Notes
to Condensed Consolidated Financial Statements
(Unaudited)
NOTE
1: BASIS OF PRESENTATION AND SIGNIFICANT ACCOUNTING POLICIES
The
accompanying condensed consolidated financial statements of the Company have been prepared without audit, pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information and disclosures required by accounting principles
generally accepted in the United States have been condensed or omitted pursuant to such rules and regulations. These condensed
consolidated financial statements reflect all adjustments that, in the opinion of management, are necessary to present fairly
the results of operations of the Company for the period presented. The results of operations for the nine months ended September
30, 2016, are not necessarily indicative of the results that may be expected for any future period or the fiscal year ending December
31, 2016.
Use
of Estimates
The
preparation of financial statements in accordance with generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
Fair
Value of Financial Instruments
Fair
Value of Financial Instruments, requires disclosure of the fair value information, whether or not recognized in the balance sheet,
where it is practicable to estimate that value. As of September 30, 2016 and December 31, 2015, the balances reported for cash,
prepaid expenses, accounts receivable, accounts payable, and accrued expenses, approximate the fair value because of their short
maturities.
Fair
value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy which prioritizes
the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets
for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements).
These tiers include:
Level
1, defined as observable inputs such as quoted prices for identical instruments in active markets;
Level
2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted
prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not
active; and
Level
3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions,
such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are
unobservable.
The
Company measures certain financial instruments at fair value on a recurring basis. Assets and liabilities measured at fair value
on a recurring basis were calculated using the Black-Scholes pricing model and are as follows at September 30, 2016:
|
|
Total
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
Liability
|
|
|
518,637
|
|
|
|
|
|
|
|
|
|
|
|
518,637
|
|
Total Liabilities
Measured at Fair Value
|
|
$
|
518,637
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
518,637
|
|
Consolidation
Our
financial statements consolidate all of our affiliates which consist of IsoPet Solutions, a wholly owned subsidiary which was
established in May 2016. IsoPet Solutions will focus on bringing AMI’s yttrium-90 brachytherapy products to veterinary oncologists
to treat animals such as dogs and cats suffering from tumor cancers. IsoPet Solutions is currently establishing the infrastructure
necessary to provide product to veterinary clinics including regulatory clearances and compliance. As of September 30, 2016 there
have been no revenues nor expenses incurred in the IsoPet Solutions subsidiary.
Recent
Accounting Pronouncements
There
are no recently issued accounting pronouncements that the Company believes are applicable or would have a material impact on the
financial statements of the Company.
NOTE
2: GOING CONCERN
The
accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and
satisfaction of liabilities in the normal course of business. As shown in the accompanying financial statements, the Company has
suffered recurring losses and used significant cash in support of its operating activities and the Company’s cash position
is not sufficient to support the Company’s operations. Historically, the Company has relied upon outside investor funds
to maintain the Company’s operations and develop the Company’s business. The Company anticipates it will continue
to require funding from investors for working capital as well as business expansion during this fiscal year and it can provide
no assurance that additional investor funds will be available on terms acceptable to us. These factors, among others, may indicate
that the Company will be unable to continue as a going concern for a reasonable time. In addition, the Company’s ability
to continue as a going concern must be considered in light of the problems, expenses and complications frequently encountered
by entrance into established markets and the competitive environment in which it operates.
The
Company anticipates a requirement of $1.5 million in funds over the next twelve months to maintain current operation activities.
The Company may also require up to approximately $1.5 million to retire outstanding debt and past due payables, As of September
30, 2016 the Company has certain convertible promissory notes totaling approximately $260,000 that are currently due and payable
(“
Outstanding Notes
”. These notes were satisfied during November 2016. See Note 10: Subsequent Events.
The
Company requires funding of at least $1.5 million per year to maintain current operating activities. Over the next 12-24 months,
the Company believes it will cost approximately $5 million to $10 million to fund: (1) the FDA approval process and initial deployment
of the brachytherapy products and (2) initiate regulatory approval processes outside of the United States. The continued deployment
of the brachytherapy products and a worldwide regulatory approval effort will require additional resources and personnel. The
principal variables in the timing and amount of spending for the brachytherapy products in the next 12-24 months will be the FDA’s
classification of the Company’s brachytherapy products as Class II or Class III devices (or otherwise) and any requirements
for additional studies which may possibly include clinical studies. Thereafter, the principal variables in the amount of the Company’s
spending and its financing requirements would be the timing of any approvals and the nature of the Company’s arrangements
with third parties for manufacturing, sales, distribution and licensing of those products and the products’ success in the
U.S. and elsewhere. The Company intends to fund its activities through strategic transactions such as licensing and partnership
agreements or additional capital raises.
As
of September 30, 2016, the Company has $15 cash on hand. There are currently commitments to vendors for products and services
purchased, accrued compensation expenses and the Company’s current lease commitments that in the absence of additional capital
would result in a liquidation of the Company. The current level of cash is not enough to cover the fixed and variable obligations
of the Company.
Assuming
the Company is successful in the Company’s sales/development effort it believes that it will be able to raise additional
funds through strategic agreements or the sale of the Company’s stock to either current or new stockholders. There is no
guarantee that the Company will be able to raise additional funds or to do so at an advantageous price.
The
financial statements do not include any adjustments relating to the recoverability and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern
is dependent upon its ability to generate sufficient cash flow to meet its obligations on a timely basis and ultimately to attain
profitability. The Company plans to seek additional funding to maintain its operations through debt and equity financing and to
improve operating performance through a focus on strategic products and increased efficiencies in business processes and improvements
to the cost structure. There is no assurance that the Company will be successful in its efforts to raise additional working capital
or achieve profitable operations. The financial statements do not include any adjustments that might result from the outcome of
this uncertainty.
