Notes to Condensed Consolidated Financial
Statements
March 31, 2019
(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 with its base
of business operations co-located in the same facility. The Company is currently comprised of two operating companies, RexPro Sealers
and Coatings (“RexPro”), a Florida corporation (formerly EcoSmart Surface & Coating Technologies, Inc.), and Advanced
Cement Sciences, LLC, a Florida limited liability company (“ACS”). RexPro has historically been the driver of both
operating overhead and revenue. RexPro was acquired by the Company in a merger in 2014 and centers around a proprietary line of
specialty surface coatings that have a broad range of value-adding industrial, commercial, residential and consumer applications.
ACS is a Florida-based, engineered cement technology and products firm founded in mid-2016 and currently focused on developing
and commercializing a line of proprietary admixtures to be used in the production of ultra-lightweight, high-strength concrete
and high-performance stucco.
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, consisting of normal and reoccurring 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, 2018 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, 2018 filed with
the Securities and Exchange Commission on April 16, 2019.
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, ESCT Acquisition
Corp. and ACS). All inter-company balances and transactions have been eliminated in consolidation.
Reclassifications
Certain accounts in the Company’s 2018
financial statements have been reclassified for comparative purposes to conform with the presentation in 2019 financial statements.
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.
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”. The Company’s reportable operating segment consists of ACS. For the three months
ended March 31, 2019 and 2018, ACS had $0 and $1,650, respectively, in revenue, an operating loss of $0 and $58,905, respectively,
assets in the form of cash, accounts receivable and inventory totaling $4,842 and $3,933, respectively, and liabilities in the
form of accounts payable totaling $264,297 and $158,589, respectively. See Note 3.
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.
ACCOUNTS RECEIVABLE
Within the Company’s operations as a
whole, the Company’s products are sold to resellers and distributors generally under terms appropriate for the creditworthiness
of the customer. Terms generally range from cash on delivery, net 10 days or net 30 days. Receivables from customers are unsecured.
The Company continuously monitors its customer account balances and actively pursues collections on past due balances.
The Company maintains an allowance for doubtful
accounts comprised of two components, (i) historical collections performance and (ii) specific collection issues. If actual bad
debts differ from the reserves calculated based on historical trends and known customer issues, an adjustment to bad debt expense
is recorded in the period in which the difference occurs. Such adjustment could result in additional expense or a reduction of
expense.
The Company’s accounts receivable go
through a collection process that is based on the age of the invoice and requires attempted contacts with the customer at specified
intervals and the assistance from other personnel within the Company who have a relationship with the customer. If after a number
of days, the Company has been unsuccessful in its collections efforts, it may turn the account over to a collection agency. The
Company writes-off accounts to the allowance when it has determined that collection is unlikely. The factors considered in reaching
this determination are (i) the apparent financial condition of the customer, (ii) the success the Company has in contacting and
negotiating with the customer and (iii) the number of days the account has been outstanding. To the extent that the Company’s
collections do not correspond with historical experience, it may be required to incur additional charges.
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. For the three months ended March 31, 2019 and 2018, the Company did not recognize any impairment expense
related to intangible assets. See Note 5.
REVENUE
RECOGNITION
The Company recognizes revenues in accordance
with the provisions of FASB Accounting Standards Codification (“ASC”) 606,
Revenue from Contracts with Customers
,
which provides guidance on the recognition, presentation, and disclosure of revenue in financial statements filed with the Securities
and Exchange Commission. ASC 606 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 upon transfer of control of promised products to customers
in an amount that reflects the consideration the Company expects to receive in exchange for those products. The Company at times
may enter into contracts that can include various combinations of products and services, which are generally capable of being distinct
and accounted for as separate performance obligations. In such cases, revenue would be recognized at the time of delivery for each
identified product or performance of service. Revenue is recognized net of allowances for returns and any taxes collected from
customers, which are subsequently remitted to governmental authorities.
Distribution Rights
The Company at times may derive part of its
revenue from the sale of distribution rights within a designated territory for a period of time. Licenses for an exclusive territory
provides a single distributor with the right to use and sell the distribution rights within the specified designated territory
for a specified period. The determination of when the Company recognizes revenue is based on whether the distribution rights transfers
to the distributor at (i) a point in time or (ii) over time. Furthermore, the Company needs to determine in accordance with ASC
606 if the distribution rights is (i) functional intellectual property that has significant standalone functionality or is (ii)
symbolic intellectual property that requires ongoing activities from the Company. In June 2018, the Company received payment in
the amount of $100,000 from the sale of distribution rights within a designated territory for a period of time of thirty years
to a distributor. In August 2018, the Company received an additional payment in the amount of $90,000 for the sale of distribution
rights within a separate designated territory for a period of thirty years to a distributor. The Company determined that the associated
revenue would be recognized over the period of thirty years as the agreements for the sale of the distribution rights also called
for the Company to continue to produce the product for the distributor over the term of the agreements. Therefore, the distribution
rights were deemed to be symbolic intellectual property in accordance with ASC 606 as it requires ongoing activities from the Company.
