The accompanying notes are an integral part of the Consolidated Financial Statements
The accompanying notes are an integral part of the Consolidated Financial Statements
TRUE NATURE HOLDING, INC.
Unaudited Condensed Consolidated Statement of Cash Flows
|
|
For the Nine
|
|
|
For the Nine
|
|
|
|
Months Ended
|
|
|
Months Ended
|
|
|
|
September 30,
|
|
|
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
CASH FLOWS FROM OPERATING ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
|
$
|
(580,232
|
)
|
|
$
|
(5,037,004
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Gain on conversion of accrued interest
|
|
|
(4,110
|
)
|
|
|
-
|
|
Loss on extinguishment of debt
|
|
|
-
|
|
|
|
206,329
|
|
Debt discount amortization
|
|
|
-
|
|
|
|
157,947
|
|
Shares issued for extension of note payable
|
|
|
5,523
|
|
|
|
|
|
Stock based compensation
|
|
|
235,034
|
|
|
|
3,272,796
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Prepaid expenses
|
|
|
1,875
|
|
|
|
13,250
|
|
Accounts payable
|
|
|
218,389
|
|
|
|
514,757
|
|
Accrued liabilities
|
|
|
38,406
|
|
|
|
506,885
|
|
Due to related parties
|
|
|
23,437
|
|
|
|
77,284
|
|
Accrued interest
|
|
|
14,733
|
|
|
|
16,909
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities
|
|
|
(46,945
|
)
|
|
|
(270,847
|
)
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from acquisition of business
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by investing activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING ACTIVITIES
|
|
|
|
|
|
|
|
|
Proceeds from issuance of convertible note payable
|
|
|
-
|
|
|
|
160,000
|
|
Sale of common stock, net of issuance costs
|
|
|
47,000
|
|
|
|
51,000
|
|
Repayment of promissory notes
|
|
|
-
|
|
|
|
(66,338
|
)
|
Proceeds from promissory notes
|
|
|
-
|
|
|
|
98,000
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities
|
|
|
47,000
|
|
|
|
242,662
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
55
|
|
|
|
(28,185
|
)
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of period
|
|
|
-
|
|
|
|
28,185
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period
|
|
$
|
55
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
-
|
|
|
$
|
-
|
|
Income taxes paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
NON-CASH INVESTING AND FINANCING ACTIVITIES:
|
|
|
|
|
|
|
|
|
Stock issued for satisfaction of payable and accrued interest
|
|
$
|
39,860
|
|
|
$
|
493,671
|
|
Beneficial Conversion Feature
|
|
$
|
-
|
|
|
$
|
9,375
|
|
Conversion of debt to common stock
|
|
$
|
-
|
|
|
$
|
103,671
|
|
Conversion of accounts payable to common stock
|
|
$
|
-
|
|
|
$
|
390,000
|
|
Discount related to issuance of debentures, warrants and convertible notes
|
|
$
|
-
|
|
|
$
|
118,750
|
|
Stock committed to be issued for conversion of accounts payable
|
|
$
|
76,986
|
|
|
$
|
-
|
|
Par value of shares returned for cancellation
|
|
$
|
21,500
|
|
|
$
|
-
|
|
Stock issued for cash received in prior period
|
|
$
|
500
|
|
|
$
|
-
|
|
Note payable issued to related party for accounts payable to related party
|
|
$
|
75,000
|
|
|
$
|
-
|
|
The accompanying notes are an integral part of the Consolidated Financial Statements
TRUE NATURE HOLDING, INC.
Notes to Consolidated Financial Statements
(Unaudited)
Note 1 – Description of Business
True Nature Holding, Inc. (the “Company”), previously known as Trunity Holdings, Inc., became a publicly-traded company through a reverse merger with Brain Tree International, Inc., a Utah corporation (“BTI”). BTI was incorporated on July 26, 1983 to specialize in the development of high technology products or applications including, but not limited to, electronics, computerized technology, new technological product fields, and precious metals. Trunity Holdings, Inc. was the parent company of the prior educational business, named Trunity, Inc., which was formed on July 28, 2009 through the acquisition of certain intellectual property by its three founders.
True Nature Holding, Inc. is a corporation organized under the laws of the state of Delaware with principal offices located in Atlanta, Georgia. On January 16, 2016, the Company changed the equity structure that included a reverse split of 1 for 101, such that all holders of 101 shares of common stock issued and outstanding prior to the effective date of the reverse split would own 1 share of common stock upon the effect date of the reverse split. In addition, the Company amended its Articles of Incorporation (i) to increase its authorized capital stock to 510,000,000 shares which consists of 500,000,000 shares of common stock, par value $0.01 per share, and 10,000,000 shares of preferred stock, par value $0.01 per share and (ii) to change its name from Trunity Holdings, Inc. to True Nature Holding, Inc. (there was no change in the stock symbol “TNTY”).
