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EX-32.2 - EXHIBIT 32.2 - Agritech Worldwide, Inc.ex32_2.htm
EX-32.1 - EXHIBIT 32.1 - Agritech Worldwide, Inc.ex32_1.htm
EX-31.1 - EXHIBIT 31.1 - Agritech Worldwide, Inc.ex31_1.htm
EX-31.2 - EXHIBIT 31.2 - Agritech Worldwide, Inc.ex31_2.htm
EX-23.1 - EXHIBIT 23.1 - Agritech Worldwide, Inc.ex23_1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

Form 10-K

ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2015

TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _______ to _______.

Commission file number:   001-32134

Agritech Worldwide, Inc.

(Exact name of registrant as specified in its charter)

Nevada
 
36-4197173
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)

1011 Campus Drive, Mundelein, Illinois
 
60060
(Address of principal executive offices)
 
(Zip Code)
     
Registrant’s telephone, including area code:
 
 (847) 549-6002

Securities registered under Section 12(b) of the Exchange Act:  None.

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.00005 par value
 
Not Applicable
     
(Title of class)
 
(Name of each exchange on which registered)

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes      No

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes      No

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 past 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.  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).   Yes      No

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ☐
 


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    (Do not check if a smaller reporting company)
 
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      No

The aggregate market value of the Company’s common equity held by non-affiliates computed by reference to the closing price of $0.25 as of the last business day of the registrant’s most recently completed second quarter was:  $5,109,379.
The number of shares of our common stock outstanding as of April 14, 2016 was 93,797,504.

Documents Incorporated by Reference:  None.
 
2

Table of Contents
 
  Page
PART I

Item 1.
5
Item 1A.
  9
Item 1B.
16
Item 2.
16
Item 3.
17
Item 4.
17

PART II

Item 5.
17
Item 6.
19
Item 7.
  19
Item 7A.
26
Item 8.
26
Item 9.
26
Item 9A.
26
Item 9B.
28

PART III

Item 10.
28
Item 11.
31
Item 12.
35
Item 13.
37
Item 14.
39

PART IV

Item 15.
40
   
41
42
Certifications
 
 
Cautionary Note Regarding Forward-Looking Statements

This Annual Report on Form 10-K (this “Annual Report”) contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve substantial risks and uncertainties. The forward-looking statements are contained principally in Part I, Item 1. “Business,” Part I, Item 1A. “Risk Factors,” and Part II, Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” but are also contained elsewhere in this Annual Report. In some cases you can identify forward-looking statements by terminology such as “may,” “should,” “potential,” “continue,” “expects,” “anticipates,” “intends,” “plans,” “believes,” “estimates,” and similar expressions.

Forward-looking statements include, but are not limited to, statements about:

- our history of operating losses and our inability to achieve or guarantee profitable operations in the future or to continue operations;
- the risk that we will be unable to pay our debt obligations as they become due or that we will be able to find sufficient financing to fund our operations;
- risk that there will not be market acceptance of our products;
- our plans for commercialization of our products;
- possible problems in implementing new relationships or the failure to achieve the desire benefits from such relationships;
- our reliance on a limited number of product offerings;
- our product development efforts, including risk that we will not be able to produce our products in a cost-effective manner;
- our substantial dependence on the manufacturing facility owned by our toll manufacturer;
- our ability to secure new customers, maintain our current customer base and deliver product on a timely basis;
- our dependence on a small concentration of customers;
- possible issuances of common stock subject to options, warrants and other securities that may dilute the interest of stockholders, and/or future exercise of such options and warrants;
- our ability to protect technology through patents;
- our ability to protect our proprietary technology and information as trade secrets and through confidentiality agreements or other similar means;
- the effects of the 2015 expiration of the USDA patent we have employed in manufacturing our products;
- competition from larger, more established companies with far greater economic and human resources;
- fluctuations in the availability of raw materials and the price for agricultural products;
- the effect of changes in the pricing and margins of products;
- the potential loss of key personnel or other personnel disruptions;
- possible product recalls due to adulteration of products or materials, future regulatory action, or other concerns;
- our ability to comply with all government regulation and retain favorable regulatory status, such as GRAS status, of our products and ingredients;
- risk that we will not be able to remediate identified material weaknesses in our disclosure controls and procedures and internal control over financial reporting;
- sufficient voting power by one large stockholder to make corporate governance decisions that could have significant effect on us and the other stockholders;
- our nonpayment of dividends to common stockholders and lack of plans to pay dividends to common stockholders in the future;
- our need for additional financing;
- our ability to successfully defend future litigation, including possible claims related to products liability and infringement of intellectual property, as well as the outcome of regulatory actions and inquiries;
- future sale of a substantial number of shares of our common stock that could depress the trading price of our common stock, lower our value and make it more difficult for us to raise capital;
- our additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock;
- our stock is classified as a penny stock and subject to additional regulation as such; and
- our stock price is likely to be highly volatile due to a number of factors, including a relatively limited public float and potential for short sales of our stock.

These statements are based on our current beliefs, expectations, and assumptions and are subject to a number of risks and uncertainties, many of which are difficult to predict and generally beyond our control, that could cause actual results to differ materially from those expressed, projected or implied in or by the forward-looking statements. You should refer to Item 1A. “Risk Factors.” section of this Annual Report for a discussion of important factors that may cause our actual results to differ materially from those expressed or implied by our forward-looking statements. As a result of these factors, we cannot assure you that the forward-looking statements in this Annual Report will prove to be accurate. Furthermore, if our forward-looking statements prove to be inaccurate, the inaccuracy may be material. In light of the significant uncertainties in these forward-looking statements, you should not regard these statements as a representation or warranty by us or any other person that we will achieve our objectives and plans in any specified time frame, or at all. We do not undertake any obligation to update any forward-looking statements.

Unless the context requires otherwise, references to “we,” “us,” “our,” and “Agritech” refer to Agritech Worldwide, Inc.  We currently have no operating subsidiaries.
 
PART I

ITEM 1. BUSINESS.

Overview

Agritech Worldwide, Inc. (formerly Z Trim Holdings, Inc.) is an agritech company that owns existing, and seeks to develop new, products and processes that convert generally available agricultural by-products into multi-functional all-natural ingredients that can be used in food manufacturing and other industries. Our primary focus and the source of substantially all of our revenue is from the sale of our all-natural products, Z Trim®, to the food industry. We currently sell a line of all-natural products to the food industry designed to help manufacturers reduce their costs, improve the quality of finished goods, and solve many production problems.  Our innovative technology can provide value-added all-natural ingredients across virtually all food industry categories.  These products offer a range of functional attributes, including helping to reduce fat and calories, adding fiber, improving shelf-stability, preventing oil migration, and enhancing binding capacity – all without degrading the taste and texture of the final food products.  Perhaps most significantly, our  ingredients can help extend the life of finished products, potentially increasing our customers’ gross margins.

We have developed products that manage moisture to help reduce production costs and improve nutritional value in finished foods, while maintaining the essential taste and mouth-feel associated with full-fat products.  The potential global market for our line of products spans the entire food and nutritional beverage industry, including fat-free, low-fat, reduced-fat and full-fat, across meats, baked goods, dairy and non-dairy products, snacks, beverages, dressings, sauces and dips.

In July 2012, we opened an industrial products division focusing on the manufacture, marketing and sales of products designed specifically for industrial applications, including oil drilling fluids, petroleum coke, charcoal briquettes, hydraulic fracturing, and paper and wood adhesives.  When used in industrial operations, we believe that our  products can reduce costs, enhance supply-chain reliability, limit environmental impact, and improve finished product quality compared to current products such as guar gum, xanthan gum, CMC, lignosulfonates and starches used as binders, adhesives, viscofiers or emulsifiers. In January 2013, we entered into a joint development agreement with Newpark Drilling Fluids LLC, a subsidiary of Newpark Resources, Inc., to develop new, environmentally-friendly drilling fluids that incorporate our  proprietary industrial materials that could replace products such as guar and xanthan gums in drilling applications.

Products

Our core product portfolio of multifunctional food ingredients includes Corn Z Trim® (both GMO and non-GMO) and Oat Z Trim®. The superior water-holding capacity and amorphous structure of Z Trim ingredients are key to the exclusive multifunctional attributes they contribute to food product design, including moisture management, oil deflection, texture and appearance quality, fat and calorie reduction. Perhaps most significantly, these attributes allow manufacturers using our products to reduce costs of finished products by replacing more expensive ingredients with our fiber and water.  Z Trim® is now being used by food manufacturers world-wide, across a multitude of food categories, such as meats, sauces, soups, dressings, baked goods, fillings, toppings, prepared meals, dairy products, frozen handheld snacks, and pizza dough. Food formulators are seeking greater functionality and product performance than they can get from starches, gums, fats, and other fibers – for both standard and lower fat content foods - and are increasingly discovering how Z Trim® multifunctional ingredients can help to satisfy their consumers with finished products that we believe have enhanced eating quality, outstanding product performance, and frequently, improved nutritional profiles.

Major market drivers such as greater nutrition awareness, increasing obesity trends, the economy, rising costs and hectic lifestyles have triggered an evolution of the food industry and consumer expectations.  Our goal is to further enable food manufacturers to address the challenges and opportunities of this evolution by helping them to lower their costs, differentiate their products, achieve their growth objectives, and satisfy their customers.  Through ongoing product applications research, we develop solutions designed to help food manufacturers solve formulation and product challenges and capture market opportunities with high quality, innovative products that fulfill consumer demands.

We currently manufacture and market Z Trim® products as cost-competitive ingredients that help improve the food industry’s ability to deliver on its promises of quality, taste, and healthfulness. Our primary goal is to establish our products as important ingredients in the evolution of the food industry and consumer expectations.

We began manufacturing non-GMO corn products in early 2013 with the intent to meet the potentially expanding domestic and international demand.  On February 6, 2013, we announced that we had recorded our first sales of such products.

In 2012, we opened an industrial division seeking to serve a variety of industries, including, but not limited to, oil drilling, hydraulic fracturing, petroleum coking, pharmaceuticals, nutraceuticals, paper and corrugated box adhesives, and others.  We are developing products from our patented technologies to make value-added ingredients from low-cost agricultural sources to serve these industries.
 
In February 2013, we announced our first sale of industrial grade Bio-Fiber Gum for use in the petroleum coke industry.

Product Distribution

We are developing our food ingredient market through (i) direct and brokered sales to major food manufacturers, as well as small and midsize companies for packaged retail foods, and (ii) direct and brokered sales to large and small foodservice manufacturers that supply to restaurants, hospitals, schools and cafeterias. In addition to direct sales, we use a network of ingredient distributors, both domestic and international, to distribute our products.

Competition

Z Trim® ingredients compete with a wide variety of hydrocolloids and other fiber ingredients.  Within the food industry, depending on the food application, required functional properties and product development objectives, competitive ingredients might include gums (e.g., guar, xanthan, locust bean, and Arabic), seaweed extracts (e.g., alginates, carrageenan), starches (native, modified and resistant), and fibers (e.g., oat bran, corn bran, pea fiber, potato fiber).  Most of these competitive ingredients are well-established in the food industry, and many of the companies that supply them have substantially greater resources than we do.  However, we believe that the unique properties of our multifunctional fiber ingredients pose not only significant market opportunities for us, but also provide differentiation and growth opportunities for food companies.  We believe that no other single hydrocolloid or fiber has the combined water holding and binding capacity that is effective across as wide a pH and temperature range as Z Trim®, nor imparts as many superior attributes to the finished consumer food product.  Furthermore, we believe Z Trim® ingredients can have synergistic effects with other hydrocolloids and fibers, allowing food manufacturers to achieve even greater processing improvements, cost efficiencies, and finished product performance.  Many of the same ingredients used in foods are also used for industrial applications, where they compete with a similar complement of ingredients.  We believe that our products’ unique functionalities, combined with the fact that they are produced domestically from abundant raw material sources (agricultural by-products), provide us with strengths that our competitors’ products do not possess.

Sources and Availability of Raw Materials and the Names of Principal Suppliers

Raw materials used in Z Trim® products are sourced principally in the United States.  Approximately 70% of our raw materials consist of corn bran and oat hulls, which are generally available from a variety of suppliers.  Our major suppliers include Agricor, Inc. and Brenntag, Inc.  We seek to mitigate the risk of a shortage of raw materials through identification of alternative suppliers for the same or similar raw materials, where available. We have purchasing staff with extensive knowledge of our products that work with marketing, product research and development and quality control personnel to source raw materials for products and other items.

Dependence on a Few Major Customers

Our customers are predominantly food manufacturers.  There were three significant customers who accounted for 45%, 10% and 6%, respectively, of total sales for the year ended December 31, 2015. There were three significant customers who accounted for 28%, 26% and 6%, respectively, of total sales for the year ended December 31, 2014. The loss of any of these three customers we believe would have a material adverse effect on our revenue.

Intellectual Property

We protect our intangible assets that include patents pending and issued, as well as trade secrets and know how. Through the process of development and commercialization of our technology, we have identified and sought patent protection for improvements to the manufacturing process, product applications and we are currently developing several spin-off technologies.  On December 1, 2009, we were issued U.S. Patent No. 7,625,591 B2; which expires in 2026 subject to the payment of maintenance fees.  On July 27, 2010, we were issued U.S. Patent No. 7,763,301; which will expire in 2027 subject to payment of maintenance fees.  These patents expand the raw material sources for the creation of Z Trim products as well as incorporate blends of ingredients combined with Z Trim.

In March 2013 we, jointly with the USDA, filed a utility patent for our BioFiber Gum line of products, seeking patent protection for the composition of matter, process for making, as well as applications for, our proprietary soluble fibers (application number: PCT/US2014/0017376). In January 2015 the USDA commended global filings outside of the United States.

We have four additional utility patents on file that cover composition, process and various applications of Z Trim and BioFiber Gum, each filed jointly with the USDA

We continue to work with the USDA to expand its intellectual property portfolio; however, there can be no assurance that we will procure any additional intellectual property.
 
Government Regulation

We are subject to a broad range of federal, state, local and foreign laws and regulations intended to protect public health and the environment. Food production and marketing are highly regulated by a variety of federal, state, local, and foreign agencies.  However, as ingredients are made from natural raw material sources (corn and oat), they are considered Generally Recognized As Safe or “GRAS” and therefore not subject to many of the regulations applicable to foods.  Should the products lose their GRAS designation, we will be required to sell the products as food additives by obtaining a license to sell from each individual state in which sales would occur.  There is no assurance that we  would  be  able to successfully  obtain or  maintain  licenses  in all  states  in which  sales are expected to be made or that the cost of obtaining and maintaining these licenses would not limit its ability to sell its products.

In October 2012, the FDA approved the labeling of our products in meat applications. Specifically, the FDA has approved the use of our ingredients in ground, emulsified, and processed meats and poultry.  We believe this has created and will continue to create the potential for increased sales, although there can be no assurances.

Research and Development

Our R&D team, in conjunction with our customers and strategic industry partners, including the USDA, continues to work on the development of additional products and applications.  In June 2011, we entered into a 3-year agreement with the USDA to conduct joint research for the development of additional products and processes relating to its current patented products.  This agreement has been amended and the duration extended through May 31, 2016.  We require all employees and visitors to our plant to execute a non-disclosure agreement.  Our success depends to a significant degree upon our ability to develop proprietary products and technologies and to obtain patent coverage for these products and technologies. We intend to continue to file patent applications covering any newly developed products and technologies. However, there can be no guarantee that any of our pending or future filed applications will issue as patents.

Environmental Compliance

We do not face any material environmental compliance issues as a result of our manufacturing process, however there can be no assurances that we will continue to comply in the future.

Employees

Presently, we have 14 full-time employees.

Our History

We were originally incorporated in the State of Illinois on May 5, 1994 under the original name Circle Group Entertainment Ltd.  On June 21, 2006, we filed a certificate of amendment to our certificate of incorporation and changed our name to Z Trim Holdings Inc. On March 23, 2016, we changed our state of incorporation by engaging in a merger (the “Reincorporation”) with and into our newly formed wholly owned subsidiary, Agritech Worldwide, Inc., a Nevada corporation, pursuant to the terms and conditions of an Agreement and Plan of Merger entered into by Z Trim and Agritech on March 18, 2016 (the “Merger Agreement”).  The Reincorporation was consummated on March 23, 2016 and was effectuated by the filing of (i) articles of merger with the Secretary of State of the State of Nevada, and (ii) articles of merger with the Secretary of State of the State of Illinois. The Reincorporation effected a change in our legal domicile form Illinois to Nevada.  Upon the effectiveness of the Reincorporation our affairs of ceased to be governed by (i) Illinois corporation laws, (ii) our Articles of Incorporation, and (iii) our Bylaws, and our affairs became subject to (a) Nevada corporation laws, (b) Agritech’s Articles of Incorporation of and (c) Agritech’s Bylaws.  The resulting Nevada corporation is (i) be deemed to be the same entity as the Illinois corporation for all purposes under the laws of Nevada, (ii) continue to have all of the rights, privileges and powers of the Illinois corporation, (iii) continue to possess all properties of the Illinois corporation, and (iv) continues to have all of the debts, liabilities and obligations of the Illinois corporation.

Properties

Our principal offices are located at 1011 Campus Drive, Mundelein, Illinois 60060.

Available Information
 
Additional information about us is contained at our website, www.ztrim.com. Information contained on our website is not incorporated by reference into, and does not form any part of, this Annual Report on Form 10-K. We have included our website address as a factual reference and do not intend it to be an active link to our website.

We make available on our website our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K as soon as reasonably practicable after those reports are filed with the SEC. The following Corporate Governance documents are also posted on our website: Code of Conduct, Code of Ethics for Financial Management and the Charters for the Audit Committee, Compensation Committee and Nominating Committee of the Board of Directors. Our phone number is (847) 549-6002 and our facsimile number is (847) 549-6146. Our filings may also be read and copied at the SEC's Public Reference Room at 100 F Street NE, Room 1580 Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that website is www.sec.gov.
 
Item 1A. Risk Factors.

Investing in our common stock and securities involves a high degree of risk. In addition to the risks related to our business set forth in this Annual Report on Form 10-K and the other information included and incorporated by reference in this Annual Report on Form 10-K, you should carefully consider the risks described below before purchasing our common stock or other securities. Additional risks, uncertainties and other factors not presently known to us or that we currently deem immaterial may also impair our business operations.

Risks Relating to Our Business

We have a history of operating losses and cannot guarantee profitable operations in the future. Failure on our part to achieve profitability may cause us to reduce or eventually cease operations.

We incurred a net loss of $23,976,431 for the twelve months ended December 31, 2015, and had an accumulated deficit of $156,429,630.  We incurred a net loss of $5,579,708 for the twelve months ended December 31, 2014.

If we continue to incur significant losses, we may not be able to continue operations.  Even if we can continue operations, our cash reserves may be depleted earlier than currently anticipated, and we may be required to limit its future growth objectives to levels corresponding with its then available cash reserves.

Due to our history of losses, our accountants have raised substantial doubt with respect to our ability to continue as a going concern.

Although we have generated revenue, we are still operating at a significant net loss, and may continue to incur significant losses for a period of time.  We will be required to obtain additional financing in order to repay existing contractual obligations coming due in 2016, and to continue to cover operating losses and working capital needs.  We cannot assure you that our revenue generated from operations or any future funds we raise will be sufficient to support our continued operations.

The audit report of M&K CPAS, PLLC for the fiscal year ended December 31, 2015 contained a paragraph that emphasizes the substantial doubt as to our continuance as a going concern.  This is a significant risk that we may not be able to generate or raise enough capital to remain operational for an indefinite period of time.

If we do not obtain additional financing, we will be required to discontinue operations.

As of December 31, 2015, we had cash in the amount of $309,851 and total liabilities in the amount of $4,918,652. We also had a working capital deficit of $3,801,651 as of December 31, 2015. Over the last several years, our operations have been funded primarily through the sale of both equity and debt securities. However, we still require additional financing to fully implement our business plan for the next twelve months and beyond.  Our current cash on hand is insufficient for us to be able to maintain its operations at the current level through June 30, 2016.  In order to continue to pursue our business plan, we will require additional funding. If we are not able to secure additional funding, the implementation of our business plan will be delayed and its ability to maintain or expand operations will be impaired. We intend to secure additional funding through debt or equity financing arrangements, increased sales generated by operations and reduced expenses.

Our ability to repay our loans is predicated on future sales growth and generating positive cash flow from the business or securing other financing.

As of December 31, 2015, we had total liabilities of $4,918,652, which includes $1,831,866 of short term notes.   The amount of revenues generated by the business has been insufficient to support ongoing daily operations.  Previously, we had to rely on new equity or debt financing in order to satisfy other financing incurred by us.  Our current cash balance as of April 11, 2016 of $610,209 will not be sufficient to repay the loans and support our continuing operations as planned. There are no assurances that we will secure additional debt or equity financing in order to pay off the loans and support our continuing operations as planned.
 
Our success is dependent on market acceptance of our products. We make no projections regarding the viability of our functional food ingredients and we cannot assure you that we will achieve any particular results.

We have not conducted, nor have others made available to us, results of market research indicating how much market demand exists for Z Trim, our functional food ingredient. We are relying on the current concerns over obesity, weight-health issues, and the rising cost of both foods and health care to drive demand for line of products offered to the food and nutritional beverage industry. We have only recently begun exploring the use of our products for non-food usage (such as industrial products) and are also unable to determine whether there will be a viable non-food market going forward. We cannot assure you that we will be able to gain the market acceptance necessary to achieve profitability or that a significant market will exist for our products.
 
We make no projection with respect to our future income, assets or business. No expert has reviewed our business plan for accuracy or reasonableness. It is likely that our actual business and results of operations will differ from those presented herein.

We derive a significant portion of our current revenues and order bookings from a small number of customers.

Our revenues and order bookings are concentrated with a small number of customers. There were three significant customers who accounted for 45%, 10% and 6%, respectively, of total sales for the year ended December 31, 2015. There were three significant customers who accounted for 28%, 26% and 6%, respectively, of total sales for the year ended December 31, 2014. The loss of one or more of our customers or material changes to the contracts with or payment terms of these customers may result in a significant business interruption through reduced revenues, reduced cash flows, delays in revenues or cash flows and such delays or reductions could have a material adverse impact on our future revenue growth and results of operations, as well as our ability to continue operations.

Our manufacturing facility is currently operating at a loss and at this time we do not have any commitments for manufacturing at another location.

Our manufacturing facility was intended to be a pilot plant.  In order to fully implement our business plans we will need to successfully ramp up production at a second facility, move the operations to larger facilities, develop strategic partnerships or find other means to produce greater volumes of finished product, and we cannot assure that we will be able to do so or to achieve positive gross margins and profitable operations.

In 2012 we launched a new industrial products division in which we had no prior experience.

The industrial products division focuses on the manufacture, marketing and sale of products designed for industrial applications, such as oil drilling fluids, petroleum coke, charcoal briquettes, hydraulic fracturing, and paper and wood adhesives.  Prior to its launch in 2012 we had no prior experience in the manufacturing, marketing or sale of industrial products.  To date we have had limited sales of products by this division.  We may not be successful in these activities and may never generate significant revenues or profitability from our industrial products division.

The availability and cost of agricultural products that we use in our business are subject to weather and other factors beyond our control.

All of our current products depend on our proprietary technology using agricultural products, mainly corn bran and oat hull. Historically, the costs of corn bran and oat hull are subject to fluctuations depending upon a number of factors which affect commodity prices in general and over which we have no control, including crop conditions, weather, government programs and purchases by foreign governments. Commodity price changes may result in unexpected increases in raw material, packaging, and energy costs.  We currently do not hedge against changes in commodity prices.  If we are unable to increase productivity to offset these increased costs or increase our prices, we may experience reduced margins and profitability.
 
Since we are totally dependent on our current manufacturing facility; any operational disruption would result in a reduction of our sales volumes and could cause us to incur additional substantial losses.

Our revenues primarily are derived from the sale of functional ingredients made from dietary fiber that we manufacture at our pilot plant. Our operations may be subject to significant interruption if our facility experiences a major accident or is damaged by severe weather or other natural disasters.  In addition, our operation may be subject to labor disruptions and unscheduled downtime, or other operational hazards inherent in the industry, such as equipment failures, fires, explosions, abnormal pressures, blowouts, pipeline ruptures, transportation accidents and natural disasters. Some of these operational hazards may cause personal injury or loss of life, severe damage to or destruction of property and equipment or environmental damage, and may result in suspension of operations and the imposition of civil or criminal penalties. Our insurance may not be adequate to fully cover the potential operational hazards described above; in addition, we may not be able to renew this insurance on commercially reasonable terms or at all.

If competition increases, our ability to attract and retain customers or expand our business could be impaired.

Competition is intense in our targeted industries, including nutraceuticals, functional food ingredients, oils, and gums.  A large number of businesses are engaged in various fat replacement industries. Many of our competitors have established reputations for successfully developing and marketing their products, including products that are widely recognized as providing similar calorie reduction. In addition, many of our competitors have greater financial, managerial, and technical resources than we have.   If we are not successful in competing in these markets, we may not be able to attain our business objectives or continue operations.

Our intellectual property rights are valuable, and any inability to protect them could reduce the value of our products, services and brand.

Our patents, trademarks, trade secrets, copyrights and other intellectual property rights are important assets for us.  Various events outside of our control pose a threat to our intellectual property rights as well as to our products and services.  For example, effective intellectual property protection may not be available in every country in which our products and services are distributed.  Also, the efforts we have taken to protect our proprietary rights may not be sufficient or effective.  Any significant impairment of our intellectual property rights could harm our business or our ability to compete.  Also, protecting our intellectual property rights is costly and time consuming.  Any increase in the unauthorized use of our intellectual property could make it more expensive to do business and harm our operating results.

Additionally, there can be no assurance that competitors will not develop, patent or gain access to similar know-how and technology, or reverse engineer our products, or that any confidentiality agreements upon which we rely to protect our trade secrets and other proprietary information will be adequate to protect our proprietary technology. The occurrence of any such events could have a material adverse effect on our results of operations and financial condition.

Our inability to secure and protect our intellectual property may result in costly and time-consuming litigation and could impede us from ever attaining market success.

Although we seek to obtain patent protection for our innovations, it is possible we may not be able to protect some of these innovations.  In addition, given the costs of obtaining patent protection, we may choose not to protect certain innovations that later turn out to be important.  Furthermore, there is always the possibility, despite our efforts, that the scope of the protection gained will be insufficient or that an issued patent may be deemed invalid or unenforceable.

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information and may not adequately protect our intellectual property.