For the three months ended March 31, 2019, the Company recognized contract liability in the amount of $185,472 and revenue in the
amount of $1,583 from such sale of distribution rights.
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 three months ended March 31, 2019 and 2018, the Company recognized $9,286 and $64,561, respectively, in research and development
costs.
STOCK-BASED COMPENSATION
The Company recognizes share-based compensation
in accordance with ASC 718,
Compensation – Stock Compensation
. 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 three months ended March 31, 2019 and 2018 excluded the impact of the following potential common shares as their inclusion
would be anti-dilutive.
For the Three Months Ended March 31,
|
|
2019
|
|
2018
|
Shares Issuable Upon Conversion of Outstanding Convertible Note Payables
|
|
|
176,676,060
|
|
|
|
270,401,144
|
|
Total weighted average anti-dilutive potential common shares
|
|
|
176,676,060
|
|
|
|
270,401,144
|
|
DISCONTINUED
OPERATIONS
As of March 31, 2019 and 2018, 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 11.
RECENT
ACCOUNTING PRONOUNCEMENTS
In February 2016, the FASB issued ASU 2017-02,
Leases
. The standard requires all leases with lease terms over 12 months to be capitalized as a right-of-use asset and lease
liability on the balance sheet at the date of lease commencement. Leases will be classified as either finance or operating. This
distinction will be relevant for the pattern of expense recognition in the income statement. This standard will be effective for
the calendar year ending December 31, 2019. The Company is currently in the process of evaluating the impact of adoption of this
ASU on the financial statements.
In January 2017, the FASB issued ASU 2017-04,
Intangibles-Goodwill and Other: Simplifying the Test for Goodwill Impairment
. The standard simplifies the subsequent measurement
of goodwill by eliminating Step 2 from the goodwill impairment test. Under the amendments of ASU 2017-04, an entity should perform
its goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity will recognize
an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value, but the loss cannot
exceed the total amount of goodwill allocated to the reporting unit. ASU 2017-04 is effective for the calendar year ending December
31, 2020. The amendments require a prospective approach to adoption and early adoption is permitted for interim or annual goodwill
impairment tests. The Company presently has no goodwill but acquires entities from time to time and is currently evaluating the
impact this standard would have.
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 March 31, 2019, the Company had negative working
capital of $4,485,528 and had an accumulated deficit of $8,988,640. 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 and related parties. The accompanying condensed
consolidated financial statements do not include any adjustments related to these uncertainties.
NOTE 3 – INVENTORIES
Inventories consisted of the following:
|
|
March 31, 2019
|
|
December 31, 2018
|
Raw materials
|
|
$
|
31,022
|
|
|
$
|
23,050
|
|
Finished goods
|
|
|
6,471
|
|
|
|
1,498
|
|
Reserve for obsolete inventory
|
|
|
(1,500
|
)
|
|
|
(1,500
|
)
|
Inventories
|
|
$
|
35,993
|
|
|
$
|
23,048
|
|
NOTE 4 – PROPERTY AND EQUIPMENT
Property and equipment consisted of the following:
|
|
March 31, 2019
|
|
December 31, 2018
|
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
|
|
|
(95,781
|
)
|
|
|
(95,154
|
)
|
Property and equipment
|
|
$
|
6,816
|
|
|
$
|
7,443
|
|
For the three months ended March 31, 2019 and
2018, the Company recorded depreciation expense of $627 and $1,797 respectively.
NOTE 5 – INTANGIBLE ASSETS
The Company’s intangible assets consist
of patents and trade secrets acquired from third parties, and are recorded at cost. The Company amortizes the costs of its intangible
assets over their estimated useful lives of approximately 11 years. 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
|
|
March 31, 2019
|
|
December 31, 2018
|
Cost
|
|
$
|
697,955
|
|
|
$
|
697,955
|
|
Accumulated Amortization
|
|
|
(516,162
|
)
|
|
|
(504,042
|
)
|
Net intangible assets
|
|
$
|
181,793
|
|
|
$
|
193,913
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Beginning balance for total intangible assets, net
|
|
$
|
193,913
|
|
|
$
|
261,849
|
|
Amortization expense
|
|
|
(12,120
|
)
|
|
|
(67,936
|
)
|
Intangible assets, net
|
|
$
|
181,793
|
|
|
$
|
193,913
|
|
The Surface Modification Technologies assets
include a patent, trade secret technology, instructions, manuals and materials on certain manufacturing processes and know-how.
