Notes to Condensed Consolidated Financial
Statements
September 30, 2017
(Unaudited)
NOTE 1 – ORGANIZATION AND SUMMARY
OF SIGNIFICANT ACCOUNTING POLICIES
Findex.com, Inc. (“Findex”) was incorporated under the
laws of the State of Nevada on November 7, 1997, and
is headquartered in Lake Park, Florida. The Company’s EcoSmart
coatings products is the current driver of both operating overhead and revenue. The EcoSmart business currently centers around
a proprietary line of specialty materials coatings that have a broad range of value-adding industrial, commercial, residential
and consumer applications. In addition, Advanced Nanofibers LLC (“Advanced”) is a variable interest entity of which
the Company owned a minority 24.875% interest at December 31, 2016 and that, for accounting purposes under Financial Accounting
Standards Board (FASB) guidelines, is considered the primary beneficiary among the equity participants based on qualitative and
quantitative criteria. Advanced is a Florida-based private venture founded in September 2016 by the Company and two other technology
firms, one of which has since withdrawn from involvement. The enterprise is focused on developing and globally industrializing
a variety of proprietary breakthrough advances in nano-based and other performance-enhancing cementitious product technologies.
Advanced is developing rapidly and expected by management to eventually outpace EcoSmart’s coating operations in terms of
percentage growth on both the expense and revenue sides, potentially very significantly. Despite Advanced’s lack of meaningful
revenue to date, it is a venture that the Company’s management has been and continues to be very actively involved in developing,
and that is increasingly consuming a greater percentage of the Company’s financial and human resources, a trend management
expects to continue into the foreseeable future.
ECOSMART
The Company’s core business – known as EcoSmart Surface
& Coatings Technologies – is centered around a line of specialty industrial glass-based “smart surface” coatings
that have a wide range of uses across each of the industrial, commercial, and household market segments and that are centered around
a U.S. patented technology that, either on its own or when coupled with any of an array of available proprietary formula additives,
offers a unique combination of beneficial surface properties that allow for a broad array of multi-surface and end-product applications.
Among others, such applications currently include:
|
▪
|
Heavy Construction Equipment/Vehicles
|
|
▪
|
Oil and Gas Drilling and Related Heavy Equipment
|
|
▪
|
Industrial and Residential HVAC Equipment, Commercial Refrigeration Systems, and Power Generators
|
|
▪
|
Interior and Exterior Flooring and Tiling, Pavers and Hardscapes
|
Over time, and exclusive of its minority stake in Advanced, EcoSmart
intends to develop itself in the strategic direction of becoming a leading research-oriented, high-tech specialty “smart-surface”
materials development and licensing company centered around a highly-qualified research team and state-of-the-art research lab
and applying a combination of organic and inorganic chemistries, materials science engineering, and nanotechnology. EcoSmart currently
has expertise and capabilities in each of these areas.
ADVANCED NANOFIBERS (VARIABLE INTEREST
ENTITY)
Advanced Nanofibers LLC (“Advanced”) is a variable interest
entity of which the Company owned a minority 31.06% interest at September 30, 2017 and that, for accounting purposes under FASB
guidelines, is considered the primary beneficiary among the equity participants based on qualitative and quantitative criteria.
Advanced is a Florida-based, private venture founded in September 2016 by the Company and two other technology firms, one of which
has since withdrawn from involvement. The enterprise is focused on developing and globally industrializing a variety of proprietary
breakthrough advances in nano-based and other performance-enhancing cementitious product technologies. Company management believes
Advanced’s prospects are extraordinary based on the following key factors that afford it a distinct competitive advantage:
|
▪
|
A select assortment of industrial end-products with very substantial global markets that are expected to be meaningfully superior to competitive products in meeting customer desires by virtue of a proprietary technological processes; and
|
|
▪
|
The ability to deliver those products at price points that are highly competitive with existing market products that are expected to be meaningfully inferior in quality.
|
Following an equity restructuring of Advanced that occurred in May
2017 that arose out of the agreed-upon departure from the enterprise of one of the founding technology firms and the addition of
a new member that occurred in July 2017, at September 30, 2017, the venture was owned and controlled approximately 93% by its remaining
two founding members, the Company and Nanotech Fibers, LLC, each of which have been actively involved in its development to date.
In addition to the Company, this included, as it still does as of the date of this quarterly report on Form 10-Q, Nanotech Fibers
LLC, a Florida-based, closely-held, private firm engaged in various strategic pursuits within and surrounding the nanotech-based
industrial building and infrastructure materials sector. Although Advanced is still in a pre-revenue stage of development, the
Company’s management team currently devotes a very significant percentage of its time to the business of this rapidly developing
enterprise.
