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EX-32.1 - STEALTH TECHNOLOGIES, INC.exh32-1.htm
EX-31.1 - STEALTH TECHNOLOGIES, INC.exh31-1.htm
 

 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549

FORM 10-K

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2017

Commission file number 000-54635

STEALTH TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)

Nevada
27-2758155
(State or other jurisdiction of incorporation or organization)
(I.R.S. Employer Identification No.)

801 West Bay Drive, Suite 470
Largo, Florida 33770
(Address of Principal Executive Offices, including zip code)

727-330-2731
(Registrant's telephone number including area code)

Securities registered pursuant to Section 12(b) of the Act:  None
 
Securities registered pursuant to section 12(g) of the Act:
Common Stock, $0.001 par value
(Title of class)

 
Common Stock, $0.001 par value
 

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 [X]     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 preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.   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 Act). YES ☐     NO ☒

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of June 30, 2017: $696,856.
 
As of July 23, 2018, 9,534,703 shares of the registrant's common stock were outstanding.
 

 
 
 

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Table of Contents
 
3
3
7
7
8
8
8
   
PART II
8
8
10
10
14
15
33
33
34
   
PART III
35
35
37
39
40
41
   
PART IV
42
42
43
44
 
 
 
 
 
 
 
 
 
 
 
 
 

















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PART I
 
ITEM 1.   BUSINESS.

General

We are engaged in the business of identifying and capitalizing on emerging technology and associated markets. Currently, our operations are focused on product development and sales in the security and personal protection businesses. Utilizing our technologies, we plan to expand in this market with additional consumer products and business technologies that provide companies and individuals with new information protection solutions. 

Our first consumer product in this category, the Stealth Card, is designed to protect the EMV chip in a consumer's credit card from "electronic pickpocketing" that uses a smartphone, credit card reader, or RFID antenna to remotely access data stored on the consumer's EMV "Smartchip".  This data includes an individual's credit card number, name, and provides the potential criminal with access to a card's EMV frequency, which allows them to use a card "skimmer" to make transactions on a consumer's credit card without ever taking physical possession. Due to these sophisticated new threats, Stealth Card Inc has focused on building an array of technology around protecting the consumer's data from current and future potentially compromising events.

Subsequent to the launch of Stealth Card, we have brought to market the 911 Help Now, a comprehensive emergency alert system designed to accompany a consumer's lifestyle everywhere they go while providing 24/7 emergency response 2-way voice communication activated by a "one touch" emergency button, packaged in a splash resistant, compact encasement, and powered by the convenience of AAA batteries. The emergency alert system can be used while performing any range of indoor or outdoor activities and by capitalizing on proprietary technology we are able to offer the 911 Help Now product for no recurring monthly charge.

Following the success of the 911 Help Now product we have launched 911 Help Now Location Plus. This second generation product has additional enhancements to include waterproofing, GPS technology as well as running on a 3G network. These additional benefits directly address the customer requests that we received during the sales process of the first product, now allowing us to provide the end user a range of features as well as two competitive price points. 

Competition

The identity theft industry and associated products is a large and fragmented market which has many competitors with larger financial resources than us. Our differentiating factor is our proprietary Stealth Card and associated proprietary compound and design. Our single card solution differentiates from our competitors who are all line of sight based products. As such, we intend to make our presence known in the industry by establishing marketing campaigns and relationships based on our physical product to attract customers.

The Personal Emergency Response marketplace is a large and fragmented market which has many competitors with larger financial resources than us. Our differentiating factor in this space is our no monthly fee sales model. As such, we intend on making our presence known through establishing marketing and advertising campaigns leveraged off our earlier product sales. 
 
 


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Patents and Trademarks
 
Currently, our Trademark was changed to Notice of Allowance – Issued. This trademark is based off the Stealth logo and brand in the identity theft space. Additionally, we have several provisional and non-provisional patent applications filed in the identity theft and data protection markets.

Governmental Regulation

Currently there are no governmental regulations which affect our operations.

Customers

Currently we sell to both the consumer and business-to-business markets. We intend to continue to focus on both verticals of sales with our marketing strategies. Methods used to sell consumers is primarily through direct-to-consumer marketing and sales relationships. Methods to sell business-to-business sale takes place at the customer's location. Retention of the customer depends on the strength of our relationship, the satisfaction in the product, and increase to their existing business through our product integration.


Market and Revenue Generation

The Company has launched its marketing plan in two primary verticals. The first is direct to consumer. The primary marketing strategy for consumer marketing is through strategic relationships we have developed with highly visible multimedia sales entities. In order to continue this sales strategy, we must continually develop new marketing plans and corresponding budgets. Our second market vertical is business-to-business sales. This is accomplished through affinity sales and private label branding. In order to continue this revenue stream the company must continue to develop marketing materials and acquire advertising.

Employees

We have 3 full time employees. Additionally, we use numerous contractors to handle the design, manufacturing and fulfillment of product.

Seasonality and Cyclical Nature of our Business

Our business experiences small seasonality around the Holiday season. Due to the type of products that we sell, we expect to see increased sales around the holiday gift giving season. We do not expect to see any seasonality in our business-to-business market.

Our Office

We lease space for our offices that are located 801 West Bay Drive, Suite 470, Largo, Florida 33770 and our telephone number is (727) 330-2731. We lease our offices from Candia West Bay LLC pursuant to a written lease dated December 1, 2012. The term of our lease is month-to-month. Our monthly rent is $1,092.

 
 

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Convertible Promissory Notes

On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $27,461 (2016 - $27,461) has been recorded in accounts payable and accrued liabilities.

On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. The Company recognized a gain in forgiveness of debt for $nil (2016 - $140,650) for principal and interest forgiven pursuant to the settlement agreement. During the year ended December 31, 2017, the Company repaid $47,387 (2016 - $180,000) of the outstanding loan pursuant to a settlement agreement. As December 31, 2017, the carrying value of the debenture was $22,613 (2016 - $70,000) and the fair value of the derivative liability was $14,237 (2016 - $1,830).

On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company.

On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. The Company recognized a gain in forgiveness of debt for $16,820 for principal and interest forgiven pursuant to the settlement agreement. During the year ended December 31, 2016, the Company had amortized $nil (2015 - $46,652) of the debt discount to interest expense. During the year ended December 31, 2017, the Company repaid $nil (2016 - $32,514) of the outstanding loan pursuant to a settlement agreement.
 

 

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On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $nil (2016 - $2,613) has been recorded in accounts payable and accrued liabilities.

On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan.  On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the year ended December 31, 2016, the Company recognized a gain in forgiveness of debt for $30,202 for principal and interest forgiven pursuant to the settlement agreement.  During the year ended December 31, 2017, the Company repaid $nil (2016 - $57,486) of the outstanding loan pursuant to a settlement agreement. As at December 31, 2017, the carrying value of the debenture was $nil (2016 - $nil) and the fair value of the derivative liability was $nil (2016 - $114).

On May 23, 2017, the Company issued a $63,000 convertible note, net of an original issue discount of $3,000, which is unsecured, bears interest at 8% per annum, and is due on May 23, 2018. The note is convertible into shares of common stock at a conversion rate of 55% of the lowest closing bid prices of the Company's common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. During the year ended December 31, 2017, the Company issued 48,080 common shares for the conversion of $1,770 of principal and $81 of accrued interest. As at December 31, 2017, accrued interest of $2,992 (2016 - $nil) has been recorded in accounts payable and accrued liabilities.
 
The fair value of the derivative liability resulted in a discount to the convertible note of $48,137. The carrying value of the convertible note will be accreted over the term of the convertible note. During the year ended December 31, 2017, $24,834 (2016 - $nil) of accretion expense had been recorded. As at December 31, 2017, the carrying value of the debenture was $34,927 (2016 - $nil) and the fair value of the derivative liability was $48,450 (2016 - $nil).

On May 23, 2017, the Company issued a $63,000 convertible note, net of an original issue discount of $3,000, which is unsecured, bears interest at 8% per annum, and is due on May 23, 2018. The note is convertible into shares of common stock at a conversion rate of 55% of the lowest closing bid prices of the Company's common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $3,077 (2016 - $nil) has been recorded in accounts payable and accrued liabilities.

The fair value of the derivative liability resulted in a discount to the convertible note of $23,954. The carrying value of the convertible note will be accreted over the term of the convertible note. During the year ended December 31, 2017, $23,954 (2016 - $nil) of accretion expense had been recorded. As at December 31, 2017, the carrying value of the debenture was $35,817 (2016 - $nil) and the fair value of the derivative liability was $52,001 (2016 - $nil).
 
 

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On December 28, 2017, the Company issued a $100,000 convertible note to the former Chief Financial Officer of the Company which is unsecured, bears interest at 6% per annum, and is due on December 28, 2018. Refer to Note 12(a). The note is convertible into shares of common stock at a conversion rate of 70% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $66 (2016 - $nil) has been recorded in accounts payable and accrued liabilities.

