(The accompanying notes are an integral part of these consolidated financial statements)
(The accompanying notes are an integral part of these consolidated financial statements)
(The accompanying notes are an integral part of these consolidated financial statements)
(The accompanying notes are an integral part of these consolidated financial statements)
Notes to the Consolidated Financial Statements
1.
Nature of Operations and Continuance of Business
Stealth Technologies, Inc. (formerly Excelsis Investments, Inc.) (the "Company") was incorporated in the state of Nevada on May 27, 2010 under the name "Pub Crawl Holdings, Inc". On June 14, 2010, the Company entered into an Assignment Agreement (the "Acquisition") with PB PubCrawl.com LLC ("PubCrawl"), a California limited liability company, whereby the Company acquired a 100% interest in the member shares of PubCrawl in exchange for 500,000 common shares of the Company. The Acquisition was accounted for in accordance with ASC 805-50, Related Issues, as the companies were under common control prior to acquisition. On September 3, 2012, the Company sold their rights to PubCrawl to the former President and Director of the Company.
On November 28, 2012, the Company acquired 100% of the members' shares of Stealth Card Inc. (formerly Mobile Dynamic Marketing, Inc.) ("Stealth Card"), a company incorporated in the state of Florida on November 6, 2012, in exchange for the issuance of 1,000,000 common shares. As part of the acquisition, the Company cancelled 15,000,000 issued and outstanding common shares held by the former President and Director of the Company and the management and directors of Stealth Card acquired 7,500,000 common shares of the Company in a private transaction with the former President and Director of the Company. Effectively, Stealth Card held 73% of the issued and outstanding common shares of the Company and the transaction has been accounted for as a reverse merger, where Stealth Card is deemed to be the acquirer for accounting purposes.
On July 13, 2013, the Company entered into a share exchange agreement with Career Start, Inc. ("Career"), a private corporation formed under the state of Florida on February 4, 2013. Under the terms of the agreement, the Company acquired the net assets of Career in exchange for 4,714,286 common shares of the Company. The acquisition was between two related parties and has been accounted on a cost basis. On October 24, 2013, the Company effected a corporation name change to Excelsis Investments Inc.
On March 11, 2014, the Company announced its name change from Pub Crawl Holdings to Excelsis Investments, Inc.
On September 1, 2014, the Company entered into a purchase agreement with a non-related party to purchase intangible assets by issuing 30% of the outstanding common shares of the Company as determined on an as-converted, fully-diluted basis, which shall not be subject to dilution by any future issuances for the purchase of 3,000 customer accounts. The Company is recognizing the revenue generated from the intangible asset on a net basis.
On November 5, 2014, the Company entered into share exchange agreement with a former officer of the Company in regards to common shares in the Company's wholly-owned subsidiaries, Career Start, Inc ("CSI") and Career Start Management ("CSM"), private corporations incorporated in the state of Florida and New York, respectively. Under the terms of the agreement, the Company received 3,111,429 shares of the Company held by the former officer in exchange for 100% of the issued and outstanding common shares of CSI and CSM. Subsequent to the disposal of the subsidiaries, the Company has turned its focus on the development and retail of stealth cards, a product meant to block RFID (Radio Frequency Identifier Signal) chipped cards from being read when placed in the correct orientation to help users secure their personal information.
On March 14, 2016, the Company incorporated a new wholly owned subsidiary, Safety Technologies Inc., a Nevada company. The Company's intention is to sell products other than the stealth cards, through the subsidiary. As at December 31, 2016, there has been no activity within the subsidiary.
On May 19, 2016, the Company's wholly-owned subsidiary, Mobile Dynamic Marketing, Inc. changed its name to Stealth Card Inc.
On May 26, 2016, the Company changed its name from Excelsis Investments Inc. to Stealth Technologies, Inc.
These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at December 31, 2016, the Company has a working capital deficit of $546,056 and an accumulated deficit of $3,028,028. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company's future operations. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
F-6
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
2.