For the three months ended March 31, 2019 and 2018, the Company recorded amortization expense of $12,120 and $11,879, respectively.
See Note 1.
As of March 31, 2019, future amortization for
the next four years for the Company’s intangible assets consist of the following:
Year
|
|
Anticipated Amortization
|
2019
|
|
|
35,393
|
|
2020
|
|
|
47,513
|
|
2021
|
|
|
47,513
|
|
2022
|
|
|
47,513
|
|
Thereafter
|
|
|
3,861
|
|
|
Total anticipated amortization of intangible assets
|
|
$
|
181,793
|
|
NOTE 6 – NOTES PAYABLE AND NOTES PAYABLE
- RELATED PARTIES
At March 31, 2019 and December 31, 2018, notes payable consisted
of the following categories:
|
|
March 31, 2019
|
|
December 31, 2018
|
Notes payable
|
|
$
|
328,783
|
|
|
$
|
328,783
|
|
Notes payable, convertible
|
|
|
25,000
|
|
|
|
25,000
|
|
Notes payable, related parties
|
|
|
926,475
|
|
|
|
926,475
|
|
Notes payable, related parties, convertible
|
|
|
1,327,450
|
|
|
|
1,327,450
|
|
Total
|
|
$
|
2,607,708
|
|
|
$
|
2,607,708
|
|
Notes Payable
Notes payable consisted of two unsecured notes.
The first note payable in the amount of $28,783 as of March 31, 2019 and December 31, 2018, respectively, is to a former shareholder
with a due date of January 2012, together with accrued interest at 5% APR and interest on overdue principal accruing at 10% APR.
The second note payable in the amount of $300,000 as of March 31, 2019 and December 31, 2018, respectively, is to a shareholder
with a due date of August 1, 2015, together with accrued interest at 10% APR.
At March 31, 2019, the Company was in default
for both unsecured notes payable and all related accrued interest.
Notes Payable, Convertible
Notes payable, convertible consisted of one
note payable in the amount of $25,000 as of March 31, 2019 and December 31, 2018, respectively, to an investor with a due date
of January 20, 2018, together with accrued interest at 10% APR and is convertible at $0.01 per share of common stock.
At March 31, 2019, the Company was in default
for this secured note payable and all related accrued interest.
Notes Payable, Related Parties
Notes payable, related parties consisted of
the following:
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
Note payable to the Company’s general counsel (also a shareholder), due November 10, 2017.
|
|
|
(a)
|
|
|
$
|
7,000
|
|
|
$
|
7,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an independent contractor (also a shareholder), which note payable was due December 3, 2017.
|
|
|
(b)
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an independent contractor (also a shareholder), which note payable was due December 20, 2017.
|
|
|
(c)
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an independent contractor (also a shareholder), which note payable was due March 16, 2018.
|
|
|
(d)
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an independent contractor (also a shareholder), which note payable was due June 22, 2018.
|
|
|
(e)
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two notes payable ($150,000 and $120,000) each to the Company’s general counsel (also a shareholder), due on demand together with accrued interest at 4.5% APR.
|
|
|
(f)
|
|
|
|
270,000
|
|
|
|
270,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to the Company’s general counsel (also a shareholder), due on demand together with accrued interest at 12% APR.
|
|
|
(g)
|
|
|
|
10,000
|
|
|
|
10,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two notes payable ($349,329 and $87,532) each to the Company’s president and chief executive officer (also a shareholder), due on demand together with accrued interest at 4.5% APR.
|
|
|
(h)
|
|
|
|
436,861
|
|
|
|
436,861
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two notes payable ($134,604 and $28,010) each to the Company’s controller (also a shareholder), due on demand together with accrued interest at 4.5% APR.
|
|
|
(i)
|
|
|
|
162,614
|
|
|
|
162,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
926,475
|
|
|
$
|
926,475
|
|
At March 31, 2019, the Company was in default
with the contractual payment terms with the unsecured term note payable (a) to the Company’s general counsel, also a shareholder,
and on the unsecured term note payables (b), (c), (d) and (e) to an independent contractor, also a shareholder.
Note (f) reflects two unsecured notes payable
for payment obligations owed to the Company’s general counsel for legal services incurred by the Company for the years ended
December 31, 2015 and 2014. In addition, note (g) reflects a debt investment made by the Company’s general counsel to the
Company.