We rely on the legal protections of trade secrets to protect our technology, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. In order to protect our proprietary technology and processes, we also rely in part on confidentiality and intellectual property assignment agreements with our corporate partners, employees, consultants, outside scientific collaborators and sponsored researchers and other advisors. These agreements may not effectively prevent disclosure of confidential information nor result in the effective assignment to us of intellectual property, and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information or other breaches of the agreements. In addition, others may independently discover our trade secrets and proprietary information, and in such case we could not assert any trade secret rights against such party. Enforcing a claim that a party illegally obtained and is using our trade secrets is difficult, expensive and time consuming, and the outcome is unpredictable. In addition, courts outside the United States may be less willing to protect trade secrets. Costly and time-consuming litigation could be necessary to seek to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.
 
Our competitors may design products around our intellectual property protection.

We hold an intellectual property portfolio, including patent, trademark, copyright and trade secret protection.  Our competitors, however, may design around our patent claims, rendering our patent protection ineffective against such competitors.  Similarly, our competitors may independently develop technology similar to our trade secrets and technical know-how.  Such occurrences could increase competitive pressure on our marketing and sales efforts, and adversely affect our results of operation.

We may not be successful in avoiding claims that we infringe others’ proprietary rights and could be required to pay judgments or licensing fees.

Any claim that we infringe a third party’s patents or other intellectual property rights, whether meritorious or not, could be time consuming and result in costly litigation.  If any of our practices are found to be in violation of another party’s rights, we may be required to pay monetary damages or licensing fees, which could be substantial, or cease making products which are deemed to be infringing.  Any of those occurrences could substantially harm our business, results and financial condition.

If our food products become adulterated, misbranded, or mislabeled, we might need to recall those items and may experience product liability claims if consumers are injured.

We may need to recall some of our products if they become adulterated, misbranded, or mislabeled. A widespread product recall could result in significant losses due to the costs of a recall, the destruction of product inventory, and lost sales due to the unavailability of product for a period of time. In such a case, or in the event that injuries are determined to arise from our products, we could also suffer losses from a significant product liability judgment against us. A significant product recall or product liability case could also result in adverse publicity, damage to our reputation, and a loss of consumer confidence in our food products, which could have a material adverse effect on our business results and the value of our brands.

If we fail to comply with government regulation impacting our business, we may be subject to a range of sanctions that will adversely impact our operations.

We are subject to extensive regulation, and compliance with existing or future laws and regulations may require us to incur substantial expenditures or require us to make product recalls.  As such, we are subject to a broad range of federal, state, local and foreign laws and regulations intended to protect public health and the environment.  Food production and marketing are highly regulated by a variety of federal, state, local, and foreign agencies.  Changes in laws or regulations that impose additional or different regulatory requirements on us could increase our cost of doing business or restrict our actions, causing our results of operations to be adversely affected.  In addition, we advertise our products.  Our advertisements could be the target of claims relating to alleged false or deceptive advertising under federal, state, and foreign laws and regulations and of new laws or regulations restricting our right to advertise products.

Our operations are also subject to regulation by various federal agencies, including the Alcohol and Tobacco Tax Trade Bureau, the Occupational Safety and Health Administration, the Food and Drug Administration and the Environmental Protection Agency, and by various state and local authorities.  Such regulation covers virtually every aspect of our operations, including production facilities, marketing, pricing, labeling, packaging, advertising, water usage, waste water discharge, disposal of hazardous wastes and omissions and other matters.  Violations of any of these laws and regulations may result in administrative, civil or criminal penalties being levied against us, permit revocation or modification, performance of environmental investigatory or remedial activities, voluntary or involuntary product recalls, or a cease and desist order against operations that are not in compliance.  These laws and regulations may change in the future and we may incur material costs in our efforts to comply with current or future laws and regulations or to affect any product recalls. These matters may have a material adverse effect on our business.

If our products do not satisfy governmental regulations, we may be unable to obtain regulatory approval or may be required to obtain multiple licenses to sell our products.

We have self-certified that all components of its products are generally recognized as safe (“GRAS”) according to the U.S. Food and Drug Administration regulations.  A GRAS designation exempts the products from the regulations of the U.S. Department of Agriculture, permitting the sale of the products anywhere in the United States without obtaining a license. Should the products lose their GRAS designation, we will be required to sell the products as food additives by obtaining a license to sell from each individual state in which sales would occur.  There is no assurance that we will be able to successfully obtain or maintain licenses in all states in which  sales are expected to be made or that the cost of obtaining and maintaining these licenses would not limit its ability to sell its products.
 
We are subject to periodic litigation and other regulatory proceedings, which could result in unexpected expense of time and resources.

We have been a defendant from time to time in lawsuits and regulatory actions relating to our business, including litigation brought by former employees. Due to the inherent uncertainties of litigation and regulatory proceedings, we cannot accurately predict the ultimate outcome of any such proceedings. An unfavorable outcome could have an adverse impact on our business, financial condition and results of operations. In addition, any significant litigation in the future, regardless of its merits, could divert management’s attention from our operations and result in substantial legal fees.

We have identified material weaknesses in our internal control over financial reporting, which could impact negatively our ability to report our results of operations and financial condition accurately and in a timely manner.

Effective internal controls over financial reporting are necessary for us to provide reliable financial reports.  We have identified material weaknesses in these controls.  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 our annual or interim financial statements will not be prevented or detected on a timely basis.  In our annual evaluation of the effectiveness of our internal control over financial reporting conducted by management as required by the Sarbanes-Oxley Act of 2002, at December 31, 2015, we identified material weaknesses in our internal control over financial reporting and concluded that, as of December 31, 2015, we did not maintain effective control over financial reporting based on criteria established in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. For a detailed description of these material weaknesses, see Item 9A, “Controls and Procedures,” herein.  Each of our material weaknesses results in more than a remote likelihood that a material misstatement of the annual or interim financial statements that we prepare will not be prevented or detected. As a result, we are required to perform additional work to obtain reasonable assurance regarding the reliability of our financial statements.

As of December 31, 2015, we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a – 15(c) and 15d – 15(e)).  Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of the end of the period covered in this report, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed under the Exchange Act is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

If we are unsuccessful in developing and implementing or following a remediation plan, or fail to update our internal control over financial reporting as our business evolves, we may not be able to timely or accurately report our financial condition, results of operations or cash flows or to maintain effective disclosure controls and procedures. If we are unable to report financial information in a timely and accurate manner or to maintain effective disclosure controls and procedures, we could be subject to, among other things, regulatory or enforcement actions by the SEC, securities litigation and a general loss of investor confidence, any one of which could adversely affect our business prospects and the market value of our common stock.

Failure to attract and retain qualified personnel could lead to a loss of revenue and/or profitability.

Our success depends, in part, on the efforts and abilities of our management team and other key employees. Their skills, experience and industry contacts significantly benefit our operations and administration. The failure to attract and retain members of our management team and other key employees could have a negative effect on our operating results. In addition, transitions of important responsibilities to new individuals inherently include the possibility of disruptions to our business and operations, which could negatively affect our business, financial condition, results of operations and cash flow.
 
Risks Relating to our Common Stock

Our stock trades at low prices per share and trades on the OTC Markets Group's OTCQB electronic quotation system, which provides limited liquidity and significant volatility.

Since our common stock is currently traded on the OTC Markets Group’s OTCQB electronic quotation system (the “OTCQB”), investors may find it difficult to obtain accurate quotations of our common stock and may experience a lack of buyers to purchase such stock or a lack of market makers to support the stock price.  Being a penny stock also could limit the liquidity of our common stock and limit the coverage of our stock by analysts.  The OTCQB generally provides less liquidity than stock exchanges like NYSE or NASDAQ.  Stocks trading on the OTC markets may be very thinly traded and highly volatile.  Therefore, holders of our common stock may be unable to sell their shares at any price, whether or not such shares have been registered for resale.  A public trading market having the desired characteristics of depth, liquidity and orderliness depends on the presence in the marketplace of willing buyers and sellers of our common shares at any given time.  This presence depends on the individual decisions of investors and general economic and market conditions over which we have no control.  Given the lower trading volume of our common shares, significant sales of our common shares, or the expectation of these sales, could cause our share price to fall.

There may be a limited public market for our securities; we presently fail to qualify for listing on any national securities exchanges.

Our common stock currently does not meet all of the requirements for initial listing on a national securities exchange. Specifically, the bid price of our common stock is less than the minimum bid price required to obtain a listing. Trading in our common stock continues to be conducted in the over-the-counter market. As a result, an investor may find it difficult to dispose of or to obtain accurate quotations as to the market value of our common stock, and our common stock may be less attractive for margin loans, for investment by larger financial institutions, as consideration in possible future acquisition transactions or other purposes.

The fluctuation in our stock price may result in a decline in, or the loss of, the value of your investment.

The price of our common stock has fluctuated widely in the past, and may continue to do so.  In 2015 our stock had high and low bid prices of $0.51 and $0.04, respectively.  In 2014 our stock had high and low bid prices of $1.10 and $0.15, respectively.  This volatility is likely to continue for the foreseeable future. Factors affecting potential volatility include:

- differences between our actual financial and operating results and those expected by investors and analysts;
- our cash resources and our ability to obtain additional funding;
- announcements of private or public sales of our securities;
- announcements by us or a competitor of business development or exhibition projects;
- our entering into or terminating strategic business relationships;
- changes in government regulations;
- changes in our revenue or expense levels;
- fluctuations in operating results and general economic and other external market factors;
- negative reports on us by security analysts or changes in analysts' recommendation or projections;
- short selling of our stock in the market;
- developments and resolution of current litigation that we are a party to; and
- announcements of new products or technologies by us or our competitors.

The occurrence of any of these events may cause the price of the common stock to fall.  In addition, the stock market in general has recently experienced volatility that often has been unrelated to the operating performance or financial condition of individual companies.  Any broad market or industry fluctuations may adversely affect the trading price of our common stock, regardless of operating performance or prospects.

Companies that experience volatility in the market price of their securities often are subject to securities class action litigation.  This type of litigation, if instituted against us, could result in substantial costs and divert management’s attention and resources away from our business.

Shares eligible for future sale may adversely affect the market for our common stock.

From time to time, certain of our stockholders may be eligible to sell all or some of their shares of common stock by means of ordinary brokerage transactions in the open market pursuant to Rule 144 (“Rule 144”), promulgated under the Securities Act of 1933, as amended (the “Securities Act”), subject to certain limitations. In general, pursuant to Rule 144, a stockholder (or stockholders whose shares are aggregated) who has satisfied the required holding period may, under certain circumstances, sell within any three-month period a number of securities which does not exceed the greater of 1% of the then outstanding shares of common stock. Rule 144 also permits, under certain circumstances, the sale of securities, without any limitations, by a non-affiliate of our company that has satisfied a one-year holding period. Any substantial sale of common stock pursuant to Rule 144 or pursuant to any resale prospectus may have an adverse effect on the market price, if any, of our securities.
 
Exercises of stock options, warrants and other convertible securities will dilute your percentage of ownership and could cause our stock price to fall.

As of April 14, 2016, we had outstanding stock options to purchase 11,103,275 shares of common stock and outstanding warrants to purchase 50,957,780 shares of our common stock, at prices ranging from $0.35 to $0.64 per share.  Additionally, we have reserved up to a total of 40,000,000 shares (inclusive of the outstanding stock options) to be issued pursuant to equity awards under our Incentive Compensation Plan. The exercise, conversion or exchange of stock options, warrants or convertible securities will dilute the percentage ownership of our other stockholders. Sales of a substantial number of shares of our common stock could cause the price of our common stock to fall and could impair our ability to raise capital by selling additional securities.

We have additional securities available for issuance, which, if issued, could adversely affect the rights of the holders of our common stock.

Pursuant to our recently adopted Articles of Incorporation, we have the authority to issue up to 500,000,000 shares of common stock and 25,000,000 shares of preferred stock. The common stock and preferred stock, as well as the awards available for issuance under the Incentive Compensation Plan, can be issued by our board of directors without stockholder approval. We will not be required to seek, and will generally not seek, stockholder approval in connection with our equity offerings.  Any future issuances of such stock would further dilute the percentage ownership of us held by public stockholders. Any preferred stock that is issued may rank ahead of our common stock in terms of dividends, liquidation rights and voting rights and could adversely affect the voting power and the rights of our holders of common stock. In addition, the issuance of the preferred stock may be used as an “anti-takeover” device without further action on the part of our stockholders, and may adversely affect the holders of the common stock.

Our principal stockholder has the ability to exert significant influence in determining the outcome of all corporate transactions or other matters which require the approval of our stockholders and may have different interests than you.

Aristar Capital Management, LLC (“Aristar Capital”), Aristar Ventures I, LLC (“Aristar I”), Aristar Ventures I-B, LLC (“Aristar I-B”), and Aristar Ventures I-C, LLC (“Aristar I-C”), (collectively “Aristar Ventures”), entities indirectly controlled by Edward B. Smith III, our Chief Executive Officer, beneficially own approximately 73.2% of our common stock. Edward B. Smith III, is the beneficial owner of 80.5% of our outstanding shares of common stock. As a result, Aristar has a significant influence in determining the outcome of all corporate transactions or other matters which require approve of our stockholders, including mergers, consolidations and the sale of all or substantially all of our assets, the power to elect directors to the board of directors, and also the power to prevent or cause a change in control.  Aristar may prevent or frustrate attempts to effect a transaction or series of transactions that is or are in our best interests or our minority stockholders. The interests of Aristar may differ from the interests of the other stockholders.  In addition, this concentration of ownership may delay or prevent a change in our control, even when a change in control may be in our best interest or the other stockholders, and might affect the market price of our common stock. Furthermore, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders.

Certain of our officers and directors have sufficient voting power to make corporate governance decisions that could have a significant effect on us and the other stockholders.

As of April 14, 2016, our officers and directors together beneficially own approximately 82.7% of our outstanding common stock on a fully diluted basis. Mr. Smith alone through his direct and indirect holdings beneficially owns approximately 80.5% of our outstanding common stock on a fully diluted basis. As a result, Mr. Smith, alone will be able to exert a significant degree of influence over our management and affairs and over matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. In addition, this concentration of ownership may delay or prevent a change in our control and might affect the market price of our common stock, even when a change in control may be in the best interest of all stockholders. Furthermore, the interests of this concentration of ownership may not always coincide with our interests or the interests of other stockholders. Accordingly, these stockholders could cause us to enter into transactions or agreements that we would not otherwise consider.
 
Our stock price may drop unexpectedly due to short selling of our common stock in the market.

We have experienced and may continue to experience unexpected declines in our stock price due to manipulation of the market by individuals who profit by short selling our common stock. Short selling occurs when an individual borrows shares from an investor through a broker and then sells those borrowed shares at the current market price. The "short seller" profits when the stock price falls because he or she can repurchase the stock at a lower price and pay back the person from whom he or she borrowed the stock, thereby making a profit. We cannot assure you that short sellers will not drive the stock price down in the future, causing decline in the value of your investment.

We do not plan to pay dividends to holders of common stock.

We do not anticipate paying cash dividends to the holders of the common stock at any time.  Accordingly, investors in our common stock must rely upon subsequent sales after price appreciation as the sole method to realize a gain on investment. There are no assurances that the price of common stock will ever appreciate in value. Investors seeking cash dividends should not buy our securities.

Because the SEC imposes additional sales practice requirements on brokers who deal in our shares, which are penny stocks, some brokers may be unwilling to trade them.  This means that you may have difficulty in reselling your shares and may cause the price of the shares to decline.

Our stock is a penny stock. The SEC generally defines “penny stock” to be any equity security that has a market price less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and limit the marketability of, our common stock.

In addition to the “penny stock” rules promulgated by the SEC, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative, low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock.

ITEM 1B. Unresolved Staff Comments.

None.

ITEM 2. Properties.

We occupy approximately 44,000 square feet of leased space at 1011 Campus Drive, Mundelein, Illinois. This space is leased for $17,542 per month, including property taxes.  The current lease term is on a month to month basis.  Currently, we are negotiating a lease renewal with the landlord.

We do not own any real property. We believe that we have adequate space for our anticipated needs and that suitable additional space will be available at commercially reasonable prices as needed.
 
ITEM 3. Legal Proceedings.

In July 2007, we were sued in the 20th Judicial Circuit Court, St. Clair County, Illinois by Joseph Sanfilippo and James Cluck for violation of the Consumer Fraud Act and they are seeking damages in excess of $200,000.  The trial court has issued a default order against us, and has denied our motion to reconsider.  Management believes that the trial court’s rulings were erroneous and that it has grounds for appeal, and that the underlying allegations are frivolous and wholly without merit. We intend to vigorously defend the claim. The outcome of this matter is unknown as of the report date.  However, we have conservatively allocated a reserve of $102,000 to satisfy any liability it may incur as a result of this proceeding. The status at December 31, 2015 and December 31, 2014 has remained the same.
 
Although there can be no assurances, based on the information currently available, management believes that it is probable that the ultimate outcome of this action will not have a material adverse effect on our financial statements.  However, an adverse outcome could have a material adverse effect on our financial results in the period in which it is recorded.

ITEM 4. Mine Safety Disclosures.

Not Applicable.

PART II

ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Since October 6, 2010 our common stock has been quoted on the “OTCQB” electronic quotation system.

The market for our common stock is limited, volatile and sporadic.  The following table sets forth the range of high and low bid quotations for our common stock for each of the periods indicated as reported by the OTCQB.  Where such information is not available, the high and low closing bid quotations as reported by the OTCQB have been provided.  These quotations below reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not necessarily represent actual transactions.  The closing price of our common stock on April 11, 2016 was $0.04.
 
YEAR ENDED DECEMBER 31, 2015
 
HI
   
LOW
 
             
First Quarter
 
$
0.51
   
$
0.23
 
Second Quarter
 
$
0.35
   
$
0.17
 
Third Quarter
 
$
0.37
   
$
0.12
 
Fourth Quarter
 
$
0.20
   
$
0.04
 
                 
YEAR ENDED DECEMBER 31, 2014
               
                 
First Quarter
 
$
1.10
   
$
0.47
 
Second Quarter
 
$
0.90
   
$
0.46
 
Third Quarter
 
$
0.84
   
$
0.31
 
Fourth Quarter
 
$
0.65
   
$
0.15
 
 
Holders

As of March 31, 2016, there were approximately 3,459 record holders of the common stock.  This number does not include shareholders whose shares are held with brokers.

Dividends

To date, we have not declared or paid cash dividends on our shares of common stock.  We do not anticipate paying cash dividends to the holders of common stock at any time.

Securities Authorized for Issuance Under Equity Compensation Plans

The following table sets forth certain information regarding grants under our equity compensation plan as of December 31, 2015:
 
Plan Category
 
Number of securities to
be issued upon exercise of
outstanding options, warrants and rights
   
Weighted-average exercise price of
outstanding options,
warrants and rights
    Number of securities remaining available for
future issuance under
equity compensation plans
 
                   
Equity compensation plans approved by stockholders (1)
   
11,103,275
   
$
0.57
     
6,896,725
 

(1)  All options or shares relate to our Incentive Compensation Plan, which was approved by stockholders in 2012.
 
Issuer Purchases of Equity Securities

We have never repurchased any shares of our common stock.

Recent Issuances of Unregistered Securities

We did not sell any equity securities during the fiscal year ended December 31, 2015 in transactions that were not registered under the Securities Act, other than as set forth below or as previously disclosed in our filings with the Securities and Exchange Commission.
 
Effective January 1, 2015, we issued 20,025 shares of our 12.5% Convertible Preferred Stock to our landlord and a five year warrant to the landlord to purchase 171,414 shares of common stock at $0.64 per share.

On May 12, 2015, we issued 12,500 shares of 12.5% Convertible Preferred Stock and 107,000 warrants to acquire our Common Stock at an exercise price of $0.64 per share in satisfaction of outstanding accounts payable in the amount of $60,885 due to a vendor.

On October 20, 2015, we issued 50,000 units in a private placement offering in consideration of our receipt of $200,000. Each unit consists of (i) one (1) share of 12.5% Convertible Preferred Stock and (ii) one (1) warrant, to acquire 8.56 shares of our common stock at an exercise price of $0.64 per share all pursuant to a separate Securities Purchase Agreement entered into with the investor.
 
On November 4, 2015, we issued 50,000 units in a private placement offering in consideration of our receipt of $200,000. Each unit consists of (i) one (1) share of 12.5% Convertible Preferred Stock and (ii) one (1) warrant, to acquire 8.56 shares of our common stock at an exercise price of $0.64 per share all pursuant to a separate Securities Purchase Agreement entered into with the investor.
 
None of the issuances of the securities described above were registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(a)(2) under the Securities Act and corresponding provisions of state securities laws, which exempt transactions by an issuer not involving any public offering. The investors represented their intention to acquire the securities for investment only and not with a view towards distribution. The investors were given adequate information about us to make an informed investment decision. We did not engage in any general solicitation or advertising.
 
ITEM 6. Selected Financial Data.

 Not Applicable.

ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation.

This Management’s Discussion and Analysis of Financial Condition and Results of Operations contains forward-looking statements.  Forward-looking statements are subject to risks, uncertainties and assumptions which could cause actual results to differ materially from those projected, including those described in Item 1A, “Risk Factors,” in Part I of this report and in “Cautionary Note Regarding Forward-Looking Statements” of this report.

The following discussion should be read in conjunction with our consolidated financial statements and the related notes to the consolidated financial statements in Item 8, “Financial Statements and Supplementary Data,” in Part II of this report.

Overview

We are an agritech company that owns existing, and seeks to develop new, products and processes that convert generally available agricultural by-products into multi-functional all-natural ingredients that can be used in food manufacturing and other industries. We currently sell a line of all-natural products to the food industry designed to help manufacturers reduce their costs, improve the quality of finished goods, and solve many production problems.  Our primary focus and the source of substantially all of our revenue is from the sale of our all-natural products, Z Trim®, to the food industry. Our innovative technology can provide value-added all-natural ingredients across virtually all food industry categories.  These products offer a range of functional attributes, including helping to reduce fat and calories, adding fiber, improving shelf-stability, preventing oil migration, and enhancing binding capacity – all without degrading the taste and texture of the final food products.  Perhaps most significantly, our ingredients can help extend the life of finished products, potentially increasing its customers’ gross margins.

We have developed products that manage moisture to help reduce production costs and improve nutritional value in finished foods, while maintaining the essential taste and mouth-feel associated with full-fat products.  The potential global market for our line of products spans the entire food and nutritional beverage industry, including fat-free, low-fat, reduced-fat and full-fat, across meats, baked goods, dairy and non-dairy products, snacks, beverages, dressings, sauces and dips.

Going Concern

We incurred a net loss of $23,976,431 for the twelve months ended December 31, 2015, and had an accumulated deficit of $156,429,630.  As of December 31, 2015, we had cash in the amount of $309,851 and total liabilities in the amount of $4,918,652. We also had a working capital deficit of $3,801,651 as of December 31, 2015. Over the last several years, our operations have been funded primarily through the sale of both equity and debt securities. However, we still require additional financing to fully implement our business plan for the next twelve months and beyond.   As of the date of our most recent audit, for the fiscal year ended December 31, 2015, we had not generated sufficient revenues to meet our cash flow needs.  Our current cash on hand is insufficient for us to be able to maintain its operations at the current level through June 30, 2016.As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern.  Although we have generated revenue, we are still operating at a net loss, and may continue to incur losses for a period of time.  We cannot assure you that we will be able to obtain sufficient funds from our operating or financing activities to support our continued operations.  If we cannot continue as a going concern, we will need to substantially revise our business plan or cease operations, which will reduce or completely eliminate the value of your investment.

2015 Financings

Private Placement

Funding Initiatives

On January 8, 2015, we entered into agreements to sell an aggregate of 260,000 units to eight (8) accredited investors at a price per unit of $4.00 (the “Units”) with each Unit consisting of (i) one (1) share of 12.5% Redeemable Convertible Preferred Stock (the “Preferred Shares”) and (ii) one (1) warrant (the “Initial Warrant”), representing the right to acquire 8.56 shares of our common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share, for aggregate cash proceeds of $1,040,000 pursuant to separate purchase agreements entered into with each investor (the “Securities Purchase Agreements”). On February 9, 2015, we closed a second round of our private placement offering with four (4) accredited investors in which we raised gross proceeds of $500,000 and sold 125,000 Units.  In addition, we issued to each of the investors in the first and second round of financing an additional warrant for each Unit acquired (the “Additional Warrant” and together with the Initial Warrant, the “Warrants”) to acquire 3.64 shares of our common stock at an exercise price of $0.64 per share.  The Additional Warrants issued in the initial closing of 260,000 Units are exercisable for an aggregate of 946,400 shares of our common stock. The Initial Warrants issued in the second closing are exercisable for 1,070,000 shares of our common stock and the Additional Warrants issued in the second closing are exercisable for an aggregate of 455,000 shares of our common stock. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti-dilution protection and entitled to registration rights as set forth below.  Subsequent to February 9, 2015, we sold an additional 187,500 units, each unit consists of (i) one Preferred Share and (ii) one (1) warrant to acquire 8.56 shares of our common stock at an exercise price of $0.64 per share for aggregate cash proceeds of $750,000.
 
Due to the anti-dilution provisions of some of the outstanding warrants, the exercise price on 15,512,057 warrants was reduced to $0.35 and the number of shares of common stock into which the warrants were then exercisable was adjusted such that the warrants became exercisable into 50,957,780 shares of common stock.

 In addition to the foregoing, the members of our Board of Directors agreed to receive an aggregate of 96,589 Units (representing one (1) Unit for every $4.00 of debt exchanged), 826,806 Initial Warrants and 351,586 Additional Warrants in exchange for previously issued convertible notes (including principal and accrued and unpaid interest) (the “Notes”) held by the directors or affiliated entities as follows: (i) 71,211 Units, 609,566 Initial Warrants and 259,208 Additional Warrants were issued to Edward B. Smith III, our Chief Executive Officer, in exchange for an aggregate of $284,844 of notes and accrued interest, (ii) 10,084 Units, 86,317 Initial Warrants and 36,705 Additional Warrants were issued to Morris Garfinkle in exchange for $40,335 of notes and accrued interest; (iii) 5,211 Units, 44,606 Initial Warrants and 18,968 Additional Warrants were issued to each of Mark Hershhorn and Brian Israel in exchange for an aggregate of $20,844 of notes and accrued interest, respectively; and (v) 4,873 Units, 41,712 Initial Warrants and 17,737 Additional Warrants were issued to CKS Warehouse, an entity in which Mr. Hershhorn owns a controlling interest, in exchange for an aggregate of $19,491 of principal and interest on notes and accrued interest.

