six Months ended June 30, 2012 and June 30, 2011
And the Period from July 8, 2010 (inception) through June 30, 2012
(Unaudited)

 

  Three months ended     Three months ended     Six months ended     Six months ended     July 8, 2010 (inception)

 

  June 30,2012     June 30,2011     June 30,2012     June 30,2011     through June 30,2012  

Revenues

$  3,953   $  -   $  9,383   $  -   $  14,253  

Cost of sales

  1,000     -     2,100     -     6,100  

Gross margin

  2,953     -     7,283     -     8,153  

Operating expenses

                             

  General and administrative expenses

  414,718     545,831     1,053,235     971,269     6,947,660  

  Impairment of intangible asset

  -     -     -     -     631,917  

  Amortization of intangible asset

  54,660     45,417     109,320     87,083     381,860  

Total operating expenses

  469,378     591,248     1,162,555     1,058,352     7,961,437  

Net loss from operations

  (466,425 )   (591,248 )   (1,155,272 )   (1,058,352 )   (7,953,284 )

Loss on extinguishment of debt

  -     (79,717 )   -     (79,717 )   (79,717 )

Change in fair value of derivative liability

  334,450     (37,820 )   343,194     (37,820 )   420,981  

Interest expense

  (139,908 )   (158,995 )   (365,061 )   (1,442,202 )   (2,293,163 )

Net loss

$  (271,883 ) $  (867,780 ) $  (1,177,139 ) $  (2,618,091 ) $  (9,905,183 )

Basic and diluted net loss per share

$  (0.04 ) $  (0.16 ) $  (0.19 )   (0.49 )      

Basic and diluted weighted average shares

  6,318,428     5,391,143     6,112,689     5,355,107        

The accompanying notes are an integral part of these consolidated financial statements

-2-


(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Six Months ended June 30, 2012 and June 30, 2011
And the Period from July 8, 2010 (inception) through June 30, 2012
(Unaudited)

 

  Six months ended     Six months ended     July 8, 2010 (inception)

 

  June 30,2012     June 30,2011     through June 30,2012  

CASH FLOWS FROM OPERATING ACTIVITIES

                 

Net loss

$  (1,177,139 ) $  (2,618,091 ) $  (9,905,183 )

Adjustments to reconcile net loss to net cash provided by (used in) operating activities:

                 

 Stock-based compensation

  396,377     257,038     4,517,348  

 Interest paid through issuance of shares

  213,100     -     213,100  

 Amortization of intangible asset

  109,320     87,083     381,860  

 Interest expense from revaluation of SSCD warrants

  -     1,180,886     1,180,886  

 Interest expense on beneficial conversion feature related to SSCD warrants

  -     -     126,607  

 Loss on extinguishment of debt

  -     79,717     79,717  

 Loss on impairment of intangible assets

  -     -     631,917  

 Change in fair value of derivative liability

  (343,194 )   37,820     (420,981 )

 Incentive and interest paid on prepayment of debt

  -     25,833     25,833  

 Amortization of debt discounts

  135,814     198,252     589,815  

Change in operating assets and liabilities

                 

 Samples and supplies

  29,477     (41,836 )   (8,359 )

 Accounts payable and accrued liabilities

  173,068     -     480,549  

 Accounts payable and accrued liabilities related parties

  107,751     103,698     280,346  

 Bank indebtedness

  (40,013 )   3,021     -  

Net cash used in operating activities

  (395,439 )   (686,579 )   (1,826,545 )

 

                 

CASH FLOWS FROM INVESTING ACTIVITIES

                 

Proceeds from sale of intangible asset

  -     -     150,000  

Net cash provided in investing activities

  -     -     150,000  

 

                 

CASH FLOWS FROM FINANCING ACTIVITIES

                 

Proceeds from issuance of Convertible Debentures

  119,500     851,000     970,500  

Proceeds from Senior Secured Convertible Debentures

  -     -     400,000  

Proceeds from exercise of warrants

  -     -     25,000  

Proceeds from loans payable-shareholders

  297,880     374,500     1,264,480  

Repayments of loans payable-shareholders

  (102,516 )   (166,200 )   (367,716 )

Proceeds from loans payable

  213,825     -     290,700  

Repayments of note payable - NTI (related party)

