Notes
to Consolidated Financial Statements
As
of May 31, 2014
NOTE
1.
BASIS OF PRESENTATION
The
interim financial statements included herein, presented in accordance with United States generally accepted accounting principles
and stated in US dollars, have been prepared by Entest BioMedical, Inc. (“the Company”), without audit, pursuant to
the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included
in financial statements prepared in accordance with generally accepted accounting principles have been condensed or omitted pursuant
to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented
not misleading.
These
statements reflect all adjustments, consisting of normal recurring adjustments, which, in the opinion of management, are necessary
for fair presentation of the information contained therein. It is suggested that these condensed consolidated interim financial
statements be read in conjunction with the financial statements of the Company for the period ended August 31, 2013 and notes
thereto included in the Company's 10-K annual report. The Company follows the same accounting policies in the preparation
of interim reports.
NOTE
2. ORGANIZATION AND DESCRIPTION OF BUSINESS
The
Company was incorporated in the State of Nevada on September 24, 2008 as JB Clothing Corporation. Until July 10, 2009, the
Company’s principal business objective was the offering of active/leisure fashion design clothing.
On
July 10, 2009 the Company abandoned its efforts in the field of active/leisure fashion design clothing when it acquired 100% of
the share capital of Entest BioMedical, Inc., a California corporation, (“Entest CA”).
The
Company’s current business consists of the development and commercialization of immunotherapeutic therapies for the veterinary
market as well as the acquisition and operation of veterinary hospitals.
NOTE
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A.
BASIS OF ACCOUNTING
The
financial statements have been prepared using the basis of accounting generally accepted in the United States of America. Under
this basis of accounting, revenues are recorded as earned and expenses are recorded at the time liabilities are incurred. The
Company has adopted an August 31 fiscal year-end. The Company recognizes revenue from services and product sales when the
following four revenue recognition criteria are met: persuasive evidence of an arrangement exists, delivery has occurred or services
have been rendered, the selling price is fixed or determinable, and collectability is reasonably assured. Product sales and service
revenues are recorded when the products are delivered and title passes to customers. The customer’s credit card is authorized
and charged, or checks/cash are received at the time the services are rendered, thereby providing reasonable assurance of collectability.
B.
PRINCIPLES OF CONSOLIDATION
The
consolidated financial statements include the accounts of Entest CA, the Company’s wholly owned subsidiary. Significant
inter-company transactions have been eliminated.
C.
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.
D.
CASH EQUIVALENTS
The
Company considers all highly liquid investments with a maturity of three months or less when purchased to be cash equivalents.
E.
PROPERTY AND EQUIPMENT
As
of May 31, 2014 Property and Equipment consists of $1,919 of Computer equipment. No depreciation expense has been recorded with
regards to this equipment as it has yet to be put into service
F.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair
value is the price that would be received for an asset or the exit price that would be paid to transfer a liability in the principal
or most advantageous market in an orderly transaction between market participants on the measurement date. A fair value
hierarchy requires an entity to maximize the use of observable inputs, where available. The following summarizes the three levels
of inputs required by the standard that the Company uses to measure fair value:
Level
1: Quoted prices in active markets for identical assets or liabilities
Level
2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in
markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially
the full term of the related assets or liabilities.
Level
3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of
the assets or liabilities.
The
Company’s financial instruments as of May 31, 2014 consisted of $
384,043 of Notes Payable, $8,000 due to TheraCyte, Inc. and $1,878 due from an affiliate. The fair
value of all of the Company’s financial instruments as of May 31, 2014 were valued according to the Level 3 input. The carrying
amount of the financial instruments is equal to the fair value as determined by the Company.
The
Company has determined that there are no Level 1 or Level 2 inputs for determining the fair value of the Company’s financial
instruments. Fair value was determined by the Company utilizing its own assumptions and estimation. There were no transfers between
levels for the period presented.
G.
INCOME TAXES
The
Company accounts for income taxes using the liability method prescribed by ASC 740, “
Income Taxes.
” Under
this method, deferred tax assets and liabilities are determined based on the difference between the financial reporting and tax
bases of assets and liabilities using enacted tax rates that will be in effect in the year in which the differences are expected
to reverse. The Company records a valuation allowance to offset deferred tax assets if based on the weight of available evidence,
it is more-likely-than-not that some portion, or all, of the deferred tax assets will not be realized. The effect on deferred
taxes of a change in tax rates is recognized as income or loss in the period that includes the enactment date.
