NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2018
(UNAUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on March 7, 2008 under the laws of the State of Nevada, as Alcantara Brands Corporation. On October 5, 2010, the Company amended its articles of incorporation and changed its name to Bollente Companies, Inc. On June 4, 2018, the Company amended its articles of incorporation and changed its name to Trutankless, Inc.
Nature of operations
The Company is involved in research and development of a new high quality, whole-house, electric tankless water heater that is more energy efficient than conventional products.
Principles of consolidation
The consolidated financial statements include the accounts of Trutankless Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired 100% of the outstanding stock of Bollente, Inc. On the date of acquisition, Bollente, Inc. was 2.78% owned and controlled 100% by Robertson J. Orr, a majority shareholder and officer and director of Trutankless Inc. and the acquisition was accounted for by means of a pooling of the entities from the date of inception of Trutankless Inc. on March 7, 2008 because the entities were under common control. On November 21, 2013, the Company formed a wholly owned subsidiary, Nuvola, Inc. On August 13, 2015, the Company formed a wholly owned subsidiary, Bollente International, Inc. All significant inter-company transactions and balances have been eliminated.
Basis of presentation
The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States (GAAP) and applicable rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Certain information and note disclosures normally included in the consolidated financial statements prepared in accordance with GAAP have been condensed or omitted pursuant to such rules and regulations. As such, the information included in the consolidated financial statements for the six months ended June 30, 2018 should be read in conjunction with the consolidated financial statements and accompanying notes included in the Companys Form 10-K for the Companys fiscal year ended December 31, 2017 as filed with the SEC pursuant to Rule 12(b) under the Securities Act of 1934.
The consolidated balance sheet as of December 31, 2017, included herein was derived from the audited financial statements as of that date, but does not include all disclosures including notes required by GAAP.
The accompanying unaudited consolidated financial statements reflect all normal recurring adjustments necessary to present fairly the financial position, results of operations, and cash flows for the interim periods, but are not necessarily indicative of the results of operations to be anticipated for the year ended December 31, 2018.
F-5
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and cash equivalents
For the statements of cash flows, all highly liquid investments with an original maturity of three months or less are cash equivalents. The carrying value of these investments approximates fair value.
Website
The Company capitalizes the costs associated with the development of the Companys website pursuant to ASC Topic 350. Other costs related to the maintenance of the website are expensed as incurred. Amortization is provided over the estimated useful lives of 3 years using the straight-line method for financial statement purposes. The Company plans to commence amortization upon completion and release of the Companys fully operational website.
Stock-based compensation
The Company records stock-based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings per common share (EPS) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
Inventory
The cost of our inventory includes the amount we pay to our suppliers to acquire inventory, freight costs incurred in connection with the delivery of product to our distribution centers. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution.
F-6
Accounts receivable and allowance for doubtful accounts
Accounts receivable are stated at the amount management expects to collect. The Company generally does not require collateral to support customer receivables. The Company provides an allowance for doubtful accounts based upon a review of the outstanding accounts receivable, historical collection information and existing economic conditions. As of June 30, 2018, the Company has recorded a total allowance for bad debt of $65,773.
Revenue recognition
The Company records revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company records revenue from the sale of product upon shipment or delivery of the products to the customer. The Company also records the shipping income when the products are sent to the customer.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2018. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Level 1: The preferred inputs to valuation efforts are quoted prices in active markets for identical assets or liabilities, with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, trade in active markets.
Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.
Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as unobservable, and limits their use by saying they shall be used to measure fair value to the extent that observable inputs are not available. This category allows for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Earlier in the standard, FASB explains that observable inputs are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.
F-7
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As a result, the Company incurred accumulated net losses for the six months ended June 30, 2018 of ($25,113,365).
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might result from this uncertainty.
NOTE 3 - INVENTORY
Inventories consist of the following at:
|
|
| |
|
June 30, 2018
|
|
December 31, 2017
|
Finished goods
|
29,931
|
|
157,487
|
Total
|
$29,931
|
|
$157,487
|
Inventory purchases are prepaid up to 70% during the manufacturing process, with the final 30% being paid upon shipment. The Company inventory is shipped from the manufacturer to the Company via FOB shipping point and as such is included in the Companys inventory at the point of shipment. As of June 30, 2018, and December 31, 2017, the Company had prepaid inventory of $337,851 and $276,954, respectively.
NOTE 4 - RELATED PARTY
As of June 30, 2018, and December 31, 2017, the Company had two notes payable due to an officer and director of the Company in amount of $34,150 and $34,150, respectively. The notes have interest rate that range from 0%-8% with due dates ranging from on demand through April 2017.
On January 25, 2018, the Company issued a $100,000 12% secured promissory grid notes due to an officer and director of the Company. The note is due on December 31, 2020. During the six months ended June 30, 2018, the Company received advances of $65,000 on the grid note. As of June 30, 2018, $65,000 remained outstanding on the note.
As of June 30, 2018, and December 31, 2017, the Company had line of credit due to a Company controlled by an officer and director of the Company in amount of $0 and $4,791, respectively. During the six months ended June 30, 2018 and 2017 the Company received advances $0 and $5,000 and made payments of $4,791 and $5,000, respectively.
F-8
NOTE 5 - NOTES PAYABLE
Notes payable net of debt discount consist of the following at:
|
|
|
|
| |
|
June 30,
2018
|
|
December 31,
2017
|
|
|
|
|
|
|
Note payable from a shareholder, secured, 12% interest,
due June 2017
|
$
|
150,000
|
|
$
|
200,000
|
|
|
|
|
|
|
Note payable from a shareholder, secured, 12% interest,
due September 2017
|
|
100,000
|
|
|
100,000
|
|
|
|
|
|
|
Note payable from a shareholder, secured, 12% interest
secured, 5% interest, due April 2019
|
|
50,000
|
|
|
--
|
|
|
|
|
|
|
Note payable, to an officer, director and shareholder,
secured, 5% interest, due June 2017
|
|
--
|
|
|
80,000
|
|
|
|
|
|
|
Total Notes Payable
|
$
|
300,000
|
|
$
|
380,000
|
|
|
|
|
|
|
Less discounts
|
|
(24,775)
|
|
|
--
|
|
|
|
|
|
|
Total Notes Payable
|
|
275,225
|
|
|
380,000
|
Less current portion
|
|
(275,225)
|
|
|
(380,000)
|
|
|
|
|
|
|
Total Notes Payable - long term
|
$
|
--
|
|
$
|
--
|
On February 2, 2018, the Company entered into an agreement with the note holder to split a certain note payable dated July 1, 2015 into two notes in the amount of $150,000 and $50,000, respectively. In addition to the splitting the notes the noteholder also agreed to the extend the due date of the new $50,000 note to July 1, 2018. On June 4, 2018, for consideration of 15,000 shares the noteholder further agreed to extend the due date of the new $50,000 note to April 1, 2019
Interest expense including amortization of the associated debt discount for the three months ended June 30, 2018 and 2017 was $20,576 and $49,228, respectively.