BASIS
OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements
have been prepared in accordance with Generally Accepted Accounting Principles for interim financial information and with the instructions
to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by
Generally Accepted Accounting Principles for complete financial statements. The accompanying unaudited condensed consolidated financial
statements reflect all adjustments that, in the opinion of management, are considered necessary for a fair presentation of the
financial position, results of operations, and cash flows for the periods presented. The results of operations for such periods
are not necessarily indicative of the results expected for the full year or for any future period. The December 31, 2016 condensed
consolidated balance sheet data was derived from audited financial statements. The accompanying financial statements should be
read in conjunction with the audited consolidated financial statements of Findex.com, Inc. included in the Company’s Form
10-K for the year ended December 31, 2016 filed with the Securities and Exchange Commission on April 17, 2017.
Principles
of Consolidation
The condensed consolidated financial statements include the accounts
of the Company, its wholly-owned subsidiaries (Reagan Holdings, Inc., Findex.com, Inc. Delaware, and ESCT Acquisition Corp.), and
the accounts of Advanced Nanofibers LLC, a Florida limited liability company and variable interest entity, of which the Company
has been deemed the primary beneficiary. As of September 30, 2017, the Company owns a non-controlling, minority interest of 31.06%
in Advanced. All inter-company balances and transactions have been eliminated in consolidation.
Reclassifications
Certain accounts in the Company’s 2016 financial statements
have been reclassified for comparative purposes to conform with the presentation in the Company’s 2017 financial statements
to which these footnotes relate.
Use
of Estimates
The preparation of financial statements in conformity with U.S.
Generally Accepted Accounting Principles requires management to make estimates and assumptions that affect the reported amounts
of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the
reporting period. The Company bases its estimates and assumptions on current facts, historical experience and various other factors
that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying
values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual
results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected. Significant
estimates include inventory evaluation for slow moving and obsolete items, collectability of accounts receivable, assessing intangibles
for impairment, useful lives of assets, and valuation of stock based compensation and consideration of variable interest entities.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with
an original maturity of three months or less to be cash equivalents.
INVENTORY
The Company’s inventories are recorded at the lower of cost
or market using the first in, first out method. The Company’s inventory consists of raw materials and finished goods. The
Company takes into consideration certain inventory items that are slow moving and obsolete and calculates a provision for these
inventory items.
INTANGIBLE ASSETS OTHER THAN GOODWILL
The Company’s intangible assets consist of patents and patents
pending acquired from third parties, and are recorded at cost. In accordance with Financial Accounting Standards Board Accounting
Standards Codification (“ASC”) 350-30,
General Intangibles Other Than Goodwill
, intangible assets with an indefinite
useful life are not amortized. Intangible assets with a finite useful life are amortized on the straight-line method over the estimated
useful lives, generally three to ten years. All intangible assets are tested for impairment annually during the fourth quarter.
REVENUE
RECOGNITION
The Company recognizes revenues in accordance with the provisions
of FASB Accounting Standards Codification (“ASC”) 605-10,
Revenue Recognition
, which provides guidance on the
recognition, presentation, and disclosure of revenue in financial statements filed with the Securities and Exchange Commission.
ASC 605-10 outlines the basic criteria that must be met to recognize revenue and provides guidance for disclosure related to revenue
recognition policies. The Company recognizes revenue when the earnings process is complete. That is, when the arrangements of the
goods are documented, the pricing becomes final and collectability is reasonably assured. An allowance for bad debt is provided
based on estimated losses.
Revenue is recognized when a product is delivered or shipped to
the customer and all material conditions relating to the sale have been substantially performed. In some situations, the Company
receives advance payments from the Company’s customers. The Company defers revenue associated with these advance payments
until the Company ships the products. For the nine months ended September 30, 2017, the Company recorded $19,575 in deferred revenue.
In addition, within the Company’s operations as a whole, the
Company derives part of its revenues from the sale of downloadable software products. The Company recognizes software revenue for
software products and related services in accordance with ASC 985-605,
Software Revenue Recognition
. The Company recognizes
revenue when persuasive evidence of an arrangement exists (generally a purchase order), the Company has delivered the product,
the fee is fixed or determinable and collectability is probable.
RESEARCH AND DEVELOPMENT
The Company’s research
and development costs consist of direct production costs, including labor directly associated with the development of projects
and outside consultants, and indirect costs such as those associated with facilities use. For labor costs and costs of outside
consultants, the Company records the research and development costs as a reduction against either personnel costs or professional
fees. For facilities leasing related expenses, the Company records the research and development costs as a reduction against rent.