NOTE
3: FIXED ASSETS
Fixed
assets consist of the following at September 30, 2016 and December 31, 2015:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
Production equipment
|
|
$
|
1,390,182
|
|
|
$
|
1,938,532
|
|
Building
|
|
|
-
|
|
|
|
446,772
|
|
Leasehold improvements
|
|
|
-
|
|
|
|
3,235
|
|
Office equipment
|
|
|
14,594
|
|
|
|
32,769
|
|
|
|
|
1,404,776
|
|
|
|
2,421,308
|
|
Less accumulated
depreciation
|
|
|
(1,402,569
|
)
|
|
|
(2,416,888
|
)
|
|
|
$
|
2,207
|
|
|
$
|
4,420
|
|
Depreciation
expense for the above fixed assets for the three months ended September 30, 2016 and 2015, respectively was $738 and $936 and
for the nine months ended September 30, 2016 and 2015, respectively, was $2,212 and $3,595.
NOTE
4: INTANGIBLE ASSETS
Intangible
assets consist of the following at September 30, 2016 and December 31, 2015:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
License Fee
|
|
$
|
-
|
|
|
$
|
112,500
|
|
Less accumulated
amortization
|
|
|
-
|
|
|
|
(112,500
|
)
|
|
|
|
|
|
|
|
|
|
Patents and
intellectual property
|
|
|
35,482
|
|
|
|
35,482
|
|
Intangible
assets net of accumulated amortization
|
|
$
|
35,482
|
|
|
$
|
35,482
|
|
Amortization
expense for the above intangible assets for the three months ended September 30, 2016 and 2015, respectively was $0 and $0 and
for the nine months ended September 30, 2016 and 2015, respectively, was $0 and $1,339.
NOTE
5: RELATED PARTY TRANSACTIONS
Preferred
Shares Issued to Officers
The
Company received $35,000 from the CEO during the nine months ended September 30, 2016 in exchange for 8% Convertible Promissory
Notes that were converted to 35,000 shares of Series A Preferred stock during the period ended September 30, 2016. Additionally,
the Company issued a total of 2,800 shares of Series A Preferred stock as loan fees.
The
Company issued 10,000 Series A Preferred shares to the CFO as a bonus during the nine months ended September 30, 2016.
Rent
Expenses
The
Company rents office space from a significant shareholder and director of the Company on a month to month basis with a monthly
payment of $1,500.
During
the nine months ended September 30, 2016 the Company reached a Settlement Agreement regarding a dispute related to a previous
rental agreement where,starting after July 31, 2012, the Company was renting production space for $11,904 per month on a month
to month basis. This settlement resulted in a payment of $438,830 for rent, interest, and costs. The Company allocated $40,000
of this settlement towards rent expense for previous years.
Rental
expense for the three months and nine months ended September 30, 2016 and 2015 consisted of the following and is recorded in general
and administrative expense:
|
|
Three
months ended
|
|
|
Nine
months ended
|
|
|
|
September
30, 2016
|
|
|
September
30, 2015
|
|
|
September
30, 2016
|
|
|
September
30, 2015
|
|
Office and warehouse
space
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
40,000
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
office
|
|
|
4,500
|
|
|
|
4,500
|
|
|
|
13,500
|
|
|
|
13,500
|
|
Total Rental
Expense
|
|
$
|
4,500
|
|
|
|
4,500
|
|
|
$
|
53,500
|
|
|
$
|
13,500
|
|
NOTE
6: CONVERTIBLE NOTES PAYABLE
As
of September 30, 2016 and December 31, 2015 the Company had the following convertible notes outstanding:
|
|
September
30, 2016
|
|
|
December
31, 2015
|
|
|
|
Principal
(net)
|
|
|
Accrued
Interest
|
|
|
Principal
(net)
|
|
|
Accrued
Interest
|
|
July
and August 2012 $1,060,000 Convertible Notes, 12% interest, due December 2013 and January 2014 (18 month notes), $110,813
and $165,000 outstanding, net of debt discount of $0 and $0, respectively
|
|
$
|
95,000
|
|
|
|
47,500
|
|
|
$
|
165,000
|
|
|
|
69,712
|
(1)
|
|
January
2014 $0 Convertible Note, 8% interest, due January 2015, $0 and $50,000 outstanding, net of debt discount of $0 and $0, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
50,000
|
|
|
|
7,682
|
(2)
|
|
January
2014 $55,500 Convertible Note, 10% interest, due October 2014, with a $5,500 original issue discount, $10,990 and $10,990
outstanding, net of debt discount of $0 and $0, respectively
|
|
|
10,990
|
|
|
|
6,280
|
|
|
|
10,990
|
|
|
|
5,457
|
(3)
|
|
February
2014 $46,080 Convertible Note, 10% interest, due February 2015, $0 and $0 outstanding, net of debt discount of $0 and $0,
respectively
|
|
|
-
|
|
|
|
2,358
|
|
|
|
-
|
|
|
|
2,358
|
(4)
|
|
February
2014 $27,800 Convertible Note, 10% one-time interest, due February 2015, with a 10% original issue discount, $0 and $51,159
outstanding, net of debt discount of $0 and $49,626, respectively, settled remaining balance on September 30, 2015 for 5,000
shares of preferred and $20,000 cash payment due upon obtaining new financing
|
|
|
-
|
|
|
|
-
|
|
|
|
20,000
|
|
|
|
-
|
(5)
|
|
March
2014 $50,000 Convertible Note, 10% interest, due March 2015, $36,961 and $36,961 outstanding, net of debt discount of $0 and
$0, respectively