F-9
NOTE 6 - CONVERTIBLE NOTES PAYABLE
Convertible notes payable, net of debt discount consist of the following:
|
|
|
|
| |
|
June 30,
2018
|
|
December 31,
2017
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2018, convertible at $1 per share
|
$
|
10,000
|
|
$
|
10,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2018, convertible at $1 per share
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due June 2018, convertible at $1 per share
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due August 2018, convertible at $1 per share
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
Convertible note payable from an entity owned and controlled
by a shareholder, secured, 12% interest, due 120 days after
delivery of payment notice from lender or August 2018,
convertible at $0.25 per share
|
|
900,000
|
|
|
900,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2020, convertible at $1 per share
|
|
100,000
|
|
|
100,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2020, convertible at $1 per share
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2020, convertible at $1 per share
|
|
5,000
|
|
|
5,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due Feb 2020, convertible at $0.50 per share
|
|
75,000
|
|
|
--
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due Dec 2018, convertible at $0.50 per share
|
|
160,000
|
|
|
--
|
|
|
|
|
|
|
Less discount
|
|
(167,640)
|
|
|
(131,600)
|
|
|
|
|
|
|
Total notes payable, net
|
$
|
1,282,360
|
|
$
|
1,083,400
|
|
|
|
|
|
|
Less current portion
|
|
(1,055,229)
|
|
|
(932,041)
|
|
|
|
|
|
|
Convertible notes payable, net - Long-term
|
$
|
227,131
|
|
$
|
151,359
|
On February 15, 2018, the Company issued a $75,000 12% secured convertible promissory note. The note is due on February 24, 2020 and are secured by the Companys accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share.
F-10
On June 11, 2018, the Company issued a $160,000 12% secured convertible promissory note. As an incentive to enter into the note agreement the Company also issued the noteholder 40,000 shares valued and $20,000 which was recorded as a debt discount and is being amortized over the life of the note. The note is due on December 11, 2018 and is secured by the Companys accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes is convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share.
During the six months ended June 30, 2018, the Company entered into an agreement with the note holder to extend certain note payable dated August 2, 2016 through either 120 days after demand from the noteholder or August 19, 2019 for consideration of 216,000 shares valued at $108,000 and 216,000 three year warrants exercisable at $1 and valued using Black Scholes at $80,898.
Interest expense including amortization of the associated debt discount for the six months ended June 30, 2018 and 2017 was $233,622 and $127,681, respectively.
NOTE 7 - ROYALTY PAYMENTS
The Company has agreed to allow accredited investors the ability to receive a royalty on products sold in an effort to fund its distribution and marketing advances internationally by purchasing units. Each unit represents 0.625% royalty interest in the Gross Margin of product sold by Bollente International, Inc., costing $25,000 per unit.
As of June 30, 2018, the Company paid $11,400 in dividends related to royalty agreements.
On October 18, 2017, the Company entered into royalty termination agreements whereas the Company converted all royalties interest into a total of 1,400,000 shares of common stock valued at $700,000. As of June 30, 2018, the Company has issued 1,150,000 shares of common stock and has recorded the balance of the common stock due to stock payable.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Office Lease
In January 2015, the Company executed a sublease agreement with Perigon Companies, LLC, a related party. The lease term is one year at a rate of $4,000 per month with an option to continue a month to month basis. The Company paid a refundable security deposit of $1,500.
In January 2015, the Company executed a sublease agreement with Templar Asset Group, LLC, a related party. The lease term is one year at a rate of $2,800 per month with an option to continue a month to month basis. The Company was not required to pay a security deposit.
Rent expense for the six months ended June 30, 2018 and 2017 was $47,000 and $40,800, respectively.
Executive Employment Agreements
The Company has an employment agreement with the CEO to perform duties and responsibilities as may be assigned. The base salary is in the amount of $75,000 per annum plus an annual bonus of 120,000 shares of common stock commencing on June 30, 2018 and ending February 28, 2019 with an option renewal on (March 1) thereafter.
F-11
The Company has an employment agreement with the President to perform duties and responsibilities as may be assigned. The base salary is in the amount of $150,000 per annum plus a one-time bonus of 250,000 shares of common stock commencing on October 1, 2017 and ending September 30, 2018 with an option renewal on September 15, 2018.
NOTE 9 - STOCK WARRANTS
During the quarter ended June 30, 2018, we granted 291,560 warrants in conjunction with units which included shares sold for cash to purchase 291,560 shares of the Companys common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time until three (3) years after the closing date.
During the quarter ended June 30, 2018, we granted 216,000 warrants in conjunction with a debt extension agreement to purchase 216,000 shares of the Companys common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time until three (3) years after the closing date of the agreement.
The following is a summary of stock warrants activity during the year ended June 30, 2018 and December 31, 2017.
|
|
|
| |
|
|
Number of
Shares
|
|
Weighted
Average
Exercise Price
|
Balance, December 31, 2017
|
|
1,473,312
|
|
$ 1.00
|
Warrants granted and assumed
|
|
296,312
|
|
$ 1.00
|
Warrants expired
|
|
--
|
|
--
|
Warrants canceled
|
|
--
|
|
--
|
Warrants exercised
|
|
--
|
|
--
|
Balance, June 30, 2018
|
|
1,769,624
|
|
$ 1.00
|
As of June 30, 2018, there are warrants exercisable to purchase 1,769,624 shares of common stock in the Company.
NOTE 10 - STOCKHOLDERS EQUITY
The Company is authorized to issue 10,000,000 shares of it $0.001 par value preferred stock and 100,000,000 shares of its
$0.001 par value common stock.
Each share of Preferred Stock is convertible, at any time, at the option of the holder, is convertible into five shares of our common stock and one warrant to purchase one share of our common stock at $1.00 per share. All Preferred Stock will be automatically converted into shares of the Companys common stock and warrants after three years from the original issue date of the Preferred Stock.
During the six months ended June 30, 2018, the Company issued 313,500 shares of common stock with a fair value of $156,750 for services.
F-12
During the six months ended June 30, 2018, the Company issued 1,251,560 shares of common stock for $145,780 cash, of which $430,000 of the cash was received during the year ended December 31, 2017 and recorded as stock payable. Additionally, the Company received $480,000 for the sale of common stock of which $50,000 has not been issued and has been recorded as stock payable.
As of December 31, 2017, the Company was obligated to issue 550,000 shares of common stock valued at $275,000 for the cancellation of the royalty payments disclosed in Note 7. As of June 30, 2018, 550,000 valued at $275,000 of these shares were issued and 250,000 shares valued at $125,000 have not been issued and remain in stock payable.
During the six months ended June 30, 2018, the Company issued 271,000 shares of common stock with a fair value of $135,500 to various noteholders as consideration to enter, split, and extend certain note payables during the period.
NOTE 11 - SUBSEQUENT EVENTS
Subsequent to June 30, 2018, the Company entered into to and closed an amendment to a certain note agreement dated August 2, 2016, whereas the noteholder agreed to provide a Standby Letter of Credit (SLC) in the amount of $450,000 required under a manufacturing service agreement with the Companys largest supplier of inventory. In consideration for providing the SLC, the Company agreed to issue 738,000 shares of common stock and grant 450,000 warrants. Subsequent to June 30, 2018, 414,000 shares have been issued and 324,000 shares remain outstanding to be issued as of the date of this filing.
Subsequent to June 30, 2018, the Company issued 785,000 shares of common stock valued at $392,000 for services and 225,000 shares of common stock for $112,500, of which $50,000 was received during the quarter ended June 30, 2018 and was recorded as stock payable.
F-13
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Bollente Companies Inc.
Opinion on the Financial Statements
We have audited the accompanying balance sheets of Bollente Companies Inc. (the Company) as of December 31, 2017 and December 31, 2016 and the related statements of operations, stockholders (deficit), and cash flows for each of the years in the two-year period ended December 31, 2017, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and December 31, 2016, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2017 in conformity with accounting principles generally accepted in the United States of America.