  (133,250 )   (375,915 )   (906,419 )

Net cash provided by financing activities

  395,439     683,385     1,676,545  

 

                 

INCREASE (DECREASE) IN CASH

  -     (3,194 )   -  

 

                 

CASH, BEGINNING

  -     3,194     -  

CASH, ENDING

$  -   $  -   $  -  

The accompanying notes are an integral part of these consolidated financial statements

-3-


(A Development Stage Company)
Consolidated Statements of Cash Flows
For the Six Months ended June 30, 2012 and June 30, 2011
And the Period from July 8, 2010 (inception) through June 30, 2012
(Unaudited)

 

              July 8, 2010  

 

  Six months ended     Six months ended     (inception)  

 

  June 30,2012     June 30,2011     through June 30,2012  

Supplemental cash flow information

                 

 

                 

Interest paid

$  50,400   $  6,000   $  56,400  

Acquisition of intangible asset through issuance of note payable

$  -   $  150,000   $  1,900,000  

Discount arising from warrants attached to issuance of SSCD

$  -   $  -   $  273,393  

 

                 

Discount arising from loans payable -shareholders

$  -   $  64,160   $  92,075  

Transfer of loans and SSCD to Convertible Debentures

$  -   $  31,000   $  310,000  

 

                 

Reclassification of accrued interest to SSCD

$  -   $  14,167   $  14,167  

 

                 

Discount on Convertible Debentures

$  46,721   $  558,248   $  604,969  

 

                 

Shares issued to pay shareholder loans

$  37,000   $     $  37,000  

 

                 

Shares issued for premium on shareholder loans

$  28,000   $  -   $  64,000  

The accompanying notes are an integral part of these consolidated financial statements

-4-


Hybrid Coating Technologies Inc.
(A Development Stage Company)
June 30, 2012
Notes to Consolidated Financial Statements
(Unaudited)

NOTE 1 – NATURE OF BUSINESS AND BASIS OF PRESENTATION

Hybrid Coating Technologies Inc. (the “Company”, “HCT”) formerly EPOD Solar Inc., was incorporated in the State of Nevada on July 8, 2010 and is in the development stage as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities”.

The Company manufactures and sells under license, alternative non-toxic (isocyanate-free) polyurethane, Green Polyurethane™, including coatings and raw binder ingredients (Green Polyurethane® Monolithic Floor Coating and Green Polyurethane™ Binder). See Note 2 for additional information on the related party licensor.

The accompanying consolidated financial statements, which should be read in conjunction with the financial statements and footnotes of Hybrid Coating Technologies Inc. included in Form 10-K filed on May 17, 2012 with the Securities and Exchange Commission, are unaudited, but have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the period ended June 30, 2012 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2012.

Going Concern

The Company's absence of significant revenues, recurring losses from operations, and its need for significant additional financing in order to fund its projected loss in 2012 raise substantial doubt about its ability to continue as a going concern.

There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support the Company's working capital requirements. If adequate working capital is not available the Company may be required to curtail or cease its operations.

The accompanying financial statements do not include any adjustments that might result from the outcome of this uncertainty.

NOTE 2 – INTANGIBLE ASSET

During 2010 and 2011 the Company acquired licensing rights from Nanotech Industries, Inc., (“NTI”, a privately-held entity deemed a related party by virtue of common ownership and control), for the rights to manufacture and distribute environmentally safe coatings (“Coating Products”) using NTI’s technology.

As part of the original licensing agreement signed on July 12, 2010 (see table below) the Company has the option to obtain rights for the rest of the world on an exclusive perpetual basis, in exchange for the issuance of stock to equal 62.5% of the Company’s total shares. If this option is exercised, NTI would control the Company by virtue of ownership of a majority of the Company’s outstanding shares.

-5-


Following is a summary of the licenses acquired to date from NTI :

License Rights
Overview
Licensed Region Term (date) of
License
Original
cost
Carrying Value
at 06/30/12
Carrying Value
at 12/31/11
A Coating Products North America June 12,2010-
            3 years
$500,000 $73,003 $109,543
B Coating Products Russian Territory March 17,2011-
            10 years
$150,000 $41,600 $44,000
C Coating Products European Continent July 7,2011-
            5 years
$1,250,000 $621,620 $692,000

On October 18, 2011, the Company and NTI entered into a second Licensing Agreement (“Second Agreement”) granting the Company option (“Sealant Option”) to be exercised within six months of the signing of the Licensing Agreement, for the manufacturing and sale of environmentally safe adhesives and sealants (“Sealant Products”), for the following:

  1.