|
|
|
36,961
|
|
|
|
9,339
|
|
|
|
36,961
|
|
|
|
6,572
|
(6)
|
|
March
2014 $165,000 Convertible Note, 10% interest, due April 2015, with a $16,450 original issue discount, $0 and $61,301 outstanding,
net of debt discount of $0 and $0, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
61,301
|
|
|
|
24,109
|
(7)
|
|
April
2014 $32,000 Convertible Note, 10% interest, due April 2015, $22,042 and $22,042 outstanding, net of debt discount of $0 and
$0, respectively
|
|
|
22,042
|
|
|
|
4,684
|
|
|
|
22,042
|
|
|
|
3,034
|
(8)
|
|
April
2014 $46,080 Convertible Note, 10% interest due April 2015, $5,419 and $5,419 outstanding, net of debt discount of $0 and
$0, respectively
|
|
|
5,419
|
|
|
|
4,608
|
|
|
|
5,419
|
|
|
|
4,608
|
(9)
|
|
May
2014 $55,000 Convertible Note, 12% interest, due May 2015, with a $5,000 original issue discount, $0 and $46,090 outstanding,
net of debt discount of $0 and $24,315, respectively, settled May 1, 2015 for $100,000, $75,000 paid in cash and the remaining
$25,000 as a 10% convertible debenture paid May, 2016
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
1,836
|
(10)
|
|
June
2014 $28,800 Convertible Note, 10% interest due June 2015, $28,800 and $28,800 outstanding, net of debt discount of $0 and
$0, respectively
|
|
|
28,800
|
|
|
|
2,880
|
|
|
|
28,800
|
|
|
|
2,880
|
(11)
|
|
June
2014 $40,000 Convertible Note, 10% interest, due June 2015, $40,000 and $40,000 outstanding, net of debt discount of $0 and
$0, respectively
|
|
|
40,000
|
|
|
|
9,045
|
|
|
|
40,000
|
|
|
|
6,049
|
(12)
|
|
June
2014 $40,000 Convertible Note, 10% interest, due June 2015, $38,689 and $38,689 outstanding, net of debt discount of $0 and
$0, respectively
|
|
|
38,689
|
|
|
|
8,747
|
|
|
|
38,689
|
|
|
|
5,851
|
(13)
|
|
June
2014 $56,092 Convertible Note, 16% interest, due July 2015, with a $5,000 original issue discount, $0 and $56,092 outstanding,
net of debt discount of $0 and $0, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
56,092
|
|
|
|
13,462
|
(14)
|
|
July
2014 $37,500 Convertible Note, 12% interest, due July 2015, $37,015 and $37,015 outstanding, net of debt discount of $0 and
$0, respectively, settled August 26, 2016 for $13,750 payments due September 19, 2016, October 19, 2016, November 19, 2016,
and December 19, 2016.
|
|
|
41,250
|
|
|
|
-
|
|
|
|
37,015
|
|
|
|
6,377
|
(15)
|
|
August
2014 $36,750 Convertible Note, 10% interest, due April 2015, $36,750 and $36,750 outstanding, net of debt discount of $0 and
$0, respectively
|
|
|
36,750
|
|
|
|
8,289
|
|
|
|
36,750
|
|
|
|
5,538
|
(16)
|
|
August
2014 $33,500 Convertible Note, 4% interest, due February 2015, with a $8,500 original issue discount, $33,500 and $33,500
outstanding, net of debt discount of $0 and $0, respectively, settled April 28, 2016 for 10,000 shares Series A preferred
stock and two $10,000 payments paid on April 30, 2016 and July 1, 2016.
|
|
|
-
|
|
|
|
-
|
|
|
|
33,500
|
|
|
|
-
|
(17)
|
|
September
2014 $37,500 Convertible Note, 12% interest, due September 2015, with a $5,000 original issue discount, $0 and $36,263 outstanding,
net of debt discount of $0 and $0, respectively
|
|
|
-
|
|
|
|
-
|
|
|
|
36,263
|
|
|
|
5,576
|
(18)
|
|
January
through December, 2015 $615,000 Convertible Notes, 8% interest, due September 30, 2015 and October 6, 2015, $0 and $0 outstanding,
net of debt discount of $0 and $0, respectively
|
|
|
-
|
|
|
|
18,266
|
|
|
|
-
|
|
|
|
18,264
|
(19)
|
|
October
through December 2015 $613,000 Convertible Notes, 8% interest, due June 30, 2016, $0 and $613,000 outstanding, net of debt
discount of $0 and $560,913, respectively
|
|
|
-
|
|
|
|
16,502
|
|
|
|
52,087
|
|
|
|
2,519
|
(20)
|
|
January
through March 2016 $345,000 Convertible Notes, 8% interest, due June 30, 2016, $0 and $0 outstanding, net of debt discount
of $0 and $0, respectively
|
|
|
-
|
|
|
|
1,541
|
|
|
|
-
|
|
|
|
-
|
(21)
|
|
Penalties
on notes past due
|
|
|
910,867
|
|
|
|
|
|
|
|
1,032,475
|
|
|
|
-
|
|
|
Total
Convertible Notes Payable, Net
|
|
$
|
1,266,768
|
|
|
$
|
140,039
|
|
|
$
|
1,788,384
|
|
|
$
|
191,884
|
|
|
(1)
Convertible Debt instruments accrue interest at an annual rate of 12% and a conversion price of $0.06. The Convertible Debt instruments
also include Additional Investment Rights to enter into an additional convertible note with a corresponding amount of warrants
equal to forty percent of the convertible note principal.
During
the twelve months ending December 31, 2015 the holders of the Convertible Debt instruments received a repayment of $5,000 and
$0 of the outstanding principal and accrued interest balances. During the nine months ending September 30, 2016 the Company reached
a settlement agreement with two holders of the Convertible Debt instruments. One was for the $50,000 debt plus the $22,055 interest,
plus the 500,000 warrants, and with another for the $20,000 debt plus the $11,652 interest, plus the 250,000 warrants.