Note 2 – Summary of Significant Accounting Policies
Basis of Accounting
– The consolidated financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”).
Use of Estimates -
The preparation of these financial statements requires our management to make estimates and assumptions about future events that affect the amounts reported in the financial statements and related notes. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgment.
Comprehensive Loss –
Comprehensive income (loss) as defined includes all changes in equity during a period from non-owner sources. Items included in the Company’s comprehensive loss consist of unrealized gains (losses) on securities.
Cash -
All highly liquid investments with a maturity date of three months or less at the date of purchase are cash equivalents.
Revenue Recognition-
The restructured entity of True Nature Holding, Inc. which is focused on acquiring a series of businesses which specialize in compounding pharmacy activities, has recognized no revenues through December 31, 2016. In fiscal 2017, the Company will recognize revenues if all of the following criteria have been met: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured.
Stock-Based Compensation
-
We recognize the compensation costs of share-based compensation arrangements based on the grant-date fair value and recognize the costs in the financial statements over the period during which employees are required to provide services. Share-based compensation cost for stock options are estimated at the grant date based on each option’s fair-value as calculated by the Black-Scholes-Merton (“BSM”) option-pricing model. Share-based compensation arrangements may include stock options, restricted share plans, performance based awards, share appreciation rights and employee share purchase plans. Such compensation amounts, if any, are amortized over the respective vesting periods of the option grant.
Equity instruments issued to those other than employees are recorded on the basis of the fair value of the instruments. In general, the measurement date is when either a (a) performance commitment, as defined, is reached or (b) the earlier of (i) the non-employee performance is complete or (ii) the instruments are vested. The measured value related to the instruments is recognized over a period based on the facts and circumstances of each particular grant.
Convertible Instruments
-The Company reviews the terms of convertible debt and equity instruments to determine whether there are conversion features or embedded derivative instruments including embedded conversion options that are required to be bifurcated and accounted for separately as a derivative financial instrument. In circumstances where the convertible instrument contains more than one embedded derivative instrument, including conversion options that are required to be bifurcated, the bifurcated derivative instruments are accounted for as a single compound instrument. Also, in connection with the sale of convertible debt and equity instruments, the Company may issue free standing warrants that may, depending on their terms, be accounted for as derivative instrument liabilities, rather than as equity. When convertible debt or equity instruments contain embedded derivative instruments that are to be bifurcated and accounted for separately, the total proceeds allocated to the convertible host instruments are first allocated to the fair value of the bifurcated derivative instrument. The remaining proceeds, if any, are then allocated to the convertible instruments themselves, usually resulting in those instruments being recorded at a discount from their face amount. When the Company issues debt securities, which bear interest at rates that are lower than market rates, the Company recognizes a discount, which is offset against the carrying value of the debt. Such discount from the face value of the debt, together with the stated interest on the instrument, is amortized over the life of the instrument through periodic charges to income. In addition, certain conversion features are recognized as beneficial conversion features to the extent the conversion price as defined in the convertible note is less than the closing stock price on the issuance of the convertible notes.
Common Stock Purchase Warrants-
The Company accounts for common stock purchase warrants in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 815, Accounting for Derivative Instruments and Hedging Activities. As is consistent with its handling of stock compensation and embedded derivative instruments, the Company’s cost for stock warrants is estimated at the grant date based on each warrant’s fair-value as calculated by the BSM option-pricing model value method for valuing the impact of the expense associated with these warrants.
Stockholders’ Equity-
Shares of common stock issued for other than cash have been assigned amounts equivalent to the fair value of the service or assets received in exchange. Common stock share and per share amounts in these financial statements have been adjusted for the effects of a 1 for 101 reverse stock split that occurred in January 2016.
Per Share Data-
Basic loss per share is computed by dividing net loss by the weighted average number of common shares outstanding for the year. Diluted loss per share is computed by dividing net loss by the weighted average number of common shares outstanding plus common stock equivalents (if dilutive) related to warrants, options and convertible instruments.
The Company has excluded all common equivalent shares outstanding for warrants, options and convertible instruments to purchase common stock from the calculation of diluted net loss per share because all such securities are antidilutive for the periods presented. As of December 31, 2016 and September 30, 2017, the Company had no outstanding warrants or options.
Income Taxes-
The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of events that have been recognized in the Company’s consolidated financial statements or tax returns. In estimating future tax consequences, the Company generally considers all expected future events other than possible enactments of changes in the tax laws or rates.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. The Company has determined that a valuation allowance is needed due to recent taxable net operating losses, the sale of profitable divisions and the limited taxable income in the carry back periods. The effect on deferred tax assets and liabilities of a change in tax rates is recognized as income or expense in the period that includes the enactment date. Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes and certain tax loss carryforwards, less any valuation allowance.