The Company shall issue to NTI a one-time licensing fee (“Sealant Shares”), an aggregate number of shares of the Company ’s restricted common stock which shall give NTI, immediately upon such issuance of shares, a incremental 15% (fifteen percent) ownership stake in the Company.

     
  2.

NTII shall pay to NTI a royalty of 7.5% (seven and one half percent) of gross revenue from the sale of the Sealant Products (“Royalty”) for the duration of this Agreement.

On December 6, 2011 the Company exercised the option. To date the Company has not issued the Licensing Shares and therefore the Licensing Agreement is not yet effective.

Intangibles activity is as follows for the six month period ended June 30, 2012 and December 31, 2011:

    June 30,     December 31,  
             
    2012     2011  
Intangible asset, net, beginning of period $  845,543   $  422,043  
     Purchases         1,400,000  
     Sale         (150,000 )
     Impairment         (631,917 )
     Less: current amortization   (109,320 )   (194,583 )
Total intangible asset, net end of period $  736 ,223   $  845,543  

During the six months ended June 30, 2012 and June 30, 2011 amortization was $109,320 and $87,083.

-6-


The balance of intangible assets, net is as follows as of June 30, 2012 and December 31, 2011:

Intangible assets $  1,118,083   $  1,118,083  
Less, accumulated amortization   (381,860 )   (272,540 )
Intangible assets, net $  736,223   $  845,543  

NOTE 3 - FAIR VALUE MEASUREMENTS

Fair Value of Financial Instruments

The fair value and book value of all of the Company’s financial instruments are the same due to the short term nature of the instruments and/or the terms thereof and require Level 1 inputs, except as noted below:

          June 30,2012     December 31,2011  
                               
          Carrying     Estimated Fair     Carrying     Estimated Fair  
          Value $     Value $     Value $     Value $  
    Loans payable -shareholders     895,668     916,164     697,568     728,200  
    Convertible Debentures     897,893     1,320,500     739,775     1,201,000  
    Senior Secured Convertible debentures     198,173     200,000     178,434     200,000  
    Derivative Liability *     183,988     183,988     480,461     480,461  
*   - Based on level 2 inputs.                          

NOTE 4 – LOANS PAYABLE –SHAREHOLDERS

During 2011 the Company entered into various loan agreements and arrangements for loans with shareholders with a balance of $697,568 at June 30, 2012, all having different maturity dates from 2011 to 2012. Two of these loans totaling $85,000 are in default. The shareholders have not called these loans.

For the six months ended June 30, 2012, shareholders have loaned a total of $297,880 with different maturities ranging from on demand to maturing on September 2013. Some of the loans bear interest at 15% to 16%. The demand loans are non-interest bearing. Two loans had share premiums totaling $28,000 amortized over the term of the loans. During the six months ended June 30, 2012, the Company paid $102,516 towards the notes that are due on demand.

The total amount of premium amortized for the six month period ended June 30, 2012 $30,736 (2011- 48,337), the total interest expense was $37,633 (2011- nil) and the total interest accrued was $4,086 (2011- nil ).At June 30, 2012 the unamortized premium was $20,496 (December 31, 2011- $34,851).

NOTE 5 – LOANS PAYABLE

During the six month period ended June 30, 2012, the Company entered into loans from unrelated parties for proceeds of $213,825,with maturities ranging from three months to one year that bear interest at rates from 15% to 25% per annum payable monthly. Interest expense for the six months ended June 30, 2011 totaled approximately $12,800. This increases the balance due to unrelated parties to $241,325 as of June 30, 2012.

