NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2016
(Unaudited)
NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
UMED Holdings, Inc. ("UMED" or the "Company") was organized on March 13, 2002 under the laws of the State of Texas as Dynalyst Manufacturing Corporation. On August 18, 2009, in connection with a merger with Universal Media Corporation, a privately held Nevada company, the Company changed its name to Universal Media Corporation ("Universal Media"). The company changed its name to UMED Holdings, Inc. on March 23, 2011.
UMED's mission is to operate as a holding company through the acquisition of businesses as wholly-owned subsidiaries that meet some key requirements: (1) solid management that will not have to be replaced in the near future (2) the ability to grow with steady growth to follow and (3) an emphasis on emerging core industry markets, such as energy and metals. It is the Company's intention to add experienced personnel and select strategic partners to manage and operate the acquired business units.
In September 2010, UMED acquired 1,440 acres of placer mining claims on Bureau of Land Management land in Mohave County, Arizona. See discussion in Note 3. Due the Company not producing any revenues from its BLM mining leases since its acquisition of the leases, achieving a position of producing cash flow levels to fund the development of its BLM mining leases in December of 2010 and not having current resources for an appraisal, we recognized an impairment charge of $100,000 during the year ended December 31, 2014.
In October 2011, UMED acquired a 49% interest in Jet Regulators, LP (aka Jet Tech LLC), an aircraft maintenance company located at Meacham Field in Fort Worth, Texas. Due to reduced growth expectations and the Company not receiving any revenues from its ownership in Jet Tech, we recognized an impairment charge of $90,000 during the year ended December 31, 2014.
In May 2012, the Company acquired 80% of Mamaki Tea & Extract of Hawaii, Inc. (nka Mamaki of Hawaii, Inc.) which owns and operates Wood Valley Plantation a 25 acre Mamaki Tea plantation located in the Kau district of the Island of Hawaii and lies at the foot of Mauna Loa, the Earth's largest volcano. On December 31, 2012, the Company acquired the remaining 20% for 500,000 shares of restricted common stock and $127,800 of cash. Mamaki of Hawaii, Inc. was sold in October 2015 as discussed further in Notes 11 and 12.
In August 2012, the Company acquired 100% of Greenway Innovative Energy, Inc., which owns two patents and proprietary technology for the conversion of natural gas to diesel/jet fuels.
NOTE 2 - BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTIES
Principles of Consolidation
The accompanying condensed consolidated financial statements include the financial statements of UMED and its wholly-owned subsidiaries. All significant inter-company accounts and transactions were eliminated in consolidation.
Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulations S-X. Accordingly, they do not include all of the information and footnotes required by U.S. GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the periods presented are not necessarily indicative of the results that may be expected for the year ending December 31, 2016. The net assets and results of operations of Mamaki of Hawaii, Inc. have been reflected as discontinued operations for the nine months ended September 30, 2015. For further information, refer to the consolidated financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended December 31, 2015.
The accompanying condensed consolidated financial statements include the accounts of the following entities:
Name of Entity
|
%
|
|
Entity
|
Incorporation
|
Relationship
|
UMED Holdings, Inc.
|
|
|
Corporation
|
Texas
|
Parent
|
Mamaki of Hawaii, Inc.*
|
*
|
|
Corporation
|
Nevada
|
Subsidiary
|
Universal Media Corporation
|
100
|
%
|
Corporation
|
Wyoming
|
Subsidiary
|
Greenway Innovative Energy, Inc.
|
100
|
%
|
Corporation
|
Nevada
|
Subsidiary
|
Logistix Technology Systems, Inc.
|
100
|
%
|
Corporation
|
Texas
|
Subsidiary
|
* Sold in November 2015
Going Concern Uncertainties
The accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying condensed consolidated financial statements, the Company sustained a loss of approximately $1,592 million for the nine-month period ended September 30, 2016 and has an accumulated deficit of approximately $14 million at September 30, 2016. The ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations or on the ability of the Company to obtain necessary financing to fund ongoing operations. Management believes that its current and future plans enable it to continue as a going concern for the next twelve months.
To meet these objectives, the Company continues to seek other sources of financing in order to support existing operations and expand the range and scope of its business. However, there are no assurances that any such financing can be obtained on acceptable terms and timely manner, if at all. The failure to obtain the necessary working capital would have a material adverse effect on the business prospects and, depending upon the shortfall, the Company may have to curtail or cease its operations.