The Company accounts for uncertain tax positions as required in that a position taken or expected to be taken in a tax return is recognized in the consolidated financial statements when it is more likely than not (i.e., a likelihood of more than fifty percent) that the position would be sustained upon examination by tax authorities. A recognized tax position is then measured at the largest amount of benefit that is greater than fifty percent likely of being realized upon ultimate settlement. The Company does not have any material unrecognized tax benefits. The Company recognizes accrued interest and penalties related to unrecognized tax benefits as components of interest expense and other expense, respectively, in arriving at pretax income or loss. The Company does not have any interest and penalties accrued. The Company is generally no longer subject to U.S. federal, state, and local income tax examinations for the years before 2012.
Business Combinations-
The Company accounts for business combinations by recognizing the assets acquired, liabilities assumed, contractual contingencies, and contingent consideration at their fair values on the acquisition date. The purchase price allocation process requires management to make significant estimates and assumptions, especially with respect to intangible assets, estimated contingent consideration payments and pre-acquisition contingencies. Examples of critical estimates in valuing certain of the intangible assets we have acquired or may acquire in the future include but are not limited to:
●
|
future expected cash flows from product sales, support agreements, consulting contracts, other customer contracts, and acquired developed technologies and patents; and
|
●
|
discount rates utilized in valuation estimates.
|
Unanticipated events and circumstances may occur that may affect the accuracy or validity of such assumptions, estimates or actual results. Additionally, any change in the fair value of the acquisition-related contingent consideration subsequent to the acquisition date, including changes from events after the acquisition date, such as changes in our estimates of relevant revenue or other targets, will be recognized in earnings in the period of the estimated fair value change. A change in fair value of the acquisition-related contingent consideration or the occurrence of events that cause results to differ from our estimates or assumptions could have a material effect on the consolidated financial position, statements of operations or cash flows in the period of the change in the estimate.
Impairment of Long-Lived Assets-
Long-lived assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to estimated undiscounted future cash flows expected to be generated by the asset. If the carrying amount of an asset exceeds its estimated future cash flows, an impairment charge is recognized in the amount by which the carrying amount of the asset exceeds the fair value of the asset. Assets to be disposed would be separately presented in the consolidated balance sheet and reported at the lower of the carrying amount or fair value less costs to sell, and are no longer depreciated. The assets and liabilities of a disposal group classified as held-for-sale would be presented separately in the appropriate asset and liability sections of the consolidated balance sheet, if material. No impairment losses have been realized for the periods presented.
Financial Instruments and Fair Values-
The fair value of a financial instrument represents the amount at which the instrument could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. Fair value estimates are made at a specific point in time, based upon relevant market information about the financial instrument. In determining fair value, we use various valuation methodologies and prioritize the use of observable inputs. We assess the inputs used to measure fair value using a three-tier hierarchy based on the extent to which inputs used in measuring fair value are observable in the market:
Level 1 – inputs include exchange quoted prices for identical instruments and are the most observable.
Level 2 – inputs include brokered and/or quoted prices for similar assets and observable inputs such as interest rates.
Level 3 – inputs include data not observable in the market and reflect management judgment about the assumptions market participants would use in pricing the asset or liability.
The use of observable and unobservable inputs and their significant in measuring fair value are reflected in our hierarchy assessment. The carrying amount of cash, prepaid assets, accounts payable and accrued liabilities approximates fair value due to the short-term maturities of these instruments. Because cash and cash equivalents are readily liquidated, management classifies these values as Level 1. The fair value of the debentures, approximate their book value as the instruments are short-term in nature and contain market rates of interest. Because there is no ready market or observable transactions, management classifies the debentures as Level 3.
Recently Issued Accounting Standards-
There are various other updates recently issued, most of which represent technical corrections to the accounting literature or application to specific industries and are not expected to a have a material impact on the Company’s consolidated financial position, results of operations or cash flows.
N
ote 3 – Financial Condition and Going Concern
As of September 30, 2017, the Company had cash on hand of $55 and current liabilities of $1,245,993 and has incurred a loss from operations. True Nature Holding’s principal operation is the acquisition of compounding pharmacy companies. The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding to execute its business plan.
As a result of these factors, there is substantial doubt about the ability of the Company to continue as a going concern. The Company’s continuance is dependent on raising capital and generating revenues sufficient to sustain operations. The Company believes that the necessary capital will be raised and has entered into discussions to do so with certain individuals and companies. However, as of the date of these consolidated financial statements, no formal agreement exists.
The accompanying consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts classified as liabilities that might be necessary should the Company be forced to take any such actions.
Note 4 – Related Party Transactions
On January 25, 2016 two board members were each awarded 100,000 of shares of the Company’s common stock in exchange for their services as board members. The shares were valued at $145,000 based on the closing market price on the date of grant.
On April 25, 2016 a board member was awarded 100,000 shares of the Company’s common stock in exchange for his services on the board and non-qualified stock options to purchase up to 1,000,000 shares of the Company’s common stock in consideration for his services as CEO. The stock options were subsequently cancelled in conjunction with his resignation as CEO on September 23, 2016, and 100,000 shares of restricted common stock valued at $47,680, based on the closing market price on the date of grant, in conjunction with the cancellation of all amounts owed as of the date of his resignation.
