Notes
to the Condensed Consolidated Financial Statements
1. Organization and Basis of Presentation
Basis
of Presentation
The
accompanying condensed consolidated financial statements for the three and six months ended December 31, 2016 and 2015 have been
prepared by the Company, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).
Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting
principles generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. However,
the Company believes that the disclosures are adequate to make the information presented not misleading. These condensed consolidated
financial statements should be read in conjunction with the consolidated financial statements and the notes thereto, included
in the Company’s Annual Report on Form 10-K for the fiscal year ended June 30, 2016. In the opinion of management, all adjustments
(primarily consisting of normal recurring adjustments) considered necessary for a fair statement have been included.
The
condensed consolidated balance sheet at December 31, 2016 has been derived from the unaudited consolidated financial statements
as of that date but does not include all the information and footnotes included in the Company’s Annual Report on Form 10-K
for the year ended June 30, 2016. The results of operations for the three and six months ended December 31, 2016 are not necessarily
indicative of the operating results to be expected for the full fiscal year or any future periods.
Going
Concern
The
Company’s financial statements are prepared using the accrual method of accounting in accordance with accounting principles
generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization
of assets and the settlement of liabilities in the normal course of business. To date the Company has recorded an accumulated
deficit of $105,919,593 in recurring losses from operations and significant cash used in operating activities over the
last two years, and is dependent upon its ability to obtain future financing and successful operations.
Our
continuation as a going concern is dependent upon obtaining the additional working capital necessary to sustain our operations.
Our future is dependent upon our ability to obtain financing and upon future profitable operations. The Company estimates the
current operational expenses of approximately one hundred thousand dollars a month is required to continue to operate. This is
achieved either through profit from sales; or by management seeking additional financing through the sale of its common stock,
and/or through private placements. The minimum operational expenses must be met in order to lessen the threat of the company’s
ability to continue as a going concern. There is no assurance that our current operations will be profitable or that we will raise
sufficient funds to continue operating. The Company continues to trim overhead expenses to meet revenues. The financial statements
do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification
of liabilities that might be necessary in the event we cannot continue in existence. These factors raise substantial doubt about
the Company’s ability to continue as a going concern.
If
current and projected revenue growth does not meet Management estimates, the Management may continue to choose to raise additional
capital through debt and/or equity transactions, reduce certain overhead costs through the deferral of salaries and other means,
and settle liabilities through negotiation. Currently, the Company does not have any commitments or assurances for additional
capital, nor can the Company provide assurance that such financing will be available to it on favorable terms, or at all. If,
after utilizing the existing sources of capital available to the Company, further capital needs are identified and the Company
is not successful in obtaining the financing, it may be forced to curtail its existing or planned future operations. The Company
has already taken steps to reduce expenses. Additionally, the Company has recently changed the product offering to better align
with our product certifications and the intended use. This has resulted in three products now marketed as “Sill Plate”
to meet the accolades of our TER 1511-09, “Advanced Framing Lumber” to meet the accolades of our TER 1511-10 which
includes the attributes of Sill Plate with the addition of our Fire Inhibitor. This product is meant for the full framing package
of a wood framed building and is sold as a value-added protection. Our third product is offered as “Fire Treatment or FT”
to meet the accolades of our TER 1510-01 which includes all of the prior two accolades and is the original formulation meeting
the IBC Section 2303.2 as an alternate material to the use of Fire Retardant Treated Wood (FRTW). This change has afforded the
company and its affiliates the ability to address each segment of the market increasing sales opportunities and allowing the Company
to make a consistent margin on every sale. Nevertheless, the Company continues to experience cash flow difficulties and there
is no assurance of when it may be profitable.
2.
Summary of Significant Accounting Policies
Loss
Per Share
Basic
net loss per share is determined by dividing net loss by the weighted average number of common shares outstanding during the period.
Diluted net loss per share is determined by dividing net loss by the weighted average number of common shares used in the basic
loss per share calculation plus the number of common shares that would be issued assuming conversion of all potentially dilutive
securities outstanding under the treasury stock method. Potential common shares at December 31, 2016 from preferred C shares convertible
into 1.6 billion shares of common stock, preferred D shares convertible into 349.1 million shares of common stock, 1.5 billion
from stock options and convertible notes convertible into 493.9 million shares of common stock. Accordingly, total common share
equivalents of approximately 4.0 billion were excluded in the computation of diluted net loss per share for the three and
six month period ended December 31, 2016, because the effect would be anti-dilutive.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affects the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Recent
Accounting Pronouncements
Management
has determined that no new accounting pronouncements during the period that would affect the condensed consolidated financial
statements.
