Hybrid Coating Technologies Inc.
Consolidated Financial Statements
December 31, 2016 and
2015
-26-
Hybrid Coating Technologies Inc.
Consolidated Financial Statements
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors of
Hybrid Coating Technologies
Inc.
Daly City, California
We have audited the accompanying consolidated balance sheets of
Hybrid Coating Technologies, Inc. as of December 31, 2016 and 2015, and the
related consolidated statements of operations, stockholders deficit and cash
flows for the years then ended. Hybrid Coating Technologies Inc.s management is
responsible for these consolidated financial statements. Our responsibility is
to express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement. The Company
is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of
internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control
over financial reporting. Accordingly, we express no such opinion. An audit also
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial position of
Hybrid Coating Technologies Inc. as of December 31, 2016 and 2015, and the
results of its operations and its cash flows for the years then ended in
conformity with accounting principles generally accepted in the United States of
America.
The accompanying consolidated financial statements have been
prepared assuming that Hybrid Coating Technologies Inc. will continue as a going
concern. As discussed in Note 1 to the consolidated financial statements, Hybrid
Coating Technologies Inc. has suffered recurring losses from operations and has
a net working capital deficiency that raise substantial doubt about its ability
to continue as a going concern. Managements plans in regard to these matters
are also described in Note 1. The consolidated financial statements do not
include any adjustments that might result from the outcome of this uncertainty.
/s/ GBH CPAs, PC
GBH CPAs, PC
www.gbhcpas.com
Houston, Texas
May 9,
2018
Hybrid Coating Technologies Inc.
|
Consolidated Balance Sheets
|
As of December 31, 2016 and 2015
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
2016
|
|
|
2015
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
Cash and cash equivalents
|
$
|
28
|
|
$
|
23,893
|
|
Total current assets
|
|
28
|
|
|
23,893
|
|
Equipment loan receivable
|
|
17,000
|
|
|
12,000
|
|
Intangible assets, net of
accumulated amortization and impairment
|
|
2,107,877
|
|
|
1,132,753
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
$
|
2,124,905
|
|
$
|
1,168,646
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS
DEFICIT
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable and accrued
liabilities
|
$
|
1,166,793
|
|
$
|
866,103
|
|
Accounts payable and accrued
liabilities - related parties
|
|
789,462
|
|
|
324,865
|
|
Deferred revenue
|
|
26,840
|
|
|
177,442
|
|
Stock payable
|
|
15,000
|
|
|
15,000
|
|
Senior secured convertible
debentures
|
|
200,000
|
|
|
200,000
|
|
Convertible notes, net of
unamortized discount of $244,414 and $76,975, respectively
|
|
172,886
|
|
|
60,424
|
|
Convertible debentures ,
current portion
|
|
1,228,830
|
|
|
-
|
|
Loans payable
|
|
1,206,500
|
|
|
1,206,500
|
|
Loans payable - shareholders
|
|
2,468,434
|
|
|
2,197,082
|
|
Note payable - related party
|
|
2,190,455
|
|
|
1,300,491
|
|
Derivative liabilities
|
|
413,199
|
|
|
138,957
|
|
Total current
liabilities
|
|
9,878,399
|
|
|
6,486,864
|
|
Convertible debentures,
long-term portion
|
|
-
|
|
|
1,344,242
|
|
Total liabilities
|
|
9,878,399
|
|
|
7,831,106
|
|
Commitments and contingencies
|
|
|
|
|
|
|
STOCKHOLDERS DEFICIT
|
|
|
|
|
|
|
Series A preferred stock,
$0.001 par value, 1,000,000 shares authorized, 0 shares issued
|
|
-
|
|
|
-
|
|
Series B preferred stock,
$0.001 par value, 11,000,000 shares authorized, 613,500 shares and 2,300
shares issued and outstanding, respectively
|
|
614
|
|
|
2
|
|
Common stock, $0.001 par
value, 22,500,000,000 shares authorized, 1,338,801,737 shares and 5,492,795 shares issued
and outstanding, respectively
|
|
1,338,802
|
|
|
5,943
|
|
Additional paid-in capital
|
|
24,839,395
|
|
|
2,685,955
|
|
|
|
|
|
|
|
|
Accumulated deficit
|
|
(33,932,305
|
)
|
|
(29,354,360
|
)
|
Total stockholders deficit
|
|
(7,753,494
|
)
|
|
(6,662,460
|
)
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND
STOCKHOLDERS DEFICIT
|
$
|
2,124,905
|
|
$
|
1,168,646
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
Hybrid Coating Technologies Inc.
|
Consolidated Statements of Operations
|
For the Years Ended December 31, 2016 and 2015
|
|
|
Year
Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Revenues
|
$
|
232,359
|
|
$
|
5,815
|
|
Cost of sales
|
|
134,325
|
|
|
4,610
|
|
Gross profit
|
|
98,034
|
|
|
1,205
|
|
Operating expenses
|
|
|
|
|
|
|
General and
administrative
|
|
1,071,037
|
|
|
1,921,756
|
|
Amortization of intangible assets
|
|
705,512
|
|
|
1,105,932
|
|
Impairment of
intangible assets
|
|
385,468
|
|
|
-
|
|
(Gain) loss on settlement of payables
|
|
(390,000
|
)
|
|
1,826,684
|
|
Total operating expenses
|
|
1,772,017
|
|
|
4,854,372
|
|
Loss from operations
|
|
(1,673,983
|
)
|
|
(4,853,167
|
)
|
Loss on extinguishment of
debt
|
|
(1,366,546
|
)
|
|
(174,475
|
)
|
Other income (expense)
|
|
|
|
|
|
|
Change in fair value of
derivative liability
|
|
227,729
|
|
|
302,596
|
|
Gain (loss) on foreign currency transactions
|
|
(2,161
|
)
|
|
11,422
|
|
Interest expense
|
|
(1,762,984
|
)
|
|
(2,017,673
|
)
|
Total other income (expenses)
|
|
(2,903,962
|
)
|
|
(1,878,130
|
)
|
Net loss
|
$
|
(4,577,945
|
)
|
$
|
(6,731,297
|
)
|
Net loss per common share - basic and diluted
|
$
|
(0.03
|
)
|
$
|
(0.02
|
)
|
Weighted average number of
common shares - basic and diluted
|
|
140,425,065
|
|
|
298,799,307
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
Hybrid Coating Technologies Inc.
