1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business
The financial information presented represents The Guitammer Company (the “Company”) originally incorporated on March 6, 1990, under the laws of the State of Ohio, and then re-domiciled to Nevada on May 18, 2011.
In April 2011, the Board of Directors approved a resolution to create a holding company to own 100% of the Ohio Company (“Guitammer-Ohio”). The holding company is incorporated in the State of Nevada and has 200 million authorized common shares. Existing shareholders of Guitammer-Ohio received 31,206 shares in the holding company for each share they owned, resulting in a total of 50,001,374 shares of Common Stock, of Guitammer-Nevada evidencing the same proportional interest in Guitammer-Nevada as they held in Guitammer-Ohio. The per share numbers and the per share amounts in the financial statements and the notes to the financial statements reflect the retroactive application of our stock split.
The Company is involved in the design and distribution of a low frequency audio transducer branded as the original ButtKicker
Ò
products. The Company, headquartered in Ohio, sells products internationally.
Basis of Presentation
All significant inter-company transactions and accounts have been eliminated in consolidation.
Use of Estimates
The preparation of consolidated financial statements in conformity with accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates.
Cash and Cash Equivalents
The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.
The Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation, subject to certain limitations.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(continued)
Accounts Receivable
Accounts receivable are carried at cost less an allowance for doubtful accounts. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on current economic conditions.
Accounts receivable are uncollateralized customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date. The Company recorded an allowance of $5,073 and $5,073 at September 30, 2016 and December 31, 2015, respectively.
Inventory
Inventory, consisting of finished goods, is stated at the lower of cost or market. Cost is determined using the weighted average method. Inventory that is determined to be obsolete or not sellable is expensed immediately. The Company recorded a reserve for obsolete items of $7,000 at September 30, 2016 and $7,000 at December 31, 2015.
Property and Equipment, net
Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the assets’ economic lives or the lease term. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows:
Equipment and electronics
|
2 - 7 years
|
Vehicles
|
4 years
|
Furniture and fixtures
|
7 years
|
Leasehold improvements
|
Shorter of lease terms or 7 years
|
Deferred Financing costs, net
Deferred financing costs are recorded at cost less accumulated amortization. Amortization is provided using the straight-line method over the life of the loan for which the financing costs were incurred.
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. Determination of recoverability is generally based on an estimate of undiscounted cash flows resulting from the use of the asset and its eventual disposition. If the evaluation indicates that the carrying amount of an asset is not recoverable from our undiscounted cash flows, then an impairment loss is measured by comparing the carrying amount of the asset to its fair value.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Revenue Recognition
The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable, and collectability is reasonably assured.
Deferred Revenue
The Company received prepayment for products from some of its’ customers as the Company requires prepayment before goods are shipped to all international customers. As of September 30, 2016 and December 31, 2015, the Company had deferred revenue of $42,863 and $23,310, respectively. The Company recognizes revenue and decreases deferred revenue in accordance with the revenue recognition policy.
Income Taxes
Prior to the creation of the Nevada holding company formed on May 18, 2011, the Company had elected S Corporation status for Federal and Ohio state income tax purposes. Under these elections, the Company’s taxable income was included on the stockholders individual income tax returns, and the Company made no provision for Federal and State income tax. Effective with the Company re-domiciling to Nevada on May 18, 2011, the Company elected C Corporation status for both Federal and State income tax purposes.
There were no uncertain tax positions at September 30, 2016 or December 31, 2015, as the Company’s tax positions for open years meet the recognition thresholds of more likely than not to be sustained upon examinations. When necessary, the Company would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense. Tax returns for the years 2012 through 2015 are currently open to examination. Tax returns prior to 2012 are no longer subject to examination by tax authorities.
Fair Value of Financial Instruments
The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The levels are defined as follows:
Level 1 – quoted prices for
identical
instruments in active markets;
Level 2 – quoted prices for
similar
instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and
Level 3 – fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are
unobservable
.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of the long term debt and revolving line of credit at September 30, 2016 and December 31, 2015 approximated the carrying amount based on interest rates that were close to market rates or being close to maturity and were determined on a Level 2 measurement.
The Black-Scholes valuation model is used to estimate the fair value of the warrants. The significant assumptions considered by the model were the remaining term of the warrants, the fair value per share stock price of $.06 and $.03, a risk free treasury rate for .92 years and .55 to 1.67 years of .567% and .498% to .923% and an expected volatility of 62% at September 30, 2016 and December 31, 2015, respectively. At September 30, 2016 and December 31, 2015, the fair value of warrants were determined on a Level 2 measurement.
