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EX-31.1 - CERTIFICATION - Guitammer Cogtmm_ex311.htm

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended June 30, 2015

 

or

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _________ to _________

 

Commission File Number: 000-54331

 

THE GUITAMMER COMPANY

(Exact name of registrant as specified in its charter)

  

Nevada

 

61-1650777

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

6117 Maxtown Road, Westerville, OH

 

43082

(Address of principal executive offices)

 

(Zip Code)

 

(614) 898-9370

(Registrant's telephone number, including area code)

 

None

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes       ¨ No 

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x Yes     ¨ No 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.  

 

Large accelerated filer 

¨

Accelerated filer 

¨

Non-accelerated filer 

¨

Smaller reporting company

x

(Do not check if a smaller reporting company) 

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). ¨ Yes       x No 

 

As of August 12, 2015, 83,100,498 shares of Common Stock and 50,000 shares of Preferred Stock were outstanding. 

 

 

 

The Guitammer Company

 

INDEX

 

 

 

 

Page

 

 

 

 

PART I - Financial Information  

 

 

 

 

 

 

Item 1. 

Condensed Consolidated Financial Statements (unaudited)  

 

3

 

 

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2015 and December 31, 2014 

 

3

 

 

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2015 and 2014  

 

4

 

 

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2015 and 2014 

 

5

 

 

 

 

 

Condensed Consolidated Statement of Changes in Stockholders' Deficit for the six months ended June 30, 2015 and year ended December 31, 2014 

 

6

 

 

 

 

Notes to Condensed Consolidated Financial Statements 

 

7

 

 

 

 

Item 2. 

Management's Discussion and Analysis of Financial Condition and Results of Operations 

 

27

 

 

 

Item 3. 

Quantitative and Qualitative Disclosures About Market Risk  

 

 37

 

 

 

 

Item 4.

Controls and Procedures 

 

 37

 

 

 

 

PART II - Other Information  

 

 

 

 

 

 

Item 2. 

Unregistered Sales of Equity Securities and Use of Proceeds 

 

39

 

 

 

 

Item 6. 

Exhibits 

 

39

  

Signature

 

 

46

 

 
2
 

 

THE GUITAMMER COMPANY

CONDENSED CONSOLIDATED BALANCE SHEETS

 

 

 

(unaudited)

 

 

 

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

ASSETS 

 

 

 

 

 

 

Current assets 

 

 

 

 

 

 

Cash and cash equivalents 

 

$ 150,586

 

 

$ 16,185

 

Accounts receivable, net 

 

 

35,108

 

 

 

25,139

 

Inventory 

 

 

139,793

 

 

 

361,223

 

Prepaid expenses and other current assets 

 

 

37,666

 

 

 

131

 

Total current assets 

 

 

363,153

 

 

 

402,678

 

 

 

 

 

 

 

 

 

 

Property and equipment, net 

 

 

50,062

 

 

 

64,173

 

Deferred financing costs, net 

 

 

11,399

 

 

 

25,066

 

Other assets 

 

 

28,217

 

 

 

29,729

 

Investment in affiliate 

 

 

26,066

 

 

 

-

 

Total Assets 

 

$ 478,897

 

 

$ 521,646

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT 

 

 

 

 

 

 

 

 

Current liabilities 

 

 

 

 

 

 

 

 

Line of credit 

 

$ 39,523

 

 

$ 39,523

 

Accounts payable 

 

 

731,715

 

 

 

853,933

 

Accrued expenses  

 

 

492,059

 

 

 

366,938

 

Deferred revenue 

 

 

29,292

 

 

 

36,899

 

Current portion of long-term debt - related parties 

 

 

949,592

 

 

 

604,529

 

Current portion of long-term debt - non-related parties 

 

 

749,028

 

 

 

795,630

 

Total current liabilities 

 

 

2,991,209

 

 

 

2,697,452

 

 

 

 

 

 

 

 

 

 

Long-term debt, net of current portion - related parties 

 

 

-

 

 

 

340,229

 

Long-term debt, net of current portion - non related parties 

 

 

-

 

 

 

-

 

Total Liabilites 

 

 

2,991,209

 

 

 

3,037,681

 

 

 

 

 

 

 

 

 

 

Commitments 

 

 

-

 

 

 

-

 

 

 

 

 

 

 

 

 

 

Stockholders' deficit 

 

 

 

 

 

 

 

 

Common stock, par value of $.001, 200,000,000 shares authorized; 83,100,498 and 83,000,498 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

83,101

83,001

Preferred stock, par value of $.001, 1,000,000 shares authorized; 50,000 and 0 shares issued and outstanding at June 30, 2015 and December 31, 2014, respectively

50

-

Additional paid-in capital 

 

 

8,600,507

 

 

 

7,985,860

 

Accumulated deficit  

 

 

(11,195,970 )

 

 

(10,584,896 )

Total Stockholders' deficit 

 

 

(2,512,312 )

 

 

(2,516,035 )

Total Liabilities and Stockholders' deficit 

 

$ 478,897

 

 

$ 521,646

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
3
 

 

THE GUITAMMER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

 

For the Three Months Ended

 

 

For the Six Months Ended

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenue 

 

$ 351,256

 

 

$ 183,850

 

 

$ 881,604

 

 

$ 494,902

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of goods sold 

 

 

177,602

 

 

 

98,518

 

 

 

465,593

 

 

 

265,980

 

Gross profit  

 

 

173,654

 

 

 

85,332

 

 

 

416,011

 

 

 

228,922

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Operating expenses 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

General and administrative   

 

 

376,606

 

 

 

305,836

 

 

 

888,563

 

 

 

741,381

 

Research and development  

 

 

1,575

 

 

 

-

 

 

 

1,575

 

 

 

10,782

 

 

 

 

378,181

 

 

 

305,836

 

 

 

890,138

 

 

 

752,163

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss from operations  

 

 

(204,527 )

 

 

(220,504 )

 

 

(474,127 )

 

 

(523,241 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Other income (expense) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investment Income  

 

 

26,066

 

 

 

-

 

 

 

26,066

 

 

 

-

 

Net Interest income (expense)  

 

 

(56,487 )

 

 

(54,672 )

 

 

(156,766 )

 

 

(106,872 )

 

 

 

(30,421 )

 

 

(54,672 )

 

 

(130,700 )

 

 

(106,872 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Loss before provision for income taxes  

 

 

(234,948 )

 

 

(275,176 )

 

 

(604,827 )

 

 

(630,113 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Provision for income taxes  

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Loss before dividends on preferred stock  

 

 

(234,948 )

 

 

(275,176 )

 

 

(604,827 )

 

 

(630,113 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - preferred stock   

 

 

(6,247 )

 

 

-

 

 

 

(6,247 )

 

 

-

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss available to common stockholders 

 

$ (241,195 )

 

$ (275,176 )

 

$ (611,074 )

 

$ (630,113 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted loss per common share  

 

$ (0.003 )

 

$ (0.004 )

 

$ (0.007 )

 

$ (0.008 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted weighted average common shares outstanding  

 

 

83,100,498

 

 

 

78,215,688

 

 

 

83,059,614

 

 

 

78,122,444

 

 
See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
4
 

 

THE GUITAMMER COMPANY

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' DEFICIT

SIX MONTHS ENDED JUNE 30, 2015 AND YEAR ENDED DECEMBER 31, 2014

(UNAUDITED)

 

 

 

Common Stock

 

 

Preferred Stock

 

 

Additional

Paid-in

 

 

Accumulated

 

 

 

 

 

 

Shares

 

 

Amount

 

 

Shares

 

 

Amount

 

 

Capital

 

 

Deficit

 

 

Total

 

Balance, January 1, 2014  

 

 

77,905,248

 

 

$ 77,906

 

 

$ -

 

 

$ -

 

 

$ 7,253,730

 

 

$ (9,206,795 )

 

$ (1,875,159 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Warrants issued for debt issuance and to revise debt agreements to include accrued interest 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

32,208

 

 

 

-

 

 

 

32,208

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock option compensation  

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

203,567

 

 

 

-

 

 

 

203,567

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock and warrants issued for services  

 

 

687,500

 

 

 

687

 

 

 

-

 

 

 

-

 

 

 

89,675

 

 

 

-

 

 

 

90,362

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Options/warrants exercised for common stock purchase  

 

 

4,407,750

 

 

 

4,408

 

 

 

-

 

 

 

-

 

 

 

406,680

 

 

 

-

 

 

 

411,088

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ (1,378,101 )

 

 

(1,378,101 )

Balance, December 31, 2014  

 

 

83,000,498

 

 

$ 83,001

 

 

$ -

 

 

$ -

 

 

$ 7,985,860

 

 

$ (10,584,896 )

 

$ (2,516,035 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Employee stock option compensation  

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

106,297

 

 

 

-

 

 

 

106,297

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Common stock issued for services  

 

 

100,000

 

 

 

100

 

 

 

-

 

 

 

-

 

 

 

8,400

 

 

 

-

 

 

 

8,500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Preferred stock issuance  

 

 

-

 

 

 

-

 

 

 

50,000

 

 

 

50

 

 

 

499,950

 

 

 

-

 

 

 

500,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Dividends - preferred stock  

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

(6,247 )

 

 

(6,247 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net loss before divendends on preferred stock  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$ (604,827 )

 

 

(604,827 )

Balance, June 30, 2015  

 

 

83,100,498

 

 

$ 83,101

 

 

$ 50,000

 

 

$ 50

 

 

$ 8,600,507

 

 

$ (11,195,970 )

 

$ (2,512,312 )

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
5
 

 

THE GUITAMMER COMPANY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

 

 

For the Six Months Ended

 

 

 

June 30,

 

 

 

2015

 

 

2014

 

Cash flows from operating activities 

 

 

 

 

 

 

Net loss before dividends on preferred stock 

 

$ (604,827 )

 

$ (630,113 )

Adjustments to reconcile net loss to net cash used in operating activities 

 

 

 

 

 

 

 

 

Depreciation and patent amortization 

 

 

18,063

 

 

 

24,294

 

Amortization of deferred financing fees 

 

 

13,667

 

 

 

13,367

 

Amortization of debt discount 

 

 

4,834

 

 

 

4,089

 

Employee stock options 

 

 

106,297

 

 

 

71,736

 

Stock and warrants issued for services 

 

 

8,500

 

 

 

56,250

 

Investment in affiliate 

 

 

(26,066 )

 

 

-

 

Change in fair value of warrant liability 

 

 

8,177

 

 

 

(57,584 )

 

 

 

 

 

 

 

 

 

Changes in assets and liabilities 

 

 

 

 

 

 

 

 

Accounts receivable 

 

 

(9,969 )

 

 

28,059

 

Inventory, net 

 

 

221,430

 

 

 

120,672

 

Prepaid expenses 

 

 

(37,535 )

 

 

3,111

 

Accounts payable and accrued expenses 

 

 

(11,521 )

 

 

173,927

 

Deferred revenue 

 

 

(7,607 )

 

 

(13,608 )

Net cash used in operating activities 

 

 

(316,557 )

 

 

(205,800 )

 

 

 

 

 

 

 

 

 

Cash flows from investing activities 

 

 

 

 

 

 

 

 

Purchase of intangible assets 

 

 

(2,440 )

 

 

(16,552 )

Proceeds on sale of property and equipment 

 

 

-

 

 

 

29,577

 

Purchase of property and equipment 

 

 

-

 

 

 

(433 )

Net cash (used in) provided by investing activities 

 

 

(2,440 )

 

 

12,592

 

 

 

 

 

 

 

 

 

 

Cash flows from financing activities 

 

 

 

 

 

 

 

 

Proceeds from options and warrants exercised 

 

 

-

 

 

 

1,563

 

Proceeds from private offering of preferred stock 

 

 

500,000

 

 

 

-

 

Proceeds from debt 

 

 

-

 

 

 

100,000

 

Payment of debt 

 

 

(46,602 )

 

 

(29,289 )

Net cash provided by financing activities 

 

 

453,398

 

 

 

72,274

 

 

 

 

 

 

 

 

 

 

Net increase (decrease) in cash and cash equivalents 

 

 

134,401

 

 

 

(120,934 )

Cash and cash equivalents, beginning of period 

 

 

16,185

 

 

 

140,231

 

Cash and cash equivalents, end of period 

 

$ 150,586

 

 

$ 19,297

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information 

 

 

 

 

 

 

 

 

Cash paid during the period for 

 

 

 

 

 

 

 

 

Interest 

 

$ 48,482

 

 

$ 53,070

 

Income taxes 

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Supplemental disclosure of non-cash investing and financing activities 

 

 

 

 

 

 

 

 

Accrued preferred stock dividends 

 

$ 6,247

 

 

$ -

 

Accrued interest converted to debt 

 

$ -

 

 

$ 20,178

 

Issuance of common stock or warrants for professional services 

 

$ 8,500

 

 

$ 56,250

 

Issuance of warrants for debt modification 

 

$ -

 

 

$ 13,464

 

Issuance of warrants for debt discount 

 

$ -

 

 

$ 18,745

 

 

See accompanying Notes to Condensed Consolidated Financial Statements.