|
Statement of Changes in Stockholders Deficit
|
For the Years Ended December 31, 2016 and 2015
|
|
|
Series B Preferred
Stock
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Shares
|
|
|
|
|
|
Paid-In
|
|
|
Accumulated
|
|
|
|
|
|
|
Issued
|
|
|
Amount
|
|
|
Issued
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
Balance, December 31, 2014
|
|
|
|
$
|
|
|
|
220,634
|
|
$
|
221
|
|
$
|
17,047,192
|
|
$
|
(22,623,063
|
)
|
$
|
(5,575,651
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
36,684
|
|
|
37
|
|
|
325,290
|
|
|
|
|
|
325,327
|
|
Issuance of shares for
payment on accounts payable and accrued liabilities - related parties
|
|
|
|
|
|
|
|
2,455,750
|
|
|
2,456
|
|
|
1,749,678
|
|
|
|
|
|
1,752,134
|
|
Issuance of warrants for payment on accounts
payable and accrued liabilities - related parties
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,106,410
|
|
|
|
|
|
1,106,410
|
|
Issuance of warrants for
payment of interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,600
|
|
|
|
|
|
15,600
|
|
Issuance of shares for conversion of debt
|
|
|
|
|
|
|
|
3,207,823
|
|
|
3,208
|
|
|
1,130,382
|
|
|
|
|
|
1,133,590
|
|
Exercise of warrants
|
|
|
|
|
|
|
|
4,550
|
|
|
5
|
|
|
495
|
|
|
|
|
|
500
|
|
Exchange of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
36,103
|
|
|
|
|
|
36,103
|
|
Reduction of derivative
liability on conversion of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
754,873
|
|
|
|
|
|
754,873
|
|
Imputed interest on note payable - related
party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
135,421
|
|
|
|
|
|
135,421
|
|
Cancellation of shares and
issuance of warrants
|
|
|
|
|
|
|
|
(9,750
|
)
|
|
(10
|
)
|
|
10
|
|
|
|
|
|
-
|
|
Issuance of shares for payment of interest
|
|
|
|
|
|
|
|
27,105
|
|
|
27
|
|
|
132,023
|
|
|
|
|
|
132,050
|
|
Issuance of preferred shares
for settlement of debt
|
|
200
|
|
|
-
|
|
|
|
|
|
|
|
|
150,000
|
|
|
|
|
|
150,000
|
|
Issuance of preferred shares for intangible
asset
|
|
2,100
|
|
|
2
|
|
|
|
|
|
|
|
|
102,478
|
|
|
|
|
|
102,480
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,731,297
|
)
|
|
(6,731,297
|
)
|
Balance, December 31, 2015
|
|
2,300
|
|
|
2
|
|
|
5,942,795
|
|
|
5,943
|
|
|
22,685,955
|
|
|
(29,354,360
|
)
|
|
(6,662,460
|
)
|
Stock-based compensation
|
|
|
|
|
|
|
|
500,000
|
|
|
500
|
|
|
58,500
|
|
|
|
|
|
59,000
|
|
Issuance of shares for payment on loans
payable - shareholders
|
|
|
|
|
|
|
|
324,305,000
|
|
|
324,305
|
|
|
1,348,381
|
|
|
|
|
|
1,672,686
|
|
Issuance of shares for
payment on accounts payable and accrued liabilities - related parties
|
|
|
|
|
|
|
|
22,500,000
|
|
|
22,500
|
|
|
-
|
|
|
|
|
|
22,500
|
|
Issuance of warrants for payment on loans
payable - shareholders
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,380,000
|
|
|
|
|
|
3,380,000
|
|
Issuance of warrants for
convertible debt inducement
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,000
|
|
|
|
|
|
15,000
|
|
Cancellation of warrants
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,860,000
|
)
|
|
|
|
|
(3,860,000
|
)
|
Issuance of shares for
conversion of debt
|
|
|
|
|
|
|
|
986,313,478
|
|
|
986,313
|
|
|
(322,902
|
)
|
|
|
|
|
663,411
|
|
Reduction of derivative liability on
conversion of debt
|
|
|
|
|
|
|
|
|
|
|
|
|
|
784,209
|
|
|
|
|
|
784,209
|
|
Issuance of preferred shares
and preferred share warrants for extension of intangible asset licenses
|
|
611,200
|
|
|
612
|
|
|
|
|
|
|
|
|
565,493
|
|
|
|
|
|
566,105
|
|
Imputed interest on note payable - related
party
|
|
|
|
|
|
|
|
|
|
|
|
|
|
184,000
|
|
|
|
|
|
184,000
|
|
Cancellation of shares and
issuance of warrants
|
|
|
|
|
|
|
|
(759,750
|
)
|
|
(760
|
)
|
|
760
|
|
|
|
|
|
-
|
|
Adjustment to shares and paid in capital for
fractional shares
|
|
|
|
|
|
|
|
214
|
|
|
-
|
|
|
-
|
|
|
|
|
|
-
|
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,577,945
|
)
|
|
(4,577,945
|
)
|
Balance, December 31, 2016
|
|
613,500
|
|
$
|
614
|
|
|
1,338,801,737
|
|
$
|
1,338,802
|
|
$
|
24,839,395
|
|
$
|
(33,932,305
|
)
|
$
|
(7,753,494
|
)
|
The accompanying notes are an integral part of these
consolidated financial statements.
Hybrid Coating Technologies Inc.
|
Consolidated Statements of Cash Flows
|
For the Years Ended December 31, 2016 and 2015
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
CASH FLOWS FROM OPERATING
ACTIVITIES
|
|
|
|
|
|
|
Net loss
|
$
|
(4,577,945
|
)
|
$
|
(6,731,297
|
)
|
Adjustments to reconcile net
loss to net cash provided by (used in) operating activities:
|
|
|
|
|
|
|
Stock-based compensation
|
|
59,000
|
|
|
325,327
|
|
Amortization of
intangible assets
|
|
705,512
|
|
|
1,105,932
|
|
Impairment of intangible assets
|
|
385,468
|
|
|
-
|
|
(Gain) loss on
settlement of payables
|
|
(390,000
|
)
|
|
1,826,684
|
|
Loss on extinguishment of debt
|
|
1,366,546
|
|
|
174,475
|
|
Change in fair value of
derivative liability
|
|
(227,729
|
)
|
|
(302,596
|
)
|
(Gain) loss on foreign currency
transactions
|
|
2,161
|
|
|
(11,422
|
)
|
Amortization of debt
discounts
|
|
853,338
|
|
|
677,439
|
|
Interest expense related to derivative
liability in excess of face value of debt
|
|
160,915
|
|
|
607,230
|
|
Interest imputed from
notes payable - related party
|
|
184,000
|
|
|
135,421
|
|
Change in operating assets and
liabilities:
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
300,689
|
|
|
1,436,344
|
|
Accounts payable and
accrued liabilities - related parties
|
|
357,332
|
|
|
85,389
|
|
Deferred
revenue
|
|
(150,602
|
)
|
|
157,442
|
|
Net cash used in operating activities
|
|
(971,315
|
)
|
|
(513,632
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM INVESTING ACTIVITIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of loan receivable for equipment
|
|
(5,000
|
)
|
|
(12,000
|
)
|
Net cash used in investing
activities
|
|
(5,000
|
)
|
|
(12,000
|
)
|
|
|
|
|
|
|
|
CASH FLOWS FROM FINANCING
ACTIVITIES
|
|
|
|
|
|
|
Bank indebtedness
|
|
-
|
|
|
(5,552
|
)
|
Proceeds from convertible
notes, net of issuance costs
|
|
553,000
|
|
|
596,450
|
|
Proceeds from loans payable
|
|
-
|
|
|
229,000
|
|
Proceeds from loans payable -
shareholders
|
|
2,475,712
|
|
|
2,039,136
|
|
Repayments from loans payable - shareholders
|
|
(1,330,206
|
)
|
|
(1,681,137
|
)
|
Repayments of convertible
notes
|
|
(136,056
|
)
|
|
(189,872
|
)
|
Repayments of note payable - related party
|
|
(610,000
|
)
|
|
(439,000
|
)
|
Proceeds from exercise of
warrants
|
|
-
|
|
|
500
|
|
Net cash provided by financing activities
|
|
952,450
|
|
|
549,525
|
|
|
|
|
|
|
|
|
INCREASE (DECREASE) IN CASH
|
|
(23,865
|
)
|
|
23,893
|
|
|
|
|
|
|
|
|
CASH, BEGINNING OF THE YEAR
|
|
23,893
|
|
|
-
|
|
CASH, ENDING OF THE YEAR
|
$
|
28
|
|
$
|
23,893
|
|
Hybrid Coating Technologies Inc.
|
Consolidated Statements of Cash Flows (continued)
|
For the Years Ended December 31, 2016 and 2015
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
Supplemental disclosure of
cash flow information
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
Interest paid
|
$
|
78,971
|
|
$
|
50,343
|
|
Income taxes
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
|
|
Non-cash investing and financing
transactions:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition of intangible asset through
issuance of note payable
|
$
|
1,500,000
|
|
$
|
-
|
|
Acquisition of intangible
asset through issuance of preferred stock
|
$
|
566,104
|
|
$
|
102,480
|
|
Common stock issued for settlement of
accounts payable - related party
|
$
|
1,695,186
|
|
$
|
1,752,134
|
|
Preferred stock issued for
payment of note-payable-related party
|
$
|
-
|
|
$
|
150,000
|
|
Warrants and stock issued for settlement of
liabilities
|
$
|
3,380,000
|
|
$
|
1,106,410
|
|
Warrants and stock issued and
payable for principal And interest on Convertible Debenture
|
$
|
-
|
|
$
|
147,650
|
|
Warrants issued for convertible debt
inducement
|
$
|
15,000
|
|
$
|
-
|
|
Reduction of derivative
liabilities on redemption of debt
|
$
|
784,209
|
|
$
|
754,873
|
|
Derivative debt discount
|
$
|
1,286,180
|
|
$
|
931,659
|
|
Cashless exercise of warrants
|
$
|
-
|
|
$
|
410
|
|
Common stock issued for debt
|
$
|
663,411
|
|
$
|
1,133,590
|
|
Warrants issued for
cancellation of shares
|
$
|
151,950
|
|
$
|
1,950
|
|
Exchange of debt with stockholder for common
stock
|
$
|
-
|
|
$
|
36,103
|
|
Cancellation of warrants
|
$
|
3,860,000
|
|
$
|
-
|
|
Exchange of loans payable - shareholders to
convertible notes
|
$
|
483,200
|
|
$
|
-
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
Hybrid Coating Technologies Inc.
|
Notes to Consolidated Financial Statements
|
December 31, 2016 and 2015
|
NOTE 1 NATURE OF BUSINESS AND GOING CONCERN
Nature of Business Overview
Hybrid Coating
Technologies Inc. (the Company, HCT) was incorporated in the State of Nevada
on July 8, 2010. Our operations are now focused on the manufacturing and sale of
Green Polyurethane, including Green Polyurethane Monolithic Floor Coating and
Green Polyurethane Binder, an alternative non-toxic (isocyanate-free)
polyurethane.
Going Concern
The Company remains highly dependent
upon funding from non-operational sources, principally related parties. The
Companys consolidated financial statements have been presented on the basis
that it is a going concern, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. The Company has
incurred net losses of $33,932,305 since inception through December 31, 2016 and
has a working capital deficit of $9,878,366 as of December 31, 2016. These
conditions raise substantial doubt about the Companys ability to continue as a
going concern from the filing date of these consolidated financial statements.