Advertising
Costs of advertising and marketing are expensed as incurred including the cost of making commercials. Advertising and marketing costs were $3,726 and $6,623 for the three months ending September 30, 2016 and September 30, 2015, respectively.
Shipping and Handling
Shipping and handling costs of approximately $27,292 and $39,219 for the three months ending September 30, 2016 and 2015, respectively, are included in general and administrative expenses in the statements of operations.
Research and development costs
The costs of research and development activities are expensed when incurred.
Earnings (Loss) Per Share of Common Stock
Earnings (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented. Anti-dilutive securities not included in net loss per share calculations for the years presented include:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Potentially dilutive securities:
|
|
|
|
|
|
|
Outstanding time-based stock options
|
|
|
40,360,537
|
|
|
|
43,462,561
|
|
Outstanding time-based warrants
|
|
|
1,276,066
|
|
|
|
10,944,112
|
|
Joint venture warrants earned to be issued
|
|
|
2,750,000
|
|
|
|
2,750,000
|
|
Convertible preferred stock
|
|
|
3,333,500
|
|
|
|
3,333,500
|
|
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Stock Based Compensation
Share-based compensation is measured as the fair value of the award at its grant date based on the estimated number of awards that are expected to vest and is recorded over a defined service period. Compensation expense is recognized based on the estimated grant date fair value method using a Black-Scholes valuation model. It is the Company’s policy to recognize expense using the straight-line method over the vesting period.
For a discussion of critical accounting policies and estimates, please see Note 1 to our consolidated financial statements, which are included in this report.
Recently Issued Accounting Standards
In May, 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) Summary - The FASB has made available Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers: Topic 606. ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles-Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.
The core principle of the guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve that core principle, an entity should apply the following steps: .
Step 1: Identify the contract(s) with a customer.
Step 2: Identify the performance obligations in the contract.
Step 3: Determine the transaction price.
Step 4: Allocate the transaction price to the performance obligations in the contract.
Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.
For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2017, including interim periods within that reporting period. Early application is not permitted. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements or required disclosures.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In June, 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation - Stock Compensation (Topic 718):
Accounting for Share-Based Payments When the Terms of an Award Provide That a
Performance Target Could Be Achieved after the Requisite Service Period
. The issue is the result of a consensus of the FASB Emerging Issues Task Force (EITF). The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements or required disclosures.
In August, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-15,
Presentation of Financial Statements—Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern.
ASU 2014-15 is intended to define management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related footnote disclosures. Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management’s responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization’s management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements or required disclosures.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In November, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-16,
Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity
. The amendments in this ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify how current U.S. GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. The amendments in this ASU also clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (i.e., the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. Specifically, the assessment of the substance of the relevant terms and features should incorporate a consideration of: (1) the characteristics of the terms and features themselves (for example, contingent versus non-contingent, in-the-money versus out-of-the-money); (2) the circumstances under which the hybrid financial instrument was issued or acquired (e.g., issuer-specific characteristics, such as whether the issuer is thinly capitalized or profitable and well-capitalized); and (3) the potential outcomes of the hybrid financial instrument (e.g., the instrument may be settled by the issuer issuing a fixed number of shares, the instrument may be settled by the issuer transferring a specified amount of cash, or the instrument may remain legal-form equity), as well as the likelihood of those potential outcomes. The amendments in this ASU apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption, including adoption in an interim period, is permitted. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The effects of initially adopting the amendments in this ASU should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements or required disclosures.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
In April, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03,
Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs.
The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption of the amendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). We are currently assessing the impact this standard will have on the Company’s consolidated financial statements or required disclosures.
In July of 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this Update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards.
In March of 2016, FASB issued Accounting Standards Update (ASU) No. 2016-09, Compensation - Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. The amendments are intended to improve the accounting for employee share-based payments and affect all organizations that issue share-based payment awards to their employees.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Several aspects of the accounting for share-based payment award transactions are simplified, including:
(a)
income tax consequences;
(b)
classification of awards as either equity or liabilities; and
(c)
classification on the statement of cash flows.
The amendments also simplify two areas specific to private companies:
1. Practical Expedient for Expected Term: In lieu of estimating the period of time that a share-based award will be outstanding, private companies can now apply a practical expedient to estimate the expected term for all awards with performance or service conditions that have certain characteristics.
2. Intrinsic Value: Private companies can now make a one-time election to switch from measuring all liability-classified awards at fair value to measuring them at intrinsic value. Previously, private companies were provided an option to measure all liability-classified awards at intrinsic value, but some private companies were unaware of that option.
Accounting for employee share-based awards was identified by the Private Company Council (PCC) as an area of concern among private company stakeholders. The PCC worked with the FASB to discuss and analyze the issues that private companies have encountered in this area when applying the standard. The PCC also asked the FASB staff to conduct outreach with users as a part of the FASB’s pre-agenda research on the topic.