After the Reincorporation, each outstanding Preferred Share continued to be an outstanding share of the Nevada corporation’s preferred stock. The following is a summary of material provisions of the Preferred Shares as set forth in the Certificate of Designations

Dividends

The Preferred Shares accrue dividends at the rate per annum equal to 12.5% of the sum of (i) the Stated Value (which initially is $4.00) and (ii) the amount of accrued and unpaid dividends payable.  Accrued dividends are payable on the Maturity Date (as defined below) in cash or shares of common stock at the option of the holder.

Conversion

Subject to adjustment, each Preferred Share (together with any accrued but unpaid dividends thereon) is convertible into shares of common stock at the option of the holder at any time at a conversion price per share equal to the sum of the Stated Value and any accrued but unpaid dividends thereon through the date of redemption divided by the conversion price, subject to adjustment as described below. The initial conversion price shall be equal to $0.35.  At any time the closing bid price of the common stock exceeds $1.75 (subject to adjustment) for five consecutive trading days, we may cause the conversion of the Preferred Shares, plus accrued but unpaid dividends into shares of common stock (the “Call Provision”). If the Call Provision is exercised, holders will be entitled to all of the dividends they would have received as if they had converted on the date of redemption (discussed below). In addition, if a holder elects to convert their Preferred Shares, the holder will receive upon conversion a number of shares of common stock equal to the number of shares of common stock the holder would have received had they also received all of the dividends (without duplication) payable to them through the Redemption Date.
 
Redemption
 
Unless the Preferred Shares are earlier converted, we have the right to redeem the Preferred Shares for a cash payment equal to the Stated Value plus accrued and unpaid dividends on the Maturity Date which is the earlier of (i) the date that is three years from the last closing of the Preferred Shares, or (ii) the date of our Company’s consummation of a merger, combination or sale of substantially all of our assets or purchase by one or a group of related person of more than 50% of our outstanding voting stock.
 
Liquidation
 
In the event of our liquidation, dissolution or winding up of our Company and other liquidation events as defined in our Articles of Incorporation, holders of Preferred Shares are entitled to receive from proceeds remaining after distribution to our creditors and prior to the distribution to holders of common stock or any other class of preferred stock the (i) Stated Value (as adjusted for any stock splits, stock dividends, reorganizations, recapitalizations and the like) held by such holder and (ii) all accrued but unpaid dividends on such shares.
 
Anti-Dilution
 
The Preferred Shares are entitled to full ratchet anti-dilution protection under certain circumstances specified in our Articles of Incorporation
 
Voting

Except as otherwise required by law and except as set forth below, holders of Preferred Shares will not have the right to vote.

Protective Provisions

So long as at least fifty percent (50%) of the Preferred Shares that are issued in the offering described above are outstanding, we will need the approval of a majority of the outstanding Preferred Shares to take certain actions including: (i) repayment, repurchase of acquisition of any equity other than the exercise of the redemption right and payment of dividends on the Preferred Shares; (ii) amend our articles of incorporation or bylaws so as to adversely affect the rights of the Preferred Shares; (iii) engage in certain  transactions with any officer, director, employee of affiliate of our company; (iv) consummate a Change of Control as defined in the Articles of Incorporation; (v) create and issue a new series of preferred stock senior to the Preferred Shares in terms of voting or liquidation preference; or (vi) enter into any agreement with respect to any of the foregoing.
 
Registration Rights

Pursuant to the terms of the Securities Purchase Agreement the holders of the Preferred Shares and Initial Warrants and Additional Warrants are entitled to up to one (1) demand registration right at the request of the holders of no less than fifty percent (50%) of the Preferred Shares and piggyback registration rights for a period of six months from the closing.

Board of Directors

Any single investor or group of investors who invest in excess of $5,000,000 in the offering described above and acquire at least fifty percent (50%) of the Preferred Shares in the Offering shall have the right to appoint one director to our Board of Directors so long as the investor holds in excess of fifty percent (50%) of the total outstanding Preferred Shares and the outstanding Preferred Shares represent at least twenty percent (20%) of the fully diluted ownership of our Company.

2015 Management Changes

Effective as of January 8, 2015, Edward B. Smith III, a member of the Board of Directors was appointed as the Chief Executive Officer of our Company. Mr. Morris Garfinkle was appointed to serve as Chairman of the Board of Directors. On March 10, 2015, Mr. Dan Jeffery was appointed to serve on the Board of Directors.  On May 6, 2015, we announced the appointment of Anthony Saguto as the Chief Financial Officer of the Company.  Mr. Saguto replaced John Elo, who retired as Chief Financial Officer of the Company effective May 18, 2015.  On November 16, 2015, Mr. Saguto resigned as Chief Financial Officer of the Company.  To replace Mr. Saguto, Donald G. Wittmer was appointed as acting Chief Financial Officer of the Company effective November 18, 2015.  On December 31, 2015, Mr. Steven J. Cohen, Managing Director, left the Company.

Sales and Manufacturing

Revenues for the year ended December 31, 2015 increased by 13.6% as compared to revenues for the year ended December 31, 2014.  We believe that the increase is due in part to the efforts of our consultants.

On July 16, 2014, we announced that we had retained Chandler Horton, a former VP of R&D at Keystone Foods, LLC, as an External Consultant.  Mr. Horton advises and assists the management team in several critical areas of our food ingredient business, including: sales and marketing initiatives; strategic partnership opportunities; and raising awareness about Z Trim solutions in key domestic and offshore markets. Mr. Horton spent over 37 years at Keystone, a global food services company that supplies some of the world's finest consumer brands with high-quality, fresh and frozen animal protein products including poultry, beef, pork and fish.  As Vice President of R&D, he led the company's customer centric research and development process, which focused on consumer needs and tastes as well as operational productivity and sustainability as it relates to new food products.

On June 18, 2014 we announced that we had retained Gordon F. Brunner, a former Chief Technology Officer of Procter & Gamble® (NYSE: PG), as an External Consultant.  Mr. Brunner assists the management team in several key areas, including: the review of all matters relating to our intellectual property; research and development of products, processes and applications derived from that property; the investigation of strategic research partnership opportunities; and initiatives designed to raise awareness regarding Z Trim's technology capabilities in relevant commercial, industrial, scientific and investment sectors. Mr. Brunner spent nearly four decades at Procter & Gamble. As Senior Vice President, Chief Technology Officer and Head of Worldwide Research and Development, he was instrumental in accelerating product innovation and led the creation of one of the most effective global R&D organizations. A native of Des Plaines, IL, Mr. Brunner earned a BS in Biochemical Engineering from the University of Wisconsin and an MBA from Xavier University. He has served on Z Trim's Advisory Board since 2011.

On April 22, 2014, we announced that we had engaged the services of two new distributors – SPI Group (www.spigroup.net) and Unipex Solutions Canada (http://www.unipex.ca/en/index.php). SPI Group is a distributor of specialty ingredients to food, nutritional, and nutraceutical manufacturers in the Western United States and Canada. Unipex Solutions Canada, a leader in the distribution of active ingredients and specialty chemicals, offers a wide range of distinctive services and customized solutions throughout North America. Additionally, their sales force has technical expertise in key markets such as personal care, pharmaceutical, nutraceutical, and nutrition, as well as industrial specialties including lubricants, HI&I, and oil & gas
 
Equipment Sale and Leaseback

On July 17, 2015, the Company entered into an equipment purchase agreement (the “Purchase Agreement”) with Fordham Capital Partners, LLC (“Fordham”) pursuant to which the Company sold all of its right, title and interest in production equipment utilized by the Company to Fordham for a purchase price of $500,000. Concurrently with entering into the Purchase Agreement, on July 17, 2015, the Company entered into an equipment lease agreement (the “Equipment Lease Agreement”) with Fordham pursuant to which the Company leased the production equipment from Fordham on terms that included the following: a lease term of 24 months, monthly lease payments by the Company of $15,800 and the option (at the election of the Company) to purchase the equipment on or after July 8, 2016 on the following terms: (i) if the purchase date is between 12- 18 months $425,000; (ii) if the purchase date is between 19- 23 months: $360,000; and (iii) if the purchase date is during the 24th month (but no later than July 8, 2017): $325,000.

We received net proceeds of $172,911 from the Purchase Agreement. The net proceeds were used for general corporate purposes.

The Equipment Lease Agreement includes customary events of default, including non- payment by us of the monthly lease payments and the payment of penalties upon such late payments. We utilized the proceeds from the sale of the equipment for working capital purposes.

In connection with the Purchase Agreement, the Company’s Factoring Agreement with Fordham effective May 28, 2015, as amended by an amendment dated June 25, 2015, was further amended to grant to Fordham a security interest in all of the collateral under such agreement to secure the payment to Fordham of all rent payments and all other amounts owed by the Company to Fordham under the Equipment Lease Agreement.

Results of Operations

Revenues

Revenue for the year ended December 31, 2015 was $1,151,190, as compared to revenue of $1,013,670 for the year ended December 31, 2014, an increase of 13.6%.  Our revenue for both years was entirely attributable to product sales.  The increase in sales was due to an increase in product volume shipped to customers.  We cannot provide any assurance that demand for our products will increase in the future or that we will be successful in implementing changes to our production process to improve our capacity and reduce costs.

Our revenues, by quarter, for 2015, were as follows:
 
Quarterly revenues:
 
Quarter
 
Revenues
Q1
 
$214,743
Q2
 
$401,088
Q3
 
$218,732
Q4
 
$316,627
 
Cost of Revenues

Cost of revenues for products sold for the year ended December 31, 2015 and 2014 was $2,055,825 and $995,683, respectively.  The increase in costs of goods sold in the 2015 of approximately 106% was attributable to the production of product in our own pilot facility and not the outside toll manufacturer. We believe that sustained increases in sales and monthly production volume will enable us to allocate our fixed costs over a greater number of finished goods and further reduce the cost of goods sold in the future to improve margins. However, there can be no assurance that greater efficiencies or improved margins can be achieved.

Gross Margin Income (Loss)

Gross margin loss for the year ended December 31, 2015 was $904,635 compared to a gross margin income of $17,987 for the prior year. The loss for 2015 was a result of producing all product in our manufacturing facility in Mundelein, Illinois whereas in 2014 a portion of our product was produced in a third party facility under a tolling agreement which was not renewed in 2015.
 
Operating Expenses

Total operating expenses for the year ended December 31, 2015 were $3,676,513 a decrease of $1,678,774 or approximately 31% lower than the comparable period ended December 31, 2014 of $5,355,287. As a result of the Company producing product in its own facility various expenses classified as research and development costs in 2014 are now included with cost of goods sold for 2015. The amount of research and development costs included with cost of goods sold for the year ended December 31, 2015 was $181,713 as compared to $1,377,611 in research and development costs for the year ended December 31, 2014.

The significant components of selling, general and administrative expenses in the years indicated were as follows:

 
 
Year Ended December 31,
 
 
 
2015
   
2014
 
Stock based compensation expenses
 
$
479,010
   
$
935,097
 
Salary expenses
   
945,976
     
1,146,387
 
Professional fees
   
431,344
     
414,989
 
Outside Services
   
523,341
     
14,531
 
 
               
 
 
$
2,379,671
   
$
2,511,004
 
 
 The decrease in salary and employee benefits for the year ended December 31, 2015 is attributable to fewer employees. Stock based compensation was below a year ago as a result of a lower per share common stock price when the options were granted.

Operating Loss

Operating loss for the year ended December 31, 2015 was $4,581,148 compared to $5,337,300 for the year ended December 31, 2014 due to the reasons described above.

Other Expense

Other expenses were $19,395,283 for the year ended December 31, 2015 compared to $242,408 in the year ended December 31, 2014. The primary reason for the change was due to the expenses related to the 2015 warrant exchange program and the accounting loss recorded in connection with conversion of notes to preferred stock.

Net Loss

As a result of the foregoing, we incurred a net loss of $23,976,431 for the year ended December 31, 2015, or $0.41 per share, compared to $5,579,708 for the year ended December 31, 2014, or $0.14 per share.

The increase in the net loss per share for the year ended December 31, 2015, as compared to the year ended December 31, 2014 was due to the effect of the results described above as well as the number of the additional shares outstanding in 2015.

Liquidity and Capital Resources

As of December 31, 2015, we had a cash balance of $309,851, a decrease of $717,862 from the cash balance of $1,027,713 at December 31, 2014.  At December 31, 2015, we had a working capital deficit of $3,801,651, a decrease from the working capital deficit of $539,935 as of December 31, 2014.  The difference in working capital was primarily because of an increase in accounts payable, an the increase in short term borrowings and notes payable and an increase in derivative liabilites during 2015.  As of April 11, 2016, we had a cash balance of $610,209.

Over the last several years, our operations have been funded primarily through the sale of both equity and debt securities.   We continue to explore additional equity and debt funding however, there can be no assurance that we will be successful in raising all of the additional funding that it is seeking or that such amount will be sufficient for our needs.  As of the date of our most recent audit, for the fiscal year ended December 31, 2015, we had not generated sufficient revenues to meet our cash flow needs.  Our current cash on hand is insufficient for us to be able to maintain our operations at the current level through June 30, 2016. As a result, our auditors have expressed substantial doubt about our ability to continue as a going concern.  Although we have generated revenue, we are still operating at a net loss, and may continue to incur losses for a period of time.  We cannot assure you that we will be able to obtain sufficient funds from our operating or financing activities to support our continued operations.  If we cannot continue as a going concern, we will need to substantially revise our business plan or cease operations, which will reduce or completely eliminate the value of your investment.
 
To successfully grow our business, our management believes it must improve our cash position through greater and sustainable sales of our product lines and increase the productivity and efficiency of the production process. However, such an increase would depend on sustained or increased levels of purchases by existing and new customers and actual realization of our customers’ current demand levels, as well as the completion of changes in our production process, all of which cannot be assured.

Certain of our preferred stock and warrants have reset provisions to the exercise price and conversion price if we issues equity or other derivatives at a price less than the exercise price set forth in such preferred stock and warrants. These reset provisions result in a derivative liability in our financial statements. Our derivative liabilities increased to $742,833 at December 31, 2015 from $20,166 at December 31, 2014. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.
 
The following discussion focuses on information in more detail on the main elements of the net decrease in cash during the year ended December 31, 2015 included in the accompanying Statements of Cash Flow. The table below sets forth a summary of the significant sources and uses of cash for the years ended December 31:
 
 
 
12/31/2015
   
12/31/2014
 
Cash used in operating activities
   
(2,666,114
)
   
(2,273,970
)
Cash provided by investing activities
   
169,463
     
-
 
Cash provided by financing activities
   
1,778,789
     
2,858,211
 
 
               
Increase (decrease) in cash
   
(717,862
)
   
584,241
 

Net cash used by operating activities increased by $392,144 for the year ended December 31, 2015, primarily due to an increased net loss and changes in operating assets and liabilities.  Net cash used by investing activities increased by $169,463 for the year ended December 31, 2015, primarily due to sales of fixed assets.  Net cash used by financing activities decreased by $1,079,422 for the year ended December 31, 2015, primarily due to a decrease in preferred shares sold and an increase in principal payments on debt.

Commitments/Contingencies:

Outstanding Notes

As of December 31, 2015, we had outstanding notes in the aggregate principal amount of $457,000 due to a related party that mature on July 1, 2016.

We also have a note in the principal amount of $250,000 payable to an unrelated party that is due July 1, 2016 and a note in the principal amount of $500,000 payable to an unrelated party that is due December 23, 2016.
In addition, we have outstanding convertible notes payable to related parties in the principal amount of $624,866 at December 31, 2015. The amount of accrued and unpaid interest was $150,687 on the same date.

Capital expenditures.   At December 31, 2015, we had no material commitments for capital expenditures. On July 17, 2015, we entered into an equipment purchase agreement (the “Purchase Agreement”) with Fordham Capital Partners, LLC (“Fordham”) pursuant to which we sold all of our right, title and interest in production equipment utilized by the Company to Fordham for a purchase price of $500,000. Concurrently with entering into the Purchase Agreement, on July 17, 2015, we entered into an equipment lease agreement (the “Equipment Lease Agreement”) with Fordham pursuant to which we leased the production equipment from Fordham on terms that included the following: a lease term of 24 months, monthly lease payments by us of $15,800 and the option (at the election of the Company) to purchase the equipment on or after July 8, 2016 on the following terms: (i) if the purchase date is between 12- 18 months $425,000; (ii) if the purchase date is between 19- 23 months: $360,000; and (iii) if the purchase date is during the 24th month (but no later than July 8, 2017): $325,000.
 
Lease commitments.   We lease a combined production and office facility located in Mundelein, Illinois.  The lease is on a month to month basis.  Monthly rental payments are $17,542, inclusive of property taxes.  We believe we will be successful in negotiating a new lease with the landlord.

Litigation.  In July 2007, we were sued in the 20th Judicial Circuit Court, St. Clair County, Illinois by Joseph Sanfilippo and James Cluck for violation of the Consumer Fraud Act and is seeking damages in excess of $200,000.  The trial court has issued a default order against us, and has denied our motion to reconsider.  Management believes that the trial court’s rulings were erroneous and that it has grounds for appeal, and that the underlying allegations are frivolous and wholly without merit and we will vigorously defend the claim. The outcome of this matter is unknown as of the report date.  However, we have conservatively allocated a reserve of $102,000 to satisfy any liability it may incur as a result of this proceeding.

Although there can be no assurances, based on the information currently available, management believes that it is probable that our ultimate outcome of this litigation will not have a material adverse effect on the consolidated financial statements of.  However, an adverse outcome could have a material adverse effect on our financial results of in the period in which it is recorded.

Off-Balance Sheet Arrangements

As of December 31, 2015 and December 31, 2014, we had no off-balance sheet arrangements.
 
Critical Accounting Policies

The Financial Statements and related notes contain information that is pertinent to management’s discussion and analysis. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America 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 financial statements, and the reported amounts of revenues and expenses during the reporting period. These estimates are generally based on historical experience, current conditions and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily available from other sources, as well as identifying and assessing our accounting treatment with respect to commitments and contingencies. Actual results could differ from those estimates.

New Accounting Pronouncements

See Note 3 in Notes to Financial Statements regarding recent accounting pronouncements.

ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk.

Not Applicable.

ITEM 8. Financial Statements and Supplementary Data.

See the F-Pages contained herein, which include our audited financial statements and are incorporated by reference..
 
ITEM 9. Changes In and Disagreements With Accountants on Accounting and Financial Disclosure.

None.

ITEM 9A. Controls and Procedures.

Evaluation of Disclosure Controls and Procedures.

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined) in Exchange Act Rules 13a – 15(e) and 15d – 15(e)).  Based upon that evaluation, our chief executive officer and chief financial officer concluded that, as of the period ended December 31, 2015, our disclosure controls and procedures were not effective (1) to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the SEC’s rules and forms and (2) to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to us, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure. Our conclusion is based primarily on the material weakness in internal control over financial reporting described below and our failure to complete the process of remediating these weaknesses by the end of the period covered by this Annual Report.
 
Limitations on the Effectiveness of Controls

Our Principal Executive Officer and Principal Financial Officer do not expect that our disclosure controls or internal controls will prevent all error and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.

Furthermore, smaller reporting companies face additional limitations. Smaller reporting companies employ fewer individuals and find it difficult to properly segregate duties. Often, one or two individuals control every aspect of the Company's operation and are in a position to override any system of internal control. Additionally, smaller reporting companies tend to utilize general accounting software packages that lack a rigorous set of software controls.

Management’s Annual Report on Internal Control over Financial Reporting.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting.  Internal control over financial reporting is defined in Rules 13a-15(f) and 15d-15(f) promulgated under the Exchange Act   as a process designed by, or under the supervision of, our Chief Executive Officer and Chief Financial Officer, and effected by our board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles in the United States and includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and any disposition of our assets;

- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors; and

- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

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. Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2015. In making this assessment, our management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework.  Based on this assessment, management has identified the following three material weaknesses that have caused management to conclude that, as of December 31, 2015, our disclosure controls and procedures, and our internal control over financial reporting, were not effective at the reasonable assurance level:

1. As of December 31, 2015, we did not maintain effective controls over the control environment.  Specifically we have not developed and effectively communicated to our employees our accounting policies and procedures.  This has resulted in inconsistent practices.   Since these entity level programs have a pervasive effect across the organization, management has determined that these circumstances constitute a material weakness.

2. As of December 31, 2015, we did not maintain effective controls over financial statement disclosure. Specifically, controls were not designed and in place to ensure that all disclosures required were addressed in our financial statements.   Accordingly, management has determined that this control deficiency constitutes a material weakness.

3. As of December 31, 2015, we did not maintain effective controls over financial reporting. Specifically controls were not designed and in place to ensure that the financial impact of certain complex equity and derivative liability transactions were appropriately and correctly reported. The transactions were identified by the auditors and calculated and reported correctly as of December 31, 2015.
 
Changes in Internal Control Over Financial Reporting

There have been no changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during our most recent fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Corrective Action

Management plans to provide future investments in the continuing education of our accounting and financial professionals when resources are available.

If the remedial measures described above are insufficient to address any of the identified material weaknesses or are not implemented effectively, or if additional deficiencies arise in the future, material misstatements in our interim or annual financial statements may occur in the future. Among other things, any unremediated material weaknesses could result in material post- closing adjustments in future financial statements.

ITEM 9B. Other Information.

None.

PART III

ITEM 10. Directors, Executive Officers and Corporate Governance.

Below is certain information regarding our directors and executive officers.
 
Name
 
Age
 
Position
 
Served as an Officer
or Director Since
Edward B. Smith III
 
40
 
Chief Executive Officer and Director
 
2015 and 2009
Donald Wittmer
 
80
 
Acting Chief Financial Officer
 
2015
Morris Garfinkle
 
67
 
Chairman of the Board of Directors
 
2009
Dan Jeffery
 
71
 
Director
 
2015

The term of office of each director expires at each annual meeting of stockholders and upon the election and qualification of his successor.

The following information sets forth the names of our current executive officers and directors, their ages, period of service and description of their business experience:

Edward B. Smith III, Chief Executive Officer and Director

Mr. Smith was appointed as our Chief Executive Officer on January 7, 2015.  Since January 1, 2015 he has served as the Managing Member of Aristar Capital Management, LLC, (“ACM”) a New York-based investment firm and the Company’s controlling stockholder. ACM is the investment manager of Aristar Ventures I, LLC, Aristar Ventures I-B, LLC and Aristar Ventures I-C, LLC (collectively, “Aristar”).  From April 2005 through December 2014, Mr. Smith was the Managing Partner of Brightline Capital Management, LLC (“BCM”), a New York-based investment firm founded in 2005. BCM was the investment manager of Brightline Ventures I, LLC, Brightline Ventures I-B, LLC and Brightline Ventures I-C, LLC (collectively, “Brightline”). Prior to founding BCM, Mr. Smith worked at Gracie Capital, GTCR Golder Rauner and Credit Suisse First Boston.  Mr. Smith holds a Bachelor of Arts in Social Studies from Harvard College and a Master’s in Business Administration from Harvard Business School. He is currently a Director of Heat Biologics, Inc. (Nasdaq:HTBX), a North Carolina based company focused on the development of novel therapeutics to prime the immune system against a variety of disorders.

We believe that, as a result of his past experience, including managing an investment fund, and his many contacts in the food industry, Mr. Smith adds valuable managerial experience and an understanding of investor expectations, both of which are important to the Board’s strategic planning and risk management responsibilities.
 
Donald Wittmer, Acting Chief Financial Officer

Mr. Wittmer was appointed as our Acting Chief Financial Officer on November 18, 2015. Mr. Wittmer spent 19 years in the finance department of the Quaker Oats Company including serving as Vice President and Controller from 1977 to 1987. Subsequent to Quaker Oats, Mr. Wittmer owned several businesses and acted as a consultant. From 2009 to 2014, he served as an Accounting Partner of Monarch Financial Group. Mr. Wittmer is also a consultant to a privately- held transportation company. He has a BS in accounting from Fairleigh Dickerson University and an MBA in Financial Management from Loyola University. He is a Certified Public Accountant.

Morris Garfinkle, Chairman of the Board of Directors

Mr. Garfinkle has served as our Chairman of the Board of Directors and the Chairman of the Audit Committee since January 8, 2015.  Currently, Mr. Garfinkle is Founder, Chairman and CEO of Tailwind Consultants, LLC since 2012, as well as Co-Founder and Principal of KGSR Restructuring, LLC since May 2013.  Previously Mr. Garfinkle has served as the Founder, President and CEO of GCW Consulting, a consulting firm based out of Arlington, Virginia.  He received his Juris Doctor from Georgetown University and his B.S. in Economics (Cum Laude) from the Wharton School of Finance & Commerce, University of Pennsylvania.  Mr. Garfinkle has over 40 years of experience in restructuring, mergers and acquisitions, investment assessment, competitive positioning, strategic planning and capital raising.  His clients have included United Airlines Creditors' Committee, Pension Benefit Guaranty Corporation, Air China and Dallas-Fort Worth International Airport, among many others.  He also served on the Board of Directors of HMSHost from 2000 - 2006.

We believes that Mr. Garfinkle’ s financial, business and legal expertise, combined with his experience as an executive and director of other companies, as well as his years of experience providing strategic advisory services, qualifies him to serve as a member of the Board and an effective member of Audit Committee, of which he is the Chairman.

Dan Jeffery, Director

Mr. Jeffery has served as a member of our Board of Directors since 2015. He had served as Co-founder and President of Axelgaard Manufacturing Co., Ltd. from 1984 until 2014.  Axelgaard is engaged in the manufacture, sales and distribution of neurostimulation electrodes and hydrogels.  Prior to Axelgaard, Mr. Jeffery served as Vice President of Marketing at Neuromedics, a division of Intermedics.  Neuromedics is a sales and marketing company that distributes neurostimulation devices and accessories for the treatment of lower back pain and muscle rehabilitation.  Mr. Jeffery has over 44 years of experience in sales and marketing.  He is also a 1967 graduate of the University of Illinois with a bachelor degree in Education.

We believe that Mr. Jeffery’s marketing expertise, combined with his experience as an executive of other companies, qualifies him to serve as a member of the Board.