The consolidated financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.
There are no assurances that the Company will be able to either
(1) achieve a level of revenues adequate to generate sufficient cash flow from
operations; or (2) obtain additional financing through either private placement,
public offerings and/or bank financing necessary to support the Company's
working capital requirements. To the extent that funds generated from operations
and any private placements, public offerings and/or bank financing are
insufficient, the Company will have to raise additional working capital. No
assurance can be given that additional financing will be available, or if
available, will be on terms acceptable to the Company. If adequate working
capital is not available, the Company may be required to curtail or cease its
operations.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The financial
statements of the Company have been prepared in accordance with generally
accepted accounting principles in the United States of America and are presented
in US dollars. The Companys fiscal year end is December 31.
Principles of Consolidation
The
consolidated financial statements include the accounts of the Company and its
wholly-owned subsidiary, Nanotech International, Inc. (Nanotech). All
significant inter-company balances and transactions have been eliminated in the
consolidated financial statements.
Use of Estimates
The preparation of
financial statements in conformity with generally accepted accounting principles
requires management to make certain 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 revenue and expenses during the reported period. Actual results could differ
from those estimates.
Cash and Cash Equivalents
The Company
maintains various cash balances in two financial institutions located in Daly
City, California. These balances are fully insured by the Federal Deposit
Insurance Corporation, which insures up to $250,000. On occasion, balances may
temporarily exceed such coverage. The Company considers all highly liquid debt
instruments, which could include commercial paper and certificates of deposits,
with an original maturity of three months or less to be cash equivalents.
Investments with maturities greater than three months and less than on year are
classified as short term investments.
Loan Receivable
Loan receivable consists
of an equipment loan entered into during 2015. The Company has classified this
as a long-term asset in the balance sheet because the loan is due in 10 years.
The Company evaluates these accounts receivable for collectability considering
the results of operations of these related entities and when necessary records
allowances for expected unrecoverable amounts. To date, no allowances have been
recorded.
Intangible Assets
Intangible assets are
comprised of license agreements with Nanotech Industries, Inc. which are
amortized on a straight-line basis over the assets respective life, ranging
from 24 months to 120 months.
NOTE 2 SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(contd)
Impairment of Long-Lived Assets
Long-lived assets to be held and used are reviewed for impairment on an
annual basis or whenever events or changes in circumstances indicate that the
carrying amount of such asset may not be recoverable. The determination of
recoverability of long-lived assets is based on an estimate of undiscounted
future cash flows resulting from the use of the asset or its disposition.
Measurement of an impairment loss for long-lived assets that management expects
to hold and use is based on the fair value of the asset. Long-lived assets to be
disposed of are reported at the lower of carrying amount or net realizable
value.
Revenue Recognition
Revenue is
recognized when persuasive evidence of an arrangement exists, goods are
delivered, sales price is determinable, and collection is reasonably assured.
Sales to one customer comprised 65% of the Companys total
sales for the year ended December 31, 2016. Sales to one customer comprised 78%
of the Companys total sales for the year ended December 31, 2015. As current
period revenues are not significant, the loss of customers would not have a
material effect on the Company.
Income Taxes
Income taxes are provided
for the tax effects of transactions reported in the financial statements and
consist of taxes currently payable plus deferred taxes. Deferred income taxes
are provided for the estimated income tax effect of temporary differences
between the financial statement and tax bases of assets and liabilities.
Deferred tax assets are also provided for certain tax loss carryforwards and tax
credit carryforwards. A valuation allowance is established to reduce deferred
tax assets when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. As long as the Company is categorized
as a development stage company, the net amount of any potential deferred tax
assets will be off-set by such valuation allowance. Deferred income taxes are
measured using the enacted tax rates that are assumed will be in effect when the
asset and liability basis differences reverse and/or when the tax loss
carryforwards and tax credit carryforwards are utilized.
A tax benefit from an uncertain position is recognized if it is
"more likely than not" that the position is sustainable, based upon its
technical merits. The tax benefit of a qualifying position is the largest amount
of tax benefit that is greater than 50 percent likely of being realized upon
ultimate settlement with a taxing authority having full knowledge of all
relevant information. As of December 31, 2016 and 2015, the Company had not
recorded any tax benefits from uncertain tax positions.
Fair Value
ASC 820 defines fair value,
establishes a framework for measuring fair value and enhances disclosures about
fair value measurements. It defines fair value as the exchange price that would
be received for an asset or paid to transfer a liability (an exit price) in the
principal or most advantageous market for the asset or liability in an orderly
transaction between market participants on the measurement date. ASC 820 also
establishes a fair value hierarchy which requires an entity to maximize the use
of observable inputs and minimize the use of unobservable inputs when measuring
fair value. The standard describes three levels of inputs that may be used to
measure fair value:
Level 1: Observable inputs such as quoted prices (unadjusted)
in active markets for identical assets or liabilities.
Level 2: Inputs other than quoted prices that are observable
for the asset or liability, either directly or indirectly. These include quoted
prices for similar assets or liabilities in active markets; quoted prices for
identical or similar assets or liabilities that are not active; and model-driven
valuations whose inputs are observable or whose significant value drivers are
observable. Valuations may be obtained from, or corroborated by, third-party
pricing services.
Level 3: Unobservable inputs to measure fair value of assets
and liabilities for which there is little, if any market activity at the
measurement date, using reasonable inputs and assumptions based upon the best
information at the time, to the extent that inputs are available without undue
cost and effort.
As of December 31, 2016 and 2015, the significant inputs to the
Companys derivative liability calculation were Level 3 inputs.
The following table sets forth a reconciliation of changes in
the fair value of financial assets and liabilities classified as Level 3 in the
fair value hierarchy:
|
|
Significant
Unobservable Inputs
|
|
|
|
(Level
3)
|
|
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Beginning balance
|
$
|
138,957
|
|
$
|
181,723
|
|
Change in fair value of derivative
liabilities
|
|
(227,729
|
)
|
|
(302,596
|
)
|
Settlements
|
|
(784,209
|
)
|
|
(754,873
|
)
|
Additions
|
|
1,286,180
|
|
|
1,014,703
|
|
Ending balance
|
$
|
413,199
|
|
$
|
138,957
|
|
|
|
|
|
|
|
|
Change in unrealized gains
included in earnings relating to derivatives still held as of December 31,
2016 and 2015
|
$
|
227,729
|
|
$
|
302,596
|
|
Stock-Based Compensation
For stock and
stock options awarded in return for services rendered, the expense is measured
at the grant-date fair value of the award and recognized as compensation expense
on a straight-line basis over the service period, which is the vesting period.
The Company estimates forfeitures that it expects will occur and records expense
based upon the number of awards expected to vest.
Earnings (Loss) per Share
Basic net loss
per share amounts are computed by dividing the net loss by the weighted average
number of common shares outstanding over the reporting period. In periods in
which the Company reports a net loss, dilutive securities are excluded from the
calculation of diluted net loss per share amounts as the effect would be
anti-dilutive.
For the years ended December 31, 2016 and 2015, the following
share equivalents related to convertible debt and warrants to purchase shares of
common stock were excluded from the computation of diluted net loss per share,
as the inclusion of such shares would be anti-dilutive:
|
|
Year Ended December 31,
|
|
|
|
2016
|
|
|
2015
|
|
Common Shares Issuable
for:
|
|
|
|
|
|
|
Convertible debt
|
|
2,932,164,256
|
|
|
1,472,390
|
|
Stock warrants
|
|
1,068,926
|
|
|
135,733
|
|
|
|
2,933,233,182
|
|
|
1,608,123
|
|
Recently Issued Accounting Pronouncements
The Company does not expect the adoption of recently issued accounting
pronouncements to have a significant impact on the Company's results of
operations, financial position or cash flow.
In May 2014, the Financial Accounting Standards Board issued
Accounting Standards Update No. 2014-09, Revenue from Contracts with Customers
(ASU 2014-09), which supersedes nearly all existing revenue recognition
guidance under GAAP. The core principle of ASU 2014-09 is to recognize revenues
when promised goods or services are transferred to customers in an amount that
reflects the consideration to which an entity expects to be entitled for those
goods or services. ASU 2014-09 defines a five step process to achieve this core
principle and, in doing so, more judgment and estimates may be required within
the revenue recognition process than are required under existing GAAP. The
standard is effective for annual periods beginning after December 15, 2016, and
interim periods therein, using either of the following transition methods: (i) a
full retrospective approach reflecting the application of the standard in each
prior reporting period with the option to elect certain practical expedients; or
(ii) a retrospective approach with the cumulative effect of initially adopting
ASU 2014-09 recognized at the date of adoption (which includes additional
footnote disclosures). The Company is currently evaluating the impact of its
pending adoption of ASU 2014-09 on its consolidated financial statements and
have not yet determined the method by which the Company will adopt the standard
in 2017.