3.
Balance Sheet Details
As
of December 31, 2016, inventories consisted of the following:
Chemicals
|
|
$
|
41,259
|
|
|
|
$
|
41,259
|
|
All
the Company’s inventories are pledged as collateral for the Company’s Senior Secured Notes (see Note 4). In addition,
inventory is considered finished goods as the Company sells and markets the chemicals. The chemicals include a $0 reserve for
obsolete inventory.
Property
and Equipment
Property
and equipment is stated at cost. Property and equipment-related expenditures for items with useful lives exceeding one year and
major renewals and improvements are recorded as assets, while replacements and maintenance and repairs that do not improve or
extend the lives of the respective assets are expensed. At the time property and equipment are retired or otherwise disposed of,
the asset and related accumulated depreciation accounts are relieved of the applicable amounts. Gains or losses from retirements
or sales are credited or charged to income. Depreciation expense is recorded on a straight-line basis over the estimated useful
lives of the assets, ranging from (3) to seven (7) years. Leasehold improvements are depreciated over their useful life or the
term of the related lease, whichever is shorter. Depreciation expense is not recorded on idle property and equipment until such
time as it is placed into service. During the period, the Company purchased no new property and equipment. Depreciation expense
for the three and six months ending December 31, 2016 was $27,295.
Accrued
Liabilities
As
of December 31, 2016, the Company owed $888,145 in past due payroll, payroll taxes and accrued penalties. These amounts
are recorded within payroll and taxes payable on the accompanying consolidated balance sheet. Also at December 31, 2016, the Company
owed $34,434 in past due sales tax in which it has filed the appropriate reports and is making periodic payments. On September
29, 2016, the Board of Equalization has levied this debt against the Company bank account.
Derivative
Liabilities
During
the six months ended December 31, 2016, the Company issued additional convertible notes payable amounts and convertible preferred
stock that can be converted to common stock in connection with raising equity and debt financing. As of December 31, 2016, the
Company’s number of potential common shares plus the number of actual common shares outstanding (“Committed Shares”)
exceeded the number of common shares authorized and available to issue in accordance with ASC 815-40-19 “Contracts in Entity’s
Own Equity”. The number of outstanding common shares plus the potential common share liability has exceeded the amount of
authorized shares, therefore the Company has to employ ASC 815-40-19 (“ASC 815”) to value common share equivalents
potentially issuable to settle conversions of convertible notes, convertible preferred shares and exercise of warrants and options.
The
Company values its derivative financial instruments, consisting primarily of embedded conversion features for convertible debt,
convertible preferred stock, stock options and warrants, at issuance at fair value and revalues its derivative financial instruments
at the end of each reporting period or in the case of any conversion or modification of terms, at the date of any such modification
or conversion. Any change in fair value is charged to earnings of the period where the derivative financial instrument is modified
or converted. The fair value of these derivative financial instruments was determined using a path-dependent Monte Carlo simulation.
The ranges of inputs (or assumptions) the Company used to value the derivative liabilities at respective issuances, conversion
or exercise dates, and at period end during the period ended December 31, 2016 were as follows:
(1) dividend yield of 0%
(2) expected annual volatility of 124%
to 519%
(3) risk-free interest rate of 0.48% to 1.22%
(4) expected life of 0.36 years to
2.50 years, and
For
the six months ended December 31, 2016, the Company issued an aggregate of $684,333 convertible debt as further described below
in Note 4 and recorded additional derivative liabilities of $1,888,808 for the conversion features included therein.
For
all convertible notes described in the following paragraphs and for the warrants, and convertible preferred Series C and Series
D shares described in Note 7, the fair value of the resulting derivative liability was $40,465,570 and $37,376,605 at December
31, 2016 and June 30, 2016, respectively.