During
the twelve months ending December 31, 2015, total amortization was recorded in the amount of $0 and principal of $5,000 and accrued
interest of $0 was repaid to the note holder. During the nine months ending September 30, 2016, total amortization was recorded
in the amount of $0 and principal of $70,000 and accrued interest of $33,708 was repaid to the note holder. After repayments,
conversions and amortization, principal totaled $95,000 and debt discount totaled $0 at September 30, 2016 and $165,000 and debt
discount totaled $0 at December 31, 2015. During the nine months ending September 30, 2016 and the twelve months ending December
31, 2015 interest expense of $11,495 and $20,398, respectively, was recorded for the Convertible Debt Instruments. The $95,000
balance of the notes reached maturity during the year ended December 31, 2014 and are currently past due.
(2)
The Company borrowed $50,000 January 2014, due January 2015, with interest at 8%. The holder of the note has the right, after
the first one hundred eighty days of the note (July 27, 2014), to convert the note and accrued interest into common stock at a
price per share equal to the lesser of $0.09 or 58% of the lowest trade price in the 10 trading days previous to the conversion.
The Company recorded a debt discount of $50,000 related to the conversion feature and original issue discount, along with a derivative
liability at inception (see Note 11: Derivative Liability). Interest expense for the amortization of the debt discount is calculated
on a straight-line basis over the twelve month life of the note. During the twelve months ended December 31, 2015, total amortization
was recorded in the amount of $0. After amortization, principal totaled $50,000, debt discount totaled $0. The Company accrued
an additional $372 and $3,989 interest for the nine months ending September 30, 2016 and the twelve months ended December 31,
2015, respectively. During the nine months ending September 30, 2016 the Company reached a settlement agreement with the note
holder for the $50,000 debt plus the $8,054 of accrued interest.
(3)
The Company borrowed $55,500 January 2014, due October 2014, with interest at 10%. The holder of the note has the right, after
the first one hundred eighty days of the note (July 23, 2014), to convert the note and accrued interest into common stock at a
price per share equal to the lesser of $0.28 or 60% of the lowest trade price in the 25 trading days previous to the conversion.
The note has an original issue discount of $5,500 which has been added to the principal balance of the note and is being recognized
in interest expense over the life of the note. The Company recorded a debt discount of $55,000 related to the conversion feature
and original issue discount, along with a derivative liability at inception (see Note 11: Derivative Liability). Interest expense
for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. The Company
accrued an additional $823 and $1,096 interest for the nine months ending September 30, 2016 and twelve months ended December
31, 2015, respectively. The balance of the note reached maturity during the year ended December 31, 2014 and is currently past
due.
(4)
The Company borrowed $50,000 February 2014, due February 2015, with interest at 8%. The holder of the note has the right, after
the first one hundred eighty days of the note (August 10, 2014), to convert the note and accrued interest into common stock at
a price per share equal to the lesser of $0.07 or 58% of the lowest trade price in the 10 trading days previous to the conversion.
The Company recorded a debt discount of $50,000 related to the conversion feature and original issue discount, along with a derivative
liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over
the twelve month life of the note. During the twelve months ending December 31, 2015, total principal of $46,080 and accrued interest
of $3,358 was converted into shares of common stock (see Note 9: Stockholders’ Equity), resulting in a decrease to the debt
discount of $19,577. After conversions and amortization, principal totaled $0, debt discount totaled $0, and accumulated interest
totaled $2,358 at September 30, 2016 and December 31, 2015.
(5)
The Company borrowed $27,800 February 2014, due February 2015, with a one-time interest charge of 10%. The holder of the note
has the right to convert the note and accrued interest into common stock at a price per share equal to the lesser of $0.195 or
60% of the lowest trade price in the 25 trading days previous to the conversion. The note has an original issue discount of $2,800
which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.
Additionally, the holder of the note added a market price adjustment of $53,192 on the note due to delay in issuance of conversion
shares. The Company increased the amount of the note by $53,192 and recorded a debt discount of $53,192. Interest expense for
the amortization of the debt discounts is calculated on a straight-line basis over the nine month life of the note. During the
twelve months ending December 31, 2015, total amortization was recorded in the amount of $25,877 and an additional $0 of interest
was accrued. The balance of the note reached full maturity during the quarter ended June 30, 2015 and was settled September 30,
2015 for 5,000 shares of Series A Preferred Stock having a stated value of $5.00 per share and $20,000 cash payment due upon the
consummation of a debt or equity financing resulting in gross proceeds to the Company of at least $500,000. During the nine months
ended September 30, 2016, the Company reached a settlement agreement for the remaining $20,000 cash payment.
(6)
The Company borrowed $50,000 March 2014, due March 2015, with interest at 10%. The holder of the note has the right, after the
first one hundred eighty days of the note (September 18, 2014), to convert the note and accrued interest into common stock at
a price per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company recorded
a debt discount of $50,000 related to the conversion feature and original issue discount, along with a derivative liability at
inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month
life of the note. After conversions and amortization, principal totaled $36,961 and debt discount totaled $0 for the periods ending
September 30, 2016 and December 31, 2015. The Company accrued an additional $2,767 and $3,686 interest for the nine months ending
September 30, 2016 and twelve months ended December 31, 2015, respectively. The balance of the note reached full maturity during
the quarter ended June 30, 2015 and is currently past due.