In August 2014, the FASB issued ASU 2014-15, Disclosure of
Uncertainties about an Entitys Ability to Continue as a Going Concern. The new
standard requires management to assess the companys ability to continue as a
going concern. Disclosures are required if there is substantial doubt as to the
companys continuation as a going concern within one year after the issue date
of financial statements. The standard provides guidance for making the
assessment, including consideration of managements plans which may alleviate
doubt regarding the companys ability to continue as a going concern. ASU 2014-15 is effective for years ending after
December 15, 2016. The Company adopted the standard for the year ended December
31, 2016 and the adoption of this pronouncement did not have a material impact
on our consolidated financial statements.
In April 2015, the FASB issued ASU No. 2015-03, Interest -
Imputation of Interest (Subtopic 835-30) - Simplifying the Presentation of Debt
Issuance Costs. ASU 2015-03 amends previous guidance to require that debt
issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of that debt
liability, consistent with debt discounts. The recognition and measurement
guidance for debt issuance costs are not affected by the amendments in this ASU.
The standard is effective for financial statements issued for fiscal years
beginning after December 15, 2015, and interim periods within those fiscal
years. Early adoption is permitted for financial statements that have not been
previously issued. The Company expects that the affected amounts on its balance
sheets will be reclassified within the balance sheets upon adoption of this ASU
to conform to this standard. The Company adopted this ASU during the first
quarter of 2016 and the adoption of this ASU did not have a material impact on
its financial statements.
Subsequent Events
The Company has
evaluated all transactions occurring from December 31, 2016 through the date of
issuance of the consolidated financial statements for disclosure
consideration.
NOTE 3 EQUIPMENT LOAN RECEIVABLE
On October 5, 2015, the Company entered into an equipment loan
agreement with a manufacturer whereby the Company agreed to loan $17,000 to the
manufacturer with a maturity of 10 years at an interest rate of 0.1% per annum.
At December 31, 2015, $12,000 had been loaned. The Company loaned an additional
$5,000 in January 2016.
NOTE 4 INTANGIBLE ASSETS
Beginning in 2010, the Company has entered into several
licensing agreements and amendments with Nanotech Industries, Inc. (NTI), a
privately-held company considered a related party due to common ownership and
control, for exclusive rights to manufacture and distribute environmentally safe
coatings, synthetic leather, adhesives, sealants, polyurethane foam, and spray
foam insulation for the textile industry. The exclusivity rights originally
covered North America and were later expanded to include the Russian Territory
(Belorussia, Kazakhstan, and the Russian Federation), and the European Continent
and are set to expire, after several amendments, on December 31, 2020.
As a part of these licensing agreements and amendments, the
Company agreed to pay licensing fees totaling $5,900,000 and stock issuances
totaling 8,113,116 shares of the Companys common stock and 3,260,000 shares of
the Companys Series B Preferred Stock as well as 160,300,000 Series B Preferred
Stock warrants. The Company also issued royalties of 7.5% of gross revenue from
the sale of its products in the Russian Territory and the sale of adhesives and
sealants. Per the terms of the agreements, the payment of these fees and
issuance of these shares are due to be paid between 24 and 42 months from the
agreement dates.
On August 10, 2015, the Company signed a tenth amendment to the
licensing agreement with NTI whereby the parties amended the agreement to expand
the products to include polyurethane foam packaging. In exchange, the Company
issued 420,000 Series B preferred shares valued at $102,480.
On February 12, 2016, the Company signed an eleventh amendment
to its licensing agreement with NTI whereby the parties amended the agreement to
extend the exclusivity period to December 31, 2020. As consideration, the
Company agreed to pay the following to NTI:
|
i)
|
Issue 2,240,000 shares of Series B Preferred
Stock.
|
|
|
|
|
ii)
|
Issue purchase warrants to purchase 31,300,000 shares of
Series B Preferred Stock, to be issued 90 days following the execution of
the amendment. The warrants shall be exercisable at any time from the date
of issuance at a price per share equal to the par value of the Series B
Preferred Stock of $313,000 and expire ten years from the date of
issuance.
|
|
|
|
|
iii)
|
Issue purchase warrants to purchase 126,000,000 shares of
Series B Preferred Stock, to be issued 12 months following the execution
of the amendment. The warrants shall be exercisable at any time from the
date of issuance at a price per share equal to the par value of the Series
B Preferred Stock and expire ten years from the date of
issuance.
|
|
|
|
|
iv)
|
Pay NTI $1,500,000, to be paid within twelve months of
the execution of the amendment.
|
The fair value of the 2,240,000 Series B Preferred Stock and
157,300,000 Series B Preferred Stock warrants was $502,104.
On November 9, 2016, the Company signed a twelfth amendment to
its licensing agreement with NTI whereby the parties amended the agreement to
extend the spray foam insulation exclusivity period by 24 months to November 9,
2018, in exchange for the following consideration:
|
i)
|
Issue to NTI 600,000 shares of its Series B Preferred
Stock and warrants to purchase 3,000,000 shares of its Series B Preferred
Stock with an exercise price of $0.00001 and expiring 10 years from the
date of issuance.
|
The fair value of the 600,000 shares of Series B Preferred
Stock and 3,000,000 shares of Series B Preferred warrants was $64,000.
The Series B Preferred shares and warrants issued in February
and November 2016 were valued based on an industry specific control premium and
the Companys market cap at the time of the issuance, based on the market price
of its common stock.
The Company used the fair value standard set forth by the
Statement of Financial Accounting Standard ASC 820-10-35-37 Fair Value in
Financial Instrument with the fair value defined as the amount at which the
liability could be incurred in a current transaction between willing parties.
In the event that the Company does not meet the deadlines
mentioned above, and the deadlines are not extended, the Company will continue
to have the right to the manufacturing and sale of these products on a
non-exclusive basis for the duration of the agreement.
For the years ended December 31, 2016 and 2015, intangible
asset activity consisted of the following:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net intangible assets,
beginning of year
|
$
|
1,132,753
|
|
$
|
2,136,205
|
|
Additions
|
|
2,066,104
|
|
|
102,480
|
|
Less:
current amortization and impairment
|
|
(1,090,980
|
)
|
|
(1,105,932
|
)
|
Net intangible assets, end of year
|
$
|
2,107,877
|
|
$
|
1,132,753
|
|
As of December 31, 2016 and 2015, the balance of intangible
assets was as follows:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Intangible assets
|
$
|
6,568,584
|
|
$
|
4,502,480
|
|
Less: accumulated
amortization and impairment
|
|
(4,460,707
|
)
|
|
(3,369,727
|
)
|
Net intangible assets, end of
year
|
$
|
2,107,877
|
|
$
|
1,132,753
|
|
During years ended December 31, 2016 and 2015, the Company
recorded $385,468 and $0 of impairment of its intangible assets as a result of
managements assessment of the fair value of its licensing agreements and
amendments through an independent valuation.
A summary of the licenses held by the Company as of December
31, 2016 and 2015 is as follows:
|
|
|
Net Carrying Value
|
License Rights
Overview
|
Licensed
Region
|
Expiration
Date
|
December
31,
2016
|
December
31,
2015
|
Coating Products
|
North America
Russian Territory
European Continent
|
December 31,
2020
|
$ 110,740
|
$ 153,820
|
Spray Foam Insulation
|
North America
Russian Territory
European Continent
|
November 9,
2018
|
44,883
|
86,865
|
Added Applications:
synthetic leather,
adhesives, and sealants
|
North America
Russian Territory
European Continent
|
December 31,
2020
|
467,858
|
833,333
|
Polyurethane Foam
Packaging
|
North America
|
December 31,
2020
|
36,467
|
58,735
|
Extension
|
All regions and products
except spray
foam
insulation
|
December 31,
2020
|
1,389,262
|
-
|
Extension: spray foam
insulation
|
North America
Russian Territory
European Continent
|
November 9,
2018
|
58,667
|
-
|
Total
|
|
|
$ 2,107,877
|
$
1,132,753
|
As of December 31, 2016 and 2015, the Company had outstanding
payables owed to NTI related to these licensing agreements and amendments in the
amount of $2,190,455and $1,300,491, respectively, which were included in notes
payable related party.
On June 15, 2017, the Company entered into a thirteenth
amendment to its licensing agreement with NTI whereby the parties amended the
agreement to extend the fee deadline for the February 2016 amendment to August
20, 2017, at which time the whole amount is due and payable.
On April 26, 2018, the Company entered into a fourteenth
amendment to its licensing agreement with NTI whereby the parties amended the
agreement to extend the fee deadline for the June 2017 amendment to December 31,
2019, at which time the whole amount is due and payable.
As of May 2018, approximately $89,000 had been paid by the
Company to NTI with regards to licensing fees payable and all share issuances
deadlines were met.
NOTE 5 LOANS PAYABLE
Loans payable include a loan from a non-related party that was
issued for $75,000 on November 16, 2010 and was repayable on May 16, 2011 with a
10% premium. This $7,500, 10% premium was fully amortized and on April 29, 2011,
the lender converted $55,000 of this debt to convertible debentures. The balance
at December 31, 2016 and 2015 was $27,500, and the loan is currently in default.