A
reconciliation of the derivative liabilities from June 30, 2016 to December 31, 2016 is:
|
|
Derivative
Liabilities
|
|
Balance as of June 30, 2016
|
|
|
37,376,605
|
|
Conversion of Preferred Series C to common stock
|
|
|
(250,917
|
)
|
Additions related to embedded conversion features of Convertible Debt
|
|
|
1,888,808
|
|
Gain on change in fair value of derivative liability
|
|
|
1,451,074
|
|
Balance as of December 31, 2016
|
|
$
|
40,465,570
|
|
4.
Convertible Notes Payable and Loans Payable
The
following tables summarize notes payable as of December 31, 2016.
|
|
As of December 31, 2016
|
|
Description
|
|
Short term
|
|
|
Long term
|
|
|
|
|
|
|
|
|
|
|
Convertible notes
|
|
|
2,106,670
|
|
|
|
—
|
|
Less discount to notes payable
|
|
|
(371,500
|
)
|
|
|
—
|
|
Convertible notes, net
|
|
|
1,735,170
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Loans payable
|
|
|
1,856,220
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
3,591,390
|
|
|
$
|
—
|
|
TYPE
|
|
ORIGNATION
DATE
|
|
INTEREST
RATE
|
|
|
DUE
DATE
|
|
PRINCIPAL
BALANCE
|
|
|
INTEREST
BALANCE
|
|
Convertible
|
|
11/12/2014
|
|
|
18
|
%
|
|
05/15/2015
|
|
|
48,300
|
|
|
|
16,349
|
|
Convertible
|
|
09/16/2014 – 12/09/2016
|
|
|
22
– 24
|
%
|
|
09/16/2015 – 12/08/2017
|
|
|
1,162,970
|
|
|
|
551,153
|
|
Convertible
|
|
03/17/2016 – 12/23/2016
|
|
|
24
|
%
|
|
12/31/2016 – 12/23/2017
|
|
|
895,400
|
|
|
|
81,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt discount
|
|
NA
|
|
|
NA
|
|
|
NA
|
|
|
(371,500
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Secured Revolving Promissory
Note
|
|
07/18/2014
|
|
|
24
|
%
|
|
01/18/2015
|
|
|
183,456
|
|
|
|
82,042
|
|
Non-convertible
|
|
03/31/2015
|
|
|
10
|
%
|
|
06/30/2015
|
|
|
151,275
|
|
|
|
22,795
|
|
Future receivables
sale agreement
|
|
08/12/2015
|
|
|
Imputed
123
|
%
|
|
03/09/2016
|
|
|
141,096
|
|
|
|
-
|
|
Non-convertible
|
|
07/17/2015
|
|
|
12
|
%
|
|
09/17/2015
|
|
|
85,000
|
|
|
|
28,304
|
|
Non-convertible
|
|
03/04/2016
|
|
|
6
|
%
|
|
Demand
|
|
|
377,000
|
|
|
|
7,313
|
|
Future receivables
sale agreement
|
|
09/30/2015
|
|
|
Imputed
98
|
%
|
|
04/05/2016
|
|
|
96,667
|
|
|
|
-
|
|
Non-convertible
|
|
03/24/2010
|
|
|
0
|
%
|
|
Demand
|
|
|
44,500
|
|
|
|
-
|
|
Non-convertible
|
|
02/14/2014 – 12/15/2015
|
|
|
6%
-37
|
%
|
|
5/14/2014 – 04/15/2016
|
|
|
593,911
|
|
|
|
280,112
|
|
Non-convertible
|
|
11/21/2014 – 01/16/2015
|
|
|
18
|
%
|
|
07/16/2015 – 08/21/2015
|
|
|
120,000
|
|
|
|
10,889
|
|
Future receivables
sale agreement
|
|
09/30/2015
|
|
|
Imputed
177
|
%
|
|
02/18/2016
|
|
|
36,315
|
|
|
|
-
|
|
Non-convertible
|
|
12/09/2016-
12/29/2016
|
|
|
18
|
%
|
|
12/09/2017-
12/29/2017
|
|
|
27,000
|
|
|
|
2,450
|
|
TOTAL
|
|
|
|
|
|
|
|
|
|
$
|
3,591,390
|
|
|
$
|
1,091,289
|
|
Convertible
Promissory Notes - $506,000
From
July 8, 2016 through December 23, 2016 the Company issued nineteen Convertible Promissory Notes totaling $506,000, including an
original issue discount totaling $46,000. The net proceeds to the Company were $460,000 and the proceeds are for funding operations
and for general working capital. The maturity dates range between December 31, 2016 and December 23, 2017 for the Notes. The Notes
will pay $46,000 in interest at maturity of the Notes. The holder can convert into Series D Preferred Stock. The balance of these
notes at December 31, 2016 is $506,000 plus accrued interest of $46,000.