-7-


NOTE 6 –CONVERTIBLE DEBENTURES

On April 29, 2011 the Company issued $1,201,000 in convertible debentures (“Debentures”) with a maturity of 36 months and a coupon rate of 10% per annum payable in cash or capital stock at the Company’s discretion. The debentures are held by both third parties and by non-controlling shareholders, and are convertible by dividing the conversion amount by a conversion factor of 1.4 yielding Units of the Company where each Unit (at a price of $1.40 per Unit), comprises of 1 share of common stock and one half a stock purchase warrant of the Company with an exercise price of $2.00 and a maturity at April 29, 2014. Warrants are exercisable at the option of the holder at any time prior to maturity. The embedded conversion features in the Convertible Debentures and attached warrants are accounted for as a derivative liability based on guidance in FASB ASC 815, derivatives and Hedging. Tha amount originally attributed to the derivative liability was $558,248.

On February 21, 2012, an additional $119,500 of debentures were issued with the same terms that the April, 2011 issuance contained. The value, determined using the same discounted cash flow based, multinomial lattice model as was used with the April 2011 derivative valuation, of the incremental derivative liability associated with this 2012 issuance was determined by management to be $46,721.

As of June 30, 2012, The Company recorded the change in the fair value of the derivative liability as a gain of $343,194 to reflect the value of the new derivative liability of $183,988.

The derivative was originally recorded as a credit to the derivative liability and a debit to the debt (as a discount). The discount is amortized using the effective interest method over the three year term of the debt. Amortization of the debt discount was $85,339 for the six months ending June 30, 2012, leaving a remaining discount of $422,607 at June 30, 2012. Interest of $32,847 has been accrued for the quarter ending June 30, 2012. The balance of the debentures at June 30, 2012, net of the unamortized discount, is $897,893.

NOTE 7– STOCKHOLDERS’ DEFICIT

During the six months ended June 30, 2012 the Company issued 101,000 shares to shareholders as payment for services with a fair value of $82,800, 18,000 shares to a shareholder/employee for services with a fair value of $27,000, 240,200 shares to the Convertible Debenture holders as payment for one year’s interest totaling $120,100 and 100,000 shares with a fair value $130,000 to a shareholder as interest compensation for loans, $91,000 charged to interest expense and the remaining $37,000 an adjustment to additional paid–in capital for loan premiums previously recorded.

During the period a warrant holder exercised 220,000 warrants for 205,135 shares with a reduction in additional paid in capital of $ 205.

During the period, the Company issued 260,000 warrants to shareholders for consulting services at a fair value of $286,578 (recorded as stock-based compensation with a corresponding increase in additional paid-in capital) using the Black-Scholes method according to the following assumptions:

Expected volatility   104.8%  
Expected life   3 years  
Risk-free interest rate   0.42%-0.43%  
Dividend yield $  Nil  

-8-


NOTE 8– RELATED PARTY TRANSACTIONS

Fees charged by Shareholder

During the six months ended June 30, 2012 and 2011, the Company was charged $169,000 and $135,000 by an outside consultant, who is also a shareholder, for professional fees, expenses and commissions. The amounts are included in accounts payable and accrued liabilities related parties.

Principle Debt Payments

During the six months ended June 30, 2012, the Company made principle payments of $133,250 on its note payable to NTI related to the 2011 acquisition of the license rights for Coatings in Europe. The note matures on November 29, 2013,does not bear interest,and no payments are required prior to maturity.

The balance of the note is $993,581 and $1,126,831 at June 30, 2012 and December 31, 2011, respectively.

Shared Administrative Costs

The Company shares office space and certain personnel with NTI. Costs are allocated among the parties based on usage. During 2012 and 2011, the allocation of such shared costs between the Company and NTI was 80% and 20%, respectively.

NOTE 9 – DELINQUENT PAYROLL TAX WITHHOLDINGS

The Company is delinquent on its state and Federal payroll tax remittances. The State of California has issued a Notice of State Tax Lien against the property and rights owned by the Company covering interest and penalties for non-payment of payroll remittances. Furthermore, during the quarter ended June 30, 2012, the State of California has seized approximately $11,000 from one of the Company’s bank accounts. The Company has accrued $146,822 in payroll taxes, penalties and interest as of June 30, 2012, which represents the Company’s estimate of the total amount owed, including penalties and interest. The Company is subject to possibly greater penalties which are not reasonably estimable at this time.

NOTE 10– SUBSEQUENT EVENTS

Borrowings

In July 2012, the Company entered into a loan with a shareholder for $100,000 with a six month maturity and interest of 18% per annum payable monthly. The Company also entered into a loan with an unrelated party for $130,000 maturing in one year bearing interest at 15% per annum payable monthly.