Summary of Significant Accounting Policies
a)
Basis of Presentation and Principles of Consolidation
The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and are expressed in U.S. dollars. These consolidated financial statements comprise the accounts of the Company and its wholly-owned subsidiaries, Stealth Card Inc., a Florida company, and Safety Technologies Inc., a Nevada company. All intercompany transactions have been eliminated on consolidation. The Company's fiscal year end is December 31.
b)
Use of Estimates
The preparation of financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to fair value of share-based payments, collectability of accounts receivable, net realizable value of inventory, useful life, impairment, and valuation of intangible assets, and the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
c)
Cash and Cash Equivalents
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at December 31, 2016 and 2015, the Company had no cash equivalents.
d)
Accounts Receivable
Accounts receivable represents amounts owed from customers for contracting employees and from consulting services. Amounts are presented net of the allowance for doubtful accounts, which represents the Company's best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines allowance for doubtful accounts based upon historical experience and current economic conditions. The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis. As of December 31, 2016 and 2015, the Company had no allowances for doubtful accounts.
e)
Inventory
Inventory is comprised of stealth cards purchased for resell, and is recorded at the lower of cost or net realizable value on a first-in first-out basis. The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future and market conditions.
f)
Intangible Assets
Intangible assets are stated at cost less accumulated amortization and are comprised of customer accounts acquired with an useful life of three years and amortized straight line over three years and patent and trademark development costs, which are currently being developed and has not been placed in use. During the year ended December 31, 2016, the Company incurred $147,564 (2015 - $147,160) in amortization expense.
F-7
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
2.
Summary of Significant Accounting Policies
(continued)
g)
Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260,
Earnings per Share
. ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at December 31, 2016, the Company had 3,617,571 (2015 – 28,280,185) potentially dilutive common shares from potential shares issuable for outstanding convertible debentures.
h)
Long-Lived Assets
In accordance with ASC 360, "
Property, Plant and Equipment"
, the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
i)
Revenue Recognition
The Company recognizes and accounts for revenue in accordance with ASC 605 as a principal on the sale of goods.
Pursuant to ASC 605,
Revenue Recognition,
revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed and determinable, risk of ownership has passed to the customer and collection is reasonably assured. The Company considered ASC 605-45,
Principal Agent Considerations
, and determined that the Company acts as a principal in its revenue-earnings activities as they are responsible for the production of goods purchased by the customer, can determine the pricing costs, goods purchased are paid directly by the Company, and has a credit risk with respect to collection of amounts owed by its customers.
The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company does not act as the principal in its revenue-earnings activities related to certain service revenues
where the Company does not bear enough of the risks in the transaction to record them on the gross basis
.
Revenues for these activities are recorded based on the net amount earned by the Company.
j)
Cost of Revenue
For the Company's product sales, cost of revenue consists of inventory sold in each transaction. For the Company's service sales, cost of revenue consists of engineering services provided by a related party.
k)
Research and Developments Costs
Research and development costs are charged to operations as incurred.
F-8
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
2.
Summary of Significant Accounting Policies
(continued)
l)
Financial Instruments
Pursuant to ASC 820,
Fair Value Measurements and Disclosures
, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level 1
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company's financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, loans payable, amounts due to and from related parties, liabilities for shares issuable – related party, and convertible debentures. Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2016, on a recurring basis:
|
|
Level 1
$
|
|
|
Level 2
$
|
|
|
Level 3
$
|
|
|
Total gains and
(losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
456,967
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Liability for shares issuable – related party
|
|
|
(843,616
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(12,383
|
)
|
Derivative liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
(1,944
|
)
|
|
|
489,305
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(386,649
|
)
|
|
|
–
|
|
|
|
(1,944
|
)
|
|
|
476,922
|
|
The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2015, on a recurring basis:
|
|
Level 1
$
|
|
|
Level 2
$
|
|
|
Level 3
$
|
|
|
Total gains and
(losses)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
|
388,183
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
Liabilities for shares issuable – related party
|
|
|
(831,233
|
)
|
|
|
–
|
|
|
|
–
|
|
|
|
(318,132
|
)
|
Derivative liabilities
|
|
|
–
|
|
|
|
–
|
|
|
|
(491,249
|
)
|
|
|
(341,192
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
(443,050
|
)
|
|
|
–
|
|
|
|
(491,249
|
)
|
|
|
(659,324
|
)
|
F-9
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
2.
Summary of Significant Accounting Policies
(continued)
l)
Financial Instruments (continued)
As of December 31, 2016, the Company had a derivative liability amount of $1,944 (2015 – $491,249) which was classified as a Level 3 financial instrument, and a gain on change in fair value of derivative liabilities of $489,305 (2015 – loss of $341,192).
m)
Income Taxes
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 "
Accounting for Income Taxes
" as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
n)
Recent Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.
3.