The accompanying condensed consolidated financial statements do not include any adjustment to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied in the presentation of the condensed consolidated financial statements are as follows:
Property & Equipment
Property and equipment is recorded at cost. Major additions and improvements are capitalized. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment. Depreciation is computed using the straight-line method over the estimated useful life of the assets as follows.
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in accordance with ASC Topic 360, "Property, Plant and Equipment." An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or asset group is expected to generate. If an asset or asset group is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair value. If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.
Discontinued Operations
On November 2, 2015, the Company consummated on the sale of its wholly owned subsidiary, Mamaki of Hawaii, Inc. ("Mamaki") to Hawaiian Beverages, Inc. ("HBI"). Under the agreement, HBI acquired 100% of the common stock of Mamaki in exchange for seven hundred thousand dollars ($700,000) and the assumption of eighty-four thousand two hundred seventy-five dollars ($84,275) of UMED debts. HBI paid two hundred forty-five thousand five hundred dollars ($245,000) of the two hundred fifty thousand dollars ($250,000) due at closing and was scheduled to pay three installments of one hundred fifty thousand dollars ($150,000) on each of thirty, ninety and ninety-day anniversary of the closing date. The Company has not received any payment on the $454,600 and determined that the account is doubtful and wrote it off, as of December 31, 2015, as a deduction from the gain calculated on the sale. On April 22, 2016, the Company filed suit against HBI and Mamaki to collect on the note -See Notes 11 and 12.
The results of Mamaki are presented as a separate line item in the consolidated statement of operations for the three and nine months ended September 30, 2015 and for the nine months ended September 30, 2015 in consolidated cash flow statement. In accordance with Accounting Standards Codification Subtopic 205-10-45, the Company elected to not allocate consolidated interest expense to discontinued operations where the debt is not directly attributable to or related to discontinued operations. All of the financial information in the consolidated financial statements and notes to the consolidated financial statements has been revised to reflect only the results of continued operations. (See Note 11).
Revenue Recognition
The Company has not, to date, generated significant revenues. The Company plans to recognize revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition ("ASC 605-10") which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25,
Multiple-Element Arraignments
("ASC 605-25"). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing 605-25 on the Company's financial position and results of operations was not significant.
Use of Estimates
The preparation of the financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amount of revenue and expenses during the reported period. Actual results could differ materially from the estimates.
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents at September 30, 2016 or December 31, 2015.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The Company has adopted the provisions of FASB ASC 740-10-05
Accounting for Uncertainty in Income Taxes
. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Open tax years, subject to IRS examination include 2009 – 2015.
Net Loss Per Share, basic and diluted
Basic loss per share has been computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Shares issuable upon the exercise of warrants (417,036) have been excluded as a common stock equivalent in the diluted loss per share because their effect is anti-dilutive.
Derivative Instruments
The Company accounts for derivative instruments in accordance with Accounting Standards Codification 815,
Derivatives and Hedging ("ASC 815"),
which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
See Note 6 below for discussion regarding convertible notes payable and a warrant agreement.
Fair Value of Financial Instruments
Effective January 1, 2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities, as permitted. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 – Valuation based on unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2 – Valuation based on, observable inputs (other than level one prices), quoted market prices for similar assets such as at the measurement date; quoted prices in the market that are not active; or other inputs that are observable, either directly or indirectly.
Level 3 – Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management's best estimate of what market participants would use as fair value.
Original Issue Discount
For certain convertible debt issued, the Company provides the debt holder with an original issue discount ("OID"). An OID is the difference between the original cash proceeds and the amount of the note upon maturity. The Note is originally recorded for the total amount payable. The OID is amortized into interest expense pro-rata over the term of the Note.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The valuation of the Company's notes recorded at fair value is determined using Level 3 inputs, which consider (i) time value, (ii) current market and (iii) contractual prices.
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, receivables, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments.