The
Company applied the provisions of ASC 740-10-50, “Accounting for Uncertainty in Income Taxes”, which provides clarification
related to the process associated with accounting for uncertain tax positions recognized in our financial statements. Audit periods
remain open for review until the statute of limitations has passed. The completion of review or the expiration of the statute
of limitations for a given audit period could result in an adjustment to the Company’s liability for income taxes. Any such
adjustment could be material to the Company’s results of operations for any given quarterly or annual period based, in part,
upon the results of operations for the given period. As of May 31, 2014 and August 31, 2013 the Company had no uncertain tax positions,
and will continue to evaluate for uncertain positions in the future.
The
Company generated a deferred tax credit through net operating loss carry forward. However, a valuation allowance of 100%
has been established.
Interest
and penalties on tax deficiencies recognized in accordance with ACS accounting standards are classified as income taxes in accordance
with ASC Topic 740-10-50-19.
H.
BASIC EARNINGS (LOSS) PER SHARE
The
Financial Accounting Standards Board (FASB) issued Accounting Standards Codification (ASC) 260, "Earnings Per Share",
which specifies the computation, presentation and disclosure requirements for earnings (loss) per share for entities with publicly
held common stock. ASC 260 requires the presentation of basic earnings (loss) per share and diluted earnings (loss) per share.
The Company has adopted the provisions of ASC 260 effective from inception. Basic net loss per share amounts is computed by dividing
the net income by the weighted average number of common shares outstanding. All convertible debt has an anti-dilutive effect on
the EPS, therefore Diluted earnings per share are the same as basic earnings per share.
NOTE
4. RECENT ACCOUNTING PRONOUNCEMENTS
The
following accounting standards updates were recently issued and have not yet been adopted by us. These standards are currently
under review to determine their impact on our consolidated financial position, results of operations, or cash flows.
On
January 31, 2013, the FASB issued Accounting Standards Update [ASU] 2013-01, entitled Clarifying the Scope of Disclosures about
Offsetting Assets and Liabilities. The guidance in ASU 2013-01 amends the requirements in the FASB Accounting Standards Codification
[FASB ASC] Topic 210, entitled Balance Sheet. The ASU 2013-01 amendments to FASB ASC 210 clarify that ordinary trade receivables
and receivables in general are not within the scope of ASU 2011-11, entitled Disclosure about Offsetting Assets and Liabilities,
where that ASU amended the guidance in FASB ASC 210. As those disclosures now are modified with the ASU 2013-01 amendments, the
FASB ASC 210 balance sheet offsetting disclosures now clearly are applicable only where reporting entities are involved with bifurcated
embedded derivatives, repurchase agreements, reverse repurchase agreements, and securities borrowing and lending transactions
that either are offset using the FASB ASC 210 or 815 requirements, or that are subject to enforceable master netting arrangements
or similar agreements. ASU 2013-01 is effective for annual reporting periods beginning on or after January 1, 2013, and interim
periods within those annual periods. The adoption of this ASU is not expected to have a material impact on our financial statements.
On
February 28, 2013, the FASB issued Accounting Standards Update [ASU] 2013-04, entitled Obligations Resulting from Joint and Several
Liability Arrangements for Which the Total Amount of the Obligation Is Fixed at the Reporting Date. The ASU 2013-04 amendments
add to the guidance in FASB Accounting Standards Codification [FASB ASC] Topic 405, entitled Liabilities and require reporting
entities to measure obligations resulting from certain joint and several liability arrangements where the total amount of the
obligation is fixed as of the reporting date, as the sum of the following:
The
amount the reporting entity agreed to pay on the basis of its arrangement among co-obligors.
Any
additional amounts the reporting entity expects to pay on behalf of its co-obligors.
While
early adoption of the amended guidance is permitted, for public companies, the guidance is required to be implemented in fiscal
years, and interim periods within those years, beginning after December 15, 2013. The amendments need to be implemented retrospectively
to all prior periods presented for obligations resulting from joint and several liability arrangements that exist at the beginning
of the year of adoption. The adoption of ASU 2013-04 is not expected to have a material effect on the Company’s operating
results or financial position.