Senior
Convertible Notes - $178,333
From
July 25, 2016 through December 9, 2016, the Company entered into, with a private investor, seven Senior Convertible Notes totaling
$160,500, including an original issue discount totaling $17,833, for net proceeds to the Company of $178,333 for the purpose of
funding operations and for general working capital. The maturity date is one year from the issuance date. In the event of default,
the Note is subject to an increase in the interest rate to twenty-two percent (22%) per annum. The holder can convert at a 40%
discount to the lowest volume weighted average price in the previous twenty-five trading day period. In the event of default the
conversion price is equal to 51% of the lowest traded price in the prior thirty trading days. The Company recorded amortization
of discounts totaling $47,251 during the six months ended December 31, 2016 and the discount balance is $131,082 at December 31,
2016. The balance of this note at December 31, 2016 is $178,333 plus accrued interest of $10,379.
Loan
Payable – Other
Secured
Promissory Note - $44,500
At
June 30, 2012, the Company was indebted for $44,500 for amounts received in prior years for operating expenses in exchange for
a secured promissory note from a third party entered into during 2010. This amount is due on demand and non-interest bearing.
The Creditor claims amount owed is $360,000, which the Company disputes.
5.
Related Party Transactions
None.
6.
Fair Value of Assets and Liabilities
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in the principal market
(or most advantageous market, in the absence of a principal market) for the asset or liability in an orderly transaction between
market participants at the measurement date. Further, entities are required to maximize the use of observable inputs and minimize
the use of unobservable inputs in measuring fair value, and to utilize a three-level fair value hierarchy that prioritizes the
inputs used to measure fair value. The three levels of inputs used to measure fair value are as follows:
Level
1 — Quoted prices in active markets for identical assets or liabilities.
Level
2 — Observable inputs other than quoted prices included within Level 1, including quoted prices for similar assets or liabilities
in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; and inputs other
than quoted prices that are observable or are derived principally from, or corroborated by, observable market data by correlation
or other means.
Level
3 — Unobservable inputs that are supported by little or no market activity, are significant to the fair value of the assets
or liabilities, and reflect the Company’s own assumptions about the assumptions market participants would use in pricing
the asset or liability developed based on the best information available in the circumstances.
Application
of Valuation Hierarchy
A
financial instrument’s categorization within the valuation hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. The following is a description of the valuation methodology used to measure fair value, as well
as the general classification of such instruments pursuant to the valuation hierarchy.
Convertible
Promissory Notes.
The Company assessed that the fair value of this liability approximates its carrying value due to its
short-term nature.
Loans
Payable - Other.
The Company assessed that the fair value of this liability approximates its carrying value due to its
short-term nature.
Derivative
Liabilities.
The Company assessed that the fair value of these liabilities using observable inputs described in level
2 above. The methodology described above may produce a current fair value calculation that may not be indicative of net realizable
value or reflective of future fair values. If readily determined market values became available or if actual performance were
to vary appreciably from assumptions used, assumptions may need to be adjusted, which could result in material differences from
the recorded carrying amounts. The Company believes its method of determining fair value is appropriate and consistent with other
market participants. However, the use of different methodologies or different assumptions to value certain financial instruments
could result in a different estimate of fair value.
7.
Stockholders’ Deficit
The
Company is authorized to issue 500,000,000 shares of redeemable convertible preferred stock with a par value of $0.001 per share.
As of December 31, 2016, the Company has issued four series of Preferred Stock:
Series
A Preferred Stock:
On
January 27, 2014, the Board of Directors authorized 30,000 shares of Series A Preferred Stock with a par value of $0.001.