The following table represents the Company's assets and liabilities by level measured at fair value on a recurring basis at September 30, 2016:
Description
|
|
Level 1
|
|
|
Level 2
|
|
Level 3
|
|
Derivative Liabilities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
341,499
|
|
The following assets and liabilities are measured on the balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following tables provide a reconciliation of the beginning and ending balances of the liabilities:
The change in the notes payable at fair value for the nine-month period ended September 30, 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
Change in
|
|
New
|
|
|
|
Fair Value
|
|
|
January 1, 2016
|
|
Fair
Value
|
|
Convertible
Notes
|
|
Conversions
|
|
September 30, 2016
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative Liabilities
|
|
$
|
60,164
|
|
|
$
|
229,509
|
|
|
$
|
51,826
|
|
|
$
|
0
|
|
|
$
|
341,499
|
|
All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in other interest income and expense in the accompanying financial statements.
The significant unobservable inputs used in the fair value measurement of the liabilities described above are as follows;
|
|
Commitment Date
|
|
Expected dividends
|
|
|
0%
|
|
Expected volatility
|
|
|
237%
|
|
Expected term: conversion feature
|
|
6 months
|
|
Risk free interest rate
|
|
|
0.45%
|
|
Stock Based Compensation
The Company follows Accounting Standards Codification subtopic 718-10,
Compensation
("ASC 718-10") which requires that all share-based payments to both employees and non-employees be recognized in the income statement based on their fair values.
At September 30, 2016, the Company did not have any issued or outstanding stock options.
Concentration and Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash. The Company places its cash with high credit quality institutions. At times, such deposits may be in excess of the FDIC insurance limit.
Research and Development
The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10,
Research and Development
("ASC 730-10"). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $618,007 and $593,725 during the nine months ended September 30, 2016 and 2015.
Issuance of Common Stock
The issuance of common stock for other than cash is recorded by the Company at market values.
Impact of New Accounting Standards
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 4 – PROPERTY, PLANT, AND EQUIPMENT
|
|
Range of Lives in Years
|
|
|
September 30, 2016
|
|
|
December 31, 2015
|
|
Equipment
|
|
|
5
|
|
|
$
|
60,732
|
|
|
$
|
2,032
|
|
Furniture and fixtures
|
|
|
5
|
|
|
|
1,983
|
|
|
|
1,983
|
|
|
|
|
|
|
|
|
62,715
|
|
|
|
4,015
|
|
Less accumulated depreciation
|
|
|
|
|
|
|
(3,568
|
)
|
|
|
(3,271
|
)
|
|
|
|
|
|
|
$
|
59,147
|
|
|
$
|
744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation expense for the period ended
|
|
|
|
|
|
$
|
297
|
|
|
$
|
396
|
|
NOTE 5 – TERM NOTES PAYABLE
Term notes payable consisted of the following at September 30, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Unsecured note payable dated March 8, 2016 to an individual
|
|
|
|
|
|
|
at 5.0% interest, payable upon the Company's availability of cash
|
|
$
|
31,000
|
|
|
$
|
0
|
|
NOTE 6 – CONVERTIBLE PROMISSORY NOTE
At September 30, 2016, the Company had convertible debentures outstanding as follows;
|
|
Outstanding Balance of Convertible Debenture
|
|
|
Unamortized Discounts
|
|
|
|
|
|
|
|
|
May 4, 2016 Convertible Promissory Note
|
|
$
|
224,000
|
|
|
$
|
45,494
|
|
|
|
|
|
|
|
|
|
|
May 2016 Convertible Note
On May 4, 2016, the Company issued a $224,000 convertible promissory note bearing interest at 10.0% per annum to an accredited investor, payable beginning November 10, 2016, in monthly installments of $44,800 plus accrued interest and a cash premium equal to 10.0% of the installment amount. The holder has the right under certain circumstances to convert the note into common stock of the Company at a conversion price equal to 70% of the average of the 3 lowest volume weighted average trading prices during the 20-day period ending on the latest complete trading day prior to the conversion date.
The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity's Own Equity, and concluded that the Convertible Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature on the note was valued at $224,000 based on the Black Scholes Model. The discount related to the beneficial conversion feature ($51,829) is being amortized over the term of the debt (10 months). For the nine months ended September 30, 2016, the Company recognized interest expense of $20,732 related to the amortization of the discount.