On May 25, 2016, a board member was awarded 100,000 shares of the Company’s common stock, valued at $235,000 based on the closing market price on the date of grant, in exchange for his service as a member of the board.
On September 23, 2016, the Company appointed three new directors to the Board of Directors, and each received 100,000 shares of common stock, each valued at $27,990 based on the closing market price on the date of grant, in conjunction with their appointments.
On September 27, 2016, the Company accepted the resignations of its former Chairman and CFO and former CEO. The former CFO had a consulting agreement in the amount of $10,000 per month for professional fees. The Company’s former CEO had an employment agreement effective June 7, 2016 pursuant to which he received a monthly salary in the amount of $12,500 per month for the remainder of the 2016 calendar year, $17,500 per month for the 2017 calendar year, $22,500 per month for the 2018 calendar year and $25,000 per month for the 2019 calendar year. No payments have been made to the former CEO. Both of these agreements were cancelled and the Company has no further obligation to either individuals going forward. Further, the former CFO has agreed to return for cancellation 2,000,000 shares of restricted common stock of the Company, and to use 100,000 shares of Company common stock to settle an obligation to a former employee. The former CEO had been awarded options for the purchase of 1,000,000 shares of restricted common stock, which were all cancelled in conjunction with his resignation.
In addition, the Company had a consulting agreement with a shareholder in the amount of $10,000 per month for professional fees. The shareholder and the Company have agreed to terminate the agreement as of September 30, 2016. In consideration of all amounts owed, the Company issued 966,666 shares of common stock, valued at $290,000 based on the closing market price on the date of grant, and the consultant cancelled $290,000 in amounts owed. The amounts owed consist of a) $80,000 in advances to the Company, or obligations paid to the Company, b) $120,000 in consulting fees owed and c) reimbursement of $90,000 of costs related to the formation of Newco4pharmacy, LLC, which was acquired by the Company in December 2015.
On December 30, 2016, the Board of Directors of the Company issued 100,000 shares of restricted common stock to a consultant, who subsequently became the CEO and CFO of the Company as compensation for his contribution during the prior 90 days. The charge to earnings for this issuance was $19,080.
On December 30, 2016, the Board voted to issue 100,000 shares of common stock to each of the Company’s Board members as additional compensation for services during the prior 90 days. Each of the recipients abstained from the vote on their issuance so as not to be voting on their own issuance; however, each member of the Board voted for the issuance of shares to their fellow Board members. The charge to earnings for this issuance was $19,080, for each of the three directors, or a total of $57,240.
The Company had accounts payable from related party transactions of $106,866 as of December 31, 2016. The balance was made up of the following: a) two members of the Board of Directors were due $12,000 each for compensation expense that had not been paid; b) the former CEO and CFO of the Company were owed for reimbursable expenses that totaled $75,866; and c) a shareholder paid for expenses of the Company directly to several vendors in the aggregate amount of $7,000.
On January 24, 2017, the Board granted to a member of Board of Directors 25,000 shares of restricted common stock as consideration for services. The member of the Board of Directors abstained from the vote as to not be voting on his own issuance. The value for the issuance was $3,500, based on the closing price on the date of the grant.
On January 25, 2017, the Board granted the newly appointed CEO and CFO 500,000 shares of restricted common stock as part of his employment compensation. The shares are subject to reverse vesting that requires the executive to remain with the Company for three years (shares vest 1/3 per year) and achieve certain management objectives. Effective July 7, 2017, the executive resigned and 400,000 of the shares were cancelled (see Note 10). The expense to the Company was $15,236 during the nine months ended September 30, 2017.
On February 7, 2017, the Board appointed one additional member to the Board of Directors. The directed received the customary 100,000 shares of restricted common stock for his service. The cost to the Company for this issuance was $11,000, based on the closing price on the date of the grant. The director offered to purchase 200,000 shares of restricted common stock at the same time. The consideration for the sale was $22,000. The transaction had no impact on earnings as the shares were priced at the same cost as the closing price on the date of the purchase.
On February 14, 2017, the Board of Directors authorized the issuance of restricted common stock to convert amounts owed to a shareholder for consulting services. A total of $36,210 of accounts payable was converted at a price of $0.14 per share into 258,637 shares of the Company’s common stock. This calculation is based on the closing price of the Company’s common stock on the date of the grant.
On February 14, 2017, the Board of Directors authorized the issuance of restricted common stock to convert amounts owed to a vendor. A total of $20,000 of accounts payable was converted at a price of $0.14 per share into 142,857 shares of the Company’s common stock. This calculation is based on the closing price of the Company’s common stock on the date of the grant.