 

 
6
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Description of Business 

 

The financial information presented represents The Guitammer Company (the "Company") originally incorporated on March 6, 1990, under the laws of the State of Ohio, and then re-domiciled to Nevada on May 18, 2011.  

 

In April 2011, the Board of Directors approved a resolution to create a holding company to own 100% of the Ohio Company ("Guitammer-Ohio"). The holding company is incorporated in the State of Nevada and has 200 million authorized common shares. Existing shareholders of Guitammer-Ohio received 31,206 shares in the holding company for each share they owned, resulting in a total of 50,001,374 shares of Common Stock, of Guitammer-Nevada evidencing the same proportional interest in Guitammer-Nevada as they held in Guitammer-Ohio. The per share numbers and the per share amounts in the financial statements and the notes to the financial statements reflect the retroactive application of our stock split.  

 

The Company is involved in the design and distribution of a low frequency audio transducer branded as the original ButtKicker products. The Company, headquartered in Ohio, sells products internationally.  

 

Basis of Presentation 

 

All significant inter-company transactions and accounts have been eliminated in consolidation.  

 

Use of Estimates 

 

The preparation of consolidated financial statements in conformity with accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ from those estimates. 

 

Cash and Cash Equivalents 

 

The Company considers all highly liquid debt instruments and other short-term investments with an initial maturity of three months or less to be cash equivalents.  

 

The Company maintains cash and cash equivalent balances at a financial institution that is insured by the Federal Deposit Insurance Corporation, subject to certain limitations.

 

 
7
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Accounts Receivable 

 

Accounts receivable are carried at cost less an allowance for doubtful accounts. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on current economic conditions.  

 

Accounts receivable are uncollateralized customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date. The Company recorded an allowance of $5,073 and $4,598 at June 30, 2015 and December 31, 2014, respectively. 

 

Inventory 

 

Inventory, consisting of finished goods, is stated at the lower of cost or market. Cost is determined using the weighted average method. Inventory that is determined to be obsolete or not sellable is expensed immediately. The Company recorded a reserve for obsolete items of $10,415 at June 30, 2015 and December 31, 2014.

 

Property and Equipment, net 

 

Property and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and improvements are capitalized, while minor replacements, maintenance, and repairs and maintenance are charged to expense as incurred. Leasehold improvements are amortized over the shorter of the assets' economic lives or the lease term. Depreciation is provided using the straight-line method over the estimated useful lives of the assets as follows: 

 

Equipment and electronics 

2 - 7 years

Vehicles 

4 years

Furniture and fixtures 

7 years

Leasehold improvements 

Shorter of lease terms or 7 years

 

Deferred Financing costs, net 

 

Deferred financing costs are recorded at cost less accumulated amortization. Amortization is provided using the straight-line method over the life of the loan for which the financing costs were incurred.  

 

Impairment of Long-Lived Assets 

 

Long-lived assets to be held and used are reviewed for impairment whenever events or circumstances indicate that the carrying value of such assets may not be recoverable. Determination of recoverability is generally based on an estimate of undiscounted cash flows resulting from the use of the asset and its eventual disposition. If the evaluation indicates that the carrying amount of an asset is not recoverable from our undiscounted cash flows, then an impairment loss is measured by comparing the carrying amount of the asset to its fair value. 

 

 
8
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Revenue Recognition 

 

The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable, and collectability is reasonably assured. 

 

Deferred Revenue 

 

The Company received prepayment for products from some of its customers as the Company requires prepayment before goods are shipped to all international customers. As of June 30, 2015 and December 31, 2014, the Company had deferred revenue of $29,292 and $36,899, respectively. The Company recognizes revenue and decreases deferred revenue in accordance with the revenue recognition policy.  

 

Income Taxes 

 

Prior to the creation of the Nevada holding company formed on May 18, 2011, the Company had elected S Corporation status for Federal and Ohio state income tax purposes. Under these elections, the Company's taxable income was included on the stockholders individual income tax returns, and the Company made no provision for Federal and State income tax. Effective with the Company redomiciling to Nevada on May 18, 2011, the Company elected C Corporation status for both Federal and State income tax purposes. 

 

There were no uncertain tax positions at June 30, 2015 or December 31, 2014, as the Company's tax positions for open years meet the recognition thresholds of more likely than not to be sustained upon examinations. When necessary, the Company would accrue penalties and interest related to unrecognized tax benefits as a component of income tax expense. Tax returns for the years 2011 through 2013 are currently open to examination. Tax returns prior to 2011 are no longer subject to examination by tax authorities.  

 

Fair Value of Financial Instruments 

 

The Company measures and discloses the estimated fair value of financial assets and liabilities using the fair value hierarchy prescribed by U.S. generally accepted accounting principles. The fair value hierarchy has three levels, which are based on reliable available inputs of observable data. The hierarchy requires the use of observable market data when available. The levels are defined as follows: 

 

Level 1 - quoted prices for identical instruments in active markets;  

 

Level 2 - quoted prices for similar instruments in active markets; quoted prices for identical or similar instruments in markets that are not active; and model derived valuations in which significant inputs and significant value drivers are observable in active markets; and 

 

Level 3 - fair value measurements derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable

 

 
9
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

The carrying amount reported in the balance sheets for cash and cash equivalents, accounts receivable, accounts payable and accrued expenses approximate fair value because of the immediate or short-term maturity of these financial instruments. The fair value of the long term debt and revolving line of credit at June 30, 2015 and December 31, 2014 approximated the carrying amount based on interest rates that were close to market rates or being close to maturity and were determined on a Level 2 measurement. 

 

The Black-Scholes valuation model is used to estimate the fair value of the warrants. The significant assumptions considered by the model were the remaining term of the warrants, the fair value per share stock price of $.11 and $.07, a risk free treasury rate for .05 to 2.17 years and .50 to 2.75 years of .010% to .702% and .120% to .993% at June 30, 2015 and December 31, 2014, respectively and an expected volatility of 60%. At June 30, 2015 and December 31, 2014, the fair value of warrants were determined on a Level 2 measurement.

 

Advertising 

 

Costs of advertising and marketing are expensed as incurred including the cost of making commercials. Advertising and marketing costs were $94,401 and $58,518 for the six months ending June 30, 2015 and 2014, respectively. 

 

Shipping and Handling 

 

Shipping and handling costs of approximately $64,090 and $43,000 for the six months ending June 30, 2015 and 2014, respectively, are included in general and administrative expenses in the statements of operations. 

 

Research and development costs 

 

The costs of research and development activities are expensed when incurred.

 

Earnings (Loss) Per Share of Common Stock

 

Earnings (loss) per common share is computed using the weighted average number of common shares outstanding. Diluted earnings per share (EPS) include additional dilution from common stock equivalents, such as stock issuable pursuant to the exercise of stock options and warrants. Common stock equivalents were not included in the computation of diluted earnings per share when the Company reported a loss because to do so would be antidilutive for periods presented. Anti-dilutive securities not included in net loss per share calculations for the years presented include:

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Potentially dilutive securities: 

 

 

 

 

 

 

Outstanding time-based stock options 

 

 

43,462,561

 

 

 

44,211,505

 

Outstanding time-based warrants 

 

 

11,918,408

 

 

 

15,000,908

 

 

 
10
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

Stock Based Compensation 

 

Share-based compensation is measured as the fair value of the award at its grant date based on the estimated number of awards that are expected to vest and is recorded over a defined service period. Compensation expense is recognized based on the estimated grant date fair value method using a Black-Scholes valuation model. It is the Company's policy to recognize expense using the straight-line method over the vesting period.  

 

Recently Issued Accounting Standards 

 

In May, 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) Summary - The FASB has made available Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts with Customers: Topic 606. ASU 2014-09 affects any entity using U.S. GAAP that either enters into contracts with customers to transfer goods or services or enters into contracts for the transfer of nonfinancial assets unless those contracts are within the scope of other standards (e.g., insurance contracts or lease contracts). This ASU will supersede the revenue recognition requirements in Topic 605, Revenue Recognition, and most industry-specific guidance. This ASU also supersedes some cost guidance included in Subtopic 605-35, Revenue Recognition-Construction-Type and Production-Type Contracts. In addition, the existing requirements for the recognition of a gain or loss on the transfer of nonfinancial assets that are not in a contract with a customer (e.g., assets within the scope of Topic 360, Property, Plant, and Equipment, and intangible assets within the scope of Topic 350, Intangibles-Goodwill and Other) are amended to be consistent with the guidance on recognition and measurement (including the constraint on revenue) in this ASU.

 

The core principle of the guidance 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. To achieve that core principle, an entity should apply the following steps:

 

Step 1: Identify the contract(s) with a customer. 

 

Step 2: Identify the performance obligations in the contract.  

 

Step 3: Determine the transaction price.  

 

Step 4: Allocate the transaction price to the performance obligations in the contract. 

 

Step 5: Recognize revenue when (or as) the entity satisfies a performance obligation.

 

For a public entity, the amendments in this ASU are effective for annual reporting periods beginning after December 15, 2016, including interim periods within that reporting period. Early application is not permitted. We are currently assessing the impact this standard will have on the Company's consolidated financial statements or required disclosures. 

  

 
11
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In June, 2014, the FASB issued Accounting Standards Update No. 2014-12, Compensation - Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period. The issue is the result of a consensus of the FASB Emerging Issues Task Force (EITF). The amendments in the ASU require that a performance target that affects vesting and that could be achieved after the requisite service period be treated as a performance condition. A reporting entity should apply existing guidance in Topic 718, Compensation - Stock Compensation, as it relates to awards with performance conditions that affect vesting to account for such awards. The performance target should not be reflected in estimating the grant-date fair value of the performance target will be achieved and should represent the compensation cost attributable to the period(s) for which the requisite service has already been rendered. If the performance target becomes probable of being achieved before the end of the requisite service period, the remaining unrecognized compensation cost should be recognized prospectively over the remaining requisite service period. The total amount of compensation cost recognized during and after the requisite service period should reflect the number of awards that are expected to vest and should be adjusted to reflect those awards that ultimately vest. The requisite service period ends when the employee can cease rendering service and still be eligible to vest in the award if the performance target is achieved. The amendments in this ASU are effective for annual periods and interim periods within those annual periods beginning after December 15, 2015. Earlier adoption is permitted. Entities may apply the amendments in this ASU either: (a) prospectively to all awards granted or modified after the effective date; or (b) retrospectively to all awards with performance targets that are outstanding as of the beginning of the earliest annual period presented in the financial statements and to all new or modified awards thereafter. If retrospective transition is adopted, the cumulative effect of applying this ASU as of the beginning of the earliest annual period presented in the financial statements should be recognized as an adjustment to the opening retained earnings balance at that date. In addition, if retrospective transition is adopted, an entity may use hindsight in measuring and recognizing the compensation cost. We are currently assessing the impact this standard will have on the Company's consolidated financial statements or required disclosures. 

 

In August, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-15, Presentation of Financial Statements-Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern. ASU 2014-15 is intended to define management's responsibility to evaluate whether there is substantial doubt about an organization's ability to continue as a going concern and to provide related footnote disclosures. Under Generally Accepted Accounting Principles (GAAP), financial statements are prepared under the presumption that the reporting organization will continue to operate as a going concern, except in limited circumstances. Financial reporting under this presumption is commonly referred to as the going concern basis of accounting. The going concern basis of accounting is critical to financial reporting because it establishes the fundamental basis for measuring and classifying assets and liabilities. Currently, GAAP lacks guidance about management's responsibility to evaluate whether there is substantial doubt about the organization's ability to continue as a going concern or to provide related footnote disclosures. This ASU provides guidance to an organization's management, with principles and definitions that are intended to reduce diversity in the timing and content of disclosures that are commonly provided by organizations today in the financial statement footnotes. The amendments are effective for annual periods ending after December 15, 2016, and interim periods within annual periods beginning after December 15, 2016. Early application is permitted for annual or interim reporting periods for which the financial statements have not previously been issued. We are currently assessing the impact this standard will have on the Company's consolidated financial statements or required disclosures. 

