Notes to Unaudited Consolidated Financial Statements
Note 1 - Summary of Significant Accounting Policies
Basis of Presentation
The
terms “WMT,” “we,” “the
Company,” and “us” as used in this report refer
to Wound Management Technologies, Inc. The accompanying unaudited
consolidated balance sheet as of June 30, 2017, and unaudited
consolidated statements of operations for the six months ended June
30, 2017 and 2016, have been prepared in accordance with generally
accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation
S-X. Accordingly, they do not include all of the information and
footnotes required by U.S. generally accepted accounting principles
for complete financial statements. In the opinion of management of
WMT, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been included.
Operating results for the three and six-month periods ended June
30, 2017, are not necessarily indicative of the results that may be
expected for the year ending December 31, 2017, or any other
period. These financial statements and notes should be read in
conjunction with the financial statements for each of the two years
ended December 31, 2016, and December 31, 2015, included in the
Company’s Annual Report on Form 10-K. The accompanying
consolidated balance sheet as of December 31, 2016, has been
derived from the audited financial statements filed in our Form
10-K and is included for comparison purposes in the accompanying
balance sheet. Certain prior year amounts have been reclassified to
conform to current year presentation.
Principles of Consolidation
The accompanying consolidated financial statements include the
accounts of WMT and its wholly-owned subsidiaries: Wound
Care Innovations, LLC a Nevada limited liability company
(“WCI”); Resorbable Orthopedic Products, LLC, a Texas
limited liability company (“Resorbable); and Innovate OR,
Inc. “InnovateOR” formerly referred to as BioPharma
Management Technologies, Inc., a Texas corporation
(“BioPharma”). All intercompany accounts and
transactions have been eliminated.
Inventories
Inventories
are stated at the lower of cost or net realizable value, with cost
computed on a first-in, first-out basis. Inventories consist of
finished goods and related packaging supplies. The Company recorded
inventory obsolescence expense of $8,347 for the three months and
six months ended June 30, 2017, compared to $0 for the six months
ended June 30, 2016. The allowance for obsolete and slow-moving
inventory had a balance of $120,667 at June 30, 2017, and $153,023
at December 31, 2016.
Fair Value Measurements
As
defined in Accounting Standards Codification (“ASC”)
Topic No. 820, fair value is the price that would be received to
sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date
(exit price). The Company utilizes market data or assumptions that
market participants would use in pricing the asset or liability,
including assumptions about risk and the risks inherent in the
inputs to the valuation technique. These inputs can be readily
observable, market corroborated, or generally unobservable. ASC 820
establishes a fair value hierarchy that prioritizes the inputs used
to measure fair value. The hierarchy gives the highest priority to
unadjusted quoted prices in active markets for identical assets or
liabilities (level 1 measurement) and the lowest priority to
unobservable inputs (level 3 measurement). This fair value
measurement framework applies at both initial and subsequent
measurement.
The
three levels of the fair value hierarchy defined by ASC Topic No.
820 are as follows:
Level 1
– Quoted prices are available in active markets for identical
assets or liabilities as of the reporting date. Active markets are
those in which transactions for the asset or liability occur in
sufficient frequency and volume to provide pricing information on
an ongoing basis. Level 1 primarily consists of financial
instruments such as exchange-traded derivatives, marketable
securities and listed equities.
Level 2
– Pricing inputs are other than quoted prices in active
markets included in Level 1, which are either directly or
indirectly observable as of the reported date. Level 2 includes
those financial instruments that are valued using models or other
valuation methodologies. These models are primarily
industry-standard models that consider various assumptions,
including quoted forward prices for commodities, time value,
volatility factors, and current market and contractual prices for
the underlying instruments, as well as other relevant economic
measures. Substantially all of these assumptions are observable in
the marketplace throughout the full term of the instrument, can be
derived from observable data or are supported by observable levels
at which transactions are executed in the marketplace. Instruments
in this category generally include non-exchange-traded derivatives
such as commodity swaps, interest rate swaps, options and collars.
Level 3 – Pricing inputs include significant inputs that are
generally less observable from objective sources. These inputs may
be used with internally developed methodologies that result in
management’s best estimate of fair value.
At June
30, 2017, the Company’s financial instruments consist of the
derivative liabilities related to stock purchase warrants. The
derivative liability on stock purchase warrants was valued using
the Black-Scholes Option Pricing Model, a Level 3 input. The fair
value of the conversion features associated with the convertible
debt was estimated in accordance with ASC Topic No. 470-20-25-4.