(7)
The Company borrowed $165,000 March 2014, due April 2015, with interest at 10%. The holder of the note has the right to convert
the note and accrued interest into common stock at a price per share equal to the lesser of $1.00 or 65% of the average of the
three lowest trading prices in the 20 trading days previous to the conversion. The note has an original issue discount of $15,000
which has been added to the principal balance of the note and is being recognized in interest expense over the life of the note.
The Company recorded a debt discount of $165,000 related to the conversion feature and original issue discount, along with a derivative
liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over
the twelve month life of the note. During the twelve months ending December 31, 2015, total principal of $23,211 was converted
into shares of common stock, resulting in a decrease to the debt discount of $6,991. After conversions and amortization, principal
totaled $61,301, debt discount totaled $0, and accumulated interest totaled $24,109 at December 31, 2015. The Company accrued
an additional $348 for the nine months ending September 30, 2016. During the nine months ending September 30, 2016 the Company
reached a settlement agreement with the note holder for the $61,301 debt plus the $24,457 of accrued interest.
(8)
The Company borrowed $32,000 April 2014, due April 2015, with interest at 10%. The holder of the note has the right, after the
first one hundred eighty days of the note (October 1, 2014), to convert the note and accrued interest into common stock at a price
per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company recorded a debt
discount of $32,000 related to the conversion feature and original issue discount, along with a derivative liability at inception.
Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of
the note. After conversions and amortization, principal totaled $22,042, debt discount totaled $0, and accumulated interest totaled
$3,034 at December 31, 2015. The Company accrued an additional $1,650 and $2,198 interest for the nine months ending September
30, 2016 and twelve months ended December 31, 2015, respectively. The balance of the note reached full maturity during the quarter
ended June 30, 2015 and is currently past due.
(9)
The Company borrowed $46,080 April 2014, due April 2015, with interest at 10%. The holder of the note has the right, after the
first one hundred eighty days of the note (October 11, 2014), to convert the note and accrued interest into common stock at a
price per share equal to the lesser of $0.08 or 60% of the lowest trade price in the 25 trading days previous to the conversion.
The Company has the right to prepay the note during the first ninety days following the date of the note. The Company recorded
a debt discount of $46,080 related to the conversion feature and original issue discount, along with a derivative liability at
inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month
life of the note. After conversions and amortization, principal totaled $5,419, debt discount totaled $0, and accumulated interest
totaled $4,608 at September 30, 2016 and December 31, 2015. The balance of the note reached full maturity during the quarter ended
June 30, 2015 and is currently past due.
(10)
The Company borrowed $55,000 May 2014, due May 2015, with interest at 12%. The holder of the note has the right to convert the
note and accrued interest into common stock at a price per share equal to the lesser of $0.03 or 55% of the lowest trade price
in the 25 trading days previous to the conversion. The note has an original issue discount of $5,000 which has been added to the
principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt
discount of $55,000 related to the conversion feature and original issue discount, along with a derivative liability at inception.
Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of
the note. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $24,315 and an additional
$2,131 of interest was accrued. This note was settled May 1, 2015 for $100,000, $75,000 paid in cash and the remaining $25,000
as a 10% convertible debenture due May 31, 2016. The $25,000 convertible debenture is convertible at 55% of the lowest close for
the last 270 days prior to the conversion notice or $0.03, but not less than $0.001. This settlement resulted in a reduction to
notes payable of $46,090 and accrued interest payable of $5,516, an increase to note payable of $100,000 and a resulting $48,394
loss on settlement of debt. The Company accrued an additional $1,205 and $1,836 interest for the nine months ending September
30, 2016 and twelve months ended December 31, 2015, respectively. During the nine months ended September 30, 2016, the Company
reached a settlement agreement with the note holder for the remaining $25,000 convertible debenture plus $3,041 of accrued interest.
(11)
The Company borrowed $28,800 June 2014, due June 2015, with interest at 10%. The holder of the note has the right, after the first
one hundred eighty days of the note (December 20, 2014), to convert the note and accrued interest into common stock at a price
per share equal to the lesser of $0.08 or 60% of the lowest trade price in the 25 trading days previous to the conversion. The
Company has the right to prepay the note during the first ninety days following the date of the note. The Company recorded a debt
discount of $28,800 related to the conversion feature and original issue discount, along with a derivative liability at inception.
Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of
the note. After conversions and amortization, principal totaled $28,800, debt discount totaled $0, and accumulated interest totaled
$2,880 at September 30, 2016 and December 31, 2015. The balance of the note reached full maturity during the quarter ended June
30, 2015 and is currently past due.
(12)
The Company borrowed $40,000 June 2014, due June 2015, with interest at 10%. The holder of the note has the right, after the first
one hundred eighty days of the note (December 23, 2014), to convert the note and accrued interest into common stock at a price
per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right
to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time
the amount of the prepayment is 145% of the outstanding amounts owed. The Company recorded a debt discount of $40,000 related
to the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the
amortization of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve
months ending December 31, 2015, total amortization was recorded in the amount of $19,398 and an additional $3,989 of interest
was accrued. The Company accrued an additional $2,995 interest for the nine months ending September 30, 2016. The balance of the
note reached full maturity during the quarter ended June 30, 2015 and is currently past due.
(13)
The Company borrowed $40,000 June 2014, due June 2015, with interest at 10%. The holder of the note has the right, after the first
one hundred eighty days of the note (December 23, 2014), to convert the note and accrued interest into common stock at a price
per share equal to 60% of the lowest trade price in the 25 trading days previous to the conversion. The Company has the right
to prepay the note and accrued interest during the first one hundred eighty days following the date of the note. During that time
the amount of any repayment is 145% of the outstanding amounts owed. The Company recorded a debt discount of $40,000 related to
the conversion feature and original issue discount, along with a derivative liability at inception. Interest expense for the amortization
of the debt discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ending
December 31, 2015, total amortization was recorded in the amount of $18,554 and an additional $3,858 of interest was accrued.