 

 
12
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In November, 2014, the FASB issued Accounting Standards Update (ASU) No. 2014-16, Derivatives and Hedging (Topic 815): Determining Whether the Host Contract in a Hybrid Financial Instrument Issued in the Form of a Share Is More Akin to Debt or to Equity. The amendments in this ASU do not change the current criteria in U.S. GAAP for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. The amendments clarify how current U.S. GAAP should be interpreted in evaluating the economic characteristics and risks of a host contract in a hybrid financial instrument that is issued in the form of a share. Specifically, the amendments clarify that an entity should consider all relevant terms and features, including the embedded derivative feature being evaluated for bifurcation, in evaluating the nature of the host contract. Furthermore, the amendments clarify that no single term or feature would necessarily determine the economic characteristics and risks of the host contract. Rather, the nature of the host contract depends upon the economic characteristics and risks of the entire hybrid financial instrument. The amendments in this ASU also clarify that, in evaluating the nature of a host contract, an entity should assess the substance of the relevant terms and features (i.e., the relative strength of the debt-like or equity-like terms and features given the facts and circumstances) when considering how to weight those terms and features. Specifically, the assessment of the substance of the relevant terms and features should incorporate a consideration of: (1) the characteristics of the terms and features themselves (for example, contingent versus noncontingent, in-the-money versus out-of-the-money); (2) the circumstances under which the hybrid financial instrument was issued or acquired (e.g., issuer-specific characteristics, such as whether the issuer is thinly capitalized or profitable and well-capitalized); and (3) the potential outcomes of the hybrid financial instrument (e.g., the instrument may be settled by the issuer issuing a fixed number of shares, the instrument may be settled by the issuer transferring a specified amount of cash, or the instrument may remain legal-form equity), as well as the likelihood of those potential outcomes. The amendments in this ASU apply to all entities that are issuers of, or investors in, hybrid financial instruments that are issued in the form of a share. The amendments in this ASU are effective for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2015. For all other entities, the amendments in this ASU are effective for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption, including adoption in an interim period, is permitted. 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. The effects of initially adopting the amendments in this ASU should be applied on a modified retrospective basis to existing hybrid financial instruments issued in the form of a share as of the beginning of the fiscal year for which the amendments are effective. Retrospective application is permitted to all relevant prior periods. We are currently assessing the impact this standard will have on the Company's consolidated financial statements or required disclosures.

 

 
13
 

 

1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)

 

In April, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-03, Interest - Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs. The amendments in this ASU require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by the amendments in this ASU. For public business entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within those fiscal years. For all other entities, the amendments are effective for financial statements issued for fiscal years beginning after December 15, 2015, and interim periods within fiscal years beginning after December 15, 2016. Early adoption of the amendments is permitted for financial statements that have not been previously issued. The amendments should be applied on a retrospective basis, wherein the balance sheet of each individual period presented should be adjusted to reflect the period-specific effects of applying the new guidance. Upon transition, an entity is required to comply with the applicable disclosures for a change in an accounting principle. These disclosures include the nature of and reason for the change in accounting principle, the transition method, a description of the prior-period information that has been retrospectively adjusted, and the effect of the change on the financial statement line items (i.e., debt issuance cost asset and the debt liability). We are currently assessing the impact this standard will have on the Company's consolidated financial statements or required disclosures. 

 

In July of 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-11, Inventory (Topic 330): Simplifying the Measurement of Inventory. Topic 330, Inventory, currently requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less an approximately normal profit margin. The amendments do not apply to inventory that is measured using last-in, first-out (LIFO) or the retail inventory method. The amendments apply to all other inventory, which includes inventory that is measured using first-in, first-out (FIFO) or average cost. An entity should measure in scope inventory at the lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory measured using LIFO or the retail inventory method. The amendments in this Update more closely align the measurement of inventory in GAAP with the measurement of inventory in International Financial Reporting Standards.  

 

For public business entities, the amendments are effective for fiscal years beginning after December 15, 2016, including interim periods within those fiscal years. The amendments should be applied prospectively with earlier application permitted as of the beginning of an interim or annual reporting period. We are currently assessing the impact this standard will have on the Company's consolidated financial statements or required disclosures. 

 

 
14
 

 

2 - GOING CONCERN

 

The Company has incurred net losses, negative cash flows from operating activities, and has an accumulated deficit of approximately $11,196,000 at June 30, 2015. In addition, at June 30, 2015 the Company had a cash balance of approximately $150,600 and working capital deficiency of approximately $2,628,000. The Company has relied upon cash from its financing activities to fund its ongoing operations as it has not been able to generate sufficient cash from its operating activities in the past and there is no assurance it will be able to do so in the future. Unless the Company can obtain additional cash resources, these factors raise substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.

 

The Company needs additional capital to fund current working capital requirements, ongoing debt service and to repay its obligations that are maturing over the upcoming twelve month period. Management plans to increase revenues and to control operating expenses in order to reduce losses from operations. Additionally, the Company will continue to seek equity and/or debt financing in order to enable the Company to meet its financial obligations until it achieves profitability. The Company may not be able to obtain this additional financing on acceptable terms or at all. 

 

3 - PROPERTY AND EQUIPMENT, NET 

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Equipment and electronics 

 

$ 175,876

 

 

$ 175,876

 

Furniture and fixtures 

 

 

20,257

 

 

 

20,257

 

Leasehold improvements 

 

 

12,313

 

 

 

12,313

 

 

 

 

208,446

 

 

 

208,446

 

 

 

 

 

 

 

 

 

 

Less accumulated depreciation 

 

 

(158,384 )

 

 

(144,273 )

Property and equipment, net 

 

$ 50,062

 

 

$ 64,173

 

 

Depreciation expense for the three month period and six month periods ended June 30, 2015 was $7,055 and $14,111 respectively. Depreciation expense for the three month period and six month periods ended June 30, 2014 was $9,370 and $20,326 respectively.  

 

 
15
 

 

4 - DEFERRED FINANCING COSTS, NET 

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Deferred financing costs 

 

$ 153,454

 

 

$ 153,454

 

Less Accumulated Amortization 

 

 

(142,055 )

 

 

(128,388 )

Deferred financing costs, net 

 

$ 11,399

 

 

$ 25,066

 

 

Amortization expense for deferred financing costs for the periods ended June 30, 2015 and 2014 was $13,667 and $13,367, respectively. In January 2014, the notes payable to Forest Capital for $150,000 and the Julie Jacobs Trust for $100,000 were modified extending the maturity date by two years and the unpaid interest on each of these notes was added to the loan balance. As an inducement to extend the notes term and add the interest due and unpaid interest to the notes balance, the Company issued 324,000 warrants to Forest Capital and 216,000 warrants to the Julie Jacobs Trust. The cost of the warrants was valued at $13,464 using the Black Scholes valuation model and was added to deferred financing costs and is being amortized over the remaining life of the loan.  

 

5 - LINE OF CREDIT

 

The Company has entered into an unsecured line of credit arrangement with Key Bank, which carries a maximum possible loan balance of $40,000 at an annual interest rate of 6.25% and is due on demand. As of June 30, 2015 and December 31, 2014, the Company had borrowed $39,523.  

 

6 - ACCRUED EXPENSES

 

Accrued expenses consisted of the following at June 30, 2015 and December 31, 2014:  

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Accrued payroll 

 

$ 67,835

 

 

$ 47,379

 

Accrued interest 

 

 

321,352

 

 

 

233,308

 

Warrant liability 

 

 

57,581

 

 

 

49,404

 

Miscellaneous accrued expenses 

 

 

45,291

 

 

 

36,847

 

 

 

$ 492,059

 

 

$ 366,938

 

 

As more fully described in footnote 8, the Company has recorded a warrant liability of $57,581 and $49,404 as of June 30, 2015 and December 31, 2014, respectively, which is based on the Black-Scholes valuation model to estimate the fair value of the warrants. The significant assumptions considered by the model were the remaining term of the warrants, the fair value per share stock price of $.11 and $.07, a risk free treasury rate for .05 to 2.17 years and .50 to 2.75 years of .010% to .702% and .120% to .993% at June 30, 2015 and December 31, 2014, respectively and an expected volatility of 60%.  

 

 
16
 

 

7 - DEBT 

 

Debt payable to related parties is as follows: 

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

 

 

 

 

 

 

 

Note payable to Julie E. Jacobs Trust, a stockholder, in the amount of $50,000 with interest on the unpaid principal balance computed from the date of this loan until paid in full at the rate equal to the Wall Street Journal Prime Rate plus 4.75%, (which is 8% as of the date of the loan and at 06/30/2015) with interest payable annually on January 3rd and with the principal balance due on January 3, 2016. As an inducement to make this loan, the Company issued 400,000 warrants to purchase stock at $.24 per share which were valued at $9,372 using the Black Scholes valuation model and were recorded as a loan discount. The discount is being amortized over the life of the loan and the amortization expense for the 6 months ended June 30, 2015 was approximately $2,400.  

 

$ 47,531

 

 

$ 45,114

 

    

Note payable to The Walter Doyle Trust, a stockholder, in the amount of $50,000 with interest on the unpaid principal balance computed from the date of this loan until paid in full at the rate equal to the Wall Street Journal Prime Rate plus 4.75%, (which is 8% as of the date of the loan and at 06/30/2015) with interest payable annually on January 3rd and with the principal balance due on January 3, 2016. As an inducement to make this loan, the Company issued 400,000 warrants to purchase stock at $.24 per share which were valued at $9,372 using the Black Scholes valuation model and were recorded as a loan discount. The discount is being amortized over the life of the loan and the amortization expense for the 6 months ended June 30, 2015 was approximately $2,400.  

 

 

47,531

 

 

 

45,114

 

     

Note payable to Forest Capital, an affiliate of the Walter J. Doyle Trust, a stockholder, in the original amount of $250,000 at an annual interest rate of 10%. Effective December 13, 2009, the annual interest rate increased to 20%. On December 21, 2011, $100,000 of the note was converted to shares of stock at a price of $.25 per share and the note was amended decreasing the annual interest rate to 8% with interest payable annually on January 3rd and with the principal balance due on January 3, 2014. The note was extended on January 27, 2014 to January 3, 2016 and the $12,107 in interest due at January 3, 2014 was included in the new note balance of $162,107. The $12,107 addition to the loan is payable to Forest Capital upon the receipt by the Company of new equity funding of $100,000 or more. Since more than $100,000 of equity funding has been received, the $12,107 is now payable to Forest Capital and has been included in the current portion of related party debt. In connection with the note extension, 324,000 warrants to purchase stock at $0.24 per share were issued in return for the agreement to extend the note to January 3, 2016.   

 

 

162,107

 

 

 

162,107

 

 

 
17
 

 

7 - DEBT (Continued) 
 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

     

 

 

 

 

 

 

Note payable to Julie E. Jacobs Trust (JJ Trust) in the original amount of $100,000 at an annual interest rate of 20%. Effective September 26, 2010, the annual interest rate increased to 30% with the note payable on demand. On December 21, 2011, note was amended decreasing the annual interest rate to 8% with interest payable annually on January 3rd and with the principal balance due on January 3, 2014. The note was extended on January 27, 2014 to January 3, 2016 and the $8,071 in interest due at January 3, 2014 was included in the new note balance of $108,071. The $8,071 addition to the loan is payable to the JJ Trust upon the receipt by the Company of new equity funding of $100,000 or more. Since more than $100,000 of equity funding has been received, the $8,071 is now payable to the JJ Trust and has been included in the current portion of related party debt. In connection with the note extension 216,000 warrants to purchase stock at $0.24 per share were issued in return for the agreement to extend the note to January 3, 2016.  

 

 

108,071

 

 

 

108,071

 

   

 

 

 

 

 

 

 

 

Note payable to Thelma Gault, a stockholder, in the original amount of $800,000 at an interest rate of 10%. The loan is collateralized by all assets of the Company, and on April 25, 2008 signed an agreement in which her collateralization is shared with the State of Ohio. On November 18, 2010, Thelma Gault signed an agreement subordinating up to $700,000 of debt to the Walter Doyle Trust and the Julie Jacobs Trust and to Standard Energy through the Julie Jacobs Trust. Note was due on June 1, 2014 and now is considered due on demand.  

 

 

584,352

 

 

 

584,352

 

      

 

 

 

 

 

 

 

 

Total debt payable to related parties 

 

$ 949,592

 

 

$ 944,758

 

Less current portion of debt payable to related parties 

 

 

949,592

 

 

 

604,529

 

Long term debt payable to related parties 

 

$ -

 

 

$ 340,229

 

 

 
18
 

 

7 - DEBT (Continued) 

 

 

 

June 30,

 

 

December 31,

 

 

 

2015

 

 

2014

 

Other debt is as follows: 

 

 

 

 

 

 

Note payable to Ohio Innovation Loan Fund (OILF) at an interest rate of 8%. The interest rate increased to 10.5% effective October 1, 2014 as a result of missing a loan covenant. Monthly payments of principal, interest, escrow, and service fees are based on the loan agreement. The loan is collateralized by all assets of the Company, and this collateralization is shared with the Thelma Gault per agreement signed on April 25, 2008. On November 29, 2010, The Director of Development for the State of Ohio signed an agreement subordinating up to $700,000 of debt to the Walter Doyle Trust and the Julie Jacobs Trust and to Standard Energy through the Julie Jacobs Trust. On December 1, 2012, Note was modified extending the due date to November 2015. The Company's last payment was made in June of 2015 for March of 2015, causing the loan to now be considered due on demand. The Company is working with the OILF to get payments back on schedule.  