On
April 22, 2013, the FASB issued Accounting Standards Update [ASU] 2013-07, entitled Liquidation Basis of Accounting. With ASU
2013-07, the FASB amends the guidance in the FASB Accounting Standards Codification [FASB ASC] Topic 205, entitled Presentation
of Financial Statements. The amendments serve to clarify when and how reporting entities should apply the liquidation basis of
accounting. The guidance is applicable to all reporting entities, whether they are public or private companies or not-for-profit
entities. The guidance also provides principles for the recognition of assets and liabilities and disclosures, as well as related
financial statement presentation requirements. The requirements in ASU 2013-07 are effective for annual reporting periods beginning
after December 15, 2013, and interim reporting periods within those annual periods. Reporting entities are required to apply the
requirements in ASU 2013-07 prospectively from the day that liquidation becomes imminent. Early adoption is permitted. The adoption
of ASU 2013-07 is not expected to have a material effect on the Company’s operating results or financial position.
Variety
of proposed or otherwise potential accounting standards are currently under study by standard setting organizations and various
regulatory agencies. Due to the tentative and preliminary nature of those proposed standards, the Company’s management
has not determined whether implementation of such standards would be material to its financial statements.
NOTE
5. GOING CONCERN
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company generated
net losses of $6,223,975 during the period from August 22, 2008 (inception) through May 31, 2014. This condition raises substantial
doubt about the Company's ability to continue as a going concern. The Company's continuation as a going concern is dependent on
its ability to meet its obligations, to obtain additional financing as may be required and ultimately to attain profitability.
The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Management
plans to raise additional funds primarily by offering securities for cash.
Management has yet to decide what type of offering the Company will use or how much capital the
Company will raise. There is no guarantee that the Company will be able to raise any capital through any type of offerings.
NOTE
6. NOTES PAYABLE
As
of May 31, 2014
Notes
Payable:
|
The
Sherman Family Trust (10% Interest)
|
|
$
|
26,700
|
|
The
Sherman Family Trust (No interest)
|
|
$
|
200,000
|
|
Officer
Loans (Note 7)
|
|
$
|
99,343
|
|
Total
|
|
$
|
384,043
|
Convertible
Notes Payable
No
Convertible Notes payable outstanding as of May 31, 2014
As
of August 31, 2013
Notes
Payable:
|
Bio
Technology Partners Business Trust
|
|
$
|
13,550
|
|
The
Sherman Family Trust (10% Interest)
|
|
$
|
98,200
|
|
Officer
Loans (Note 6)
|
|
$
|
117,588
|
|
Venture
Bridge Advisors
|
|
$
|
37,606
|
|
Southridge
Partners II LLP
|
|
$
|
5,700
|
|
Total
|
|
$
|
272,644
|
Convertible
Notes Payable
8%
Convertible Notes Payable, $101,000
Bio
Technology Partners Business Trust has provided a line of credit to the Company in the amount of $200,000 or so much thereof as
may be disbursed to, or for the benefit of the Company by Lender in Lender's sole and absolute discretion. The unpaid principal
of this line of credit bears simple interest at the rate of ten percent per annum. Interest is calculated based on the principal
balance as may be adjusted from time to time to reflect additional advances or payments made hereunder. Principal balance and
accrued interest shall become due and payable in whole or in part at the demand of the Lender. The Sherman Family Trust (10% Interest)
has provided a line of credit to the Company in the amount of $700,000 or so much thereof as may be disbursed to, or for the benefit
of the Company by Lender in Lender's sole and absolute discretion. The unpaid principal of this line of credit bears simple interest
at the rate of ten percent per annum. Interest is calculated based on the principal balance as may be adjusted from time to time
to reflect additional advances or payments made hereunder. Principal balance and accrued interest shall become due and payable
in whole or in part at the demand of the Lender. $200,000 due to The Sherman Family Trust (0% Interest) is due and payable in
whole or in part at the option of the Holder and bears no interest.
NOTE
7. RELATED PARTY TRANSACTIONS
As
of May 31, 2014 the Company remains indebted to David R. Koos in the principal amount of $99,343 due and payable in whole
or in part at the demand of David Koos and bearing simple interest at a rate of 15% per annum
As
of May 31 , 2014 Bio-Matrix Scientific Group, Inc. (“BMSN”) , a major shareholder of the Company, is indebted to the
Company in the amount of $1,878. This amount is non interest bearing and is due at the demand of the Company.
The
Company allows BMSN and its affiliates ( entities under common control with the Company) to share office space with the Company
at 4700 Spring Street, Suite 304, La Mesa California, 91941free of charge.