Section 16(a) Beneficial Ownership Reporting

Pursuant to Section 16(a) of the Exchange Act and the rules promulgated there under, officers and directors of the company and persons who beneficially own more than 10% of our common shares are required to file with the SEC and furnish to our reports of ownership and change in ownership with respect to all equity securities of the company.  Based solely on our review of the copies of such reports received by us during or with respect to the fiscal year ended December 31, 2015 and all prior years, and written representations from such reporting persons, we believe that those persons who were our officers, directors and 10% shareholders during any portion of the fiscal year ended December 31, 2015, complied with all Section 16(a) filing requirements applicable to such individuals except for the following: Mr. Jeffery and Mr. Brian Israel, a former member of our Board of Directors, who filed one Form 4 late with respect to one transaction and Mr. Wittmer failed to file a Form 3.

Code of Ethics and Business Conduct

We have adopted a Code of Ethics and Business Conduct (the “Code”).  The Code applies to all of our directors, officers, and employees.  Among other things, the Code is intended to focus the board of directors and the individual directors on areas of ethical risk, help directors recognize and deal with ethical issues, provide mechanisms to report unethical conduct, and foster a culture of honesty and accountability. The Code covers all areas of professional conduct relating to service on the Z Trim Board, including conflicts of interest, unfair or unethical use of corporate opportunities, strict protection of confidential information, compliance with all applicable laws and regulations and oversight of ethics and compliance by our employees.

The full text of the Code is published on our website at http://www.ztrim.com/pages/code_of_ethics business_conduct/40.php. We will disclose any future amendments to, or waivers from, provisions of these ethical policies and standards for Officers and Directors on our website within two business days following the date of such amendment or waiver.
 
Selection Criteria for Directors

The Company’s Board of Directors established a Nominating Committee in 2008.  The related provisions set forth in the Bylaws serve as the charter for the Nominating Committee.  The Board Nominating Committee, composed of two directors of our Company, identifies candidates for director nominees through recommendations solicited from other directors, our executive officers, search firms or other advisors, shareholders pursuant to the procedures set forth below, and through such other methods as the independent directors deem to be helpful.  Based upon an evaluation of the candidates by the Board Nominating Committee, it recommends to the full Board candidates it has determined to be qualified for serving on the Board.  Effective in 2015, Dan Jeffery was appointed a member of the Nominating Committee, with Morris Garfinkle serving as chairman.  The Nominating Committee did not meet during 2015.

Our Bylaws provide that shareholders, in submitting recommendations to the Nominating Committee for director candidates, shall follow the following procedures:

- Recommendations for nomination must be received by a date not later than the close of business on the 120th calendar day prior to the calendar date our proxy statement was filed with the Securities and Exchange Commission in connection with the previous year’s annual meeting of shareholders or special meeting in lieu of annual meeting of shareholders.

- Such recommendation for nomination shall be made in writing and shall include the following information: (A) name of the shareholder making the recommendation; (B) a written statement disclosing such shareholder’s beneficial ownership of our securities; (C) name of the individual recommended for consideration as a director nominee; (D) a written statement as to why such recommended candidate would be able to fulfill the duties of a director; (E) a written statement describing how the recommended candidate meets the independence requirements established by the NYSE Amex (now known as NYSE MKT) or any other requirements adopted by us; (F) a written statement disclosing the recommended candidate’s beneficial ownership of our securities; (G) a written statement disclosing relationships between the recommended candidate and us which may constitute a conflict of interest; and (H) a written statement by the recommended candidate that the candidate is willing and able to serve on the Board of Directors.

Our Bylaws provide that the composition of the Board of Directors must meet the independence requirements promulgated by the NYSE Amex (now known as NYSE MKT) or such other requirements as may be adopted by us.

The Company requires its directors to possess certain minimum qualifications, including the following:

- Adequate Experience. Nominees should have demonstrated business acumen, experience and ability to exercise sound judgments in matters that relate to the current and long-term objectives of the corporation and should be willing and able to contribute positively to the decision-making process of the corporation.

- No Conflicts of Interest. Nominees must be free from any relationship that, in the opinion of the Board, would interfere with, or have the appearance of interfering with, the exercise of his or her independent judgment as a member of the Board, including any conflicts of interest stemming from his or her institutional or other affiliations, and candidates should be able to act in the interests of all shareholders.

- No Prior Bad Acts. Nominees shall not have been convicted of any criminal offense or been subject to any adverse civil judgment in any jurisdiction involving financial crimes, acts involving monies or breach of trust, moral turpitude, misfeasance or malfeasance, or been convicted in any jurisdiction of a crime that is a felony, or been deemed by the Board to have violated company policy

The Company also considers the following qualities and skills in selecting its directors:

- knowledge of the corporation’s business and industry;
- prior education;
- demonstrated ability to exercise sound business judgment;
- reputation for integrity and high moral and ethical character;
- potential to contribute to   the diversity of viewpoints, backgrounds, or experiences of the Board as a whole; and
- diligence and dedication to the success of the corporation.

A director candidate recommended by our stockholders will be considered in the same manner as a nominee recommended by a Board member, management or other sources.

While the Board does not have a separate formal diversity policy, it is our and the Board’s policy to identify qualified potential candidates without regard to any candidate’s race, color, disability, gender, national origin, religion or creed, and we seek to ensure the fair representation of shareholder interests on the Board of Directors through the criteria set forth above.  In selecting our directors, we consider the potential to contribute to the diversity of viewpoints, backgrounds, or experiences of the Board of Directors as a whole.  The Board of Directors believes that the use of the Nominating Committee’s general criteria, along with non-discriminatory policies, will best result in a Board of Directors that shows diversity in many respects. The Board of Directors believes that it currently maintains that diversity.
 
Audit Committee

The function of the Audit Committee is to assist the Board of Directors in preserving the integrity of the financial information published by the Company through the review of financial and accounting controls and policies, financial reporting systems, alternative accounting principles that could be applied and the quality and effectiveness of the independent public accountants.  Among its other responsibilities, the Committee also is responsible for the receipt, retention and treatment of complaints received by us relating to accounting, internal accounting controls or auditing matters and confidential, anonymous submission by employees of concerns regarding questionable accounting or auditing matters.

Audit Committee Financial Expert

The Board of Directors has determined that Mr. Garfinkle qualifies as an “audit committee financial expert” based on a review of his educational background and business experience.

Other Information

In connection with the Reincorporation, our bylaws are now governed by new bylaws under Nevada law.
 
ITEM 11. Executive Compensation.

Our compensation philosophy has been, and continues to be, that compensation should drive long-term value creation for our stockholders. Total compensation for each employee should be based on individual our performance, market practice, and the value of our employee’s position. Our compensation programs should not encourage unnecessary or excessive risk taking.

Compensation consists solely of cash compensation and the issuance of stock options pursuant to our Incentive Compensation Plan.  We pay base salary in order to provide a predictable level of compensation that is competitive in the marketplace for the position responsibilities and individual skills, knowledge, and experience of each executive.  We provide stock options that are generally available to all of our employees in order to further our goal of attracting and retaining senior executives of outstanding ability.  We do not believe that our employee compensation policies are reasonably likely to have a material adverse effect on our company.
 
SUMMARY COMPENSATION TABLE

Set forth below is the compensation paid or accrued to our executive officers during the years ended December 31, 2015 and December 31, 2014 that exceeded $100,000.

Summary Compensation Table

Name and Principal Position
Year
 
Salary ($)
   
Bonus ($)
   
Options
($)(1)(2)
   
Other ($)
   
Total ($)
 
Edward B. Smith III (3)
2015
   
-
     
-
     
-
     
3,184,302
     
3,184,302
 
Chief Executive Officer
2014
   
-
             
-
     
-
         
                                           
Donald Wittmer (4)
2015
   
8,000
     
-
     
-
     
-
     
-
 
Acting Chief Financial Officer
2014
   
-
     
-
     
-
     
-
     
-
 
                                           
Anthony Saguto(5)
2015
 
87,034
     
-
   
27,202
     
-
   
114,234
 
Former Chief Financial Officer
2014
   
-
     
-
     
-
     
-
     
-
 
                                           
John Elo(6)
2015
 
95,913
     
-
   
43,926
     
-
   
139,839
 
Former Chief Financial Officer
2014
   
76,485
     
-
     
85,304
     
-
     
161,789
 
                                           
Steven J. Cohen(7)
2015
 
128,845
     
-
   
65,475
     
-
   
194,320
 
Former Managing Director of Communications and Planning, Former Secretary, Former President and Former Chief Executive Officer
2014
   
113,753
     
-
     
113,665
     
-
     
227,418
 
                                           
Brian Chaiken(8)
2015
   
-
     
-
     
-
     
40,354
     
40,354
 
Former Chief Financial Officer, Former Legal Officer and Former Secretary
2014
   
71,169
     
-
     
-
     
-
     
71,169
 

(1) The amounts in the table reflect the grant date fair value of options awards to the named executive officer in accordance with Accounting Standards Codification Topic 718.  The ultimate values of the options awards to the executives generally will depend on the future market price of our common stock, which cannot be forecasted with reasonable accuracy. The actual value, if any, which an optionee will realize upon exercise of an option, will depend on the excess of the market value of the common stock over the exercise price on the date the option is exercised.  See the “Outstanding Equity Awards at Fiscal Year-End” table below for information regarding all outstanding awards.

(2) The amounts in this column reflect the dollar amount recognized as expense with respect to stock options for financial statement reporting purposes during the twelve months ended December 31, 2015 and 2014 in accordance with applicable accounting standards.  In 2015, Steven Cohen received 457,600 options at a strike price of $0.27 that have an option expiration date of May 4, 2020.  In 2014, Steven Cohen received 228,800 options at a strike price of $0.56 that have an option expiration date of January 1, 2019.  In 2015, Anthony Saguto received 3.3 million options at a strike price of $0.30 that have an expiration date of May 5, 2020. Upon Mr. Saguto’s resignation, 2,860,000 unvested options were cancelled.  In 2015, John R. Elo received 307,000 options at a strike price of $0.27 that have an option expiration date of May 4, 2020.  In 2014, John R. Elo received 75,000 options at a strike price of $0.56 that have an option expiration of January 1, 2019 and upon his appointment to CFO, he received 153,500 options at a strike price of $0.62 that have an option expiration of August 18, 2019.  In 2013, Brian Chaiken received 226,667 options at a strike price of $1.67 that have an option expiration date of January 4, 2018.  Upon Mr. Chaiken’s resignation the amount of 2013 options was reduced to 150,000.
 
(3) Mr. Smith was appointed Chief Executive Officer in January 2015.  On February 9, 2015, Mr. Smith was issued warrants exercisable for 31,000,000 shares of common stock, in consideration of the services to be provided to the Company as Chief Executive Officer. The exercise price of these warrants is $0.45 per share. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 81.99%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 0.85%.

(4) On November 18, 2015, the Company entered into a consulting agreement (the “Consulting Agreement”) with ACT Financial Services Inc. (“ACT Financial”), pursuant to which ACT Financial will provide to the Company finance, accounting and administrative functions, including acting chief financial officer (and principal financial officer) services to be provided by Donald G. Wittmer. The Company will pay an agreed upon weekly rate for such services and will reimburse ACT Financial for certain travel expenses. The Consulting Agreement will continue for six months and may be extended by mutual agreement of the parties.

(5) Mr. Saguto was appointed Chief Financial Officer on May 6, 2015 to replace Mr. Elo.  Mr. Saguto subsequently resigned as Chief Financial Officer on November 16, 2015. To replace Mr. Saguto, Donald G. Wittmer was appointed as acting Chief Financial Officer of the Company effective November 18, 2015.

(6) Mr. Elo was appointed as our Chief Financial Officer in August 2014 when Mr. Chaiken resigned as Chief Financial Officer.  Mr. Elo subsequently retired as Chief Financial Officer on May 18, 2015.

(7) Mr. Cohen was appointed as our Managing Director of Communications and Planning and Secretary in January 2015 when Mr. Smith was appointed our Chief Executive Officer and President.  Mr. Cohen resigned as Managing Director of the Company effective December 31, 2015.

(8) Upon Mr. Chaiken’s separation from our company he received compensation in the amount of $10,349 according to a Separation and Release Agreement (“Agreement”).  At December 31, 2014, we accrued $40,354 which was due and payable to Mr. Chaiken under the Agreement.  This amount was paid in January 2015.

In 2006, we entered into an employment agreement with Steven J. Cohen setting forth the terms of his employment as our President.  Mr. Cohen’s employment under the employment agreement was for an initial term of three years. Mr. Cohen resigned from all of his positions with us effective December 31, 2015. The agreement provided that either Mr. Cohen or we had the right to terminate the employment agreement without cause on 30 days written notice and that we were only required to make any further payments to Mr. Cohen other than with respect to obligations accrued on the date of termination if he were terminated for death or disability.  Under Mr. Cohen’s employment agreement, we are also protected from competition by Mr. Cohen after his employment with us would cease. Upon termination, Mr. Cohen agrees to not interfere with the relationships between our suppliers, customers or agents for six months, and that he will not compete with us over the same period in any county of any state in which we are providing service at the time of termination.  Further, Mr. Cohen has agreed to related confidentiality requirements after the termination of his employment.

In 2007, we entered into an employment agreement with Brian Chaiken setting forth the terms of his employment as our General Counsel and Vice President of Business Development.  Mr. Chaiken’s employment under the employment agreement was at will.  The agreement provided that if Mr. Chaiken was terminated for cause, we were not required to make any further payments to Mr. Chaiken other than with respect to obligations accrued on the date of termination. Under Mr. Chaiken’s employment agreement we were also protected from competition by Mr. Chaiken after his employment with Z Trim would cease. Upon termination, Mr. Chaiken agreed to not interfere with the relationships between the suppliers, customers or agents of ours for twelve months, and that he would not compete with us over the same period in any target market in which it engages in or may engage in the future.
 
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END
December 31, 2015

The following table contains information regarding outstanding equity awards held at December 31, 2015, by the named executive officers.
 
Name
 
Options Granted
   
Option Excersice Price
 
Option Expiration Date
                  
Steve Cohen
   
457,600
   
$
0.27
 
5/4/2020
     
228,800
   
$
0.56
 
1/1/2019
     
288,000
   
$
1.67
 
1/4/2018
     
343,980
   
$
0.65
 
1/25/2017
     
245,700
   
$
1.11
 
1/7/2016
 
               
    
                      
John Elo
   
307,000
   
$
0.27
 
5/4/2020
     
153,500
   
$
0.62
 
8/18/2019
     
75,000
   
$
0.56
 
1/1/2019
     
84,000
   
$
1.67
 
1/4/2018
     
87,500
   
$
0.63
 
4/26/2017
 
               
    
                      
Brian Chaiken
   
150,000
   
$
1.67
 
1/3/2018
     
150,000
   
$
0.65
 
1/25/2017
     
150,000
   
$
1.01
 
1/6/2016
 
               
    
                      
Anthony Saguto
   
440,000
   
$
0.30
 
2/18/2016
 
               
    
 
OPTION EXERCISES AND STOCK VESTED
2015

There were no stock options that were exercised by the named executive officers in fiscal 2015. There were no outstanding awards of restricted stock in fiscal 2015.

2015 Directors’ Compensation

Employee directors do not receive any separate compensation for their activities on the board of directors.  Non-employee directors received 192,308 shares of common stock as an annual retainer.

Non-employee directors are reimbursed for travel expenses incurred in conjunction with their duties as directors. Furthermore, we will provide the broadest form of indemnification under Illinois law under which liabilities may arise as a result of their role on the board of directors and payments for reimbursements for expenses incurred by a director in defending against claims in connection with their role, and the director satisfies the statutory standard of care.

The following table provides compensation for non-employee directors who served during fiscal 2015:

Name
 
Fees Earned or Paid in Cash ($)(1)
   
Stock Awards ($) (1)
   
All Other Compensation ($)
   
Total ($)
 
                         
Morris Garfinkle
   
0
     
50,000
     
0
     
50,000
 
Brian Israel (2)
   
0
     
50,000
     
0
     
50,000
 
Dan Jeffery
   
0
     
50,000
     
0
     
50,000
 
 
(1) In February 2015, each non-employee director was issued 192,308 shares of common stock as compensation or services as a director.  The amounts in the table reflect the grant date fair value of stock awards to the named directors in accordance with Accounting Standards Codification Topic 718, which was $0.26 per share.  The ultimate values of the stock awards to the directors generally will depend on the future market price of our common stock, which cannot be forecasted with reasonable accuracy.

(2) On April 29, 2015 the Board accepted the resignation of Brian Israel.
 
ITEM 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.

The following table presents certain information as of April 14, 2016, regarding the beneficial ownership of the our common stock held by each director or nominee for director, each executive officer appearing in the “Summary Compensation Table” included in “Executive Compensation” and all directors and executive officers as a group.  As of April 14, 2016, we had 93,797,504 shares of common stock outstanding.

Name and Address (1)
 
Shares
Beneficially
Owned (2)
   
Percentage
of Shares
Outstanding
 
Named Executive Officers
           
Edward B. Smith III (Director and Chief Executive Officer)
   
102,092,557
 (3  
80.5
%
                 
Steven J. Cohen (Former Managing Director of Communications and Planning and Former President and Former Director)
   
1,318,380
 (4  
1.4
%
                 
John R. Elo (Former Chief Financial Officer)
   
707,000
 (5  
*
 
                 
Anthony Saguto (Former Chief Financial Officer)
   
     
*
 
                 
Donald G. Wittmer (Acting Chief Financial Officer)
   
     
*
 
                 
Directors
               
                 
Morris Garfinkle
   
7,203,115
 (6  )  
7.2
%
                 
Dan Jeffery
   
1,642,308
 (7  
1.7
%
                 
All named executive officers and directors as a group (7 persons)
   
112,963,360
     
82.7
%
 

*Less than 1% of our common stock outstanding.

(1) The address for each shareholder listed in the table is c/o Agritech Worldwide, Inc., 1011 Campus Drive, Mundelein, Illinois 60060.

(2) The specified persons have sole voting and sole dispositive powers as to all shares, except as otherwise indicated.

(3) Consists of: (i) 33,440,666 shares of common stock beneficially owned by Mr. Smith (consisting of: (A) 350,164 shares of common stock owned directly by Mr. Smith, (B) 407,889 shares of common stock issuable upon conversion of convertible notes held directly by Mr. Smith, (C) 813,839 shares of common stock issuable upon conversion of Series B Preferred Stock owned directly by Mr. Smith, and (D) 31,868,774 shares of common stock issuable upon exercise of warrants owned directly by Mr. Smith); and (ii) 68,651,891 shares of common stock beneficially owned by Aristar Capital Management, LLC (“Aristar Capital”), together with Aristar Ventures I, LLC (“Aristar Ventures I”), Aristar Ventures I-B, LLC (“Aristar Ventures I-B”) and Aristar Ventures I-C, LLC (“Aristar Ventures I-C”), which is further described in the table below setting forth persons known to us to be owners of more than 5% of our common stock.  Mr. Smith is the managing member of Aristar Capital, an investment management firm that serves as the investment manager of Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C.  Mr. Smith is also the managing member of Aristar Capital Management GP, LLC (“Aristar GP”), which serves as the managing member of Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C.  As a result of the foregoing, the shares of common stock deemed to be beneficially owned by each of (i) Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C are deemed to be beneficially owned by each of Aristar Capital and Aristar Capital GP and (ii) Aristar Capital and Aristar Capital GP are deemed to be beneficially owned by Mr. Smith. Aristar Capital and Aristar GP filed a Form 4 on July 2, 2015 that reported shared beneficial ownership with respect to an aggregate of 68,651,891 shares of common stock held by Aristar Ventures (as defined below).  The 68,651,891 shares of common stock consist of: (i) 65,587,628 shares of common stock held directly by Aristar Ventures I; (ii) 1,985,448 shares of common stock held directly by Aristar Ventures I-B; and (iii) 1,078,815 shares of common stock held directly by Aristar Ventures I-C. Mr. Smith is the managing member of Aristar Capital, an investment management firm that serves as the investment manager of Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C.  Mr. Smith is also the managing member of Aristar GP, which serves as the managing member of Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C.  As a result of the foregoing, the shares of common stock deemed to be beneficially owned by each of (i) Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C are deemed to be beneficially owned by each of Aristar Capital and Aristar Capital GP and (ii) Aristar Capital and Aristar Capital GP are deemed to be beneficially owned by Mr. Smith.
 
(4) Consists of 1,318,380 shares of common stock subject to options exercisable within 60 days of April 14, 2016. Mr. Cohen resigned from the Board, effective November 4, 2015 and left our company on December 31, 2015.

(5) Consists of 707,000 shares of common stock subject to options exercisable within 60 days of April 14, 2016. Mr. Elo retired as Chief Financial Officer of our company effective May 18, 2015.

(6) Consists of: (i) 1,011,185 shares of common stock owned directly by Mr. Garfinkle, (ii) 53,665 shares of common stock issuable upon conversion of convertible notes owned directly by Mr. Garfinkle, (iii) 115,243 shares of common stock issuable upon conversion of Series B Preferred Stock owned directly by Mr. Garfinkle, (iv) 5,632,022 shares of common stock issuable upon exercise of warrants owned directly by Mr. Garfinkle, and (v) 400,000 shares of common stock issuable upon exercise of warrants owned by an entity controlled by Mr. Garfinkle.

(7) Consists of (i) 192,308 shares of common stock directly owned by Mr. Jeffery, (ii) 1,250,000 shares of common stock subject to warrants exercisable within 60 days of April 14, 2016 that were awarded for services rendered to Jeffery Consulting Group, LLC, of which Mr. Jeffery is the sole member, and (iii) 200,000 shares of common stock issuable upon exercise of warrants owned by an entity controlled by Mr. Jeffery.
 
The following table presents certain information as of April 14, 2016 regarding the beneficial ownership of our common stock held by each known 5%-or-greater shareholder of Z Trim.

Name and Address
 
 
Shares
Beneficially
Owned
   
Percentage
of Shares
Outstanding
 
 
Aristar Ventures I, LLC and
Aristar Ventures I-B, LLC and Aristar Ventures I-C, LLC (1)
1120 Avenue of the Americas, Suite 1514
New York, NY 10036
   
68,651,891
     
73.2
%
                 
Morris Garfinkle (2)
c/o Agritech Worldwide, Inc.
1011 Campus Drive
Mundelein, IL 60060
   
7,203,115
     
7.2
%
 

(1) Aristar Capital and Aristar GP (collectively, with Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C, “Aristar Ventures”) filed a Form 4 with the SEC on July 2, 2015 to report shared beneficial ownership with respect to an aggregate of 68,651,891 shares of common stock held by Aristar Ventures.  Mr. Smith is the managing member of Aristar Capital, an investment management firm that serves as the investment manager of Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C.  Mr. Smith is also the managing member of Aristar GP, which serves as the managing member of Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C.  As a result of the foregoing, the shares of common stock deemed to be beneficially owned by each of (i) Aristar Ventures I, Aristar Ventures I-B and Aristar Ventures I-C are deemed to be beneficially owned by each of Aristar Capital and Aristar Capital GP and (ii) Aristar Capital and Aristar Capital GP are deemed to be beneficially owned by Mr. Smith.

(2) Consists of: (i) 1,011,185 shares of common stock owned directly by Mr. Garfinkle, (ii) 53,665 shares of common stock issuable upon conversion of convertible notes owned directly by Mr. Garfinkle, (iii) 115,243 shares of common stock issuable upon conversion of Series B Preferred Stock owned directly by Mr. Garfinkle, (iv) 5,632,022 shares of common stock issuable upon exercise of warrants owned directly by Mr. Garfinkle, and (v) 400,000 shares of common stock issuable upon exercise of warrants owned by an entity controlled by Mr. Garfinkle.

The above beneficial ownership information is based on data furnished by the specified persons and is determined in accordance with Rule 13d-3 under the Securities Exchange Act. It is not necessarily to be construed as an admission of beneficial ownership for other purposes.
 
ITEM 13. Certain Relationships and Related Transactions, and Director Independence.

Transactions with Certain Related Parties

On May 14, 2015 the Company entered into a consulting agreement with E.B. Smith Jr. (father of the Company’s CEO and largest shareholder, Edward B. Smith III) pursuant to which E.B. Smith Jr. will provide advice with respect to the Company’s marketing initiatives, provide customer introductions and investigating strategic transactions. In consideration of services rendered by E.B. Smith Jr., the Company issued warrants to purchase 750,000 shares of common stock at $0.35 per share. The warrants vested 450,000 shares upon the mutual execution of this agreement and then in 150,000 share increments at the three month and six month anniversaries of this agreement. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 104.65%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 1.6%. In 2015 the Company recognized an expense of $117,642.
 
On November 18, 2015, the Company entered into a consulting agreement (the “Consulting Agreement”) with ACT Financial Services Inc. (“ACT Financial”), pursuant to which ACT Financial will provide to the Company finance, accounting and administrative functions, including acting chief financial officer (and principal financial officer) services to be provided by Donald G. Wittmer. The Company will pay an agreed upon weekly rate for such services and will reimburse ACT Financial for certain travel expenses. The Consulting Agreement will continue for six months and may be extended by mutual agreement of the parties.

Transactions with Members of the Board of Directors

Effective January 1, 2015 the Company entered into a consulting agreement with Jeffery Consulting Group, LLC pursuant to which Jeffery Consulting will provide assistance with operational improvements including manufacturing processes, strategic and tactical advice with respect to the Company’s sales and marketing initiatives, and provide customer introductions and strategic sales opportunities. In consideration of services rendered by Jeffery Consulting, the Company issued a warrant to purchase 1,250,000 shares of common stock at $0.35 per share. The warrant vested 500,000 shares upon the mutual execution of this agreement, and 250,000 shares each at the three month, six month, and nine month anniversaries of this agreement. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 84.52%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 1.07%. In 2015 the Company recognized compensation expense of $249,635. The Company also agreed to accrue $5,000 per month which becomes payable to Jeffery Consulting once the Company has raised $3 million in additional capital.
 
On May 29, 2015, we executed an amendments to the 14% nonconvertible subordinated secured notes issued to Edward B. Smith III, (dated September 29, 2014, October 23, 2014, October 30, 2014 and December 3, 2014 respectively) whereby the maturity date for each note was extended from May 29, 2015 to December 31, 2015.

On June 12, 2015, we issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $12,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by our assets, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.

On August 13, 2015, we issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $25,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by our assets, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement and the Factoring Agreement.

On August 21, 2015, we issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $150,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by our assets, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.

On December 23, 2015, we executed an amendment to the 14% nonconvertible subordinated secured notes issued to Edward B. Smith III (dated September 29, 2014, October 23, 2014, October 30, 2014, December 3, 2014, June 12, 2015, August 13,2015, and August 21, 2015 respectively) whereby the maturity date for each note was extended to July 1, 2016.
 