The change in fair value of the derivative liabilities is
classified in other income (expense) in the statement of
operations.
Our
intangible assets have also been valued using the fair value
accounting treatment and a description of the methodology used,
including the valuation category, is described in the
Company’s Annual Report on Form 10-K.
Income (Loss) Per Share
The
Company computes income (loss) per share in accordance with
Accounting Standards Codification “ASC” Topic No. 260,
“Earnings per Share,” which requires the Company to
present basic and dilutive income (loss) per share when the effect
is dilutive. Basic income (loss) per share is computed by dividing
income (loss) available to common stockholders by the weighted
average number of common shares available. Diluted income (loss)
per share is computed similar to basic income (loss) per share
except that the denominator is increased to include the number of
additional common shares that would have been outstanding if the
potential common shares had been issued and if the additional
common shares were dilutive. The dilutive effect of the outstanding
warrants for the three months ended June 30, 2017, was 1,330,041
shares and an adjustment to net income of $0. Outstanding
convertible debt and convertible preferred stock were excluded as
their inclusion would have been anti-dilutive during the three
months ended June 30, 2017. The dilutive effect of the outstanding
convertible preferred stock and certain warrants for the six months
ended June 30, 2017, was 98,328,835 shares and an adjustment to net
income of $57,804. Outstanding convertible debt was excluded as its
inclusion would have been anti-dilutive during the six months ended
June 30, 2017.
Note 2 - Going Concern
The Company has continuously incurred losses from operations,
however, the operating loss in 2016 included a significant
nonrecurring expense in the amount of $818,665, primarily a
non-cash loss on the issuance of warrants for services valued at
$758,665. Without this non-cash expense, operating income was
$342,918 for 2016. The Company has a working capital balance of
768,051 on June 30, 2017, and $601,654 on December 31, 2016. The
Company has adopted a robust operating plan for 2017 that projects
existing cash and future cash to be generated from operations will
satisfy our foreseeable working capital, debt repayment and capital
expenditure requirements for at least the next twelve months.
However, minimal funding may be required at certain times during
the year due to the timing of significant expenditures such as
inventory purchases. The Company obtained $50,050 cash proceeds
from the issuance of series C preferred stock during the six months
ended June 30, 2017, and believes it will be able to obtain any
such additional funding, if required during the remainder of 2017.
We will also monitor our cash flow; assess our business plan; and
make expenditure adjustments accordingly. Based upon the Company's
current ability to obtain additional financing or equity capital
and to achieve profitable operations, it is not appropriate at this
time to continue using the going concern basis.
Note 3 – Accounts Payable and Notes Payable
During
the six months ended June 30, 2017, the WMTI reached an agreement
to settle an outstanding payable with WellDyne Health, LLC,
(“WellDyne”), that had provided shipping and consulting
services on behalf of the Company effective through September 19,
2015. As part of that settlement, WellDyne forgave $39, 709 of the
outstanding payable.
Notes Payable
During
the six months ended June 30, 2017, the Company paid a total of
$190,838 principal and $10,937 in accrued interest to three
non-related party note holders and reached an agreement with them
to forgive $10,937 in accrued interest. As a result, all three of
these notes were retired. As of June 30, 2017, the balance consists
of one note in the amount of $223,500.
Convertible notes payable - related parties
In June
of 2015, Mr. S. Oden Howell, Jr. was elected to the Board of
Directors. Mr. Howell in June of 2015 is the holder of a Senior
Secured Convertible Promissory Note Payable in the principle amount
of $600,000 and accrued interest at 10% per annum compounded. In
September of 2015, Mr. James Stuckert was elected to the Board of
Directors. Mr. Stuckert in June of 2015 is the holder of a Senior
Secured Convertible Promissory Note Payable in the principle amount
of $600,000 and accrued interest at 10% per annum compounded. The
Company’s obligations under the two notes are secured by all
the assets of the Company and its subsidiaries.
Note 4 – Commitments and Contingencies
Royalty agreements.
Effective
November 28, 2007, WCI entered into separate exclusive license
agreements with Applied Nutritionals, LLC (“Applied”)
and its founder George Petito, pursuant to which WCI obtained the
exclusive world-wide license to make products incorporating
intellectual property covered by a patent related to CellerateRX
products. In consideration for the licenses, WCI agreed to pay to
Applied the following royalties, beginning January 3, 2008: (a) an
upfront royalty of $100,000 in the aggregate, (b) an aggregate
royalty of fifteen percent (15%) of gross sales occurring during
the first year of the license; (c) an additional upfront royalty of
$400,000, in the aggregate, which was paid October, 2009; plus (d)
an aggregate royalty of three percent (3%) of gross sales for all
sales occurring after the payment of the $400,000 upfront royalty.