Basis for Opinion
These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on the Companys financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Companys internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has negative working capital at December 31, 2017, has incurred recurring losses and recurring negative cash flow from operating activities, and has an accumulated deficit which raises substantial doubt about its ability to continue as a going concern. Managements plans concerning these matters are also described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ AMC Auditing
AMC Auditing
We have served as the Companys auditor since 2015
Las Vegas, Nevada
April 13, 2018
FF-1
BOLLENTE COMPANIES, INC.
CONSOLIDATED BALANCE SHEETS
(AUDITED)
|
|
|
|
|
|
| |
|
For the Years Ended
|
|
December 31, 2017
|
|
December 31, 2016
|
ASSETS
|
|
|
|
Current assets
|
|
|
|
|
Cash
|
$
|
78,599
|
|
$
|
87,134
|
|
Accounts receivable
|
|
129,246
|
|
|
116,333
|
|
Inventory
|
|
157,487
|
|
|
62,836
|
|
Prepaid expenses
|
|
318,207
|
|
|
220,306
|
|
|
Total current assets
|
|
683,539
|
|
|
486,609
|
|
|
|
|
|
|
|
Fixed assets, net of accumulated depreciation
|
|
1,223
|
|
|
1,478
|
|
|
|
|
|
|
Other Assets
|
|
|
|
|
|
|
Security deposits
|
|
1,500
|
|
|
1,500
|
|
Trademarks
|
|
11,916
|
|
|
11,912
|
|
Software
|
|
4,167
|
|
|
6,667
|
|
Website
|
|
-
|
|
|
1,628
|
|
|
Total other assets
|
|
17,583
|
|
|
21,707
|
|
|
|
|
|
|
Total assets
|
$
|
702,345
|
|
$
|
509,794
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS' EQUITY
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
624,253
|
|
|
461,704
|
|
Accrued interest payable - related party
|
|
4,483
|
|
|
1,642
|
|
Customer deposits
|
|
600
|
|
|
600
|
|
Advances
|
|
4,300
|
|
|
1,300
|
|
Line of credit - related party
|
|
4,791
|
|
|
-
|
|
Notes payable- related party
|
|
34,150
|
|
|
34,150
|
|
Notes payable, net of debt discount
|
|
380,000
|
|
|
488,866
|
|
Convertible notes payable, net
|
|
932,041
|
|
|
-
|
|
|
Total current liabilities
|
|
1,984,618
|
|
|
988,262
|
|
|
|
|
|
|
|
Convertible notes payable - long-term, net
|
|
151,359
|
|
|
148,157
|
|
|
Total long-term liabilities
|
|
151,359
|
|
|
148,157
|
|
|
|
|
|
|
Total liabilities
|
|
2,135,977
|
|
|
1,136,419
|
|
|
|
|
|
|
Stockholders' equity
|
|
|
|
|
|
|
Preferred stock, $0.001 par value, 10,000,000 shares authorized,
76,000 shares and 61,000 issued and outstanding as of
December 31, 2017 and 2016, respectively
|
|
76
|
|
|
61
|
|
Common stock, $0.001 par value, 100,000,000 shares authorized,
27,924,842 and 23,722,342 shares issued and outstanding as of
December 31, 2017 and 2016, respectively
|
|
27,925
|
|
|
23,724
|
|
Additional paid in capital
|
|
21,986,722
|
|
|
20,382,603
|
|
Subscriptions payable
|
|
548,780
|
|
|
40,000
|
|
Accumulated deficit
|
|
(23,997,135)
|
|
|
(21,073,013)
|
|
|
Total stockholders' equity
|
|
(1,433,632)
|
|
|
(626,625)
|
|
|
|
|
|
|
Total liabilities and stockholders' equity
|
$
|
702,345
|
|
$
|
509,794
|
See accompanying notes to consolidated financial statements.
FF-2
BOLLENTE COMPANIES, INC
CONSOLIDATED STATEMENTS OF OPERATIONS
(AUDITED)
|
|
|
|
|
|
|
| |
|
For the years ended
|
|
December 31, 2017
|
|
December 31, 2016
|
|
|
|
|
|
|
|
|
Revenue
|
$
|
695,857
|
|
$
|
429,582
|
|
|
|
|
|
|
Cost of goods sold
|
|
(530,593)
|
|
|
(490,276)
|
|
|
|
|
|
|
|
|
Gross profit
|
|
165,264
|
|
|
(60,694)
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
General and administrative
|
|
1,710,117
|
|
|
1,031,644
|
|
|
Research and development
|
|
165,218
|
|
|
-
|
|
|
Professional fees
|
|
694,736
|
|
|
1,797,048
|
|
|
|
Total operating expenses
|
|
2,570,071
|
|
|
2,828,692
|
|
|
|
|
|
|
Other expenses
|
|
|
|
|
|
|
|
Other (expense) income
|
|
-
|
|
|
193
|
|
|
Interest expense
|
|
(467,164)
|
|
|
(383,641)
|
|
|
|
Total expenses
|
|
(467,164)
|
|
|
(383,448)
|
|
|
|
|
|
|
Net loss
|
$
|
(2,871,971)
|
|
$
|
(3,272,834)
|
|
|
|
|
|
|
Net loss per common share - basic
|
$
|
(0.11)
|
|
$
|
(0.15)
|
|
|
|
|
|
|
Weighted average number of common shares outstanding - basic
|
$
|
25,086,788
|
|
$
|
21,139,129
|
See accompanying notes to consolidated financial statements.
FF-3
BOLLENTE COMPANIES, INC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(AUDITED)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Total
|
|
Preferred Stock
|
|
Common Stock
|
|
Paid-in
|
|
Subscriptions
|
|
Accumulated
|
|
Stockholders'
|
|
Shares
|
|
Amount
|
|
Shares
|
|
Amount
|
|
Capital
|
|
Payable
|
|
Deficit
|
|
Equity (Deficit)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2015
|
-
|
|
-
|
|
19,350,182
|
|
19,351
|
|
16,763,822
|
|
750,000
|
|
(17,800,179)
|
|
(267,006)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for cash
|
-
|
|
-
|
|
1,111,100
|
|
1,111
|
|
743,959
|
|
(120,000)
|
|
-
|
|
625,070
|
Preferred units issued
for cash
|
77,312
|
|
77
|
|
-
|
|
-
|
|
193,203
|
|
-
|
|
-
|
|
193,280
|
Common shares issued
for conversion of preferred shares
|
(16,312)
|
|
(16)
|
|
81,560
|
|
82
|
|
(66)
|
|
-
|
|
-
|
|
-
|
Stock issued for services
|
-
|
|
-
|
|
2,974,500
|
|
2,975
|
|
1,934,126
|
|
(590,000)
|
|
-
|
|
1,347,101
|
Shares issued for Debt
Term Extension
|
-
|
|
-
|
|
160,000
|
|
160
|
|
159,840
|
|
-
|
|
-
|
|
160,000
|
Stock issued with
notes payable
|
-
|
|
-
|
|
45,000
|
|
45
|
|
44,955
|
|
-
|
|
-
|
|
45,000
|
Warrants issued with
beneficial conversion feature
|
-
|
|
-
|
|
-
|
|
-
|
|
467,764
|
|
-
|
|
-
|
|
467,764
|
Contributed capital
|
-
|
|
-
|
|
-
|
|
-
|
|
75,000
|
|
-
|
|
|
|
75,000
|
Net loss
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(3,272,834)
|
|
(3,272,834)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2016
|
61,000
|
|
61
|
|
23,722,342
|
|
23,724
|
|
20,382,603
|
|
40,000
|
|
(21,073,013)
|
|
(626,625)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prior period adjustment
|
|
|
|
|
|
|
|
|
|
|
|
|
(40,751)
|
|
(40,751)
|
Stock issued for cash
|
-
|
|
-
|
|
2,490,000
|
|
2,490
|
|
847,488
|
|
110,780
|
|
-
|
|
960,758
|
Repurchase and retirement
of shares for cash
|
|
|
|
|
(300,000)
|
|
(300)
|
|
(83,700)
|
|
-
|
|
-
|
|
(84,000)
|
Stock issued for cancelation
of royalty agreement
|
-
|
|
-
|
|
600,000
|
|
600
|
|
299,400
|
|
400,000
|
|
-
|
|
700,000
|
Common shares issued for
conversion of preferred shares
|
(10,000)
|
|
(10)
|
|
50,000
|
|
50
|
|
(40)
|
|
-
|
|
-
|
|
-
|
Preferred units issued for cash
|
25,000
|
|
25
|
|
-
|
|
-
|
|
62,475
|
|
-
|
|
-
|
|
62,500
|
Stock issued for services
|
-
|
|
-
|
|
1,362,500
|
|
1,362
|
|
473,819
|
|
(2,000)
|
|
-
|
|
473,181
|
Warrants issued with
beneficial conversion feature
|
-
|
|
-
|
|
-
|
|
-
|
|
4,677
|
|
-
|
|
-
|
|
4,677
|
Dividends
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
-
|
|
(11,400)
|
|
(11,400)
|
Net loss
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,871,971)
|
|
(2,871,971)
|
Balance, December 31, 2017
|
76,000
|
|
76
|
|
27,924,842
|
|
27,925
|
|
21,986,722
|
|
548,780
|
|
(23,997,135)
|
|
(1,433,632)
|
See accompanying notes to consolidated financial statements.