The Company has not received any notices from the loan holder with respect to
the default.
In 2014, 2013, 2012, and 2011, the Company entered into various
loan agreements totaling $977,500 at interest rates ranging from 15% - 25%. In
addition in 2013, the Company issued 110,000 warrants attached to these loans.
These loans are all currently in default. The creditors have not called these
loans.
In 2015, lenders advanced $229,000 in non-interest bearing
demand loans.
In 2016, no additional loans were advanced.
During the years ended December 31, 2016 and 2015, total
interest expense related to loans payable was $172,637 and $172,775,
respectively, total interest paid was $27,000 and $50,343, respectively, and
accrued interest at December 31, 2016 and 2015 was $542,147 and $396,510,
respectively.
NOTE 6 LOANS PAYABLE SHAREHOLDERS
During 2013, 2012 and 2011, the Company entered into various
loan agreements and arrangements for loans with certain shareholders. The loans
all had different maturity dates ranging from 2011 to 2015 and interest rates
that range from 2% to 18%. The Company was in default on loans totalling
$981,699 as of December 31, 2016. The shareholders have not called these
loans.
During the year ended December 31, 2015, a shareholder-creditor
transferred $100,000 of its outstanding balance owed by the Company to a third
party. The Company and the third party agreed to amend the loan agreement to
allow the third party to convert the principal balance into shares of the
Companys stock. The third party converted the principal balance of $100,000
into 6,252,324 shares of the Companys common stock. The shares had a fair value
of $258,141 and the Company recorded a loss on debt extinguishment of $158,141.
During the year ended December 31, 2016, the Company received
$2,475,712 in shareholder advances and repaid $2,243,721. During the year ended
December 31, 2015, the Company received $1,816,236 in shareholders advances and
repaid $1,452,237. The Company had an outstanding balance of $2,468,434 and
$2,197,082 as of December 31, 2016 and 2015, respectively.
During the years ended December 31, 2016 and 2015, total
interest expense related to these loans payable to shareholders was $105,173 and
$120,839, respectively, total interest paid was $3,120 and $4,371, respectively,
and accrued interest at December 31, 2016 and 2015 was $362,942 and $260,889,
respectively.
NOTE 7 CONVERTIBLE DEBENTURES
On April 29, 2011, the Company issued convertible debentures
for proceeds of $1,201,000 (the April 29 debenture) and on February 21, 2012,
issued an additional $119,500 (the February 21 debenture and together the
Debentures) with a maturity of 36 months and a coupon rate of 10% per annum
payable in cash or capital stock at the Companys discretion. The Debentures
were amended on November 20, 2013. The Debentures are held by third parties and
by non-controlling shareholders, and are convertible as follows:
April 29, 2011 convertible debentures
-by dividing the conversion amount by a conversion factor of
1.4 yielding units of the Company where each unit (at a price of $1.40 per
unit), is comprised of 1 share of common stock and 2 warrants to purchase a
share of common stock each of the Company with an exercise price equal to the
conversion price and a maturity at April 29, 2014 extended to April 29, 2016 per
the amendment on November 20, 2013. Warrants are exercisable at the option of
the holder at any time prior to maturity, and have since expired without
exercise.
February 21, 2012 convertible debentures
-by dividing the conversion amount by a conversion factor of
1.45 yielding units of the Company where each unit (at a price of $1.45 per
unit), is comprised of 1 share of common stock and 2 warrants to purchase a
share of common stock each of the Company with an exercise price equal to the
conversion price and a maturity at February 21, 2015 extended to February 21,
2017 per the amendment on November 20, 2013. Warrants are exercisable at the
option of the holder at any time prior to maturity, and have since expired
without exercise.
Both debentures carry an anti-dilution provision. The
conversion price applicable to the debentures is subject to reset in the event
of a dilutive issuance (as defined in the debenture agreement) by the Company. A
dilutive issuance excludes shares or options issued to employees, officers,
directors or consultants pursuant to stock option plans approved by the Board of
Directors.
On November 12, 2014, the Company issued convertible debentures
for $25,000, a maturity of 24 months and a coupon rate of 10% per annum payable
in cash or capital stock at the Companys discretion. The debentures are held by
third parties and by non-controlling shareholders. The conversion price is
calculated as 45% of the average trading price for the five days prior to the
conversion, however, the conversion price can never be lower than $0.08 per
share nor can it exceed $0.30 per share.
The April 29, 2011 debentures, February 11, 2012 debentures and
the November 12, 2014 debenture have all passed their respective maturity dates.
The Company has defaulted on these payments but is in negotiations with all the
debenture holders to exchange their debt for new financing of which the terms
have not yet been determined. No notice by the debenture holders has been sent
to the Company.
With respect to the April 29, 2011 debentures that have since
defaulted, the Company successfully extended the maturity of one debenture
holder of $300,000 to August 29, 2017 and then August 31, 2018 provided payments
of $1,000 per month are made between February and August 2017. A total of
$14,300 in payments were made to the debenture holder. Also, the Company
extinguished $175,000 of old debt from two debenture holders in exchange for new
convertible debentures totalling $218,750, maturing April 29, 2019, and a
promissory note of $64,000 maturing September 30, 2019. The convertible debentures have a 10% per
annum interest rate commencing on April 29, 2016 and are convertible into units
of the company comprising of (1) one share of common stock at 65% of the lowest
bid price of the Companys common stock for the last 15 trading days prior to
conversion and (2) two warrants to purchase shares of common stock with a
three-year maturity and an exercise price equal to the conversion price. A
discount was recorded of $182,141 on these convertible debenture with a
corresponding derivative liability of $168,975 and a loss on settlement of debt
of $69,175.
At December 31, 2016, approximately $132,000 (2015 - $82,000)
in interest has been accrued. The debenture holders are owed a total of
approximately $189,000 in interest. No interest was paid in 2016 related to
these convertible debentures.
During the year ended December 31, 2016, the Company recorded
$132,412 of interest expense related to these convertible debentures and
amortized debt discount of $22,989.
During the year ended December 31, 2015, the Company recorded
$58,193 of interest expense related to these convertible debentures and
amortized debt discount of $675,893.
N
OTE 8 SENIOR SECURED CONVERTIBLE DEBENTURES
On August 16, 2010, the Company entered into a securities
purchase agreement with a third party for the subscription of senior secured
convertible debentures (SSCD) for an amount of $400,000. The debentures had a
maturity date of August 16, 2012 with a coupon of 10% and convert into shares of
common stock of the Company at a price of $0.75 per share. The notes are secured
by all assets of the Company. The subscriber also received 533,336 Series A
warrants with a maturity of 1 year and an exercise price of $1.25 per share and
133,360 Series B warrants with a maturity of 3 years and an exercise price of
$1.50 per share all of which expired unexercised. All prices and warrants issued
have been adjusted for the post-acquisition of Nanotech by HCT.
During the year ended December 31, 2011, $200,000 of the debt
was repaid through the issuance of a Convertible Debenture due April 29, 2014.
The balance due at December 31, 2016 and 2015 remained at $200,000. The Company
is in default of payment of the debentures which matured on August 16, 2012. No
notices have been issued by the debenture holder.
Interest expense of $20,000 was accrued during the year ended
December 31, 2016 (2015 - $20,000), for an outstanding balance of $58,359 (2015
- $38,359) that has been accrued.
The obligations of the Company under the SSCD will rank senior
to all outstanding and future indebtedness of the Company and shall be secured
by a first priority, perfected security interest in all the assets of the
Company.
NOTE 9 CONVERTIBLE NOTES
Convertible debt with a variable conversion feature consists of
the following as of December 31, 2016 and, 2015:
Noteholder (issue date)
|
|
|
|
|
|
|
|
|
December 31, 2016
|
|
|
December 31, 2015
|
|
JMJ (3/4/15)
|
$
|
-
|
|
$
|
44,099
|
|
Prolific (5/8/15)
|
|
-
|
|
|
800
|
|
LG (7/16/15)
|
|
-
|
|
|
52,500
|
|
EMA Financial (10/29/15)
|
|
-
|
|
|
40,000
|
|
Harbour Gates (5/9/16)
|
|
50,909
|
|
|
-
|
|
EMA Financial (5/15/16)
|
|
5,101
|
|
|
-
|
|
Forest Capital (6/17/16)
|
|
25,000
|
|
|
-
|
|
LG (7/11/16)
|
|
29,000
|
|
|
-
|
|
Adar Bays (7/14/16)
|
|
35,000
|
|
|
-
|
|
Crown Bridge (7/28/16)
|
|
35,000
|
|
|
-
|
|
Forest Capital (8/25/16)
|
|
55,000
|
|
|
-
|
|
Forest Capital (8/26/16)
|
|
1,242
|
|
|
-
|
|
Eagle Equities (8/30/16)
|
|
5,000
|
|
|
-
|
|
Eagle Equities (9/8/16)
|
|
60,000
|
|
|
-
|
|
Lucas Hoppel (9/14/16)
|
|
38,500
|
|
|
-
|
|
Red Diamond (5/10/16)
|
|
52,500
|
|
|
-
|
|
Forest Capital (12/5/16)
|
|
7,048
|
|
|
-
|
|
Forest Capital (12/6/16)
|
|
18,000
|
|
|
-
|
|
|
|
|
|
|
|
|
|
$
|
417,300
|
|
$
|
137,399
|
|
Less: debt discount
|
|
(244,414
|
)
|
|
(76,975
|
)
|
Convertible debentures, net
|
$
|
172,886
|
|
$
|
60,424
|
|
During the year ended December 31, 2016, the Company issued a
total of $1,036,200 in convertible notes with interest ranging from 6% to 10%
due one year from the issuance date. In addition, the Company amortized $244,414
of debt discount and issued 986,313,478 shares of common stock for converted
notes payable of $756,299.