In addition, WCI must maintain a minimum aggregate annual royalty
payment of $375,000 for 2009 and thereafter, if the royalty
payments made do not meet or exceed that amount. The total of
unpaid royalties as of December 31, 2016, was $276,916, and it was
paid in full in January of 2017. As of June 30, 2017, the balance
of accrued royalties for the current year is $138,761.
On
September 29, 2009, the Company entered into an Asset Purchase
Agreement (the “Asset Purchase Agreement”), by and
among the Company, RSIACQ, LLC, a wholly-owned subsidiary of the
Company (RSI), Resorbable Orthopedic Products, LLC
(“Resorbable”) and Resorbable’s members, pursuant
to which, RSI acquired substantially all of Resorbable’s
assets, in exchange for (i) 500,000 shares of the Company’s
common stock, and (ii) a royalty equal to eight percent (8%) of the
net revenues generated from products sold by the Company or any of
its affiliates, which products are developed from or otherwise
utilize any of the patented technology acquired from Resorbable.
The royalty is paid to Barry Constantine Consultants, LLC for
distribution to the original patent holders, (including Mr. Barry
Constantine) and/or their heirs. The royalty expense was $8,040 for
each of the six-months ended June 30, 2017, and June 30, 2016, and
$4,020 for each of the three-months ended June 30, 2017 and June
30, 2016. Mr. Constantine is a contract employee of the Company
holding the position of Director of R&D.
Evolution Partners LLC Letter Agreement
On
April 26, 2016, the Company entered into a letter agreement with
Evolution Venture Partners LLC (“EVP”) to serve as a
strategic adviser together with Middlebury Securities, LLC
(“Middlebury”) to serve as the exclusive placement
agent to the Company in connection with the pursuit and execution
of a “Financing Transaction” or “Strategic
Transaction”. A Financing Transaction is defined as a single
transaction or a series of related transactions, a private or
public offering or issuance of equity securities or indebtedness of
the Company for cash, assumption or incurrence of indebtedness,
securities or other consideration with any party. A Strategic
Transaction is defined as any acquisition, business combination,
transfer or other disposition or any other corporate transaction
involving the assets, intellectual property, securities or
businesses of the Company, whether by way of a merger or
consolidation, license, divestiture, reorganization,
recapitalization or restructuring, issuance of indebtedness, tender
or exchange offer, negotiated purchase, leveraged buyout, minority
investment or partnership, joint venture, collaborative venture or
otherwise with any party. A Strategic Transaction does not include
any transaction identified or sourced internally by the Company or
the Company’s Board of Directors and entered into in the
Company’s ordinary course of business
The
initial term of the agreement is for a period of one (1) year from
the execution of the agreement (the “Term”); provided,
however, that such initial term will be extended for successive six
(6) month periods unless terminated by written notice by either
party. Furthermore, in the event within twelve (12) months
following the expiration of the Term (such period, the “Tail
Period”) the Company closes a Strategic Transaction or
Financing Transaction with a person or entity contacted by EVP on
behalf of the Company during the Term, then the Company shall pay
and deliver to EVP all fees, expenses and warrants as though such
transaction were consummated during the Term.
As
compensation for these services, EVP received a one-time consulting
fee of $60,000 plus a warrant to purchase up to 60 million shares
of the common stock of the Company (which number of shares was
approximately 23% of the Company’s outstanding capital stock,
calculated on a fully diluted basis, on the agreement date). The
total amount of this expense was $818,665 and is recognized in 2016
as “Other administrative expenses” in the Consolidated
Statement of Operations.
The
agreement further provides that in the event the Company closes a
Strategic Transaction during the Term, or closes a Strategic
Transaction during the Tail Period with a person or entity
contacted by EVP on behalf of the Company during the Term, the
Company shall pay to EVP a cash fee equal to five percent (5%) of
the transaction value of the Strategic Transaction. Furthermore, in
the event the Company closes a Financing Transaction during the
Term, or closes a Financing Transaction during the Tail Period with
a person or entity contacted by EVP on behalf of the Company during
the Term, the Company shall pay to EVP a cash fee equal to: (i)
five percent (5%) of the amount of the gross proceeds from the
equity sold in a Financing Transaction; and (ii) three percent (3%)
of the amount of the gross proceeds from the debt sold in a
Financing Transaction.
