For the years ended December 31, 2015 and 2014, we have not recognized the future tax benefit of current or prior period losses due to our history of operating losses. Accordingly, our effective tax rate for each period was zero.
Liquidity and Capital Resources
We had a working capital deficit of $2,254,000 at March 31, 2016, compared to a working capital deficit of $2,026,000 at December 31, 2015, resulting in a decrease in working capital of $228,000. Current assets at March 31, 2016 included cash of $13,000, which is a decrease of $69,000 from December 31, 2015. The net negative change of $228,000 in working capital from December 31, 2015 was primarily from a $165,000 increase in the change in short-term liabilities over assets, an increase of $47,000 in short-term convertible debt and a decrease of $16,000 in the short-term portion of deferred stock and warrant costs issued for consulting services.
In the three months ended March 31, 2016, our cash flow used by operating activities was $136,000, an increase of $109,000 over the same period in 2015. The primary components of the increase from 2015 in cash flow used by operating activities was principally due to an increase of $121,000 in net current liabilities, a decrease in the net loss of $60,000, an increase in bad debt allowance of $56,000 and an increase in net amortization of convertible debt original issue discount costs of $15,000, offset by a decrease of $143,000 in stock and stock derivatives issued for fees and services.
We had a working capital deficit of $2,026,000 at December 31, 2015, compared to a working capital deficit of $938,000 at December 31, 2014, resulting in a decrease in working capital of $1,088,000. Current assets at December 31, 2015 included cash and cash equivalents of $82,000, which is a decrease of $65,000 from December 31, 2014. The net negative change of $1,088,000 in working capital from December 31, 2014 was primarily from a $635,000 increase in the change in short-term liabilities over assets, a decrease of $544,000 in the short-term portion of deferred stock and warrant costs issued for consulting services and an increase of $44,000 in convertible debt issued, offset by decrease of $90,000 in convertible debentures and a decrease of $44,000 in notes payable to related parties.
In 2015 our cash flow used in operating activities was $679,000, a decrease of $14,000 over the same period in 2014. The components of the change from 2014 in cash flow used in operating activities was principally due to an increase in the net loss of $514,000, a $138,000 decrease in stock and stock derivatives issued for fees and services, an increase of $61,000 in net current liabilities over assets and a $10,000 decrease in the loss from the investment in subsidiary, offset by an increase of $262,000 in the impairment of assets, an increase of $228,000 in stock compensation for fees and services, a decrease of $159,000 in the gain on sale of fixed assets, a $44,000 increase in
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depreciation and amortization, and a $16,000 increase in the provision for bad debt allowance. We reduced the cash flow used by operating activities by slowing down payments to vendors, specifically vendors not used for the direct production of revenue. Our annual average trade accounts payable in excess of trade accounts receivable increased by 18% in 2014 over 2013 and in 2015 it increased another 28% over 2014, and has not decreased into early 2016.
The normal collection period for accounts receivable is between 30-60 days for the majority of our customers. This is a result of the nature of the contracts, type of customer and the amount of time required to obtain the information to prepare the billing. We make no assurances that payments from our customer or payments to our vendors will become shorter and this may have an adverse impact on our continuing operations.
Financings
In 2009 we approved an offering of up to $1,000,000 of Convertible Debentures (the Debentures), convertible at any time into our unregistered common stock at $2.00 per share. The Debentures were issuable in $5,000 denominations, are unsecured and have a stated interest rate of 8%, payable quarterly to holders of record. As of June 30, 2013, we held $455,000 of Debentures, but defaulted and did not pay the holders the principal amount due, all of which became due. During 2015, two of our debenture holders converted their respective debt to restricted shares of our common stock, reducing the amount of Debentures that remain outstanding and in default at March 31, 2016 to $365,000. We continue to accrue interest on the principal amount at the rate set forth in the Debentures until the principal amount is paid in full. We have not made the interest payments due in October 2015, January 2016 and April 2016. We expect to pay all accrued interest due and the principal amount to all outstanding holders of the Debentures after completing substitute financial arrangements, though there can be no assurance of the timing of receipt of these funds and amounts available from these substitute arrangements.