Contingent Warrant Issuance

On July 20, 2012, the Company’s board of directors approved the issuance of 300,000 stock purchase warrants, exercise price of $.001 per share and five-year life, from date of issuance, to the Company’s President, Joseph Kristul, contingent on his successful negotiation of a major sales contract (as defined in board minutes). The major sales contract agreement has not yet been reached by the Company.

In accordance with ASC 855-10, the Company’s management reviewed all material events from June 30, 2012, through the issuance date of this report, and there are no other material events to report.

-9-


ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward Looking Statements

The Management’s Discussion and Analysis (“MD&A”) is designed to assist investors in understanding the nature and the importance of the changes and trends, as well as the risks and uncertainties associated with the Company’s operations and financial position. Some sections of this report contain forward-looking statements that, because of their nature, necessarily involve a number of known and unknown risks and uncertainties, including statements regarding our capital needs, business strategy and expectations, and the factors described under “Risk Factors” contained in the Company’s Form 10-K Report filed May 17, 2012. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, forward-looking statements can be identified by terminology such as “may,” “will,” “should,” “expect,” “plan,” “intend,” “anticipate,” “believe,” “estimate,” “predict,” “potential” or “continue,” the negative of such terms or other comparable terminology. The Company’s actual and future results could therefore differ materially from those indicated or underlying these forward-looking statements.

Although the Company deems the expectations reflected in these forward-looking statements to be reasonable, the Company cannot provide any guarantee as to the materialization of the expectations reflected in these forward-looking statements.

The following information should be read in conjunction with the unaudited financial statements for the period ended June 30, 2012 and notes thereto. Unless otherwise indicated or the context otherwise requires, the "Company," “HCT,” “we," "us," and "our" refer to Hybrid Coating Technologies Inc.

Compliance with Generally Accepted Accounting Principles

Unless otherwise indicated, the financial information presented below, including tabular amounts, is expressed in US dollars and prepared in accordance with accounting principles generally accepted in the United States (“GAAP”).

Use of Estimates

The preparation of financial statements in conformity with GAAP requires that management make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities as at the date of the financial statements, and the reported amounts of revenue and expenses during the reporting period. Critical items of the financial statements that require the use of estimates include the determination of the allowance for doubtful accounts, the determination of the allowance for inventory obsolescence, the determination of the useful life of fixed and intangible assets for amortization calculation purposes, the assumptions for fixed asset impairment tests, the determination of the allowance for guarantees, the determination of the allowance for income taxes, the assumptions used for the purposes of calculating the stock-based compensation expense, the determination of the fair value of financial instruments, the determination of the fair value of the assets and liabilities acquired on business acquisitions and the implicit fair value of goodwill.

The financial statements include estimates based on currently available information and management’s judgment as to the outcome of future conditions and circumstances.

Changes in the status of certain facts or circumstances could result in material changes to the estimates used in the preparation of the financial statements and actual results could differ from the estimates and assumptions.

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Changes in Accounting Principles

No accounting changes were adopted during the period ended June 30, 2012.

Overview

Company Background

HCTs principal office is located in Daly City, California, U.S.A. As of June 30, 2012, HCT had 7 employees.

HCT offers an alternative to toxic formulations of polyurethane (PU) worldwide through its exclusive distribution rights which provide for a cost-effective alternative non-toxic (isocyanate-free) polyurethane, Green Polyurethane™. Its focus is within the C.A.S.E. segment specifically for large industrial and commercial coatings applications where Green Polyurethane™ has a natural competitive advantage over other PU and epoxy coatings due to its superior chemical resistance and environmentally safe properties with reduced health risks.