NOTE
8. INCOME TAXES
|
As
of May 31, 2014
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
Net
operating tax carry forwards
|
|
$
|
2,120,791
|
|
|
Other
|
|
|
-0-
|
|
|
|
|
|
|
|
|
Gross
deferred tax assets
|
|
|
2,120,791
|
|
|
Valuation
allowance
|
|
|
(2,120,791)
|
|
|
Net
deferred tax assets
|
|
$
|
-0-
|
|
As
of May 31, 2014 the Company has a Deferred Tax Asset of $2,120,791 completely attributable to net operating loss carry
forwards of approximately $6,237,622 (which expire 20 years from the date the loss was incurred) consisting of:
(a)
$ 13,647 of Net Operating Loss carry forwards acquired in the reverse acquisition of Entest BioMedical, Inc., a California corporation,
and
(b)
$ 6,223,975 of Net Operating Loss carry forwards attributable to Entest BioMedical, Inc.
Realization
of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences
and carry forwards are expected to be available to reduce taxable income. A valuation allowance is recorded when it is “more
likely-than-not” that a deferred tax asset will not be realized. In addition, the reverse acquisition in which Entest BioMedical,
Inc. was involved in 2009 has resulted in a change of control. Internal Revenue Code Sec 382 limits the amount of income
that may be offset by net operating loss (NOL) carryovers after an ownership change. As a result, the Company has recorded a valuation
allowance reducing all deferred tax assets to $ -0-.
Income
tax is calculated at the 34% Federal Corporate Rate.
NOTE
9. ACQUISITION OF ENTEST CA
On
July 10, 2009 the Company acquired 100% of Entest CA, a California corporation and wholly owned subsidiary of the Company, from
BMSN for consideration consisting of (a) the issuance to BMSN of 10,000,000 newly issued common shares of Entest and (b) the return
by Mr. Rick Plote of 10,000,000 shares of Entest’s common stock previously issued to him by Entest for cancellation.
NOTE
10. ACQUISITION OF THE ASSETS OF PET POINTERS, INC.
On
January 4, 2011Entest CA acquired from Pet Pointers, Inc., a California corporation doing business as McDonald Animal Hospital
(“Seller”), and Dr. Gregory McDonald DVM (“McDonald”) all the goodwill from McDonald and assets of Seller
except cash and accounts receivables used in connection with the operation of a veterinary medical clinic located at 225 S. Milpas
Street, Santa Barbara, CA 93103 (the "Business").
Consideration
for the acquisition consisted of:
I.
$70,000 in cash
II.
$210,000 of the Company’s common shares valued at the closing price per share as of January 4, 2011
III.
Payment of no more than $78,000 to a creditor of the Seller to be paid in monthly installments of $1,500 per month
IV.
Payment of no more than $25,000 to additional creditors of the Seller to be paid in monthly installments of $825 per month
V.
Payment of $50,000 to McDonald on the first business day of the fourth month following the closing of the acquisition (“Closing”).
NOTE
11. DISPOSITION OF THE ASSETS OF PET POINTERS, INC.
On
November 28, 2012 the “Company executed an agreement (“Agreement”) with Gregory McDonald ("McDonald"),
Pet Pointers, Inc. ("Pet Pointer") whereby Mc Donald and Pet Pointer would acquire from the Company all assets (with
the exception of cash and accounts receivable) utilized by the Company in the operation of the McDonald Animal Hospital, a full
service veterinary clinic owned and operated by the Company and located in Santa Barbara, California (“McDonald Asset Sale”).
On
October 10, 2012 a Complaint (“Complaint”) was filed in the Superior Court of the State of California against the
Company and David Koos by McDonald, a former employee of the Company, alleging breach of contract and breach of the covenant of
good faith and dealing in connection with the assumption of lease obligations by the Company in connection with the acquisition
of the assets of Pet Pointers, Inc breach of contract and breach of the covenant of good faith and dealing in connection with
an employment agreement enters into with McDonald inc connection with the Acquisition, breach of contract in connection with the
Acquisition purchase agreement, breach of the covenant of good faith and dealing in connection with the Acquisition purchase agreement,
implied indemnity in connection to amounts owed by McDonald to Anthony and Judi Marinelli, the Internal Revenue Service, and the
California Franchise Tax Board, intentional misrepresentation, negligent misrepresentation , failure to pay wages and violations
of Sections 2802, 203, and 2806 of the California Labor Code. The Complaint sought judgment for nominal damages, actual damages,
compensatory damages, lost wages, compensation, expenses wage benefits and penalties pursuant to California Labor Code Sections
203 et al, 2802 and 2806, indemnification, accrued interest, punitive damages, costs of suit and attorney’s fees.