FF-4
BOLLENTE COMPANIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AUDITED)
|
|
|
|
|
|
| |
|
For the years ended
|
|
December 31, 2017
|
|
December 31, 2016
|
Cash Flows from Operating Activities
|
|
|
|
|
Net loss
|
$
|
(2,871,971)
|
|
$
|
(3,272,834)
|
Adjustments to reconcile net loss to net cash provided by operating activities:
|
|
|
|
|
|
|
Prior period adjustment
|
|
(40,751)
|
|
|
|
|
Shares issued for services
|
|
1,053,180
|
|
|
1,157,101
|
|
Shares issued for financing
|
|
|
|
|
|
|
Shares issued for cancellation of royalty agreement
|
|
120,000
|
|
|
|
|
Depreciation and amortization
|
|
4,379
|
|
|
27,272
|
|
Non cash interest expense
|
|
-
|
|
|
160,000
|
|
Amortization of debt discount
|
|
253,293
|
|
|
137,547
|
Changes in assets and liabilities
|
|
|
|
|
|
|
(Increase) decrease in accounts receivable
|
|
(12,913)
|
|
|
(43,800)
|
|
(Increase) decrease in inventory
|
|
(94,651)
|
|
|
159,700
|
|
(Increase) decrease in prepaid expenses
|
|
(97,901)
|
|
|
481,797
|
|
Increase (decrease) in accounts payable
|
|
162,550
|
|
|
(233,406)
|
|
Increase (decrease) in accrued interest payable - related party
|
|
2,841
|
|
|
17,527
|
|
|
Net cash used in operating activities
|
|
(1,521,944)
|
|
|
(1,409,096)
|
|
|
|
|
|
|
Cash Flows from Investing Activities:
|
|
|
|
|
|
|
Purchase of trademarks
|
|
-
|
|
|
(3,828)
|
|
|
Net cash used in investing activities
|
|
-
|
|
|
(3,828)
|
|
|
|
|
|
|
Cash Flows from Financing Activities:
|
|
|
|
|
|
|
Advances
|
|
3,000
|
|
|
1,300
|
|
Proceeds from convertible notes payable
|
|
705,000
|
|
|
510,000
|
|
Proceeds from notes payable
|
|
15,000
|
|
|
200,550
|
|
Repayments from notes payable
|
|
(142,240)
|
|
|
(92,760)
|
|
Proceeds from line of credit - related party
|
|
22,500
|
|
|
36,000
|
|
Repayments on line of credit - related party
|
|
(17,709)
|
|
|
(52,000)
|
|
Proceeds from sale of common stock, net of offering costs
|
|
1,044,458
|
|
|
625,070
|
|
Proceeds from sale of preferred stock
|
|
62,500
|
|
|
193,280
|
|
Repurchase of common stock
|
|
(84,000)
|
|
|
-
|
|
Proceeds from royalty payments
|
|
-
|
|
|
75,000
|
|
Dividends
|
|
(11,400)
|
|
|
-
|
|
|
Net cash provided by financing activities
|
|
1,597,109
|
|
|
1,496,440
|
|
|
|
|
|
|
Net increase in cash
|
|
75,165
|
|
|
83,516
|
|
|
|
|
|
|
Cash, beginning of period
|
|
87,134
|
|
|
3,618
|
|
|
|
|
|
|
Cash, end of period
|
$
|
162,299
|
|
$
|
87,134
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
|
|
|
|
|
|
|
Cash paid for interest
|
$
|
48,118
|
|
$
|
44,500
|
|
Cash paid for taxes
|
$
|
-
|
|
$
|
-
|
|
|
|
|
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
Shares issued for prepaid stock compensation
|
$
|
-
|
|
$
|
190,000
|
See accompanying notes to consolidated financial statements.
FF-5
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
The Company was incorporated on March 7, 2008 under the laws of the State of Nevada, as Alcantara Brands Corporation. On October 5, 2010, the Company amended its articles of incorporation and changed its name to Bollente Companies, Inc.
Nature of operations
The Company is involved in research and development of a new high quality, whole-house, electric tankless water heater that is more energy efficient than conventional products.
Principles of consolidation
The consolidated financial statements include the accounts of Bollente Companies, Inc. and its wholly owned subsidiaries. On May 16, 2010, the Company acquired 100% of the outstanding stock of Bollente, Inc. On the date of acquisition, Bollente, Inc. was 2.78% owned and controlled 100% by Robertson J. Orr, a majority shareholder and officer and director of Bollente Companies, Inc. and the acquisition was accounted for by means of a pooling of the entities from the date of inception of Bollente Companies, Inc. on March 7, 2008 because the entities were under common control. On November 21, 2013, the Company formed a wholly owned subsidiary, Nuvola, Inc. On August 13, 2015, the Company formed a wholly owned subsidiary, Bollente International, Inc. All significant inter-company transactions and balances have been eliminated.
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ significantly from those estimates.
Cash and cash equivalents
For the purpose of the statements of cash flows, all highly liquid investments with an original maturity of three months or less are considered to be cash equivalents. The carrying value of these investments approximates fair value.
Website
The Company capitalizes the costs associated with the development of the Companys website pursuant to ASC Topic 350. Other costs related to the maintenance of the website are expensed as incurred. Amortization is provided over the estimated useful lives of 3 years using the straight-line method for financial statement purposes. The Company plans to commence amortization upon completion and release of the Companys fully operational website.
Stock-based compensation
The Company records stock based compensation in accordance with the guidance in ASC Topic 505 and 718 which requires the Company to recognize expenses related to the fair value of its employee stock option awards. This eliminates accounting for share-based compensation transactions using intrinsic value and requires instead that such transactions be accounted for using a fair-value-based method. The Company recognizes the cost of all share-based awards on a graded vesting basis over the vesting period of the award.