 

$ 279,219

 

 

$ 325,280

 

    

 

 

 

 

 

 

 

 

Notes payable to Merrill Lynch in the original amount of $400,000, with interest payable at Libor plus .56%. In addition, this debt is guaranteed 50% each by the Walter J. Doyle Trust and the Julie E. Jacobs Trust. As compensation for their guarantees, the trusts receive 4% per annum and share a first position lien on all assets. The note is due on demand.  

 

 

394,809

 

 

 

395,350

 

    

 

 

 

 

 

 

 

 

Notes payable to four different investors in the original amount of $250,000 at an original interest rate of 12%. On January 31, 2012, all of these notes except for a $75,000 note were converted to shares of stock at a price of $.25 per share. The $75,000 note was due June 30, 2012 and is now considered due on demand. The interest rate on the note has increased to 25% due to a default provision of the note.  

 

 

75,000

 

 

 

75,000

 

     

 

 

 

 

 

 

 

 

Other debt 

 

$ 749,028

 

 

$ 795,630

 

Less current portion of debt payable to non-related parties

 

 

749,028

 

 

 

795,630

 

Long term debt payable to non-related parties

 

$ -

 

 

$ -

 

 

 
19
 

 

7 - DEBT (Continued) 

 

The principal maturities of the notes payable for the next five years and in the aggregate are as follows: 

 

 

 

Period ending

 

 

 

June 30,

 

2016 

 

$ 1,698,620

 

2017 

 

 

-

 

2018 

 

 

-

 

2019 

 

 

-

 

2020 

 

 

--

 

 

 

$ 1,698,620

 

 

The Company is not in compliance with certain debt covenants and has not received waivers from the lender. As a result, the notes payable with an outstanding balances of $75,000 and $279,219 are due on demand and are classified as current in the accompanying balance sheets. 

 

8 - STOCKHOLDERS' DEFICIENCY 

 

Stock Sales 

 

On May 4, 2015, the Company sold in a private offering to three accredited investors and that are existing shareholders a total of 50,000 shares of its Series A Preferred Stock (Preferred Stock) for $10 per share. The Preferred Stock pays an annual dividend of $.80 cents per share (payable in cash or Common Stock at the Company's discretion) and each share is convertible into 66.67 shares of Common Stock at the Company's discretion. Forty million shares of Common Stock have been reserved for the purposes of payment of dividends on preferred stock and the conversion of Preferred Stock into Common Stock. The Preferred Stockranks senior to the Common Stock in liquidation.  

 

During the year ended December 31, 2014, warrants were exercised for the purchase of 4,407,750 shares; 312,500 of the warrants were exercised at a price of $.005 per share and 4,095,250 of the warrants were exercised at a price of $.10 per share.

  

 
20
 

 

8 - STOCKHOLDERS' DEFICIENCY (continued) 

 

Options

 

On February 1, 2012, the Board approved and granted 600,000 stock options to three of its employees, with an exercise price of $.25 per share with a vesting schedule of 60% on the first anniversary of the grant, 20% on the second anniversary of the grant and the final 20% on the third anniversary of the grant. On November 26, 2012, theBoard approved and granted 3,000,000 stock options to the Company's president and CEO, with an exercise price of $.25 per share with a vesting schedule of 33 and 1/3% on the first anniversary of the grant, 33 and 1/3% on the second anniversary of the grant and the final 33 and 1/3% on the third anniversary of the grant. On December 3, 2014, the Board reduced the exercise price on the 600,000 and 3,000,000 stock options issued on February 1, 2012 and November 26, 2012, respectively, from $.25 to $.075, which was the market price of the stock on December 3, 2014. Additional compensation expense of approximately $14,000 and $55,000 has been recognized based on this exercise price reduction at June 30, 2015 and December 31, 2014, respectively and additional compensation expense of approximately $9,000 will be recognized over the remainder of the year ending December 31, 2015. On December 3, 2014, the Board approved and granted 1,950,000 stock options to five of its employees, with an exercise price of $.075 per share with a vesting schedule of 60% on the first anniversary of the grant, 20% on the second anniversary of the grant and the final 20% on the third anniversary of the grant. On December 3, 2014, the Board approved and granted 1,500,000 stock options to the two non-employee directors of the Company with an exercise price of $.075 per share with a vesting schedule of 25% on the first anniversary of the grant, 25% on the second anniversary of the grant, 25% on the third anniversary of the grant and 25% on the fourth anniversary of the grant. Full vesting is to occur upon a change in ownership of the Company for all of these stock options.  

 

The following table summarizes the activity for all stock options:  

 

 

 

Number of

Options

 

 

Range of

Exercise Price

 

 

Weighted

Average

Exercise Price

 

 

Weighted Average Remaining Contractual

Term in Years

 

 

Weighted Average Grant Date

Fair Value

 

Outstanding options as of January 1, 2014 

 

 

40,761,505

 

 

$.00320 -$.25000

 

 

$ .03704

 

 

 

5.55

 

 

$ .03285

 

Options granted 

 

 

3,450,000

 

 

$ .07500

 

 

$ .07500

 

 

 

9.93

 

 

$ .07500

 

Options cancelled/expired 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Options exercised 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding options as of December 31, 2014 

 

 

44,211,505

 

 

$.00320-$.07500

 

 

$ .02575

 

 

 

4.97

 

 

$ .02390

 

Options granted 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Options cancelled/expired 

 

 

748,944

 

 

$ .02131

 

 

$ .02131

 

 

 

-

 

 

$ .07514

 

Options exercised 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

 

 

-

 

Outstanding options as of  June 30, 2015

 

 

43,462,561

 

 

$.00320-$.07500

 

 

$ .02583

 

 

 

4.55

 

 

$ .02415

 

 

 
21
 

 

8 - STOCKHOLDERS' DEFICIENCY (continued) 

 

The following table provides information about options under the Plan that are outstanding and exercisable as of June 30, 2015: 

 

 

Options Outstanding

Options

Exercisable

Exercise Price 

 

As of June 30,

2015

 

 

Weighted Average Contractual Life Remaining

 

As of June 30,

2015

 

$.00320

 

 

10,056,677

 

 

4.26 years 

 

 

10,056,677

 

$.02131

 

 

26,355,884

 

 

3.65 years 

 

 

26,355,884

 

$.07500

 

 

3,600,000

 

 

7.27 years 

 

 

2,600,000

 

$.07500

 

 

3,450,000

 

 

9.44 years 

 

 

-

 

 

 

 

43,462,561

 

 

 

 

 

39,012,561

 

 

Included in the above table are 5,792,670 options to non-employees and 37,669,891 to officers, directors and employees of the Company. 

 

Warrants 

 

The Company has 11,419,112 and 15,000,908 warrants outstanding as of June 30, 2015 and December 31, 2014, respectively. For the year ending December 31, 2014, 2,269,230 warrants were issued at an exercise price of $0.24 as follows: 1,340,000 warrants were issued in connection with the new debt issuances and debt modifications and the Company issued 929,230 warrants in exchange for services.

 

In July 2014, the Company began a capital raise program consisting of a reduction in the exercise price of the Company's outstanding warrants to purchase its common stock to $0.10 per share, for all of the Company's outstanding warrants with an exercise price greater than $0.15 per share and to sell new shares of common stock for $0.12 or less per share ("New Shares") depending on market conditions. The Company's immediate goal was to raise $2,000,000. The Company set a minimum capital raise threshold of $1,500,000 before purchases of New Shares or warrant exercises can be accepted, unless specific authorization to consummate the transaction is received from the New Shares purchaser or warrant exerciser. For the year ending December 31, 2014, $409,525 has been received from the exercise of warrants through this program. The Company received specific authorization in the form of a signed waiver from all of those that exercised warrants waiving the requirement for the Company to raise a minimum of $1,500,000 of capital. The capital raise program was closed as of October 2, 2014.  

 

In addition to the $409,525 that was raised through the capital raise program, an additional $1,563 was raised through the exercise of 312,500 warrants at an exercise price of $.005 per share for the year ending December 31, 2014.  

 

 
22
 

 

8 - STOCKHOLDERS' DEFICIENCY (continued)

 

See footnote 11 for discussion on contingent warrants.

 

This table summarizes the grant date and exercise date for all warrants:

 

 

 

Number of

 

 

Exercise

 

 

 

 

 

 

Warrants

 

 

Price

 

 

Expiration Date

 

Outstanding Warrants from 

 

 

499,296

 

 

$ .02131

 

 

July, 2016 

 

January 1, 2011 

 

 

293,296

 

 

$ .02131

 

 

August, 2017 

 

    

Outstanding Warrants Granted in 2012 

 

 

60,000

 

 

$ .36000

 

 

July, 2015 

 

 

 

 

40,000

 

 

$ .36000

 

 

August, 2015 

 

 

 

 

2,500,000

 

 

$ .24000

 

 

May, 2016 

 

 

 

 

200,000

 

 

$ .24000

 

 

June, 2016 

 

 

 

 

100,000

 

 

$ .24000

 

 

October, 2016 

 

     

Outstanding Warrants Granted in 2013 

 

 

3,806,250

 

 

$ .24000

 

 

May, 2016 

 

 

 

 

312,500

 

 

$ .24000

 

 

June, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

July, 2015 

 

 

 

 

250,000

 

 

$ .24000

 

 

July, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

August, 2015 

 

 

 

 

62,500

 

 

$ .24000

 

 

September, 2015 

 

 

 

 

500,000

 

 

$ .24000

 

 

September, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

October, 2015 

 

 

 

 

156,250

 

 

$ .24000

 

 

October, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

November, 2015 

 

 

 

 

781,250

 

 

$ .24000

 

 

November, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

December, 2015 

 

     

Outstanding Warrants Granted in 2014 

 

 

62,500

 

 

$ .24000

 

 

January, 2016 

 

 

 

 

616,000

 

 

$ .24000

 

 

January, 2017 

 

 

 

 

62,500

 

 

$ .24000

 

 

February, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

March, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

April, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

May, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

June, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

July, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

August, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

September, 2016 

 

 

 

 

62,500

 

 

$ .24000

 

 

October, 2016 

 

 

 

 

194,000

 

 

$ .10000

 

 

October, 2018 

 

 

 

 

62,500

 

 

$ .24000

 

 

November, 2016 

 

 

 

 

47,730

 

 

$ .10000

 

 

December, 2018 

 

     

Outstanding Warrants Granted in 2015 

 

 

-

 

 

 

-

 

 

-

 

Outstanding Warrants as of 

 

 

 

 

 

02131-

 

 

Expiration dates as

 

June 30, 2015 

 

 

11,419,112

 

 

$ .36000

 

 

As listed above 

 

 

 
23
 

 

8 - STOCKHOLDERS' DEFICIENCY (continued) 

 

The warrants for 792,632 shares issued prior to January 1, 2011, include certain provisions that protect the holders from a decline in the stock price of the Company. As a result of those provisions, the Company recognizes the warrants as liabilities at their fair values on each reporting date.  

 

As shown in footnote 6, the Company has recorded a warrant liability of $57,581 and $49,404 as of June 30, 2015 and December 31, 2014, respectively, which is based on the Black-Scholes valuation model to estimate the fair value of the warrants.  

 

The significant assumptions considered by the model were the remaining term of the warrants, the fair value per share stock price of $.11 and $.07, a risk free treasury rate for .05 to 2.17 years and .50 to 2.75 years of .010% to .702% and .120% to .993% at June 30, 2015 and December 31, 2014, respectively and an expected volatility of 60%.  

 

9 - COMMITMENTS 

 

In July of 2013, the Company entered into a four year extension of the lease for the rental of the office and warehouse space expiring on August 31, 2017. Under the terms of the current lease and the four year extension, the Company's future minimum rental payments are: $43,700 for 2015, $89,000 for 2016, and $60,400 for 2017. Total rent expense for periods ending June 30, 2015 and 2014 was $43,258 and $42,492, respectively.  

 

On July 12, 2013, the company entered into the "Broadcast Technology and Promotional Rights Agreement between the NHRA and The Guitammer Company" whereby in exchange for use of its broadcast technology and certain sponsor payments the parties agreed that the NHRA telecasts on ESPN2 would be tactically enhanced and Guitammer would receive sponsor benefits including: television commercials, on-air sponsored segments, presence at certain NHRA races in the Manufacturer's Midway, and other promotional rights and benefits. On April 10, 2014, the agreement was suspended retroactively, effective January 1, 2014 due to a disagreement between the NHRA and ESPN regarding the nature of the tactile enhancement of the previous season's tested, approved and successfully tactile enhanced NHRA broadcasts by the Company. The agreement will be reinstated for one 12 month period when and if this situation is resolved. The $100,000 payment made by the Company in January of 2014 was refunded to the Company in April, 2014 as a part of the suspension agreement.