For the nine months ended September 30, 2017 and 2016, the Company recognized $265,040 and $149,358, respectively, in research
and development costs.
STOCK-BASED COMPENSATION
The Company recognizes share-based compensation in accordance with
ASC 718,
Compensation – Stock Compensation
, using the modified prospective method. ASC 718 requires that the Company
measure the cost of the employee services received in exchange for an award for equity instruments based on the grant-date fair
value and to recognize this cost over the requisite service period. See Note 8.
EARNINGS (LOSS) PER SHARE
The Company follows the guidance of ASC 260,
Earnings Per Share
,
to calculate and report basic and diluted earnings per share (“EPS”). Basic EPS is computed by dividing income available
to common stockholders by the weighted average number of shares of common stock outstanding for the period. Diluted EPS is computed
by giving effect to all dilutive potential shares of common stock that were outstanding during the period. For the Company, dilutive
potential shares of common stock consist of the incremental shares of common stock issuable upon the exercise of stock options
and warrants for all periods and convertible notes payable.
When discontinued operations, extraordinary items, and/or the cumulative
effect of an accounting change are present, income before any of such items on a per share basis represents the “control
number” in determining whether potential shares of common stock are dilutive or anti-dilutive. Thus, the same number of potential
shares of common stock used in computing diluted EPS for income from continuing operations is used in calculating all other reported
diluted EPS amounts. In the case of a net loss, it is assumed that no incremental shares would be issued because they would be
anti-dilutive. In addition, certain options and warrants are considered anti-dilutive because the exercise prices were above the
average market price during the period. Anti-dilutive shares are not included in the computation of diluted EPS, in accordance
with ASC 260-10-45-17.
The calculations of net loss per share for the nine months ended
September 30, 2017 and 2016 excluded the impact of the following potential common shares as their inclusion would be anti-dilutive.
For the Nine Months Ended September 30
|
|
2017
|
|
2016
|
Shares Issuable Upon Exercise of Outstanding Warrants
|
|
|
—
|
|
|
|
100,000
|
|
Shares Issuable Upon Conversion of Outstanding Convertible Note Payables
|
|
|
229,790,853
|
|
|
|
219,554,683
|
|
Total anti-dilutive potential common shares
|
|
|
229,790,853
|
|
|
|
219,654,683
|
|
DISCONTINUED
OPERATIONS
As of September 30, 2017 and 2016, the Company has presented $114,368
of accrued royalties in discontinued operations. The royalties pertain to the Company’s sale of the QuickVerse
®
product line in 2011. See Note 12.
RECENT
ACCOUNTING PRONOUNCEMENTS
At September 30, 2017, there were no recent accounting pronouncements
that the Company believed would have a material impact on its condensed consolidated financial statements.
NOTE 2 – GOING CONCERN
The accompanying condensed consolidated financial statements have
been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplates the
Company’s continuation as a going concern. However, as of September 30, 2017, the Company had negative working capital of
$3,227,439 and an accumulated deficit of $7,344,815. These factors raise substantial doubt about the Company’s ability to
continue as a going concern. Management has taken several actions in an attempt to mitigate this risk. These actions include capital
raising initiatives involving the issuance of equity and/or notes payable to investors, as well as cash conservation initiatives
involving the issuance of equity and/or notes payable to employees, contractors and related parties in lieu of cash compensation.
The accompanying condensed consolidated financial statements do not include any adjustments related to these uncertainties.
NOTE 3 – CONSOLIDATED VARIABLE INTEREST ENTITY
The Financial Accounting Standards Board (FASB) authoritative guidance
on consolidation requires the “primary beneficiary” of a variable interest entity (a “VIE”) to consolidate
that entity. The “primary beneficiary” of a VIE, for this purpose, is a company that has a controlling financial interest
in the VIE without any corresponding voting rights control. A controlling financial interest in this regard exists when a company
is determined to have both the power to direct the activities that most significantly impact a VIE’s economic performance,
on the one hand, and the obligation to absorb losses or the right to receive benefits of the VIE that could potentially be significant
to the VIE, on the other. The Company is one member, among others, of a collaborative joint venture limited liability company,
Advanced Nanofibers LLC (“Advanced”). This enterprise was formed by the joint venture participants for the purpose
of focusing on globally broadening the utilization of nanoparticle-enhanced nanofibers across a diverse range of mass-market industrial
and consumer applications. The enterprise is focused on developing and globally industrializing a variety of proprietary breakthrough
advances in nano-based and other performance-enhancing cementitious product technologies. Having been involved in the formation
of Advanced in September 2016, the Company determined during the fourth quarter of 2016 that it was the primary beneficiary of
Advanced, among the equity participants, based on qualitative and quantitative criteria. Among other factors, and more specifically,
it was determined that the equity investors in Advanced do not, and are not obligated to, provide sufficient financial resources
for the entity to support itself in terms of day-to-day research and development activities. However, the Company has provided
financial support that is disproportionate to its equity interest, and the Company’s management was involved in the organization
of the entity. U.S. GAAP thereunder, requires a VIE to be consolidated by a company if and when that company holds a majority of
the variable interests in the entity and is thus subject to a majority of the risk of loss from the VIE’s activities. For
the nine months ended September 30, 2017, the Company provided the financial resources in the amount of $175,075 as support for
Advanced’s day-to-day research and development activities and a total of $227,825 since Advanced’s inception.