During the year ended December 31, 2015, the Company repaid a
noteholder $189,872 including interest of $13,333 and amortized the remaining
$60,424 discount to interest expense. In addition, the Company issued $596,450
in convertible notes, net of issuance costs of $151,389, recorded as a debt
discount. The Company determined that the conversion option was a derivative.
Accordingly, the Company recorded a derivative liability of $793,392 of which
$428,025 was recorded as debt discount, $368,407 as additional interest expense
and the Company amortized $96,136 of debt discount as interest expense and
recorded accrued interest of $41,283. The Company issued to creditors, 3,207,823
shares for converted notes of $875,603 and interest of $21,308. This resulted in
a corresponding reduction in the debt discount of $220,684 that was expensed as
interest expense.
The Company issued an additional $32,000 in convertible notes
which was an assumption of promissory notes owing to shareholder-creditors and
thereby a reduction in loans payable to shareholders for the same amount and a
loss on settlement of debt of $36,103. Accordingly, the Company recorded a
derivative liability of $36,103 of which $32,000 was recorded as debt discount,
$4,103 as additional interest expense and the Company amortized the full $32,000
of debt discount as interest expense as the lender converted all $32,000 of debt
in exchange for 134,102 shares of the Companys common stock.
Following is a summary of the activity during 2016 for each of
the convertible notes:
|
|
Balance at
|
|
|
|
|
|
Debt Discount
|
|
|
|
|
|
Balance at
|
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
Net of
|
|
|
Conversion
|
|
|
December 31,
|
|
Noteholder (issue date)
|
|
2015
|
|
|
Additions
|
|
|
Amortization
|
|
|
s
|
|
|
2016
|
|
JMJ (3/4/15)
|
$
|
44,099
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(44,099
|
)
|
$
|
-
|
|
Prolific (5/8/15)
|
|
800
|
|
|
-
|
|
|
-
|
|
|
(800
|
)
|
|
-
|
|
LG (7/16/15)
|
|
52,500
|
|
|
-
|
|
|
-
|
|
|
(52,500
|
)
|
|
-
|
|
EMA Financial (10/29/15)
|
|
40,000
|
|
|
-
|
|
|
-
|
|
|
(40,000
|
)
|
|
-
|
|
Oleg Poltaratsky (10/22/15)
|
|
-
|
|
|
20,000
|
|
|
-
|
|
|
(20,000
|
)
|
|
-
|
|
Harbour Gates (5/9/16)
|
|
-
|
|
|
110,000
|
|
|
(10,832
|
)
|
|
(59,091
|
)
|
|
40,077
|
|
EMA Financial (5/15/16)
|
|
-
|
|
|
40,000
|
|
|
(5,101
|
)
|
|
(34,899
|
)
|
|
-
|
|
Forest Capital (6/17/16)
|
|
-
|
|
|
25,000
|
|
|
(11,507
|
)
|
|
-
|
|
|
13,493
|
|
LG (7/11/16)
|
|
-
|
|
|
29,000
|
|
|
(15,255
|
)
|
|
-
|
|
|
13,745
|
|
LG (7/11/16)
|
|
-
|
|
|
25,000
|
|
|
-
|
|
|
(25,000
|
)
|
|
-
|
|
Adar Bays (7/14/16)
|
|
-
|
|
|
35,000
|
|
|
(18,699
|
)
|
|
-
|
|
|
16,301
|
|
Crown Bridge (7/28/16)
|
|
-
|
|
|
35,000
|
|
|
(20,041
|
)
|
|
-
|
|
|
14,959
|
|
Forest Capital (8/25/16)
|
|
-
|
|
|
55,000
|
|
|
(35,712
|
)
|
|
-
|
|
|
19,288
|
|
Forest Capital (8/26/16)
|
|
-
|
|
|
75,000
|
|
|
-
|
|
|
(73,758
|
)
|
|
1,242
|
|
Crown Bridge (8/29/16)
|
|
-
|
|
|
35,000
|
|
|
-
|
|
|
(35,000
|
)
|
|
-
|
|
Eagle Equities (8/30/16)
|
|
-
|
|
|
60,000
|
|
|
(3,457
|
)
|
|
(55,000
|
)
|
|
1,543
|
|
Eagle Equities (9/8/16)
|
|
-
|
|
|
60,000
|
|
|
(41,260
|
)
|
|
-
|
|
|
18,740
|
|
Lucas Hoppel (9/13/16)
|
|
-
|
|
|
53,500
|
|
|
-
|
|
|
(53,500
|
)
|
|
-
|
|
Micro Cap Equity (9/13/16)
|
|
-
|
|
|
25,000
|
|
|
-
|
|
|
(25,000
|
)
|
|
-
|
|
Lucas Hoppel (9/14/16)
|
|
-
|
|
|
38,500
|
|
|
(27,108
|
)
|
|
-
|
|
|
11,392
|
|
Crown Bridge (9/29/16)
|
|
-
|
|
|
56,700
|
|
|
-
|
|
|
(56,700
|
)
|
|
-
|
|
Red Diamond (5/10/16)
|
|
-
|
|
|
52,500
|
|
|
(39,986
|
)
|
|
|
|
|
12,514
|
|
Red Diamond (5/10/16)
|
|
-
|
|
|
75,000
|
|
|
|
|
|
(75,000
|
)
|
|
-
|
|
Lucas Hoppel (10/10/16)
|
|
-
|
|
|
43,000
|
|
|
|
|
|
(43,000
|
)
|
|
-
|
|
Micro Cap Equity (10/10/16)
|
|
-
|
|
|
25,000
|
|
|
|
|
|
(25,000
|
)
|
|
-
|
|
Red Diamond (11/29/16)
|
|
-
|
|
|
10,000
|
|
|
|
|
|
(10,000
|
)
|
|
-
|
|
Forest Capital (12/5/16)
|
|
-
|
|
|
35,000
|
|
|
(4,104
|
)
|
|
(27,952
|
)
|
|
2,944
|
|
Forest Capital (12/5/16)
|
|
-
|
|
|
18,000
|
|
|
(11,352
|
)
|
|
-
|
|
|
6,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
137,399
|
|
$
|
1,036,200
|
|
|
(244,414
|
)
|
$
|
(756,299
|
)
|
$
|
172,886
|
|
NOTE 10 DERIVATIVE LIABILITIES
The embedded conversion features in the convertible debentures
and attached warrants are accounted for as derivative liabilities. The warrants
contain full ratchet reset features (subject to adjustment for dilutive share
issuances) and should be valued as derivative liabilities.
The valuation of the derivative liability attached to the
debentures arrived at through the use of multinomial lattice models based on a
probability weighted discounted cash flow model. These models are based on
future projections of the various potential outcomes. The features in the note
that were analyzed and incorporated into the model included the conversion
feature with the reset provisions and the call/redemption options. Based on
these features, there are six primary events that can occur: payments are made
in cash; payments are made with stock; the holder converts upon receiving a
change notice; the holder converts the note; the Issuer redeems the note; or the
company defaults on the note.
The model analyzed the underlying economic factors that
influenced which of these events would occur, when they were likely to occur,
and the specific terms that would be in effect at the time (i.e. interest rates,
stock price, conversion price, etc.). Projections were then made on these
underlying factors which led to a set of potential scenarios. Probabilities were
assigned to each of these scenarios over the remaining term of the note based on
management projections. This led to a cash flow projection over the life of the
note and a probability associated with that cash flow. A discounted weighted
average cash flow over the various scenarios was completed, and it was compared
to the discounted cash flow of the note without the embedded features, thus
determining a value for the derivative liability. For the year ended December
31, 2016, the Company recorded derivative liabilities for issuance of
convertible notes payable initial fair value of $1,286,180 (2015 -
$1,014,703).