As of
this date, there are no Financing Transactions or Strategic
Transactions being considered by the Company and no such
transactions have occurred.
Prepaids from inventory contracts
In
March of 2017, WCI entered issued a purchase order with the
manufacturer of the CellerateRX product to purchase $190,740 of
product. A payment totaling $95,370 was made in March of 2017, with
the remaining balance of $95,370 to be paid in 2017 upon receipt of
the products. This amount is recorded as an asset in the
“Prepaid and other assets” account at June 30, 2017,
based on the contractual obligation of the parties.
Office leases
In
March of 2017, the Company executed a new office lease for office
space located at 1200 Summit Ave., Suite 414, Fort Worth, TX 76102
and relocated our corporate offices there on April 22, 2017. The
lease is effective May 1, 2017, and ends on the last day of the
fiftieth (50th) full calendar month following the effective date,
(June 30, 2021). Monthly base rental payments are as follows:
months 1-2, $0; months 3-14, $7,250; months 15-26, $7,401; months
27-38, $7,552; and months 39-50, $7,703. Rent expense is recognized
on a straight-line basis over the term of the Lease and the
resulting deferred rent liability is $14,355 as of June 30,
2017.
Payables to Related Parties
As of
June 30, 2017, and December 31, 2016, the Company had outstanding
payables to related parties totaling $22,860 and $93,655,
respectively. The payables are unsecured, bear no interest and due
on demand.
Note 5 - Stockholders’ Equity
Preferred Stock
There
are currently 5,000,000 shares of Series A Preferred Stock
authorized, with no shares of Series A Preferred Stock currently
issued or outstanding.
Effective
June 24, 2010, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series B
Convertible Redeemable Preferred Stock (the
“Certificate”) with the Texas Secretary of State,
designating 7,500 shares of Series B Preferred Stock, par value
$10.00 per share (the “Series B
Shares”). The Series B
Shares rank senior to shares of all other common and preferred
stock with respect to dividends, distributions, and payments upon
dissolution. Each of the Series B Shares is convertible at the
option of the holder into shares of common stock as provided in the
Certificate. There are currently no Series B Shares issued or
outstanding.
On
October 11, 2013, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series C
Convertible Preferred Stock (the “Certificate of
Designations”), under which it designated 100,000 shares of
Series C Preferred Stock, par value $10.00. The Series C Preferred
Stock is entitled to accruing dividends (payable, at the
Company’s options, in either cash or stock) of 5% per annum
until October 10, 2016, and 3% per annum until October 10,
2018.
The
Series C Preferred Stock is senior to the Company’s common
stock and any other currently issued series of the Company’s
preferred stock upon liquidation, and is entitled to a liquidation
preference per share equal to the original issuance price of such
shares of Series C Preferred Stock together with the amount of all
accrued but unpaid dividends thereon. Each of the Series C Shares
is convertible at the option of the holder into 1,000 shares of
common stock as provided in the Certificate. Additionally, each
holder of Series C Preferred Stock shall be entitled to vote on all
matters submitted for a vote of the holders of Common Stock a
number of votes equal to the number of full shares of Common Stock
into which such holder’s Series C shares could then be
converted. As of June 30, 2017, and December 31, 2016, there were
86,361 and 85,646 shares of Series C Preferred Stock issued and
outstanding, respectively.
On
November 13, 2013, the Company filed a Certificate of Designations,
Number, Voting Power, Preferences and Rights of Series D
Convertible Preferred Stock (the “Certificate of
Designations”), under which it designated 25,000 shares of
Series D Preferred Stock. Shares of Series D Preferred Stock are
not entitled to any preference with respect to dividend or upon
liquidation, and will automatically convert (at a ratio of
1,000-to-1) into shares of the Company’s common stock, par
value $0.001 upon approval of the Company’s stockholders (and
filing of) and amendment to the Company’s Certificate of
Incorporation increasing the number of authorized shares of Common
Stock from 100,000,000 to 250,000,000. As of June 30, 2017, and
December 31, 2016, there are no shares of Series D Preferred Stock
issued and outstanding.
On May
30, 2014, the Company filed a Certificate of Designations, Number,
Voting Power, Preferences and Rights of Series E Convertible
Preferred Stock (The “Certificate of Designations”),
under which it designated 5,000 shares of Series E Preferred Stock.