The
terms of the preferred series A shares are as follows:
|
●
|
Series
A Preferred stock is not convertible.
|
|
|
|
|
●
|
Each
share of Series A Preferred stock is entitled to 100,000 votes on matters that the holders of the Company’s common stock
may vote.
|
|
|
|
|
●
|
The
Series A Preferred stock is redeemable by the company for no consideration at any time.
|
|
|
|
|
●
|
The
Series A Preferred stock cannot vote on election or removal of directors.
|
|
|
|
|
●
|
The
Series A Preferred stock has no stated dividend rate and has no liquidation preference.
|
Effective
with the Chief Executive Officer’s termination on June 15, 2015, all 30,000 shares of Series A preferred stock were cancelled.
There are no Series A preferred shares outstanding at December 31, 2016.
Series
B 12% Convertible Preferred Stock:
$925,000
Series B Preferred Stock Financing
On
February 26, 2014 the Board of Directors authorized 6,750 shares of Class B Preferred Stock (“Preferred B Stock”)
with a par value of $0.001. On April 17, 2014, an additional 2,500 shares of Preferred B Stock was authorized with a par value
of $0.001, for a total authorized amount of 9,250 shares.
The
terms of the Series B Preferred Stock (“Preferred B”) were as follows:
|
●
|
The
Preferred B Stock had no voting rights.
|
|
|
|
|
●
|
The
Preferred B Stock was convertible into common stock at any time at 60% of the lowest VWAP of the 20 days leading up to conversion
multiplied by the stated value of $100.
|
|
|
|
|
●
|
The
Preferred B Stock had a 12% per annum stated dividend rate, which is calculated daily on a 360 day year.
|
|
|
|
|
●
|
The
Preferred B Stock had a liquidation preference equal to the stated value of each share of Preferred Stock or $100 per share.
|
On
June 3, 2014, all 9,250 shares of the Preferred B Stock was converted into an equal number of shares of the Company’s Series
C Convertible Preferred Stock. There were no Preferred B Stock outstanding or issued as of and for the period ending December
31, 2016.
Series
C 12% Convertible Preferred Stock:
On
May 30, 2014, the Company authorized 120,000 shares of Series C 12% Convertible Preferred Stock, par value $0.001 per share (the
“Preferred C Stock”).
The
terms of the Preferred C Stock are as follows:
|
●
|
The
Preferred C Stock shall have no voting rights.
|
|
|
|
|
●
|
The
Preferred C Stock is convertible at any time at 60% of the lowest VWAP of the 20 days leading up to conversion multiplied
by the stated value of $100.
|
|
|
|
|
●
|
The
Preferred C Stock has a 12% per annum stated dividend rate, which is calculated daily on a 360 day year. Any dividends, whether
paid in cash or shares of Common Stock, that are not paid within five trading days following a dividend payment date shall
continue to accrue and shall entail a late fee at 18% per annum. In addition, the dividend rate of 12% is subject to an adjustment
up to 18% if at any time the Company does not have an amount equal to or greater than 150% of the authorized but unissued
common shares that would be required (on an “if converted” basis) to settle the conversion of Preferred C Stock
outstanding. As of December 31, 2016, the Company has accrued dividends on Preferred C Stock in the amount of $4,508,965.
The amount of dividends has not yet been determined by the Company and the holders whether to be payable in cash, common stock
or additional shares of Preferred C Stock.
|
|
|
|
|
●
|
The
Preferred C Stock shall have a liquidation preference equal to the stated value of each share of Preferred Stock or $100 per
share.
|
The
following table provides the activity of the Company’s Preferred C stock for the six months ended December 31, 2016 :
Balance as of June 30, 2016
|
|
|
97,090
|
|
Preferred C Stock issued for cash
|
|
|
—
|
|
Preferred C Stock converted into Common Stock
|
|
|
(682
|
)
|
Balance as of December 31, 2016
|
|
|
96,408
|
|
Preferred
C Stock converted to Common Stock
During
the six months ended December 31, 2016, according to the conversion terms described above, the investors converted 682
shares of Preferred C Stock representing value of $68,200 into 487,292,939 (pre-split) and 12,752,939 (post-split)
shares of the Company’s Common Stock.