The FASB also considered the conclusions in the Financial Accounting Foundation’s Post-Implementation Review Report on Statement 123(R), Share-Based Payment. Though the report concluded that the prior standard achieved its purpose, it noted that certain areas within Statement 123(R) may be costly and difficult to apply.
For public companies, the amendments are effective for annual periods beginning after December 15, 2016, and interim periods within those annual periods. For private companies, the amendments are effective for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018. Early adoption is permitted for any organization in any interim or annual period. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements or required disclosures.
In February of 2016, FASB issued its new lease accounting guidance in Accounting Standards Update (ASU) No. 2016-02, Leases (Topic 842).
Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:
A lease liability, which is a lessee‘s obligation to make lease payments arising from a lease, measured on a discounted basis; and
A right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term.
1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and Topic 606, Revenue from Contracts with Customers.
The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing.
Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Nonpublic business entities should apply the amendments for fiscal years beginning after December 15, 2019 (i.e., January 1, 2020, for a calendar year entity), and interim periods within fiscal years beginning after December 15, 2020. Early application is permitted for all public business entities and all nonpublic business entities upon issuance.
Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach
.
For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently assessing the impact this standard will have on the Company’s consolidated financial statements or required disclosures.
2 – GOING CONCERN
The Company has incurred net losses, negative cash flows from operating activities, and has an accumulated deficit of approximately $12,382,372 at September 30, 2016. In addition, at September 30, 2016 the Company had a cash balance of approximately $11,123 and working capital deficiency of approximately $3,061,213. The Company has relied upon cash from its financing activities to fund its ongoing operations as it has not been able to generate sufficient cash from its operating activities in the past and there is no assurance it will be able to do so in the future. Unless the Company can obtain additional cash resources, these factors raise substantial doubt about the Company’s ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.
The Company needs additional capital to fund current working capital requirements, ongoing debt service and to repay its obligations that are maturing over the upcoming twelve-month period. Management plans to increase revenues and to control operating expenses in order to reduce losses from operations. Additionally, the Company will continue to seek equity and/or debt financing in order to enable the Company to meet its financial obligations until it achieves profitability. The Company may not be able to obtain this additional
financing on acceptable terms or at all.
3 – PROPERTY AND EQUIPMENT, NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Equipment and electronics
|
|
$
|
175,876
|
|
|
$
|
175,876
|
|
Furniture and fixtures
|
|
|
20,257
|
|
|
|
20,257
|
|
Leasehold improvements
|
|
|
12,313
|
|
|
|
12,313
|
|
|
|
|
208,446
|
|
|
|
208,446
|
|
|
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(186,623
|
)
|
|
|
(172,494
|
)
|
Property and equipment, net
|
|
$
|
21,823
|
|
|
$
|
35,952
|
|
Depreciation expense for the three months ended September 30, 2016 and September 30, 2015 was $6,379 and $9,056 respectively.
4 – DEFERRED FINANCING COSTS, NET
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Deferred financing costs
|
|
$
|
153,454
|
|
|
$
|
153,454
|
|
Less Accumulated Amortization
|
|
|
(153,454
|
)
|
|
|
(153,454
|
)
|
Deferred financing costs, net
|
|
$
|
-
|
|
|
$
|
-
|
|
Amortization expense for deferred financing costs for the three months ended September 30, 2016 and 2015 was $1,669 and $2,001, respectively. In January 2014, the notes payable to Forest Capital for $150,000 and the Julie Jacobs Trust for $100,000 were modified extending the maturity date by two years and the unpaid interest on each of these notes was added to the loan balance. As an inducement to extend the notes term and add the interest due and unpaid interest to the notes balance, the Company issued 324,000 warrants to Forest Capital and 216,000 warrants to the Julie Jacobs Trust. The cost of the warrants was valued at $13,464 using the Black Scholes valuation model and was added to deferred financing costs and was amortized over the remaining life of the loan.
5 – LINE OF CREDIT
The Company has entered into an unsecured line of credit arrangement with Key Bank, which carries a maximum possible loan balance of $40,000 at an annual interest rate of 6.25% and is due on demand. As of September 30, 2016 and December 31, 2015, the Company had borrowed $39,523.
6 – ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2016 and December 31, 2015:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Accrued payroll
|
|
$
|
33,471
|
|
|
$
|
66,825
|
|
Accrued interest
|
|
|
494,486
|
|
|
|
383,201
|
|
Warrant liability
|
|
|
7,911
|
|
|
|
6,187
|
|
Miscellaneous accrued expenses
|
|
|
75,531
|
|
|
|
50,627
|
|
|
|
$
|
611,399
|
|
|
$
|
506,840
|
|
As more fully described in footnote 8, the Company has recorded a warrant liability of $7,911 and $6,187 as of September 30, 2016 and December 31, 2015, respectively, which is based on the Black-Scholes valuation model to estimate the fair value of the warrants.