In connection with the issuance of the $224,000 note, the Company recorded debt issue cost and discount as follows:
|
●
|
$20,000 original issue discount and $4,000 debt issue cost, which is being amortized over 10 months, with amortization of $9,600 for nine months ended September 30, 2016.
|
·
|
The derivative for the 2016 beneficial conversion interest was $283,117 at September 30, 2016 and was computed using the following variables.
|
|
|
Commitment Date
|
|
Expected dividends
|
|
|
0%
|
|
Expected volatility
|
|
|
237%
|
|
Expected term: conversion feature
|
|
6 months
|
|
Risk free interest rate
|
|
|
0.45%
|
|
September 2014 Convertible Note
On September 18, 2014, the Company issued a $158,000 convertible promissory note bearing interest at 10.0% per annum to an accredited investor, payable July 23, 2015, in monthly installments of $31,600 plus accrued interest beginning 6 months after the date of the promissory note. The note was paid in full on July 22, 2015. The holder had the right under certain circumstances to convert the note into common stock of the Company at a conversion price equal to 70% of the average of the 3 lowest volume weighted average trading prices during the 20-day period ending on the latest complete trading day prior to the conversion date.
The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity's Own Equity, and concluded that the Convertible Note did result in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock.
In connection with the issuance of the $158,000 note, the Company recorded warrants as follows:
|
●
|
Warrants – recorded at fair value on the balance sheet at $58,385 as of September 30, 2016 and $60,164 at December 31, 2015, which was computed as follows;
|
|
|
Commitment Date
|
|
Expected dividends
|
|
|
0%
|
|
Expected volatility
|
|
|
237%
|
|
Expected term: conversion feature
|
|
3.00 years
|
|
Risk free interest rate
|
|
|
0.45%
|
|
NOTE 7 – ACCRUED EXPENSES
Accrued expenses consisted of the following at September 30, 2016 and December 31, 2015;
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Accrued consulting fees
|
|
$
|
249,500
|
|
|
$
|
229,000
|
|
Other accrued expenses
|
|
|
40,000
|
|
|
|
0
|
|
Bank overdraft
|
|
|
0
|
|
|
|
763
|
|
Accrued interest expense
|
|
|
9,302
|
|
|
|
0
|
|
Total accrued expenses
|
|
$
|
298,802
|
|
|
$
|
229,763
|
|
NOTE 8– CAPITAL STRUCTURE
The Company is authorized to issue 300,000,000 shares of class A common stock with a par value of $.0001 per share and 20,000,000 shares of class B common with a par value of $.0001 per share. Each common stock share has one voting right and the right to dividends, if and when declared by the Board of Directors.
Common A Stock
At September 30, 2016, there were 214,713,134 shares of class A common stock issued and outstanding.
During the nine-month period ended September 30, 2016, the Company issued 29,610,717 shares of restricted common stock to twenty-nine individuals through private placements for cash of $1,623,500 at average of $.0548 per share.
During the nine-month period ended September 30, 2016, the Company issued 410,000 shares of restricted common stock for consulting services of $32,800 at average of $.08 per share.
During the nine-month period ended September 30, 2016, the Company issued 106,000 shares of restricted common stock to a creditor for rent expense of $8,480 at average of $.08 per share.
During the nine-month period ended September 30, 2016, the Company issued 664,285 shares of restricted common stock for conversion of $51,500 in advances by shareholder at average of $.0775 per share.
The issuance of these shares was exempt from the registration requirements of the Securities Act of 1933 under Section 4 (2) thereof.
Class B Common
At September 30, 2016, there were 15,126,938 shares of class B common stock issued and outstanding. Each class B share is convertible, at the option of the class B shareholder, into one share of class A common stock.
Stock options, warrants and other rights
At September 30, 2016, the Company has not adopted any employee stock option plans.
NOTE 9 - RELATED PARTY TRANSACTIONS
Shareholders have made advances to the Company in the amounts of $129,414 and $204,884 during the nine months ended September 30, 2016 and 2015, respectively. The shareholders have elected to convert advances of $51,500 and $182,275 to shares of common stock at market value ($.08 and $.1056 per share) and received repayments of $101,000 and $10,000 during the nine months ended September 30, 2016 and 2015, respectively.
NOTE 10 – INCOME TAXES
At September 30, 2016 and December 31, 2015, the Company had approximately $6 million and $4 million, respectively, of net operating losses ("NOL") carry forwards for federal and state income tax purposes. These losses are available for future years and expire through 2033. Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.