The Company’s ultimate goal is to license its proprietary Green Polyurethane™ formulation to national and/or global coatings formulators and then focus on rolling out the commercialization of other Green Polyurethane™ applications such as adhesives and sealants. In order to achieve this, the Company is proving the validity of its products through direct sales and is therefore targeting large distributors and multiple client bases. The Company intends to focus within the C.A.S.E. segment specifically for large industrial and commercial coatings applications where Green Polyurethane™ has a natural competitive advantage over other polyurethane ("PU") and epoxy coatings due to its superior chemical resistance and environmentally safe properties with reduced health risks. Some of the target applications for Green Polyurethane™ products markets include:

  • Industrial and commercial buildings
  • Civil applications for tunnels and bridges
  • Private and public garages
  • Chemical and food processing plants
  • Warehouses
  • Monolithic floorings for civil, industrial and military engineering
  • Marine and Aeronautic applications
  • Industrial equipment for dairy and liquid fertilizer processing plants and delivery systems
  • Military facilities and equipment
  • Protective coatings inside industrial and commercial pipes

The Company’s business growth model includes a two-pronged strategy of direct sales and licensing. HCT’s ultimate goal is to license our proprietary formulation to national or global coatings formulators. In order to achieve this it is proving the validity of its products through direct sales.

In addition, the Company plans to:

  • Increase the number of contractors and applicators contacted
  • Contact paint formulators and offer Green Polyurethane® Binder for their proprietary formulations
  • Establish distribution channels utilizing existing distribution hubs
  • Sub-license technology in certain geographic areas.

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HCT intends to establish full commercial-scale manufacturing for both of its products at Adhpro Adhesives in Magog, Quebec and Simpson Coatings in California through non-exclusive toll manufacturing agreements.

HCT’s strategy is to avoid large capital investments in manufacturing and to outsource the manufacturing of the Company's Products to third-party manufacturers. At current capacity, the Company can outsource the manufacture of up to 20,000 tons per year.

HCT is currently at the commencement of the commercialization phase of its business model. HCT plans on significantly expanding its sales and client base by promoting the NTI Products at trade unions, press and trade shows and by capitalizing on existing distribution hubs to increase its distribution channels and build new strategic relationships.

Results of Operations

HCT is a developmental stage company and as such does not yet have meaningful revenues. Management is in ongoing discussions with prospective clients. For the three and six month period ending June 30, 2012, the Company had sample sales of $3,953 (6 months-$9,383) and associated cost of sales of $1,000 (6 months -$2,100).

General and administrative expenses totaled $414,718 and $1,053,235 for the three and six months ended June 30, 2012, as compared to $545,831 and $971,269, representing a 24% decrease for the three months ending June 30, 2012 as compared the corresponding 2011 period, and representing an 8.4% increase for the 6 months ended June 30, 2012 as compared to the corresponding 2011 period. Included in general administrative expenses for the six months ended June 30 are the following:

    6 months ended June 30        
    2012     2011     % change  
Professional Fees $  252,688   $  366,858     (31% )
Payroll   228,382     186,879     22%  
Stock-based compensation (non-cash)   396,377     257,038     54%  
Rent and general office costs   107,848     84,171     28%  
Travel and trade shows   67,940     76,323     (11% )
                   
Total $  1,053,235   $  971,269     8%  

Liquidity and Capital Resources

The Company had cash and equivalents of $0 as of June 30, 2012. The Company’s source of cash during the six months ended June 30, 2012 primarily consisted of proceeds from the issuance of convertible debentures in the amount of $119,000, and proceeds from notes payable to individuals approximating $510,000 from individuals ($297,00 of which was involves related parties).

The Company's absence of significant revenues, recurring losses from operations, and its need for significant additional financing in order to fund its projected loss in 2012 raise substantial doubt about its ability to continue as a going concern.

There are no assurances that the Company will be able to either (1) achieve a level of revenues adequate to generate sufficient cash flow from operations; or (2) obtain additional financing through either private placement, public offerings and/or bank financing necessary to support the Company's working capital requirements. If adequate working capital is not available the Company may be required to curtail or cease its operations.

Off Balance Sheet Arrangements

We have no off-balance sheet arrangements, including arrangements that would affect our liquidity, capital resources, market risk support and credit risk support or other benefits.

Development Stage Company

During the period ended June 30, 2012, the Company complied with ASC 915 “Development Stage Entities” in its characterization of the Company as a development stage enterprise.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Convertible Debt

The fair market value of our 10% senior secured convertible debentures is subject to interest rate risk, market price risk and other factors due to the convertible feature of the debentures. The fair market value of the debentures will generally increase as interest rates fall and decrease as interest rates rise. In addition, the fair market value of the debentures will generally increase as the market price of our common stock increases and decrease as the market price falls. The interest and market value changes affect the fair market value of the debentures but do not impact our financial position, cash flows or results of operations due to the fixed nature of the debt obligations.