The Company recorded unrealized gains of $227,729 and $302,596
for the years ended December 31, 2016 and December 31, 2015, respectively. The
fair value of the derivative liability was $413,199 and $138,957 as of December
31, 2016 and 2015, respectively.
|
|
|
Derivative Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Valuation
|
|
|
December 31,
|
|
|
|
|
|
Conversions
|
|
|
Increase
|
|
|
December 31,
|
|
Date
|
|
|
2015
|
|
|
Additions
|
|
|
/Exchanges
|
|
|
(Decrease)
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2011 and Feb
21,2012 Debentures
|
|
$
|
3,363
|
|
$
|
-
|
|
$
|
(607
|
)
|
$
|
39,628
|
|
$
|
42,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 convertible notes
|
|
|
135,594
|
|
|
-
|
|
|
(154,939
|
)
|
|
19,345
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 convertible debentures
|
|
|
-
|
|
|
168,975
|
|
|
-
|
|
|
15,083
|
|
|
184,058
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 convertible notes
|
|
|
-
|
|
|
1,117,205
|
|
|
(628,663
|
)
|
|
(301,785
|
)
|
|
186,757
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
138,957
|
|
$
|
1,286,180
|
|
$
|
(784,209
|
)
|
$
|
(227,729
|
)
|
$
|
413,199
|
|
|
|
|
Derivative Values
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value
|
|
|
|
|
Valuation
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
Increase
|
|
|
December 31,
|
|
Date
|
|
|
2014
|
|
|
Additions
|
|
|
Conversions
|
|
|
(Decrease)
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
April 29, 2011 debenture
|
|
$
|
13,405
|
|
$
|
-
|
|
$
|
-
|
|
$
|
(10,042
|
)
|
$
|
3,363
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Feb 21, 2012 debenture
|
|
|
9,000
|
|
|
-
|
|
|
-
|
|
|
(9,000
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oct 10, 2014 note
|
|
|
73,472
|
|
|
-
|
|
|
(109,896
|
)
|
|
36,424
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov 12, 2014 debenture
|
|
|
2,750
|
|
|
-
|
|
|
-
|
|
|
(2,750
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Nov 13, 2014 debenture
|
|
|
83,096
|
|
|
-
|
|
|
(41,094
|
)
|
|
(42,002
|
)
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2015 convertible notes
|
|
|
-
|
|
|
1,014,703
|
|
|
(603,883
|
)
|
|
(275,226
|
)
|
|
135,594
|
|
Total
|
|
$
|
181,723
|
|
$
|
1,014,703
|
|
$
|
(754,873
|
)
|
$
|
(302,596
|
)
|
$
|
138,957
|
|
NOTE 11 STOCKHOLDERS DEFICIT
On March 2, 2016, the Board of Directors approved and
recommended the approval by the stockholders, to undergo a reverse stock split
of each class of shares which includes the shares of common stock, the Series A
Preferred Stock and the Series B Preferred Stock by a ratio of 200 to 1 for each
class of shares. The par value of each class of shares shall remain unchanged.
The Series A Preferred Stock and Series B Preferred Stock voting rights per
share shall remain unchanged. The reverse stock split became effective on July
15, 2016. All share amounts and per share amounts have been retrospectively
restated to reflect the reverse stock split.
On April 17, 2015, the shareholders approved an increase in the
number of authorized common stock from 150 million to 650 million common shares,
and on August 12, 2015 the shareholders approved another increase in the number
of authorized common stock from 650 million to 1.6 billion common shares and an
increase from 1 million to 4 million of the number of authorized Series B
preferred shares.
Preferred Stock
On December 29, 2014, the Company increased the authorized
common shares to 150 million and authorized 1,000,000 each Series A and Series B
preferred shares, par value $0.001 per share with the following features:
Series A preferred stock: non-voting, no liquidation or
dividend rights, redeemable and retractable at a price equal to its par value,
convertible into a number of shares of common stock as is equal to the par value
of the Series A Preferred Stock divided by the average closing price per share
of common stock of the last 5 trading days immediately prior to conversion;
Series B preferred stock: voting with 500 votes per share, no
liquidation or dividend rights, non redeemable, no conversion privileges.
During the year ended December 31, 2016, as part of its
extension of its licenses (see Note 3), the Company issued 611,200 Series B
Preferred Shares and 3,786,500 Series B Preferred Share warrants with an
exercise price of $0.001 and a 10-year maturity with a total fair value of
$566,104.
During the year ended December 31, 2015, the Company issued the
following preferred shares:
-2,100 Series B preferred shares valued at $102,480 as
consideration for the tenth amendment of the Licensing Agreement.
-200 Series B preferred shares valued at $150,000 for
settlement of debt.
Common Stock
During the year ended December 31, 2016, the Company issued the
following common shares for fair value based on the market price at the date of
the grant:
-
|
500,000 common shares to a consultant as
payment for services with a fair value of $59,000.
|
-
|
22,500,000 common shares to a related party for
payment of accounts payable to related parties of $22,500.
|
-
|
986,313,478 common shares to convertible note
holders for conversion of $653,493 of debt and payment of $9,000 in fees
and $918 in interest for a fair value of $663,411.
|
-
|
324,305,000 common shares to a shareholder-creditor for
settlement against shareholder loans of $375,316 and recognized a loss on
settlement of debts in the amount of $1,297,370 for a fair value of
$1,695,186.
|
In 2015, the Company cancelled 9,750 common shares issued in
2014 and 750 shares issued in 2015 in exchange for 759,750 warrants with a
5-year term and an exercise price of $0.001 valued on the original grant date,
of which $151,950 was reclassified from common stock to additional paid-in
capital.
In 2016, the Company issued 214 shares to shareholders for
fractional shares as a result of the conversion.
During the year ended December 31, 2015, the Company issued the
following common shares for fair value based on the market price at the date of
the grant:
-
|
36,684 common shares to shareholder creditors
and consultants as payment for services with a fair value of $83,974.
|
-
|
27,105 common shares to convertible debenture
holders as payment of interest for the year of $147,650.
|
-
|
3,207,823 common shares to convertible notes
holders for conversion of principal and interest of $1,133,590.
|
-
|
2,455,750 common shares to a
shareholder-creditor and a related party for payment against accounts
payable and accrued liabilities related parties of $720,813 and recognized
a loss on settlement of payables in the amount of $1,031,321.
|
During the year ended December 31, 2015, 2,050 shares of common
stock were issued for the cash-less exercise of 2,100 warrants. Upon exercise of
the warrants, another 2,500 common shares were issued for $500.
The Company cancelled 9,750 common shares issued in 2014 in
exchange for 9,750 warrants with a 5-year term and an exercise price of $0.001
valued on the original grant date, of which $10 was reclassified from common
stock to additional paid-in capital in 2015.
Options and Warrants
On June 15, 2011, the Companys Board of Directors established
the 2011 Stock Incentive Plan expiring on June 15, 2016 (the 2011 Plan).
Under the Plan, the Company may grant certain employees both
incentive and non-qualified options to purchase shares of common stock. The Plan
is authorized to grant options covering up to 700,000 common shares.
During the year ended December 31, 2016, the Company issued and
then later cancelled 8,100,000 warrants to a shareholder to repay loans payable
to shareholders with a fair value of $3,380,000 (original recorded as an
adjustment to loans payable - shareholder of $531,000 and loss on settlement of
debt of $2,849,000 but then reversed); cancelled an additional 1,500,000
warrants to the same shareholder-creditor originally issued in December 2015,
reinstating the accounts payable - related party of $90,000 and reversing the
loss on settlement of $390,000, 75,000 warrants issued to a convertible note
holder as part of the derivative liability for a fair value of $151,755; 759,750
warrants to shareholder in exchange for the cancellation of 759,750 shares for
consideration of $151,950, all with a corresponding increase in additional
paid-in capital valued using the Black-Scholes option pricing model according to
the following assumptions:
Expected volatility
|
|
176.4%-287.9%
|
|
Exercise price
|
$
|
0.002
|
|
Stock price
|
$
|
0.42-$0.2
|
|
Expected life
|
|
5 years
|
|
Risk-free interest rate
|
|
1.23%-1.46%
|
|
Dividend yield
|
|
0%
|
|
During the year ended December 31, 2015, the Company issued
1,500,000 warrants to a shareholder to repay accounts payable - related party
with a fair value of $480,000, 21,750,000 warrants to consultants for consulting
services at a fair value of $192,754 (recorded as stock-based compensation),
8,600,000 warrants to a shareholder to repay accounts payable-related party with
a fair value of $1,094,260 (recorded as an adjustment to accounts payable -
related party of $335,000 and loss on settlement of payables of $759,260),
300,000 warrants to shareholders for accrued interest of $15,600, 6,0000,000
options to the CEO for compensation of $48,600, 1,500,000 warrants to a
related-party landlord for $12,150 for payment to accounts payable related
party, 1,950,000 warrants to shareholder in exchange for the cancellation of
1,950,000 shares for consideration of $1,950, all with a corresponding increase
in additional paid-in capital valued using the Black-Scholes method according to
the following assumptions:
Expected volatility
|
|
261%-288%
|
|
Exercise price
|
$
|
0.00001-$0.001
|
|
Stock price
|
$
|
0.0016-$0.50
|
|
Expected life
|
|
4-5 years
|
|
Risk-free interest rate
|
|
1.19%-1.71%
|
|
Dividend yield
|
$
|
Nil
|
|
A summary of the activity in the Company's options and warrants
during the years ended December 31, 2016 and 2015 is presented below:
|
|
Number of
|
|
|
|
|
|
Weighted Average
|
|
|
|
Options and
|
|
|
Weighted Average
|
|
|
Remaining
Contract
|
|
|
|
Warrants
|
|
|
Exercise Price
|
|
|
Term (# of years)
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable,
at December 31, 2014
|
|
47,508
|
|
$
|
0.10
|
|
|
3.13
|
|
Granted
|
|
1,700,650
|
|
$
|
0.01
|
|
|
|
|
Exercised
|
|
(4,600
|
)
|
$
|
0.01
|
|
|
|
|
Expired
|
|
(9,382
|
)
|
$
|
0.14
|
|
|
|
|
Outstanding and exercisable,
at December 31, 2015
|
|
1,734,176
|
|
$
|
0.01
|
|
|
4.83
|
|
Granted
|
|
8,934,750
|
|
$
|
0.01
|
|
|
|
|
Exercised
|
|
-
|
|
|
-
|
|
|
|
|
Expired
|
|
(9,600,000
|
)
|
$
|
0.01
|
|
|
|
|
Outstanding and exercisable,
at December 31, 2016
|
|
1,068,926
|
|
$
|
0.01
|
|
|
4.07
|
|
In addition to the regular warrants detailed in the table
above, there are 533,336 Series A warrants issued and outstanding with an
exercise price of $0.39 per share and a maturity date of February 28, 2018.