Convertible Debenture
|
a)
|
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2016, accrued interest of $27,461 (2015 - $36,416) has been recorded in accounts payable and accrued liabilities.
|
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. The Company recognized a gain in forgiveness of debt for $140,650 (2015 - $nil) for principal and interest forgiven pursuant to the settlement agreement. The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt During the year ended December 31, 2016, the Company had amortized $nil (2015 - $88,357) of the debt discount to interest expense. During the year ended December 31, 2016, the Company repaid $180,000 (2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As December 31, 2016, the carrying value of the debenture was $70,000 (2015 - $375,000) and the fair value of the derivative liability was $1,830 (2015 - $304,860).
|
b)
|
On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2016, accrued interest of $nil (2015 - $10,267) has been recorded in accounts payable and accrued liabilities.
|
F-10
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
3.
Convertible Debenture
(continued)
On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. The Company recognized a gain in forgiveness of debt for $16,820 (2015 - $nil) for principal and interest forgiven pursuant to the settlement agreement. During the year ended December 31, 2016, the Company had amortized $nil (2015 - $46,652) of the debt discount to interest expense. The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt. During the year ended December 31, 2016, the Company repaid $32,514 (2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at December 31, 2016, the carrying value of the debenture was $nil (2015 - $38,258) and the fair value of the derivative liability was $nil (2015 - $65,853). During the year ended December 31, 2016, the Company amortized $nil (2015 - $285) in financing costs.
|
c)
|
On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2016, accrued interest of $2,613 (2015 - $13,854) has been recorded in accounts payable and accrued liabilities.
|
On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. The Company recognized a gain in forgiveness of debt for $30,202 (2015 - $nil) for principal and interest forgiven pursuant to the settlement agreement. The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt During the year ended December 31, 2016, the Company had amortized $nil (2015 - $47,044) of the debt discount to interest expense. During the year ended December 31, 2016, the Company repaid $57,486 (2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at December 31, 2016, the carrying value of the debenture was $nil (2015 - $75,000) and the fair value of the derivative liability was $114 (2015 - $120,536). During the year ended December 31, 2016, the Company amortized $nil (2015 - $288) in financing costs.
4.
Derivative Liabilities
The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 3 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. During the year ended December 31, 2016, the Company recorded a gain on the change in fair value of derivative liability of $489,305 (2015 – loss of $341,192). As at December 31, 2016, the Company recorded a derivative liability of $1,944 (2015 - $491,249).
The following inputs and assumptions were used to value the convertible debentures outstanding during the year ended December 31, 2016:
·
|
The range of stock prices for the valuation of the derivative instruments at December 31, 2016 ranged from $0.030 to $0.0244 per share of common stock.
|
F-11
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
4.
Derivative Liabilities
(continued)
·
|
The debtholder would automatically convert note at maturity if the registration was effective and the Company is not in default.
|
·
|
The projected annual volatility for each valuation period based on the historic volatility of the Company 280% - 259%
|
·
|
The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing of 95%.
|
·
|
Capital raising events of $100,000 would occur in each quarter at 75% of market generating dilutive reset events at prices below $0.015 (rounded) for the convertible debentures.
|
The following inputs and assumptions were used to value the convertible debentures outstanding during the year ended December 31, 2015:
·
|
The range of stock prices for the valuation of the derivative instruments at December 31, 2015 ranged from $0.0144 to $0.0285 per share of common stock.
|
·
|
The debtholder would automatically convert the note at maturity if the registration was effective and the Company is not in default.
|
·
|
The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing, at a rate of 0% increasing 1.0% monthly to a maximum of 10%.
|
·
|
The projected annual volatility for each valuation period based on the historic volatility of the Company 444% - 474%
|
·
|
Capital raising events of $100,000 would occur in each quarter for a total of $100,000 in 2014 at 75% of market generating dilutive reset events at prices below $0.0122 (rounded) for the convertible debentures.
|
A summary of the activity of the derivative liability is shown below:
|
|
|
$
|
|
|
|
|
|
|
Balance,
January 1, 2015
|
|
|
347,672
|
|
Reclassify of derivative to APIC
|
|
|
(197,615
|
)
|
Loss in change in fair value of the derivative
|
|
|
341,192
|
|
|
|
|
|
|
Balance, December 31, 2015
|
|
|
491,249
|
|
Write off due to cash payoff
|
|
|
(85,664
|
)
|
Gain in change in fair value of the derivative
|
|
|
(403,641
|
)
|
|
|
|
|
|
Balance, December 31, 2016
|
|
|
1,944
|
|
5.