Series
D 12% Convertible Preferred Stock:
On
March 31, 2015, the Company authorized 10,000 shares of a newly-created Series D 12% Convertible Preferred Stock, par value $0.001
per share (the “Preferred D Stock”). Effective July 2, 2015, the Company increased the number of authorized shares
to 20,000. Effective August 22, 2016, the Company increased the number of authorized shares to 30,000.
|
●
|
The
Preferred D Stock shall have no voting rights.
|
|
|
|
|
●
|
The
Preferred D Stock is convertible at any time at 60% of the lowest VWAP of the 30 days leading up to conversion multiplied
by the stated value of $100.
|
|
|
|
|
●
|
The
Preferred D Stock has a 12% per annum stated dividend rate, which is calculated daily on a 360 day year. Any dividends, whether
paid in cash or shares of Common Stock, that not paid within five trading days following a dividend payment date shall continue
to accrue and shall entail a late fee at 18% per annum. In addition, the dividend rate of 12% is subject to an adjustment
up to 18% if at any time the Company does not have an amount equal to or greater than 150% of the authorized but unissued
common shares that would be required (on an “if converted” basis) to settle the conversion of Preferred C Stock
outstanding. As of December 31, 2016, the Company has accrued dividends on Preferred D Stock in the amount of $533,292.
The amount of dividends has not yet been determined by the Company and the holders whether to be payable in cash, common stock
or additional shares of Preferred D Stock.
|
|
|
|
|
●
|
The
Preferred D Stock shall have a liquidation preference equal to the stated value of each share of Preferred Stock or $100 per
share.
|
Preferred
D Stock issued for cash
No
Preferred D Stock were purchased in the six months ended December 31, 2016.
Common
Stock
Effective
October 19, 2016, the Directors of the Company, after receiving the majority vote of the Company’s Shareholders through
a Shareholder Vote on October 5, 2016, approved (i) a reverse split of 100 for 1 of shares of Common Stock of the Company from
4,352,790,291 shares of common stock to 43,527,903 shares of common stock.
During
the six months ended December 31, 2016, the Company issued a total of 611,553,558 (pre-split) and 21,139,008 (post-split)
shares of its common stock for conversion of 682 shares of convertible Preferred C stock and $24,709 of convertible notes,
$24,770 of accrued interest and $1,950 for default interest.
Treasury
Stock
The
Company held 14,330 post-split shares of common stock as treasury stock as of June 30, 2016. There was no change in treasury
stock during the six months ended December 31, 2016.
Warrants
In
connection with one of the convertible notes outstanding at December 31, 2016 with a balance of $920,193 (Note 4), the Company
issued a Common Stock Purchase Warrant, allowing M2B Funding Corporation the right to purchase up to 200,000 shares (post-split)
of Common Stock on September 16, 2014 and expiring on September 16, 2019. The exercise price per share of the Common Stock under
these warrants is $2.00 (post-split) subject to certain adjustments. The warrants have been included in the valuations of derivatives
(see note 3).
The
following is a schedule of warrants outstanding as of December 31, 2016:
|
|
Warrants
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
|
200,000
|
|
|
$
|
2.0
|
|
|
|
3.21 Years
|
|
Warrants issued
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Warrants expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Warrants cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
200,000
|
|
|
$
|
2.0
|
|
|
|
2.71 Years
|
|
As
of December 31, 2016, all the 200,000 (post-split) warrants were fully exercisable.
Options
In
November 2013, the Company granted options to its Chief Technical Officer to purchase 800,000 shares of its common stock. The
800,000 options have an exercise price of $0.10 per share and expire in 5 years. As of December 31, 2016, 800,000 options to the
Chief Technical Officer remain exercisable and outstanding.
The
Company granted options to its former Chief Executive Officer as in connection with his termination agreement that was effective
June 15, 2015. A total of 5,786,227 options were granted based on the number of shares of Common Stock equal to one percent (1%)
of the total number of shares outstanding on the date of grant. The options have an exercise price equal to the closing bid price
on the date of grant ($0.0038 per share) and an expiration date of ten (10) years from the date of issuance. A total of 5,786,227
options were granted under these terms. The options vest fifty percent (50%) on the effective date of the agreement, with the
remaining fifty percent (50%) vesting six (6) months after the effective date of the agreement. The options were valued at $21,987,
which has been recorded previously, as determined using the Black-Scholes option-pricing model using a risk free rate of
2.35%, volatility of 257% and a trading price of the underlying shares of $0.0038.