The provision for income taxes for continuing operations consists of the following components for the nine months ended September 30, 2016 and the year ended December 31, 2015:
|
2015
|
|
2015
|
|
|
|
|
|
|
Current
|
|
$
|
-
|
|
|
$
|
-
|
|
Deferred
|
|
|
-
|
|
|
|
-
|
|
Total tax provision for (benefit from) income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
A comparison of the provision for income tax expense at the federal statutory rate of 34% for the nine months ended September 30, 2016 and the year ended December 31, 2015 the Company's effective rate is as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Federal statutory rate
|
|
|
(34.0
|
) %
|
|
|
(34.0
|
) %
|
State tax, net of federal benefit
|
|
|
(0.0
|
)
|
|
|
(0.0
|
)
|
Permanent differences and other including surtax exemption
|
|
|
0.0
|
|
|
|
0.0
|
|
Valuation allowance
|
|
|
34.0
|
|
|
|
34.0
|
|
Effective tax rate
|
|
|
0.0
|
%
|
|
|
0.0
|
%
|
The net deferred tax assets and liabilities included in the financial statements consist of the following amounts at September 30, 2016 and December 31, 2015:
|
|
2016
|
|
|
2015
|
|
Deferred tax assets
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
5,176,012
|
|
|
$
|
4,028,702
|
|
Deferred compensation
|
|
|
2,784,213
|
|
|
|
2,409,213
|
|
Stock based compensation
|
|
|
5,197,324
|
|
|
|
4,898.968
|
|
Other
|
|
|
932,159
|
|
|
|
1,121,2480
|
|
Total
|
|
|
14,089,708
|
|
|
|
12,458,131
|
|
Less valuation allowance
|
|
|
(14,089,708
|
)
|
|
|
(12,458,131
|
)
|
Deferred tax asset
|
|
|
-
|
|
|
|
-
|
|
Deferred tax liabilities
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
$
|
-
|
|
|
$
|
-
|
|
Net long-term deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
The change in the valuation allowance was $1,631,577 and $4,028,702 for the nine months ended September 30, 2016 and the year ended December 31, 2015, respectively. The Company has recorded a 100% valuation allowance related to the deferred tax asset for the loss from operations, interest expense, interest income and other income subsequent to the change in ownership, which amounted to $14,089,708 and $12,458,131 at September 30, 2016 and December 31, 2015, respectively.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, historical taxable income including available net operating loss carry forwards to offset taxable income, and projected future taxable income in making this assessment.
NOTE 11 – DISCONTINUED OPERATIONS
In November 2015, the Company completed the sale of its wholly owned subsidiary, Mamaki of Hawaii, Inc, ("Mamaki") to Hawaiian Beverages, Inc. ("HBI"). Under the agreement, HBI acquired 100% of the common stock of Mamaki in exchange for seven hundred thousand dollars ($700,000) and the assumption of eighty-four thousand two hundred seventy-five dollars ($84,275) of UMED debts. HBI paid two hundred forty-five thousand five hundred dollars ($245,500) at closing towards the first installment due of two hundred fifty thousand ($250,000) and was to pay three installments of one hundred fifty thousand dollars ($150,000) on each of thirty, ninety and ninety-day anniversary of the closing date. The Company has not received any payment on the $454,600 and determined that the account is doubtful and wrote it off, as of December 31, 2015, as a deduction from the gain calculated on the sale. See Note 13 for disclosure of suit filed by the Company against HBI and Mamaki for collection of the note.