The fair value of the derivative liability resulted in a discount to the convertible note of $42,817. The carrying value of the convertible note will be accreted over the term of the convertible note. During the year ended December 31, 2017, $269 (2016 - $nil) of accretion expense had been recorded. As at December 31, 2017, the carrying value of the debenture was $57,452 (2016 - $nil) and the fair value of the derivative liability was $42,818 (2016 - $nil).

Notes in General

The Convertible Notes are convertible into shares of our common stock based upon a discount to the market price. The conversion terms of these Convertible Notes are based upon a discount to the then-prevailing average of the lowest trading bid prices (as described above for each separate note) and, as a result, the lower the stock price at the time the Holders convert the Convertible Notes, the more shares of our common stock the Holders will receive. The number of shares of common stock issuable upon conversion of these Convertible Notes is indeterminate. If the trading price of our common stock is lower when the conversion price of these Convertible Notes is determined, we would be required to issue a higher number of shares of our common stock, which could cause substantial dilution to our stockholders. In addition, if the Holders opt to convert these Convertible Notes into shares of our common stock and sell those shares it could result in an imbalance of supply and demand for our common stock and resulting in lower trading prices for our common stock as reported by the OTCBB. The further our stock price declines, the further the adjustment of the conversion price will fall and the greater the number of shares we will have to issue upon conversion.

In addition, the number of shares issuable upon conversion of the Convertible Note is potentially limitless. While the overall ownership of each individual Holder at any one moment may be limited to 9.99% of the issued and outstanding shares of our common stock, each Holder may be free to sell any shares into the market that have previously been issued to them, thereby enabling them to convert the remaining portion of these Convertible Notes.

ITEM 1A.  RISK FACTORS.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

ITEM 1B.   UNRESOLVED STAFF COMMENTS.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

ITEM 2.    PROPERTIES.

We own no properties.
 
 

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ITEM 3.    LEGAL PROCEEDINGS.

On February 1, 2016, a suit was filed in the United States District Court for the Eastern District of Pennsylvania, captioned Scanner Guard Corporation, plaintiff vs. Excelsis Investments, Inc., International Marketing Group, Inc., and Mobile Dynamic Marketing, Inc., defendants, Case No. 2:16-cv-00516-JCJ alleging that the defendants violated portions of the Lanham Act and Florida's Deceptive and Unfair Trade Practices Act by dissemination false advertising and misrepresentations regarding certain products.   As of the date of this report, the Company is in negotiations to settle the litigation. The estimated settlement payment of $400,000 has been recorded in accounts payable and accrued liabilities as at December 31, 2017.

On February 22, 2016, a suit was filed in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida, captioned The Marketing Source, Inc., plaintiff vs. Mobile Dynamic Marketing Inc. and Excelsis Investments, Inc. Case No. 2016-000823-CI alleging that we breached the terms of an agreement and seeks damages, an accounting, and an injunction.  We have retained counsel in this matter and intend to defend the same vigorously.

On October 23, 2017, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the Company agreed to compensate the consultant for services performed and for commission earned on the sale of Stealth cards and 911 help buttons promoted by the consultant. The Company asserts that the agreement was terminated with just cause, and therefore the Company should not be liable for any compensation due to the consultant. The Company intends to defend itself against the consultant and is unable to estimate the likelihood of any outcome as at the date of the report.

On June 1, 2018, the Company received notice that a third party was seeking compensation for design patent infringement and copyright infringement. The claims appear to concern an out-of-use version of the product generally known as the "911 Help Now Pendant". The Company intends to defend itself against the claims, have requested and been granted an extension to discuss settlement with the plaintiff, and is unable to estimate the likelihood of any outcome as at the date of the report.

ITEM 4.   MINE SAFETY DISCLOSURES.

None.


PART II
ITEM 5.   MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

Our stock is listed for trading on the Bulletin Board operated the Financial Industry Regulatory Authority (FINRA) on OTCBB under the symbol "STTH". The shares of common stock began trading in the first quarter of 2011. There are no outstanding options or warrants to purchase, or securities convertible into, our common stock.
 

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Fiscal Year –2017
High Bid
Low Bid
 
Fourth Quarter: 10/01/17 to 12/31/17
0.60
0.07
 
Third Quarter: 07/01/17 to 09/30/17
0.39
0.10
 
Second Quarter: 04/01/17 to 06/30/17
0.53
0.15
 
First Quarter: 01/01/17 to 03/31/17
0.71
0.31
Fiscal Year – 2016
High Bid
Low Bid
 
Fourth Quarter: 10/01/16 to 12/31/16
0.51
0.23
 
Third Quarter: 07/01/16 to 09/30/16
0.75
0.30
 
Second Quarter: 04/01/16 to 06/30/16
0.51
0.30
 
First Quarter: 01/01/16 to 03/31/16
0.53
0.26

Holders

On July 23, 2018, we had 23 shareholders of record of our common stock.

Dividend Policy

We have not declared any cash dividends on our common stock since our inception. There are no dividend restrictions that limit our ability to pay cash dividends on our common stock in our Articles of Incorporation or Bylaws. Our governing statute, Chapter 78 – "Private Corporations" of the Nevada Revised Statutes (the "NRS"), does provide limitations on our ability to declare cash dividends. Section 78.288 of Chapter 78 of the NRS prohibits us from declaring cash dividends where, after giving effect to the distribution of the dividend:

(a)
we would not be able to pay our debts as they become due in the usual course of business; or
(b)
our total assets would be less than the sum of our total liabilities plus the amount that would be needed, if we were to be dissolved at the time of distribution, to satisfy the preferential rights upon dissolution of stockholders who may have preferential rights and whose preferential rights are superior to those receiving the distribution (except as otherwise specifically allowed by our Articles of Incorporation).

Penny Stock Regulations and Restrictions on Marketability

The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a market price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ system, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the SEC, that: (a) contains a description of the nature and level of risk in the market for penny stocks in both public offerings and secondary trading, (b) contains a description of the broker's or dealer's duties to the customer and of the rights and remedies available to the customer with respect to a violation of such duties or other requirements of the securities laws, (c) contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price, (d) contains a toll-free telephone number for inquiries on disciplinary actions, (e) defines significant terms in the disclosure document or in the conduct of trading in penny stocks, and (f) contains such other information and is in such form, including language, type size and format, as the SEC shall require by rule or regulation.
 
 
 

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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with (a) bid and offer quotations for the penny stock, (b) the compensation of the broker-dealer and its salesperson in the transaction, (c) the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the market for such stock, and (d) a monthly account statement showing the market value of each penny stock held in the customer's account.

In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from those 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 acknowledgment of the receipt of a risk disclosure statement, a written agreement as to transactions involving penny stocks, and a signed and dated copy of a written suitability statement.

These disclosure requirements may have the effect of reducing the trading activity for our common stock. Therefore, stockholders may have difficulty selling their shares of our common stock.

Securities authorized for issuance under equity compensation plans

We have no equity compensation plans and accordingly we have no shares authorized for issuance under an equity compensation plan.

Transfer Agent

Action Stock Transfer Inc.
2469 E. Fort Union Blvd, Suite 214
Salt Lake City, UT 84121
(801) 274-1088 voice
(801) 274-1099 fax
www.actionstocktransfer.com

Recent Sales of Unregistered Securities

None. 

ITEM 6.    SELECTED FINANCIAL DATA.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.

ITEM 7.    MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements. You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms. These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our
 
 
 

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actual results to differ materially from any forward-looking statements. Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements. We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

RESULTS OF OPERATIONS

Working Capital
 
 
December 31,
2017
$
   
December 31,
2016
$
 
Current Assets
   
405,623
     
1,929,891
 
Current Liabilities
   
2,430,145
     
2,475,947
 
Working Capital (Deficit)
   
(2,024,522
)
   
(546,056
)

Cash Flows
 
 
Year ended
December 31,
2017
$
   
Year ended
December 31,
2016
$
 
Cash Flows from (used in) Operating Activities
   
(477,953
)
   
360,522
 
Cash Flows from (used in) Investing Activities
   
-
     
(2,247
)
Cash Flows from (used in) Financing Activities
   
72,613
     
(289,491
)
Net Increase (decrease) in Cash During Period
   
(405,340
)
   
68,784
 

Operating Revenues

During the year ended December 31, 2017, the Company recorded revenues of $3,413,392 compared to revenues of $5,675,657 for the year ended December 31, 2016. The decrease is due to the fact that the Company decreased its revenue from the sale of its stealth cards and the 911 Help Now products from prior year.  For the year ended December 31, 2017, the Company earned gross margin of $722,231 or 21.16% compared to $3,116,384 or 54.91% during the year ended December 31, 2016. The decrease in gross margin is due to the fact that the 911 product earns a lower overall gross margin as compared to stealth cards and due to a write-down of inventory of $395,863 for slow-moving inventory.