The Company accrued an additional $2,896 interest for the nine months ending September 30, 2016. The balance of the note reached
full maturity during the quarter ended June 30, 2015 and is currently past due.
(14)
The Company borrowed $56,092 July 2014, due July 2015, with interest at 16%. The holder of the note has the right to convert the
note and accrued interest into common stock at a price per share equal to the lesser of $1.00 or 65% of the average of the three
lowest trading prices in the 20 trading days previous to the conversion. The note has an original issue discount of $5,000 which
has been added to the principal balance of the note and is being recognized in interest expense over the life of the note. The
Company recorded a debt discount of $51,092 related to the conversion feature and original issue discount, along with a derivative
liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over
the twelve month life of the note. During the twelve months ending December 31, 2015, total amortization was recorded in the amount
of $27,816 and an additional $8,950 of interest was accrued. The Company accrued an additional $319 interest for the nine months
ending September 30, 2016 and reached a settlement agreement with the note holder for the $56,092 note balance plus $13,781 of
accrued interest.
(15)
The Company borrowed $37,500 July 2014, due July 2015, with interest at 12%. The holder of the note has the right to convert the
note and accrued interest into common stock at a price per share equal to 50% of the lowest of the lowest trading price in the
15 trading days previous to the conversion. The Company recorded a debt discount of $37,500 related to the conversion feature
and original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt
discount is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ending December
31, 2015, total amortization was recorded in the amount of $20,737 and an additional $4,430 of interest was accrued. The Company
accrued an additional $2,901 interest for the nine months ending September 30. The balance of the note reached full maturity during
the quarter ended September 30, 2015 and is currently past due.
(16)
The Company borrowed $36,750 August 2014, due August 2015, with interest at 10%. The holder of the note has the right, after the
first one hundred eighty days of the note (February 10, 2014), to convert the note and accrued interest into common stock at a
price per share equal to 60% (representing a discount rate of 40%) of the lowest trading price for the Common Stock during the
twenty five trading day period including the date of the Conversion Notice. The Company has the right to prepay the note and accrued
interest during the first one hundred eighty days following the date of the note. During that time the amount of any prepayment
is 145% of the outstanding amounts owed. The Company recorded a debt discount of $36,750 related to the conversion feature and
original issue discount, along with a derivative liability at inception. Interest expense for the amortization of the debt discount
is calculated on a straight-line basis over the twelve month life of the note. During the twelve months ending December 31, 2015,
total amortization was recorded in the amount of $22,755 and an additional $3,665 of interest was accrued. The Company accrued
an additional $2,751 interest for the nine months ending September 30, 2016. The balance of the note reached full maturity during
the quarter ended September 30, 2015 and is currently past due.
(17)
The Company borrowed $33,500 August 2014, due February 2015, with interest at 4%. The Company may prepay the note for a net payment
of $33,500 at any time prior to November 27, 2014. After November 27, 2014, the holder has the right to refuse any further payments
and to convert this note when it matures, February 27, 2015. The holder of the note has the right to convert the note and accrued
interest into common stock at a price per share equal to 60% (represents a 40% discount) of the average three lowest trade prices
in the 20 trading days previous to the conversion. The note has an original issue discount of $6,500 which has been added to the
principal balance of the note and is being recognized in interest expense over the life of the note. The Company recorded a debt
discount of $32,807 related to the conversion feature and original issue discount, along with a derivative liability at inception.
Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve month life of
the note. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $10,367. The balance
of the note reached full maturity during the quarter ended March 31, 2015 and is currently past due. During the nine months ending
September 30, 2016 the Company reached a settlement agreement with the note holder for the $33,500 debt.
(18)
The Company borrowed $37,500 September 2014, due September 2015, with interest at 12%. The holder of the note has the right to
convert the note and accrued interest into common stock at a price per share equal to 55% (represents a 45% discount) of the lowest
trade prices in the 15 trading days previous to the conversion. The note has an original issue discount of $5,000 which has been
added to the principal balance of the note and is being recognized in interest expense over the life of the note. The Company
recorded a debt discount of $37,500 related to the conversion feature and original issue discount, along with a derivative liability
at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over the twelve
month life of the note. During the twelve months ending December 31, 2015, total amortization was recorded in the amount of $25,927
and an additional $4,341 of interest was accrued. The Company accrued an additional $333 interest for the nine months ending September
30, 2016 and reached a settlement agreement with the note holder for the $36,263 note balance plus $5,908 of accrued interest.
(19)
The Company borrowed $615,000 during the twelve months ending December 31, 2015, due September and October 2016, with interest
at 8%. The holders of the notes have the right to convert the note and accrued interest into preferred stock at any time at a
price per share of $1. The Company issued the note holders 48,200 Series A preferred shares as a loan origination fee. The Company
recorded a debt discount of $615,000 related to the preferred shares issued as a loan origination fee, along with a derivative
liability at inception. Interest expense for the amortization of the debt discount is calculated on a straight-line basis over
the twelve-month life of the note. During the twelve months ending December 31, 2015 total amortization in the amount of $615,000
and accrued interest in the amount of $18,264 was recorded towards these notes. As of December 31, 2015 these notes were converted
into 615,000 Series A Convertible Preferred Shares.
(20)
The Company borrowed $613,000 October through December 2015, due June 2016, with interest at 8%. The holders of the notes have
the right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued
the note holder 49,040 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $613,000 related
to the conversion feature, along with a derivative liability at inception. Interest expense for the amortization of the debt discount
is calculated on a straight-line basis over the life of the notes. During the nine months ending September 30, 2016 and the twelve
months ending December 31, 2015, total amortization was recorded in the amount of $613,000 and $52,087 and an additional $13,676
and $2,350 of interest was accrued, respectively. As of September 30, 2016 these notes were converted into 613,000 Series A Convertible
Preferred Shares.