In 2011 we borrowed $200,000 with a Promissory Note payable to David and Edna Kasmoch, the parents of Timothy Kasmoch, our President and Chief Executive Officer, at 12% interest and prepaid for a period of three months, renewable for an additional three months by the prepayment of additional interest and secured by certain equipment. Timothy Kasmoch has personally guaranteed the repayment of this Note. As of December 31, 2015 the Note was past due and we are in default. We expect to extend the Note in the near future and pay it in full in 2016, although there can be no assurance we will have adequate cash flow to allow for any additional payments or that the maturity date will be extended. In September 2015, we received a demand letter from counsel for the Note holder declaring a default under the Note. Counsel demanded payment of the entire amount due under the Note, along with accrued interest and penalties. At December 31, 2015 and March 31, 2016 we accrued a total of approximately $96,000 and $118,000, respectively, in estimated interest and penalties. We are in negotiations with counsel and their client to resolve this default, although there can be no assurance these negotiations will be successful.
In 2012 we received a Notice and Demand of Payment Withdrawal Liability from Central States Southeast and Southwest Areas Pension Fund (the Notice), the pension trustee that was funded by us for the benefit of our former employees at our City of Toledo operation. In 2013 we received a Notice of Default from Central States, and in 2014 we agreed to pay Central States a total of $415,000 plus interest on a financed settlement over 19 months, with payments of $6,000 per month for the first twelve months and $10,000 per month for the following six months, with a balloon payment of approximately $312,000 due on or before February 1, 2016. Concurrently a separate security agreement was agreed on, effectively securing all of our assets and future rights to assets. As of the date of this filing, we are not in compliance with the new settlement agreement, as the remaining two payments of $10,000 as well as the balloon payment are overdue. In an event of default, we become liable for liquidating damages to Central States in the amount of $78,965. This liability has been added to the total amount owed under this agreement, which totals $413,639 at March 31, 2016.
In June 2014, our wholly owned subsidiary, Mulberry Processing, LLC, entered into a contract to lease certain real property and buildings in Bradley, Florida from Bowling Green Holdings, LLC. The lease term is for five years with a monthly payment of $10,000. At March 31, 2016 and December 31, 2015 we were in default of our payments. The total minimum rental commitment for each of the years 2016 through 2018 is $120,000 and for the year ending December 31, 2019 is $50,000. This lease has been determined to be a capital lease, and a liability and related asset of $420,346 was recorded in June 2014 concurrent with the start of the lease agreement. In September 2015, we received a demand letter from counsel for the lessor declaring a default under the lease for our operating facility. Counsel demanded payment of several months of accrued rent in arrears under the lease, together with penalties. We are in negotiations with counsel and their client to resolve this default, although there can be no assurance these negotiations will be successful.
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In October 2015, we financed our directors and officers insurance and borrowed $30,100 over 10 months at 9% interest, monthly payments of $3,136 and unsecured. The amount owed on this note as of March 31, 2016 was approximately $18,300.
In December 2015, we entered into an agreement with JSJ Investments, Inc. (JSJ) to issue a convertible promissory note (JSJ Note) to us for $125,000 in cash, less $10,000 in fees paid in debt issuance costs to a third party. The JSJ Note is for a term of nine (9) month, an interest rate of 10%, and a $4,000 original issue discount fee on actual payments made. JSJ can elect to convert all or part of the debt into restricted shares of our common stock for a price equaling the lesser of $0.43 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. We are also required to reserve 1,250,000 authorized but unissued shares of our common stock, per an irrevocable letter to our transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(a)(2) as a transaction by an issuer not involving a public offering. Our debt obligations to JMJ were retired in the second quarter of 2016, for a total payment of approximately $190,000, including accrued interest and approximately $63,000 in early prepayment premium.