Operating Expenses and Net Loss

During the year ended December 31, 2017, the Company incurred operating expenses of $2,704,928 compared to operating expenses of $3,835,257 for the year ended December 31, 2016. The decrease in operating expenses is attributed to the fact that the Company decreased operations during the year and required less overhead costs to support operations including a decrease in general and administrative costs of $603,395, research and development costs of $58,875, and consulting expense of $888,044.  Furthermore, the Company had a decrease in labor costs with a payroll expense decrease of $153,129 from fiscal 2016.  The Company also recorded an increase in professional fees of $159,878 related to increases in accounting and audit fees during the year, and in legal fees with respect to responses to SEC comment letters and for litigation claims against the Company. During fiscal 2017, the Company also recorded a loss on litigation settlement of $400,000.
 
 
 
 

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For the year ended December 31, 2017, the Company recorded a net loss of $1,704,884 or $0.25 loss per share, compared with a net loss of $73,655 or $0.01 loss per share for the year ended December 31, 2016.  In addition to revenues and operating expenses, the Company recorded a loss of $20,022 (2016 – gain of $489,305) relating to the change in fair value of the derivative liabilities with respect to the conversion feature of the Company's outstanding convertible debentures. The Company also incurred interest expense of $61,265 (2016 - $26,981) relating to interest costs on the Company's short-term and long-term debt financings which increased in fiscal 2017 as there were new convertible debentures issued. In addition, the Company also recorded a gain on forgiveness of debt of $nil (2016 - $187,672) for the forgiveness of debt. The amount forgiven in fiscal 2016 included $30,202 of principal and interest on the June 25, 2014 convertible debenture, $16,820 of principal and interest on the June 23, 2014 convertible debenture, and $140,650 of principal and interest on the June 20, 2014 convertible debenture.  In addition, the Company recorded a recovery of $364,100 (2016 – loss of $12,383) for make whole expenses related to shares to be issued to a related party in respect to the acquisition of intangible assets.

Liquidity and Capital Resources

As at December 31, 2017, the Company had cash of $51,627 and total current assets of $405,623 compared with cash of $456,967 and total current assets of $1,929,891 at December 31, 2016. The decrease in cash is attributed to inventory obsolescence recorded of $395,863, decrease in accounts receivable of $584,123 which is due to a decrease in overall sales revenue during fiscal 2017. 

As at December 31, 2017, the Company had total current liabilities of $2,430,145 compared to $2,475,947 at December 31, 2016.  The increase in total current liabilities were attributed to increases of $355,207 in accounts payable and accrued liabilities to third parties and related parties due to an overall increase in operating activity during the year, a decrease of $146,370 in deferred revenue relating to payments received by the Company for transactions that have not met the revenue recognition criteria, decrease of $126,910 in amounts due to related parties for outstanding management fees owed to officers and directors of the Company, and a decrease of $364,100 for the fair value of the shares to be issued to a related party in respect to the acquisition of intangible assets. This is offset by increases of $80,809 in convertible debentures and $155,562 in derivative liabilities due to new convertible debentures issued.

The overall working capital deficit increased from $546,056 at December 31, 2016 to $2,024,522 at December 31, 2017. The increase in working capital deficit is mainly due to the new issuances of convertible debentures during the year, as well as the effects of the decreases in accounts receivable and inventory.

During the year ended December 31, 2017, the Company issued 635,557 common shares for consulting services, issued 48,080 common shares for the conversion of convertible debentures, and returned 500,000 shares of Series A Preferred stock to treasury.

Cashflow from Operating Activities

During the year ended December 31, 2017, the Company used cash of $477,953 in operating activities compared to proceeds received of $360,522 from operating activities for the year ended December 31, 2016. The decrease in cash from operating activities was due to the fact that the Company decreased operating activities during fiscal 2017 despite generating positive gross margins from the sale of stealth cards and other products.

 

- 12 -


 
 
Cashflow from Investing Activities

During the year ended December 31, 2017, the Company did not have any investing activities. During the year ended December 31, 2016, the Company had $2,247 in investing activities.

Cashflow from Financing Activities

During the year ended December 31, 2017, the Company received $120,000 of proceeds from a convertible debenture payable to an unrelated party and repaid $47,387 to an outstanding convertible debenture. During the year ended December 31, 2016, the Company used $289,491 for financing activities which included $270,000 for the repayment of convertible debentures and $19,491 for the repayment of loans payable. 

Critical Accounting Policies and Estimates

We prepared our financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We identified certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition, results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of each of the critical accounting policies. The following is a discussion of our most critical accounting policies:

Use of Estimates

The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to fair value of share-based payments, collectability of accounts receivable, net realizable value of inventory, useful life, impairment, and valuation of intangible assets, variables used in the determination of derivative liabilities, and the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Financial Instruments

Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
 
 
 

- 13 -

 
 

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company's financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, loans payable, amounts due to and from related parties, liabilities for shares issuable – related party, and convertible debentures. Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are a smaller reporting company as defined by Rule 12b-2 of the Exchange Act and are not required to provide the information under this item.
 
 
 

- 14 -

 
 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.














STEALTH TECHNOLOGIES, INC.

Consolidated Financial Statements

For the years ended December 31, 2017 and 2016















Consolidated Financial Statement Index

 
Report of Independent Registered Public Accounting Firm
F-1
 
 
Consolidated Balance Sheets
F-2
 
 
Consolidated Statements of Operations
F-3
 
 
Consolidated Statements of Cash Flows
F-4
 
 
Consolidated Statements of Stockholders' Deficit
F-5
 
 
 Notes to the Consolidated Financial Statements  F-6
 
 
 
 

 
- 15 -



REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Shareholders and Board of Directors of
Stealth Technologies, Inc.

Opinion on the Financial Statements

We have audited the accompanying consolidated balance sheets of Stealth Technologies, Inc. and its subsidiaries (collectively, the "Company") as of December 31, 2017 and 2016, and the related consolidated statements of operations, stockholders' deficit, and cash flows for the years then ended, and the related notes (collectively referred to as the "financial statements"). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2017 and 2016, and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

Going Concern Matter

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency that raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on the Company's financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB") and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ MaloneBailey, LLP
www.malonebailey.com
We have served as the Company's auditor since 2014.
Houston, Texas
August 2, 2018
 
 
F-1
 
 


 
 
STEALTH TECHNOLOGIES, INC.
Consolidated Balance Sheets

   
December 31, 2017
$
   
December 31, 2016
$
 
             
ASSETS
           
             
Cash
   
51,627
     
456,967
 
Accounts receivable, net of allowance for doubtful accounts of $2,500 and $nil, respectively
   
329,558
     
853,755
 
Accounts receivable – related party, net of allowance for doubtful accounts of $59,926 and $nil, respectively
   
     
59,926
 
Prepaid expenses
   
24,438
     
162,725
 
Inventory, net of allowance for obsolescence of $395,863, and $nil, respectively
   
     
396,518
 
                 
Total Current Assets
   
405,623
     
1,929,891
 
                 
Intangible assets, net
   
3,963
     
102,337
 
                 
Total Assets
   
409,586
     
2,032,228
 
                 
LIABILITIES
               
                 
Current Liabilities
               
                 
Accounts payable and accrued liabilities
   
1,485,426
     
1,120,632
 
Accounts payable – related party
   
     
9,587
 
Deferred revenue
   
     
146,370
 
Derivative liabilities
   
157,506
     
1,944
 
Loan payable
   
120,000
     
120,000
 
Due to related parties
   
36,888
     
163,798
 
Liability for shares issuable – related party
   
479,516
     
843,616
 
Convertible debentures, net of unamortized discount of $96,034 and $nil, respectively
   
150,809
     
70,000
 
                 
Total Current Liabilities
   
2,430,145
     
2,475,947
 
                 
STOCKHOLDERS' DEFICIT
               
                 
Preferred Stock
               
Authorized: 500,000,000 preferred shares with a par value of $0.001 per share
               
Issued and outstanding: 500,000 and 1,000,000 preferred shares, respectively
   
500
     
1,000
 
                 
Common Stock
               
Authorized: 750,000,000 common shares with a par value of $0.001 per share
               
Issued and outstanding: 7,123,521 and 6,439,884 common shares, respectively
   
7,124
     
6,440
 
                 
Additional paid-in capital
   
2,704,729
     
2,576,869
 
                 
Accumulated deficit
   
(4,732,912
)
   
(3,028,028
)
                 
Total Stockholders' Deficit
   
(2,020,559
)
   
(443,719
)
                 
Total Liabilities and Stockholders' Deficit
   
409,586
     
2,032,228
 

 
 