Shares of Series E Preferred Stock are not entitled to any
preference with respect to dividends or upon liquidation, and will
automatically convert (at a ratio of 1,000 shares of Common Stock
for every one share of Series E Preferred Stock) into shares of the
Company’s common stock, $0.001 par value upon approval of the
Company’s stockholders (and filing of) and amendment to the
Company’s Certificate of Incorporation increasing the number
of authorized shares of Common Stock from 100,000,000 to
250,000,000. As of June 30, 2017, and December 31, 2016, there are
no shares of Series E Preferred Stock issued and
outstanding.
On
March 7, 2017, the Company issued 715 shares of Series C Preferred
Stock for cash proceeds of $50,050.
The
Series C preferred stock earned dividends of $57,804 and $138,403
for the six months ended June 30, 2017 and 2016, respectively. As
of June 30, 2017, no Series C preferred stock dividends have been
declared.
Common Stock
On
March 9, 2017, the Company issued 150,000 shares of common stock to
each of the Company’s four Board Directors, (a total of
600,000 shares valued at $42,000).
On
March 10, 2017, the Company issued 250,000 shares of common stock
valued at $17,500 to a contract consultant upon achievement of
specified revenue targets.
Warrants
A
summary of the status of the warrants granted for the six months
ended June 30, 2017, and changes during the period then ended is
presented below:
|
|
For the Six Months
Ended
June 30,
2017
|
|
|
|
Weighted Average
Exercise Price
|
|
Outstanding at
beginning of period
|
67,246,300
|
$
0.12
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
51,300
|
-
|
|
Expired
|
-
|
-
|
|
Outstanding at end
of period
|
67,195,000
|
$
0.12
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-Average Remaining Contract Life
|
Weighted- Average Exercise Price
|
|
Weighted-Average Exercise Price
|
|
$0.06
|
4,500,000
|
1.25
|
$
0.06
|
4,500,000
|
$
0.06
|
|
0.08
|
550,000
|
0.69
|
0.08
|
550,000
|
0.08
|
|
0.09
|
625,000
|
0.79
|
0.09
|
625,000
|
0.09
|
|
0.12
|
60,000,000
|
3.82
|
0.12
|
12,000,000
|
0.12
|
|
0.15
|
1,520,000
|
0.10
|
0.15
|
1,520,000
|
0.15
|
|
$0.06 -.15
|
67,195,000
|
3.51
|
$
0.11
|
19,195,000
|
$
0.11
|
The
aggregate intrinsic value of the exercisable warrants as of June
30, 2017, was $92,750.
During
April 2016, the Company granted an aggregate of 60,000,000 common
stock warrants to a nonemployee for services which vest 20%
immediately and in additional increments of 20% based upon the
achievement of certain performance conditions including certain
financing transactions, strategic transactions and the hiring of
certain key employees. The warrants are exercisable at $0.12 per
share and have a term of five years. The fair value of the portion
of the award without performance conditions was determined to be
$758,665 using the Black-Scholes Option Pricing Model and was
expensed during the six months ended June 30, 2016.
Stock Options
A
summary of the status of the stock options granted for the
six-month period ended June 30, 2017, and changes during the period
then ended is presented below:
For
the Six Months Ended June 30, 2017
|
|
|
|
Weighted
Average
Exercise
Price
|
|
Outstanding at
beginning of period
|
1,093,500
|
$
0.15
|
|
Granted
|
-
|
-
|
|
Exercised
|
-
|
-
|
|
Forfeited
|
-
|
-
|
|
Expired
|
-
|
-
|
|
Outstanding at end
of Period
|
1,093,500
|
$
0.15
|
|
|
|
|
|
|
Stock Options
Outstanding
|
Stock Options
Exercisable
|
|
|
|
Weighted-Average
Remaining
Contract Life
|
Weighted-
Average
Exercise
Price
|
|
Weighted-Average
Exercise
Price
|
|
$
0.15
|
943,500
|
0.15
|
0.15
|
943,500
|
$
0.15
|
|
(a)
|
150,000
|
-
|
-
|
-
|
-
|
|
$
0.15
|
1,093,500
|
0.15
|
0.15
|
943,500
|
$
0.15
|
(a)
On
January 1, 2015, the company granted three tranches of options,
25,000, 25,000, and 100,000 which vest upon meeting specific
performance measures agreed upon. The measures include achieving
three specific sales targets per month for 3 consecutive months.
