During the period from inception (April 29, 2016) through September 30, 2016, Mr. Summers advanced $1,000 to the Company for working capital. The advance was non-interest bearing and payable on demand. During the same period, Mr. Summers paid $275 of expenses on behalf of the Company. As of September 30, 2017, the Company owed Mr. Summers a total of $24,013.
Alex Blankenship is paid $5,000 per month under her employment agreement with the Company. As of September 30, 2017, the Company owed Ms. Blankenship $85,315 for unpaid compensation.
During the year ended September 30, 2017, we issued 500,000 shares of common stock to Ms. Blankenship. The shares were valued at $23,950 based on the fair value of the shares on the date of issuance.
On June 18, 2016, David P. Summers, a significant shareholder and related party of the Company, contributed certain medical intellectual property to the Company in exchange for 5,000,000 shares of Series A Preferred Stock. The transaction was valued at $2,990,535 based upon the value of the Series A Preferred Stock as determined by a valuation expert.
As of September 30, 2017, the Company owed Sydney Jim, our former CEO, $31,731 for accrued but unpaid compensation.
All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company.
During the year ended September 30, 2017, the Company recognized interest expense of $132,526 and amortization of discount on convertible notes payable of $503,159. During the period ended September 30, 2016, the Company recognized interest expense of $47,998 on the convertible notes payable and amortization of discount on convertible notes payable of $95,794.
As discussed below, during the year ended September 30, 2017, all outstanding convertible notes payable (except for the $20,000 convertible note issued on April 13, 2017) were converted into preferred stock resulting in a loss on conversion of $593,810.
Conversions to Common Stock
During the year ended September 30, 2017, the holders of the convertible notes payable elected to convert principal and accrued interest of $131,119 into 10,263,400 shares of common stock.
During period from inception (April 29, 2016) through September 30, 2016, the holders of the Convertible Note Payable dated December 31, 2014 elected to convert principal and accrued interest of $34,981 into 3,498,124 shares of common stock. No gain or loss was recognized on the conversions as they occurred within the terms of the agreement that provided for conversion.
Conversions to Preferred Stock
During the year ended September 30, 2017, the holders of the convertible notes payable elected to convert all outstanding principal on convertible notes payable into 509,988 shares of Series D Preferred Stock and 471,975 shares of Series F Preferred Stock.
Advances
As of September 30, 2017 and 2016, the Company owed non-interest bearing advances of $59,650 and $47,650, respectively. During the period ended September 30, 2016, we recognized imputed interest on these advances of $3,822.
Note 9. Note Payable
The Company entered into a promissory note with its attorney to refinance accounts payable of $68,793 as of September 30, 2016 into a promissory note. The note can be issued up to the total principal amount of $100,000 and includes the prepayment of legal fees of $31,498 to be incurred during the period from October 1, 2016 through March 1, 2017. The note payable was recorded at $68,793 (the amount of refinanced accounts payable) as of September 30, 2017. There was no prepayment recognized as of September 30, 2017. The note bears interest at the prime rate and requires monthly payments of principal and interest of $10,000 beginning July 1, 2017, the maturity date. As of September 30, 2017, the note is classified in noncurrent liabilities on the balance sheet.
Note 10. Stockholders’ deficit
As of inception, the Company had authorized 480,000,000 shares of common stock and 20,000,000 shares of preferred stock. As of September 30, 2017, there were 45,584,067 shares of common stock, 5,000,000 shares of Series A Preferred Stock, 30,000 shares of Series B Preferred Stock, 509,988 shares of Series D Preferred Stock, 1,000,000 shares of Series E Preferred Stock and 471,975 shares of Series F Preferred Stock outstanding.
Founders’ Shares
On June 3, 2016, the Company issued a total of 20,000,000 shares to two shareholders (10,000,000 shares each) as a result of the reverse merger.
Imputed Interest
During the period ended September 30, 2016, the Company recognized imputed interest on non-interest bearing advances of $3,822.
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Conversions to Common Stock
During the year ended September 30, 2017, the Company issued 10,263,400 shares of common stock as a result of conversions of the convertible notes payable in the amount of $131,119. During period from inception (April 29, 2016) through September 30, 2016, the Company issued 3,498,124 shares of common stock as a result of conversions of the Convertible Note Payable dated December 31, 2014 in the amount of $34,981.
Common stock issued for services
During the year ended September 30, 2017, the Company issued 1,300,000 shares of common stock to two third-parties for services provided to the Company. The common stock was valued at $83,900 based on the market value of the stock on the date of issuance.