 

Stock and warrants issued for services 

 

During the period ending June 30, 2015, the Company issued 100,000 shares of common stock for consulting services valued at $8,500. During the period ending June 30, 2014, the Company issued 375,000 shares of common stock and 375,000 warrants for consulting services valued at $56,250.  

 

 
24
 

 

9 - COMMITMENTS (continued) 

 

On February 10, 2012, the Company entered into a 3 month agreement with John Ertmann for advisory services. Under the terms of the agreement, Mr. Ertmann will be compensated at a rate of 40,000 shares of common stock and 40,000 warrants per month. The agreement has been extended through December, 2014, with the compensation arrangement of 40,000 shares of common stock and 40,000 warrants per month for April and May of 2013, and 62,500 shares of common stock and 62,500 warrants per month for the months June 2013 through December 2014. In December, 2014 and for the first six months of 2015, Mr. Ertmann was not available for advisory services and consequently, no common stock or warrants were issued for those months.  

 

On August 29, 2014 the Company, the San Jose Sharks ("Sharks") NHL hockey team and Comcast SportsNet California ("CSNCA") executed a "Letter Agreement Regarding Technology Initiative" to integrate Guitammer's broadcast technology in the SAP Center at San Jose and into the CSNCA's telecasts of the San Jose Sharks home games at the SAP Center for the 2014/15 NHL season, and to collectively promote and market the enhanced broadcast to the San Jose Sharks and CSNCA viewers. Starting from the first home game on October 11th until the last home game on April 6, 2015, the CSNCA's Sharks telecasts have successfully been broadcast in 4D using Guitammer's technology. The official public launch of this agreement was November 20th, 2014. Guitammer is evaluating the continuance of the enhanced broadcast of the San Jose Sharks for the coming hockey season.

 

10 - CONCENTRATION OF CREDIT RISK

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist principally of accounts receivable. Receivables are stated at the amounts management expects to collect from outstanding balances. Generally, the Company does not require collateral or other security to support contract receivables. 

 

The Company had no major customer for the periods ending June 30, 2015 and 2014. A major customer is defined as one that purchases ten-percent or more in a reporting period.

 

The Company had major suppliers in each of the reporting periods presented. A major supplier is defined as one that provides ten-percent or more of total cost-of-sales in a particular reporting period or has an outstanding account payable balance of ten-percent or more as of the reporting period. 

 

 

 

Purchases During 6 Months ending June 30, 2015

 

 

Account Payable Percentage at June 30, 2015

 

 

Purchases During 6 Months ending June 30, 2014

 

 

Account Payable Percentage at December

31, 2014

 

LFT Manufacturing, LLC 

 

 

67 %

 

 

7 %

 

 

-

 

 

 

16 %

Actiway Industrial Co. 

 

 

14 %

 

 

13 %

 

 

-

 

 

 

12 %

Sonavox Canada, Inc. 

 

 

10 %

 

 

8 %

 

 

8 %

 

 

9 %

Eminence Speaker, LLC 

 

 

-

 

 

 

41 %

 

 

88 %

 

 

35 %

 

 
25
 

 

11 - RELATED PARTY TRANSACTIONS

 

One of the Company's shareholders is also a note holder and a minority shareholder of a major supplier to the Company. This shareholder is a note holder who also owns 2,590,098 shares of the Company's common stock and is a minority shareholder in Eminence Speaker, LLC, a major supplier to the Company. 

 

On September 12, 2014, Guitammer entered into an agreement with an unrelated third party to organize a joint venture company named LFT Manufacturing that will manufacture and distribute certain Guitammer products. Guitammer and the third party will make capital contributions of $1,000 each to the joint venture company. Guitammer and the third party each have 50% interests in the joint venture company. The joint venture company borrowed from the third party the amount necessary to fund the startup costs to manufacture products, including initial tooling, obtaining factory space, and labor costs. In conjunction with the joint venture, the Company agreed to grant to the unrelated party 2,750,000 warrants to purchase common stock of the Company exercisable at $.10 per share contingent upon the completion of certain criteria as follows: 

 

1. Working capital loan had been provided by the unrelated third party to fund LFT for start-up costs, tooling and funding operations and
2. Guitammer has received from LFT, no less than 10,000 total units of the products, each and all of which are both sold to Guitammer at a price and are of a quality deemed acceptable to Guitammer.
3. The second anniversary of the loan referenced in number 1 above has occurred.
4. In the event of a change of control of The Guitammer Company that occurs before the second anniversary of the loan referenced in number 1 above and with the successful completion of requirement number one and two above, the warrants shall be granted immediately preceding the change of control.

 

The criteria from item 1 above has been satisfied, but at June 30, 2015, the other criteria have not been met. Under generally accepted accounting principles, these warrants are considered contingent consideration in connection with the establishment of a joint venture. In connection with these rules, this contingency will be reflected as an increase to our investment in this joint venture and a related increase to additional paid in capital at that time that the contingency has been satisfied, which management believes will occur when criteria 1 and 2 as noted above are achieved. Management expects criteria 2 to be met sometime during the third quarter of 2015. Upon satisfactory completion of all of these criteria, the warrants will be issued. The company purchased $183,439 of product for the period ending June 30, 2015 and $106,036 of product for the year ended December 31, 2014 from LFT Manufacturing, LLC. The Company accounts for this joint venture as an equity method investment. Under the equity method of accounting, an Investee company's accounts are not reflected within the Company's Consolidated Balance Sheets and Consolidated Statements of Income; however, the Company's share of the earnings or losses of the Investee Company is reflected in the Company's Consolidated Statements of Income. The Company's carrying value in an equity method Investee company are reflected in the Company's Consolidated Balance Sheets. The Company's share of earnings for the period ending June 30, 2015 was approximately $26,000 and has been recorded in the Company's Consolidated financial statements.

 

12 - OTHER ASSETS

 

Other assets consist of patents and trademarks related to the ButtKicker brand products and technology. The assets are being amortized over 10 years based on the estimated useful lives of the patents and trademarks. Amortization of the intangible assets, which is included in general and administrative expenses, was $3,952 and $3,968 for the periods ended June 30, 2015 and 2014, respectively. The estimated future amortization expense for intangible assets is approximately: $4,000 in 2015, $6,500 in 2016, $4,100 in 2017, $2,400 in 2018 and 2019 and approximately $8,700, thereafter. 

 

13 - INCOME TAXES

 

The Company accounts for income taxes under the asset and liability method which requires the recognition of deferred tax assets and liabilities for the expected future tax consequences of differences between the carrying amounts and the tax basis of the assets and liabilities. No provision has been recorded for a deferred tax asset due to net operating losses and full valuation allowances against deferred income taxes. 

 

 
26
 

 

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 

 

The following discussion and analysis should be read in conjunction with Guitammer's Unaudited Condensed Consolidated Interim Financial Statements and notes thereto included elsewhere in this Form 10-Q. Except for the historical information contained herein, the discussion in this Form 10-Q contains certain forward looking statements that involve risks and uncertainties, such as statements of Guitammer plans, objectives, expectations and intentions. The cautionary statements made in this Form 10-Q should be read as being applicable to all related forward-looking statements wherever they appear in this Form 10-Q. These statements include, without limitation, statements concerning the potential operations and results of Guitammer described below. Guitammer's actual results could differ materially from those discussed here. Factors that could cause or contribute to such differences include, without limitation, those factors discussed herein and in Guitammer's Form 10 Registration Statement. 

 

OVERVIEW 

 

Guitammer Company ("Guitammer-Ohio") was incorporated in Ohio on March 6, 1990, as a research, development and licensing company and manufacturer and marketer of low frequency audio transducers that allows users to feel low frequency sound ("bass") like a subwoofer but silent.

 

On May 18, 2011, Guitammer-Ohio caused the formation of a Nevada corporation with the same name (the "Registrant" "Company", "Guitammer-Nevada", "we", "us" and "our") and entered into a Plan and Agreement of Reorganization with Guitammer-Nevada pursuant to which (i) the shareholders of Guitammer-Ohio would exchange (on a one (1) for thirty-one thousand, two hundred and six (31,206) shares basis) their aggregate 1,602.3 issued and outstanding shares of common stock for an aggregate of 50,001,374 shares of Common Stock, par value $0.001 per share, of Guitammer-Nevada evidencing the same proportional interest in Guitammer-Nevada as they held in Guitammer-Ohio, and (ii) option and warrant holders to purchase an aggregate of 1,397.7 shares of common stock of Guitammer-Ohio would exchange (on a one (1) for thirty-one thousand, two hundred and six (31,206) shares basis) their options and warrants for options and warrants to purchase an aggregate of 43,616,626 shares of Common Stock, par value $0.001 per share, of Guitammer-Nevada in the same proportional interest in Guitammer-Nevada as they held in Guitammer-Ohio (the "Reorganization"). In addition, the Company issued to two lenders warrants to purchase shares of Guitammer-Ohio which because of the Reorganization would be converted into warrants to purchase an aggregate of 225,000 shares of our Common Stock, par value $0.001 per share. In order to save time and expense of creating and issuing new Guitammer-Nevada options and warrants, the Company's Board of Directors passed a resolution that the outstanding Guitammer- Ohio options and warrants would be and are deemed to be and constitute the Guitammer- Nevada options and warrants (on the said 1 for 31,206 shares basis) to purchase an aggregate of 43,841,626 shares of our Common Stock.

 

 
27
 

 

Critical Accounting Policies and Estimates 

 

"Management's Discussion and Analysis of Financial Condition and Results of Operations" discusses our interim condensed consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America. The preparation of these interim condensed consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. A summary of our significant accounting policies is included in the Notes to Consolidated Financial Statements included in the Annual Report on Form 10-K for the year ended December 31, 2014. 

 

Our management regularly reviews our accounting policies to make certain they are current and also to provide readers of the interim condensed consolidated financial statements with useful and reliable information about our operating results and financial condition. Implementation of these accounting policies includes estimates and judgments by management based on historical experience and other factors believed to be reasonable. This may include judgments about the carrying value of assets and liabilities based on considerations that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. 

 

Management believes the following critical accounting policies are most important to the portrayal of our financial condition and results of operations and require more significant judgments and estimates in the preparation of our interim condensed consolidated financial statements. 

 

Accounts Receivable 

 

Accounts receivable are carried at cost less an allowance for doubtful accounts. The allowance for doubtful accounts is established through provisions charged against income and is maintained at a level believed adequate by management to absorb estimated bad debts based on current economic conditions. 

 

Accounts receivable are uncollateralized customer obligations due under normal trade terms generally requiring payment within 30 days from the invoice date. The Company recorded an allowance of approximately $5,100 and $4,600 at June 30, 2015 and December 31, 2014, respectively.

 

Inventory 

 

Inventory, consisting of finished goods, is stated at the lower of cost or market. Cost is determined using the weighted average method. Inventory that is determined to be obsolete or not sellable is expensed immediately. The Company recorded a reserve for obsolete items of $10,415 at June 30, 2015, and December 31, 2014.

 

 
28
 

 

Revenue Recognition 

 

The Company recognizes revenue from the sale of its products when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the fee is fixed and determinable, and collectability is reasonably assured. 

 

Deferred Revenue 

 

The Company received prepayment for products from some of its customers as the Company requires prepayment before goods are shipped to almost all international customers. As of June 30, 2015 and December 31, 2014 the Company had deferred revenue of $29,292 and $36,899 respectively. The Company recognizes revenue and decreases deferred revenue in accordance with the revenue recognition policy.  

 

Income Taxes 

 

Prior to the creation of the Nevada holding company formed on May 18, 2011, the Company had elected S Corporation status for Federal and Ohio state income tax purposes. Under these elections, the Company's taxable income was included on the stockholders individual income tax returns, and the Company made no provision for Federal and State income tax.  

 

Effective with the Company redomiciling to Nevada on May 18, 2011, the Company elected C Corporation status for both Federal and State income tax purposes. 

 

There were no uncertain tax positions at June 30, 2015 or December 31, 2014, as the Company's tax positions for open years meet the recognition thresholds of more likely than not to be sustained upon examinations. Tax returns for the years 2011 through 2013 are currently open to examination. Tax returns prior to 2011 are no longer subject to examination by tax authorities.  

 

Shipping and Handling 

 

Shipping and handling costs of approximately $64,090 and $43,000 for the periods ending June 30, 2015 and 2014, respectively, are included in general and administrative expenses in the statements of operations.  