The outstanding amount of nonconvertible notes payable to Edward B. Smith III was $457,000 at December 31, 2015.  The amount of accrued and unpaid interest was $54,935 on the same date.

On December 23, 2015, we executed an amendment to the $200,000 12.5% convertible subordinated secured note dated February 11, 2014, the $300,000 14% convertible subordinated secured notes (dated April 25, 2014, and the note issued to Mr. Garfinkle dated May 12, 2014) whereby the maturity date for each note was extended to July 1, 2016.

We do not have a written policy with respect to related party transactions. However, all such transactions are reviewed and approved by the Board of Directors prior to finalization.

Director Independence

Under our bylaws, the composition of the Board of Directors must meet the independence requirements promulgated by the NYSE  MKT or such other requirements as may be adopted by us.  Based on these standards, the Board of Directors has determined that Messrs. Garfinkle and Jeffery are each “independent” under applicable rules and guidelines. Mr. Smith, as our Chief Executive and Managing Partner of Aristar Capital Management, LLC (our controlling shareholder), is not considered to be “independent.”

In determining that Messrs. Garfinkle and Jeffery are each “independent” under applicable rules and guidelines used by us to determine independence, the Board of Directors took into consideration that each of these directors has purchased convertible notes and/or preferred stock in private offerings on the same terms and conditions as was offered to persons not affiliated with us.

Our independent directors have the opportunity to meet in executive session, without the other directors or management, as part of each regular Board meeting.
 
ITEM 14. Principal Accounting Fees and Services.

The following table is a summary of the fees billed to us by M&K CPAS, PLLC for professional services for the fiscal year ended December 31, 2015 and December 31, 2014, respectively:

Fee Category
           
             
   
2015
   
2014
 
Total Audit Fees
 
$
76,417
   
$
68,500
 
 
 
 


No other fees were billed in either 2014 or 2015.

Audit Fees. Consists of fees billed for professional services rendered for the audit of our financial statements and review of the interim financial statements included in quarterly reports and services that are normally provided by our independent registered public accounting firms in connection with statutory and regulatory filings or engagements.

Audit Committee Pre-Approval Policy

Our Audit Committee Charter provides that the Audit Committee shall pre-approve all auditing services, internal control-related services and permitted non-audit services (including the terms thereof) to be performed for us by our independent auditor, subject to the de minimis exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act, which are approved by the Audit Committee prior to the completion of the service. The Audit Committee may also form and delegate authority to sub-committees consisting of one or more members when appropriate, including the authority to grant pre-approvals of audit and permitted non-audit services, provided that decisions of such subcommittee to grant pre-approvals shall be presented to the full Committee at its next scheduled meeting. In accordance with the pre-approval policy, the Audit Committee has approved certain specified audit and non-audit services to be provided by M&K CPAS, PLLC for up to twelve (12) months from the date of the pre-approval. Any additional services to be provided by our independent auditors following such pre-approval require the additional pre-approval of the Audit Committee.

There were no services in fiscal 2015 or 2014 that were not approved in advance by the Audit Committee under this policy.
 
PART IV

ITEM 15. Exhibits, Financial Statement Schedules.


Index to Financial Statements
 
Page
Report of Independent Registered Public Accounting Firm
F-1
     
Financial Statements:  
     
  Balance Sheets as of December 31, 2015 and 2014
F-2
     
  Statements of Operations for the Years Ended December 31, 2015 and December 31, 2014
F-3
     
  Statement of Stockholders’ Equity (Deficit) for the Years Ended December 31, 2015 and December 31, 2014
F-4
     
  Statements of Cash Flows for the Years Ended December 31, 2015 and December 31, 2014
F-5
     
Notes to Financial Statements
F-6
 
SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.

AGRITECH WORLDWIDE, INC. (FORMERLY Z TRIM HOLDINGS, INC.)

 
By:
 
/s/ Edward B. Smith III
 
Date: April 14, 2016
 
Edward B. Smith III, Chief Executive Officer
 

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by following persons on behalf of the Registrant and in the capacities and on the dates indicated.

 
/s/ Edward B. Smith III
Date: April 14, 2016
Edward B. Smith III, Chief Executive Officer and Director (Principal Executive Officer)
 
   
/s/ Donald G. Wittmer
Date: April 14, 2016
Donald G. Wittmer, Acting Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)
 
   
/s/ Dan Jeffery
Date: April 14, 2016
Dan Jeffery, Director
 
   
/s/ Morris Garfinkle
Date: April 14, 2016
Morris Garfinkle, Chairman and Director
 
 
AGRITECH WORLDWIDE, INC. (FORMERLY Z TRIM HOLDINGS, INC.)

EXHIBIT INDEX
TO
Form 10-K for Fiscal Year Ended December 31, 2015

Exhibit
Number
Description
2.1
Form of Agreement and Plan of Merger, dated March 18, 2016, by and between Z Trim Holdings, Inc. and Agritech Worldwide, Inc. (incorporated herein by reference to Exhibit B to the definitive proxy statement on Schedule 14C, File No. 001-32134, filed by Z Trim Holdings, Inc. on November 30, 2015)
3.1
Restated Articles of Incorporation (Filed as Exhibit 3.1 to the Annual Report on form 10-K for the fiscal year ended December 31, 2009, File No. 001-32134; Illinois Statement of Resolution Establishing the Series I Preferred Stock filed as Exhibit 3.1 (a) in the Current Report on Form 8-K filed June 7, 2010; and Illinois Statement of Resolution Establishing the Series II Preferred Stock filed as Exhibit 3.1 (a) in the Current Report on Form 8-K filed March 21, 2011, and incorporated herein by reference herein)
3.2
Bylaws, as amended, of Z Trim Holdings, Inc. (filed as Exhibit 3.2 to the Company’s registration statement on Form S-8 filed on December 17, 2012 (File No. 333-185517), and incorporated herein by reference)
3.3
Statement of Resolution Establishing the Preferred Shares (filed as Exhibit 3.1 to the Company’s Current Report on Form 8-K, filed on January 14, 2015, File No. 001-32134, and incorporated herein by reference)
3.4
Amendment to Bylaws of Z Trim Holdings, Inc. effective as of March 10, 2015 (filed as Exhibit 3.1 to the Company’s Quarterly Report on Form 10-Q, filed on November 19, 2015, File No. 001-32134, and incorporated herein by reference)
3.5
Articles of Incorporation of Agritech Worldwide, Inc., a Nevada corporation (incorporated herein by reference to Exhibit C to the definitive proxy statement on Schedule 14C, File No. 001-32134, filed by Z Trim Holdings, Inc. on November 30, 2015)
3.6
Bylaws of Agritech Worldwide, Inc., a Nevada corporation (incorporated herein by reference to Exhibit D to the definitive proxy statement on Schedule 14C, File No. 001-32134, filed by Z Trim Holdings, Inc. on November 30, 2015)
4.1
Form of Amended and Restated Warrant to Purchase common stock (filed as Exhibit 4.3 to the Company’s Form 8-K dated October 19, 2009 and incorporated herein by reference)
4.2
Form of Warrant to Purchase common stock (filed as Exhibit 4.3 to the Company’s Form 8-K dated April 21, 2009, File No. 001-32134, and incorporated herein by reference)
4.3
Form of Warrant to Purchase common stock (filed as Exhibit 4.3 to the Company’s Form 8-K dated November 18, 2008, File No. 001-32134, and incorporated herein by reference)
4.4
Form of Warrant to Purchase common stock (filed as Exhibit 4.3 to the Company’s Form 8-K dated September 3, 2008, File No. 001-32134, and incorporated herein by reference)
4.5
Form of Amendment to the Warrant (filed as Exhibit 4.32 to the Company’s Form S-3, File No. 333-163708, dated December 14, 2009, and incorporated herein by reference)
4.6
Form of Warrant to Purchase common stock (filed as Exhibit 4.3 to the Company’s Form 8-K dated June 24, 2008, File No. 001-32134, and incorporated herein by reference)
4.7
Form of Warrant to Purchase common stock (filed as Exhibit 4.33 to the Company’s Form S-1, File No. 333-167059, dated May 25, 2010, and incorporated herein by reference)
4.8
Form of Warrant to Purchase common stock (filed as Exhibit 4.2 to the Company’s Form 8-K dated June 7, 2010, File No. 001-32134, and incorporated herein by reference)
4.9
Form of Warrant to Purchase common stock (filed as Exhibit 4.2 to the Company’s Form 8-K dated March 21, 2011, File No. 001-32134, and incorporated herein by reference)
 
4.10
Form of Warrant to Purchase common stock (filed as Exhibit 4.2 to the Company’s Form 8-K dated February 17, 2012, File No. 001-32134, and incorporated herein by reference)
4.11
Form of Placement Agent Warrant (filed as Exhibit 4.12 to the Company’s Registration Statement on Form S-1 filed on May 23, 2013, File No. 333-186577, and incorporated herein by reference)
4.12
Form of Warrant to Purchase common stock (filed as Exhibit 4.13 to the Company’s Registration Statement on Form S-1 filed on May 23, 2013, File No. 333-186577, and incorporated herein by reference)
4.13
Form of Warrant to Purchase common stock (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on September 18, 2013, File No. 001-32134, and incorporated herein by reference)
4.14
Form of Amendment to $1.50 Warrant (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on September 18, 2013, File No. 001-32134, and incorporated herein by reference)
4.15
Securities Purchase Agreement (filed as Exhibit 4.14 to the Company’s Registration Statement on Form S-1, File No. 333-186577 filed on November 4, 2013, and incorporated herein by reference)
4.16
Form of Equipment Revolving Note, dated March 24, 2014 (filed as Exhibit 10.1 to the Company’s Form 8-K dated March 28, 2014, File No. 001-32134, and incorporated herein by reference)
4.17
Form of Security Agreement, dated March 24, 2014 (filed as Exhibit 10.2 to the Company’s Form 8-K dated March 28, 2014, File No. 001-32134, and incorporated herein by reference)
4.18
Form of Factoring Agreement, dated March 24, 2014 (filed as Exhibit 10.3 to the Company’s Form 8-K dated March 28, 2014, File No. 001-32134, and incorporated herein by reference)
4.19
Form of Initial Warrant (filed as Exhibit 4.1 to the Company’s Current Report on Form 8-K, filed on January 14, 2015, File No. 001-32134, and incorporated herein by reference)
4.20
Form of Additional Warrant (filed as Exhibit 4.2 to the Company’s Current Report on Form 8-K, filed on January 14, 2015, File No. 001-32134, and incorporated herein by reference)
4.21
Form of Warrant issued to Edward B. Smith III and Morris Garfinkle (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on February 9, 2015, File No. 001-32134, and incorporated herein by reference)
4.22
Form of Warrant Amendment (filed as Exhibit 4.3 to the Company’s Current Report on Form 8-K, filed on July 6, 2015, File No. 001-32134, and incorporated herein by reference)
10.1
Steven J. Cohen Employment Agreement (filed as Exhibit 10.12 to the Company’s Form 10-QSB for the quarter ended June 20, 2006, File No. 001-32134 and incorporated herein by reference)*
10.2
Brian Chaiken Employment Agreement, dated October 17, 2007 (filed as Exhibit 10.2 to the Company’s Form 10-KSB filed on April 14, 2008 and incorporated herein by reference)*
10.3
Cooperative Research and Development Agreement with the United States Department of Agriculture’s Agricultural Research Service, dated June 14, 2011 (filed as Exhibit 10.1 to the Company’s Form 10-Q for the quarter ended June 30, 2011, File No. 001-32134, and incorporated herein by reference)
10.4
Custom Processing Agreement dated as of October 17, 2011, by and between Z Trim Holdings, Inc. and AVEKA Nutra Processing, LLC (filed as Exhibit 10.1 to the Company’s Form 8-K/A dated October 17, 2011, File No. 001-32134, and incorporated herein by reference)
10.5
Form of Subscription Agreement (filed as Exhibit 10.1 to the Company’s Form 8-K dated February 17, 2012, File No. 001-32134, and incorporated herein by reference)
10.6
Investment Banking Agreement with Legend Securities, Inc. (filed as Exhibit 10.2 to the Company’s Form 8-K dated February 17, 2012, File No. 001-32134, and incorporated herein by reference)
10.7
Z Trim Holdings, Inc. Incentive Compensation Plan (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K dated December 5, 2012, and incorporated herein by reference)*
10.8
Form of Subscription Agreement dated August 20, 2013 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on September 18, 2013, File No. 001-32134, and incorporated herein by reference)
10.9
Form of Subscription Agreement dated September 17, 2013 (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on September 18, 2013, File No. 001-32134, and incorporated herein by reference)
10.10
Form of Placement Agent Agreement (filed as Exhibit 10.9 to the Company’s Registration Statement on Form S-1 filed on November 4, 2013, File No. 333-186577, and incorporated herein by reference)
10.11
Form of Escrow Agreement (filed as Exhibit 10.10 to the Company’s Registration Statement on Form S-1 filed on November 4, 2013, File No. 333-186577, and incorporated herein by reference)
10.12
Amended and Restated Equipment Revolving Note, dated July 16, 2014, issued by Z Trim Holdings, Inc. in favor of Fordham Capital Partners, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 21, 2014, File No. 001-32134, and incorporated herein by reference)
10.13
First Amendment to Security Agreement, dated July 16, 2014, between Z Trim Holdings, Inc. and Fordham Capital Partners, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K filed on July 21, 2014, File No. 001-32134, and incorporated herein by reference)
10.14
Loan Agreement dated July 15, 2014 by and between the Company and Edward B. Smith III (filed as Exhibit 10.3 to the Company’s Current Report on Form 8-K filed on July 21, 2014, File No. 001-32134, and incorporated herein by reference)
 
10.15
Amended and Restated Equipment Revolving Note, dated July 25, 2014, issued by Z Trim Holdings, Inc. in favor of Fordham Capital Partners, LLC (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed on July 28, 2014, File No. 001-32134, and incorporated herein by reference)
10.16
Second Amendment to Security Agreement, dated July 25, 2014, between Z Trim Holdings, Inc. and Fordham Capital Partners, LLC (filed as Exhibit 10.2 to the Company’s Current Report on Form 8-K, filed on July 28, 2014, File No. 001-32134, and incorporated herein by reference)
10.17
Form of Securities Purchase Agreement between the Company and the Investors (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on January 14, 2015, File No. 001-32134, and incorporated herein by reference)
10.18
Consulting Agreement between Z Trim Holdings, Inc. and Jeffery Consulting Group, LLC, entered into with effect as January 1, 2015 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on April 16, 2015, File No. 001-32134, and incorporated herein by reference)*
10.19
Employment Agreement, dated May 6, 2015, by and between Z Trim Holdings, Inc. and Anthony Saguto (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on May 8, 2015, File No. 001-32134, and incorporated herein by reference)*
10.20
Form of Warrant Agreement (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 6, 2015, File No. 001-32134, and incorporated herein by reference)
10.21
Equipment Purchase Agreement between Z Trim Holdings, Inc. and Fordham Capital Partners, LLC, dated July 17, 2015 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 22, 2015, File No. 001-32134, and incorporated herein by reference)
10.22
Equipment Lease Agreement between Z Trim Holdings, Inc. and Fordham Capital Partners, LLC, dated July 17, 2015 (filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K, filed on July 22, 2015, File No. 001-32134, and incorporated herein by reference)
10.23
Amended and Restated Incentive Compensation Plan, as amended (incorporated herein by reference to Exhibit F to the definitive proxy statement on Schedule 14C, File No. 001-32134, filed by Z Trim Holdings, Inc. on November 30, 2015)*
14.1
Code of Ethics and Business Conduct (filed as Exhibit 14.1 to the Company’s Form 10-K for the year ended December 31, 2011, and incorporated herein by reference)
Consent of M&K CPAS, PLLC, independent auditors
Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101
The following materials from Agritech Worldwide, Inc.’s Annual Report on Form 10-K for the year ended December 31, 2015, formatted in XBRL (eXtensible Business Reporting Language): (i) the Balance Sheets, (ii) the Statements of Operations, (iii) the Statements of Stockholders Equity, (iv) the Statements of Cash Flows and (v) the Notes to Financial Statements, tagged as blocks of text, furnished herewith.**
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
 
* Denotes management compensatory plan or arrangement.
 
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and
Stockholders of Agritech Worldwide, Inc. (Formerly Z Trim Holdings Inc.)

We have audited the accompanying balance sheets of Agritech Worldwide, Inc. (Formerly Z Trim Holdings Inc.) as of December 31, 2015 and 2014, and the related statements of operations, changes in stockholders' equity (deficit) and cash flows for the years then ended. These financial statements are the responsibility of the company's management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Agritech Worldwide, Inc. as of December 31, 2015 and 2014, and the results of its operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the Unites States of America.

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company does not have enough cash on hand to meet its current liabilities and has had reoccurring losses as of December 31, 2015. These conditions raise substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters also are described in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ M&K CPAS, PLLC
Houston, Texas
April 14, 2016
 
 
AGRITECH WORLDWIDE, INC. (FORMERLY Z TRIM HOLDINGS INC.)
BALANCE SHEET

ASSETS

     
12/31/2015
     
12/31/2014
 
                 
Current Assets
               
Cash and cash equivalents
 
$
309,851
   
$
1,027,713
 
Accounts receivable
   
248,348
     
46,188
 
Inventory
   
238,264
     
709,029
 
Prepaid expenses and other assets
   
55,558
     
63,296
 
                 
Total current assets
   
852,021
     
1,846,226
 
                 
Long Term Assets
               
Property and equipment, net of amortization
   
471,233
     
1,207,975
 
Other assets
   
31,193
     
15,393
 
                 
Total long term assets
   
502,426
     
1,223,368
 
                 
TOTAL ASSETS
 
$
1,354,447
   
$
3,069,594
 
                 
                 
LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
 
                 
Current Liabilities
               
Accounts payable
 
$
1,141,478
   
$
1,033,875
 
Short-term notes payable to unrelated parties
   
750,000
     
588,211
 
Short-term nonconvertible notes payable to related party
   
457,000
     
270,000
 
Short-term convertible notes payable to related parties
   
624,866
     
-
 
Customer deposit
   
-
     
70,400
 
Accrued expenses and other
   
684,596
     
367,331
 
Accrued liquidated damages
   
36,178
     
36,178
 
Capital Lease Payable
   
216,721
     
-
 
Derivative liabilities
   
742,833
     
20,166
 
Total Current Liabilities
   
4,653,672
     
2,386,161
 
                 
Long Term Convertible Notes Payable to Related Parties
   
-
     
990,000
 
Long Tern Portion of Capital Lease Payable
   
264,980
     
-
 
                 
Total Liabilities
   
4,918,652
     
3,376,161
 
                 
Stockholders' Equity (Deficit)
               
Common stock, $0.00005 par value; authorized 200,000,000 shares; issued and outstanding 93,797,504 and 39,734,854 shares, December 31, 2015 and 2014, respectively
   
4,690
     
1,987
 
Convertible perferred stock, Series B, $0.01 par value authorized 3,000,000 shares; issued and outstanding 709,625 and 0 shares, December 31, 2015 and December 31, 2014 respectively
   
7,096
     
-
 
Preferred stock payable
   
-
     
1,010,000
 
Additional paid-in capital
   
152,853,639
     
131,134,645
 
Accumulated deficit
   
(156,429,630
)
   
(132,453,199
)
                 
Total Stockholders' Equity (Deficit)
   
(3,564,205
)
   
(306,567
)
                 
TOTAL LIABILITIES & STOCKHOLDERS' EQUITY (DEFICIT)
 
$
1,354,447
   
$
3,069,594
 

The accompanying notes are an integral part of the financial statements.
AGRITECH WORLDWIDE, INC. (FORMERLY Z TRIM HOLDINGS INC.)
STATEMENTS OF OPERATIONS
 
   
Twelve Months Ended
December 31,
 
 
 
2015
   
2014
 
REVENUES:
           
Products
 
$
1,151,190
   
$
1,013,670
 
Total revenues
   
1,151,190
     
1,013,670
 
                 
COST OF REVENUES:
               
Products
   
2,055,825
     
995,683
 
Total cost of revenues
   
2,055,825
     
995,683
 
                 
GROSS MARGIN
   
(904,635
)
   
17,987
 
                 
OPERATING EXPENSES:
               
Research and development costs
   
181,713
     
1,377,611
 
Selling, general and administrative
   
3,494,800
     
3,977,676
 
Total operating expenses
   
3,676,513
     
5,355,287
 
                 
OPERATING LOSS
   
(4,581,148
)
   
(5,337,300
)
                 
OTHER INCOME (EXPENSE)
               
Rental and other income
   
-
     
1,483
 
Interest income
   
6
     
26,710
 
Interest expense - other
   
-
     
(7,675
)
Interest expense
   
(231,645
)
   
(188,516
)
Change in fair value - derivative
   
(1,265,611
)
   
74,883
 
Loss on asset disposals, net
   
(564,148
)
   
-
 
Loss on settlement with vendor
   
(13,990
   
(159,293
)
Loss on conversion of debt
    (351,314 )     -  
Loss on exchange of warrants
   
(12,959,660
)
   
-
 
Loss on modification of warrants
   
(4,008,921
)
   
-
 
Settlement income
   
-
     
10,000
 
Total other income (expense)
   
(19,395,283
)
   
(242,408
)
                 
NET  LOSS
 
$
(23,976,431
)
 
$
(5,579,708
)
                 
Less Preferred Dividends
  $
280,675
    $
-
 
                 
NET LOSS ATTRIBUTABLE TO COMMON STOCKHOLDERS
 
$
(24,257,106
)
 
$
(5,579,708
)
NET LOSS PER SHARE - BASIC AND DILUTED
 
$
(0.41
)
 
$
(0.14
)
                 
Weighted Average Number of Shares Basic and Diluted
   
59,030,015
     
39,734,854
 
 
The accompanying notes are an integral part of the financial statements.
 
AGRITECH WORLDWIDE, INC. (FORMERLY Z TRIM HOLDINGS INC.)
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
 
 
 
Shares of
Common
Stock
   
Common
Stock
   
Shares of
Convertible
Preferred
Stock
   
Convertible
Preferred Stock
   
Additional
Paid-In
Capital
   
Preferred
Stock
Payable
   
Accumulated
Deficit
   
Total
 
Balance at December 31, 2013
   
39,449,138
   
$
1,973
     
-
    $
-
   
$
130,039,561
    $
-
   
$
(126,873,490
)
 
$
3,168,044
 
 
                                                               
Stock issued for directors compensation
   
285,716
     
14
     
-
     
-
     
159,987
     
-
     
-
     
160,001
 
Stock based compensation - stock options
   
-
     
-
     
-
     
-
     
935,097
     
-
     
-
     
935,097
 
Deposits received for issuance of convertible preferred stock
   
-
     
-
     
-
     
-
     
-
   
 
1,010,000
     
-
     
1,010,000
 
Net loss
   
-
     
-
     
-
     
-
     
-
             
(5,579,708
)
   
(5,579,708
)
 
                                                               
Balance at December 31, 2014
   
39,734,854
   
$
1,987
     
-
    $
-
   
$
131,134,645
   
$
1,010,000
   
$
(132,453,199
)
 
$
(306,565
)
 
                                                               
Stock issued for directors compensation
   
576,924
     
30
     
-
     
-
   
$
149,970
     
-
     
-
     
150,000
 
Consulting Agreements
   
400,000
     
20
     
-
     
-
   
 
103,980
     
-
     
-
     
104,000
 
Shares issued in warrant exchange
   
53,085,726
     
2653
     
-
     
-
   
 
13,759,606
     
-
     
-
     
13,762,259
 
Conversion of notes to preferred stock-Directors
   
-
     
-
     
96,590
   
 
966.00
   
 
736,723
     
-
     
-
     
737,689
 
Conversion of notes to preferred stock-Other
   
-
     
-
     
40,535
   
 
405.00
   
 
272,317
     
-
     
-
     
272,722
 
Convertible preferred stock issued
   
-
     
-
     
572,500
   
 
5,725.00
   
 
2,284,275
   
 
(1,010,000
)
   
-
     
1,280,000
 
Preferred Dividend Payable
   
-
     
-
     
-
     
-
   
 
(280,675
)
   
-
     
-
     
(280,675
)
Options and warrants issued for compensation
   
-
     
-
     
-
     
-
   
 
4,696,121
     
-
     
-
     
4,696,121
 
Cost associated with preferred shares
   
-
     
-
     
-
     
-
   
 
(3,323
)
   
-
     
-
     
(3,323
)
Net loss
   
-
     
-
     
-
     
-
             
-
   
 
(23,976,431
)
   
(23,976,431
)
Balance at December 31, 2015
   
93,797,504
    $
4,690
     
709,625
    $
7,096
    $
152,853,639
    $
-
     
(156,429,630
)
  $
(3,564,205
)
 
The accompanying notes are an integral part of the financial statements.
 
AGRITECH WORLDWIDE, INC. (FORMERLY Z TRIM HOLDINGS INC.)
STATEMENTS OF CASH FLOWS

FOR THE TWELVE MONTHS ENDED DECEMBER 31
 
2015
   
2014
 
             
CASH FLOWS FROM OPERATING ACTIVITIES
           
Net loss
 
$
(23,976,431
)
 
$
(5,579,708
)
Adjustments to reconcile net income to net cash used for operating activities:
               
Change in fair value of derivative liabilities
   
1,265,611
     
(74,883
)
Loss on conversion of debt
   
351,314
     
-
 
Loss on warrant exchange
   
12,959,660
     
-
 
Loss on settlement of Accounts Payable
   
13,990
     
159,293
 
Preferred stock compensation
   
258,732
     
-
 
Warrants issued for service
   
4,125,470
     
-
 
Options issued for service
   
570,650
     
935,097
 
Loss on warrant expense
   
259,662
     
-
 
Director Fees
   
150,000
     
160,001
 
Common stock for services
   
104,000
     
-
 
Loss on disposal of Fixed Assets
   
574,331
     
-
 
Depreciation expense
   
180,567
     
592,331
 
Changes in operating assets and liabilities:
               
Accounts receivable
   
(202,160
)
   
334,050
 
Inventory
   
470,766
     
(164,494
)
Prepaid expenses
   
7,738
     
70,090
 
Note receivable
   
-
     
31,644
 
Accounts payable and accrued expense
   
219,986
     
1,262,609
 
CASH USED IN OPERATING ACTIVITIES
   
(2,666,114
)
   
(2,273,970
)
                 
CASH FLOWS FROM INVESTING ACTIVITES
               
Fixed asset purchased
   
(3,448
)
   
-
 
Cash received from sale of fixed assets
   
172,911
     
-
 
CASH PROVIDED BY INVESTING ACTIVITIES
   
169,463
     
-
 
                 
CASH FLOWS FROM FINANCING ACTIVITES
               
Preferred shares sold
   
1,280,000
     
-
 
Borrowings on debt
   
900,000
     
700,000
 
Related party borrowing
   
187,000
     
-
 
Borrowing on long term convertible notes payable to related party
   
-
     
990,000
 
Principal payments on debt
   
(588,211
)
   
(111,789
)
Borrowing on short term nonconvertible notes payable to related party
   
-
     
270,000
 
Proceeds from deposits for sale of convertible perferred stock
   
-
     
1,010,000
 
                 
CASH PROVIDED BY FINANCING ACTIVITIES
   
1,778,789
     
2,858,211
 
NET INCREASE (DECREASE) INCREASE IN CASH
   
(717,862
)
   
584,241
 
                 
CASH AT BEGINNING OF PERIOD
   
1,027,713
     
443,472
 
CASH AT THE PERIOD ENDED DECEMBER 31
 
$
309,851
   
$
1,027,713
 
                 
Supplemental Disclosures of Cash Flow Information:
               
Cash paid for interest
  $ -    
$
92,408
 
Dividends payable declared
 
$
280,675
     
-
 
Lease Agreement
 
$
514,707
     
-
 
Common stock exchanged for warrants
 
$
542,944
     
-
 
Preferred stock accrued in prior period issued in 2015
 
$
1,010,000
     
-
 
Conversion of debt and preferred stock
 
$
386,375
     
-
 
 
The accompanying notes are an integral part of the financial statements.
 