As
consideration to the Company for the assets acquired, McDonald and Pet Pointers provided to the Company a General release whereby
McDonald and Pet Pointer waive, release and discharge the Company and their respective assignees, officers, directors, shareholders,
boards, owners, employees, attorneys, agents, trustors, trustees, beneficiaries, heirs, successors, and representatives from all
known and unknown claims, demands, causes of action, attorney's fees, costs, or expenses including:
(1)
All claims relating to the Complaint.
(2)
Those owed by McDonald to Anthony and Judi Marinelli which the Company became obligated to pay on McDonald’s behalf pursuant
to the asset purchase agreement entered into between the Company and Gregory McDonald and Pet Pointers, Inc on January 4, 2011.
(3)
Those amounts owed by McDonald to the Internal Revenue Service which the Company became obligated to pay on McDonald’s behalf
pursuant to the asset purchase agreement entered into between the Company and Gregory McDonald and Pet Pointers, Inc on January
4, 2011.
(4)
Those amounts owed by McDonald to the California Franchise Tax Board which the Company became obligated to pay on McDonald’s
behalf pursuant to the asset purchase agreement entered into between the Company and Gregory McDonald and Pet Pointers, Inc on
January 4, 2011.
Assets
disposed of pursuant to the Agreement include approximately $4,840 of Property Plant and Equipment net of accumulated depreciation
as well as all inventory held at the McDonald Animal Hospital.
Assets
disposed of pursuant to the Agreement also include
(i)
Essentially all intellectual property, including computer software, utilized in connection with the operation of the McDonald
Animal Hospital
(ii)
All telephone numbers, fax numbers, service marks, trademarks, trade names, fictitious business names, websites, business email
addresses, vendor lists, promotional materials, vendor records and any and all business records including, but not limited to,
such items stored in computer memories, microfiche, paper record or by any other means relevant to the operation of the McDonald
Animal Hospital.
(iii)
All customer lists, customer contacts, and any and all customer records that are related to the McDonald Animal Hospital.
As
a result of the agreement, the Company recorded a non-cash pre-tax charge for the impairment of goodwill recorded in connection
with the acquisition of the McDonald Animal Hospital of approximately $405,000 for the quarter ended November 30, 2012.
Pursuant
to the Agreement, the Company is obligated to make payment of $13,000 within five days of the Closing of the Agreement as such
term is defined in the Agreement.
Pursuant
to the Agreement, the Company agrees to waive, release and discharge McDonald and Pet Pointer from all known and unknown claims,
demands, causes of action, attorney's fees, costs, or expenses.
NOTE
12. COMMITMENTS AND CONTINGENCIES
On
November 1, 2011, the Company entered into an agreement to lease approximately 2,320 square feet of office space beginning December
1, 2011 for a period of five years.
Rent
to be charged to the Company pursuant to the lease is as follows:
$2,996
per month for the period beginning December 1, 2011 and ending November 30, 2012
$3,116
per month for the period beginning December 1, 2012 and ending November 30, 2013
$3,241
per month for the period beginning December 1, 2013 and ending November 30, 2014
$3,371
per month for the period beginning December 1, 2014 and ending November 30, 2015
$3,506
per month for the period beginning December 1, 2015 and ending November 30, 2016
This
property is utilized as office space. The Company believes that the foregoing property is adequate to meet its current needs.
While it is anticipated that the Company will require access to laboratory facilities in the future, the Company believes that
access to such facilities are available from a variety of sources.
On
May 24, 2012, a Complaint (“Complaint”) was filed in the U.S. Bankruptcy Court for the District of Oregon against
the Company by Titterington Veterinary Services Inc. (“TVS”). The Complaint is an adversary proceeding filed by TVS
arising from TVS’s bankruptcy case currently pending in U.S. Bankruptcy Court for the District of Oregon. The Complaint
alleges Breach of Contract resulting from the Company’s alleged failure to pay certain expenses the Company was required
to pay pursuant to an agreement with TVS, Dr. Ronald Titterington, DVM and Dr. Kathy Snell, DVM (“TVS Agreement”).