(21)
The Company borrowed $345,000 January through March 2016, due June 2016, with interest at 8%. The holders of the notes have the
right to convert the note and accrued interest into preferred stock at any time at a price per share of $1. The Company issued
the note holder 29,200 Series A preferred shares as a loan origination fee. The Company recorded a debt discount of $345,000 related
to the conversion feature, along with a derivative liability at inception. Interest expense for the amortization of the debt discount
is calculated on a straight-line basis over the life of the notes. During the nine months ending September 30, 2016 and the twelve
months ending December 31, 2015, total amortization was recorded in the amount of $345,000 and $0 and an additional $1,541 and
$0 of interest was accrued, respectively. As of September 30, 2016 these notes were converted into 345,000 Series A Convertible
Preferred Shares.
As
of September 30, 2016, certain convertible promissory notes described in this Note 6 not otherwise converted into common stock
of the Company, totaling approximately $260,000, were due and payable (“Outstanding Notes”). Although no assurances
can be given, management is currently negotiating with the holders of certain of the Outstanding Notes to restructure the principal
and accrued interest currently due and payable. The principal amount due under certain of the Outstanding Notes may be reduced
do to the offset of certain amounts resulting from the previous issuance of shares of common stock by the Company upon conversions
of the Outstanding Notes, which were issued based on a conversion price below $0.001 per share. The issuances are voidable under
the laws of the State of Delaware, the Company’s state of incorporation. The Company has issued a demand letter requiring
the return to the Company of that number of shares of common stock issued upon conversion of Outstanding Notes equal to the value
of the shares issued upon such conversion at a value below $0.001 per share (the “
Excess Amount
”). In the event
the holder of such shares fails to return the shares, the Company intends to unilaterally and without further action by the parties
reduce the principal amount of the Outstanding Notes by the Excess Amount. However the Company recorded an additional $910,867
in penalties and interest accrued on these notes to reflect the potential that the Company would be unable to prevail in reducing
the amount of the notes for the shares of common stock delivered below $0.001 per share and the Company was unable to negotiate
a settlement with these note holders
.
NOTE
7: COMMON STOCK OPTIONS AND WARRANTS
Common
Stock Options
The
Company recognizes in the financial statements compensation related to all stock-based awards, including stock options and warrants,
based on their estimated grant-date fair value. The Company has estimated expected forfeitures and is recognizing compensation
expense only for those awards expected to vest. All compensation is recognized by the time the award vests.
The
following schedule summarizes the changes in the Company’s stock options:
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Options
Outstanding
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Exercise
|
|
|
|
Of
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Price
|
|
|
|
Shares
|
|
|
Per
Share
|
|
|
Life
|
|
|
Value
|
|
|
Per
Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
51,350
|
|
|
$
|
12.00-15.00
|
|
|
|
7.12
years
|
|
|
$
|
-
|
|
|
$
|
15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options granted
|
|
|
2,370,000
|
|
|
$
|
0.50-1.00
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
.60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options
expired
|
|
|
(18,850
|
)
|
|
$
|
15.00
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
15.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
2,402,500
|
|
|
$
|
0.50-15.00
|
|
|
|
4.31
years
|
|
|
|
-
|
|
|
$
|
0.80
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
1,859,664
|
|
|
$
|
0.50-15.00
|
|
|
|
4.18
years
|
|
|
$
|
-
|
|
|
$
|
0.90
|
|
Common
Stock Warrants
The
following schedule summarizes the changes in the Company’s stock warrants:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
Weighted
|
|
|
|
Warrants Outstanding
|
|
|
Average
|
|
|
|
|
|
Average
|
|
|
|
Number
|
|
|
Exercise
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
Exercise
|
|
|
|
Of
|
|
|
Price
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
Price
|
|
|
|
Shares
|
|
|
Per Share
|
|
|
Life
|
|
|
Value
|
|
|
Per Share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2015
|
|
|
6,801,003
|
|
|
$
|
0.10-10.00
|
|
|
|
1.9 years
|
|
|
$
|
2,052,699
|
|
|
$
|
0.81
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warrants granted
|
|
|
200,000
|
|
|
$
|
$0.40-0.10
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
0.40
|
|
Warrants expired/cancelled
|
|
|
(3,454,831
|
)
|
|
$
|
0.011-6.00
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2016
|
|
|
3,546,171
|
|
|
$
|
0.10-10.00
|
|
|
|
0.77 years
|
|
|
$
|
2,700
|
|
|
$
|
4.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at September 30, 2016
|
|
|
3,546,171
|
|
|
$
|
0.10-10.00
|
|
|
|
0.77 years
|
|
|
$
|
2,700
|
|
|
$
|
4.49
|
|
NOTE
8: STOCKHOLDERS’ EQUITY
Common
Stock Issued for Cash and the Exercise of Options and Warrants
As
of December 31, 2015 there was an insufficient amount of the Company’s authorized common stock to satisfy the potential
number of shares that would be required to satisfy the outstanding options, warrants and convertible debt into common stock. As
a result the Company recorded a liability in the amount of $852,091, offset by $852,091 of equity for the period ending December
31, 2015. During the nine months ended September 30, 2016, although the effective date was October 2015, the Company filed a Certificate
of Amendment to perform a 1:100 reverse stock split which eliminated the shortage of sufficient authorized common shares.
In
April 2016, the Company issued 30,644 shares of common stock for cashless warrants exercise.