Related Party Transactions
|
a)
|
As at December 31, 2016, the Company was owed $59,926 (2015 - $nil) from sales revenue from a significant shareholder for service revenue and $nil (2015 - $5,000) for product sales revenue. The amounts owed are non-interest bearing, unsecured, and due on demand. This amount has been included in accounts receivable – related party.
|
|
b)
|
As at December 31, 2016, the Company owed $75,964 (2015 - $25,150) to the President of the Company, which is non-interest bearing, unsecured, and due on demand.
|
|
c)
|
As at December 31, 2016, the Company owed $87,834 (2015 - $22,998) to the Chief Financial Officer of the Company, which is non-interest bearing, unsecured, and due on demand.
|
|
d)
|
As at December 31, 2016, the Company recorded a liability for shares issuable of $843,616 (2015 - $831,233) relating to 34,574,439 common shares to be issued to a significant shareholder pursuant to the acquisition agreement for the intangible assets. During the year ended December 31, 2016, the Company recorded a $12,383 (2015 – $318,132) loss in the fair value of the shares issuable to the significant shareholder.
|
F-12
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
5.
Related Party Transactions
(continued)
|
e)
|
As at December 31, 2016, the Company owed $nil (2015 - $75,000) to a significant shareholder for a loan payable. During the year ended December 31, 2016, the Company entered into a settlement agreement where the outstanding loan was to offset the balance receivable from the significant shareholder for service revenue. Refer to Note 6(a).
|
|
f)
|
During the year ended December 31, 2016, the Company generated net service revenues of $461,315 (2015 - $837,100) from a significant shareholder as noted in Note 4(d).
|
|
g)
|
During the year ended December 31, 2016, the Company incurred payroll expense of $546,680 (2015 - $267,495) to management and officers of the Company.
|
|
h)
|
During the year ended December 31, 2016, the Company incurred bonuses on sales of stealth cards of $194,793 (2015 - $nil) to management and officers of the Company which has been included in cost of sales. Bonuses accrue on total gross sales at a rate of 5% each to the Chief Executive Officer and the Chief Financial Officer of the Company.
|
|
i)
|
During the year ended December 31, 2016, the Company issued 23,166,555 (2015 – nil) common shares with a fair value of $671,831 (2015 - $nil) to management and officers of the Company as a bonus relating to the sale of goods for the Company. The amount has been included in consulting expenses.
|
|
j)
|
During the year ended December 31, 2016, the Company incurred engineering expense of $7,025 (2015 - $132,550), which was included in cost of goods sold, and research and development costs of $96,877 (2015 - $nil) to a company owned by the mother of the President of the Company. As at December 31, 2016, the Company owed $9,587 (2015 - $245,270) to the company owned by the mother of the President of the Company, which is non-interest bearing, unsecured, and due on demand. The amount owing has been recorded as accounts payable – related party.
|
6.
Loans Payable
|
a)
|
On July 25, 2014, the Company entered into a loan agreement with a related party for a loan of $175,000. Under the terms of the note, the amount is unsecured, non-interest bearing, and due on July 25, 2017. The unpaid principal is to be repaid in installments defined as the collected sum of 10% of the unadjusted gross sales revenue (net of returns and chargebacks) with the installments to begin once the Company has received the gross proceeds of $175,000. As at December 31, 2016, the Company had received loan proceeds of $75,000 (2015 - $75,000). On December 31, 2016, the parties agreed to set off the balance payable on the loan against the amount receivable from the related party for service revenue. As at December 31, 2016, the carrying value of the loan was $nil (2015 - $75,000). During the year ended December 31, 2016, the Company recorded imputed interest of $6,016 (2015 - $6,000).
|
|
b)
|
As at December 31, 2016, the Company owes $nil (2015 - $19,491) pursuant to a future receivable sales agreement with a non-related party. Under the terms of the agreement, the amount is secured by $73,639 of the Company's accounts receivable, bears interest at 30%, and due in installments of $792 payable on each business day.
|
|
c)
|
As at December 31, 2016, the Company owes $120,000 (2015 - $120,000) in a note payable to a non-related party. The loan is unsecured, bears interest at $10, and is due on demand.
|
7.
Common Shares
Year ended December 31, 2016
|
a)
|
On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to non-related parties for consulting services.
|
|
b)
|
On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to non-related parties for consulting services.
|
|
c)
|
On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.
|
F-13
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
7.