(The accompanying notes are an integral part of these consolidated financial statements)

F-2
 

- 16 -

 
 
STEALTH TECHNOLOGIES, INC.
Consolidated Statements of Operations

   
Year ended December 31, 2017
$
   
Year ended December 31, 2016
$
 
             
Revenue of goods, net
   
3,413,392
     
5,214,342
 
Revenue of services – related party
   
     
461,315
 
Cost of goods sold
   
(2,691,161
)
   
(2,357,455
)
Cost of goods sold – related party
   
     
(201,818
)
                 
Gross Margin
   
722,231
     
3,116,384
 
                 
Operating Expenses
               
                 
Amortization
   
98,374
     
147,564
 
Bad debts
   
62,426
     
 
Consulting and management fees
   
98,115
     
986,159
 
General and administrative
   
1,244,875
     
1,848,270
 
Loss on settlement of litigation
   
400,000
     
 
Payroll
   
393,551
     
546,680
 
Professional fees
   
369,585
     
209,707
 
Research and development
   
38,002
     
96,877
 
                 
Total Operating Expenses
   
2,704,928
     
3,835,257
 
                 
Loss before Other Income (Expense)
   
(1,982,697
)
   
(718,873
)
                 
Other Income (Expense)
               
                 
Gain (loss) on change in fair value of derivative liabilities
   
(20,022
)
   
489,305
 
Gain on forgiveness of debt
   
     
187,672
 
Interest expense
   
(61,265
)
   
(26,981
)
Loss on settlement of debt
   
     
(12,095
)
Make whole expense with related party
   
364,100
     
(12,383
)
Other gain (loss)
   
(5,000
)
   
19,700
 
                 
Total Other Income (Expense)
   
277,813
     
645,218
 
Net Loss
   
(1,704,884
)
   
(73,655
)
                 
Net Loss per Share – Basic and Diluted
   
(0.25
)
   
(0.01
)
                 
Weighted Average Shares Outstanding – Basic and Diluted
   
6,719,628
     
5,701,521
 
 
 
 
(The accompanying notes are an integral part of these consolidated financial statements)

F-3
 

- 17 -

 
 
STEALTH TECHNOLOGIES, INC.
Consolidated Statements of Cashflows

   
Year ended December 31,
2017
   
Year ended December 31,
2016
 
   
$
     
$
   
Operating Activities
               
                 
Net loss for the year
   
(1,704,884
)
   
(73,655
)
                 
Adjustments to reconcile net loss to net cash used in operating activities:
               
                 
Amortization of debt discount
   
49,057
     
 
Amortization of intangible assets
   
98,374
     
147,564
 
Change in fair value of make whole expense with related party
   
(364,100
)
   
12,383
 
Bad debts
   
62,426
     
 
Gain on forgiveness of debt
   
     
(187,672
)
Imputed interest
   
     
6,016
 
Issuance of shares for employee bonuses
   
     
671,831
 
Issuance of shares for services
   
222,833
     
247,561
 
Loss (gain) on change in fair value of derivative liabilities
   
20,022
     
(489,305
)
Loss on settlement of debt
   
     
12,095
 
Other gain
   
     
(19,700
)
Write-down of inventory
   
395,863
     
 
                 
Changes in operating assets and liabilities:
               
                 
   Accounts receivable
   
521,697
     
(446,524
)
   Accounts receivable – related party
   
     
(129,926
)
Prepaid expenses
   
138,287
     
(160,416
)
Inventory
   
655
     
(305,534
)
Prepaid inventory
   
     
297,305
 
Accounts payable and accrued liabilities
   
364,875
 
   
752,162
 
Accounts payable – related party
   
(9,587
)
   
(235,683
)
Deferred revenue
   
(146,370
)
   
146,370
 
Due to related parties
   
(127,101
)
   
115,650
 
                 
Net cash provided by (used in) operating activities
   
(477,953
)
   
360,522
 
                 
Investing Activities
               
                 
    Acquisition of intangible assets
   
     
(2,247
)
                 
Net cash used in investing activities
   
     
(2,247
)
                 
Financing Activities
               
                 
   Repayments of loans payable
   
     
(19,491
)
   Proceeds from issuance of convertible debenture
   
120,000
     
 
   Repayments of convertible debentures
   
(47,387
)
   
(270,000
)
                 
Net cash provided by (used in) financing activities
   
72,613
     
(289,491
)
                 
Change in cash
   
(405,340
)
   
68,784
 
                 
Cash, beginning of period
   
456,967
     
388,183
 
                 
Cash, end of period
   
51,627
     
456,967
 
                 
Non-cash investing and financing activities
               
  Common shares issued for conversion of convertible debentures
   
1,851
     
 
  Common shares issued for settlement of debt
   
     
139,500
 
  Convertible debenture issued for return and cancellation of preferred shares
   
100,000
     
 
  Debt discount resulting from derivative liability
   
139,091
     
 
  Loan payable applied against amounts receivable - related party
   
     
75,000
 
  Payment of amount owed to a related party with return and cancellation of preferred shares
   
191
     
 
  Payment of accounts payable with inventory
   
     
30,005
 
  Reclassification of derivative liabilities upon conversion
   
3,551
     
 
                 
Supplemental Disclosures
               
  Interest paid
   
2,613
     
14,495
 
  Income tax paid
   
     
 
 
(The accompanying notes are an integral part of these consolidated financial statements)

F-4
 

- 18 -

 
 
STEALTH TECHNOLOGIES INC.
Consolidated Statements of Stockholders' (Deficit)
For the years ended December 31, 2017 and 2016

   
Preferred Stock
   
Common Stock
   
Additional
   
Accumulated
       
   
Shares
   
Par Value
   
Shares
   
Par Value
   
Paid-in Capital
   
Deficit
   
Total
 
     
#
         
$
#
   
$
     
$
     
$
     
$
   
     
     
     
     
                         
Balance – December 31, 2015
   
1,000,000
     
1,000
     
3,954,410
     
3,955
     
1,514,446
     
(2,954,373
)
   
(1,434,972
)
                                                         
Issuance of common shares for employee bonuses - related parties
   
     
     
1,544,437
     
1,544
     
670,287
     
     
671,831
 
                                                         
Issuance of common shares for services
   
     
     
631,037
     
631
     
246,930
     
     
247,561
 
                                                         
Issuance of common shares for settlement of debt
   
     
     
310,000
     
310
     
139,190
     
     
139,500
 
                                                         
Imputed interest
   
     
     
     
     
6,016
     
     
6,016
 
                                                         
Net loss for the year
   
     
     
     
     
     
(73,655
)
   
(73,655
)
                                                         
Balance – December 31, 2016
   
1,000,000
     
1,000
     
6,439,884
     
6,440
     
2,576,869
     
(3,028,028
)
   
(443,719
)
                                                         
Issuance of common shares for services
   
     
     
635,557
     
636
     
222,197
     
     
222,833
 
                                                         
Issuance of common shares for conversion of convertible debt
   
     
     
48,080
     
48
     
1,803
     
     
1,851
 
                                                         
Reclassification of derivative liabilities upon conversion
   
     
     
     
     
3,551
     
     
3,551
 
                                                         
Return and cancellation of preferred shares
   
(500,000
)
   
(500
)
   
     
     
(99,691
)
   
     
(100,191
)
                                                         
Net loss for the year
   
     
     
     
     
     
(1,704,884
)
   
(1,704,884
)
                                                         
Balance – December 31, 2017
   
500,000
     
500
     
7,123,521
     
7,124
     
2,704,729
     
(4,732,912
)
   
(2,020,559
)
 
(The accompanying notes are an integral part of these consolidated financial statements)

F-5

- 19 -

 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
1.
Nature of Operations and Continuance of Business
 
 
Stealth Technologies, Inc. (the "Company") was incorporated in the state of Nevada on May 27, 2010 under the name "Pub Crawl Holdings, Inc". On March 11, 2014, the Company announced its name change from Pub Crawl Holdings to Excelsis Investments, Inc. On May 26, 2016, the Company changed its name from Excelsis Investments Inc. to Stealth Technologies, Inc.  The Company is focused on the development and retail of stealth cards, a product meant to block RFID (Radio Frequency Identifier Signal) chipped cards from being read when placed in the correct orientation to help users secure their personal information, and 911 buttons, an emergency two way voice system that connects the user to 911
.
On March 14, 2016, the Company incorporated a new wholly owned subsidiary, Safety Technologies Inc., a Nevada company. The Company's intention is to sell products other than the stealth cards, through the subsidiary. As at December 31, 2017, there has been no activity within the subsidiary.

On November 7, 2017, the Company completed a 1:15 reverse stock split of its common shares. All common shares and per common share amounts in these consolidated financial statements have been retroactively restated to reflect the reverse stock-split.

These consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at December 31, 2017, the Company has a working capital deficit of $2,024,522 and an accumulated deficit of $4,732,912. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company's future operations. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
 
F-6

- 20 -

 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements

 
2.
Summary of Significant Accounting Policies
 
a)   Basis of Presentation and Principles of Consolidation
 
The consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and are expressed in U.S. dollars. These consolidated financial statements comprise the accounts of the Company and its wholly-owned subsidiaries, Stealth Card Inc., a Florida company, and Safety Technologies Inc., a Nevada company. All intercompany transactions have been eliminated on consolidation.  The Company's fiscal year end is December 31.
 
b)   Use of Estimates
 
The preparation of these consolidated financial statements in conformity with US GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to fair value of share-based payments, collectability of accounts receivable, net realizable value of inventory, useful life, impairment, and valuation of intangible assets, variables used in the determination of derivative liabilities, and the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
 
c)   Cash and Cash Equivalents
 
The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents.  As at December 31, 2017 and 2016, the Company had no cash equivalents.
 
 
F-7

- 21 -


 
 
 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements

 
2.
Summary of Significant Accounting Policies (continued)
 
d)  Accounts Receivable
 
Accounts receivable represents amounts owed from customers for contracting employees and from consulting services. Amounts are presented net of the allowance for doubtful accounts, which represents the Company's best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines allowance for doubtful accounts based upon historical experience and current economic conditions.  The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis.  As of December 31, 2017, the Company had an allowance for doubtful accounts of $62,426 (2016 - $nil).

e) Inventory

Inventory is comprised of stealth cards purchased for resell, and is recorded at the lower of cost or net realizable value on a first-in first-out basis.  The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future and market conditions. During the year ended December 31, 2017, the Company recorded $395,863 (2016 - $nil) of inventory obsolescence.

f) Intangible Assets

Intangible assets are stated at cost less accumulated amortization and are comprised of customer accounts acquired with an useful life of three years and amortized straight line over three years and patent and trademark development costs, which are currently being developed and has not been placed in use. During the year ended December 31, 2017, the Company incurred $98,374 (2016 - $147,564) in amortization expense.

g) Basic and Diluted Net Loss per Share

The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

The following represents a reconciliation of the numerators and denominators of the basic and diluted earnings per share computation:

 
 
Year ended
December 31, 2017
   
Year ended
December 31, 2016
 
 
 
Net (loss)
(Numerator)
   
Shares
(Denominator)
   
Per Share
Amount
   
Net
(loss)
(Numerator)
   
Shares
(Denominator)
   
Per Share
Amount
 
Basic EPS
 
$
(1,704,884
)
   
6,719,628
   
$
(0.25
)
 
$
(73,655
)
   
5,701,521
   
$
(0.01
)
Effect of dilutive securities
   
     
     
     
     
     
 
Convertible debentures
   
     
     
     
     
     
 
Diluted EPS
 
$
(1,704,884
)
   
6,719,628
   
$
(0.25
)
 
$
(73,655
)
   
5,701,521
   
$
(0.01
)
 
 

F-8

- 22 -


 
 
 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
2.   Summary of Significant Accounting Policies (continued)

  h)   Long-Lived Assets
 
In accordance with ASC 360, "Property, Plant and Equipment", the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value.
 
i)   Revenue Recognition
 
The Company recognizes and accounts for revenue in accordance with ASC 605 as a principal on the sale of goods. Pursuant to ASC 605, Revenue Recognition, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed and determinable, risk of ownership has passed to the customer and collection is reasonably assured. The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company acts as a principal in its revenue-earnings activities as they are responsible for the production of goods purchased by the customer, can determine the pricing costs, goods purchased are paid directly by the Company, and has a credit risk with respect to collection of amounts owed by its customers.
 
The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company does not act as the principal in its revenue-earnings activities related to certain service revenues where the Company does not bear enough of the risks in the transaction to record them on the gross basis. Revenues for these activities are recorded based on the net amount earned by the Company.  

  j)   Cost of Revenue
 
For the Company's product sales, cost of revenue consists of inventory sold in each transaction. For the Company's service sales, cost of revenue consists of engineering services provided by a related party.  Shipping and handling costs are recorded as general and administrative costs.
 
k)   Research and Developments Costs
 
Research and development costs are charged to operations as incurred.
 
l)    Advertising Expenses
 
Advertising expenses are charged to operations as incurred. During the year ended December 31, 2017, the Company incurred $396,556 (2016 - $383,648) in advertising expenses.
 
m)    Financial Instruments
 
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
 
F-9

- 23 -


 
 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
2.   Summary of Significant Accounting Policies (continued)
 
  m) Financial Instruments (continued)
 
  Level 1
 
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
 
  Level 2
 
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
 
  Level 3
 
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
 
The Company's financial instruments consist principally of cash, accounts receivable, accounts payable and accrued liabilities, loans payable, amounts due to and from related parties, liabilities for shares issuable – related party, and convertible debentures.  Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.
 
The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2017, on a recurring basis:

   
Level 1
$
   
Level 2
$
   
Level 3
$
   
Total gains and (losses)
 
                         
Liability for shares issuable – related party
   
(479,516
)
   
     
     
364,100
 
Derivative liabilities
   
     
     
(157,506
)
   
(20,022
)
                                 
Total
   
(479,516
)
   
     
(157,506
)
   
344,078
 
 
The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2016, on a recurring basis:

   
Level 1
$
   
Level 2
$
   
Level 3
$
   
Total gains and (losses)
 
                         
Liability for shares issuable – related party
   
(843,616
)
   
     
     
(12,383
)
Derivative liabilities
   
     
     
(1,944
)
   
489,305
 
                                 
Total
   
(843,616
)
   
     
(1,944
)
   
476,922
 
 
As of December 31, 2017, the Company had a derivative liability amount of $157,506 (2016 – $1,944) which was classified as a Level 3 financial instrument, and a loss on change in fair value of derivative liabilities of $20,022 (2016 – gain of $489,305).
 
F-10
 


- 24 -



STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
2.   Summary of Significant Accounting Policies (continued)
 
n)   Income Taxes
 
Potential benefits of income tax losses are not recognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 "Accounting for Income Taxes" as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
 
o)   Recent Accounting Pronouncements
 
In May 2014, the FASB issued their converged standard on revenue recognition, Accounting Standards Update No. 2014-09, "Revenue from Contracts with Customers (Topic 606)", updated in December 2016 with the release of ASU 2016-20. This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that an entity recognizes revenue to depict the transfer of promised goods and services in an amount that reflects the consideration to which the entity expects to be entitled to in exchange for those goods and services. In addition, the new standard requires that reporting companies disclose the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.  In August 2015, the FASB issued ASU No 2015-14 "Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date," which deferred the effective date of ASU 2014-09 to annual reporting periods beginning after December 15, 2017, with earlier application permitted but not before the original effective date.

The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and the Company does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations.

3.
Convertible Debenture
 
a)
On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $27,461 (2016 - $27,461) has been recorded in accounts payable and accrued liabilities.
 
 
On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. The Company recognized a gain in forgiveness of debt for $nil (2016 - $140,650) for principal and interest forgiven pursuant to the settlement agreement. The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt During the year ended December 31, 2017, the Company repaid $47,387 (2016 - $180,000) of the outstanding loan pursuant to a settlement agreement. As at December 31, 2017, the carrying value of the debenture was $22,613 (2016 - $70,000) and the fair value of the derivative liability was $14,237 (2016 - $1,830).
 

 
F-11

- 25 -


 
 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
 
3.  Convertible Debenture (continued)

b)
On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company.
 
 
On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the year ended December 31, 2016, the Company recognized a gain in forgiveness of debt for $16,820 for principal and interest forgiven pursuant to the settlement agreement. The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt. During the year ended December 31, 2017, the Company repaid $nil (2016 - $32,514) of the outstanding loan pursuant to a settlement agreement.
 
c)
On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $nil (2016 - $2,613) has been recorded in accounts payable and accrued liabilities.
 
 
On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the year ended December 31, 2016, the Company recognized a gain in forgiveness of debt for $30,202 for principal and interest forgiven pursuant to the settlement agreement.  The Company considered ASC Subtopic 470-50, Debt Modifications and Extinguishments, and determined that the modification was an extinguishment and therefore, recognized a gain on the extinguishment of the original debt.  During the year ended December 31, 2017, the Company repaid $nil (2016 - $57,486) of the outstanding loan pursuant to a settlement agreement. As at December 31, 2017, the carrying value of the debenture was $nil (2016 - $nil) and the fair value of the derivative liability was $nil (2016 - $114).
 
d)
On May 23, 2017, the Company issued a $63,000 convertible note, net of an original issue discount of $3,000, which is unsecured, bears interest at 8% per annum, and is due on May 23, 2018. The note is convertible into shares of common stock at a conversion rate of 55% of the lowest closing bid prices of the Company's common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. During the year ended December 31, 2017, the Company issued 48,080 common shares for the conversion of $1,770 of principal and $81 of accrued interest. As at December 31, 2017, accrued interest of $2,992 (2016 - $nil) has been recorded in accounts payable and accrued liabilities.
 