In January 2016, we entered into an agreement with JMJ Financial (JMJ), to issue a Convertible Promissory Note (JMJ Note) to JMJ for $500,000, with an initial loan of $100,000 in cash, less $6,950 in debt issuance costs paid to Craft Capital Management, LLC (Craft). As of July 18, 2016, the principal amount owed to JMJ under this note is $100,000 plus accrued and unpaid interest. Craft also received 4,000 stock warrants, valued at $3,000, to purchase our common stock at an exercise price of $1.00 per share. The JMJ Note is for a term of two (2) years, an interest rate of 12% if not paid within the first 90 days, and a 10% original issue discount fee on actual payments made. After 180 days from the agreement date, JMJ can elect to convert all or part of the debt into restricted shares of our common stock for a price equaling the lesser of $0.77 or a 40% discount to the lowest trading price during the previous twenty-five (25) trading days to the date of the conversion notice. We were also required to reserve 2,500,000 authorized but unissued shares of our common stock, per an irrevocable Letter of Instructions to our transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering.
In March 2016, we entered into an agreement with Tangiers Investment Group, LLC (Tangiers), to issue a 10% Convertible Promissory Note (Tangiers Note) to us for $58,500 in cash, less $8,500 in original issue discount retained by Tangiers for due diligence and legal expenses. The Tangiers Note is for a term of one (1) year, an interest rate of zero percent if prepaid within the first 90 days, with a graduated prepayment penalty every 30 days, up until 180 days from the March 2016 effective date. At anytime Tangiers can elect to convert all or part of the debt into restricted shares of our common stock for a price equaling the lesser of $0.60 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. We were also required to reserve 700,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to our transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(a)(2) as a transaction by an issuer not involving a public offering. Our debt obligation to Tangiers Investment Group was retired in the second quarter of 2016, for a total payment of approximately $84,000, including accrued interest and approximately $18,000 in early prepayment premium.
In April 2016, we entered into an agreement with Tangiers Global, LLC (Tangiers Global), to issue a 10% Convertible Promissory Note (Tangiers Global Note) to us for $110,000 in cash, less $10,000 in original issue discount retained by Tangiers Global. The Tangiers Global Note is for a term of one (1) year, an interest rate of zero percent if prepaid within the first 90 days, with a graduated prepayment penalty every 30 days, up until 180 days from the April 2016 effective date. At any time Tangiers Global can elect to convert all or part of the debt into restricted shares of the Companys common stock for a price equaling the lesser of $0.60 or a 40% discount to the lowest trading price during the previous twenty (20) trading days to the date of the conversion notice. The Company was also required to reserve 1,400,000 authorized but unissued shares of its common stock, per an irrevocable Letter of Instructions to the Companys transfer agent. The transaction was exempt from the registration requirements under the Securities Act pursuant to section 4(a)(2) as a transaction by an issuer not involving a public offering. Our debt obligation to Tangiers Global was retired in the second quarter of 2016, for a total payment of approximately $121,000 which included $11,000 in early prepayment premium.
In April 2016, we entered into a share purchase agreement with a Purchaser pursuant to which we sold 100,000 shares of our common stock (the Shares) to the Purchaser for a total of $100,000, or a purchase price of $1.00 per share, and 50,000 warrants to purchase stock for $1.50 per share, to provide operating capital. All the shares issued were restricted and have limited piggy-back registration rights in connection with certain registration statement filings of the Company under the Securities Act of 1933 as amended (the Securities Act). The transaction
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was exempt from the registration requirements under the Securities Act pursuant to section 4(2) as a transaction by an issuer not involving a public offering.