TVS is seeking a judgment and money award against the Company in an amount to be proven at trial which TVS estimates in the Complaint
to be up to $50,000. TVS is also seeking a judgment and order against the Company to provide an accounting of all revenues received
by the Company pursuant to the TVS Agreement, all expenses paid, unpaid, and due and owing pursuant to the TVS Agreement
as well as a revenue share which TVS claims is due them pursuant to the TVS Agreement. TVS is also seeking a judgment requiring
the Company to turn over a sum of money equal to expenses the Company was obligated to pay pursuant to the TVS Agreement. TVS
is also seeking attorney’s fees and expenses. The Company believes that the allegations in the complaint are without
merit and intends to vigorously defend its interests in this matter. At this time, it is not possible to predict the ultimate
outcome of these matters and an outcome unfavorable to the Company may have a material adverse effect on the Company. On September
19, 2012 the Plaintiff’s Claim for Relief for turnover and an accounting under 11 U.S.C. § 542 and the Plaintiff's
Claim for Relief for attorney fees were dismissed with prejudice and , as per the claim of breach of contract, the proceeding
was transferred to the United States Bankruptcy Court for the District of Southern California for all further proceedings. This
Complaint was dismissed in its entirety on June 30, 2014.
.
There
were no other legal proceedings against the Company with respect to matters arising in the ordinary course of business. The Company
is not involved in any other litigation either as plaintiffs or defendants, and has no knowledge of any threatened or pending
litigation against the Company.
NOTE
13. STOCKHOLDERS EQUITY
The
stockholders' equity section of the Company contains the following classes of capital stock as of May 31, 2014:
Common
Stock:
$0.0001
par value, 2,000,000,000 shares authorized and 1,998,070,752 shares issued and outstanding as of May 31, 2014.
Preferred
Stock:
$0.0001
par value 5,000,000 shares authorized of which
|
|
(a)
|
100,000
are authorized as Series AA Preferred Stock of which 100,000 shares are issued and outstanding as of May 31, 2014
and
|
|
|
(b)
|
4,400,000
are authorized as Series B Preferred Stock of which 4,201,397 shares are issued and outstanding as of May 31, 2014.
|
(c)
300,000 are authorized as Series AAA Preferred Stock of which 80,000 shares are issued and outstanding as of May
31, 2014
Upon
any liquidation, dissolution, or winding up of the Company, whether voluntary or involuntary (collectively, a “Liquidation”),
before any distribution or payment shall be made to any of the holders of Common Stock or any other series of preferred stock,
the holders of Series B Preferred Stock shall be entitled to receive out of the assets of the Company, whether such assets are
capital, surplus or earnings, an amount equal to $0.10 per share of Series B Preferred Stock (the “Liquidation Amount”)
plus all declared and unpaid dividends thereon, for each share of Series B Preferred Stock held by them.
If,
upon any Liquidation, the assets of the Company shall be insufficient to pay the Liquidation Amount, together with declared and
unpaid dividends thereon, in full to all holders of Series B Preferred Stock, then the entire net assets of the Company shall
be distributed among the holders of the Series B Preferred Stock, ratably in proportion to the full amounts to which they would
otherwise be respectively entitled and such distributions may be made in cash or in property taken at its fair value (as determined
in good faith by the Board), or both, at the election of the Board..
Non
Voting Convertible Preferred Stock having a $1.00 par value:
200,000
shares authorized of which 0 shares are issued and outstanding as of May 31, 2014 .
Non
Voting Convertible Preferred Stock shall convert at the option of the holder into shares of the corporation’s common stock
at a conversion price equal to seventy percent (70%) of the lowest Closing Price for the five (5) trading days immediately preceding
written receipt by the corporation of the holder’s intent to convert.
“CLOSING
PRICE" shall mean the closing bid price for the corporation’s common stock on the Principal Market on a Trading Day
as reported by Bloomberg Finance L.P.
“PRINCIPAL
MARKET" shall mean the principal trading exchange or market for the corporation’s common stock.
“TRADING
DAY” shall mean a day on which the Principal Market shall be open for business.
NOTE
14. STOCK TRANSACTIONS
During
the quarter ended May 31, 2014:
On
March 3, 2014 the Company issued 125,000,000 shares of the Company’s Common Stock in satisfaction of $12,500 of principal
indebtedness.
On
March 13, 2014 the Company issued 140,000,000 shares of the Company’s Common Stock in satisfaction of $14,000 of principal
indebtedness.
On
March 28, 2014 the Company issued 155,000,000 shares of the Company’s Common Stock in satisfaction of $15,500 of principal
indebtedness
On
April 22, 2014 the Company issued 170,000,000 shares of the Company’s Common Stock in satisfaction of $17,000 of principal
indebtedness
On
May 16, 2014 the Company issued 125,000,000 shares of the Company’s Common Stock in satisfaction of $12,500 of principal
indebtedness.
On
May 22, 2014 the Company issued 80,000 shares of Series AAA Preferred Stock to David R. Koos, the Company’s Chairman, President
and CEO as consideration for $10,000 of salary accrued and unpaid owed to David R. Koos by the Company.