Agritech Worldwide, Inc. (formerly Z Trim Holdings, Inc.) Notes to Financial Statements

NOTE 1 – NATURE OF BUSINESS

Z Trim Holdings, Inc. (the “Company”) is an agritech company that owns existing, and has developed new products and processes to make use of biomass for uses in the food and industrial markets. The Company’s food division currently sells a line of products to the food industry that can help food manufacturers reduce their costs and help them solve many production problems. The Company’s technology provides value-added ingredients across virtually all food industry categories. The Company’s all-natural products, among other things, help to reduce fat and calories, add fiber, provide shelf-stability, prevent oil migration, and add binding capacity – all without degrading the taste and texture of the final food products. Perhaps most significantly, Z Trim’s products can help extend finished products, and thereby increase its customers’ gross margins. The Company’s industrial division, opened in 2012, plans to sell eco-friendly ingredients to oil drilling, hydraulic fracturing, petroleum coke, steel/aluminum, paper and other industries. The Company’s industrial ingredients are highly functional in applications for adhesives, binders, viscofiers and emulsifiers.

NOTE 2 –GOING CONCERN

The financial statements have been prepared assuming that the Company will continue as a going concern. As of April 14, 2016, the date that the independent registered public accountant issued its report on the audited financial statements as of and for the year ended December 31, 2015, the Company did not have enough cash on hand to meet its current liabilities or to fund on-going operations beyond one year. The Company had recurring losses as of December 31, 2015. As a result, the independent registered public accountant’s audit report included an explanatory paragraph in respect of our ability to continue as a going concern. The Company intends to secure additional funding through debt or equity financing arrangements, increased sales generated by its operations and reduced expenses.
 
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Use of Estimates

The preparation of the accompanying financial statements in conformity with accounting principles generally accepted in the United States (U.S. GAAP) requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company generally recognizes product revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable, and collectability is probable. In instances where the final acceptance of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. No provisions were established for estimated product returns and allowances based on the Company’s historical experience.

Allowance for Doubtful Accounts

Management of the Company makes judgments as to its ability to collect outstanding receivables and provide allowances for the portion of receivables when collection becomes doubtful. Provisions are made based upon a specific review of all significant outstanding invoices. For those invoices not specifically reviewed, provisions are provided at differing rates, based upon the age of the receivable. In determining these percentages, management analyzes its historical collection experience and current economic trends. If the historical data the Company uses to calculate the allowance for doubtful accounts does not reflect the future ability to collect outstanding receivables, additional provisions for doubtful accounts may be needed and the future results of operations could be materially affected. As of December 31, 2015 and 2014, the allowance for doubtful accounts was $0.
 
Cash and cash equivalents

For purposes of the statement of cash flows, the Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents. There were no cash equivalents as of December 31, 2015 and 2014.

Inventory

Inventory is stated at the lower of cost or market, using the first-in, first-out method. The Company follows standard costing methods for manufactured products.

Property and Equipment

Property and equipment are stated at cost less accumulated depreciation and amortization. Maintenance and repair costs are expensed as incurred. Depreciation is calculated using the straight-line method over the estimated useful lives of the assets. Estimated useful lives of five to ten years are used for machinery and equipment, office equipment and furniture, and automobile. Estimated useful lives of up to five years are used for computer equipment and related software. Depreciation and amortization of leasehold improvements are computed using the term of the lease.

Income Taxes

The amount of current and deferred taxes payable or refundable is recognized as of the date of the financial statements, utilizing currently enacted tax laws and rates. Deferred tax expenses or benefits are recognized in the financial statements for the changes in deferred tax liabilities or assets between years.

Accounting for Derivative Instruments

All derivatives have been recorded on the balance sheet at fair value based on the lattice model calculation. These derivatives, including embedded derivatives in the Company’s warrants which have reset provisions to the exercise price and conversion price if the Company issues equity or other derivatives at a price less than the exercise price set forth in such warrants, are separately valued and accounted for on the Company’s balance sheet. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market based pricing models incorporating readily observable market data and requiring judgment and estimates.

Lattice Valuation Model

The Company valued the warrants and the conversion features in its formerly outstanding convertible notes and preferred stock using a lattice valuation model, with the assistance of a valuation consultant. The lattice model values these instruments based on a probability weighted discounted cash flow model. The Company uses the model to develop a set of potential scenarios. Probabilities of each scenario occurring during the remaining term of the instruments are determined based on management's projections and the expert’s calculations. These probabilities are used to create a cash flow projection over the term of the instruments and determine the probability that the projected cash flow will be achieved. A discounted weighted average cash flow for each scenario is then calculated and compared to the discounted cash flow of the instruments without the compound embedded derivative in order to determine a value for the compound embedded derivative.

Fair Value of Financial Instruments

The Company’s financial instruments consist of cash and cash equivalents, accounts receivable, inventory, accounts payable and accrued liabilities. The estimated fair value of cash, accounts receivable, accounts payable and accrued liabilities approximate their carrying amounts due to the short-term nature of these instruments. None of these instruments are held for trading purposes.

The Company utilizes various types of financing to fund its business needs, including convertible debt with warrants attached. The Company reviews its warrants and conversion features of securities issued as to whether they are freestanding or contain an embedded derivative and, if so, whether they are classified as a liability at each reporting period until the amount is settled and reclassified into equity with changes in fair value recognized in current earnings. At December 31, 2015 and 2014, the Company had warrants to purchase common stock, the fair values of which are classified as a liability.

Inputs used in the valuation to derive fair value are classified based on a fair value hierarchy which distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:

Level one — Quoted market prices in active markets for identical assets or liabilities;
 
Level two — Inputs other than level one inputs that are either directly or indirectly observable; and
Level three — Unobservable inputs developed using estimates and assumptions, which are developed by the reporting entity and reflect those assumptions that a market participant would use.

Determining which category an asset or liability falls within the hierarchy requires significant judgment. The Company evaluates its hierarchy disclosures each quarter. The Company’s only asset or liability measured at fair value on a recurring basis is its derivative liability associated with warrants to purchase common stock and preferred stock. The fair value of the derivative liabilities at December 31, 2015 and 2014 was $742,833 and $20,166, respectively. The increase in the derivative liability for the twelve months ended December 31, 2015 was $722,667.

 
   
Carrying
   
Fair Value Measurements Using
 
 
   
Value
   
Level 1
   
Level 2
   
Level 3
   
Total
 
 
                               
 
                               
Derivative Liabilities
12/31/2013
 
$
95,049
   
$
-
   
$
-
   
$
95,049
   
$
95,049
 
 
                                         
Change in derivative liabilities valuation
   
$
(74,883
)
                 
$
(74,883
)
 
$
(74,883
)
                                           
 
                                         
Derivative Liabilities
12/31/2014
 
$
20,166
                   
$
20,166
   
$
20,166
 
                                           
Change in derivative liabilities due to settlements
     
(542,944
)
   
-
     
-
     
(542,944
)
 
$
(542,944
)
Change in derivative liabilities valuation
   
$
1,265,611
     
-
     
-
     
1,265,611
   
$
1,265,611
 
 
     
722,667
     
-
     
-
     
722,667
     
722,667
 
 
                                         
 
                                         
Derivative Liabilities
12/31/2015
 
$
742,833
   
$
-
   
$
-
   
$
742,833
   
$
742,833
 
 
Income (Loss) Per Common Share

Basic net income (loss) per share includes no dilution and is computed by dividing net income (loss) available to common stockholders by the weighted average number of common stock outstanding for the period. Diluted earnings per share is computed by dividing net income by the weighted average number of shares outstanding and, when diluted, potential shares from options and warrants to purchase common stock using the treasury stock method. Diluted net loss per common share does not differ from basic net loss per common share since potential shares of common stock are anti-dilutive for all periods presented.

Cashless Exercise of Warrants/Options

The Company has issued warrants and options to purchase common stock where the holder is entitled to exercise via a cashless exercise. The Company accounts for the issuance of common stock on the cashless exercise of warrants and options on a net basis.

Stock-Based Compensation

The Company estimates the fair value of share-based payment awards made to employees and directors, including stock options, restricted stock and employee stock purchases related to employee stock purchase plans, on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense ratably over the requisite service periods. We estimate the fair value of each share-based award using the Black-Scholes option pricing model. The Black-Scholes model is highly complex and dependent on key estimates by management. The estimates with the greatest degree of subjective judgment are the estimated lives of the stock-based awards and the estimated volatility of our stock price. The Company recognized pre-tax compensation expense related to stock options of $570,650 and $935,097 for the years ended December 31, 2015 and 2014, respectively.
 
Recent Accounting Pronouncements
 
In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, Interest–Imputation of Interest (Subtopic 835-30) (“ASU 2015-03”), which changes the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will continue to be reported as interest expense. It is effective for annual reporting periods beginning after December 15, 2016. Early adoption is permitted. The new guidance will be applied retrospectively to each prior period presented. The Company is currently in the process of evaluating the impact of adoption of ASU 2015-03 on its balance sheets.
 
In August, 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). The amendment in this ASU defers the effective date of ASU No. 2014-09 for all entities for one year. Public business entities, certain not-for-profit entities, and certain employee benefit plans should apply the guidance in ASU 2014-09 to annual reporting periods beginning December 15, 2017, including interim reporting periods within that reporting period. Earlier application is permitted only as of annual reporting periods beginning after December 31, 2016, including interim reporting periods with that reporting period.
 
In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805) (“ASU 2015-16”). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.
 
In June 2014, the FASB issued an accounting standard which provides new guidance that requires share-based compensation to meet a specific performance target to be achieved in order for employees to become eligible to vest in the awards and that could be achieved after an employee completes the requisite service period be treated as a performance condition. As such, the performance target should not be reflected in estimating the grant-date fair value of the award. Compensation costs should be recognized in the period in which it becomes probable that 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. This new guidance is effective for fiscal years and interim periods within those years beginning after December 15, 2015. Early adoption is permitted. Entities may apply the amendments in this Update 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. The adoption of ASU 2014-12 is not expected to have a material impact on our financial position or results of operations.
 
In June 2014, the FASB issued guidance to improve financial reporting by reducing the cost and complexity associated with the incremental reporting requirements of development stage entities. The amendments in this update remove all incremental financial reporting requirements from U.S. GAAP for development stage entities, thereby improving financial reporting by eliminating the cost and complexity associated with providing that information. The amendments in this Update also eliminate an exception provided to development stage entities in Topic 810, Consolidation, for determining whether an entity is a variable interest entity on the basis of the amount of investment equity that is at risk. The amendments to eliminate that exception simplify U.S. GAAP by reducing avoidable complexity in existing accounting literature and improve the relevance of information provided to financial statement users by requiring the application of the same consolidation guidance by all reporting entities. The elimination of the exception may change the consolidation analysis, consolidation decision, and disclosure requirements for a reporting entity that has an interest in an entity in the development stage. The amendments related to the elimination of inception-to-date information and the other remaining disclosure requirements of Topic 915 should be applied retrospectively except for the clarification to Topic 275, which shall be applied prospectively. For public companies, those amendments are effective for annual reporting periods beginning after December 15, 2014, and interim periods therein. Early adoption is permitted. The adoption of ASU 2014-10 did not have a material impact on our financial position or results of operations.
 
In August 2014, the FASB issued an accounting standard that requires management to assess an entity’s ability to continue as a going concern by incorporating and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the standard (1) provide a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial statements are issued (or available to be issued). The standard in this Update is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter. Early application is permitted. The adoption of ASU 2014-15 is not expected to have a material impact on our financial position or results of operations.
 
In November 2014, the FASB issued new guidance for determining when separation of certain embedded derivative features in a hybrid financial instrument is required. That is, an entity will continue to evaluate whether the economic characteristics and risks of the embedded derivative feature are clearly and closely related to those of the host contract, among other relevant criteria. The amendments clarify how current 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. The effects of initially adopting the amendments in this Update 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. The adoption of ASU 2014-16 is not expected to have a material impact on our financial position or results of operations.
 
In November 2014, the FASB issued guidance to provide an acquired entity with an option to apply pushdown accounting in its separate financial statements upon occurrence of an event in which an acquirer obtains control of the acquired entity. After the effective date, an acquired entity can make an election to apply the guidance to future change-in-control events or to its most recent change-in-control event. However, if the financial statements for the period in which the most recent change-in-control event occurred already have been issued or made available to be issued, the application of this guidance would be a change in accounting principle. The amendments in this Update are effective on November 18, 2014. The adoption of ASU 2014-17 did not have a material impact on our financial position or results of operations.

NOTE 4 – INVENTORY

At December 31, 2015 and 2014 inventory consists of the following:

   
12/31/2015
   
12/31/2014
 
Raw materials
 
$
18,228
   
$
20,931
 
Packaging
   
4,560
     
5,023
 
Work-in-process
   
-
     
1,777
 
Finished goods
   
215,476
     
681,298
 
                 
   
$
238,264
   
$
709,029
 
 
NOTE 5 – PROPERTY AND EQUIPMENT, NET

At December 31, 2015 and 2014 property and equipment, net consists of the following:

   
12/31/2015
   
12/31/2014
 
Production, engineering and other equipment
  $
-
   
$
6,422,110
 
Leasehold improvements
   
3,449
     
2,904,188
 
Office equipment and furniture
   
-
     
603,182
 
Computer equipment and related software
   
-
     
140,238
 
Capital Lease Asset
   
514,707
     
-
 
   
$
518,156
   
$
10,069,718
 
Accumulated amortization
 
(46,923
)
 
(8,861,743
)
Property and equipment, net
 
$
471,233
   
$
1,207,975
 
 
Depreciation expense was $180,567 and $592,331 for the years ended December 31, 2015 and 2014, respectively.
 
On July 17, 2015, the Company entered into an equipment purchase agreement (the “Purchase Agreement”) with Fordham Capital Partners, LLC (“Fordham”) pursuant to which the Company sold all of its right, title and interest in production equipment utilized by the Company to Fordham for a purchase price of $500,000. From the proceeds of the sale, the company repaid outstanding borrowings of $200,000 due to Fordham Capital plus accrued interest of $3,112, 2014 franchise taxes of $96,542 and a security deposit of $15,800 related to the equipment lease. The Company recognized a loss on the sale of 574,331.Concurrently with entering into the Purchase Agreement, on July 17, 2015, the Company entered into an equipment lease agreement (the “Equipment Lease Agreement”) with Fordham pursuant to which the Company leased the production equipment from Fordham on terms that included the following: a lease term of 24 months, monthly lease payments by the Company of $15,800 and the option (at the election of the Company) to purchase the equipment on or after July 8, 2016 on the following terms: (i) if the purchase date is between 12- 18 months $425,000; (ii) if the purchase date is between 19- 23 months: $360,000; and (iii) if the purchase date is during the 24th month (but no later than July 8, 2017): $325,000. The Equipment Lease Agreement includes customary events of default, including non- payment by the Company of the monthly lease payments and the payment of penalties upon such late payments. The Company received cash proceeds of $172,911 from the Purchase Agreement after paying off the obligations described above. These proceeds were used for general corporate purposes.
 
On March 24, 2014, Fordham Capital Partners, LLC (“Fordham”) extended a $500,000 revolving loan (the “Equipment Loan”) to Z Trim Holdings, Inc. (the “Company”) evidenced by an Equipment Revolving Note (the “Note”) issued by the Company to Fordham. The Note requires monthly payments of principal of $10,417 plus interest, commencing on April 24, 2014 and continuing until February 24, 2015, followed by a final balloon payment of the entire unpaid principal balance of the Note and all accrued and unpaid interest on March 24, 2015. The interest on the Note is calculated at a fixed rate of 20% per annum. The Note may be prepaid in full at any time; provided that if the Company prepays the Note prior to September 24, 2014 (such six-month period, the “Guaranteed Interest Period”), it must pay a prepayment penalty equal to the amount by which (i) the aggregate interest that Fordham would have received on the Note during the Guaranteed Interest Period had there been no prepayment exceeds (ii) the aggregate interest paid by the Company prior to the date of prepayment.
 
Pursuant to the Security Agreement, dated March 24, 2014, between the Company and Fordham (the “Security Agreement”), the Equipment Loan is secured by a first priority security interest in all of the Company’s equipment (as more specifically defined in the Security Agreement, the “Collateral”). The Security Agreement also contains customary restrictive covenants, including without limitation, covenants prohibiting the Company from (i) granting additional liens in the Collateral, (ii) selling, leasing or transferring the Collateral, (iii) entering into certain merger, consolidation or other reorganization transactions, and (iv) creating, incurring or assuming additional indebtedness, in each case subject to certain exceptions. The Security Agreement also contains customary events of default. If an event of default under the Security Agreement occurs and is continuing, Fordham may declare any outstanding obligations under the Credit Agreement immediately due and payable. After an event of default, interest on the Note would accrue at a rate of 25% per annum.
 
Additionally, pursuant to the Factoring Agreement, dated March 24, 2014, between the Company and Fordham, Fordham may purchase any Accounts of the Company (the “Factoring Agreement”). To secure payment and performance of the Company’s liabilities and obligations to Fordham, including obligations under the Factoring Agreement, the Company granted Fordham a security interest in all of the Company’s (i) Accounts, (ii) Inventory, (iii) Chattel Paper, Deposit Accounts, Documents, Equipment, Financial Assets, Fixtures, General Intangibles, Instruments, Investment Property, Letter-of-Credit Rights, Securities, Software and Supporting Obligations, (iv) books and records of Seller which relate to Accounts, (v) all amounts owing to the Company under the Factoring Agreement, and (vi) Proceeds of the foregoing. The Factoring Agreement terminates at any time that the Equipment Loan is paid in full.
 
On July 16, 2014, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Equipment Revolving Note (the “Amended Note”) in the amount of $582,841.63. The Amended Note requires monthly payments of principal of $12,143 plus interest, commencing on July 24, 2014 and continuing until February 24, 2015, followed by a final balloon payment of the entire unpaid principal balance of the Amended Note and all accrued and unpaid interest on March 24, 2015. The interest on the Amended Note is calculated at a fixed rate of 22% per annum.
 
Also on July 16, 2014, the Company and Fordham Capital Partners, LLC entered into a First Amendment to Security Agreement in which the Amended Note is secured by a first priority security interest in all of the Company’s equipment under substantially the same terms and covenants as stated in the original Security Agreement indicated above.
 
On July 25, 2014, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Equipment Revolving Note (the “Second Amended Note”) in the amount of $668,750. The Second Amended Note requires one monthly payment of principal of $12,143 plus interest, commencing on July 25, 2014 followed by successive monthly installments of principal of $13,679 plus interest and continuing until February 24, 2015, followed by a final balloon payment of the entire unpaid principal balance of the Second Amended Note and all accrued and unpaid interest on March 24, 2015. The interest on the Second Amended Note is calculated at a fixed rate of 22% per annum.
Also on July 25, 2014, the Company and Fordham Capital Partners, LLC entered into a Second Amendment to Security Agreement in which the Second Amended Note is secured by a first priority security interest in all of the Company’s equipment under substantially the same terms and covenants as stated in the original and the First Security Agreement indicated above.

On July 17, 2015, the Company completed a sale and leaseback transaction with Fordham Capital. In the transaction the Company sold all of its production equipment, furniture and fixtures for $500,000. From the proceeds of the sale, the company repaid outstanding borrowings of $200,000 due to Fordham Capital plus accrued interest of $3,112, franchise taxes of $96,542 and a security deposit of $15,800 related to the equipment lease.

On July 9, 2015, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Equipment Note (the “Note”) in the amount of $200,000. The Note requires the entire principal balance of this Note and all accrued interest to be paid on the maturity date of July 31, 2015. The interest on the Note is calculated at a fixed rate of 22% per annum.
 
This Note was issued pursuant to and entitled to the benefits of, and is secured by, the Amended and Restated Security Agreement which is in effect and under substantially the same terms and covenants as stated in the Security Agreement (dated May 28, 2015) previously discussed.
 
On July 9, 2015, the Company and Fordham entered into a Second Amendment to Factoring Agreement pursuant to which Fordham may purchase any Accounts of the Company under substantially the same terms and covenants as stated in the Factoring Agreement dated May 28, 2015, as amended by Amendment to Factoring Agreement dated June 25, 2015. The Factoring Agreement terminates on July 31, 2015 or at any time that the Note (dated July 9, 2015) is paid in full.

The Company did not sell any fixed assets during the year ended December 31, 2014.
 
NOTE 6 – ACCRUED EXPENSES AND OTHER

At December 31, 2015 and 2014 accrued expenses consist of the following:

   
12/31/2015
   
12/31/2014
 
Accrued payroll and taxes
 
$
166,713
   
$
151,741
 
Accrued settlements
   
102,000
     
102,000
 
Accrued interest
   
216,071
     
96,108
 
Accrued expenses and other
   
199,812
     
17,482
 
                 
   
$
684,596
   
$
367,331
 
 
NOTE 7 – SHORT-TERM NOTES PAYABLE TO UNRELATED PARTIES

On March 24, 2014, Fordham Capital Partners, LLC (“Fordham”) extended a $500,000 revolving loan (the “Equipment Loan”) to Z Trim Holdings, Inc. (the “Company”) evidenced by an Equipment Revolving Note (the “Note”) issued by the Company to Fordham. The Note requires monthly payments of principal of $10,417 plus interest, commencing on April 24, 2014 and continuing until February 24, 2015, followed by a final balloon payment of the entire unpaid principal balance of the Note and all accrued and unpaid interest on March 24, 2015. The interest on the Note is calculated at a fixed rate of 20% per annum. The Note may be prepaid in full at any time; provided that if the Company prepays the Note prior to September 24, 2014 (such six-month period, the “Guaranteed Interest Period”), it must pay a prepayment penalty equal to the amount by which (i) the aggregate interest that Fordham would have received on the Note during the Guaranteed Interest Period had there been no prepayment exceeds (ii) the aggregate interest paid by the Company prior to the date of prepayment.
 
Pursuant to the Security Agreement, dated March 24, 2014, between the Company and Fordham (the “Security Agreement”), the Equipment Loan is secured by a first priority security interest in all of the Company’s equipment (as more specifically defined in the Security Agreement, the “Collateral”). The Security Agreement also contains customary restrictive covenants, including without limitation, covenants prohibiting the Company from (i) granting additional liens in the Collateral, (ii) selling, leasing or transferring the Collateral, (iii) entering into certain merger, consolidation or other reorganization transactions, and (iv) creating, incurring or assuming additional indebtedness, in each case subject to certain exceptions. The Security Agreement also contains customary events of default. If an event of default under the Security Agreement occurs and is continuing, Fordham may declare any outstanding obligations under the Credit Agreement immediately due and payable. After an event of default, interest on the Note would accrue at a rate of 25% per annum.
 
Additionally, pursuant to the Factoring Agreement, dated March 24, 2014, between the Company and Fordham, Fordham may purchase any Accounts of the Company (the “Factoring Agreement”). To secure payment and performance of the Company’s liabilities and obligations to Fordham, including obligations under the Factoring Agreement, the Company granted Fordham a security interest in all of the Company’s (i) Accounts, (ii) Inventory, (iii) Chattel Paper, Deposit Accounts, Documents, Equipment, Financial Assets, Fixtures, General Intangibles, Instruments, Investment Property, Letter-of-Credit Rights, Securities, Software and Supporting Obligations, (iv) books and records of Seller which relate to Accounts, (v) all amounts owing to the Company under the Factoring Agreement, and (vi) Proceeds of the foregoing. The Factoring Agreement terminates at any time that the Equipment Loan is paid in full.
 
On July 16, 2014, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Equipment Revolving Note (the “Amended Note”) in the amount of $582,841.63. The Amended Note requires monthly payments of principal of $12,143 plus interest, commencing on July 24, 2014 and continuing until February 24, 2015, followed by a final balloon payment of the entire unpaid principal balance of the Amended Note and all accrued and unpaid interest on March 24, 2015. The interest on the Amended Note is calculated at a fixed rate of 22% per annum.
 
Also on July 16, 2014, the Company and Fordham Capital Partners, LLC entered into a First Amendment to Security Agreement in which the Amended Note is secured by a first priority security interest in all of the Company’s equipment under substantially the same terms and covenants as stated in the original Security Agreement indicated above.
 
On July 25, 2014, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Equipment Revolving Note (the “Second Amended Note”) in the amount of $668,750. The Second Amended Note requires one monthly payment of principal of $12,143 plus interest, commencing on July 25, 2014 followed by successive monthly installments of principal of $13,679 plus interest and continuing until February 24, 2015, followed by a final balloon payment of the entire unpaid principal balance of the Second Amended Note and all accrued and unpaid interest on March 24, 2015. The interest on the Second Amended Note is calculated at a fixed rate of 22% per annum.
 
Also on July 25, 2014, the Company and Fordham Capital Partners, LLC entered into a Second Amendment to Security Agreement in which the Second Amended Note is secured by a first priority security interest in all of the Company’s equipment under substantially the same terms and covenants as stated in the original and the First Security Agreement indicated above.