The significant assumptions considered by the model were the remaining term of the warrants, the fair value per share stock price of $.06 and $.03, a risk free treasury rate for .92 years and .55 to 1.67 years of .567% and .498% to .923% and an expected volatility of 62% at September 30, 2016 and December 31, 2015, respectively. At September 30, 2016 and December 31, 2015, the fair value of warrants were determined on a Level 2 measurement.
7 – DEBT
Debt payable to related parties is as follows:
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Note payable to Julie E. Jacobs Trust, a stockholder, in the amount of $50,000 with interest on the unpaid principal balance computed from the date of this loan until paid in full at the rate equal to the Wall Street Journal Prime Rate plus 4.75%, (which is 8% as of the date of the loan and at 12/31/2015) with interest payable annually on January 3
rd
and with the principal balance due on January 3, 2016. As an inducement to make this loan, the Company issued 400,000 warrants to purchase stock at $.24 per share. which were valued at $9,372 using the Black Scholes valuation model and were recorded as a loan discount. The discount is being amortized over the life of the loan and the amortization expense for the year ended December 31, 2015 was approximately $4,858 and now is considered due on demand.
|
|
|
50,000
|
|
|
|
49,973
|
|
|
|
|
|
|
|
|
|
|
Note payable to The Walter Doyle Trust, a stockholder, in the amount of $50,000 with interest on the unpaid principal balance computed from the date of this loan until paid in full at the rate equal to the Wall Street Journal Prime Rate plus 4.75%, (which is 8% as of the date of the loan and at 12/31/2015) with interest payable annually on January 3
rd
and with the principal balance due on January 3, 2016. As an inducement to make this loan, the Company issued 400,000 warrants to purchase stock at $.24 per share. which were valued at $9,372 using the Black Scholes valuation model and were recorded as a loan discount. The discount is being amortized over the life of the loan and the amortization expense for the 12 months ended December 31, 2015 was approximately $4,858.and now is considered due on demand.
|
|
|
50,000
|
|
|
|
49,973
|
|
7 – DEBT (Continued)
|
|
September 30,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Note payable to Forest Capital, an affiliate of the Walter J. Doyle Trust, a stockholder, in the original amount of $250,000 at an annual interest rate of 10%. Effective December 13, 2009, the annual interest rate increased to 20%. On December 21, 2011, $100,000 of the note was converted to shares of stock at a price of $.25 per share and the note was amended decreasing the annual interest rate to 8% with interest payable annually on January 3
rd
and with the principal balance due on January 3, 2014. The note was extended on January 27, 2014 to January 3, 2016 and the $12,107 in interest due at January 3, 2014 was included in the new note balance of $162,107. The $12,107 addition to the loan is payable to Forest Capital upon the receipt by the Company of new equity funding of $100,000 or more. Since more than $100,000 of equity funding has been received, the $12,107 is now payable to Forest Capital and has been included in the current portion of related party debt. In connection with the note extension, 324,000 warrants to purchase stock at $0.24 per share were issued in return for the agreement to extend the note to January 3, 2016 and now is considered due on demand.
|
|
|
162,107
|
|
|
|
162,107
|
|
|
|
|
|
|
|
|
|
|
Note payable to Julie E. Jacobs Trust (JJ Trust) in the original amount of $100,000 at an annual interest rate of 20%. Effective September 26, 2010, the annual interest rate increased to 30% with the note payable on demand. On December 21, 2011, note was amended decreasing the annual interest rate to 8% with interest payable annually on January 3
rd
and with the principal balance due on January 3, 2014. The note was extended on January 27, 2014 to January 3, 2016 and the $8,071 in interest due at January 3, 2014 was included in the new note balance of $108,071. The $8,071 addition to the loan is payable to the JJ Trust upon the receipt by the Company of new equity funding of $100,000 or more. Since more than $100,000 of equity funding has been received, the $8,071 is now payable to the JJ Trust and has been included in the current portion of related party debt. In connection with the note extension 216,000 warrants to purchase stock at $0.24 per share were issued in return for the agreement to extend the note to January 3, 2016 and now is considered due on demand.