FF-6
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
The Company accounts for equity instruments issued in exchange for the receipt of goods or services from other than employees in accordance with FASB ASC 718-10 and the conclusions reached by the FASB ASC 505-50. Costs are measured at the estimated fair market value of the consideration received or the estimated fair value of the equity instruments issued, whichever is more reliably measurable. The value of equity instruments issued for consideration other than employee services is determined on the earliest of a performance commitment or completion of performance by the provider of goods or services as defined by FASB ASC 505-50.
Earnings per share
The Company follows ASC Topic 260 to account for the earnings per share. Basic earnings per common share (EPS) calculations are determined by dividing net income by the weighted average number of shares of common stock outstanding during the year. Diluted earnings per common share calculations are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding. During periods when common stock equivalents, if any, are anti-dilutive they are not considered in the computation.
Inventory
Inventories are stated at the lower of cost (average cost) or market (net realizable value).
Revenue recognition
The Company records revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable and collectability is probable. The Company records revenue from the sale of product upon shipment or delivery of the products to the customer. The Company also records the shipping income when the products are sent to the customer.
Recent Accounting Pronouncements
In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations (Reporting Revenue Gross versus Net). ASU 2016-08 clarifies the implementation guidance on principal versus agent considerations and includes indicators to assist an entity in determining whether it controls a specified good or service before it is transferred to the customers. ASU 2016-08 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09.
In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing. The amendments in ASU 2016-10 clarify the following two aspects of Topic 606: identifying performance obligations and the licensing implementation guidance, while retaining the related principles for those areas. ASU 2016-10 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09.
In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts from Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients. The amendments in this update affect the guidance in ASU 2014-09, which is not yet effective. The core principle of the guidance in Topic 606 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
FF-7
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
The amendments in ASU 2016-12 do not change the core principle of the guidance in Topic 606, but instead affect only the narrow aspects noted in Topic 606. ASU 2016-12 is effective January 1, 2018 to be in alignment with the effective date of ASU 2014-09. Management evaluated ASU 2016-08, ASU2016-09, ASU 2016-10, and ASU 2016-12 and determined the adoption will not have a material impact on the Companys consolidated financial statements.
In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Topic 606, Revenue from Contracts with Customers. The effective date and transition requirements for the amendments are the same as the effective date and transition requirements for Topic 606 (and any other Topic amended by Update 2014-09). Accounting Standards Update No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date, defers the effective date of Update 2014-09 by one year.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments-Overall: Recognition and Measurement of Financial Assets and Financial Liabilities. ASU 2016-01 addresses certain aspects of recognition, measurement, presentation, and disclosure of financial instruments including requirements to measure most equity investments at fair value with changes in fair value recognized in net income, to perform a qualitative assessment of equity investments without readily determinable fair values, and to separately present financial assets and liabilities by measurement category and by type of financial asset on the balance sheet or the accompanying notes to the financial statements. ASU 2016-01 will be effective for the Company beginning on January 1, 2018 and will be applied by means of a cumulative effect adjustment to the balance sheet, except for effects related to equity securities without readily determinable values, which will be applied prospectively. Management has reviewed this pronouncement and have determined that it would not have a material impact to the financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases, which requires an entity to recognize long-term lease arrangements as assets and liabilities on the balance sheet of the lessee. Under ASU 2016-02, a right-of-use asset and lease obligation will be recorded for all long-term leases, whether operating or financing, while the income statement will reflect lease expense for operating leases and amortization/interest expense for financing leases. The amendments also require certain new quantitative and qualitative disclosures regarding leasing arrangements. ASU 2016-02 will be effective for the Company beginning on January 1, 2019. Lessees must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. Early adoption is permitted. Management does not believe the adoption of ASU 2016-02 will have a material impact on the Companys consolidated financial statements.
In March 2016, the FASB issued ASU 2016-05, Derivatives and Hedging: Effect of Derivative Contract Novations on Existing Hedge Accounting Relationships, which clarifies that a change in the counterparty to a derivative instrument that has been designated as a hedging instrument would not, in and of itself, be considered a termination of the derivative instrument, provided that all other hedge accounting criteria continue to be met. ASU 2016-05 is effective for the Company beginning on January 1, 2017. Early adoption is permitted, including in an interim period. Management evaluated ASU 2016-05 and determined the adoption of this new accounting standard will not have a material impact on the Companys consolidated financial statements.
FF-8
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments, which aims to reduce the diversity of practice in identifying embedded derivatives in debt instruments. ASU 2016-06 clarifies that the nature of an exercise contingency is not subject to the clearly and closely criteria for purposes of assessing whether the call or put option must be separated from the debt instrument and accounted for separately as a derivative. ASU 2016-06 will be effective for the Company beginning on January 1, 2017. Management evaluated ASU 2016-06 and determined the adoption of this this new accounting standard will not have a material impact on the Companys consolidated financial statements effective January 1, 2017.
In March 2016, the FASB issued ASU 2016-09, Compensation - Stock Compensation: Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting and presentation of share-based payment transactions, including the accounting for related income taxes consequences and certain classifications within the statement of cash flows. ASU 2016-09 is effective for the Company beginning on January 1, 2017. Management evaluated the impact of adopting ASU 2016-09 and determined the new accounting standard will not have a material impact on the Companys consolidated financial statements.
In August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments (ASU 2016-15). ASU 2016-15 will make eight targeted changes to how cash receipts and cash payments are presented and classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years beginning after December 15, 2017. The new standard will require adoption on a retrospective basis unless it is impracticable to apply, in which case it would be required to apply the amendments prospectively as of the earliest date practicable.
In November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), requiring that the statement of cash flows explain the change in the total cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. This guidance is effective for fiscal years, and interim reporting periods therein, beginning after December 15, 2017 with early adoption permitted. The provisions of this guidance are to be applied using a retrospective approach which requires application of the guidance for all periods presented. Management has reviewed this pronouncement and have determined that it would not have a material impact to the financial statements.
In May 2017, the FASB issued ASU 2017-09, Compensation-Stock Compensation (Topic 718), Scope of Modification Accounting. The amendments in this Update provide guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. The amendments in this Update are effective for all entities for annual periods, and interim periods within those annual periods, beginning after December 15, 2017. Early adoption is permitted, including adoption in any interim period, for (1) public business entities for reporting periods for which financial statements have not yet been issued and (2) all other entities for reporting periods for which financial statements have not yet been made available for issuance. Management has reviewed this pronouncement and have determined that it would not have a material impact to the financial statements.
FF-9
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
In July 2017, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2017-11, Earnings Per Share (Topic 260), Distinguishing Liabilities from Equity (Topic 480), Derivatives and Hedging (Topic 815). The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entitys own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, DebtDebt with Conversion and Other Options), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect. For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period.
Fair value of financial instruments
Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of December 31, 2016. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include cash and accounts payable. Fair values were assumed to approximate carrying values for cash and payables because they are short term in nature and their carrying amounts approximate fair values or they are payable on demand.
Level 1: The preferred inputs to valuation efforts are quoted prices in active markets for identical assets or liabilities, with the caveat that the reporting entity must have access to that market. Information at this level is based on direct observations of transactions involving the same assets and liabilities, not assumptions, and thus offers superior reliability. However, relatively few items, especially physical assets, actually trade in active markets.
Level 2: FASB acknowledged that active markets for identical assets and liabilities are relatively uncommon and, even when they do exist, they may be too thin to provide reliable information. To deal with this shortage of direct data, the board provided a second level of inputs that can be applied in three situations.