On March 24, 2015 the Company made a final payment of principal and interest in the amount of $570,449 to Fordham Capital Partners in satisfaction of the Amended and Restated Equipment Revolving Note dated July 16, 2014.

On May 28, 2015, the Company and Fordham Capital Partners, LLC entered into an Equipment Note in the amount of $50,000. The note requires payment in one installment of principal of $50,000 plus interest on June 30, 2015. The interest on the note is calculated at a fixed rate of 22% per annum.

Pursuant to the Security Agreement, dated May 28, 2015, between the Company and Fordham (the “Security Agreement”), the Equipment Note is secured by a first priority security interest in all of the Company’s equipment (as more specifically defined in the Security Agreement, the “Collateral”). The Security Agreement also contains customary restrictive covenants, including without limitation, covenants prohibiting the Company from (i) granting additional liens in the Collateral, (ii) selling, leasing or transferring the Collateral, (iii) entering into certain merger, consolidation or other reorganization transactions, and (iv) creating, incurring or assuming additional indebtedness, in each case subject to certain exceptions. The Security Agreement also contains customary events of default. If an event of default under the Security Agreement occurs and is continuing, Fordham may declare any outstanding obligations under the Credit Agreement immediately due and payable. After an event of default, interest on the Note would accrue at a rate of 25% per annum.
 
Additionally, pursuant to the Factoring Agreement, dated May 28, 2015, between the Company and Fordham, Fordham may purchase any Accounts of the Company (the “Factoring Agreement”). To secure payment and performance of the Company’s liabilities and obligations to Fordham, including obligations under the Factoring Agreement, the Company granted Fordham a security interest in all of the Company’s (i) Accounts, (ii) Inventory, (iii) Chattel Paper, Deposit Accounts, Documents, Equipment, Financial Assets, Fixtures, General Intangibles, Instruments, Investment Property, Letter- of- Credit Rights, Securities, Software and Supporting Obligations, (iv) books and records of Seller which relate to Accounts, (v) all amounts owing to the Company under the Factoring Agreement, and (vi) Proceeds of the foregoing. The Factoring Agreement terminates on June 30, 2015 or at any time that the Equipment Note is paid in full.

On June 25, 2015, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Equipment Note (the “Second Amended Note”) in the amount of $150,000. The Second Amended Note requires (a) one monthly interest only payment on June 30, 2015 followed by (b) one installment payment of principal of $150,000 plus interest, with such payment due on the maturity date of July 31, 2015. The interest on the Second Amended Note is calculated at a fixed rate of 22% per annum. As of June 30, 2015, the Company did not make the requisite interest payment stipulated in the Second Amended Note. The amount of interest not paid was $1,222.

Also on June 25, 2015, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Security Agreement in which the Second Amended Note is secured by a first priority security interest in all of the Company’s equipment under substantially the same terms and covenants as stated in the Security Agreement (dated May 28, 2015) above.

Additionally, on June 25, 2015, the Company and Fordham entered into an Amendment to Factoring Agreement pursuant to which Fordham may purchase any Accounts of the Company under substantially the same terms and covenants as stated in the Factoring Agreement (dated May 28, 2015) above. The Factoring Agreement terminates on July 31, 2015 or at any time that the Equipment Note is paid in full.

In connection with the Purchase Agreement, the Company’s Factoring Agreement with Fordham effective May 28, 2015, as amended by an amendment dated June 25, 2015, was further amended to grant to Fordham a security interest in all of the collateral under such agreement to secure the payment to Fordham of all rent payments and all other amounts owed by the Company to Fordham under the Equipment Lease Agreement.

On July 9, 2015, the Company and Fordham Capital Partners, LLC entered into an Amended and Restated Equipment Note (the “Note”) in the amount of $200,000. The Note requires the entire principal balance of this Note and all accrued interest to be paid on the maturity date of July 31, 2015. The interest on the Note is calculated at a fixed rate of 22% per annum.

This Note was issued pursuant to and entitled to the benefits of, and is secured by, the Amended and Restated Security Agreement which is in effect and under substantially the same terms and covenants as stated in the Security Agreement (dated May 28, 2015) previously discussed.

On July 9, 2015, the Company and Fordham entered into a Second Amendment to Factoring Agreement pursuant to which Fordham may purchase any Accounts of the Company under substantially the same terms and covenants as stated in the Factoring Agreement dated May 28, 2015, as amended by Amendment to Factoring Agreement dated June 25, 2015. The Factoring Agreement terminates on July 31, 2015 or at any time that the Note (dated July 9, 2015) is paid in full.

On July 17, 2015, the Company entered into an equipment purchase agreement (the “Purchase Agreement”) with Fordham Capital Partners, LLC (“Fordham”) pursuant to which the Company sold all of its right, title and interest in production equipment utilized by the Company to Fordham for a purchase price of $500,000. From the proceeds of the sale, the company repaid outstanding borrowings of $200,000 due to Fordham Capital plus accrued interest of $3,112, 2014 franchise taxes of $96,542 and a security deposit of $15,800 related to the equipment lease. Concurrently with entering into the Purchase Agreement, on July 17, 2015, the Company entered into an equipment lease agreement (the “Equipment Lease Agreement”) with Fordham pursuant to which the Company leased the production equipment from Fordham on terms that included the following: a lease term of 24 months, monthly lease payments by the Company of $15,800 and the option (at the election of the Company) to purchase the equipment on or after July 8, 2016 on the following terms: (i) if the purchase date is between 12- 18 months $425,000; (ii) if the purchase date is between 19- 23 months: $360,000; and (iii) if the purchase date is during the 24th month (but no later than July 8, 2017): $325,000. The Company received cash proceeds of $ $172,911 from the Purchase Agreement after paying off the obligations described above. These proceeds were used for general corporate purposes.
 
On September 29, 2015, the Company issued a 14% nonconvertible senior unsecured note to an accredited investor in the principal amount of $250,000. The note matures in six months (March 26, 2016) and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash.
 
On December 23, 2015, the Company issued a 14% nonconvertible senior unsecured note to an accredited investor in the principal amount of $500,000. The note matures in twelve months (December 23, 2016) and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash.
 
Below is a summary of the principal and interest activity for the years ended December 31, 2015 and 2014
 
   
Principal
   
Interest
 
Balance December 31, 2013   $ -     $ -  
             
Principal advances and accrued interest
  $ 700,000     $ 94,924  
             
Principal payments and interest
  $ (111,789   $ (92,408
             
Balance at December 31, 2014
 
$
588,211
   
$
2,516
 
                 
Principal advances and accrued interest
 
$
750,000
   
$
10,452
 
                 
Principal payments and interest
 
$
(588,211
)
 
$
(2,516
)
                 
Balance at December 31, 2015
 
$
750,000
   
$
10,452
 
 
NOTE 8 – SHORT-TERM NONCONVERTIBLE NOTES PAYABLE TO RELATED PARTY

On September 29, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $85,000. The note matures in two months (November 29, 2014) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On October 23, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $85,000. The note matures in two months (December 23, 2014) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On October 30, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $70,000. The note matures in two months (December 30, 2014) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On December 3, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $30,000. The note matures in two months (February 3, 2015) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.

On May 29, 2015, the Company executed an amendment number 3 to the 14% nonconvertible subordinated secured notes (dated September 29, 2014, October 23, 2014, October 30, 2014 and December 3, 2014, respectively) whereby the maturity date for each note was extended from May 29, 2015 to December 31, 2015.

On June 12, 2015, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $12,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.

On August 13, 2015, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $25,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement and the Factoring Agreement.
 
On August 21, 2015, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $150,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.

On September 29, 2015, the Company issued a 14% nonconvertible senior unsecured note to an accredited investor in the principal amount of $250,000. The note matures in six months (March 26, 2016) and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash.

On December 23, 2015, the company executed an amendment to the 14% nonconvertible subordinated secured notes (dated September 29, 2014, October 23, 2014, October 30, 2014, December 3, 2014, June 12, 2015, August 13,2015, and August 21, 2015 respectively) whereby the maturity date for each note was extended to July 1, 2016.

On February 26, 2016, the company executed an amendment to the 14% nonconvertible note (dated September 29, 2015) whereby the maturity date was extended to July 1, 2016.

The outstanding amount of nonconvertible notes payable to a related party was $457,000 at December 31, 2015 and $270,000 at December 31, 2014. The amount of accrued and unpaid interest was $54,935 on December 31, 2015 and $7,268 on December 31, 2014.

NOTE 9 – SHORT-TERM CONVERTIBLE NOTES PAYABLE TO RELATED PARTIES

On February 11, 2014 the Company entered into an agreement with Edward B. Smith III, a Director and Shareholder of the Company, pursuant to which Mr. Smith agreed to lend the Company $200,000 in a convertible senior secured note. The note matures in two years (February 11, 2016) and bears interest at 12.5% computed based on a 365-day year. Accrued interest is payable either at maturity or quarterly at the option of Mr. Smith in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the note, Mr. Smith may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under the note is $2.25, subject to adjustment as provided in the note. If on the maturity date of the note, the thirty day trailing average closing price of the Company’s common stock (the “Trailing Average Price”) is below $2.25, the Conversion Price on the maturity date will be reduced to the Trailing Average Price, but to not less than $1.25. The Conversion Price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note.
 
On April 25, 2014, the Company entered into an agreement with Edward B. Smith III, a Director and Shareholder of the Company, pursuant to which Mr. Smith agreed to lend the Company $300,000 in a convertible subordinated secured note. The note matures in two years (April 25, 2016) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the note, Mr. Smith may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under the note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note.
 
On April 30, 2014, the Company issued a 14% convertible subordinated secured note to each of Morris Garfinkle, Mark Hershhorn, Brian Israel and Edward B. Smith III, Directors of the Company, in the principal amount of $19,000, for director fees due and payable to them (the “Director Notes”). Each Director Note matures in two years (April 30, 2016) and bears interest at 14% computed on a 365-day year. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the Director Note, the director may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under each Director Note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note. Each Director Note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On May 12, 2014, the Company issued 14% convertible subordinated secured notes to both Mo Garfinkle and CKS Warehouse in the principal amount of $75,000 each. Both notes mature in two years (May 12, 2016) and bear interest at 14% computed on a 365-day year. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of each note, Mr. Garfinkle and CKS Warehouse may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under each note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note. Each note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On July 15, 2014, the Company entered into an agreement with Edward B. Smith III, pursuant to which Mr. Smith agreed to lend the Company $64,000 in an unsecured note payable. The note matures in 90 days (October 15, 2014) without interest payable on the unpaid principal and subject to the terms of the Company’s agreements with its secured creditors. On August 6, 2014 this note was rolled into the $264,000 convertible subordinated secured note indicated below.
 
On August 6, 2014, the Company issued a 14% convertible subordinated secured note to Edward B. Smith III in the principal amount of $264,000. The note matures in two years (August 6, 2016) and bears interest at 14% computed on a 365-day year. Under this note Mr. Smith has provided $200,000 of cash as of August 6, 2014 and the parties agreed to include the unsecured funds in the amount of $64,000 provided by Mr. Smith on July 15, 2014 and include those amounts as part of this subordinated secured transaction. The loan agreement executed by the parties on July 15, 2014 is now null and void. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the note, Mr. Smith may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under this note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore, no beneficial conversion feature was recorded on this note. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.
 
The April 30, 2014 Notes for $19,000 issued to each of the then four directors, $12,567 of each $75,000 note issued to Morris Garfinkle and CKS Warehouse on May 12, 2014, the $264,000 note issued to Edward B. Smith III on August 6, 2014 and the $21,266 accrued interest related to these notes were converted into 96,590 units in connection with January 2015 private placement which is described in detail in Note #10.
 
On December 23, 2015, the company executed an amendment to the 200,000 12.5% convertible subordinated secured note dated February 11, 2014, the 300,000 14% convertible subordinated secured notes (dated April 25, 2014, and the note issued to Mr. Garfinkle dated May 12, 2014) whereby the maturity date for each note was extended to July 1, 2016.

The outstanding amount of convertible notes payable to related parties was $624,866 at December 31, 2015 and $990,000 at December 31, 2014. The amount of accrued and unpaid interest was $150,684 on December 31, 2015 and $86,323 on December 31, 2014.

NOTE 10 – PREFERRED STOCK

Preferred Stock Issued to Investors

Between December 29 and 31, 2014, the Company as part of a Private Placement Offering (the Offering) in which the company offered for sale a maximum of 5,000,000 units (gross proceeds of $20,000,000), received cash deposits of $1,010,000 towards the purchase of the equity securities being offered. On January, 2015 the company entered into agreements to sell an aggregate of 260,000 Units to eight (8) accredited investors at a price per unit of $4.00 (the “Units”). Each unit consisted of (i) one (1) share of 12.5% Redeemable Convertible Preferred Stock and (ii) one (1) warrant (the “Initial Warrant”), to acquire 8.64 shares of the company’s common stock, par value $0.00005 per share, at an exercise price of $0.64 per share for aggregate cash proceeds of $1,040,000 pursuant to separate purchase agreements entered into with each investor. As a result 260,000 shares of Preferred Stock and Initial Warrants to acquire 2,225,600 shares of common stock were issued. In addition, the Company agreed to issue to each of the investors in the first round of financing an additional warrant (the “Additional Warrant”) for each Unit acquired. The Additional Warrant entitles the investor in the first round of financing to acquire an additional 3.64 shares of the Company’s common also at the exercise price of $0.64 per share. The Additional Warrants issued in the initial closing of the 260,000 units are exercisable for an aggregate of 946,400 shares of the company’s common stock. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti-dilution and entitled to registration rights.

In connection with the private placement offering that was consummated in January 2015, the members of the Company’s Board of Directors agreed to receive an aggregate of 96,590 Units (representing one (1) Unit for every $4.00 of debt exchanged), 826,806 Initial Warrants and 351,586 Additional Warrants in exchange for previously issued convertible notes (including principal and accrued and unpaid interest) (the “Notes”) held by the directors or affiliated entities as follows: (i) 71,211 Units, 609,566 Initial Warrants and 259,208 Additional Warrants were issued to Edward B. Smith III, the Company’s Chief Executive Officer, in exchange for an aggregate of $284,844 of notes and accrued interest, (ii) 10,084 Units, 86,317 Initial Warrants and 36,705 Additional Warrants were issued to Morris Garfinkle in exchange for $40,335 of notes and accrued interest; (iii) 5,211 Units, 44,606 Initial Warrants and 18,968 Additional Warrants were issued to each of Mark Hershhorn and Brian Israel in exchange for an aggregate of $20,844 of notes and accrued interest, respectively; and (v) 4,873 Units, 41,712 Initial Warrants and 17,737 Additional Warrants were issued to CKS Warehouse, an entity in which Mr. Hershhorn owns a controlling interest, in exchange for an aggregate of $19,491 of principal and interest on notes and accrued interest.
 
The fair value of the preferred stock issued with the units above was calculated using multinomial lattice models that valued the preferred stock based on a probability weighted discounted cash flow model. The assumptions used to determine the fair value included the holder of the preferred stock would convert the preferred stock once the stock price exceeded the exercise price, the historical annual volatility of the Company’s stock price was 119% and the weighted cost of capital for the Company was 16.93%. As a result of the conversion of convertible debt into units, the Company recorded a loss on debt conversion of $351,314.

On February 9, 2015, the Company closed a second round of its private placement offering with four (4) accredited investors in which it raised gross proceeds of $500,000 and sold 125,000 units, with each unit consisting of (i) one (1) share of 12.5% Redeemable Convertible Preferred Stock (the “Preferred Shares”) and (ii) one (1) warrant (the “Initial Warrant”), to acquire 8.56 shares of the Company’s common stock, par value, $0.00005 per share (“common stock”), at an exercise price of $0.64 per share all pursuant to separate Securities Purchase Agreements entered into with each investor (the “Securities Purchase Agreements”). In addition, the Company issued to each of the investors in the first and second rounds of financing an additional warrant for each Unit acquired (the “Additional Warrant” and together with the Initial Warrant, the “Warrants”) to acquire 3.64 shares of the Company’s common stock at an exercise price of $0.64 per share. The Initial Warrants issued in the second closing are exercisable for 1,070,000 shares of the Company’s common stock and the Additional Warrants issued in the second closing are exercisable for an aggregate of 455,000 shares of the Company’s common stock.

The Preferred Shares are nonvoting, accrue dividends at the rate per annum equal to 12.5% of the sum of (i) the Stated Value (which initially is $4.00) until the Maturity Date as defined in the Statement of Resolution Establishing Preferred Shares and (ii) the amount of accrued and unpaid dividends payable, are convertible into shares of common stock at the option of the holder as described in the Statement of Resolution Establishing Preferred Shares, have anti- dilution protection, registration rights, may be redeemed under certain circumstances, liquidation preference, protective provisions and board rights under certain circumstances.

On March 18, 2015, the Company received $75,000 from an accredited investor towards the purchase of 18,750 units in a private placement offering. Each unit consists of (i) one (1) share of 12.5% Convertible Preferred Stock and (ii) one (1) warrant, to acquire 8.56 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share all pursuant to a separate Securities Purchase Agreement entered into with the investor.

On June 1, 2015, the Company received $25,000 from an accredited investor towards the purchase of 6,250 units in a private placement offering. Each unit consists of (i) one (1) share of 12.5% Convertible Preferred Stock and (ii) one (1) warrant, to acquire 8.56 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share all pursuant to separate Securities Purchase Agreement entered into with the investor.

On August 26, 2015, the Company received $250,000 from accredited investors towards the purchase of 62,500 units in a private placement offering. Each unit consists of (i) one (1) share of 12.5% Convertible Preferred Stock and (ii) one (1) warrant, to acquire 8.56 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share all pursuant to separate Securities Purchase Agreements entered into with the investors.

On October 20, 2015, the Company received $200,000 from an accredited investor towards the purchase of 50,000 units in a private placement offering. Each unit consists of (i) one (1) share of 12.5% Convertible Preferred Stock and (ii) one (1) warrant, to acquire 8.56 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share all pursuant to aseparate Securities Purchase Agreement entered into with the investor

On November 4, 2015, the Company received $200,000 from an accredited investor towards the purchase of 50,000 units in a private placement offering. Each unit consists of (i) one (1) share of 12.5% Convertible Preferred Stock and (ii) one (1) warrant, to acquire 8.56 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share all pursuant to a separate Securities Purchase Agreement entered into with the investor.

Preferred Stock Issued to Vendors

Effective January 1, 2015, the Company and its landlord executed an amendment to the lease extending the lease until July 14, 2015. Commencing on May 1, 2015, the parties agreed to a monthly base rent of $10,681 plus property taxes. The Company also agreed to pay $71,125 in rental arrears on April 30, 2015 and another $71,125 in rental arrears on July 1, 2015. Finally, the parties agreed that the Company will deliver to the landlord 20,025 shares of its 12.5% Convertible Preferred Stock. As a result of the preferred stock issued, the Company recorded an expense of $48,060 for the three months ended June 30, 2015 with an offset to preferred stock and additional paid in capital. Also, the Company issued a five year warrant to the landlord to purchase 171,414 shares of common stock at $0.64 per share.

On May 1, 2015, the Company and its landlord executed an amendment to the current lease extending the lease until October 14, 2015. The parties agreed and the Company delivered to the landlord 8,010 shares of its 12.5% Convertible Preferred Stock and agreed to issue 68,566 warrants to acquire the Company’s Common Stock at an exercise price of $0.64 per share. The Company recorded additional rent expense of $48,060.
 
On May 12, 2015, the Company agreed to issue 12,500 shares of 12.5% Convertible Preferred Stock and 107,000 warrants to acquire the Company’s Common Stock at an exercise price of $0.64 per share in satisfaction of outstanding accounts payable due to a vendor. The outstanding balance due to this vendor was $60,885. The Company recognized a loss of $13,990 as a result of the conversion.

There were no shares of 12.5% Convertible Preferred Stock outstanding in 2014.

Preferred Dividends Accrued

As of December 31, 2015, the Company had accrued dividends of $280,675. There were no accrued dividends at December 31, 2014.

NOTE 11 – LIQUIDATED DAMAGES

In connection with certain private placements of the Company’s securities (the “Registrable Securities”) in 2008, the Company entered into registration rights agreements (the “RRA”) that required the Company to file a registration statement covering the Registrable Securities with the Securities and Exchange Commission no later than thirty days after the final closing as contemplated in the Private Placement Memorandum for the 2008 offering (the “Filing Deadline”), which the Company did not meet. Under the terms of the RRA, as partial compensation, the Company was required to make pro rata payments to each Investor in an amount equal to 1.5% of the aggregate amount invested by such Investor for each 30-day period or pro rata for any portion thereof following the Filing Deadline for which no registration statement was filed. We obtained a release and waiver of the amounts due from almost all of the 2008 investors. Under the terms of the RRA, we potentially owe, and have recognized as liquidated damages, $36,178 relating to holders from whom we did not receive waivers.

NOTE 12 – DERIVATIVE LIABILITIES

Certain of the Company’s convertible preferred stock and warrants have reset provisions to the exercise price if the Company issues equity or other derivatives at a price less than the exercise price set forth in such warrants. This ratchet provision results in a derivative liability in our financial statements.
 
Our derivative liabilities increased to $742,833 at December 31, 2015 from $20,166 at December 31, 2014. The loss recognized during the twelve months ended December 31, 2015 was $1,265,611 as compared to a gain of $74,883 for the twelve months ended December 31, 2014.
 
The assumptions used to value the derivative liabilities in the lattice model for the year ended December 31, 2015 included the closing stock price of $0.42 per share, and the projected volatility based on a historical value used of 165% and assuming the probability for an event of default occurring 5% of the time and increasing by 0.10% per month. For the year ended December 31, 2014, the assumptions included the closing stock price of $0.38 per share, and the projected volatility based on a historical value used of 119% and assuming the probability for an event of default occurring 5% of the time and increasing by 0.10% per month.
 
The following tabular presentation reflects the components of derivative financial instruments on the Company’s balance sheet at December 31, 2015 and 2014:
 
 
 
12/31/2015
   
12/31/2014
 
Common stock warrants
 
$
130,028
   
$
20,166
 
Embedded conversion features for convertible debt or preferred shares
   
612,805
     
-
 
 
               
Total
 
$
742,833
   
$
20,166
 
 
               
Beginning balance
 
$
20,166
   
$
95,049
 
Change in derivative liability valuation
   
1,265,611
     
(74,883
)
Change in derivative liability - settlements
   
(542,944
)
       
 
               
Total
 
$
742,833
   
$
20,166
 
 
NOTE 13 – COMMON STOCK

COMMON STOCK ISSUED TO DIRECTORS

On January 2, 2014 the Company issued 285,716 shares of common stock to the then four non-executive directors (71,429 shares each) Mark Hershhorn, Brian Israel, Morris Garfinkle and Edward B. Smith III. The Company recognized a total expense of $160,001 related to these issuances. These shares were valued based on the closing price on the grant date.

On February 24, 2015 the Company issued 576,924 shares of common stock to its three non- executive directors at such time (192,308 shares each) to Brian Israel, Morris Garfinkle and Dan Jeffery. The Company recognized a total expense of $150,000 related to these issuances. These shares were valued based on the closing price on the grant date.

COMMON STOCK ISSUED FOR SERVICES
 
On March 1, 2015, the Company entered into a Business Development Agreement with Steeltown Consulting Group, LLC, pursuant to which Steeltown will assist in evaluating various business and financial matters. The Company issued 400,000 restricted shares of common stock as consideration for the services being rendered in this agreement. The common stock was valued at $104,000 based on the closing prices of the stock on the date the agreement was executed. This agreement is scheduled to terminate on March 1, 2016.
 
There were no shares issued for services during the year ended December 31, 2014.
 
COMMON STOCK ISSUED ON THE EXERCISE OF WARRANTS FOR CASH

During the years ended December 31, 2015 and December 31, 2014 there were no warrants exercised for cash.

COMMON STOCK ISSUED ON THE CASHLESS EXERCISE OF WARRANTS
 
On April 29, 2015, the Company sent a proposal to all warrant holders (as of September 30, 2014) to participate in a warrant exchange program whereby each warrant holder will be able to 1) exchange their warrants for common stock, on a cashless basis, at a reduced exercise price of $0.00005 per share, 2) if applicable, receive the right to 17.5% more warrants and a two year extension on all of their warrants in return for waiving their anti- dilution rights on a one- time basis for the exchange, or 3) elect to take advantage of (1) and (2) by (i) exchanging a portion of their Warrants that they so designate for shares of Common Stock in accordance with the applicable terms in (1) and (ii) the remainder of the Warrant not exchanged will be retained and amended pursuant to the applicable provisions of (2). As of April 29, 2015 there were 55,334,490 warrants outstanding that were eligible to participate in the proposal inclusive of 38,888,147 warrants associated with anti- dilution provisions resulting from the January 8, 2015 private placement.
 
The results of this exchange were warrant holders elected to receive 52,110,896 shares of Common Stock under alternative (1), 318,750 additional warrants were issued under alternative (2) and a combination of 974,826 shares of Common Stock and 73,125 warrants were issued from elections made under alternative (3). The Company recorded a loss on exchange of warrants of $12,959,660 for the twelve months ended December 31, 2015.
 
During the year ended December 31, 2014 the Company did not issue any shares of common stock on the cashless exercise of warrants.
 
COMMON STOCK ISSUED ON THE EXERCISE OF STOCK OPTIONS FOR CASH
 
During the years ended December 31, 2015 and December 31, 2014 there were no stock options exercised for cash.

COMMON STOCK ISSUED ON THE CASHLESS EXERCISE OF STOCK OPTIONS
 
During the years ended December 31, 2015 and December 31, 2014 the Company did not issue any shares of common stock on the cashless exercise of stock options.
 
NOTE 14 – STOCK OPTION PLAN AND WARRANTS

STOCK OPTION PLAN

The Company’s Incentive Compensation Plan (the “Plan”) provides for the issuance of qualified options to all employees and non-qualified options to directors, consultants and other service providers.
 