Preferred
Stock Issued for Cash and the Exercise of Warrants
In
March 2016, the Company issued 50,000 restricted shares of its Series A preferred stock in exchange for the cancellation of the
warrants attached to the convertible notes received in July 2012.
In
June 2016, the Company issued 250,000 restricted shares of its Series A preferred stock, pursuant to a warrant exercise.
In
August 2016, the Company issued 12,854 restricted shares of its Series A preferred stock in exchange for the cancellation of the
warrants attached to the convertible notes received in July 2015.
In
August and September 2016, the Company issued 46,666 shares of Series A preferred stock in exchange for $70,000 cash.
Preferred
Stock Issued for Loan Fees on Convertible Debt
During
the nine months ending September 30, 2016 the Company issued 47,840 shares of its Series A preferred stock as loan fees on convertible
promissory notes totaling $623,000.
During
the nine months ending September 30, 2016 the Company issued 35,106 shares of its Series A preferred stock as loan fees on convertible
promissory notes totaling $438,828 to a major shareholder and Director of the Company.
During
the nine months ending September 30, 2016 the Company issued 2,800 shares of its Series A preferred stock as loan fees on convertible
promissory notes totaling $35,000 to the CEO of the Company.
During
the nine months ending September 30, 2016 the Company issued 30,000 shares of its Series A preferred stock as finder’s fees.
Preferred
Stock Issued for Debt Converted
During
the nine months ending September 30, 2016 the Company issued 654,791 Series A preferred stock in exchange for $1,636,779 of convertible
debt received from a major shareholder and Director of the Company.
During
the nine months ending September 30, 2016 the Company issued 1,223,000 Series A preferred stock in exchange for $1,296,000 of
convertible debt.
During
the nine months ending September 30, 2016 the Company issued 35,000 Series A preferred stock in exchange for $35,000 of convertible
debt, to the CEO of the Company.
Preferred
Stock Issued for Debt Settled
During
the nine months ending September 30, 2016 the Company issued 185,600 Series A preferred stock in exchange for $184,762 of convertible
debt, plus $50,711 of accrued interest.
Preferred
Stock Issued for Services and Wages
During
the nine months ending September 30, 2016 the Company issued 68,000 Series A preferred stock in exchange for $357,403 of services
and $64,982 of wages.
During
the nine months ending September 30, 2016 the Company issued 10,000 Series A preferred stock to the CFO of the Company.
NOTE
9: SUPPLEMENTAL CASH FLOW INFORMATION
During
the nine months ending September 30, 2016 the Company issued 250,000 shares of its Series A preferred stock in exchange for $250
as a warrant exercise.
During
the nine months ending September 30, 2016 the Company issued 30,000 shares of its Series A preferred stock as a finders fee at
a value of $162,456.
During
the nine months ending September 30, 2016 the Company issued 47,840 shares of its Series A preferred stock as loan fees on convertible
promissory notes totaling $623,000.
During
the nine months ending September 30, 2016 the Company issued 35,106 shares of its Series A preferred stock as loan fees on convertible
promissory notes totaling $438,827 from a major shareholder and Director of the Company.
During
the nine months ending September 30, 2016 the Company issued 2,800 shares of its Series A preferred stock as loan fees on convertible
promissory notes totaling $35,000 from the CEO of the Company.
During
the nine months ending September 30, 2016 the Company issued 185,600 Series A preferred stock in settlement for $184,762 of convertible
debt, plus $50,711 of accrued interest.
During
the nine months ending September 30, 2016 the Company issued 35,000 Series A preferred stock in exchange for $35,000 of convertible
debt, to the CEO of the Company.
During
the nine months ending September 30, 2016 the Company issued 1,203,000 Series A preferred stock in exchange for $1,256,000 of
convertible debt, plus $13,962 of accrued interest, plus surrender of outstanding warrants.
During
the nine months ending September 30, 2016 the Company issued 654,791 Series A preferred stock in exchange for $1,636,779 of convertible
debt received from a major shareholder and Director of the Company.
NOTE
10: SUBSEQUENT EVENTS
The
Company filed in September 2016 a Certificate of Amendment to perform a 1:100 reverse stock split with an effective date in October
2016. The Company has reflected to results of this reverse split in these financial statements for both the nine months ended
September 30, 2016 and December 31, 2015.
During
October 2016, the Company issued 150,000 restricted Series A Preferred Shares pursuant to a nine month advisory agreement for
advise on an appropriate investor outreach program and introduction to potential investors and/or business partners and corporate
advisory to facilitate a potential uplisting of the Company’s common stock to a qualified exchange.
During
October 2016, the Company received $29,500 in shareholder loans.
During November 2016, the Company issued $812,500
in 10% convertible notes with $162,500 in original issue discounts and $6,000 in closing fees for net proceeds of $644,000. $377,332
was received at the initial closing with two tranches from four of the investors for an aggregate of $133,334 per tranche to be
received over the next two months. In a subsequent closing in November 2016, the Company issued $310,000 in 10% convertible notes
with $60,000 in original issue discounts for net proceeds of $250,000. The proceeds consisted of $161,203 of net cash, $77,533
previously funded shareholder advances, and accrued interest of $11,264 applied towards the purchase. In connection with the issuance
of the 10% Convertible Notes, the Company issued 341,280 of Series A preferred stock as loan fees. A portion of these proceeds
totaling $361,500 were used to pay off past due notes of $260,901, plus $48,398 accrued interest and eliminate $910,866 of penalties
that had been accrued as of September 30, 2016. In addition to the cash payments paid to satisfy these past due notes, the Company
issued 563,523 shares of common stock and 52,000 of Series A preferred stock as additional consideration to satisfy a portion
of these obligations.
The
Company has evaluated subsequent events pursuant to ASC Topic 855 and has determined that there are no additional subsequent events
to disclose.