ITEM 4. CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

We maintain “disclosure controls and procedures” (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) which are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our President and Chief Executive Officer, who also acts as our principal financial officer, as appropriate, to allow timely decisions regarding required disclosure.

Under the supervision and with the participation of our management, including our President and Chief Executive Officer, who also acts as our principal financial officer, an evaluation was performed on the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, our President and Chief Executive Officer, concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this quarterly report for the purpose of gathering, analyzing and disclosing of information that the Company is required to disclose in the reports it files under the Exchange Act within the time periods specified in the SEC’s rules and forms. The Company has undertaken steps to remedy this and improve the effectiveness of its disclosure controls and procedures.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II
OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

None.

Item 1A. RISK FACTORS

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

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

This Item is not applicable.

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES

This Item is not applicable.

ITEM 4.

This Item is not applicable.

ITEM 5. OTHER INFORMATION

This Item is not applicable.

ITEM 6. EXHIBITS

Exhibit Description of Exhibits
Number  
3.1 Amended Articles of Incorporation. (1)
3.2 Bylaws, as amended. (1)
3.3 Certificate of Amendment to Articles of Incorporation (2)
4.1 Convertible Debenture Agreement dated April 29,2011 Pursuant to Regulation D (6)
4.2 Convertible Debenture Agreement dated April 29,2011 Pursuant to Regulation S (6)
10.1 Stock Purchase Agreement, dated August 18, 2010, by and among Nanotech Industries International Inc. and EPOD Solar Inc. (3)
10.2 Licensing Agreement between Nanotech Industries International Inc and Nanotech Industries Inc. dated July 12, 2010 (4)
10.3 Amendment to the Licensing Agreement previously entered into on the 12th day of July, 2010 (5)
10.4 Securities Purchase Agreement dated April 29,2011 Pursuant to Regulation D (6)
10.5 Securities Purchase Agreement dated April 29,2011 Pursuant to Regulation S (6)
10.6 Warrant Agreement dated April 29,2011 Pursuant to regulation D (6)
10.7 Warrant Agreement dated April 29,2011 Pursuant to regulation S (6)
10.8 Amendment to articles of incorporation to change the name of the Company to “Hybrid Coating Technologies Inc.” (7)
10.9 Approval and adoption of the 2011 Stock Incentive Plan (7)
10.10 Second Amendment to the Licensing Agreement previously entered into on the 12th day of July, 2010 (8)
10.11 Licensing Agreement between Nanotech Industries International Inc and Nanotech Industries Inc. dated October 18, 2011 (9)
10.12 Convertible Debenture Agreement Dated February 21, 2012 (10)
31.1 Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1 Certification of Principal Executive Officer and Principal Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

(1) Incorporated by reference to the Registration Statement on Form S-1 (File No. 333-153675), filed with the SEC on September 26, 2008.
(2) Incorporated by reference to the Current Report on Form 8-K filed with the SEC on July 22, 2009.
(3 Incorporated by reference to the Current Report on Form 8-K filed with the SEC on August 30, 2010.
(4) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on August 30,2010
(5) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on March 14,2011
(6) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on May 3,2011
(7) Incorporated as reference to the Schedule 14C filed with the SEC on July 6,2011
(8) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on July 7,2011
(9) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on October 18,2011
(10) Incorporated as reference to the Current Report on Form 8-K filed with the SEC on February 21,2012

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Date: August 20, 2012 Hybrid Coating Technologies Inc.
   
  BY: /s/ Joseph Kristul
  Name: Joseph Kristul Title: President and Chief Executive Officer
   (Principal Executive, Financial and Accounting Officer)

-15-


XOTC:HCTI Hybrid Coating Technologies Inc Quarterly Report 10-Q Filling

Hybrid Coating Technologies Inc XOTC:HCTI Stock - Get Quarterly Report SEC Filing of Hybrid Coating Technologies Inc XOTC:HCTI stocks, including company profile, shares outstanding, strategy, business segments, operations, officers, consolidated financial statements, financial notes and ownership information.

XOTC:HCTI Hybrid Coating Technologies Inc Quarterly Report 10-Q Filing - 6/30/2012
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