See
Note 1.
The carrying value of the assets and liabilities of Advanced which
are consolidated as of September 30, 2017 are as follows:
|
|
September 30, 2017 (Unaudited)
|
|
December 31, 2016 (Unaudited)
|
Assets
|
Current Assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
23,727
|
|
|
$
|
4,020
|
|
Accounts receivable, net
|
|
|
702
|
|
|
|
—
|
|
Total current assets
|
|
|
24,429
|
|
|
|
4,020
|
|
Total assets
|
|
$
|
24,429
|
|
|
$
|
4,020
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Members’ Deficit
|
Current Liabilities:
|
|
|
|
|
|
|
|
|
Due to Findex.com, Inc.
|
|
$
|
62,825
|
|
|
$
|
52,750
|
|
Accounts payable
|
|
|
5,321
|
|
|
|
—
|
|
Total current liabilities
|
|
|
68,146
|
|
|
|
52,750
|
|
Stockholders’ equity:
|
|
|
|
|
|
|
|
|
Members' investment
|
|
|
264,020
|
|
|
|
4,020
|
|
Accumulated deficit
|
|
|
(307,737
|
)
|
|
|
(52,750
|
)
|
Total members’ equity
|
|
|
(43,717
|
)
|
|
|
(48,730
|
)
|
Total liabilities and members’ deficit
|
|
$
|
24,429
|
|
|
$
|
4,020
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(254,987
|
)
|
|
$
|
(52,750
|
)
|
For the nine months ended September 30, 2017 and 2016, respectively,
Advanced recognized $1,705 and $0 in revenue.
NOTE 4 – INVENTORIES
Inventories consisted of the following:
|
|
September 30, 2017
|
|
December 31, 2016
|
Raw materials
|
|
$
|
23,040
|
|
|
$
|
25,712
|
|
Finished goods
|
|
|
4,332
|
|
|
|
2,337
|
|
Reserve for obsolete inventory
|
|
|
(1,850
|
)
|
|
|
(2,773
|
)
|
Inventories
|
|
$
|
25,522
|
|
|
$
|
25,276
|
|
NOTE 5 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
September 30, 2017
|
|
December 31, 2016
|
Office equipment
|
|
$
|
3,466
|
|
|
$
|
3,466
|
|
Warehouse equipment
|
|
|
76,339
|
|
|
|
76,339
|
|
Computer equipment
|
|
|
8,708
|
|
|
|
8,708
|
|
Research lab
|
|
|
10,334
|
|
|
|
10,334
|
|
Office fixtures
|
|
|
3,750
|
|
|
|
3,750
|
|
Less: accumulated depreciation
|
|
|
(88,123
|
)
|
|
|
(76,920
|
)
|
Property and equipment
|
|
$
|
14,474
|
|
|
$
|
25,677
|
|
For the nine months ended September 30, 2017 and 2016, the Company
recorded depreciation expense of $11,203 and $13,446, respectively.
NOTE 6 – INTANGIBLE ASSETS
The Company’s intangible assets consist of patents and patents
pending acquired from third parties, and are recorded at cost. The Company amortizes the costs of its intangible assets over their
estimated useful lives unless such lives of approximately 11 years. Patents pending are not amortized unless and until the patents
are issued. Amortizable intangible assets are tested for impairment based on undiscounted cash flows and, if impaired, written
down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested
for impairment, at least annually, and written down to fair value as required.
The Company’s intangible assets, net of accumulated amortization
consisted of the following:
Patents and/or software licenses, net
|
|
September 30, 2017
|
|
December 31, 2016
|
Cost
|
|
$
|
697,955
|
|
|
$
|
697,955
|
|
Amortization
|
|
|
(424,228
|
)
|
|
|
(388,594
|
)
|
Net intangible assets
|
|
$
|
273,727
|
|
|
$
|
309,361
|
|
The Surface Modification Technologies assets include a patent, a
patent pending, trade secret technology, instructions, manuals and materials on certain manufacturing processes and know-how. For
the nine months ended September 30, 2017 and 2016, the Company recorded amortization expense of $35,634 and $35,634, respectively.