|
|
|
108,071
|
|
|
|
108,071
|
|
|
|
|
|
|
|
|
|
|
Note payable to Thelma Gault, a stockholder, in the original amount of $800,000 at an interest rate of 10%. The loan is collateralized by all assets of the Company, and on April 25, 2008 signed an agreement in which her collateralization is shared with the State of Ohio. On November 18, 2010, Thelma Gault signed an agreement subordinating up to $700,000 of debt to the Walter Doyle Trust and the Julie Jacobs Trust and to Standard Energy through the Julie Jacobs Trust. Note was due on June 1, 2014 and now is considered due on demand.
|
|
|
584,352
|
|
|
|
584,352
|
|
|
|
|
|
|
|
|
|
|
Total debt payable to related parties
|
|
$
|
954,530
|
|
|
$
|
954,476
|
|
7 – DEBT
(Continued)
Other debt is as follows:
|
|
September 30,
2016
|
|
|
December 31,
2015
|
|
Note payable to Ohio Innovation Loan Fund (OILF) at an interest rate of 8%. The interest rate increased to 10.5% effective October 1, 2014 as a result of missing a loan covenant. Monthly payments of principal, interest, escrow, and service fees are based on the loan agreement. The loan is collateralized by all assets of the Company, and this collateralization is shared with the Thelma Gault per agreement signed on April 25, 2008. On November 29, 2010, The Director of Development for the State of Ohio signed an agreement subordinating up to $700,000 of debt to the Walter Doyle Trust and the Julie Jacobs Trust and to Standard Energy through the Julie Jacobs Trust. On December 1, 2012, the Note was modified extending the due date to November 2015. An additional extension was granted to the Company in December 2015 extending the due date to August 31, 2016. An amendment to extend the due date to January 31, 2017 was completed.
|
|
$
|
242,291
|
|
|
$
|
253,091
|
|
|
|
|
|
|
|
|
|
|
Notes payable to Merrill Lynch in the original amount of $400,000, with interest payable at Libor plus .56%. In addition, this debt is guaranteed 50% each by the Walter J. Doyle Trust and the Julie E. Jacobs Trust. As compensation for their guarantees, the trusts receive 4% per annum and share a first position lien on all assets. The note is due on demand.
|
|
|
393,380
|
|
|
|
395,354
|
|
|
|
|
|
|
|
|
|
|
Notes payable to four different investors in the original amount of $250,000 at an original interest rate of 12%. On January 31, 2012, all of these notes except for a $75,000 note were converted to shares of stock at a price of $.25 per share. The $75,000 note was due June 30, 2012 and is now considered due on demand. The interest rate on the note has increased to 25% due to a default provision of the note.
|
|
|
75,000
|
|
|
|
75,000
|
|
|
|
|
|
|
|
|
|
|
Other debt
|
|
$
|
710,671
|
|
|
$
|
795,630
|
|
|
|
|
|
|
|
|
|
|
Less current portion of debt payable to non-related parties
|
|
|
710,671
|
|
|
|
795,630
|
|
|
|
|
|
|
|
|
|
|
Long term debt payable to non-related parties
|
|
$
|
-
|
|
|
$
|
-
|
|
The principal maturities of the notes payable for the next five years and in the aggregate are as follows:
|
|
Period ending
|
|
|
|
September 30, 2016
|
|
2016
|
|
$
|
1,675,921
|
|
2017
|
|
|
-
|
|
2018
|
|
|
-
|
|
2019
|
|
|
-
|
|
2020
|
|
|
--
|
|
|
|
$
|
1,675,921
|
|
The Company is not in compliance with certain debt covenants and has not received waivers from the lender. As a result, the notes payable with an outstanding balance of $75,000 is due on demand and is classified as current in the accompanying balance sheets.
8 – STOCKHOLDERS’ DEFICIENCY
Authorization to increase Capital Stock
On July 28, 2014, the Board of Directors authorized the Company to issue 200,000,000 of Common Stock at $0.001 per value per share.
Stock Sales
On May 26, 2016, warrants to purchase 2,500,000 shares of common stock were exercised at $.05 per share. On May 28, 2016 warrants to purchase 256,250 shares of common stock were exercised at $.05 per share. On May 30, 2016, warrants to purchase 256,250 shares of common stock were exercised at $.05 per share. On May 31, 3,437,500 warrants were exercised at $.05 per share.
On May 4, 2015, the Company sold in a private offering to a current Board member and to two other accredited investors that are existing shareholders, a total of 50,000 shares of its Series A Preferred The Preferred Stock pays an annual dividend of $.80 cents per share (payable in cash or Common Stock at the Company’s discretion) and each share is convertible into 66.67 shares of Common Stock at the Company’s discretion.
Forty million shares of Common Stock have been reserved for the purposes of payment of dividends on preferred stock and the conversion of Preferred Stock into Common Stock. The Preferred Stock ranks senior to the Common Stock in liquidation.