In June 2016, we entered into an agreement with JMJ Financial to issue a convertible promissory note to JMJ in the principal amount of $585,000 in exchange for $525,000 in cash, less $31,500 in debt issuance costs paid to Craft Capital Management LLC. Craft also received warrants to purchase 21,000 shares, valued at $21,000, to purchase common stock at a purchase price of $1.00 per share. This note is due and payable on June 13, 2017. The note is convertible at the lesser of $0.90 or 75% of the lowest trade price in the 25 trading days previous to the conversion date. See Risk Factors regarding the potential of additional cumulative 15% discount which may become applicable. The note is convertible at the sole option of JMJ. A one-time interest charge of 10% was applied to the principal sum. We have the right to repay up to 98% of the note after the effective date of the note in an amount equal to 120% of the sum of the principal sum being repaid plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due on such principal sum or, alternatively, at any time on or before 180 days after the issuance date of the note to pay an amount equal to 140% of the sum of the principal sum being repaid, plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due of such principal sum. After 180 days after the issuance date of the note, we may not prepay the note prior to the maturity date without the approval of JMJ. JMJ has the right in its sole discretion to require us to repurchase the note from JMJ at any time after the issuance date in an amount equal to 125% of the sum of the principal sum plus all accrued and unpaid interest, original issue discount, liquidated damages, fees and other amounts due on such principal sum. We are required to reserve 8,000,000 shares of common stock for potential conversion of the note. We also agreed to file an S-1 Registration Statement to register the resale of the shares of common stock issuable upon conversion of the note as well as the resale of 455,000 warrants issued to JMJ in connection with this transaction. The Registration Statement is required to include 5,000,000 shares of common stock for potential resale of the securities issuable upon conversion of the note and exercise of the warrants. The Registration Rights Agreement provides for a $50,000 penalty in the event the S-1 Registration Statement is not filed with the SEC on or before August 1, 2016 and a $25,000 penalty if the Registration Statement is not declared effective within 90 days of June 13, 2016. Exemption from registration is claimed under Section 4(2) of the Securities Act as transaction by an issuer not involving a public offering.
For the remainder of 2016 we expect to maintain current operating results and have adequate cash or access to cash to adequately fund operations from cash generated from equity and convertible debt issuances, and exercises of outstanding warrants and options, and by focusing on existing and expected new sources of revenue, especially from our new processing facility in Bradley, Florida. We expect that market developments favoring cleaner burning renewable energy sources and ongoing discussions with companies in the fuel and wastewater industries could provide enhanced liquidity and have a positive impact on future operations. We continue to pursue opportunities with strategic partners for the development and commercialization of the N-Viro Fuel technology both domestically and internationally. In addition, we are focusing on the development of regional biosolids processing facilities, and are currently in negotiations with potential partners to permit and develop independent, regional facilities.
There can be no assurance these discussions will be successful or result in new revenue or cash funding sources for the company. Our failure to achieve improvements in operating results, including through these potential sources of revenue, or in our ability to adequately finance or secure additional sources of funds would likely have a material adverse effect on our continuing operations.
Moreover, while we expect to arrange for financing with lending institutions, there can be no assurances that we will have the ability to do so. We have borrowed money from third parties and related parties and expect to be able to generate future cash from the exercises of common stock options and warrants, new debt and equity issuances. We have substantially slowed payments to trade vendors, and have renegotiated payment terms with several existing and prior vendors to lengthen the time and/or reduce the amount of cash to repay these trade payables. In 2014 and 2015, we issued new equity for total cash realized of approximately $1.3 million. In 2013, 2014 and again in 2015, we modified all outstanding warrants to enhance their exercisability and realized a total of $246,000 in exercises in 2013 and 2014. In October 2015, we extended the expiration date of all outstanding warrants for exactly one year. Beginning in March 2014, our operations in Volusia County, Florida, which at the time now represented substantially all revenue, were voluntarily delayed while we employed additional personnel and moved assets to our new site in Bradley, Florida. While operations resumed in Bradley in June 2014, this reduction in revenue has materially reduced available cash to fund current or prior expenses incurred, and has remained at this lower level or decreased over subsequent periods to date.
For our financial statements for the year ended December 31, 2015, we received an unqualified audit report from our independent registered public accounting firm that includes an explanatory paragraph describing their
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substantial doubt about our ability to continue as a going concern. As discussed in Note 1 to the condensed consolidated financial statements, our recurring losses, negative cash flow from operations and net working capital deficiency raise substantial doubt about our ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Off-Balance Sheet Arrangements
At March 31, 2016, we did not have any material commercial commitments, including guarantees or standby repurchase obligations, or any relationships with unconsolidated entities or financial partnerships, including entities often referred to as structured finance or special purpose entities or variable interest entities, which would have been established for the purpose of facilitating off-balance sheet arrangements or other contractually narrow or limited purposes.