 

Research and development costs 

 

The costs of research and development activities are expensed when incurred.  

 

Stock Based Compensation 

 

Share-based compensation is measured as the fair value of the award at its grant date based on the estimated number of awards that are expected to vest and is recorded over a defined service period. Compensation expense is recognized based on the estimated grant date fair value method using a Black-Scholes valuation model. It is the Company's policy to recognize expense using the straight-line method over the vesting period.  

 

 
29
 

 

RESULTS OF OPERATIONS 

 

Six months ended June 30, 2015 

 

All references belowto per share and shares of Common Stock of the Company reflect the reorganization. 

 

Results of Operations 

 

Revenue increased $386,702 or 78.14%, to $881,604 for the six months ended June 30, 2015, compared to revenue of $494,902 for the six months ended June 30, 2014. The Company was able to obtain key inventory items due to its relationship with LFT Manufacturing as explained in Note 11 of the financial statements. The Company had sufficient inventory during most of the six month and consequently, the Company was able to show significant improvement in revenue in the first half of 2015 compared to the first half of 2014. Additionally, in the first half of 2015, revenue of approximately $115,000 was derived from sales to the cinema market compared to approximately $9,000 of sales for the first half of 2014. Management believes that revenue from the cinema market will continue and increase through 2015 and beyond.  

 

Cost of goods sold increased $199,613, or 75.1%, to $465,593, for the six months ended June 30, 2015, compared to cost of goods sold of $265,980 for the six months ended June 30, 2014. The 75.1% increase in the cost of goods sold for the six months ending June 30, 2015 corresponds closely with the 78.1% increase in revenue for the same time period, but is lower due to lower purchase prices of inventory items purchased from LFT Manufacturing, LLC, an affiliated vendor the company began using in the 4th quarter of 2014 and due to variations in the sales mix of products sold as the profit margin for some products are slightly higher than for others.  

 

Gross profit increased by $187,089 or 81.7% to $416,011 for the six months ended June 30, 2015, compared to gross profit of $228,922 for the six months ended June 30, 2014. Our gross margin percentage increased to 47.2% from 46.3% for the six months ended June 30, 2015 compared to the six months ended June 30, 2014, for the reasons mentioned in the cost of goods sold paragraph above.  

 

General and administrative expenses increased $147,182 or 19.9%, to $888,563 for the six months ended June 30, 2015, compared to general and administrative expenses of $741,381 for the six months ended June 30, 2014. Significant variations within the general and administrative expenses were as follows:

 

 

 

June 30,

2015

 

 

June 30,

2014

 

 

Increase

(Decrease)

 

Payroll and related  

 

$ 391,796

 

 

$ 314,259

 

 

$ 77,537

 

Stock warrant expense 

 

 

8,177

 

 

 

(57,584 )

 

 

65,761

 

Professional fees 

 

 

140,070

 

 

 

182,386

 

 

 

(42,316 )

Advertising and marketing 

 

 

94,400

 

 

 

58,517

 

 

 

35,883

 

Freight and related 

 

 

71,605

 

 

 

44,841

 

 

 

26,764

 

Repairs and maintenance 

 

 

125

 

 

 

15,731

 

 

 

(15,606 )

Patent renewal and licenses  

 

 

24,842

 

 

 

18,040

 

 

 

6,802

 

Depreciation 

 

 

14,111

 

 

 

20,326

 

 

 

(6,215 )

Travel and Entertainment 

 

 

49,263

 

 

 

46,677

 

 

 

2,586

 

All other general & admin. expenses 

 

 

94,174

 

 

 

98,188

 

 

 

(4,014 )

 

 

$ 888,563

 

 

$ 741,381

 

 

$ 147,182

 

 

 
30
 

 

Payroll and related expense increased by $77,537 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014, mainly due to cost of stock options issued to company employees in December of 2014 that are being expensed over the 3 year vesting schedule and the increase in officers' salaries awarded by the Company's Board in December 2014, effective in 2015.  

 

Stock warrant expense increased by $65,761 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014 due to adjusting the stock warrants liability based on the Black-Scholes valuation model which is used to estimate the fair value of the warrants.  

 

Professional fees decreased by $42,316 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to a decrease in stock based consulting expenses related to marketing the Company's broadcast technology.  

 

Advertising and Marketing expense increased by $35,883 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The increase is mainly due to television commercial costs associated with the Company's use of it haptic-tactile broadcast technology for Comcast Sports Net CA's ("CSNCA") telecasts of the San Jose Sharks' home games from the SAP Center in the first quarter of 2015. This increase was partially offset by advertising and marketing activities in the first quarter of 2014 related to its agreement with the National Hot Rod Association ("NHRA") including an onsite fan experience trailer and television commercials airing on ESPN2. 

 

Freight and related expenses increased by $26,764 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to the receipt of finished product from our overseas manufacturer and increased sales where shipping costs are paid by Guitammer during the six months ending June 30, 2015. 

 

Repairs and Maintenance expenses decreased by $15,606 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014. The decrease occurred primarily due to tooling costs of $12,452 in the six months ended June 30, 2014 and no tooling costs in the six months ending June 30, 2015.  

 

Patent renewal and licenses expense increased by $6,802 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to expenses related to the annual patent renewal fees for low frequency transducer patents in an increasing the number of countries where our products are patented.  

 

Depreciation expense decreased by $6,215 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to the additional depreciation in the first six months of 2014, associated with equipment purchased for the tactile enhanced live sports broadcast of the NHRA. Most of this equipment was sold by June 30, 2014.  

 

Travel and entertainment expense increased by $2,586 in the six months ended June 30, 2015 compared to the six months ended June 30, 2014, primarily due to the travel expense incurred in connection with the installation of our products in theaters in the second quarter of 2015, offset partially by the increase in Guitammer personnel travel costs related to the use of the Company's broadcast technology by the NHRA in the first quarter of 2014 as compared to lower travel costs incurred for the CSNCA / San Jose Sharks broadcasts in the first quarter of 2015.

 

 
31
 

 

Research and development expenses decreased by $9,207 to $1,575 for the six months ended June 30, 2015, compared to $10,782 for the six ended June 30, 2014. In the first quarter of 2014, research and development expense was incurred in the further development of sensors for use with haptic-tactile broadcast technology for the NHRA telecasts on ESPN2. There were no research and development expenses incurred by the Company in the first quarter of 2015, but the expense decrease was partially offset by design work for changes in our amplifiers in the second quarter of 2015.  

 

Loss from operations decreased by $49,114 or 9.4% for the six months ended June 30, 2015 to $474,127 as compared to $523,241 for the six months ended June 30, 2014. The decrease was caused by the increase in gross profit and the decrease in research and development expense, partially offset by the increase in general and administrative expenses as explained above.  

 

Investment income increased by $26,066 in the six months ended June 30, 2015 compared to $0 for the six months ended June 30, 2014, due to the joint venture the company has entered into to form LFT Manufacturing, the company's biggest supplier, as explained in Note 11 to the financial statements.  

 

Interest expense increased $49,894 or 46.71%, to $156,766 for the six months ended June 30, 2015, compared to interest expense of $106,875 for the six months ended June 30, 2014. The increase was due primarily to an increase in interest rate charged on a loan to 25% that was previously 12% due to a provision in the loan agreement and a full six months of interest expense being shown for the six months ended June 30, 2015 on additional debt incurred on January 27, 2014.  

 

Our net loss before dividends on preferred stock decreased $25,286 or 4% for the six months ended June 30, 2015. We had net a loss before dividends of $604,827 for the six months ended June 30, 2015, compared to a net loss of $630,113 for the six months ended June 30, 2014. The decrease was caused primarily by the increase in gross profit and investment income, the decrease in research and development expense offset partially by the increase in general and administrative expense and interest expense.  

 

Our net loss available to common stockholders decreased $19,039 or 3% for the six months ended June 30, 2015. We had net a loss available to common stockholders of $611,074 (or basic and diluted net loss per share of $0.007) for the six months ended June 30, 2015, compared to a net loss of $630,113 (or basic and diluted net loss per share of $0.008) for the six months ended June 30, 2014. The primary reasons for decrease is explain in the paragraph directly above.  

 

 
32
 

 

The following table sets forth EBITDA and adjusted EBITDA for the Company, which is a non-GAAP measurement. EBITDA is defined as earnings (loss) before net interest expense, income taxes, depreciation and amortization. Adjusted EBITDA is defined as earnings before net interest expense, income taxes, depreciation, amortization, and non-cash expenses such as stock warrant expense and stock based compensation to consultants and employees. Although EBITDA and Adjusted EBITDA are not measures of performance calculated in accordance with generally accepted accounting principles ("GAAP"), management believes that these non-GAAP measures will allow for a better evaluation of the operating performance of the business and facilitate meaningful comparison of the results in the current period to those in prior periods and future periods. However, investors should not consider these measures in isolation or as a substitute for net income (loss), operating income (loss), or any other measure for determining the Company's operating performance that is calculated in accordance with GAAP. A reconciliation of EBITDA and Adjusted EBITDA to the most comparable GAAP financial measure, net loss, follows:  

 

 

 

June 30,

 

 

June 30,

 

 

 

2015

 

 

2014

 

Net Loss available to common stockholders 

 

$ (611,074 )

 

$ (630,113 )

Adjustments  

 

 

 

 

 

 

 

 

Interest expense 

 

 

156,783

 

 

 

106,875

 

Depreciation and patent amortization 

 

 

18,063

 

 

 

24,294

 

Taxes 

 

 

-

 

 

 

-

 

EBITDA 

 

 

(436,228 )

 

 

(498,944 )

Less non-cash expenses from: 

 

 

 

 

 

 

 

 

Stock warrant expense 

 

 

8,177

 

 

 

(57,584 )

Payment of stock and warrants to consultants 

 

 

8,500

 

 

 

56,250

 

Employee stock options expense 

 

 

106,297

 

 

 

71,736

 

Adjusted EBITDA 

 

$ (313,254 )

 

$ (428,542 )

 

EBITDA increased $62,716 or 12.6% to $(436,228) for the six months ended June 301, 2015, compared to EBITDA of $(498,944) for the six months ended June 30, 2014. The $62,716 increase in EBITDA was primarily caused by the increase in revenue and gross profit, the increase in investment income, the decrease in research and development expense, offset partially by increase in general and administrative expenses and interest expense.  

 

Adjusted EBITDA, increased $115,288 or 26.9% to $(313,254) for period ended June 30, 2015, compared to Adjusted EBITDA, of $(428,542) for the period ended June 30, 2014. Adjusted EBITDA increased from the prior year primarily due to higher revenue and gross profit, partially offset by increased administrative expenses in the period ended June 30, 2015, compared to the period ended June 30, 2014. 

 

 
33
 

 

Three months ended June 30, 2015 and June 30, 2014 

 

Results of Operations 

 

Revenue increased $167,406 or 91.1%, to $351,256 for the three months ended June 30, 2015, compared to revenue of $183,850 for the three months ended June 30, 2014. The Company was able to obtain key inventory items due to its relationship with LFT Manufacturing as explained in Note 11 of the financial statements. Additionally, in the second quarter of 2015, revenue of approximately $59,500 was received from the cinema market for the sale and installation of our products compared to $0 of sales for the second quarter of 2014.

 

Cost of goods sold increased $79,084, or 80.3%, to $177,602 for the three months ended June 30, 2015, compared to cost of goods sold of $98,518 for the three months ended June 30, 2014. The 80.3% increase in the cost of goods sold for the three months ending June 30, 2015, was lower than the 91.1% increase in revenue for the same time period due to lower purchase prices of inventory items purchased from LFT Manufacturing, LLC, an affiliated vendor the company began using in the 4th quarter of 2014 and due to variations in the sales mix of products sold as the profit margin for some products are slightly higher than for others.

 

Gross profit increased by $88,322 or 103.5% to $173,654 for the three months ended June 30, 2015 compared to gross profit of $85,332 for the three months ended June 30, 2014. The 103.5% increase in gross profit was primarily due to the increase in revenue and our gross margin percentage which increased to 49.4% from 46.4% for the three months ended June 30, 2015 compared to the three months ended June 30, 2014, for the reasons mentioned in the cost of goods sold paragraph above.

 

General and administrative expenses increased $70,770, or 23.1%, to $376,606 for the three months ended June 30, 2015, compared to general and administrative expenses of $305,836 for the three months ended June 30, 2014. The increase was primarily due to the increase in the cost of: payroll expense of approximately $38,000, stock warrant expense of approximately $33,000, licenses and permits of approximately $14,000, and travel and entertainment of approximately $9,000 partially offset by the decrease in professional fees of approximately $22,000 and the decrease in repairs and maintenance of approximately $5,400.