During the year ended December 31, 2014, warrants were exercised for the purchase of 4,407,750 shares; 312,500 of the warrants were exercised at a price of $.005 per share and 4,095,250 of the warrants were exercised at a price of $.10 per share.
Options
On February 1, 2012, the Board approved and granted 600,000 stock options to three of its employees, with an exercise price of $.25 per share with a vesting schedule of 60% on the first anniversary of the grant, 20% on the second anniversary of the grant and the final 20% on the third anniversary of the grant. On November 26, 2012, the Board approved and granted 3,000,000 stock options to the Company’s president and CEO, with an exercise price of $.25 per share with a vesting schedule of 33 and 1/3% on the first anniversary of the grant, 33 and 1/3% on the second anniversary of the grant and the final 33 and 1/3% on the third anniversary of the grant. On December 3, 2014, the Board reduced the exercise price on the 600,000 and 3,000,000 stock options issued on February 1, 2012 and November 26, 2012, respectively, from $.25 to $.075, which was the market price of the stock on December 3, 2014. Additional compensation expense of approximately $22,900 and $55,000 has been recognized based on this exercise price reduction at December 31, 2015 and December 31, 2014, respectively.
On December 3, 2014, the Board approved and granted 1,950,000 stock options to five of its employees, with an exercise price of $.075 per share with a vesting schedule of 60% on the first anniversary of the grant, 20% on the second anniversary of the grant and the final 20% on the third anniversary of the grant. On December 3, 2014, the Board approved and granted 1,500,000 stock options to the two non-employee directors of the Company with an exercise price of $.075 per share with a vesting schedule of 25% on the first anniversary of the grant, 25% on the second anniversary of the grant, 25% on the third anniversary of the grant and 25% on the fourth anniversary of the grant. Full vesting is to occur upon a change in ownership of the Company for all of these stock options.
8 – STOCKHOLDERS’ DEFICIENCY (continued)
The following table summarizes the activity for all stock options:
|
|
Number of Options
|
|
|
Range of Exercise Price
|
|
|
Weighted Average Exercise Price
|
|
|
Weighted Average Remaining Contractual Term in Years
|
|
|
Weighted Average Grant Date Fair Value
|
|
Outstanding options as of
January 1, 2014
|
|
|
40,761,505
|
|
|
$.00320 -
$.25000
|
|
|
$
|
.03704
|
|
|
|
5.55
|
|
|
$
|
.03285
|
|
Options granted
|
|
|
3,450,000
|
|
|
$
|
.07500
|
|
|
$
|
.07500
|
|
|
|
9.93
|
|
|
$
|
.07500
|
|
Options cancelled/expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding options as of
December 31, 2014
|
|
|
44,211,505
|
|
|
$.00320-
$.07500
|
|
|
$
|
.02575
|
|
|
|
4.97
|
|
|
$
|
.02390
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Options cancelled/expired
|
|
|
748,944
|
|
|
$
|
.02131
|
|
|
$
|
.02131
|
|
|
|
-
|
|
|
$
|
.07514
|
|
Options exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding options as of
|
|
|
|
|
|
$.00320-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2015
|
|
|
43,462,561
|
|
|
$
|
.07500
|
|
|
$
|
.02583
|
|
|
|
4.25
|
|
|
$
|
.02415
|
|
Outstanding options as of
|
|
|
|
|
|
$.00320-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2016
|
|
|
40,360,537
|
|
|
$
|
.07500
|
|
|
$
|
.02699
|
|
|
|
4.25
|
|
|
$
|
.02415
|
|
The following table provides information about options under the Plan that are outstanding and exercisable as of September 30, 2016:
|
|
Options Outstanding
|
|
Options Exercisable
|
|
Exercise Price
|
|
As of September 30,
2016
|
|
|
Weighted Average Contractual Life Remaining
|
|
As of September 30,
2016
|
|
$
|
.00320
|
|
|
8,190,411
|
|
|
3.76 years
|
|
|
8,190,411
|
|
$
|
.02131
|
|
|
25,120,126
|
|
|
3.15 years
|
|
|
26,355,884
|
|
$
|
.07500
|
|
|
3,600,000
|
|
|
6.77 years
|
|
|
3,600,000
|
|
$
|
.07500
|
|
|
3,450,000
|
|
|
8.93 years
|
|
|
3,450,000
|
|
|
|
|
|
40,360,537
|
|
|
|
|
|
41,596,295
|
|
Included in the above table are 5,792,670 options to non-employees and 34,567,867 to officers, directors and employees of the Company.