See Note 1.
NOTE 7 – NOTES PAYABLE AND NOTES PAYABLE
- RELATED PARTIES
At September 30, 2017 and December 31, 2016,
notes payable consisted of the following:
|
|
September 30, 2017
|
|
December 31, 2016
|
Notes payable
|
|
$
|
328,783
|
|
|
$
|
336,283
|
|
Notes payable, convertible
|
|
|
25,000
|
|
|
|
25,000
|
|
Notes payable, related parties, convertible
|
|
|
1,978,175
|
|
|
|
1,824,633
|
|
Total
|
|
$
|
2,331,958
|
|
|
$
|
2,185,916
|
|
NOTES PAYABLE
Notes payable consisted of the following:
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Note payable to a former shareholder, past due as of January 2012, together with accrued interest at 5% APR and interest on overdue principal accruing at 10% APR.
|
(a)
|
|
|
$
|
28,783
|
|
|
$
|
28,783
|
|
Note payable to a shareholder, past due as of August 1, 2015, together with accrued interest at 10% APR.
|
(b)
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Note payable to a shareholder, payable upon demand, together with imputed interest only, as applicable.
|
(c)
|
|
|
|
—
|
|
|
|
7,500
|
|
Total
|
|
|
|
|
|
$
|
328,783
|
|
|
$
|
336,283
|
|
As of September 30, 2017, the Company had outstanding a past due
note payable (b) to a shareholder in the amount of $300,000. During the nine months ended September 30, 2017, the Company paid
note payable (c) to a shareholder in the amount of $7,500.
At September 30, 2017, the Company was in arrears
on an unsecured term note payable (a) to a former shareholder, and a separate unsecured term note payable (b) to a current shareholder.
NOTES PAYABLE, CONVERTIBLE
Notes payable, convertible consisted of the
following:
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Note payable to an investor due as of January 20, 2018, together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
(a)
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
Total
|
|
|
|
|
|
$
|
25,000
|
|
|
$
|
25,000
|
|
NOTES PAYABLE, RELATED PARTIES, CONVERTIBLE
Notes payable, related parties, convertible
consisted of the following:
|
|
|
|
September 30, 2017
|
|
December 31, 2016
|
Note payable to a company controlled by an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.01 per share of common stock.
|
(a)
|
|
|
$
|
60,000
|
|
|
$
|
60,000
|
|
Note payable to the Company’s outside general counsel (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.01 per share of common stock.
|
(b)
|
|
|
|
150,000
|
|
|
|
150,000
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.01 per share of common stock.
|
(c)
|
|
|
|
30,000
|
|
|
|
30,000
|
|
Note payable to the Company’s outside general counsel (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
(d)
|
|
|
|
120,000
|
|
|
|
120,000
|
|
Note payable to the Company’s outside general counsel (also a shareholder), due on demand together with accrued interest at 12% APR, and convertible at $0.008 per share of common stock.
|
(e)
|
|
|
|
10,000
|
|
|
|
10,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due November 13, 2018 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
(f)
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due March 4, 2017 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
(g)
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due March 18, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
(h)
|
|
|
|
100,000
|
|
|
|
100,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due May 12, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(i)
|
|
|
|
50,000
|
|
|
|
50,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due June 7, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
(j)
|
|
|
|
200,000
|
|
|
|
200,000
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due July 28, 2019 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
(k)
|
|
|
|
300,000
|
|
|
|
300,000
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
(l)
|
|
|
|
55,500
|
|
|
|
55,500
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
(m)
|
|
|
|
20,500
|
|
|
|
20,500
|
|
Note payable to the Company’s president and chief executive officer (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
(n)
|
|
|
|
349,329
|
|
|
|
349,329
|
|
Note payable to the Company’s controller who is also a shareholder, which note is due on demand together with interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
(o)
|
|
|
|
134,604
|
|
|
|
134,604
|
|
Note payable to the Company’s vice president of research and development (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
(p)
|
|
|
|
49,000
|
|
|
|
49,000
|
|
Note payable to an independent contractor (also a shareholder), which note payable is due on demand together with interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
(q)
|
|
|
|
25,700
|
|
|
|
25,700
|
|
Note payable in the name of a son of an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.005 per share of common stock.
|
(r)
|
|
|
|
20,000
|
|
|
|
20,000
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.015 per share of common stock.