Note (h) reflects two unsecured notes payable
for amounts due to the Company’s president and chief executive officer, who is also a shareholder, for previously accrued
base salary.
Note (i) reflects two unsecured notes payable
for amounts due to the Company’s controller, who is also a shareholder, for previously accrued base salary.
On December 24, 2018, and in connection with
the Company’s acquisition of Advanced Cement Sciences LLC, each holder of notes (f), (h) and (i) agreed to relinquish their
previous respective rights of conversion on the Company promissory notes held by them.
Notes Payable, Related Parties, Convertible
Notes payable, related parties, convertible
consisted of the following:
|
|
|
|
March 31, 2019
|
|
December 31, 2018
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three notes payable ($30,000, $55,500 and $28,500) each to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.01, $0.007 and $0.015, respectively, per share of common stock.
|
|
|
(b)
|
|
|
|
114,000
|
|
|
|
114,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
|
|
|
(c)
|
|
|
|
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.
|
|
|
(d)
|
|
|
|
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.
|
|
|
(e)
|
|
|
|
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.
|
|
|
(f)
|
|
|
|
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.
|
|
|
(g)
|
|
|
|
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.
|
|
|
(h)
|
|
|
|
300,000
|
|
|
|
300,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two notes payable ($20,500 and $9,500) each to an outside director (also a shareholder), due on demand together with accrued interest at 4.5% APR, and convertible at $0.007 and $0.015, respectively, per share of common stock.
|
|
|
(i)
|
|
|
|
30,000
|
|
|
|
30,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to the Company’s former 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.
|
|
|
(j)
|
|
|
|
49,000
|
|
|
|
49,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an independent contractor (also a shareholder), due on demand together with interest at 4.5% APR, and convertible at $0.007 per share of common stock.
|
|
|
(k)
|
|
|
|
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 $0.05 per share of common stock.
|
|
|
(l)
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Two notes payable ($81,250 and $77,500) each to an independent contractor (also a shareholder), due on demand together with interest at 4.5% APR, and convertible at $0.01 per share of common stock.
|
|
|
(m)
|
|
|
|
158,750
|
|
|
|
158,750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to an investor (also a shareholder), due on demand together with interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(n)
|
|
|
|
20,000
|
|
|
|
20,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note payable to a related party investor (by virtue of shareholding percentage, both actual and on an as-converted basis), due June 15, 2018 together with accrued interest at 10% APR, and convertible at $0.01 per share of common stock.
|
|
|
(o)
|
|
|
|
50,000
|
|
|
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
$
|
1,327,450
|
|
|
$
|
1,327,450
|
|
Notes (a), (b) and (l) reflect amounts due
to a single outside director of the Company, who also is 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 $18,426 to the holder of notes (a), (b), and (l).
Notes (c) through (h) and (o) reflect amounts
due to a
certain related party investor and significant shareholder
for convertible debt investments
made from time to time as indicated.
Notes (i) reflects two notes payable for amounts
due to an outside director, who is also a shareholder, for accrued director’s fees earned through June 30, 2017.
Note (j) reflects amounts due to the Company’s
former vice president of research and development, who is also a shareholder, for previously accrued wages.
Note (k) 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.
Note (m) reflects two notes payable for amounts
due to an independent contractor, who is also shareholder, for previously accrued business development services. On October 31,
2018, the holder of one note with an original face value of $137,500 exercised the right to convert $60,000 of the note into six
million shares (6,000,000) of common stock at the conversion rate of $0.01 per share per the terms of the note.
For the year three months ended March 31, 2019,
the Company did not receive any proceeds from the issuance of notes payable. For the year ended December 31, 2018, the Company
received proceeds from the issuance of notes payable to related parties in the amount of $20,000 and convertible notes payable
to related parties in the amount of $70,000 (total $90,000).
At December 31, 2018, the Company was in default
with the contractual payment terms with the convertible note payable (c), (d), (e) and (o) to a related party investor.
NOTE 7 – GAIN ON INTANGIBLE ASSET
In February 2019, the Company entered into
an agreement with Ducora, Inc., a Florida corporation engaged in the direct marketing of certain consumer products (“Ducora”),
to assign and sell to Ducora a patent owned by the Company, together with certain related and proprietary trade secret information,
the subject of which is a process for producing a certain coating product usable on automobiles and motorcycles, among other potential
surfaces. At December 31, 2018, the Company did not have a value assigned to the intangible assets consisting of the patent and
proprietary trade secret information. In exchange for the conveyance of this intellectual property, which was effective immediately
upon execution of the agreement, the Company received a one-time cash payment in the amount of $150,000. As a result, the Company
recognized a gain on intangible asset of $150,000 on our Condensed Consolidated Statement of Operations for the three months ended
March 31, 2019.