On February 14, 2017, the Board authorized the issuance of restricted shares of common stock in consideration for the conversion of the prior three month’s salary ($4,000 per month for a total of $12,000) of 2016 owed to a director serving as the Company’s Interim President. The Company issued the director 85,714 shares of common stock at $0.14 per share. The issuance of the foregoing shares was in settlement of all outstanding past debts owed to the director by the Company until February 14, 2017. As the conversion amount equals the share value, no gain or loss was recorded.
On February 14, 2017, the Board granted the newly appointed COO 500,000 shares of restricted common shares as part of his employment compensation. The shares are subject to reverse vesting which requires the executive to remain with the Company for three years (shares vest 1/3 per year) and achieve certain management objectives. The expense to the Company was $11,088.
On March 8, 2017, the Board authorized the issuance of 100,000 restricted common stock to a newly appointed member of the non-executive Advisory Board. The stock was priced at the closing price of the stock at that date which was $0.30. The expense to the Company was $30,000.
On March 8, 2017, the Board authorized the issuance of 100,000 restricted common stock to an advisor with experience in retail pharmacy operations. The stock was priced at the closing price of the stock at that date which was $0.30. The expense to the Company was $30,000.
On April 28, 2017, the Board granted the newly appointed Director of Corporate Communications 500,000 shares of restricted common shares as part of his employment compensation. The shares are subject to reverse vesting that requires the executive to remain with the Company for three years (shares vest 1/3 per year) and achieve certain management objectives. Effective August 1, 2017, the executive resigned and as a result 400,000 of the 500,000 shares were cancelled. The Company charged to operations the amount of $48,000 representing the fair value of 100,000 shares of common stock during the nine months ended September 30, 2017.
On July 7, 2017, the Company accepted the resignation of its CEO, who also held the positions of interim CFO and interim Secretary. At the time of his hire, the CEO was granted 500,000 restricted shares as part of his executive compensation plan. The shares were issued subject to reverse vesting conditions. At July 7, 2017, 100,000 shares of restricted common stock have vested and the remaining 400,000 restricted shares will be canceled. The CEO has not been paid any cash compensation. During his tenure at the Company, he accrued $33,333 in salary, which will only be paid after the Company has sufficient financing to support its operations. Dr. Jordan Balencic, the Chairman of the Board of Directors, will assume the role of interim CEO and interim CFO until a successor is appointed.
On July 10, 2017, the Company entered into an agreement with a related party whereby the amount of $75,000 in accounts payable due to the related party for services performed was converted to a note payable. The note payable is due 90 days from the date the Company receives funding in the amount of $1,000,000. The note is non-interest bearing unless it is not paid when due, at which time it will accrue interest at the rate of 12% per annum.
On August 10, 2017, the Company issued 500,000 shares of restricted common stock, subject to reverse vesting conditions, to the Company’s Chief Operating Officer in conjunction with his engagement effective as of February 14, 2017.
On August 10, 2017, the Company cancelled 2,150,000 shares of common stock previously held by its former Chief Executive Officer. The par value of these shares in the amount of $21,500 was charged to additional paid-in capital on the Company's balance sheet at September 30, 2017.
On August 7, 2017, the Company committed to issue 25,000 shares of common stock to a lender for the extension of the term of a note payable. The fair value of these shares in the amount of $3,573 was charged to interest expense during the three months ended September 30, 2017, and is reported as stock payable on the Company's balance sheet at September 30, 2017.
On August 23, 2017, the Company committed to issue 30,000 shares of common stock to a consultant for services. The fair value of these shares in the amount of $2,700 was charged to operations during the three months ended September 30, 2017, and is reported as stock payable on the Company's balance sheet at September 30, 2017.
On September 26, 2017, the Company committed to issue 25,000 shares of common stock to a lender for the extension of the term of a note payable. The fair value of these shares in the amount of $1,950 was charged to interest expense during the three months ended September 30, 2017, and is reported as stock payable on the Company's balance sheet at September 30, 2017.
On September 26, 2017, the Company committed to issue 200,000 shares of common stock to an employee as compensation. The fair value of these shares in the amount of $15,600 was charged to operations during the three months ended September 30, 2017, and is reported as stock payable on the Company's balance sheet at September 30, 2017.
On September 26, 2017, the Company committed to convert accounts payable due to a consultant to the Company in the amount of $76,986 into 987,000 shares of common stock. The amount of $76,986 is reported as stock payable on the Company's balance sheet at September 30, 2017
On September 26, 2017, the Company committed to issue 200,000 shares of common stock to each of two board members, or an aggregate of 400,000 shares, for services performed. The fair value of $31,200 was charged to operations during the three months ended September 30, 2017.
On March 18, 2016, the Company issued a 12% Convertible Promissory Note (the “Convertible Note A”) in the principal amount of $60,000 to a lender. Upon issuance of the Convertible A Note, the lender was awarded 15,000 restricted common stock as an origination fee which includes piggy back registration rights. On September 19, 2016, the Company issued the lender an additional 15,000 restricted common stock at a price of $0.30 per share to extend the term of the loan agreement indefinitely. The cost to the Company was $4,050 in interest expense. On August 10, 2017, the Company issued 25,000 shares of common stock with a fair value of $3,750 for accrued interest through August 1, 2017 in the amount of $7,860. The Company recognized a gain in the amount of $4,110 on this transaction. Accrued interest at September 30, 2017 and December 31, 2016, was $1,200 and $3,660, respectively.