|
(s)
|
|
|
|
28,500
|
|
|
|
—
|
|
Note payable to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.015 per share of common stock.
|
(t)
|
|
|
|
9,500
|
|
|
|
—
|
|
Note payable to the Company’s president and chief executive officer (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.015 per share of common stock.
|
(u)
|
|
|
|
87,532
|
|
|
|
—
|
|
Note payable to the Company’s controller who is also a shareholder, which note is due on demand together with interest at 4.5% APR, and convertible at $0.015 per share of common stock.
|
(v)
|
|
|
|
28,010
|
|
|
|
—
|
|
Total
|
|
|
|
|
|
$
|
1,978,175
|
|
|
$
|
1,824,633
|
|
Notes (a), (c), (l) (r) and (s) reflect amounts due to a single
outside director of the Company, who is also a shareholder, based on such director having (i) made certain vendor obligation payments
directly on behalf of and for the benefit of the Company, (ii) having advanced certain funds to the Company at various dates for
general working capital purposes, and (iii) having accrued director’s fees earned through June 30, 2017. In addition, the
Company has recorded accounts payable, related parties, in the amount of $12,426 to the holder of notes (a), (c), (l) (r) and (s).
Notes (b) and (d) reflect payment obligations owed to the Company’s
outside general counsel for legal services incurred by the Company for the years ended December 31, 2015 and 2014.
Note (e) reflects a convertible debt investment made by the Company’s
outside general counsel to the Company.
Notes (f), (g), (h), (i), (j) and (k) reflect amounts due to a
certain
related party investor and significant shareholder
for convertible debt investments made from time to time as indicated.
Notes (m) and (t) reflect amounts due to an outside director, who
is also a shareholder, for accrued director’s fees earned through June 30, 2017.
Notes (n) and (u) reflect amounts due to the Company’s president
and chief executive officer, who is also a shareholder, for previously accrued base salary.
Note (o) and (v) reflect amounts due to the Company’s controller,
who is also a shareholder, for previously accrued base salary.
Note (p) reflects amounts due to the Company’s vice president
of research and development, who is also a shareholder, for previously accrued wages.
Note (q) reflects amounts due to an independent contractor who was
President of one of EcoSmart’s divisions prior to the merger with EcoSmart and a current shareholder of the Company, for
past earnings. See Note 10.
For the nine months ended September 30, 2017, the Company received
proceeds from the issuance of new convertible notes payable to related parties in the amount of $153,542. For the year ended December
31, 2016, the Company received proceeds from the issuance of convertible notes payable in the amount of $45,000 and an additional
$700,000 from the issuance of convertible notes payable to related parties (total $745,000).
At September 30, 2017, the Company was in arrears
on the convertible note payable (g) to a related party investor.
NOTE 8 – STOCKHOLDERS’ DEFICIT
Common
Stock
For the nine months ended September 30, 2017, the Company sold 28,300,000
restricted shares of common stock at $0.01 per share for total proceeds of $283,000.
For the nine months ended September 30, 2017, the Company granted
1,264,400 restricted shares of common stock for business development services. The Company valued the shares based on the closing
price of the Company common stock on those days during which such services were performed. This resulted in $24,024 of expense
for the nine months ended September 30, 2017.
COMMON
STOCK WARRANTS
The Company did not issue warrants for
the nine months ended September 30, 2017 and 2016 and no warrants were exercised.
Thirteen warrants, exercisable in the
aggregate for a total of 4,150,000 shares of common stock, expired prior to exercise during the nine months ended September 30,
2016. As of September 30, 2017, there were no warrants outstanding.
NOTE 9 – COMMITMENTS AND CONTINGENCIES
The Company is subject to legal proceedings and claims that may
arise in the ordinary course of business. In the opinion of management, the amount of potential liability the Company is likely
to be found liable for otherwise incur as a result of these actions is not so much as would materially affect the Company’s
financial condition.
The Company occupies an office building for its corporate headquarters
located in Lake Park, Florida. In January 2015, the Company renewed a lease agreement with a shareholder for this 8,560 square
foot facility under a five year lease agreement ending December 31, 2019 with an option to renew for one successive term of five
years at the then current occupancy rates. The monthly rent, including sales and use taxes, is $7,211. In accordance with the terms
of the leasehold agreement, the Company is responsible for all utilities, repairs and maintenance.