NOTE 8 – STOCKHOLDERS’ DEFICIT
Common
Stock
During the three months ended March 31, 2019,
the Company did not receive any proceeds from the issuance of shares of common stock.
COMMON
STOCK WARRANTS
The Company did
not issue warrants for the three months ended March 31, 2019 and 2018 and no warrants were exercised.
As of March 31, 2019,
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.
In July, 2014, the Company entered into an
employment agreement with the Company’s president and chief executive officer. The agreement provides for a base annual salary
of $162,500, a term of three (3) years, and contains a provision for an incentive-based cash bonus equal to one and one half percent
(1.5%) of free cash flow (as calculated pursuant to a stated formula) up to a maximum of $500,000 for any single fiscal year. As
of March 31, 2019 and December 31, 2018, no amounts for bonuses had been earned or accrued under this provision. In addition to
the bonus provision and the annual base salary, the employment agreement provides for payment of previously accrued base salary
in the amount of $126,303 and vested deferred vacation compensation in the amount of $12,500 as of March 31, 2019 and are included
in accrued payroll. The agreement further provides for severance compensation equal to the then base salary until the expiration
of the term of the agreement. There is no severance compensation in the event of voluntary termination or termination for cause.
In May 2017, the Company’s board of director’s, including the compensation committee thereof, reviewed the employment
agreement for Mr. Malone and extended the term thereof, otherwise due to expire on July 23, 2017, through July 23, 2020.
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 $7,429.
In accordance with the terms of the leasehold agreement, the Company is responsible for all utilities, repairs and maintenance.
Total rent expense for the years ended March
31, 2019 and 2018 for this facility, before adjustments of reclassified facilities cost for research and development, totaled $22,287
and $21,638, 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 Consolidated Balance Sheets.
As of March 31, 2019, 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 6.
As of March 31, 2019, the Company’s general
counsel held three notes and one short-term note 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. 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.
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. The final note of $7,000 reflects funds advanced to the Company for working capital 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 addition, a short-term loan in the amount of $15,752, reflects funds advanced to Advanced Cement Sciences LLC for working capital.
No terms were set for this short-term loan, which as of the date of this quarterly report on Form 10-Q, remains outstanding and
is included in accounts payable, related parties on the Condensed Consolidated Balance Sheets. Finally, on December 24, 2018, and
in connection with the Company’s acquisition of Advanced Cement Sciences LLC, the Company’s general counsel agreed
to relinquish the previous respective rights of conversion on the first three notes mentioned above. See Note 6.
As of March 31,
2019, the Company had issued a total of seven (7) 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 $200,000, 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.
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. And the seventh such note is in the amount of $50,000, is due on June 15, 2018, together with interest at 10% APR,
and is convertible at $0.01 per share of common stock.
See Note 6.
As of March 31, 2019, 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 three months ended March 31, 2019 and the year ended December 31, 2018, respectively, in the total amount of
$182,396 and $182,396 for the Company’s president and chief executive officer and controller.
As of March 31,
2019, the Company’s president and chief executive officer held two 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% APR. 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
. On December 24, 2018, and
in connection with the Company’s acquisition of Advanced Cement Sciences LLC, the Company’s president and chief executive
officer agreed to relinquish the previous respective rights of conversion on these two notes.
See Note 6.
As of March 31,
2019, the Company’s controller held two 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%
APR
. 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.
On December 24,
2018, and in connection with the Company’s acquisition of Advanced Cement Sciences LLC, the Company’s controller agreed
to relinquish the previous respective rights of conversion on these two notes.
See Note 6.
As of March 31,
2019, 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 6.
During the three months ended March 31, 2019
and 2018, the Company recorded revenue for sales to shareholders in the amount of $15,652 and $25,128, respectively. For the three
months ended March 31, 2019, one shareholder accounted for approximately 16% of Company revenue, a second shareholder accounted
for approximately 3%, and, as a group, the sales to shareholders accounted for approximately 19% of Company revenues. These revenues
are recorded as revenue, related party on the Company’s Condensed Consolidated Statements of Operations.
NOTE 11 – DISCONTINUED OPERATIONS
As of March 31, 2019 and December 31, 2018,
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 1.
NOTE 12 – SUBSEQUENT EVENTS
The Company has evaluated events subsequent
March 31, 2019 through the date the financial statements were issued. There were no subsequent events that need disclosure.