8 – STOCKHOLDERS’ DEFICIENCY (continued)
Warrants
The Company has 1,276,066 and 10,944.112 warrants outstanding as of September 30, 2016 and December 31, 2015 respectively. Additionally, for the year ending December 31, 2015, the Company recognized an obligation to issue 2,750,000 warrants related to the joint venture at an exercise price of $.010. These warrants have not been issued yet.
In July 2014, the Company began a capital raise program consisting of a reduction in the exercise price of the Company’s outstanding warrants to purchase its common stock to $0.10 per share, for all of the Company’s
outstanding warrants with an exercise price greater than $0.15 per share and to sell new shares of common stock for $0.12 or less per share (“New Shares”) depending on market conditions. The Company’s immediate goal was to raise $2,000,000. The Company set a minimum capital raise threshold of $1,500,000 before purchases of New Shares or warrant exercises can be accepted, unless specific authorization to consummate the transaction is received from the New Shares purchaser or warrant exerciser. For the year ending December 31, 2015, $409,525 has been received from the exercise of warrants through this program. The Company received specific authorization in the form of a signed waiver from all of those that exercised warrants waiving the requirement for the Company to raise a minimum of $1,500,000 of capital. The capital raise program was closed as of October 2, 2014. In addition to the $409,525 that was raised through the capital raise program, an additional $1,563 was raised through the exercise of 312,500 warrants at an exercise price of $.005 per share for the year ending December 31, 2014.
See footnote 11 for discussion on contingent warrants.
This table summarizes the grant date and exercise date for all warrants:
|
|
Number of
|
|
|
Exercise
|
|
|
|
|
|
|
Warrants
|
|
|
Price
|
|
|
Expiration Date
|
|
Outstanding Warrants Granted in 2011 - 2012
|
|
|
100,000
|
|
|
$
|
0.24
|
|
|
October, 2016
|
|
|
|
|
293,336
|
|
|
$
|
.02131
|
|
|
August, 2017
|
|
Outstanding Warrants Granted in 2013
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding Warrants Granted in 2014
|
|
|
616,000
|
|
|
$
|
0.24
|
|
|
January, 2017
|
|
|
|
|
62,500
|
|
|
$
|
0.24
|
|
|
October, 2016
|
|
|
|
|
94,000
|
|
|
$
|
0.10
|
|
|
October, 2018
|
|
|
|
|
62,500
|
|
|
$
|
0.24
|
|
|
November, 2016
|
|
|
|
|
47,730
|
|
|
$
|
0.10
|
|
|
December, 2018
|
|
Outstanding Warrants Granted in 2015
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding Warrants as of
|
|
|
|
|
|
$02131-
|
|
|
Expiration dates as
|
|
September 30, 2016
|
|
|
1,276,066
|
|
|
$
|
0.24
|
|
|
As listed above
|
|
8 – STOCKHOLDERS’ DEFICIENCY (continued)
The warrants for 293,336 shares issued prior to January 1, 2011, include certain provisions that protect the holders from a decline in the stock price of the Company. As a result of those provisions, the Company recognizes the warrants as liabilities at their fair values on each reporting date.
As shown in footnote 6, the Company has recorded a warrant liability of $7,911 and $6,187 as of September 30, 2016 and December 31, 2015, respectively, which is based on the Black-Scholes valuation model to estimate the fair value of the warrants.
The significant assumptions considered by the model were the remaining term of the warrants, the fair value per share stock price of $.06 and $.03, a risk free treasury rate for .92 years and .55 to 1.67 years of .567% and .498% to .923% and an expected volatility of 62% at September 30, 2016 and December 31, 2015, respectively. At September 30, 2016 and December 31, 2015, the fair value of warrants were determined on a Level 2 measurement.
9 – COMMITMENTS
None
10 – CONCENTRATION OF CREDIT RISK
Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. Receivables are stated at the amounts management expects to collect from outstanding balances. Generally, the Company does not require collateral or other security to support contract receivables.
The Company had no major customer for the nine months ended September 30, 2016 and no major customer for the year ending December 31, 2015. A major customer is defined as one that purchases ten-percent or more in a reporting period. Net sales for the nine months ending September 30, 2016 and year ending 2015 include sales to the following major customer:
Customer
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Amazon.com
|
|
|
0.5
|
%
|
|
|
12.8
|
%
|
Amazon.com accounted for 0% and 36.5% of the total accounts receivable balance at September 30, 2016 and December 31, 2015, respectively.
The Company had major suppliers in each of the reporting periods presented. A major supplier is defined as one that provides ten-percent or more of total cost-of-sales in a particular reporting period or has an outstanding account payable balance of ten-percent or more as of the reporting period.