 

F-12

- 26 -



STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
3. Convertible Debenture (continued)

 
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 "Derivatives and Hedging". The fair value of the derivative liability resulted in a discount to the convertible note of $48,137. The carrying value of the convertible note will be accreted over the term of the convertible note. During the year ended December 31, 2017, $24,834 (2016 - $nil) of accretion expense had been recorded. As at December 31, 2017, the carrying value of the debenture was $34,927 (2016 - $nil) and the fair value of the derivative liability was $48,450 (2016 - $nil).
 
d)
On May 23, 2017, the Company issued a $63,000 convertible note, net of an original issue discount of $3,000, which is unsecured, bears interest at 8% per annum, and is due on May 23, 2018. The note is convertible into shares of common stock at a conversion rate of 55% of the lowest closing bid prices of the Company's common stock for the twenty trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $3,077 (2016 - $nil) has been recorded in accounts payable and accrued liabilities.
 
 
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 "Derivatives and Hedging". The fair value of the derivative liability resulted in a discount to the convertible note of $48,137. The carrying value of the convertible note will be accreted over the term of the convertible note. During the year ended December 31, 2017, $23,954 (2016 - $nil) of accretion expense had been recorded. As at December 31, 2017, the carrying value of the debenture was $35,817 (2016 - $nil) and the fair value of the derivative liability was $52,001 (2016 - $nil).
 
f)
On December 28, 2017, the Company issued a $100,000 convertible note to the former Chief Financial Officer of the Company which is unsecured, bears interest at 6% per annum, and is due on December 28, 2018. Refer to Note 12(a). The note is convertible into shares of common stock at a conversion rate of 70% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at December 31, 2017, accrued interest of $66 (2016 - $nil) has been recorded in accounts payable and accrued liabilities.
 
Due to this provision, the embedded conversion option qualifies for derivative accounting under ASC 815-15 "Derivatives and Hedging". The fair value of the derivative liability resulted in a discount to the convertible note of $42,817. The carrying value of the convertible note will be accreted over the term of the convertible note. During the year ended December 31, 2017, $269 (2016 - $nil) of accretion expense had been recorded. As at December 31, 2017, the carrying value of the debenture was $57,452 (2016 - $nil) and the fair value of the derivative liability was $42,818 (2016 - $nil).
 

4.
Derivative Liabilities

The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 3 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statements of operations. During the year ended December 31, 2017, the Company recorded a loss on the change in fair value of derivative liability of $20,022 (2016 – gain of $489,305). As at December 31, 2017, the Company recorded a derivative liability of $157,506 (2016 - $1,944).

The following inputs and assumptions were used to value the convertible debentures outstanding during the year ended December 31, 2017:

The stock price for the valuation of the derivative instruments at December 31, 2017 was $0.1101 per share of common stock.
 
The debtholder would automatically convert note at maturity if the registration was effective and the Company is not in default.
 
The projected annual volatility for each valuation period based on the historic volatility of the Company 274% - 345%
 
 
 
F-13

- 27 -

 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
4. Derivative Liabilities (continued)

The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing of 95%.
 
Capital raising events of $100,000 would occur in each quarter at 75% of market generating dilutive reset events at prices below $0.015 (rounded) for the convertible debentures.

 The following inputs and assumptions were used to value the convertible debentures outstanding during the year ended December 31, 2016:

The range of stock prices for the valuation of the derivative instruments at December 31, 2016 ranged from $0.030 to $0.0244 per share of common stock.
 
The debtholder would automatically convert note at maturity if the registration was effective and the Company is not in default.
 
The projected annual volatility for each valuation period based on the historic volatility of the Company 280% - 259%
 
The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing of 95%.
 
Capital raising events of $100,000 would occur in each quarter at 75% of market generating dilutive reset events at prices below $0.015 (rounded) for the convertible debentures.

 A summary of the activity of the derivative liability is shown below:

   
$
   
         
Balance, January 1, 2016
   
491,249
 
Write off due to cash payoff
   
(85,664
)
Gain due to change in fair value of the derivative
   
(403,641
)
         
Balance, December 31, 2016
   
1,944
 
Reclassification of derivative liabilities upon conversion
   
(3,551
)
Debt discount
   
139,091
 
Loss due to change in fair value of the derivative
   
20,022
 
         
Balance, December 31, 2017
   
157,506
 

5. Related Party Transactions

a)
As at December 31, 2017, the Company was owed $nil (2016 - $59,926) in trade accounts receivable, net of allowance for doubtful accounts of $59,926 (2016 - $nil) from a significant shareholder, which is non-interest bearing, unsecured, and due on demand. This amount has been included in accounts receivable – related party.
 
b)
As at December 31, 2017, the Company owed $36,888 (2016 - $75,964) to the President of the Company, which is non-interest bearing, unsecured, and due on demand.
 
c)
As at December 31, 2017, the Company owed $nil (2016 –$87,834) to the former Chief Financial Officer of the Company, which is non-interest bearing, unsecured, and due on demand.
 
d)
As at December 31, 2017, the Company recorded a liability for shares issuable of $479,516 (2016 - $843,616) relating to 4,359,241 common shares to be issued to a significant shareholder pursuant to the acquisition agreement for the intangible assets. During the year ended December 31, 2017, the Company recorded a gain of $364,100 (2016 – loss of $12,383) in the fair value of the shares issuable to the significant shareholder. Refer to Note 12(b).
e)
During the year ended December 31, 2016, the Company entered into a settlement agreement where an outstanding loan payable owed to a significant shareholder was to offset the balance receivable from the significant shareholder for service revenue.
 
f)
During the year ended December 31, 2017, the Company generated net service revenues of $nil (2016 - $461,315) from a significant shareholder.
 
g)
During the year ended December 31, 2017, the Company incurred payroll expense of $393,551 (2016 - $546,680) to management and officers of the Company.
 
 
 
F-14

- 28 -

 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements

5. Related Party Transactions (continued)

h)
During the year ended December 31, 2017, the Company incurred bonuses on sales of stealth cards of $nil (2016 - $194,793) to management and officers of the Company which has been included in cost of sales. Bonuses accrue on total gross sales at a rate of 5% each to the Chief Executive Officer and the former Chief Financial Officer of the Company.
 
During the year ended December 31, 2017, the Company issued nil (2016 – 1,544,437) common shares with a fair value of $nil (2016 - $671,831) to management and officers of the Company which has been included in consulting expenses
.
i)
During the year ended December 31, 2017, the Company incurred engineering expense of $nil (2016 - $7,025), which was included in cost of goods sold, and research and development costs of $38,002 (2016 - $96,877) to a company owned by the mother of the President of the Company. As at December 31, 2017, the Company was owed $413 (2016 - $nil) from the company owned by the mother of the President of the Company, which is non-interest bearing, unsecured, and due on demand. The amount owing has been recorded as prepaid expense. As at December 31, 2017, the Company owed $nil (2016 - $9,587) to the company owned by the mother of the President of the Company, which has been recorded as accounts payable – related party.
 

6. Loan Payable

As at December 31, 2017, the Company owes $120,000 (2016 - $120,000) in a loan payable to a non-related party. The loan is unsecured, bears interest at 10% per annum, and is due on demand.

7. Preferred Shares

On December 28, 2017, the former Chief Financial Officer returned 500,000 shares of Series A Preferred stock to treasury of the Company in exchange for a convertible promissory note in the amount of $100,000. Refer to Notes 3(f) and 12(a).

8. Common Shares

Year ended December 31, 2017

a)
On January 23, 2017, the Company issued 66,667 common shares with a fair value of $25,000 to a non-related party for consulting services.
 
b)
On February 1, 2017, the Company issued 13,334 common shares with a fair value of $7,000 to a non-related party for consulting services.
 
c)
On August 18, 2017, the Company issued 555,556 common shares with a fair value of $190,833 to a non-related party for advertising services, which has been recorded in general and administrative expenses. The fair value of the common shares was determined on June 20, 2017, which was the effective date of the advertising services.
 
d)
On November 7, 2017, the Company completed a 1:15 reverse stock split of its common shares. All common shares and per common share amounts in these consolidated financial statements have been retroactively restated to reflect the reverse stock-split.
 
e)
On December 22, 2017, the Company issued 48,080 common shares for the conversion of $1,770 of convertible debentures and $81 of accrued interest, as noted in Note 3(d).

Year ended December 31, 2016

f)
On January 1, 2016, the Company issued 33,333 common shares with a fair value of $14,250 to non-related parties for consulting services.
 
g)
On January 8, 2016, the Company issued 200,000 common shares with a fair value of $87,000 to non-related parties for consulting services.
 