FF-10
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
Level 3: If inputs from levels 1 and 2 are not available, FASB acknowledges that fair value measures of many assets and liabilities are less precise. The board describes Level 3 inputs as unobservable, and limits their use by saying they shall be used to measure fair value to the extent that observable inputs are not available. This category allows for situations in which there is little, if any, market activity for the asset or liability at the measurement date. Earlier in the standard, FASB explains that observable inputs are gathered from sources other than the reporting company and that they are expected to reflect assumptions made by market participants.
NOTE 2 - GOING CONCERN
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the recoverability of assets and the satisfaction of liabilities in the normal course of business. As a result, the Company incurred accumulated net losses for the year ended December 31, 2017 of ($23,997,135).
The ability of the Company to continue as a going concern is dependent upon its ability to raise additional capital from the sale of common stock and, ultimately, the achievement of significant operating revenues. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.
NOTE 3 - INVENTORY
Inventories consist of the following at:
|
|
|
|
| |
|
December 31, 2017
|
|
December 31, 2016
|
Finished goods
|
$
|
157,487
|
|
$
|
62,836
|
Total
|
$
|
157,487
|
|
$
|
62,836
|
NOTE 4 - WEBSITE
Website consists of the following at:
|
|
|
|
| |
|
December 31, 2017
|
|
December 31, 2016
|
Website
|
$
|
58,598
|
|
$
|
58,598
|
|
|
|
|
|
|
Less: Accumulated amortization
|
|
(58,598)
|
|
|
(56,970)
|
|
|
|
|
|
|
Website, net
|
$
|
--
|
|
$
|
1,628
|
Amortization expense from continuing operations for the years ended December 31, 2017 and 2016 was $1,628 and $19,533, respectively.
FF-11
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
NOTE 5 - RELATED PARTY
As of December 31, 2017, and 2016, the Company had two notes payable due to an officer and director of the Company in amount of $34,150 and $34,150, respectively. The notes have interest rate that range from 0%-8% with due dates ranging from on demand through April 2017.
As of December 31, 2017, and 2016, the Company had line of credit due to a Company controlled by a officer and director of the Company in amount of $4,791 and $0, respectively. During the year ended December 31, 2017 and 2016 the Company received advances $22,500 and $36,000 and made payments of $17,709 and $52,000, respectively.
NOTE 6 - NOTES PAYABLE
Notes payable consist of the following at:
|
|
|
|
| |
|
December 31,
2017
|
|
December 31,
2016
|
|
|
|
|
|
|
Note payable from a shareholder, secured, 12% interest,
due May 2017
|
$
|
--
|
|
$
|
82,240
|
|
|
|
|
|
|
Note payable from a shareholder, secured, 12% interest,
due March 2017
|
|
300,000
|
|
|
300,000
|
|
|
|
|
|
|
Note payable, to an officer, director and shareholder,
secured, 5% interest, due June 2017
|
|
80,000
|
|
|
125,000
|
|
|
|
|
|
|
Total Notes Payable
|
$
|
380,000
|
|
$
|
507,240
|
|
|
|
|
|
|
Less discounts
|
|
--
|
|
|
(18,374)
|
|
|
|
|
|
|
Total Notes Payable
|
|
380,000
|
|
|
488,866
|
Less current portion
|
|
(380,000)
|
|
|
(488,866)
|
|
|
|
|
|
|
Total Notes Payable - long term
|
$
|
--
|
|
$
|
233,000
|
FF-12
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
Convertible notes payable, net of debt discount consist of the following:
|
|
|
|
| |
|
December 31,
2017
|
|
December 31,
2016
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2018, convertible at $1 per share
|
$
|
10,000
|
|
$
|
10,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2018, convertible at $1 per share
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due June 2018, convertible at $1 per share
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due August 2018, convertible at $1 per share
|
|
50,000
|
|
|
50,000
|
|
|
|
|
|
|
Convertible note payable from an entity owned and controlled
by a shareholder, secured, 12% interest, due 120 days after
delivery of payment notice from lender or August 2018,
convertible at $0.25 per share
|
|
900,000
|
|
|
350,000
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2020, convertible at $1 per share
|
|
100,000
|
|
|
--
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2020, convertible at $1 per share
|
|
50,000
|
|
|
--
|
|
|
|
|
|
|
Convertible note payable from a shareholder, secured,
12% interest, due May 2020, convertible at $1 per share
|
|
5,000
|
|
|
--
|
|
|
|
|
|
|
Less discount
|
|
(131,600)
|
|
|
(361,843)
|
|
|
|
|
|
|
Convertible notes payable, net
|
$
|
1,083,400
|
|
$
|
148,157
|
|
|
|
|
|
|
Less current portion
|
|
151,359
|
|
|
--
|
|
|
|
|
|
|
Convertible notes payable, net - Long-term
|
$
|
932,041
|
|
$
|
148,157
|
As of September 30, 2016, the Company issued $110,000 of principal amount of 12% secured convertible promissory notes and warrants to purchase our common stock. The notes are due between May and August 2018 and bear interest of percent (12%). The notes are secured by all of the Companys assets. The outstanding principal amounts and accrued but unpaid interest of the notes are convertible at any time at the option of the holder into common stock at a conversion price of $1.00 per share. The notes the were issued with warrants to purchase up to 110,000 shares of the Companys common stock at an exercise price of $1.50 per share. The warrants are exercisable at any time. The warrants are exercisable until five (5) years after the closing date.
FF-13
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
On August 2, 2016, the above-mentioned note holders entered into a subordination agreement, wherein the note holders agreed that the security interest granted to the note holders is now subordinated and made subsequent to the security interest granted to Built-Right Holdings, LLC, as mentioned below. In order to induce the note holders to permit and allow their security interest to be subordinated, the Company reduced the note holders warrant exercise price of the note holders warrants from $1.50 to $1.00 as evidenced in the executed addendums to warrant agreements.
On August 2, 2016, the Company entered into a Loan Agreement and Security Agreement (Loan Agreement) with Built-Right Holdings, LLC, an Arizona limited liability company (Lender). The Manager of Built-Right Holdings, LLC is 4C Management, Inc., whose Vice President is Rod Cullum, a consultant and shareholder of the Company. Pursuant to the Loan Agreement, Lender agreed to lend the Company $1 Million (the Loan). The Loan, which is evidenced by the Companys Convertible Promissory Note dated August 2, 2016 (the Note), bears interest at the rate of twelve percent (12%) per annum and is due August 1, 2018. The Note is secured by a first priority security interest on all of the Companys assets. The outstanding principal amount and accrued but unpaid interest of the Loan is convertible at any time at the option of the Lender into common stock at a conversion price of $0.25 per share. As of the date of this filing $900,000 has been received.
As an inducement to Lender to provide the Loan, the Company issued to Lender warrants (the Warrants) to purchase 1,000,000 shares of the Companys common stock (the Shares) at an exercise price of $1.00 per share. The Warrants are exercisable in whole or in part at any time or from time to time on or after August 2, 2016 and until August 1, 2021.
On May 2, 2017, the Company issued $100,000 of principal amount of 10% secured convertible promissory notes and 20,000 warrants to purchase common stock. The note is due on May 2, 2020 and are secured by the Companys accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes are convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes the were issued with warrants to purchase up to 10,000 shares of the Companys common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time. The warrants are exercisable until four (4) years after the closing date.