During the year ended September 30, 2017, we issued 500,000 shares of common stock to Ms. Blankenship. The shares were valued at $23,950 based on the fair value of the shares on the date of issuance.
Preferred Stock
On June 3, 2016, we issued 20 million shares of the Company’s common stock in connection with the reverse merger discussed in Note 4 above.
Our authorized preferred stock consists of 20,000,000 shares of $0.001 par value preferred stock. On August 3, 2015, our board of directors designated 1,000,000 shares of Series E Preferred stock. The Series E Preferred stock is subordinate to our common stock. It does not receive dividends and does not participate in equity distributions. The Series E Preferred stock retained 2/3 of the voting rights in the Company.
As of the date of this report, there are 1,000,000 shares of Series E Preferred stock outstanding. Dividends, when, as and if declared by the Board of Directors, shall be paid out of funds at the time legally available for such purposes.
As of June 15, 2016, our board of directors designated up to 6,000,000 shares of Series A Preferred Stock. The Series A Preferred Stock has a liquidation value of $2.00 per share. The initial number issued is 5,000,000 with additional shares to be issued as a dividend not to exceed a total of 6,000,000 shares. The rank of the Series A is prior to all common and preferred shares. In addition, the Series A Preferred Stock retains protective provisions to maintain their seniority with respect to liquidation or dissolution. The Series A Preferred Stock holds no voting rights and earns an 8% per annum dividend, payable in additional shares of Series A Preferred Stock.
On June 18, 2016, David P. Summers, a significant shareholder and related party of the Company, contributed certain medical intellectual property to the Company in exchange for 5,000,000 shares of Series A Preferred Stock. The transaction was valued at $2,990,535 based upon the value of the Series A Preferred Stock as determined by a valuation expert.
During the year ended September 30, 2017, we issued 30,000 shares of Series B Preferred Stock for cash proceeds of $30,000.
During the year ended September 30, 2017, the holders of the convertible notes payable elected to convert all outstanding principal on convertible notes payable into 509,988 shares of Series D Preferred Stock and 471,975 shares of Series F Preferred Stock.
Stock options issued for services
During the year ended September 30, 2017, the Company granted options to purchase 500,000 shares of common stock to two consultants to the Company. The options vested immediately, have a term of ten years and have an exercise price of $0.10 per share. The options were valued, using the Black-Scholes option pricing model, at $199,870 as of the grant date. The assumptions used in the Black-Scholes model were a market price of $0.40, expected volatility of 201%, annual dividend rate of 0.0% and a risk-free interest rate of 1.79%.
Beneficial conversion discount
During the year ended September 30, 2017, we recorded a beneficial conversion discount of $27,000 as a result of discounts on convertible notes payable issued during the period.
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Note 11. Income Taxes
There is no current or deferred income tax expense or benefit for the period ended September 30, 2017. The Company currently has net operating loss carryforwards aggregating $1,788,781 which expire in 2031. The deferred tax asset related to the net operating loss carryforwards has been fully reserved.
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference for the period from April 29, 2016 (date of inception) through September 30, 2017 is the valuation allowance as follows.
|
|
|
|
|
Tax benefit at U.S. statutory rate
|
|
$
|
455,343
|
|
Valuation allowance
|
|
|
(455,343
|
)
|
Tax benefit, net
|
|
$
|
—
|
|
The Company has not recognized an income tax benefit for the period based on uncertainties concerning its ability to generate taxable income in future periods. The tax benefit for the current period presented is offset by a valuation allowance (100%) established against deferred tax assets arising from operating losses and other temporary differences, the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not.
The tax returns for fiscal year 2016 is still open for review by the Internal Revenue Service.
Note 12. Available-for-Sale Securities
The Company owns a non-controlling interest in certain marketable equity securities. This investment is accounted for as available-for-sale. During the period ended September 30, 2016, the Company determined that the loss in value of the available-for-sale securities was considered other than temporary due to the significant amount of time that the market value had been below the cost basis of these securities. As a result, the loss of $6,792 was recognized as an impairment loss in the consolidated statement of operations. Available-for-sale securities is comprised of the following as of September 30, 2017:
|
|
|
|
|
Common stock of Biofuels Power Corp.
|
|
$
|
35,000
|
|
Realized loss on available-for-sale securities
|
|
|
(24,327
|
)
|
Unrealized loss on available-for-sale securities
|
|
|
(970
|
)
|
Available-for-sale securities
|
|
$
|
9,703
|
|
Note 13. Subsequent Events
On October 3, 2017, the holder of our Series B Preferred Stock elected to convert 30,000 shares of the preferred stock into 500,000 shares of common stock.
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