Common Shares
(continued)
|
d)
|
On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
|
|
e)
|
On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
|
|
f)
|
On at June 16, 2016, the Company issued 2,965,558 common shares with a fair value of $59,311 to non-related parties for consulting services.
|
|
g)
|
On October 1, 2016, the Company issued 4,650,000 common shares with a fair value of $139,500 to a non-related party to settle debt in the amount of $100,000. The Company recognized a loss of $12,095 as a result of the settlement.
|
Year ended December 31, 2015
|
h)
|
On January 12, 2015, the Company issued 1,912,000 common shares for the conversion of a convertible note with a non-related party with a book value of $19,120. $17,589 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
i)
|
On January 29, 2015, the Company approved a ten-for-one reverse split of its issued and outstanding common shares, which has been applied on a retroactive basis.
|
|
j)
|
On March 13, 2015, the Company issued 1,400,000 common shares for the conversion of a convertible note with a non-related party with a book value of $2,380. $1,791 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
k)
|
On April 28, 2015, the Company issued 1,414,286 common shares for the conversion of a convertible note with a non-related party with a book value of $1,980. $1,486 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
l)
|
On May 4, 2015, the Company issued 1,414,706 common shares for the conversion of a convertible note with a non related party with a book value of $4,810. $3,720 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
m)
|
On May 6, 2015, the Company issued 1,415,116 common shares for the conversion of a convertible note with a non-related party with a book value of $6,085. $4,705 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
n)
|
On May 20, 2015, the Company issued 1,485,556 common shares for the conversion of a convertible note with a non-related party with a book value of $6,685. $5,291 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
o)
|
On June 1, 2015, the Company issued 1,485,776 common shares for the conversion of a convertible note with a non-related party with a book value of $17,235. $14,633 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
p)
|
On June 12, 2015, the Company issued 2,001,225 common shares for the conversion of a convertible note with a non-related party, as noted in Note 3(b), with a book value of $24,495. $28,034 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
q)
|
On June 12, 2015, the Company issued 2,001,225 common shares for the conversion of a convertible note with a non-related party with a book value of $24,495. $28,034 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
r)
|
On June 16, 2015, the Company issued 1,226,538 common shares for the conversion of a convertible note with a non-related party with a book value of $15,945. $12,237 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
s)
|
On July 7, 2015, the Company issued 1,485,632 common shares for the conversion of a convertible note with a non-related party with a book value of $12,925. $11,477 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
F-14
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
7.
Common Shares
(continued)
Year ended December 31, 2015 (continued)
|
t)
|
On July 8, 2015, the Company issued 1,760,111 common shares for the conversion of a convertible note with a non-related party with a book value of $15,841. $18,857 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
u)
|
On July 9, 2015, the Company issued 500,000 common shares for financial advisory services upon execution of an advisory agreement with a non related party. The shares were recorded at their fair value of $15,000 based on the closing market price on the date of the agreement. Refer to Note 9(b).
|
|
v)
|
On July 23, 2015, the Company issued 1,363,636 common shares for the conversion of a convertible note with a non-related party with a book value of $12,000. $10,788 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
w)
|
On July 30, 2015, the Company issued 2,069,335 common shares for the conversion of a convertible note with a non related party with a book value of $13,658. $11,789 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
x)
|
On August 19, 2015, the Company issued 2,261,538 common shares for the conversion of a convertible note with a non related party with a book value of $14,700. $13,535 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
y)
|
On September 16, 2015, the Company issued 2,148,171 common shares for the conversion of a convertible note with a non related party with a book value of $17,615. $13,649 was reclassified from derivative liabilities to additional paid-in capital on conversion.
|
|
z)
|
On November 11, 2015, the Company issued 5,500,003 common shares for financial advisory services upon the amendment of an advisory agreement with a non related party. The shares were recorded at their fair value of $44,550 based on the closing market price on the date of the agreement.
|
8.
Concentrations
|
a)
|
The Company had one product that accounted for approximately 26% (2015 - 61%) of gross revenue for the year ended December 31, 2016.
|
|
b)
|
The Company had one product that accounted for approximately 65 % (2015 - nil) of gross revenue for the year ended December 31, 2015.
|
9.