A summary of the status of stock options outstanding under the Plan as of December 31, 2015 and 2014 is as follows:
 
 
 
12/31/2015
   
12/31/2014
 
 
 
Number of
Shares
   
Weighted
Average
Exercise Price
   
Number of
Shares
   
Weighted
Average
Exercise
Price
 
Outstanding at beginning of year
   
11,033,675
   
$
1.05
     
9,583,762
   
$
1.16
 
Granted
   
6,299,600
   
$
0.29
     
2,372,800
   
$
0.58
 
Exercised
   
-
             
-
   
$
-
 
Expired and Cancelled
   
(6,230,000
)
 
$
0.77
     
(922,887
)
 
$
0.99
 
 
   
11,103,275
             
11,033,675
         
 
                               
Outstanding, end of period
   
11,103,275
   
$
0.78
     
11,033,675
   
$
1.05
 
 
                               
 
                               
Exercisable at end of period
   
10,328,925
   
$
0.82
     
11,033,675
   
$
1.05
 
 
At December 31, 2015 the aggregate intrinsic value of all outstanding options was $0 of which 10,328,925 outstanding options are currently exercisable at a weighted average exercise price of $0.82. At December 31, 2014 the aggregate intrinsic value of all outstanding options was $0 of which 11,033,675 outstanding options were exercisable at a weighted average exercise price of $1.05
 
The fair value of each stock option granted is estimated on the date of grant using the Black-Scholes option valuation model. This model uses the assumptions listed in the table below for stock options granted in 2015. Expected volatilities are based on the historical volatility of the Company’s stock. The risk-free rate for periods within the expected life of the option is based on the U.S. Treasury yield curve in effect at the time of grant.
 
 
12/31/2015
 
12/31/2014
Weighted average fair value per option granted
$0.14 - $0.36
 
$0.31 - $0.50
Risk-free interest rate
1.00% - 1.54%
 
0.86 - 1.75%
Expected dividend yield
0.00%
 
0.00%
Expected lives
2.688 - 3.000
 
2.6875
Expected volatility
86.22% - 120.51%
 
82.11 - 98.91%
 
During the year ended December 31, 2015, the Company granted 6,299,600 options to employees at a weighted average exercise price of $0.29 per share valued at $1,845,892. Stock- based compensation expense from options for the year ended December 31, 2015 was $570,560. During the year ended December 31, 2014 the Company granted 2,372,800 options to employees at a weighted average exercise price of $0.58 and recognized a total of $935,097 in stock compensation expense. The options granted to employees are 25% vested on the date of grant and 25% every 90, 180 and 270 days subsequent to the grant date with the exception of 3,300,000 options granted to Anthony Saguto in May 2015 which vested in 15 equal installments over give years commencing four months after the grant date. When Mr. Saguto resigned in November 2015, 2,860,000 of his unvested options were cancelled.
 
The expiration date of the options granted in both 2015 and 2014 is five years from the grant date.
 
During the years ended December 31, 2015 and December 31, 2014, there were no stock options exercised for cash or on a cashless basis.
 
As of December 31, 2015, the Company had reserved 6,896,725 shares of common stock to be issued upon the exercise of qualified options issued under the Plan. As of December 31, 2014 the Company had 6,966,325 shares available for grant under the Plan.

WARRANTS

As of December 31, 2015 and 2014, the Company had warrants outstanding to purchase 50,957,780 shares of the Company’s common stock,, at prices ranging from $0.35 to $1.00 per share. These warrants expire at various dates through December 2020. The summary of the status of the warrants issued by the Company as of December 31, 2015 and 2014 are as follows:
 
 
 
12/31/2015
   
12/31/2014
 
 
 
Number of
Warrants
   
Weighted
Average
Exercise Price
   
Number of
Warrants
   
Weighted
Average
Exercise Price
 
Outstanding at beginning of year
   
16,446,351
   
$
1.44
     
16,688,265
   
$
1.44
 
Granted
   
87,825,204
   
$
0.42
     
-
   
$
-
 
Exercised
   
(53,095,204
)
 
$
0.66
     
-
   
$
-
 
Cashless Exercises
   
-
     
-
     
-
   
$
-
 
Expired and Cancelled
   
(218,571
)
 
$
0.66
     
(241,914
)
 
$
0.87
 
 
   
50,957,780
   
$
0.52
     
16,446,351
     
-
 
 
                               
Outstanding, end of period
   
50,957,780
   
$
0.52
     
16,446,351
   
$
1.44
 
 
                               
Exercisable at end of period
   
50,957,780
   
$
0.52
     
16,446,351
   
$
1.44
 
 
Due to the anti- dilution provisions of some of the warrants outstanding before the January 8, 2015 transaction, the exercise price on 15,512,057 warrants was reduced to $0.35 and the number of shares of common stock into which the warrants became exercisable was adjusted such that the warrants were then exercisable into 54,400,204 shares of common stock.
 
The fair values for the Company’s derivative liabilities related to the Warrants (5 year warrants at $0.35, $0.45, and $0.64, with a full reset feature) issued is $130,028. The derivative instruments were valued as of December 31, 2015 with the following assumptions:
 
- The Holder would automatically exercise the warrants at a stock price above the exercise price with the target exercise price dropping as expiration approaches,
 
- The projected annual volatility was based on the Company’s historical volatility between 148% and 193%,
 
- An event of default would occurred 5% of the time, increasing to 0.10% per month,
 
- Dilutive/Full Reset events projected to occur based on future projected capital needs (future financings are projected going forward as of December 2015) resulting in the weighted conversion price dropping from the initial conversion price (no reset events have occurred).
 
Effective January 1, 2015 the Company entered into a consulting agreement with Jeffery Consulting Group, LLC pursuant to which Jeffery Consulting will provide assistance with operational improvements including manufacturing processes, strategic and tactical advice with respect to the Company’s sales and marketing initiatives, and provide customer introductions and strategic sales opportunities. In consideration of services rendered by Jeffery Consulting, the Company issued a warrant to purchase 1,250,000 shares of common stock at $0.35 per share. The warrant vested 500,000 shares upon the mutual execution of this agreement, and 250,000 shares each at the three month, six month, and nine month anniversaries of this agreement. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 84.52%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 1.07%. In 2015 the Company recognized compensation expense of $249,635. The Company also agreed to accrue $5,000 per month which becomes payable to Jeffery Consulting once the Company has raised $3 million in additional capital.
 
On February 9, 2015, Edward B. Smith III and Morris Garfinkle were issued warrants exercisable for 31,000,000 and 5,500,000 shares of common stock, respectively, in consideration of the services to be provided to the Company as Chief Executive Officer of the Company and Chairman of the Board, respectively. The exercise price of these warrants is $0.45 per share. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 81.99%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 0.85%. In 2015 the Company recognized compensation expense of $3,749,259.
 
On April 29, 2015, the Company sent a proposal to all warrant holders (as of September 30, 2014) an offer to participate in a warrant exchange program whereby each warrant holder will be able to 1) exchange their warrants for common stock, on a cashless basis, at a reduced exercise price of $0.00005 per share, 2) if applicable, receive the right to 17.5% more warrants and a two year extension on all of their warrants in return for waiving their anti- dilution rights on a one- time basis for the exchange, or 3) elect to take advantage of (1) and (2) by (i) exchanging a portion of their Warrants that they so designate for shares of Common Stock in accordance with the applicable terms in (1) and (ii) the remainder of the Warrant not exchanged will be retained and amended pursuant to the applicable provisions of (2). As of April 29, 2015 there were 55,334,490 warrants outstanding that were eligible to participate in the proposal inclusive of 38,888,147 warrants associated with anti- dilution provisions resulting from the January 8, 2015 private placement.
 
The results of this exchange were warrant holders elected to receive 52,110,896 shares of Common Stock under alternative (1). The Company recorded a loss on exchange of warrants in the amount of $12,959,654. Warrant holders elected to receive 318,750 additional warrants under alternative (2). Finally, warrant holders elected to receive a combination of 974,826 shares of Common Stock and 73,125 warrants under alternative (3). The Company recognized a warrant expense of $259,662.

On May 14, 2015 the Company entered into a consulting agreement with E.B. Smith Jr. (father of the Company’s CEO and largest shareholder, Edward B. Smith III) pursuant to which E.B. Smith Jr. will provide advice with respect to the Company’s marketing initiatives, provide customer introductions and investigating strategic transactions. In consideration of services rendered by E.B. Smith Jr., the Company issued warrants to purchase 750,000 shares of common stock at $0.35 per share. The warrants vested 450,000 shares upon the mutual execution of this agreement and then in 150,000 share increments at the three month and six month anniversaries of this agreement. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 104.65%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 1.6%. In 2015 the Company recognized an expense of $117,642.
 
On May 14, 2015 the Company entered into a consulting agreement with Terme Bancorp pursuant to which Terme Bancorp will provide advice with respect to the Company’s marketing initiatives, provide customer introductions and investigating strategic transactions. In consideration of services rendered by Terme Bancorp, the Company issued warrants to purchase 1,250,000 shares of common stock at $0.35 per share. The warrants vested 750,000 shares upon the mutual execution of this agreement and then in 250,000 share increments at the three month and six month anniversaries of this agreement. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 104.65%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 1.60%. In 2015 the Company recognized an expense of $197,075.
 
On October 2, 2015, the Company issued a warrant to acquire 250,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to an accredited investor in conjunction with their $250,000 note investment. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On December 23, 2015, the Company issued a warrant to acquire 500,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to an accredited investor in conjunction with their $500,000 note investment. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

Details of other warrants issued during 2014 and 2015 are included in footnote #10 (Preferred Stock) and #13 (Common Stock).

During the year ended December 31, 2015, there were no warrants exercised for cash.
 
During the year ended December 31, 2014, there were no warrants exercised for cash or on a cashless basis and no warrants were granted or exercised.
 
NOTE 15 – INCOME TAXES

During 2015 and 2014, the Company incurred net losses, and therefore had no tax liability. The net deferred tax asset generated by the loss carry forward has been fully reserved. The cumulative net loss carry forward is approximately $104,536,965 and $101,193,948 for the years ended December 31, 2015 and 2014 respectively, and will expire in the years 2021 through 2035.
 
At December 31, 2015, the net deferred tax asset based on a 34% tax rate consisted of the following:
 
 
 
12/31/2015
   
12/31/2014
 
 
           
Net operating loss
 
$
35,542,568
   
$
34,405,942
 
 
               
Less: Valuation allowance
   
(35,542,568
)
   
(34,405,942
)
 
               
Net deferred tax asset
 
$
-
   
$
-
 
 
After evaluating our own potential tax uncertainties, the Company has determined that there are no material uncertain tax positions that have a greater than 50% likelihood of reversal if the Company were to be audited. Our tax returns for the years ended December 31, 2015 and 2014 are subject to IRS audit.

NOTE 16 – MAJOR CUSTOMERS AND CREDIT CONCENTRATION
 
Our customers are predominantly food manufacturers. There were three significant customers who accounted for 45%, 10% and 6%, respectively, of total sales for the year ended December 31, 2015. There were three significant customers who accounted for 28%, 26% and 6%, respectively, of total sales for the year ended December 31, 2014. Further, two customers accounted for 68% and 11% of the total accounts receivable at December 31, 2015. Two customers accounted for 23% and 16% of the total accounts receivable at December 31, 2014.

The Company maintains cash deposits with major banks, which from time to time may exceed federally insured limits. At December 31, 2015 and 2014, $59,851 and $777,713, respectively, were in excess of federally insured limits. The Company periodically assesses the financial condition of the institutions and believes that the risk of loss is minimal.
 
NOTE 17 – COMMITMENTS

Equipment Sale and Leaseback
 
On July 17, 2015, the Company entered into an equipment purchase agreement (the “Purchase Agreement”) with Fordham Capital Partners, LLC (“Fordham”) pursuant to which the Company sold all of its right, title and interest in production equipment utilized by the Company to Fordham for a purchase price of $500,000. Concurrently with entering into the Purchase Agreement, on July 17, 2015, the Company entered into an equipment lease agreement (the “Equipment Lease Agreement”) with Fordham pursuant to which the Company leased the production equipment from Fordham on terms that included the following: a lease term of 24 months, monthly lease payments by the Company of $15,800 and the option (at the election of the Company) to purchase the equipment on or after July 8, 2016 on the following terms: (i) if the purchase date is between 12- 18 months $425,000; (ii) if the purchase date is between 19- 23 months: $360,000; and (iii) if the purchase date is during the 24th month (but no later than July 8, 2017): $325,000. The Company is accounting for the transaction as a capital lease. The future minimum lease payments under the lease are as follows:
 
2016 - $189,600
 
2017 - $110,600
 
NOTE 18 – PENDING LITIGATION/CONTINGENT LIABILITY

On July 7, 2007, the Company and Greg Halpern, its former Chief Executive Officer in his individual capacity, were served with a complaint by Joseph Sanfilippo and James Cluck for violation of the Consumer Fraud Act and the plaintiffs are seeking damages in excess of $200,000. The trial court has issued a default order against the Company, and has denied the Company’s Motion to reconsider. Management believes that the trial court’s rulings were erroneous and that it has grounds for appeal, and that the underlying allegations are frivolous and wholly without merit and will vigorously defends the claim. The outcome of this matter is unknown as of the report date. However, the Company has accrued a liability in the amount of $102,000 in respect to this litigation.

NOTE 19 – RELATED PARTY TRANSACTIONS

On September 29, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $85,000. The note matures in two months (November 29, 2014) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On October 23, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $85,000. The note matures in two months (December 23, 2014) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On October 30, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $70,000. The note matures in two months (December 30, 2014) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On December 3, 2014, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $30,000. The note matures in two months (February 3, 2015) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.

On May 29, 2015, the Company executed an amendment number 3 to the 14% nonconvertible subordinated secured notes (dated September 29, 2014, October 23, 2014, October 30, 2014 and December 3, 2014, respectively) whereby the maturity date for each note was extended from May 29, 2015 to December 31, 2015.
 
On June 12, 2015, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $12,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.

On August 13, 2015, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $25,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement and the Factoring Agreement.

On August 21, 2015, the Company issued a 14% nonconvertible subordinated secured note to Edward B. Smith III in the principal amount of $150,000. The note matures on December 31, 2015 and bears interest at 14% computed based on a 365- day year. Accrued interest is payable at maturity in cash. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.

On December 23, 2015, the company executed an amendment to the 14% nonconvertible subordinated secured notes (dated September 29, 2014, October 23, 2014, October 30, 2014, December 3, 2014, June 12, 2015, August 13,2015, and August 21, 2015 respectively) whereby the maturity date for each note was extended to July 1, 2016.

The outstanding amount of nonconvertible notes payable to a related party was $457,000 at December 31, 2015 and $207,000 at December 31, 2014. The amount of accrued and unpaid interest was $54,935 on December 31, 2015 and $7,268.on December 31, 2014.

On February 11, 2014 the Company entered into an agreement with Edward B. Smith III, a Director and Shareholder of the Company, pursuant to which Mr. Smith agreed to lend the Company $200,000 in a convertible senior secured note. The note matures in two years (February 11, 2016) and bears interest at 12.5% computed based on a 365-day year. Accrued interest is payable either at maturity or quarterly at the option of Mr. Smith in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the note, Mr. Smith may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under the note is $2.25, subject to adjustment as provided in the note. If on the maturity date of the note, the thirty day trailing average closing price of the Company’s common stock (the “Trailing Average Price”) is below $2.25, the Conversion Price on the maturity date will be reduced to the Trailing Average Price, but to not less than $1.25. The Conversion Price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note.
 
On April 25, 2014, the Company entered into an agreement with Edward B. Smith III, a Director and Shareholder of the Company, pursuant to which Mr. Smith agreed to lend the Company $300,000 in a convertible subordinated secured note. The note matures in two years (April 25, 2016) and bears interest at 14% computed based on a 365-day year. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the note, Mr. Smith may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under the note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note.
 
On April 30, 2014, the Company issued a 14% convertible subordinated secured note to each of Morris Garfinkle, Mark Hershhorn, Brian Israel and Edward B. Smith III, Directors of the Company, in the principal amount of $19,000, for director fees due and payable to them (the “Director Notes”). Each Director Note matures in two years (April 30, 2016) and bears interest at 14% computed on a 365-day year. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the Director Note, the director may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under each Director Note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note. Each Director Note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On May 12, 2014, the Company issued 14% convertible subordinated secured notes to both Mo Garfinkle and CKS Warehouse in the principal amount of $75,000 each. Both notes mature in two years (May 12, 2016) and bear interest at 14% computed on a 365-day year. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of each note, Mr. Garfinkle and CKS Warehouse may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under each note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore no beneficial conversion feature was recorded on this note. Each note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Lease Agreement.
 
On July 15, 2014, the Company entered into an agreement with Edward B. Smith III, pursuant to which Mr. Smith agreed to lend the Company $64,000 in an unsecured note payable. The note matures in 90 days (October 15, 2014) without interest payable on the unpaid principal and subject to the terms of the Company’s agreements with its secured creditors. On August 6, 2014 this note was rolled into the $264,000 convertible subordinated secured note indicated below.
 
On August 6, 2014, the Company issued a 14% convertible subordinated secured note to Edward B. Smith III in the principal amount of $264,000. The note matures in two years (August 6, 2016) and bears interest at 14% computed on a 365-day year. Under this note Mr. Smith has provided $200,000 of cash as of August 6, 2014 and the parties agreed to include the unsecured funds in the amount of $64,000 provided by Mr. Smith on July 15, 2014 and include those amounts as part of this subordinated secured transaction. The loan agreement executed by the parties on July 15, 2014 is now null and void. Accrued interest is payable at maturity in shares of the Company’s common stock. At any time on or after the date that is 90 days after the date of issuance of the note, Mr. Smith may elect to convert the aggregate principal balance and accrued interest into shares of common stock of the Company. The conversion price under this note is $1.00. The conversion price was greater than the closing stock price on the agreement date; therefore, no beneficial conversion feature was recorded on this note. The note is secured by the assets of the Company, which security interest is subordinate to the security interest granted to Fordham in connection with the Equipment Loan and the Factoring Agreement.
 
The April 30, 2014 Notes for $19,000 issued to each of the then four directors, $12,567 of each $75,000 note issued to Morris Garfinkle and CKS Warehouse on May 12, 2014, the $264,000 note issued to Edward B. Smith III on August 6, 2014 and the $21,266 accrued interest related to these notes were converted into 96,590 units in connection with January 2015 private placement which is described in detail in Note #10.

On December 23, 2015, the company executed an amendment to the 200,000 12.5% convertible subordinated secured note dated February 11, 2014, the 300,000 14% convertible subordinated secured notes (dated April 25, 2014, and the note issued to Mr. Garfinkle dated May 12, 2014) whereby the maturity date for each note was extended to July 1, 2016.

The outstanding amount of convertible notes payable to related parties was $624,866 at December 31, 2015 and $990,000 at December 31, 2015. The amount of accrued and unpaid interest was $150,684 on December 31, 2015 and $86,323 on December 31, 2014.

In connection with the private placement offering that was consummated in January 2015, the members of the Company’s Board of Directors agreed to receive an aggregate of 96,590 Units (representing one (1) Unit for every $4.00 of debt exchanged), 826,806 Initial Warrants and 351,586 Additional Warrants in exchange for previously issued convertible notes (including principal and accrued and unpaid interest) (the “Notes”) held by the directors or affiliated entities as follows: (i) 71,211 Units, 609,566 Initial Warrants and 259,208 Additional Warrants were issued to Edward B. Smith III, the Company’s Chief Executive Officer, in exchange for an aggregate of $284,844 of notes and accrued interest, (ii) 10,084 Units, 86,317 Initial Warrants and 36,705 Additional Warrants were issued to Morris Garfinkle in exchange for $40,335 of notes and accrued interest; (iii) 5,211 Units, 44,606 Initial Warrants and 18,968 Additional Warrants were issued to each of Mark Hershhorn and Brian Israel in exchange for an aggregate of $20,844 of notes and accrued interest, respectively; and (v) 4,873 Units, 41,712 Initial Warrants and 17,737 Additional Warrants were issued to CKS Warehouse, an entity in which Mr. Hershhorn owns a controlling interest, in exchange for an aggregate of $19,491 of principal and interest on notes and accrued interest. (See Note 10)

On January 2, 2014 the Company issued 285,716 shares of common stock to the then four non-executive directors (71,429 shares each) Mark Hershhorn, Brian Israel, Morris Garfinkle and Edward B. Smith III. The Company recognized a total expense of $160,001 related to these issuances. These shares were valued based on the closing price on the grant date.

On February 24, 2015 the Company issued 576,924 shares of common stock to its three non- executive directors at such time (192,308 shares each) to Brian Israel, Morris Garfinkle and Dan Jeffery. The Company recognized a total expense of $150,000 related to these issuances. These shares were valued based on the closing price on the grant date.

Effective January 1, 2015 the Company entered into a consulting agreement with Jeffery Consulting Group, LLC pursuant to which Jeffery Consulting will provide assistance with operational improvements including manufacturing processes, strategic and tactical advice with respect to the Company’s sales and marketing initiatives, and provide customer introductions and strategic sales opportunities. In consideration of services rendered by Jeffery Consulting, the Company issued a warrant to purchase 1,250,000 shares of common stock at $0.35 per share. The warrant vested 500,000 shares upon the mutual execution of this agreement, and 250,000 shares each at the three month, six month, and nine month anniversaries of this agreement. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 84.52%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 1.07%. In 2015 the Company recognized compensation expense of $249,635.The Company also agreed to accrue $5,000 per month which becomes payable to Jeffery Consulting once the Company has raised $3 million in additional capital.
 
On February 9, 2015, Edward B. Smith III and Morris Garfinkle were issued warrants exercisable for 31,000,000 and 5,500,000 shares of common stock, respectively, in consideration of the services to be provided to the Company as Chief Executive Officer of the Company and Chairman of the Board, respectively. The exercise price of these warrants is $0.45 per share. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 81.99%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 0.85%. In 2015 the Company recognized compensation expense of $3,749,259.
 
On May 14, 2015 the Company entered into a consulting agreement with E.B. Smith Jr. (father of the Company’s CEO and largest shareholder, Edward B. Smith III) pursuant to which E.B. Smith Jr. will provide advice with respect to the Company’s marketing initiatives, provide customer introductions and investigating strategic transactions. In consideration of services rendered by E.B. Smith Jr., the Company issued warrants to purchase 750,000 shares of common stock at $0.35 per share. The warrants vested 450,000 shares upon the mutual execution of this agreement and then in 150,000 share increments at the three month and six month anniversaries of this agreement. The fair value of the warrants issued is estimated on the date of grant using the Black- Scholes valuation model. The assumptions used in the model included the historical volatility of the Company’s stock of 104.65%, and the risk- free rate for periods within the expected life of the warrant based on the U.S. Treasury yield curve in effect of 1.6%. In 2015 the Company recognized an expense of $117,642.

On November 18, 2015, the Company entered into a consulting agreement (the “Consulting Agreement”) with ACT Financial Services Inc. (“ACT Financial”), pursuant to which ACT Financial will provide to the Company finance, accounting and administrative functions, including acting chief financial officer (and principal financial officer) services to be provided by Donald G. Wittmer. The Company will pay an agreed upon weekly rate for such services and will reimburse ACT Financial for certain travel expenses. The Consulting Agreement will continue for six months and may be extended by mutual agreement of the parties.

NOTE 20 – GUARANTEES

The Company from time to time enters into certain types of contracts that contingently require the Company to indemnify parties against third party claims. These contracts primarily relate to: (i) divestiture agreements, under which the Company may provide customary indemnifications to purchasers of the Company’s businesses or assets; (ii) certain real estate leases, under which the Company may be required to indemnify property owners for environmental and other liabilities, and other claims arising from the Company’s use of the applicable premises; and (iii) certain agreements with the Company's officers, directors and employees, under which the Company may be required to indemnify such persons for liabilities arising out of their employment relationship. The terms of such obligations vary. Generally, a maximum obligation is not explicitly stated. Because the obligated amounts of these types of agreements often are not explicitly stated, the overall maximum amount of the obligations cannot be reasonably estimated. Historically, the Company has not been obligated to make significant payments for these obligations, and no liabilities have been recorded for these obligations on its balance sheet as of December 31, 2015.

In general, the Company offers a one-year warranty for most of the products it sells. To date, the Company has not incurred any material costs associated with these warranties.
 
NOTE 21 – SUBSEQUENT EVENTS

Reincorporation Merger
 
On March 23, 2016, we changed our state of incorporation by engaging in a merger (the “Reincorporation”) with and into our newly formed wholly owned subsidiary, Agritech Worldwide, Inc., a Nevada corporation, pursuant to the terms and conditions of an Agreement and Plan of Merger entered into by us and Agritech on March 18, 2016 (the “Merger Agreement”). The Reincorporation was consummated on March 23, 2016 and was effectuated by the filing of (i) articles of merger with the Secretary of State of the State of Nevada, and (ii) articles of merger with the Secretary of State of the State of Illinois. The Reincorporation effected a change in our legal domicile form Illinois to Nevada. Upon the effectiveness of the Reincorporation our affairs of ceased to be governed by (i) Illinois corporation laws, (ii) our Articles of Incorporation, and (iii) our Bylaws, and our affairs became subject to (a) Nevada corporation laws, (b) Agritech’s Articles of Incorporation of and (c) Agritech’s Bylaws. The resulting Nevada corporation (i) is deemed to be the same entity as the Illinois corporation for all purposes under the laws of Nevada, (ii) continues to have all of the rights, privileges and powers of the Illinois corporation, (iii) continue to possess all properties of the Illinois corporation, and (iv) continues to have all of the debts, liabilities and obligations of the Illinois corporation.
 
Investments
 
On March 2, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $100,000. The note matures in one year (March 3, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 400,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On March 11, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $100,000. The note matures in one year (March 11, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 400,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On March 17, 2016, the Company issued a 14% senior unsecured note to an entity controlled by Morris Garfinkle in the principal amount of $100,000. The note matures in one year (March 17, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 400,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to the entity controlled by Mr. Garfinkle. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On March 17, 2016, the Company issued a 14% senior unsecured note to an entity controlled by Dan Jeffery in the principal amount of $50,000. The note matures in one year (March 17, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 200,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to the entity controlled by Dan Jeffery. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On April 7, 2016, the Company issued 14% senior unsecured notes to two accredited investors in the total principal amount of $100,000. The notes mature in one year (April 7, 2017) and bear interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued warrants to acquire a total of 400,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to the two accredited investors. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.

On April 8, 2016, the Company issued a 14% senior unsecured note to an accredited investor in the principal amount of $500,000. The note matures in one year (April 8, 2017) and bears interest at 14% compounded based on a 365-day year. Accrued interest is payable at maturity in cash. In addition, the Company issued a warrant to acquire 2,000,000 shares of the Company’s common stock, par value, $0.00005 per share, at an exercise price of $0.64 per share to the accredited investor. The Warrants expire on the fifth anniversary of their issuance, may be exercised on a cashless basis, are subject to full ratchet price anti- dilution protection and entitled to registration rights.
 
 
F-29