Pursuant to the terms of the Convertible Note A, the Company is obligated to pay monthly installments of not less than $1,000 the first of each month commencing the month following the execution of the Convertible Note A until its maturity on September 16, 2016 at which time the Company is obligated to repay the full principal amount of the Convertible Note A. The Convertible Note A is convertible by the holder at any time into shares of the Company’s common stock at price of $1.00 per share, and throughout the duration of the note, the holder has the right to participate in any financing the Company may engage in upon the same terms and conditions as all other investors. The Company allocated the face value of the Convertible Note A to the shares and the note based on relative fair values, and the amount allocated to the shares of $18,750 was recorded as a discount against the note.
The beneficial conversion feature of $9,375 was recorded as a debt discount with an offsetting entry to additional paid-in capital decreasing the note payable and increasing debt discount. The debt discount is being amortized to interest expense over the term of the debt. For the year ended December 31, 2016, debt discount amortization related to the Convertible Note A was $28,125. There was no amortization of the discount during the 9 months ended September 30, 2017.
On May 19, 2016, the Company issued a 10% Convertible Promissory Note (the “Convertible Note B”) in the principal amount of $100,000 to a lender. Upon issuance of the Convertible Note B, the lender was awarded 24-month warrants to purchase up to 66,666 shares of the Company’s common stock at an exercise price of $2.50 per share. The warrants were valued at $103,086 with $100,000 as a debt discount; the additional $3,086 was expensed as additional interest expense. The debt discount was fully amortized during the year ended December 31, 2016. This obligation, including all warrants, penalties and interest due was cancelled as of September 30, 2016 in consideration of the issuance of 400,000 shares of restricted common stock valued at $120,000. At the time of conversion, the principal amount of the note was approximately $100,000 and total accrued interest thereon was $3,671. Therefore, as a result of the conversion, a loss of $16,329 recognized in the nine months ended September 30, 2016.
August 2014 Convertible Debentures (Series C)
As part of the restructuring all debentures issued by Trunity Holdings, Inc., to fund the former, educational business were eligible to participate in a debt conversion; however, one debenture holder that was issued a Series C Convertible Debenture (the “Series C Debenture”) in August 2014 with an aggregate face value of $100,000 in exchange for the cancellation of Series B Convertible Debentures with a carrying value of $110,833 did not convert such debenture. The Series C Debenture accrues interest at an annual rate of 10%, matured November 2015, and is convertible into our common stock at a conversion rate of $20.20 per share. The holders of the Series C Debenture also received five year warrants to acquire up to 4,950 shares post-split of common stock for an exercise price of $20.20 per share,. The former educational business allocated the face value of the Series C Debenture to the warrants and the debentures based on its relative fair values, and allocated to the warrants, which was recorded as a discount against the Series C Debenture, with an offsetting entry to additional paid-in capital. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs within discontinued operations. As of September 30, 2017 and December 31, 2016, the carrying value of this Series C Debenture was $110,833 and accrued interest expense of $32,733 and $24,420, respectively. The Series C Debenture is currently in default.
November 2014 Convertible Debentures (Series D)
As part of the restructuring all debentures issued by Trunity Holdings, Inc., to fund the former, educational business were eligible to participate in a debt conversion; however, one debenture holder that was issued a Series D Convertible Debenture (the “Series D Debenture”) in November 2014 with an aggregate face value of $10,000 in exchange for the cancellation of Series B Convertible Debenture with a carrying value of $11,333 did not participate in the debt conversion restructuring. The Series D Debenture accrues interest at an annual rate of 12%, matured November 2015, and is convertible into our common stock at a conversion rate of $16.67 per share. The holders of the Series D Debenture also received five year warrants to acquire up to 495 shares of common stock for an exercise price of $20.20 per share on a post-split basis. The former educational business allocated the face value of the Series D Debenture to the warrants and the debentures based on their relative fair values, and allocated to the warrants, which was recorded as a discount against the Series D Debenture, with an offsetting entry to additional paid-in capital. The discount was fully expensed upon execution of the new debentures as debt extinguishment costs within discontinued operations. As of September 30, 2017 and December 31, 2016, the carrying value of the Series D Debenture was $11,333 and accrued interest expense of $3,961 and $2,941, respectively. The Series D Debenture is currently in default.