10 – CONCENTRATION OF CREDIT RISK
(continued)
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
|
|
Purchases During Period
|
|
|
Account Payable Percentage at end of Period
|
|
|
Purchases During Period
|
|
|
Account Payable Percentage at end of period
|
|
LFT Manufacturing, LLC
|
|
|
100
|
%
|
|
|
24
|
%
|
|
|
20
|
%
|
|
|
16
|
%
|
Actiway Industrial Co.
|
|
|
-
|
|
|
|
17
|
%
|
|
|
30
|
%
|
|
|
12
|
%
|
Sonavox Canada, Inc.
|
|
|
-
|
|
|
|
10
|
%
|
|
|
13
|
%
|
|
|
9
|
%
|
Eminence Speaker LLC
|
|
|
-
|
|
|
|
49
|
%
|
|
|
31
|
%
|
|
|
35
|
%
|
11 – RELATED PARTY TRANSACTIONS
One of the Company’s shareholders is also a note holder and a shareholder of a supplier to the Company. This shareholder is a note holder who also owns 2,590,098 shares of the Company’s common stock and is a shareholder in Eminence Speaker, LLC, a supplier to the Company.
On September 12, 2014, Guitammer entered into an agreement with an unrelated third party to organize a joint venture company named LFT Manufacturing that will manufacture and distribute certain Guitammer products. Guitammer and the third party will make capital contributions of $1,000 each to the joint venture company. Guitammer and the third party each have 50% interests in the joint venture company. The joint venture company borrowed from the third party the amount necessary to fund the startup costs to manufacture products, including initial tooling, obtaining factory space, and labor costs. In conjunction with the joint venture, the Company agreed to grant to the unrelated party 2,750,000 warrants to purchase common stock of the Company exercisable at $.075 per share contingent upon the completion of certain criteria as follows:
1. Working capital loan had been provided by the unrelated third party to fund LFT for start-up costs, tooling and funding operations.
2. Guitammer has received from LFT, no less than 10,000 total units of the products, each and all of which are both sold to Guitammer at a price and are of a quality deemed acceptable to Guitammer.
3. The second anniversary of the loan referenced in number 1 above has occurred.
4. In the event of a change of control of The Guitammer Company that occurs before the second anniversary of the loan referenced in number 1 above and with the successful completion of requirement number one and two above, the warrants shall be granted immediately preceding the change of control.
11 – RELATED PARTY TRANSACTIONS (continued)
During the 3
rd
Quarter of 2015, the criteria from item 1 and 2 above has been satisfied, but the other criteria have not been met. Under generally accepted accounting principles, these warrants are considered contingent consideration in connection with the establishment of a joint venture. In connection with these rules, since criteria 1 and 2 as noted above have been achieved, this contingency has been reflected as an increase of $93,500 for both our investment in this joint venture and to additional paid in capital using the Black-Scholes valuation model to estimate the fair value of the warrants. Upon satisfactory completion of all of these criteria, the warrants will be issued. Based on events and circumstances that have occurred subsequent to December 31, 2015 but prior to issuance of these consolidated financial statements, management conducted an analysis of fair value of the investment in the joint venture. Based on this analysis, management determined the fair value of the investment to be less than the carrying value recorded at December 31, 2015. Therefore, management has recorded an impairment of investment in joint venture of $93,500 for the year ended December 31, 2015.
The Company accounts for this joint venture as an equity method investment. Under the equity method of accounting, an Investee company’s accounts are not reflected within the Company’s Consolidated Balance Sheets and Consolidated Statements of Income; however, the Company’s share of the earnings or losses of the Investee Company is reflected in the Company’s Consolidated Statements of Income. The Company’s carrying value in an equity method Investee company are reflected in the Company’s Consolidated Balance Sheets. The Company’s share of earnings for the period ending September 30, 2016, was approximately $19,726 and has been recorded in the Company’s Consolidated financial statements. The Company purchased $327,484 of product for the period ending September 30, 2016 and $441,601 of product for the year ended December 31, 2015 from LFT Manufacturing, LLC.
12 – OTHER ASSETS
Other assets consist of patents and trademarks related to the ButtKicker brand products and technology. The assets are being amortized over 10 years based on the estimated useful lives of the patents and trademarks. Amortization of the intangible assets, which is included in general and administrative expenses, was $5,006 and $7,953 for the period ending September 30, 2016 and December 31, 2015, respectively. The estimated future amortization expense for intangible assets is approximately: $6,700 in 2016, $4,300 in 2017, $2,600 in 2018 and 2019, 2,300 in 2020 and $7,100 thereafter.
13 –INCOME TAXES
The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the carrying amounts and the tax basis of the assets and liabilities. No provision has been recorded for a deferred tax asset due to net operating losses and full valuation allowances against deferred income taxes.
14 – SUBSEQUENT EVENTS
None