F-14

- 29 -

 
 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
8. Common Shares (continued)

Year ended December 31, 2016 (continued)

h)
On March 26, 2016, the Company issued 877,770 common shares with a fair value of $381,831 to the President of the Company for employee bonuses.
 
i)
On March 26, 2016, the Company issued 666,667 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.
 
j)
On March 26, 2016, the Company issued 200,000 common shares with a fair value of $87,000 to a non-related party for consulting services.
 
k)
On at June 16, 2016, the Company issued 197,704 common shares with a fair value of $59,311 to non-related parties for consulting services.
 
l)
On October 1, 2016, the Company issued 310,000 common shares with a fair value of $139,500 to a non-related party to settle debt in the amount of $100,000. The Company recognized a loss of $12,095 as a result of the settlement.
 
 
9. Revenue Concentration Disclosure

The Company had one product that accounted for approximately 100% (2016 - 65%) of gross revenue and 100% (2016 - 65%) of accounts receivable as at and for the year ended December 31, 2017.

10. Commitment and Contingencies

a)
On December 22, 2015, the Company was served notice by an individual claiming that he had received electronic emails recommending the purchase of the Company's common stock. The plaintiff claims that during the period of December 3, 2012 to December 7, 2012, he had received eighteen unsolicited electronic mails in regards to the purchase of the Company's common stock and is seeking damages of $1,000 for each electronic mail he has received, plus $1,700 in attorney fees for a total claim of $19,700. Per the plaintiff's claim, he has served notice to the Company since 2013. The plaintiff presented his case in court on February 19, 2016 and the court ruled in favor of the plaintiff for the full amount of $19,700. On January 5, 2017, the Company and the individual entered into a settlement agreement whereby both parties agreed to a mutual release upon the company paying the individual $5,000.  On January 17, 2017, the plaintiff's claims against the Company were dismissed and the court vacated the default judgment of $19,700. As at December 31, 2017, the Company recognized an expense of $5,000 (2016 gain - ($19,700)) as the final amount payable in relation to the claim.
 
b)
On February 1, 2016, the Company received notice that a third party was seeking compensation for damages as a result of false advertisements made by the Company in regards to the Company's stealth cards. The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with the Company's stealth cards. The Company has filed an answer to the plaintiff's complaint, with denials and affirmative defenses.   As of the date of this report, the Company is in negotiations to settle the litigation. The estimated settlement payment of $400,000 has been recorded in accounts payable and accrued liabilities as at December 31, 2017.
 
 
c)
On February 22, 2016, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the parties agreed to equally split any net profits generated from the sale of Stealth cards made by the consultant. The Company asserts that historical sales generated from the sale of the Stealth cards were not as a result of the consultant's services, and therefore the Company should not be liable for any compensation due to the consultant. The Company has filed its Answer and Affirmative Defenses on July 18, 2016 and has asserted counterclaims against the consultant. The Company is currently awaiting the response from the consultant and is unable to estimate the likelihood of any outcome as at December 31, 2017.
 
 
 
 
F-15

 
- 30 -

 
STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
10. Commitment and Contingencies (continued)

d)
On October 23, 2017, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the Company agreed to compensate the consultant for services performed and for commission earned on the sale of Stealth cards and 911 help buttons promoted by the consultant. The Company asserts that the agreement was terminated with just cause, and therefore the Company should not be liable for any compensation due to the consultant. The Company intends to defend itself against the consultant and is unable to estimate the likelihood of any outcome as at the date of the report.
 
e)
On June 1, 2018, the Company received notice that a third party was seeking compensation for design patent infringement and copyright infringement. The claims appear to concern an out-of-use version of the product generally known as the "911 Help Now Pendant". The Company intends to defend itself against the claims, have requested and been granted an extension to discuss settlement with the plaintiff, and is unable to estimate the likelihood of any outcome as at the date of the report.

11. Income Taxes

In general, under Section 382 of the Internal Revenue Code of 1986, as amended, a corporation that undergoes an "ownership change" is subject to limitations on its ability to utilize its pre-change net operating losses ("NOLs"), to offset future taxable income. In general, an ownership change occurs if the aggregate stock ownership of certain stockholders (generally 5% shareholders, applying certain look-through rules) increases by more than 50 percentage points over such stockholders' lowest percentage ownership during the testing period (generally three years). As at December 31, 2017, the Company has $3,691,253 per schedule provided of net operating losses carried forward to offset taxable income in future years which expire commencing in fiscal 2034.  The income tax benefit differs from the amount computed by applying the US federal income tax rate of 35% to net loss before income taxes. On January 1, 2018, the US federal income tax rate was amended to 21%.  As at December 31, 2017 and 2016, the Company had no uncertain tax positions. The company is awaiting the filing of its 2017 taxes for completed financials.
 

   
2017
$
   
2016
$
 
             
Net loss before taxes
   
(1,704,884
)
   
(73,655
)
Statutory rate
   
35
%
   
34
%
                 
Income tax recovery at statutory rate
   
(596,710
)
   
(25,043
)
                 
Tax effect of:
               
                 
   Permanent differences and other
   
(101,712
)
   
(220,726
)
   Change in tax rates and true up
   
499,818
     
 
   Change in valuation allowance
   
198,604
     
245,769
 
                 
Income tax provision
   
     
 

The significant components of deferred income tax assets and liabilities at December 31, 2017 and 2016 are as follows:

   
December 31,
2017
$
   
December 31,
2016
$
 
             
Net operating loss carried forward
   
775,163
     
576,559
 
Valuation allowance
   
(775,163
)
   
(576,559
)
                 
Net deferred income tax asset
   
     
 
 
 
 
F-16

- 31 -



STEALTH TECHNOLOGIES, INC.
Notes to the Consolidated Financial Statements
 
12. Subsequent Events

a)
On January 9, 2018, the Company issued 250,000 common shares for the conversion of $6,587 of convertible debenture and $3,038 of accrued interest. Refer to Note 3(e).

b)
On January 12, 2018, the Company announced the departure of the Chief Financial Officer of the Company effective December 28, 2017. As part of her resignation, the Chief Financial Officer of the Company agreed to return 500,000 shares of Series A Preferred stock to treasury of the Company in exchange for a convertible promissory note in the amount of $100,000. The convertible promissory note is unsecured, bears interest at 6% per annum, and is convertible into common shares of the Company at a discount of 30% to the closing trade price looking back 10 days.

c)
On January 17, 2018, the Company issued 102,543 common shares for the conversion of $1,770 of convertible debenture and $91 of accrued interest. Refer to Note 3(d).

d)
On January 23, 2018, the Company issued a $100,000 convertible note, which is unsecured, bears one-time interest at 14%, and is due six months from the payment date. The note is convertible into shares of common stock at a conversion price of $0.30 per share.

e)
On January 25, 2018, the Company issued 147,373 common shares for the conversion of $1,770 of convertible debenture and $94 of accrued interest. Refer to Note 3(d).

f)
On January 26, 2018, the Company issued a $165,000 convertible note, net of an original issue discount of $15,000, which is unsecured, bears one-time interest at 14%, and is due six months from the payment date. The note is convertible into shares of common stock at a conversion price of $0.30 per share. On March 12, 2018, the Company issued 500,000 common shares to the lender as additional compensation for the loan.

g)
On January 30, 2018, the Company entered into an employment agreement and appointed a Chief Operating Officer to the Company for an initial term of two years, effective February 1, 2018. Pursuant to the agreement, the Company is to pay an annual base salary of $180,000 per annum, pay accrued quarterly bonuses after six months of employment at a rate of 4% of gross revenues received, issue 500,000 shares of Series A Preferred stock upon execution of the agreement, and issue 1,061,266 common shares per fiscal quarter during the term of the agreement. The Company issued 1,061,266 common shares on February 16, 2018 and 500,000 shares of Series A Preferred stock on April 17, 2018 as compensation under this agreement to the Chief Operating Officer of the Company.

h)
On February 1, 2018, the Company appointed the Chief Operating Officer of the Company to the Board of Directors. In compensation for services to be rendered, the Company will issue 750,000 common shares, which will vest quarterly over a three-year period.

i)
On February 12, 2018, the Company issued 350,000 common shares for the conversion of $3,863 of convertible debenture and $564 of accrued interest. Refer to Note 3(e).

j)
On February 20, 2018, the Company issued a $131,250 convertible note, which is unsecured, bears interest at 8% per annum, and is due on February 20, 2019. The note is convertible into shares of common stock at a conversion rate of 55% of the lowest closing bid prices of the Company's common stock for the twenty trading days prior including the date the conversion notice is received by the Company.

k)
On February 23, 2018, the Company issued a $131,250 convertible note, which is unsecured, bears interest at 8% per annum, and is due on February 23, 2019. The note is convertible into shares of common stock at a conversion rate of 55% of the lowest closing bid prices of the Company's common stock for the twenty trading days prior including the date the conversion notice is received by the Company.

l)
On April 9, 2018, the Company entered into an agreement pursuant to which the Company will repurchase 372,137 common shares held by a significant shareholder in exchange for the Company's intangible assets.
 