From time to time, during the normal course of business, we may make certain indemnities, commitments and guarantees under which we may be required to make payments in relation to certain transactions. These include: (i) indemnities to vendors and service providers pertaining to claims based on our negligence or willful misconduct and (ii) indemnities involving the accuracy of representations and warranties in certain contracts. Pursuant to Delaware law, we may indemnify certain officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. We also have director and officer insurance coverage that limits our exposure and enables us to recover a portion of any future amounts that we may pay for indemnification purposes. We believe the applicable insurance coverage is generally adequate to cover any estimated potential liability for which we may provide indemnification. The majority of these indemnities, commitments and guarantees do not provide for any limitation of the maximum potential for future payments we could be obligated to make. We have not recorded any liability for these indemnities, commitments and other guarantees in the accompanying Consolidated Balance Sheets.
Critical accounting policies, estimates and assumptions
In preparing financial statements in conformity with accounting principles generally accepted in the United States, management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. The following are the significant estimates and assumptions made in preparation of the financial statements:
Revenue Recognition Sludge processing revenue and royalty fees are recognized under contracts where the Company or licensees utilize the N-Viro Process to treat sludge, either pursuant to a fixed-price contract or based on volumes of sludge processed. Revenue is recognized as services are performed.
Alkaline admixture management service revenue and N-Viro Soil
TM
revenue are recognized upon shipment.
Allowance for Doubtful Accounts We estimate losses for uncollectible accounts based on the aging of the accounts receivable and the evaluation and the likelihood of success in collecting the receivable. The balance of the allowance at each of the years ending December 31, 2015 is $32,847 and 2014 is $116,260, respectfully.
Property and Equipment/Long-Lived Assets Property and equipment is reviewed for impairment. The carrying amount of an asset (group) is considered impaired if it exceeds the sum of our estimate of the undiscounted future cash flows expected to result from the use and eventual disposition of the asset (group), excluding interest charges. Property, machinery and equipment are stated at cost less accumulated depreciation. During the year ended December 31, 2015 we concluded that the carrying amount of the property, machinery and equipment is in excess of its fair value and have recorded an impairment charge see Note 1 item G in the Notes to Consolidated Financial Statements.
Stock Options We record share-based compensation expense using a fair-value based method of measurement that results in compensation costs for essentially all awards of stock-based compensation. Compensation costs are recognized over the requisite period or periods that services are rendered.
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Stock Warrants We record compensation expense for stock warrants based on the estimated fair value of the warrants on the date of grant using the Black-Scholes valuation model. We use historical data among other factors to estimate the expected price volatility, the expected warrant term and the expected forfeiture rate. The risk-free rate is based on the U.S. Treasury yield curve in effect at the date of grant for the expected term of the warrant.
Income Taxes We assume the deductibility of certain costs in income tax filings and estimate the recovery of deferred income tax assets, all of which is fully reserved.
New Accounting Standards The Financial Accounting Standards Board, or FASB, has issued the following new accounting and interpretations, which may be applicable in the future to us:
In February 2016, the FASB issued Accounting Standards Update No. 2016-02,
Leases (Topic 842)
(ASU 2016-02)¸which requires that all leases with a term of more than one year, covering leased assets such as real estate and equipment, be reflected on the balance sheet as assets and liabilities for the rights and obligations created by these leases. ASU 2016-02 is effective for fiscal years fiscal years and interim periods beginning after December 15, 2018. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.
In November 2015, the FASB issued Accounting Standards Update No. 2015-17,
Income Taxes (Topic 740), Balance Sheet Classification of Deferred Taxes
(ASU 2015-17), which requires companies to classify all deferred tax assets and liabilities as noncurrent on the balance sheet instead of separating deferred taxes into current and noncurrent amounts. ASU 2015-17 is effective for fiscal years and interim periods beginning after December 15, 2016. We are currently evaluating the impact of the provisions of this new standard on our consolidated financial statements.