The intrinsic value of warrants outstanding at December 31,
2016 was $109.
Contingent Warrant Issuance
On July 20, 2012, the Companys board of directors approved the
issuance of 300,000 stock purchase warrants, with an exercise price of $0.001
per share and a five-year life, from date of issuance, to the Companys
President, Joseph Kristul, contingent on his successful negotiation of a major
sales contract. The major sales contract agreement has not yet been reached by
the Company.
NOTE 12 RELATED PARTY TRANSACTIONS
The Company entered into various related party transactions
during the years ended December 31, 2016 and 2015, as follows:
NTI License Fees
The Companys principal assets are licenses for product sales
with NTI, an entity under common control.
During the year ended December 31, 2016, the Company extended
all its licenses with NTI until December 31, 2020. The consideration given was
11,200 Series B preferred shares and 786,500 Series B preferred share warrants
with a total fair value of $502,104 and a note payable of $1,500,000 due by
February 12, 2017.
During the year ended December 31, 2015, the Company issued
2,100 shares of Series B Preferred Stock valued at $102,480 as consideration for
its licenses with NTI. The notes payable related party was repaid through cash
payments of $439,000 and the issuance of 200 shares of Series B
Preferred Stock valued at $150,000. As of December 31, 2016 and 2015, the notes
payable related party outstanding with NTI was $2,216,777 and $1,300,491,
respectively.
The Company has an option (extended to December 31, 2020) to
issue a controlling stake in the Company amounting to 52.5% to NTI for a
perpetual exclusive license to manufacture and sell Nanotech Products for all
North America, South America and Europe. If this option is exercised, the
Company will have a similar option for the territory of Asia to issue an
additional 10% ownership stake in the Company.
Fees charged by Shareholder
During the years ended December 31, 2016 and 2015, the Company
was charged $252,465 and $832,565, respectively, by an outside consultant, who
is also a shareholder-creditor, for professional fees of $15,000 per month in
2016 and 2015, out-of-pocket expenses of approximately $72,000 in 2016 and
$38,000 in 2015, and professional fees of approximately $0 in 2016 and $614,000
in 2015 related to strategic partnership negotiations and other business related
services performed on the Companys behalf.
The Company issued 2,490,750 common shares and 1,547,050
warrants to purchase shares of the Companys common stock with a total aggregate
value of $1,137,813 to settle liabilities to the consultant during the years
ended December 31, 2015. The Company had an outstanding balance payable included
in accounts payable and accrued liabilities related parties as of December 31,
2016 and 2015 of $389,901 and $47,534 respectively. Also during the year ended
December 31, 2015, the shareholder-creditor transferred $182,000 of its
outstanding balance owed by the Company to a third party. The Company and the
third party agreed to amend the loan agreement to allow the third party to
convert the principal balance into shares of the Companys stock. The third
party converted the principal balance of $182,000 into 280,110 shares of the
Companys common stock. The shares had a fair value of $510,064 and the Company
recorded a loss on debt extinguishment of $158,141 and loss on settlement of
payables of $169,677.
During the year ended December 31, 2016, the
shareholder-creditor described above loaned the Company $1,155,222 through loans
payable - shareholders and the Company made a cash repayment of $15,000 and
non-cash repayments through the issuance 324,305,000 shares of common stock with
a fair value of $375,315. The shareholder-creditor also transferred $518,200 to
third parties. During the year ended December 31, 2015, the consultant,
described above, loaned the Company $455,413 through loans payable
shareholders and the Company made cash repayments to this consultant of
$23,000.
Shared Administrative Costs
The Company shares office space with NTI. Costs are allocated
among the parties based on usage. During 2016 and 2015, the allocation of such
shared costs between the Company and NTI was 80% and 20%, respectively. Rent
expense for the years ended December 31, 2016 and 2015 was $45,000.
NOTE 13 INCOME TAXES
Deferred income taxes reflect the net effect of:
(a) temporary difference between
carrying amounts of assets and liabilities for financial purposes and the
amounts used for income taxes reporting purposes, and
(b) net operating loss carryforwards.
No net provision for refundable U.S. Federal income tax has
been made in the accompanying statement of operations because no recoverable
taxes were paid previously. Similarly, no deferred tax asset attributable to the
net operating loss carryforward has been recognized, as it is not deemed more
likely than not to be realized.
The effective tax rate of the Company is reconciled to
statutory tax rates as follows for the years ended December 31, 2016 and
2015:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
US federal statutory tax rate
|
|
34%
|
|
|
34%
|
|
Change in US valuation
allowance
|
|
(34%
|
)
|
|
(34%
|
)
|
|
|
|
|
|
|
|
Effective tax rate
|
|
-
|
|
|
-
|
|
Deferred tax assets consist of the following as of December
31:
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Net operating loss
carryforward
|
$
|
9,054,980
|
|
$
|
8,191,642
|
|
Valuation allowance
|
|
(9,054,980
|
)
|
|
(8,191,642
|
)
|
|
|
|
|
|
|
|
Deferred tax asset
|
$
|
-
|
|
$
|
-
|
|
The Company has net operating losses carried forward of
approximately $24,300,000 which expire beginning in 2031. They may be utilized
to offset future taxable income. Future tax benefits, which may arise as a
result of these losses and resource expenditures, have not been recognized in
these financial statements.
NOTE 14 - COMMITMENTS AND CONTINGENCIES
The Company had an option (expiring December 31, 2020) to issue
a controlling stake in the Company amounting to 52.5% to NTI, a related party,
for a perpetual exclusive license to manufacture and sell Nanotech Products for
all North America, South America and Europe. If this option is exercised, the
Company will have a similar option for the territory of Asia to issue an
additional 10% ownership stake in the Company. These options have not yet been
exercised.
The Company is delinquent on its state and federal payroll tax
remittances. The State of California has issued a Notice of State Tax Lien
against the property and rights owned by the Company covering interest and
penalties for non-payment of payroll remittances of $3,897. The Internal Revenue
Service has issued a penalty against the Company for non-payment of payroll
taxes of $64,695, accrued in accounts payable and accrued liabilities as of
December 31, 2016.
NOTE 15 SUBSEQUENT EVENTS
Subsequent to December 31, 2016, the Company issued the
following shares:
|
|
7,059,596,463 shares of common stock for the conversion
of outstanding debt, valued on the various dates of issuances in the
aggregate amount of $400,957 based on the market price, converting
$371,153 in principal, $27,804 in accrued interest and $2,000 in fees.
|
|
|
3,328,000,000 shares of common stock to a
shareholder-creditor at fair value of $522,950, for settlement against
shareholder loans of $75,640 and recognized a loss on settlement of debt
in the amount of $447,310 for a fair value of $522,950.
|
|
|
37,500,000 shares of common stock as settlement
for accounts payable and accrued liabilities - related party at fair value
of $3,750.
|
On January 9, 2017, the Board of Directors approved the
following:
1.
|
To increase the authorized share capital to
25,000,000,000 shares of common stock
|
|
|
2.
|
To increase the authorized share capital to 55,000,000
shares of Series B Preferred Stock
|
Effective April 4, 2017, the Company began to process of
amending its number of authorized shares to the 25,000,000,000 shares, as
approved by the Board of Directors, by preliminarily amending its articles to
increase the number of authorized shares of common stock to 22,500,000,000
shares. An additional amendment is planned for 2018 to increase the number of
authorized shares to 25,000,000,000.