The
following is a schedule of options outstanding as of December 31, 2016:
|
|
Options
Outstanding
|
|
|
Weighted
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Life
|
|
|
Aggregate
Intrinsic Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, June 30, 2016
|
|
|
6,586,228
|
|
|
$
|
0.0089
|
|
|
|
8.1 Years
|
|
|
$
|
-
|
|
Options granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
-
|
|
Options cancellation/expired
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Balance, September 30, 2016
|
|
|
6,586,228
|
|
|
$
|
0.0089
|
|
|
|
7.59 Years
|
|
|
$
|
-
|
|
As
of December 31, 2016, 6,586,228 of the 6,586,228 options are exercisable.
8.
Commitments and Contingencies
Legal
Proceedings
Except
as disclosed below, we are currently not involved in any litigation that we believe could have a materially adverse effect on
our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by
any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive
officers of our company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our
subsidiaries or of our company’s or our company’s subsidiaries’ officers or directors in their capacities as
such, in which an adverse decision could have a material adverse effect.
As
of December 31, 2016, the Company owed approximately $730,000 in past due federal and state payroll taxes, of which approximately
$660,000 is due to the Internal Revenue Service (IRS). The Company has paid $25,000 to the IRS under a $20,000 per month
payment arrangement which the Company is now in default. The Company continues to negotiate with the IRS to re-establish
a payment plan for past due taxes. Currently the IRS has acknowledged the situation and so far, has set an expectation that we
must stay current with our federal and state taxes. The Company continues to stay current with state and federal payroll tax liabilities.
No such arrangement exists for State tax purposes.
On
October 6, 2015, the landlord for the Vista, CA location filed a complaint against us in the Superior Court of California, County
of San Diego for a Breach of Contract for a Promissory Note that we issued to him in connection with unpaid lease payments that
we owed in the amount of $151,273 under the terms of the lease that we entered into for our Vista, CA location. As of December
31, 2016, no payments have been made against this obligation, but the facility has been subleased and the property owner is in
the process of dismissing Eco Building Products from the lease.
On
May 27, 2016, the prior landlord of the Tacoma, WA, facility obtained a judgment for the collection of unpaid rent in the amount
of $168,998 inclusive of interest & attorney fees.
On
or about October 15, 2016, A Summons & Complaint has been filed for the sum of $36,315, pertaining to a default on a contract
with World Global Financing. This has been recorded in the financial statements in Loans payable-other.
From
time to time the Company may be named in claims arising in the ordinary course of business. Currently, no legal proceedings or
claims, other than those disclosed above, are pending against or involve the Company that, in the opinion of management, could
reasonably be expected to have a material adverse effect on its business and financial condition.
9.
Subsequent Events
On
February 10, 2017, Eco Building Products, Inc. (the “Company,” “we,” or “us”) announced that
we had formed a new subsidiary, Wood Protection Technologies Inc, a Nevada corporation (our “Subsidiary”). Our Subsidiary
was incorporated on December 5, 2016, but we did not capitalize it until February 8, 2017. Our Subsidiary (of which we own 95%
and Mark Vuozzo, our Chief Technical Officer, who assigned to us the intellectual property that we transferred to our Subsidiary,
owns 5%) will have a separate board of directors and its own corporate governance. Nevertheless, for financial reporting purposes,
we will consolidate its financial statements with ours. Tom Comery, our Chief Executive Officer, will also serve our subsidiary
in that capacity.
We
capitalized our Subsidiary with the transfer of certain of our rights to certain of our pending patents and other intellectual
property (the “IP”). As we announced, we formed our Subsidiary to position our intellectual property for alignment
with major industry partners. We also believe that this action will allow us to maximize value for our stockholders in that our
Subsidiary may be better positioned to attract the capital that it will require to effectuate its business plan in more efficient,
lower cost manner than had the patents and other intellectual property and operations remained at our corporate level. In that
context, on February 8, 2017, we entered into an “Operating Agreement” with our Subsidiary to define the relationship
between our Subsidiary and us, as we work together to market, license, sell and otherwise exploit the transferred Intellectual
Property.
From
January 23, 2017 to February 24, 2017, the Company issued to investors a total of 17,074,393 (post-split)
common shares converted from 272 preferred C shares.
From
January 2, 2017 to February 28, 2017, the Company issued 28,174,455 (post-split) common shares from conversions
of debt amounting to $40,292.
From
January 11, 2017 to January 31, 2017, the Company issued convertible notes in the total amount of $44,070 which
is inclusive of an original issue discount of $1,100.