The following are condensed statements of the discontinued operations (Mamaki of Hawaii, Inc.) for the three and nine months ended September 30, 2015:
|
|
Three
|
|
|
Nine
|
|
|
|
Months
|
|
|
Months
|
|
Sales
|
|
$
|
11,068
|
|
|
$
|
47,275
|
|
Cost of sales
|
|
|
1,767
|
|
|
|
8,407
|
|
Gross profit
|
|
|
9,301
|
|
|
|
38,868
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
124,517
|
|
|
|
395,824
|
|
Depreciation
|
|
|
29,740
|
|
|
|
89,218
|
|
Total Operating Expenses
|
|
|
154,257
|
|
|
|
485,042
|
|
Operating Loss
|
|
|
(144,956
|
)
|
|
|
(446,174
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(63,990
|
)
|
|
|
(115,238
|
)
|
Loss from discontinued operations
|
|
$
|
(208,946
|
)
|
|
$
|
(561,412
|
)
|
Loss per share - discontinued operations
|
|
$
|
(0.00
|
)
|
|
$
|
(0.00
|
)
|
NOTE 12 – COMMITMENTS
Employment Agreements
In May 2011, the Company entered into employment agreements with its chief executive officer, president and chief financial officer. The Agreements were for a term of 5 years (ending on May, 31, 2016) with compensation of $180,000 the first year, $240,000 the second year, $300,000 the third year, $350,000 the fourth year and the fifth year at a salary commensurate with those in similar industries. The employment agreements also provide for the officers to receive 1,250,000 shares of restricted common stock annually for each year of the employment agreement. During the nine months ended September 30, 2016 and 2015, with consent of management, the Company accrued a total of $150,000 and $270,000, respectively, as management fees in accordance with the terms of these agreements. On April 8, 2015, the Company's chief executive officer resigned and relinquished his claim to receive $518,300 of deferred compensation, which the Company treated as debt forgiveness.
In August 2012, the Company entered into employment agreements with the president and chairman of the board of Greenway Innovative Energy, Inc. for a term of 5 years with compensation of $90,000 per year. In June of 2014, the president's employment agreement was amended to increase his annual pay to $180,000. On April 30, 2015, accrual on the Greenway chairman of the board agreement was ceased due to his absence from the company for more than a year. During the nine months ended September 30, 2016 and 2015, respectively, the Company accrued $135,000 and $146,250 towards the employment agreements.
Leases
In October 2015, the Company entered into a two-year lease for approximately 1,800 square feet a base rate of $2,417 per month. During the nine months ended September 30, 2016 and 2015, the Company expensed $21,753 and $44,800, respectively, in, rent expense.
The Company is obligated to pay approximately $11,600 in annual maintenance fees on its mining leases, in addition to 10% royalties based on production.
Legal
On April 22, 2016, the Company filed suit in District Court, Dallas County, Texas against Mamaki of Hawaii, Inc. ("Mamaki"), Hawaiian Beverages, Inc.("HBI"), Curtis Borman and Lee Jenison for breach of Stock Purchase Agreement dated October 29, 2015, wherein the Company sold its shares in Mamaki of Hawaii, Inc. to Hawaiian Beverages, Inc. for $700,000 (along with the assumption of certain debt). The Defendants failed to make payments of $150,000 each on November 30, 2015, December 28, 2015 and January 27, 2016.
NOTE 13 – SUBSEQUENT EVENTS
Subsequent to September 30, 2016, the Company sold 450,000 shares of class A restricted common stock for $40,000.
On August 17, 2012, Mamaki Tea, Inc. ("Mamaki Tea") entered into a Loan Agreement with Southwest Capital Funding, LTD ("Southwest"). Under the Loan Agreement, Southwest loaned $850,000 to Mamaki Tea to purchase certain real properties located in Ka'u County, Hawaii, which was secured by a first lien covering the property. On December 20, 2012, the Second Modification of Note and Lien was executed between Mamaki Tea, Mamaki of Hawaii, Inc. ("Mamaki of Hawaii") and Southwest, wherein Mamaki of Hawaii agreed to assume and be responsible, jointly and severally with Mamaki Tea. At that time, Mamaki of Hawaii was a wholly-owned subsidiary of UMED Holdings, Inc. ("UMED"). Also, on December 20, 2012, UMED executed a Guaranty Agreement whereby UMED jointly and severally and unconditionally guaranteed to Southwest all of the indebtedness owed by Mamaki Tea and Mamaki of Hawaii to Southwest.
The Company received notice in October 2016 that the Borrowers defaulted on the loan and Southwest filed a foreclosure action on September 27, 2016. UMED has entered discussions with Southwest regarding the loan foreclosure and UMED's guaranty. Southwest believes that at foreclosure, the bid on the property will be greater than the loan amount and there will be no deficiency, which would preclude Southwest from seeking any amount for UMED under the guaranty.
Based on the above information, UMED believes that it will not incur any liability relative to its guaranty.