On May 2, 2017, the Company issued $50,000 of principal amount of 10% secured convertible promissory notes and 10,000 warrants to purchase common stock. The note is due on May 2, 2020 and are secured by the Companys accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes are convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes the were issued with warrants to purchase up to 10,000 shares of the Companys common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time. The warrants are exercisable until four (4) years after the closing date.
FF-14
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
On May 22, 2017, the Company issued $5,000 of principal amount of 10% secured convertible promissory notes and 1,000 warrants to purchase common stock. The note is due on May 22, 2020 and are secured by the Companys accounts receivable and inventory. The outstanding principal amounts and accrued but unpaid interest of the notes are convertible at any time at the option of the holder into common stock at a conversion price of $0.50 per share. The notes the were issued with warrants to purchase up to 1,000 shares of the Companys common stock at an exercise price of $1.00 per share. The warrants are exercisable at any time. The warrants are exercisable until four (4) years after the closing date.
Interest expense including amortization of the associated debt discount for the ended December 31, 2017 and 2016 was $467,164 and $383,641, respectively.
NOTE 7 - ROYALTY PAYMENTS
The Company has agreed to allow accredited investors the ability to receive a royalty on products sold in an effort to fund its distribution and marketing advances internationally by purchasing units. Each unit represents 0.625% royalty interest in the Gross Margin of product sold by Bollente International, Inc., costing $25,000 per unit.
During the year ended December 31, 2017, the Company paid $11,400 in dividends related to royalty agreements.
On October 18, 2017, the Company entered into royalty termination agreements whereas the Company converted all royalties interest into a total of 1,400,000 shares of common stock valued at $700,000. As of December 31, 2017, the Company has issued 600,000 shares of common stock and has recorded the balance of the common stock due to stock payable.
NOTE 8 - COMMITMENTS AND CONTINGENCIES
Office Lease
In January 2015, the Company executed a sublease agreement with Perigon Companies, LLC, a related party. The lease term is one year at a rate of $4,000 per month with an option to continue on a month to month basis. The Company paid a refundable security deposit of $1,500.
In January 2015, the Company executed a sublease agreement with Templar Asset Group, LLC, a related party. The lease term is one year at a rate of $2,800 per month with an option to continue on a month to month basis. The Company was not required to pay a security deposit.
Rent expense for the year ended December 31, 2017 and 2016 was $84,000 and $62,000, respectively.
Executive Employment Agreements
The Company has an employment agreement with the CEO to perform duties and responsibilities as may be assigned. The base salary is in the amount of $75,000 per annum plus an annual bonus of 120,000 shares of common stock commencing on June 30, 2018 and ending February 28, 2019 with an option renewal on (March 1) thereafter.
FF-15
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
The Company has an employment agreement with the President to perform duties and responsibilities as may be assigned. The base salary is in the amount of $125,000 per annum plus a one-time bonus of 250,000 shares of common stock commencing on October 1, 2016 and ending September 30, 2017 with an option renewal on September 15, 2017.
NOTE 9 - STOCK WARRANTS
As of December 31, 2016, the Company issued warrants to purchase 160,000 shares of the Companys common stock at an exercise price of $1.50 per share to three accredited investors in connection with 12% secured convertible promissory note financing. The warrants are exercisable at any time until five (5) years after the closing date. On August 2, 2016, the Company reduced the warrant exercise price of the warrant holders warrants from $1.50 to $1.00 per share.
On August 2, 2016, The Company issued warrants to purchase 1,000,000 shares of the Companys common stock at an exercise price of $1.00 per share to one accredited investor in connection with loan agreement and security agreement dated August 2, 2016. The warrants are exercisable in whole or in part at any time or from time to time on or after August 2, 2016 and until August 1, 2021.
As of December 31, 2016, we issued 77,312 warrants to purchase 77,312 shares of the Companys common stock at an exercise price of $1.00 per share associated with conversion of the Companys 6% Series A Convertible Preferred Stock (Preferred Stock). The warrants are exercisable at any time until three (3) years after the closing date.
As of December 31, 2017, we issued 236,000 warrants for cash to purchase 236,000 shares of the Companys common stock at an exercise price of $1.00 per share associated with. The warrants are exercisable at any time until three (3) years after the closing date.
Summary of warrant activity for the two years ended December 31, 2017 and 2016 is presented below:
|
|
|
|
|
| |
|
|
Number of
Shares
|
|
|
|
Weighted
Average
Exercise Price
|
Balance, December 31, 2015
|
|
--
|
|
|
$
|
--
|
Warrants granted and assumed
|
|
--
|
|
|
$
|
--
|
Warrants expired
|
|
--
|
|
|
|
--
|
Warrants canceled
|
|
--
|
|
|
|
--
|
Warrants exercised
|
|
--
|
|
|
|
--
|
Balance, December 31, 2016
|
|
1,237,312
|
|
|
$
|
1.00
|
Warrants granted and assumed
|
|
236,000
|
|
|
$
|
--
|
Warrants expired
|
|
--
|
|
|
|
--
|
Warrants canceled
|
|
--
|
|
|
|
--
|
Warrants exercised
|
|
--
|
|
|
|
--
|
Balance, December 31, 2017
|
|
1,473,312
|
|
|
$
|
1.00
|
As of December 31, 2017, there are warrants exercisable to purchase 1,473,312 shares of common stock in the Company.
FF-16
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
NOTE 10 - INCOME TAXES
For the year ended December 31, 2017, the cumulative net operating loss carry-forward from continuing operations is approximately $23,997,135 at December 31, 2017 and will expire beginning in the year 2031.
The cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows as of December 31, 2017 and 2016:
|
|
|
|
| |
|
2017
|
|
2016
|
Deferred tax asset attributable to:
|
|
|
|
|
|
Net operating loss carryover
|
$
|
8,159,026
|
|
$
|
6,227,225
|
Valuation allowance
|
|
(8,159,026)
|
|
|
(6,227,225)
|
Net deferred tax asset
|
$
|
--
|
|
$
|
--
|
Due to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carry forwards of approximately $23,997,135 for Federal income tax reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carry forwards may be limited as to use in future years.
NOTE 11 - STOCKHOLDERS EQUITY
The Company is authorized to issue 10,000,000 shares of it $0.001 par value preferred stock and 100,000,000 shares of its $0.001 par value common stock.
Each share of Preferred Stock is convertible, at any time, at the option of the holder, is convertible into five shares of our common stock and one warrant to purchase one share of our common stock at $1.00 per share. All Preferred Stock will be automatically converted into shares of the Companys common stock and warrants after three years from the original issue date of the Preferred Stock.
During the year ended December 31, 2016, the Company issued 1,111,100 shares of common stock for cash received of $625,070, of which $120,000 of the funds were received during the year ended December 31, 2015 and recorded as stock payable.
During the year ended December 31, 2016, the Company issued 77,312 units consisting of shares of preferred stock and one warrant. During the year shareholder converted 16,312 shares of preferred stock into 81,560 shares of common stock.
During the year ended December 31, 2016, the Company issued 2,974,500 shares of common stock for services totaling $1,392,101. Of which $590,000 of the services were received during the year ended December 31, 2015 and recorded as stock payable.
During the year ended December 31, 2016, 2016, the Company issued 45,000 shares of common stock as part of a loan. The fair value of the shares was $45,000.
During the year ended December 31, 2016 the Company agreed to issue 110,000 shares to three lenders to agree to subordinate their debt. The shares were valued at $110,000.