The exercise price and expiration date of each tranche will be set
upon achieving the targets. As of the date of this filing the
performance measures have not been met. As a result, the exercise
price is undetermined and these options are excluded from the
calculation of weighted average remaining life.
The
aggregate intrinsic value of the exercisable options as of June 30,
2017 was $0.
Note 6 – Derivative Liabilities
As of
December 31, 2013, the Company did not have a sufficient number of
common shares authorized to fulfill the possible exercise of all
outstanding warrants and the conversion of all convertible notes
payable. As a result, the Company determined that the warrants and
the embedded conversion features of the outstanding debt
instruments did not qualify for equity classification. Accordingly,
the warrants and conversion features were treated as derivative
liabilities and were carried at fair value. During the year ended
December 31, 2016, all of the outstanding convertible notes that
qualified as derivative liabilities were paid in full or converted
to common stock. As of June 30, 2017, only 10,000 warrants remained
as derivative liabilities due to the existence of reset provisions
that qualify the instruments as derivative liabilities under FASB
ASC 815.
The
following table sets forth the fair value hierarchy within our
financial assets and liabilities by level that they were accounted
for at fair value on a recurring basis as of June 30, 2017 and
December 31, 2016.
|
|
|
Fair Value
Measurement at June 30, 2017
|
|
Liabilities:
|
Carrying Value
at
June 30,
2017
|
|
|
|
|
Warrant
derivative liabilities
|
$
5
|
$
-
|
$
-
|
$
5
|
|
Total
|
$
5
|
$
-
|
$
-
|
$
5
|
|
|
|
Fair Value
Measurement at December 31, 2016
|
|
Liabilities:
|
Carrying Value
at
December 31,
2016
|
|
|
|
|
Warrant
derivative liabilities
|
$
44
|
$
-
|
$
-
|
$
44
|
|
Total
|
$
44
|
$
-
|
$
-
|
$
44
|
The
Company estimates the fair value of the derivative warrant
liabilities by using the Black-Scholes Option Pricing Model and the
derivative liabilities related to the conversion features in the
outstanding convertible notes using the lack-Scholes Option Pricing
Model assuming maximum value, Level 3 inputs, with the following
assumptions used:
|
Dividend
yield:
|
0%
|
|
Expected
volatility
|
132.50%
to 34.68%
|
|
Risk
free
interest
rate
|
0.0% to
1.07%
|
|
Expected
life
(years)
|
0.0 to
0.07
|
The
following table sets forth the changes in the fair value of
derivative liabilities for the six months ended June 30,
2017:
|
Balance, December
31, 2016
|
$
44
|
|
Gain on
change in fair value of derivative liabilities
|
(39
)
|
|
Balance, June 30,
2017
|
$
5
|
The
aggregate gain on derivative liabilities for the six months ended
June 30, 2017 was $39.
Note 7 – Related Party Transactions
On
April 25, 2016, the Company and John Siedhoff, a member of the
Company’s Board of Directors, entered into a Consulting
Agreement (the “Agreement”), pursuant to which Mr.
Siedhoff provides certain consulting services to the Company. The
Agreement provided for a payment in the amount of $200,000 to Mr.
Siedhoff as compensation for consulting services rendered to the
Company prior to April 1, 2016, as well as a consulting fee of
$15,000 per month during the term of the Agreement. The Agreement
also provides for the reimbursement of reasonable and necessary
expenses, and may be terminated by either party upon 30 days’
advance written notice. On March 10, 2017, the Agreement, was
amended to: (i) change the name of the consultant under the
Agreement from John Siedhoff to Twin Oaks Equity, LLC (an entity
controlled by Mr. Siedhoff), and (ii) increase the monthly
compensation payable from $15,000 to $20,000, effective as of
January 1, 2017. The consulting fee expense was $160,000 for the
six months ended June 30, 2017, (including a bonus of $40,000 in
recognition of 2016 results).
Note 8 – Capital Lease Obligation
In
December 2014, the Company entered into a Capital Lease agreement
for the purchase of a phone system. The agreement required a down
payment of $2,105 and 36 monthly payments of $375. The Company
recorded an asset of $13,512 and a capital lease obligation of
$13,512. Aggregate payments under the lease were $2,273 for the six
months ended June 30, 2017. At June 30, 2017, a total lease
liability of $1,493 remained which is due in full in
2017.