In February 2015, the Company entered into a lease agreement for
a research facility located in Daytona Beach, Florida. The Company leased this 3,200 square foot facility under a month-to-month
lease agreement which ended on December 31, 2016. The monthly rent, including sales and use taxes, was $2,929. In accordance with
the terms of the leasehold agreement, we were responsible for all utilities, repairs and maintenance. In June 2016, the Company
provided notice that we were terminating this lease agreement effective July 31, 2016. There were no termination fees incurred
due to the lease being a month to month lease agreement. As of September 30, 2017, the Company has accrued $7,891 for past rent
owed less a deposit of $2,500 (total $5,391). The Company has since relocated all property and equipment as well as all personnel
previously occupying this facility to our corporate headquarters located in Lake Park, Florida.
Total rent expense for the nine months ended September 30, 2017
and 2016 for these facilities, before adjustments of reclassified facilities cost for research and development, totaled $64,915
and $85,416, respectively.
NOTE 10 – RELATED PARTY TRANSACTIONS
The Company’s executive officers and employees, from time
to time, make payments for materials and various expense items (including business related travel) in the ordinary course of business
via their personal credit cards in lieu of checks drawn on Company accounts. The Company does not provide its employees or executive
officers with corporate credit cards.
Amounts due these officers and directors (including one of the
Company’s directors, the president and chief executive officer, and the controller) are included in accounts payable, related
parties
, on the Condensed Consolidated Balance Sheets.
As of September 30, 2017, one of the Company’s directors held
five, separate convertible notes issued by the Company. These convertible notes reflect a portion of the aggregate amount that
such outside director is owed by the Company for a combination of (i) certain vendor payments made by him on the Company’s
behalf, (ii) cash previously advanced to the Company for working capital, and (iii) director’s fees earned through June 30,
2017. One of these notes, in the face amount of $60,000, was issued to a company controlled by the director, is due on demand,
together with accrued interest at 4.5% APR, and is convertible at $0.01 per share of common stock. Another of these notes, issued
to the director personally, is in the face amount of $30,000, is similarly due on demand, together with accrued interest at 4.5%
APR, and is convertible at $0.01 per share of common stock. The third of these notes, also issued to the director personally, is
in the face amount of $55,500, is due on demand, together with accrued interest at 4.5% and is convertible at $0.007 per share
of common stock. The fourth note, issued in the name of the director’s son, is in the face amount of $20,000, is due on demand,
together with accrued interest at 4.5% and is convertible at $0.005 per share of common stock. The fifth note, issued to the director
personally, is in the face amount of $28,500, is similarly due on demand, together with accrued interest at 4.5% APR, and is convertible
at $0.015 per share of common stock. See Note 7.
As of September 30, 2017, the Company’s outside general counsel
held three convertible notes issued by the Company. One such note reflected an amount due for legal services provided for the year
ended December 31, 2014 in the amount of $150,000. This note is payable by the Company on demand, together with accrued interest
at 4.5% APR, and is convertible at $0.01 per share of common stock. Another of these notes reflected an amount due for legal services
provided for the year ended December 31, 2015 in the amount of $120,000. This note is similarly payable on demand, together with
accrued interest at 4.5% APR, and is convertible at $0.007 per share of common stock. A third note is in the amount of $10,000,
reflects funds advanced to the Company for working capital, is due on demand, together with accrued interest at 12% APR, and is
convertible at $0.008 per share of common stock. See Note 7.
As of September 30, 2017, the Company
had issued a total of six (6) convertible notes to a certain related party investor and significant shareholder. The first such
note is in the amount of $100,000, is due on November 13, 2018, together with accrued interest at 10% APR, and is convertible at
$0.01 per share of common stock. The second such note is also in the amount of $100,000, is due on March 18, 2019, together with
accrued interest at 10% APR, and is convertible at $0.01 per share of common stock. The third such note is in the amount of $50,000,
is due on May 12, 2019, together with accrued interest at 10% APR, and is convertible at $0.01 per share of common stock. The fourth
such note is in the amount of $100,000, is due on June 7, 2019, together with accrued interest at 10% APR, and is convertible at
$0.01 per share of common stock. The fifth such note is in the amount of $300,000, is due on July 28, 2019, together with accrued
interest at 10% APR, and is convertible at $0.01 per share of common stock.
And the sixth such note is in the amount of
$50,000, is due on demand, together with interest at 10% APR, and is convertible at $0.01 per share of common stock.
See
Note 7.
As of September 30, 2017, one of the Company’s directors held
two convertible notes issued by the Company. The first note, issued to the director personally for director’s fees earned
through September 15, 2016, is in the face amount of $20,500, due on demand, together with accrued interest at 4.5% APR, and is
convertible at $0.007 per share of common stock. The second note, issued to the director for director’s fees earned through
June 30, 2017, is in the face amount of $9,500, is similarly due on demand, together with accrued interest at 4.5% APR, and is
convertible at $0.015 per share of common stock.