Short term loan
As a result of the acquisition of P3 Compounding of Georgia, LLC (“P3”) the Company had a short-term convertible note with a loan agency in the principal amount of $52,000 for the purchase of future sales and credit card receivables of P3. Under the terms of the receivable purchase agreement, the Company purchased an advance of $50,000 plus $2,000 for origination costs with a 10.5% daily interest rate to be repaid over 160 days at a repayment amount of $451.75 per day. Upon maturity, the total repayment amount will be $72,280. As of December 31, 2016 the carrying value of this short-term loan was $26,925. For year ending December 31, 2016, no interest expense related to this loan was recorded in the Company’s consolidated financial statements as the effective date of acquisition was the last day of the quarter. The origination fee and interest were recorded as debt discount on the date of issuance in the amount of $22,280 and $22,280 was amortized during the year ending December 31, 2016. Although the note is in default, the lender and the Company have agreed not to take any action until such time as repayment can be arranged.
July 2017 Note
On July 10, 2017, the Company negotiated the reclassification of $75,000 in accounts payable to a loan payable (the “July 2017 Note”). The July 2017 Note is due no later than 90 days after the receipt of a minimum of $1,000,000 of funding. The July 2017 Note bears no interest; however, if it is not paid by the due date, interest will accrue at the rate of 12% per year.
Note 6 – Stockholders’ Deficit
Sale of Common Stock
– During the fiscal year of 2016, the Company raised gross proceeds of $60,000 through the sale of 120,000 shares of common stock to accredited investors in private placement transactions at a price of $0.50 per share., of which 50,000 shares were issued during the nine months ended September 30, 2017. The Company incurred $9,000 of securities issuance costs representing commissions paid to broker-dealers who assisted with these transactions.
During the nine months ending September 30, 2017, the Company raised gross proceeds of $47,000 through the sale of 250,000 shares of common stock to a new member of the Board of Directors and a third party investor at a price of $0.11 per share.
Shares for Stock Based Compensation
– During the fiscal year of 2016, in connection with services rendered, the Company issued 4,070,000, restricted shares of the Company’s common stock valued at $3,377,735 in exchange for services conducted on behalf of the Company. The value of these shares was based on the closing market price on the respective date of grant.
During the nine months ending September 30, 2017, in connection with services rendered, the Company issued 1,083,637 restricted shares of the Company’s common stock valued at $123,498 in exchange for services conducted on behalf of the Company. The value of these shares was based on the closing market price on the respective date of grant. The Company also has an additional 1,230,000 shares to be issued valued at $112,736 included in stock payable.
Shares issued for convertible note payable issuance
– During fiscal year of 2016, in connection with conversion of a six-month convertible promissory note, the Company issued 15,000 shares of the Company’s common stock with a fair value of $18,750 that was valued based on the closing market price on the date of the grant. The shares were issued in consideration of the interest and fees due on the loan.
During the nine months ending September 30, 2017, in connection with a convertible promissory note, the Company issued 15,000 shares of the Company’s common stock with a fair value of $1,500 that was valued based on the closing market price on the date of the grant. The Company also committed to issue an additional 50,000 shares with a value of $5,523. The shares were issued in consideration of the extension of the due date of the loan. The Company also issued 25,000 shares of common stock with a fair value of $3,750 for the conversion of accrued interest in the amount of $7,860. The Company recorded a gain in the amount of $4,110 on this transaction.
Shares issued for conversion of accounts payable
- During the fiscal year of 2016, the Company converted several accounts payable amounts to stock. The company issued 1,066,666 shares of common stock valued at $580,000 to settle the outstanding accounts payable. As a result of the settlements, a loss of $190,000 was recorded due to the fair value of the shares exceeding the fair value of accounts payable settled.
During the nine months ending September 30, 2017, the Company converted several accounts payable amounts to shares of common stock. The Company issued 228,571 shares of common stock valued at $32,000 to settle the outstanding accounts payable. The Company also committed to issue 987,000 shares of common stock valued at $76,986 to settle additional outstanding accounts payable.
Shares issued for conversion of debt
- On September 30, 2016, a member of the board of advisors elected to convert his loan to the Company in the amount of $100,000 and accrued interest thereon into 400,000 shares of the Company’s common stock. At the time of conversion, the principal amount of the note was approximately $100,000 and total accrued interest thereon was $3,671. Therefore, as a result of the conversion, there was a loss of $16,329 recognized in the fiscal year ended December 31, 2016.
Debt beneficial conversion feature for convertible note payable
– During the fiscal year ended December 31, 2016, the Company raised gross proceeds of $201,780 pursuant to a convertible notes payable that allocated the face value of the note to the shares and debt based on their relative fair values and, resulted in the recording of beneficial conversion features totaling $67,062 as a discount against the notes, with an offsetting entry to additional paid-in capital. The discount is being amortized into interest expense over the term of the note.
Stock payable for debt
- Two notes issued in fiscal 2016 contained $10,000 of stock payable each which remained outstanding as of September 30, 2017.
Stock returned for cancellation
– On August 10, 2017, the Company received for cancellation 2,150,000 shares held by its former Chief Executive Officer.