Commitment and Contingencies
|
a)
|
On December 22, 2015, the Company was served notice by an individual claiming that he had received electronic emails recommending the purchase of the Company's common stock. The plaintiff claims that during the period of December 3, 2012 to December 7, 2012, he had received eighteen unsolicited electronic mails in regards to the purchase of the Company's common stock and is seeking damages of $1,000 for each electronic mail he has received, plus $1,700 in attorney fees for a total claim of $19,700. Per the plaintiff's claim, he has served notice to the Company since 2013. The plaintiff presented his case in court on February 19, 2016 and the court ruled in favor of the plaintiff for the full amount of $19,700. On January 17, 2017, the plaintiff's claims against the Company was dismissed and the court vacated the default judgment of $19,700. As at December 31, 2016, the Company recognized a gain of $19,700 (2015 - loss of $19,700) for the reversal in the accrued amount of the claim.
|
|
b)
|
On February 2, 2016, the Company and three debt holders entered into a settlement agreement, where the Company agrees to pay $30,000 to the debt holders on or before the third day of each subsequent month until the entire balance is repaid by the Company. Refer to Notes 3(a), (b), and (c).
|
F-15
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
9.
Commitment and Contingencies
(continued)
|
c)
|
On February 1, 2016, the Company received notice that a third party was seeking compensation for damages as a result of false advertisements made by the Company in regards to the Company's stealth cards. The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with the Company's stealth cards. The Company has filed an answer to the plaintiff's complaint, with denials and affirmative defenses, and is unable to estimate the likelihood of any outcome as at December 31, 2016.
|
|
d)
|
On February 22, 2016, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the parties agreed to equally split any net profits generated from the sale of stealth cards made by the consultant. The Company asserts that historical sales generated from the sale of the stealth cards were not as a result of the consultant's services, and therefore the Company should not be liable for any compensation due to the consultant. The Company has filed its Answer and Affirmative Defenses on July 18, 2016 and has asserted counterclaims against the consultant. The Company is currently awaiting the response from the consultant and is unable to estimate the likelihood of any outcome as at December 31, 2016.
|
10.
Income Taxes
In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its pre-change net operating losses ("NOLs"), to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% shareholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years). As at December 31, 2016,
the Company has $1,695,762 of net operating losses carried forward to offset taxable income in future years which expire commencing in fiscal 2032. The income tax benefit differs from the amount computed by applying the US federal income tax rate of 34% to net loss before income taxes. As at December 31, 2016 and 2015, the Company had no uncertain tax positions.
|
|
2016
$
|
|
|
2015
$
|
|
|
|
|
|
|
|
|
Net loss before taxes
|
|
|
(73,655
|
)
|
|
|
(1,055,350
|
)
|
Statutory rate
|
|
|
34
|
%
|
|
|
34
|
%
|
|
|
|
|
|
|
|
|
|
Income tax recovery at statutory rate
|
|
|
(25,043
|
)
|
|
|
(358,819
|
)
|
|
|
|
|
|
|
|
|
|
Tax effect of:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Permanent differences and other
|
|
|
(220,726
|
)
|
|
|
309,029
|
|
Change in valuation allowance
|
|
|
245,769
|
|
|
|
49,790
|
|
|
|
|
|
|
|
|
|
|
Income tax provision
|
|
|
–
|
|
|
|
–
|
|
The significant components of deferred income tax assets and liabilities at December 31, 2016 and 2015 are as follows:
|
|
December 31,
2016
$
|
|
|
December 31,
2015
$
|
|
|
|
|
|
|
|
|
Net operating loss carried forward
|
|
|
576,559
|
|
|
|
330,790
|
|
Valuation allowance
|
|
|
(576,559
|
)
|
|
|
(330,790
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred income tax asset
|
|
|
–
|
|
|
|
–
|
|
F-16
STEALTH TECHNOLGIES, INC.
(formerly Excelsis Investments, Inc.)
Notes to the Consolidated Financial Statements
11.
Subsequent Event
|
a)
|
On
January 23, 2017, the Company entered into a consulting agreement for business development services. In consideration for the services, the Company shall pay $45,000 to the consultant, of which $15,000 is due upon the execution of the agreement, and an additional $15,000 on February 23, 2017 and March 23, 2017. The Company shall also issue 1,000,000 common shares to the consultant as compensation. The common shares were issued on January 24, 2017.
|
|
b)
|
On February 17, 2016, the Company entered into a consulting agreement for marketing and branding consulting services. In consideration for the services, the Company shall pay the consultant $4,000 per month and a total of 600,000 common shares of the Company at a rate of 100,000 common shares per month for a total of six months.
|
F-17