The Company accrued payroll earned, by related parties, during the
nine months ended September 30, 2017 and 2016, respectively, in the total amount of $32,345 and $34,566 for the Company’s
president and chief executive officer and controller.
As of September 30, 2017, the Company’s
president and chief executive officer held two convertible notes issued by the Company. The first note represents
previously
accrued base salary earned through September 15, 2016 in the amount of $349,329, is due on demand, together with accrued interest
at 4.5%, and is convertible at $0.007 per share of common stock. The second note represents previously accrued base salary earned
through June 30, 2017 in the amount of $87,532, is due on demand, together with accrued interest at 4.5% APR, and is convertible
at $0.015 per share of common stock. See Note 7.
As of September 30, 2017, the Company’s
controller held two convertible notes issued by the Company. The first note represents
previously accrued base salary earned
through September 15, 2016 in the amount of $134,604, is due on demand, together with accrued interest at 4.5%, and is convertible
at $0.007 per share of common stock. The second note represents previously accrued base salary earned through June 30, 2017 in
the amount of $28,010, is due on demand, together with accrued interest at 4.5% APR, and is convertible at $0.015 per share of
common stock. See Note 7.
As of September 30, 2017, the Company’s
vice president of research and development held one convertible note representing
previously accrued base salary in the
amount of $49,000. The note payable is due on demand, together with accrued interest at 4.5%, and is convertible at $0.007 per
share of common stock. See Note 7.
As of September 30, 2017, an independent
contractor
who had been the president of one of EcoSmart’s divisions prior to the merger with the Company, who is
also shareholder of the Company, held one convertible note representing accrued earnings in the amount of $25,700. The note payable
is due on demand, together with accrued interest at 4.5%, and is convertible at $0.007 per share of common stock. See Note 7.
Advanced is a variable interest entity
of which the Company owned a minority 31.06% interest at September 30, 2017 and
, for accounting purposes under FASB guidelines,
is considered the primary beneficiary
among the equity participants
based
on qualitative and quantitative criteria. The two controlling members of Advanced include the Company and Nanotech Fibers LLC.
The Company’s president and chief executive officer currently holds a 18.75% equity interest in Nanotech Fibers LLC through
a closely-held, private Florida limited liability company, August Center Street Holdings LLC. August Center Street Holdings, LLC
is owned 75% by the Company’s president and chief executive officer and 25% by the Company’s general counsel.
During the nine months ended September 30, 2017 and 2016, the Company
recorded revenue for sales to shareholders in the amount of $134,015 and $60,757, respectively. For the nine months ended September
30, 2017, one shareholder accounted for approximately 22% of Company revenue, a second shareholder accounted for approximately
21% of Company revenue, and, as a group, the sales to shareholders accounted for approximately 50% of Company revenues. These revenues
are recorded as revenue, related party on the Company’s Condensed Consolidated Statements of Operations.
NOTE 11 – SEGMENT INFORMATION
The Company reports segment information that is consistent with
the management and measurement system utilized within the Company. This approach designates the internal reporting used by management
for making decisions and assessing performance as the source of the Company’s reportable operating segments. The segments
represent components of the Company for which separate financial information is available that is utilized on a regular basis by
the chief operating decision maker (the chief executive officer) in determining how to allocate resources and evaluate performance.
The accounting policies of the segments are the same as those described in Note 1, “Organization and Summary of Significant
Accounting Policies” of the Notes to Consolidated Financial Statements that are contained in our annual report on Form 10-K
for the fiscal year ended December 31, 2016. The Company’s reportable operating segment consists of Advanced. For the nine
months ended September 30, 2017, Advanced had $1,705 in revenue, an operating loss of $254,987, assets in the form of cash and
receivables totaling $24,429 and liabilities in the form of accounts payable totaling $68,146. See Note 3.
NOTE 12 – DISCONTINUED OPERATIONS
As of September 30, 2017 and 2016, the Company has presented $114,368
of Accrued royalties in discontinued operations. The royalties pertain to the Company’s sale of the QuickVerse
®
product line in 2011.
NOTE 13 – SUBSEQUENT EVENTS
In October 2017, the Company sold 1,250,000 restricted shares of
common stock at $0.01 per share for total proceeds of $12,500.
In October 2017, the Company borrowed $7,000 from its general counsel,
who is a shareholder and separate noteholder, on the basis of a 15-day repayment obligation, which, as of the date of this quarterly
report on Form 10-Q, remains unsatisfied and outstanding.
In November 2017, the Company borrowed $20,000 from a shareholder,
on the basis of a 30-day repayment obligation, which, as of the date of this quarterly report on Form 10-Q, remains outstanding.