A summary of options issued, exercised and cancelled are as follows:
|
|
Shares
|
|
|
Weighted- Average
Exercise Price ($)
|
|
|
Weighted- Average
Remaining
Contractual Term
|
|
|
Aggregate Intrinsic
Value ($)
|
|
Outstanding at December 31, 2016
|
|
|
67,879
|
|
|
$
|
21.40
|
|
|
|
6.17
|
|
|
|
—
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Cancelled
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
67,879
|
|
|
$
|
21.40
|
|
|
|
5.42
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
67,879
|
|
|
$
|
21.40
|
|
|
|
5.42
|
|
|
|
—
|
|
Subsequent to the restructuring of the Company and the spin-out, the Company had warrants to purchase common stock outstanding that were not terminated and have continued as part of the operations as detailed below. The warrants were adjusted for a 1 for 101 stock split due to the spin-out and restructuring plan as authorized. All warrants outstanding as of September 30, 2017 are scheduled to expire at various dates through 2019. A summary of warrants issued, exercised and expired are as follows:
|
|
Shares
|
|
|
Weighted- Average
Exercise Price ($)
|
|
|
Weighted- Average
Remaining
Contractual Term
|
|
Outstanding at December 31, 2016
|
|
|
142,653
|
|
|
$
|
17.42
|
|
|
|
2.25
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2017
|
|
|
142,653
|
|
|
$
|
17.42
|
|
|
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2017
|
|
|
142,653
|
|
|
$
|
17.42
|
|
|
|
1.50
|
|
Note 9 – Commitments and Contingencies
Legal
National Council for Science and the Environment, Inc. v. Trunity Holdings, Inc., Case No. 2015 CA 009726 B, Superior Court for the District of Columbia, Civil Division.
This action was filed on December 16, 2015 by the National Council for Science and the Environment, Inc. (“NCSE”) in the state court in the District of Columbia against Trunity Holdings, Inc. (“Trunity”) and alleges claims for breach of contract. Acknowledgement of indebtedness and settlement agreement and quantum meruit arising out of an agreement entered into between NCSE and Trunity in 2014. The complaint seeks damages in the amount of $177,270, inclusive of attorney’s fees, costs and accrued interest, continuing interest in the amount of 12% per annum and attorney’s fees and costs of collection relating to the case. The Company, in its answer dated January 27, 2016, denied the material allegations made by NCSE, asserted a number of affirmative defenses and filed a counterclaim alleging claims for fraud, negligent misrepresentation, breach of fiduciary duty, breach of contract and unjust enrichment. In its counterclaim, the Company sought actual and compensatory damages against NCSE that it believes exceed the amount sought by NCSE on its claims, pre-judgment interest, punitive damages and all costs and expenses, including attorney’s fees, incurred by the Company in bringing its claims against NCSE.
On September 23, 2016, the Company settled this obligation with an agreement to pay $48,500 to NCSE if paid by November 4, 2016, and $75,000 if paid later. The Company has not paid the amounts as of the date of this filing, and has recorded the obligation at $75,000.
Carlton Fields Jorden Burt, P.A. vs. True Nature Holding, Inc., f/k/a/ Trunity Holdings, Inc.
This action was filed on May 18, 2017 by a law firm that represented the Company prior to the spin-out of the educational software business in 2016 with the intent of collection past due invoices in the aggregate amount of $241,828. The Company believes it has strong defenses against any such action and anticipates a settlement upon completion of certain funding activities. The Company has recorded a liability in the amount of $241,828 on its balance sheet at September 30, 2017.
230 Commerce Way, LLC vs. Trunity, Inc.
A former landlord of the Company has filed an action in New Hampshire to collect on rent from a lease that existed prior to 2013. While this is an obligation of the spin-out business, and not the Company, we expect to expend approximately $20,000 to defend ourselves in this action.
Trunity, Inc.
The spin-out that now owns the former educational software business has been informed that they owe the Company from the obligations of the NCSE settlement, and the costs of the legal action. We intend to take all actions available to us to collect on these amounts.
Note 10 – Subsequent Events
On September 27, 2017, the Board appointed Thomas Burnell as President and Chief Executive Officer of the Company effective as of October 2, 2017. On November 19, 2017 the Chairman of the Board of the Company and Mr. Burnell agreed that it was in the best interest of both parties to terminate his employment agreement, and on November 29, 2017, the Company and Mr. Burnell agreed on definitive terms for his termination agreement.
Mr. Burnell shall be issued 80,000 shares of restricted common stock that had been agreed upon in conjunction with his hiring, but will not receive any other consideration, compensation or expense reimbursement. The Chairman of the Board reported that the scope of the responsibilities of the job exceeded Mr. Burnell's expectations, and there were no conflicts associated with his departure.
We evaluated subsequent events after the balance sheet date through the date the financial statements were issued. Other than the events described above, we did not identify any additional material events or transactions which occurred during this subsequent event reporting period that required further recognition or disclosure in these financial statements.