In August 2014, the FASB issued Accounting Standards Update No. 2014-15,
Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern
(ASU 2014-15), which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entitys ability to continue as a going concern and provide related disclosures. ASU 2014-15 is effective for the first interim period within annual reporting periods beginning after December 15, 2016 and is not expected to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued Accounting Standards Update No. 2014-09,
Revenue from Contracts with Customers
(ASU 2014-09), which provides guidance for the recognition, measurement and disclosure of revenue resulting from contracts with customers and will supersede virtually all of the current revenue recognition guidance under GAAP. ASU 2014-09 is effective for the first interim period within annual reporting periods beginning after December 15, 2016. In August 2015, the FASB issued ASU 2015-14
, "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date"
(ASU 2015-14), which delayed the effective date by one year. As a result, the standard is effective for us for fiscal and interim periods beginning January 1, 2018 and allows for full retrospective or modified retrospective methods of adoption. We are currently evaluating the impact of the provisions of this standard on our consolidated financial statements.
Actual results could differ materially from the estimates and assumptions that we use in the preparation of our financial statements.
CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Commission's rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing and evaluating the disclosure controls and procedures, management
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recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives.
As of March 31, 2016, management carried out an evaluation, under the supervision and with the participation of our principal executive officer and principal financial officer, of our disclosure controls and procedures (as defined in Rule 13a-15(e) and Rule 15d-15(e) of the Exchange Act). Based upon the evaluation, our principal executive officer and principal financial officer concluded that our disclosure controls and procedures were not effective at a reasonable assurance level to ensure that information we are required to disclose in the reports that 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. Our history of losses has severely limited our budget to hire and train enough accounting and financial personnel needed to adequately provide this function. Consequently, we lack sufficient technical expertise, reporting standards and written policies and procedures regarding disclosure controls and procedures.
Because of the inherent limitations in all disclosure control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, will be or 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. Additionally, disclosure controls can be circumvented by the individual acts of some persons, by collusion of two or more people and/or by management override of such controls. The design of any system of disclosure controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, disclosure controls and procedures may become inadequate because of changes in conditions, and/or the degree of compliance with the policies and procedures may deteriorate. Also, misstatements due to error or fraud may occur and not be detected.
Managements Annual Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of consolidated financial statements for external purposes in accordance with generally accepted accounting principles.
Under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the 1992 framework established by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as set forth in Internal Control - Integrated Framework. Based on our evaluation, our principal executive officer and our principal financial officer concluded that our internal controls over financial reporting were not effective as of December 31, 2015 for the reasons described below.
We lack personnel in accounting and financial staff to sufficiently monitor and process financial transactions in an efficient and timely manner. Our history of losses has severely limited our budget to hire and train enough accounting and financial personnel needed to adequately provide this function. Consequently, we lacked sufficient technical expertise, reporting standards and written policies and procedures. Specifically, controls were not effective to ensure that significant non-routine transactions, accounting estimates, and other adjustments were appropriately reviewed, analyzed and monitored by competent accounting staff on a timely basis.
We continue to develop and implement a remediation plan to address the material weakness. To date, our remediation efforts have included adoption of an expense reimbursement policy and the hiring of an employee to assist in the financial area of our business. However, due to our continuing lack of financial resources to hire and train accounting and financial personnel, we have not yet fully remedied this material weakness.
During the quarter ended December 31, 2015, there were no material changes in the Company's internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
While we are not aware of any material errors to date, our inability to maintain the adequate internal controls may result in a material error in our financial statements. Further, because of its inherent limitations, internal controls over financial reporting may not prevent or detect misstatements. It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of
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the system will be met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes on Internal Control Over Financial Reporting
During the three months ended March 31, 2016, there were no material changes in our internal control over financial reporting that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.