 

Research and development expenses increased $1,575 to $1,575 for the three months ended June 30, 2015, compared to $0 for the three months ended June 30, 2014. In the second quarter of 2015, research and development expense was incurred on design work for changes in our amplifiers. The Company spent nothing on research and development in the second quarter of 2014.  

 

Investment income increased by $26,066 in the three months ended June 30, 2015 compared to $0 for the three months ended June 30, 2014, due to the joint venture the company has entered into to form LFT Manufacturing, the company' as explained in Note 11 to the financial statements.  

 

 
34
 

 

Interest expense increased $1,815 or 3.32%, to $56,487 for the three months ended June 30, 2015, compared to interest expense of $54,672 for the three months ended June 30, 2014. The increase was due primarily to an increase in interest rate charged on a loan to 25% that was previously 12% due to a provision in the loan agreement.  

 

Our net loss before dividends on preferred stock decreased $40,228 or 14.6% for the three months ended June 30, 2015. We had net loss before dividends of $234,948 for the three months ended June 30, 2015, compared to net loss of $275,176 for the three months ended June 30, 2014. The decrease in loss was primarily the result of the increase in gross profit offset partially by the increase in general and administrative expenses.  

 

Our net loss available to common stockholders decreased $33,981 or 12.3% for the six months ended June 30, 2015. We had net a loss available to common stockholders of $241,195 (or basic and diluted net loss per share of $0.003) for the six months ended June 30, 2015, compared to a net loss of $275,176 (or basic and diluted net loss per share of $0.004) for the six months ended June 30, 2014. The primary reasons for decrease is explain in the paragraph directly above.  

 

Liquidity and Capital Resources  

 

Total current assets were $363,153 as of June 30, 2015, consisting of cash of $150,586, net accounts receivable of $35,108, inventory of $139,793 and prepaid and other current assets of $37,666. Current assets decreased by $39,525 or 9.8% compared to current assets of $402,678 as of December 31, 2014 due to the decrease in inventory of $221,430, and was partially offset by an increase in cash of $134,401 and an increase in accounts receivable of $9,969.  

 

Total current liabilities were $2,991,209 as of June 30, 2015, consisting of accounts payable of $731,715, accrued expenses of $492,059, current maturities of long-term debt of $1,698,620, deferred revenue of $29,292 and line of credit of $39,523. Current liabilities increased by $293,757 or 10.9% compared to current liabilities of $2,697,452 as of December 31, 2014 mainly due to the increases in current maturities of long-term debt and accrued expenses.  

 

The working capital deficit increased by $333,282 or 14.5% to $2,628,056 for the six months ending June 30, 2015 compared to the working capital deficit of $2,294,774 at December 31, 2014.  

 

Cash Flows During the Six Months Ended June 30, 2015 

 

During the six months ended June 30, 2015 we had a net increase in cash and cash equivalents of $134,401 primarily consisting of net cash provided by financing activities of $453,398 partially offset by net cash used in by operating activities of $316,557 and net cash used in investing activities of $2,440. 

 

Net cash used in operating activities was $316,557 for the six months ended June 30, 2015, consisting of an increase in: prepaid expenses of $37,535 and accounts receivable of $9,969 and decreases in: accounts payable and accrued expenses of 11,521, inventory of $221,430, and deferred revenue of $7,607. These changes were reduced by net loss of $604,827 which had adjustments for depreciation and patent amortization of $18,063, amortization of deferred financing fees of $13,667, amortization of debt discount of $4,834 employee stock options of $106,297, stock and warrants issued for services of $8,500, investment in affiliate of $26,066 and the increase in fair value of warrant liability of $8,177. 

 

 
35
 

 

Net Cash used in investing activities was $2,440 for the six months ended June 30, 2015 for the purchases of intangible assets.

 

Net cash provided by financing activities was $453,398 for the six months ended June 30, 2015, consisting of proceeds from the private offering of preferred stock of $500,000 offset partially by payment of debt of $46,602. 

 

In order to meet current consumer product backlog and anticipated orders, the Company also expects to need approximately $2,000,000 of cash to purchase inventory in the next 12 months. The Company expects to generate these funds from operations with any deficit to be funded through capital raises. We estimate that for the next 12 months we will also need approximately $842,000 for debt service. The Company expects to be able to re-term the other approximately $900,000 of debt within the next year.  

 

The Company historically has incurred net losses, negative cash flows from operating activities, and has an accumulated deficit of approximately $11,196,000 at June 30, 2015. In addition, at June 30, 2015 the Company had a cash balance of approximately $150,600 and working capital deficiency of approximately $2,628,000. In both the near and long term, without additional financing, the Company is and will be in an illiquid position. The Company received cash through the sales of Common Stock and warrants to purchase Common Stock in the amount of $150,000 in the third quarter of 2011, $250,000 in the fourth quarter of 2011, $375,000 in the first quarter of 2012, $770,000 in the second quarter of 2012, $540,000 in the third quarter of 2012, $250,000 in the first quarter of 2013, $675,000 in the second quarter of 2013, $175,000 in the third quarter of 2013, $150,000 in the fourth quarter of 2013, $237,125 in the third quarter of 2014, and an additional $172,400 in the fourth quarter of 2014. Also, the Company received cash through the sales of preferred stock of $500,000 in the second quarter of 2015. The Company believes that the receipt of additional equity will enable it to purchase adequate inventory to meet its existing sales demand and to be able to increase sales through advertising and marketing related activities. There is no assurance that the Company will have any additional sales of stock or that the Company will be able to become operationally cash flow positive.  

 

If the Company is successful in raising significant additional capital (of which there is no assurance), the Company intends to purchase necessary inventory to fulfill backorders and maintain adequate stocking levels of inventory, increase its commercialization efforts for its broadcast technology, expand its patent portfolio for both hardware and broadcast technology to bring new products to market, hire additional sales personnel to sell the Company's ButtKicker brand hardware in its key markets of home theater, gaming, and cinemas.  

 

In July and again in September, 2014, the Company reopened the Private Placement Memorandum (PPM) and reduced the exercise price of the Company's outstanding warrants to purchase its Common Stock to $0.10 per share, for any of the Company's outstanding warrants with an exercise price greater than $0.15 per share, solely during the capital raising period. The Company raised $409,525 through the exercise of warrants by current stock holders through the reopening of the PPM.  

 

 
36
 

 

On May 4, 2015, the Company sold in a private offering to three accredited investors and that are existing shareholders a total of 50,000 shares of its Series A Preferred Stock (Preferred Stock) for $10 per share. The Preferred Stock pays an annual dividend of $.80 cents per share (payable in cash or Common Stock at the Company's discretion) and each share is convertible into 66.67 shares of Common Stock at the Company's discretion. Forty million shares of Common Stock have been reserved for the purposes of payment of dividends on preferred stock and the conversion of Preferred Stock into Common Stock. The Preferred Stock ranks senior to the Common Stock in liquidation.  

 

We believe the combination of the Company's recent successful implementation of its haptic-tactile broadcast technology, availability of inventory for sale and its sales and marketing efforts will increase revenue, gross profit and cash flows. 

 

At this time, we have not secured any additional financing. We do not have any commitments for additional capital from third parties or from our officers or directors or any of our shareholders to supplement our operations or provide us with financing in the future. There can be no assurance that additional capital will be available to us, or that, if available, it will be on terms satisfactory to us. If we are unable to increase revenues from operations, to raise additional capital from conventional sources and/or additional sales of stock by October of 2015, we may be forced to curtail or cease our operations. These factors raise substantial doubt in our ability to continue as a going concern. Our financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty. There is substantial doubt that we can continue as a going concern for the next 12 months unless additional funding is secured by the Company. 

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 

 

Our Company is a smaller reporting company, as defined by Rule 12b-2 of the Exchange Act and, as such, is not required to provide the information required under this item. 

 

ITEM 4. CONTROLS AND PROCEDURES 

 

Disclosure Controls and Procedures 

 

Disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports filed or submitted under the Securities Exchange Act of 1934 (the "Exchange Act") is recorded, processed, summarized and reported, within the time period specified in the SEC's rules and forms and is accumulated and communicated to the Company's management, as appropriate, in order to allow timely decisions in connection with required disclosure. 

 

 
37
 

 

Evaluation of Disclosure Controls and Procedures 

 

Pursuant to Rule 13a-15(b) under the Exchange Act, the Company carried out an evaluation, with the participation of the Company's management, including Mark Luden, the Company's Chief Executive Officer ("CEO") and Richard Conn, the Company's Chief Financial Officer ("CFO") (the Company's principal financial and accounting officer), of the effectiveness of the Company's disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act as of the end of the period covered by this report. Based upon that evaluation, the Company's CEO and CFO concluded that the Company's disclosure controls and procedures were not effective as of June 30, 2015 to ensure that information required to be disclosed by the Company in the reports that the Company files or submits under the Exchange Act, is recorded, processed, summarized and reported, within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to the Company's management, including the Company's CEO and CFO, as appropriate, to allow timely decisions regarding required disclosure, due to the material weaknesses described below. 

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. The Company believes its weaknesses in internal controls and procedures is due in part to the Company's lack of sufficient personnel with expertise in the area of SEC, generally accepted accounting principles (GAAP) and tax accounting procedures. In addition, the Company lacks the personnel structure, size and complexity to segregate duties sufficiently for proper controls. 

 

Until such time as additional personnel are hired, the Company believes that it will continue to recognize a weakness in its internal controls and procedures. The Company's plan is to hire additional personnel to properly implement a control structure when the appropriate funds become available. In the meantime, the Chief Executive Officer and Chief Financial Officer will continue to perform or supervise the performance of additional accounting and financial analyses and other post-closing procedures including detailed validation work with regard to balance sheet account balances, additional analysis on income statement amounts and managerial review of all significant account balances and disclosures, to ensure that the Company's Quarterly Report and the financial statements forming part thereof are in accordance with accounting principles generally accepted in the United States of America. 

 

Changes in Internal Controls 

 

During the six months ended June 30, 2015, there were no significant changes in internal controls of the Company, or other factors that could significantly affect these controls subsequent to the date of their evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses. 

 

 
38
 

 

PART II - OTHER INFORMATION

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds. 

 

During the six months ended June 30, 2015, the Company sold in a private offering to three accredited investors and that are existing shareholders a total of 50,000 shares of its Series A Preferred Stock (Preferred Stock) for $10 per share.

 

During the year ended December 31, 2014, warrants were exercised for the purchase of 4,407,750 shares; 312,500 of the warrants were exercised at a price of $.005 per share and 4,095,250 of the warrants were exercised at a price of $.10 per share.

 

The Company claims an exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended for the above issuances and debt conversions, since the foregoing did not involve a public offering, the recipients took the securities for investment and not resale and the Company took appropriate measures to restrict transfer. 

 

Item 6. Exhibits. 

 

a. The following exhibits are filed as part of this report or incorporated herein as indicated.

 

Exhibit No. 