FF-17
BOLLENTE COMPANIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2017 AND 2016
(AUDITED)
During the year ended December 31, 2016, the Company issued 50,000 shares of common stock as part of a loan. The fair value of the shares was $50,000.
During the year ended December 31, 2017, the Company issued 2,190,000 shares of common stock for cash received of $876,758, of which $120,000 of the funds were received during the year ended December 31, 2016 and recorded as stock payable.
During the year ended December 31, 2017, the Company received $110,780 cash for the purchase of common stock. As of December 31, 2017, no shares have been issued and the amount is recorded as stock payable.
During the year ended December 31, 2017, the Company issued 25,000 units consisting of shares of preferred stock and one warrant for $62,500 cash. During the year ended December 31, 2017, the Company a shareholder converted 10,000 shares of preferred stock into 50,000 shares of the Companys common stock and 10,000 warrants.
During the year ended December 31, 2017, the Company repurchased and retired 300,000 shares of common stock for $84,000.
During the year ended December 31, 2017, the Company issued 1,362,500 shares of common stock with a fair value of $473,181 for services, of which $2,000 of the services were received during the year ended December 31, 2016 and recorded as stock payable.
NOTE 12 - SUBSEQUENT EVENT
Subsequent to year end, the Company issued 1,482,560 shares of common stock for cash.
Subsequent to year end, the Company issued 73,500 shares of common stock for services.
Subsequent to year end, the Company issued 550,000 shares of common stock for the termination of certain Royalty Agreements.
FF-18
PART II: INFORMATION NOT REQUIRED IN PROSPECTUS
INDEMNIFICATION OF OFFICERS AND DIRECTORS
None of our directors will have personal liability to us or any of our stockholders for monetary damages for breach of fiduciary duty as a director involving any act or omission of any such director since provisions have been made in the Articles of Incorporation limiting such liability. The foregoing provisions shall not eliminate or limit the liability of a director (i) for any breach of the directors duty of loyalty to us or our stockholders, (ii) for acts or omissions not in good faith or, which involve intentional misconduct or a knowing violation of law, (iii) under applicable Sections of the Nevada Revised Statutes, (iv) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes or, (v) for any transaction from which the director derived an improper personal benefit.
The Bylaws provide for indemnification of the directors, officers, and employees of TKLS in most cases for any liability suffered by them or arising out of their activities as directors, officers, and employees of TKLS if they were not engaged in willful misfeasance or malfeasance in the performance of his or his duties; provided that in the event of a settlement the indemnification will apply only when the Board of Directors approves such settlement and reimbursement as being for the best interests of the Corporation. The Bylaws, therefore, limit the liability of directors to the maximum extent permitted by Nevada law (Section 78.751).
Our officers and directors are accountable to us as fiduciaries, which mean they are required to exercise good faith and fairness in all dealings affecting us. In the event that a stockholder believes the officers and/or directors have violated their fiduciary duties to us, the stockholder may, subject to applicable rules of civil procedure, be able to bring a class action or derivative suit to enforce the stockholders rights, including rights under certain federal and state securities laws and regulations to recover damages from and require an accounting by management. Stockholders, who have suffered losses in connection with the purchase or sale of their interest in TKLS in connection with such sale or purchase, including the misapplication by any such officer or director of the proceeds from the sale of these securities, may be able to recover such losses from us.
UNDERTAKINGS
The undersigned registrant hereby undertakes to:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule 424(b) (§230.424(b) of this chapter) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering price set forth in the "Calculation of Registration Fee" table in the effective registration statement.
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement;
Provided, however, that:
(A)
Paragraphs (a)(1)(i) and (a)(1)(ii) of this section do not apply if the registration statement is on Form S-8 (§239.16b of this chapter), and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnihed to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)) that are incorporated by reference in the registration statement; and
(B)
Paragraphs (a)(1)(i), (a)(1)(ii) and (a)(1)(iii) of this section do not apply if the registration statement is on Form S-3 (§239.13 of this chapter) or Form F-3 (§239.33 of this chapter) and the information required to be included in a post-effective amendment by those paragraphs is contained in reports filed with or furnihed to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the registration statement, or is contained in a form of prospectus filed pursuant to Rule 424(b) (§230.424(b) of this chapter) that is part of the registration statement.
(C)
Provided further, however, that paragraphs (a)(1)(i) and (a)(1)(ii) do not apply if the registration statement is for an offering of asset-backed securities on Form S-1 (§239.11 of this chapter) or Form S-3 (§239.13 of this chapter), and the information required to be included in a post-effective amendment is provided pursuant to Item 1100(c) of Regulation AB (§239.1100(c)).
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(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered which remain unsold at the termination of the offering.
(4)
If the registrant is a foreign private issuer, to file a post-effective amendment to the registration statement to include any financial statements required by Item 8.A of Form 20-F (17 CFR 249.220f) at the start of any delayed offering or throughout a continuous offering. Financial statements and information otherwise required by Section 10(a)(3) of the Act need not be furnihed,
provided
that the registrant includes in the prospectus, by means of a post-effective amendment, financial statements required pursuant to this paragraph (a)(4) and other information necessary to ensure that all other information in the prospectus is at least as current as the date of those financial statements. Notwithstanding the foregoing, with respect to registration statements on Form F-3 (§239.33 of this chapter), a post-effective amendment need not be filed to include financial statements and information required by Section 10(a)(3) of the Act or §210.3-19 of this chapter if such financial statements and information are contained in periodic reports filed with or furnihed to the Commission by the registrant pursuant to section 13 or section 15(d) of the Securities Exchange Act of 1934 that are incorporated by reference in the Form F-3.
(5)
That, for the purpose of determining liability under the Securities Act of 1933 to any purchaser:
(i)
If the registrant is relying on Rule 430B (§230.430B of this chapter):
(A)
Each prospectus filed by the registrant pursuant to Rule 424(b)(3) (§230.424(b)(3) of this chapter) shall be deemed to be part of the registration statement as of the date the filed prospectus was deemed part of and included in the registration statement; and
(B)
Each prospectus required to be filed pursuant to Rule 424(b)(2), (b)(5), or (b)(7) (§230.424(b)(2), (b)(5), or (b)(7) of this chapter) as part of a registration statement in reliance on Rule 430B relating to an offering made pursuant to Rule 415(a)(1)(i), (vii), or (x) (§230.415(a)(1)(i), (vii), or (x) of this chapter) for the purpose of providing the information required by section 10(a) of the Securities Act of 1933 shall be deemed to be part of and included in the registration statement as of the earlier of the date such form of prospectus is first used after effectiveness or the date of the first contract of sale of securities in the offering described in the prospectus. As provided in Rule 430B, for liability purposes of the issuer and any person that is at that date an underwriter, such date shall be deemed to be a new effective date of the registration statement relating to the securities in the registration statement to which that prospectus relates, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.
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Provided, however
, that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such effective date, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such effective date; or
(ii)
If the registrant is subject to Rule 430C (§230.430C of this chapter), each prospectus filed pursuant to Rule 424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or other than prospectuses filed in reliance on Rule 430A (§230.430A of this chapter), shall be deemed to be part of and included in the registration statement as of the date it is first used after effectiveness.
Provided, however,
that no statement made in a registration statement or prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that was part of the registration statement or made in any such document immediately prior to such date of first use.
(6)
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial distribution of the securities:
The undersigned registrant undertakes that in a primary offering of securities of the undersigned registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant to Rule 424 (§230.424 of this chapter);
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
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(7)
In accordance of the Companys request for acceleration of effective date pursuant to Rule 461 under the Securities Act:
(i)
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.
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