Date of Document 

Name of Document 

2.0* 

May 17, 2011 

Agreement and Plan of Reorganization  

3.0* 

March 3, 1990 

Articles of Incorporation of Guitammer - Ohio 

3.1* 

June 6, 2005 

Certificate of Amendment of Guitammer - Ohio  

3.2* 

June 17, 2005 

Certificate of Amendment of Guitammer - Ohio 

3.3* 

Code of Regulations of Guitammer - Ohio  

3.4* 

May 17, 2011 

Articles of Incorporation of Guitammer- Nevada 

3.4A ^^* 

March 25, 2015 

Amendment to Articles of Incorporation, filed March 25, 2015 

3.4B ^^* 

May 6, 2015 

Amendment to Articles of Incorporation, filed March 25, 2015 

3.5* 

Bylaws of Guitammer - Nevada  

4.0* 

Sept. 30, 1999 

1999 Non-Qualified Stock Option Plan, as amended 

4.1* 

Form of Option Agreement 

 

 
39
 

 

4.2* 

June 17, 2005 

2005 Amendment to 1999 Non-Qualified Stock Option Plan 

4.3** 

July 14, 2011 

Form of Warrant issued to The Walter J. Doyle Trust 

4.4** 

July 14, 2011 

Form of Warrant issued to Standard Energy Company 

10. 1* 

Nov. 1, 2002 

Richard B. Luden $82,000 Note

10.1A# 

Dec 21, 2011 

Richard Luden Conversion Agreement 82K 

10. 2* 

May 13, 2005 

Note Purchase Agreement-Walter Doyle, John O. Huston and Eric Roy 

10. 3* 

Sept.1, 2007 

First Amendment To Note Purchase Agreement-Walter Doyle, John O. Huston and Eric Roy 

10. 4* 

May 13, 2005 

Walter J. Doyle $150,000 Note 

10.4A* 

September 1, 2007 

Amended and Restated Walter Doyle Note 

10.4B### 

January 31, 2012 

Walter Doyle 150k Jan 31 2012 Note Conversion Agreement 

10. 5* 

May 13, 2005 

Eric Roy $100,000 Note 

10.5A* 

March 28, 2011 

Agreement to Convert An Existing Note-Eric P. Roy 

10.5B* 

September 1, 2007 

Eric Roy 9.4 Stock Options on 100K 0901207note  

10.5C* 

May 13, 2005 

Eric Roy 16 stock options 05132005  

10.5D* 

May 13, 2006 

Eric Roy 16 Stock options 05132006  

10.5E* 

September 1, 2007 

Amended and Restated Eric Roy Note

10.5F### 

January 31, 2012

Eric Roy Jan 31 2012 Note Conversion Agreement

10. 6* 

May 13, 2005 

John O. Huston $50,000 Promissory Note 

10.6A* 

September 1, 2007 

John O. Huston 4.7 Stock options 09012007  

10.6B* 

May 13, 2005 

John O. Huston 8 Stock Options 05132005  

10.6C* 

May 13, 2006 

John O. Huston 8 Stock Options 05132006  

10.6D* 

September 1, 2007 

Amended and Restated John O. Huston Promissory Note

10.6E### 

January 31, 2012

John Huston Jan 31 2012 Note Conversion Agreement

10.7* 

June 29, 2005 

Note Purchase Agreement-Walter Doyle, Andrea L. Levenson and Gust Van Sant 

10.8* 

September 1, 2007 

First Amendment To Note Purchase Agreement-Walter Doyle, Andrea L. Levenson and Gust Van Sant 

 

 
40
 

 

10.9* 

June 29, 2005 

Walter J. Doyle $50,000 Promissory Note 

10.9A* 

September 1, 2007 

Amended and Restated Walter Doyle Note

10.9B### 

January 31, 2012

Walter Doyle 50K Jan 31 2012 Note Conversion Agreement

10.10* 

June 29, 2005 

Andrea Lerner Levenson $50,000 Promissory Note 

10.10A* 

September 1, 2007 

Andrea Lerner Levenson 4.7 Stock Options on 50K 09012007 note  

10.10B* 

June 29, 2006 

Andrea Lerner Levenson 8 stock options 6292006  

10.10C* 

June 29, 2005 

Andrea Lerner Levenson 8 stock options 06292005  

10.10D* 

September 1, 2007 

Amended and Restated Andrea L. Levenson Promissory Note

10.10E### 

January 31, 2012

Andrea Levenson Jan 31 2012 Note Conversion Agreement

10.11* 

June 29, 2005 

Gust Van Sant $50,000 Promissory Note  

10.11A* 

September 1, 2007 

Gust Van Sant 4.7 Stock Options on 50K 09012007 note  

10.11B* 

June 29, 2005 

Gust Van Sant 8 Stock Options 06292005  

10.11C* 

June 29, 2006 

Gust Van Sant 8 Stock Options 06292006  

10.11D* 

September 1, 2007 

Amended and Restated Gust Van Sant Promissory Note

10.11E### 

January 31, 2012

Gus Van Sant Jan 31 2012 Note Conversion Agreement

10.12* 

July 19, 2005 

Promissory Note --Opal Private Equity Fund, LP 

10.12A* 

September 1, 2007 

Opal Private Equity Stock Warrants on 100K note  

10.12B* 

July 19, 2005 

Opal 16 Stock Warrants 07192005 

10.12C* 

July 19, 2006 

Opal 16 Stock Warrants 07192006 

10.12D* 

September 1, 2007 

Amended and Restated Opal Promissory Note

10.13* 

September 1, 2007 

First Amendment To Note Purchase Agreement--Opal Private Equity Fund, LP 

10.14* 

July 19, 2005 

Opal Private Equity Fund, LP $100,000 Note Purchase agreement 

10.15* 

July 3, 2005 

Forest Capital $250,000 Working Capital Loan and Consulting Agreement 

 

 
41
 

 

10.15A* 

January 1, 2010 

Forest Capital 214.7 options 01012010  

10.15B# 

December 21, 2011 

Forest Capital Amended loan agreement 150k 

10.15C## 

February 1, 2012 

Addendum to Conversion and Amended Loan Agreement with Forest Capital 

10.15D&& 

December 21, 2011 

Forest Capital Conversion Agreement 250K 

10.15E+&+ 

January 31, 2014 

Forest Capital $150,000 Second Restated Promissory Note Rev 01272014 

10.16* 

May 5, 2003 

Thelma Gault $800,000 Loan and Option Agreement 

10.17* 

January 31, 2008 

First Amendment To Thelma Gault $800,000 Loan Agreement 

10.18* 

February 28, 2009 

Second Amendment To Thelma Gault $800,000 Loan Agreement 

10.19* 

January 31, 2008 

Thelma Gault $800,000 Amended and Restated Promissory Note 

10.20* 

November 18, 2010 

Thelma Gault Subordination Agreement 1st Lien carve out 

10.21* 

March 9, 2009 

Credit Facilitation Agreement-Walter J. Doyle Trust and Julie E. Jacobs Trust 

10.21A* 

February 26, 2009 

Merrill Lynch Loan Application and acceptance  

10.21B* 

March 2009 

Merrill Lynch Loan agreement  

10.21C* 

December 1, 2009 

Revised Merrill Lynch Loan agreement  

10.21D&& 

December 21, 2011 

Jacobs Trust Fee conversion agreement on 200k loan 

10.21E&& 

December 21, 2011 

Doyle Trust Fee Conversion Agreement on 200k loan 

10.22* 

April 25, 2008 

Ohio Innovation Loan Agreement 

10.23* 

April 25, 2008 

Ohio Innovation Loan Security Agreement 

10.24* 

September 11, 2008 

Ohio Innovation Loan Modification Agreement 

10.24A* 

September 17, 2009 

Ohio Innovation Loan Modification Agreement 2nd mod  

10.24B* 

November 24, 2010 

Ohio Innovation Loan Modification Agreement 3rd mod  

10.24C -@- 

December 1, 2012 

Ohio Innovation Loan Modification Agreement 4th Mod 

 

 
42
 

 

10.24D -@-  

December 1, 2012 

Ohio Innovation Loan Modification Agreement 5th Mod 

10.25* 

November 29, 2010 

Ohio Innovation Loan Subordination Agreement 

10.25A* 

April 25, 2008 

Ohio Innovation Loan Intercreditor agreement  

10.25B* 

April 25, 2008 

Ohio Innovation Loan Cognovit promissory note  

10.26* 

April 7, 2010 

Julie E. Jacobs Trust $100,000 Loan Agreement 

10.26A# 

December 21, 2011 

Jacobs Trust Interest Conversion Agreement on 100K loan 

10.26B# 

December 21, 2011 

Jacobs Trust Amended loan agreement 100K loan 

10.26C+&+ 

January 31, 2014 

Jacobs Trust $100,000 Second Restated Promissory Note Rev 01272014 

10.27* 

October 4, 2010 

Amendment To Julie E. Jacobs Trust $100,000 Loan Agreement  

10.28* 

January 11, 2011 

Joseph Albert $100,000 Convertible Promissory Note 

10.29* 

January 11, 2011 

Joseph Albert $100,000 Convertible Promissory Note Extension Agreement 

10.29B&&& 

June 8, 2012 

Joseph Albert Note Conversion Agreement  

10.30* 

Joseph Albert 50,000 Common Stock Purchase Warrants 

10.30A* 

Joseph Albert 100,000 Common Stock Purchase Warrants  

10.30B&&& 

June 8, 2012 

Joseph Albert 150,000 Common Stock purchase Warrants 

10.31* 

October 5, 2010 

Standard Energy Company $100,000 Loan Agreement and Promissory Note 

10.31A# 

December 21, 2011 

Standard Energy Note Conversion Agreement  

10.31B## 

February 1, 2012 

Addendum to Note Conversion Agreements with Standard Energy Company 

10.32* 

October 11, 2010 

Doyle Trust $25,000 Promissory Note 

10.32A* 

October 5, 2010 

Doyle Trust $25,000 Loan Agreement 

10.32B## 

February 1, 2012 

Addendum to Note Conversion Agreements with The Walter J. Doyle Trust 

 

 
43
 

 

10.32C&& 

December 21, 2011 

Doyle Trust Note Conversion Agreement 25K 

10.33* 

November 12, 2010 

Walter J. Doyle Trust and Julie E. Jacobs Trust Inventory Financing Agreement 

10.33A* 

November 12, 2010 

Jacobs Trust Stock 82.8 Options  

10.34* 

November 12, 2010 

Walter J. Doyle Trust $150,000 Promissory Note 

10.34A# 

December 21, 2011 

Doyle Trust Conversion Agreement 150K 

10.34B## 

February 1, 2012 

Addendum to Note Conversion Agreements with The Walter J. Doyle Trust 

10.35* 

November 12, 2010 

Standard Energy Company $150,000 Promissory Note 

10.35A# 

December 21, 2011 

Standard Energy Note Conversion Agreement 100k 

10.35B## 

February 1, 2012 

Addendum to Note Conversion Agreements with Standard Energy Company 

10.36* 

February 2, 2011 

Robison Note Extension Agreement 

10.36A* 

July 10, 2010 

Robison original promissory note  

10.37* 

February 2, 2011 

Robison $50,000 Convertible Promissory Note 

10.37A&&& 

June 22, 2012 

Robison Note Conversion agreement 

10.38* 

Robison Common Stock Purchase Warrants for 50,000 shares and 25,000 shares 

10.38A&&& 

June 22, 2012 

Robison Common Stock Purchase Warrants for 75,000 shares 

10.39* 

February 24, 2011 

Carl A. Generes $35,000 Promissory Note 

10.40* 

July 13, 2009 

Lease Modification Agreement 

10.40A* 

January 18, 2006 

Lease Agreement - original  

10.40B ** 

April 10, 2008 

First Lease Agreement Amendment 

10.40C *** 

August 11, 2011 

(Second) Lease Modification Agreement 

10.41&& 

November 16, 2011 

Watters Agreement November 2011 

 

 
44
 

 

10.41A **** 

February 9, 2012 

Extension to Watters agreement January to March 2012 

10.42&& 

December 5, 2011 

Jeff Paltrow dba Litehouse Capital Contractual Agreement December 2011 

10.43&& 

December 19, 2012 

Cervelle Group marketing Agreement December 2011 

10.44**** 

February 10, 2012 

Ertman agreement January to March 2012 

10.46+&+ 

January 31, 2014 

Walter Doyle Trust $50,000 Promissory Note 01272014 

10.47+&+ 

January 31, 2014 

Julie Jacobs Trust $50,000 Promissory Note 01272014 

10.48A@@ 

September 12, 2014 

LFT Manufacturing Operating Agreement 

10.48B@@ 

September 12, 2014 

Warrant agreement for consideration with LFT Manufacturing Operating Agreement 

10.49@@ 

August 29, 2014 

Letter Agreement Regarding Technology Initiative with Guitammer, San Jose Sharks, Comcast SportsNet Bay area and Comcast SportsNet Ca.  

21.1* 

List of Subsidiaries of the Registrant 

31.1 %% Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
31.2 %% Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 
32.1 %% Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2 %% Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, as adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
__________________ 

* Filed with the SEC on July 8, 2011 as Exhibits to Amendment No. 1 to the Company's Form 10 Registration Statement and are incorporated herein by reference.
** Filed with the SEC on July 28, 2011 as Exhibits to Amendment No. 2 to the Company's Form 10 Registration Statement and are incorporated herein by reference.
*** Filed with the SEC on August 12, 2011 as Exhibit to Amendment No. 3 to the Company's Form 10 Registration Statement and is incorporated herein by reference.
# Filed with the SEC on December 23, 2011 as Exhibits to Form 8-K
## Filed with the SEC on February 2, 2012 as Exhibits to Form 8-K
### Filed with the SEC on February 6, 2012 as Exhibits to Form 8-K
&& Filed with the SEC on April 6, 2012 as Exhibits to Form 10-K
**** Filed with the SEC on May 15, 2012 as Exhibits to Form 10-Q
&&& Filed with the SEC on August 13, 2012
+&+ Filed with the SEC on January 31, 2014 as Exhibits to Form 8-K.
-@- Filed with the SEC on March 14, 2014as Exhibits to Form 10-K
@@ Filed with SEC on November 14, 2014 as Exhibits to Form 10-Q
^^* File with the SEC on May 6, 2015 as Exhibits to Form 8-K
%% Filed with the SEC herewith
 

 
45
 

 

SIGNATURES 

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. 

 

 

The Guitammer Company 

 

 

(Registrant)   

 
      
Date: August 13, 2015 By: /s/ Richard E. Conn 

 

Richard E. Conn
Chief Financial Officer

 

 

46