F-17

- 32 -


 
 
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

There have been no disagreements on accounting and financial disclosures from the inception of our company through the date of this Form 10-K. MaloneBailey, LLP has audited our financial statements for the years ended December 31, 2017 and 2016.

ITEM 9A. CONTROLS AND PROCEDURES.

Evaluation of Disclosure Controls and Procedures

We maintain "disclosure controls and procedures," as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. We conducted an evaluation (the "Evaluation"), under the supervision and with the participation of our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design and operation of our disclosure controls and procedures ("Disclosure Controls") as of the end of the period covered by this report pursuant to Rule 13a-15 of the Exchange Act. Based on this Evaluation, our CEO and CFO concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose 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 due to material weaknesses in our internal controls described below.

Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control 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 us 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 by the individual acts of some persons, by collusion of two or more people, or by management or board override of the control.

The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.
 
 

- 33 -




CEO and CFO Certifications

Appearing immediately following the Signatures section of this report there are Certifications of the CEO and the CFO. The Certifications are required in accordance with Section 302 of the Sarbanes-Oxley Act of 2002 (the Section 302 Certifications). This Item of this report, which you are currently reading is the information concerning the Evaluation referred to in the Section 302 Certifications and this information should be read in conjunction with the Section 302 Certifications for a more complete understanding of the topics presented.

Management's Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Our internal control over financial reporting is a process designed to provide reasonable assurance to our management and board of directors regarding the reliability of financial reporting and the preparation of the financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America.

Our management assessed the effectiveness of our internal control over financial reporting as of December 31, 2017. In making this assessment, it used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal Control-Integrated Framework. Based on our assessment, we believe that, as of December 31, 2017, our internal control over financial reporting was not effective based on those criteria.

Management's assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:

-
Insufficient number of qualified accounting personnel governing the financial close and reporting process
-
Lack of independent directors
-
Lack of proper segregation of duties

This annual report does not include an attestation report of our registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by our registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.

Changes in Internal Controls

There were no changes in our internal control over financial reporting during the year ended December 31, 2017, which have affected, or are reasonably likely to affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

None. 


- 34 -



PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.

Officers and Directors

Our officers are elected by the board of directors to a term of one (1) year and serves until their successor is duly elected and qualified, or until they are removed from office. The board of directors has no nominating, auditing or compensation committees.

The names, ages and positions of our present officers and director are set forth below:

Name and Address
Age
Position(s)
 
 
 
Brian McFadden
32
Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Treasurer and Director

Background of officers and directors

Brian McFadden

Since November 29, 2012, Brian McFadden has been our president, principal executive officer and a member of our board of directors. On December 28, 2017, Mr. McFadden became our interim Principal Financial Officer, Principal Accounting Officer, Treasurer and Director.  Brian McFadden graduated from Hamilton College in 2007 where he studied both Economics and Sociology. Following graduation and through December 2008, Mr. McFadden worked for Rogers Associates Machine Tool Corp as the Director of Business Development where he designed and implemented sales plans for major companies and Government entities including NASA, Ball Aerospace, The Harris Corporation and others. In December 2008, Mr. McFadden founded Rail Nine Media, a full service web design and marketing house that has worked with clients ranging from MTV's Bam Margera to major financial service companies on all aspects of marketing. Mr. McFadden is responsible for the daily operation and maintenance of us and its clientele. In this role, Mr. McFadden has created and maintained Social Media Marketing Campaigns, SMS Messaging campaigns, Print Media, Web Media and comprehensive multi-media campaigns. In April 2010, Mr. McFadden co-founded IRocNights, a single source hospitality resource for the Western New York Region. IRocNights expanded from Syracuse to Buffalo and gained major traction with over 100 clients in less than a year. While running IRocNights, Mr. McFadden assisted in the creation of a 25-member team that cultivated and maintained relationships with numerous local businesses, politicians and social groups. Mr. McFadden expanded his IRocNights customer base through the launch of Let's Stay Local in March 2011, a daily deal site specializing in Entertainment and targeting nightlife venue demographics. Capitalizing on the Groupon momentum, Let's Stay Local focused on daily deals for the targeted younger generations. While at Let's Stay Local, Mr. McFadden was responsible for building the consumer distribution list while ensuring that the proper Daily Deals had been acquired and scheduled. Mr. McFadden sold IRocNights and its partnering businesses in October of 2011. Mr. McFadden currently sits on the Board of Islet Sciences Inc.
 
On December 28, 2017, Michelle Pannoni, the Secretary, Treasurer, Principal Financial Officer, Principal Accounting Officer, and a Director of the Company resigned from all positions with the Company. There will also be a vacancy on the Board of Directors that may be filled by the remaining member of the Board of Directors, pursuant to the Bylaws of the company. Ms. Pannoni's resignation was not the result of any disagreement with our operations, policies, or practices.




- 35 -



 
Conflicts of Interest

    We believe that our current officers and directors will not be subject to conflicts of interest. No policy has been implemented or will be implemented to address conflicts of interest.

Audit Committee Financial Expert

    We do not have an audit committee financial expert. We do not have an audit committee financial expert because we believe the cost related to retaining a financial expert at this time is prohibitive. Further, because we are only beginning our commercial operations, at the present time, we believe the services of a financial expert are not warranted.

Involvement in Certain Legal Proceedings

    During the past ten years, Mr. McFadden and Mr. Cabrera have not been the subject of the following events:

1)
A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;
2)
Convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);
3)
The subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities;
a.
Acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity;
b.
Engaging in any type of business practice; or
c.
Engaging in any activity in connection with the purchase or sale of any security or commodity or in connection with any violation of Federal or State securities laws or Federal commodities laws;
4)
The subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph 3.i in the preceding paragraph or to be associated with persons engaged in any such activity;
5)
Was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;
6)
Was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;
7)
Was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:
a.
Any Federal or State securities or commodities law or regulation; or
b.
Any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or 
c.
Any law or regulation prohibiting mail or wire fraud or fraud in connection with any business entity; or
8)
Was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Audit Committee and Audit Committee Financial Expert

We do not have an audit committee or an audit committee financial expert (as defined in Item 407 of Regulation S-K) serving on its board of directors. All current members of the board of directors lack sufficient financial expertise for overseeing financial reporting responsibilities. We have not yet employed an audit committee financial expert due to the inability to attract such a person.

We intend to establish an audit committee of the Board of Directors, which will consist of independent directors. The audit committee's duties will be to recommend to our board of directors the engagement of an independent registered public accounting firm to audit our financial statements and to review our accounting and auditing principles. The audit committee will review the scope, timing and fees for the annual audit and the results of audit examinations performed by the internal auditors and independent registered public accounting firm, including their recommendations to improve the system of accounting and internal controls. The audit committee will at all times be composed exclusively of directors who are, in our opinion, free from any relationship which would interfere with the exercise of independent judgment as a committee member and who possess an understanding of financial statements and generally accepted accounting principles.
 
 
 

- 36 -


 
 

Code of Ethics

We have adopted a corporate code of ethics. We believe our code of ethics is reasonably designed to deter wrongdoing and promote honest and ethical conduct; provide full, fair, accurate, timely and understandable disclosure in public reports; comply with applicable laws; ensure prompt internal reporting of code violations; and provide accountability for adherence to the code. A copy of the code of ethics was filed as Exhibit 14.1 on our Form S-1 Registration Statement as filed with the Securities and Exchange Commission on October 7, 2010.

Disclosure Committee and Charter

We do not have a disclosure committee and disclosure committee charter. We plan to establish a Disclosure Committee and will operate under a charter. The purpose of a disclosure committee would be to provide assistance to the Principal Executive Officer and the Principal Financial Officer in fulfilling their responsibilities regarding the identification and disclosure of material information about us and the accuracy, completeness and timeliness of our financial reports.

Section 16(a) Beneficial Ownership Compliance

Section 16(a) of the Securities Exchange Act of 1934, as amended, requires our executive officers and directors, and persons who beneficially own more than 10% of a registered class of our equity securities to file with the Securities and Exchange Commission initial statements of beneficial ownership, reports of changes in ownership and annual reports concerning their ownership of our common shares and other equity securities, on Forms 3, 4 and 5 respectively. Executive officers, directors and greater than 10% stockholders are required by the Securities and Exchange Commission regulations to furnish us with copies of all Section 16(a) reports they file. Based on our review of the copies of such forms received by us, or written representations that no other reports were required, and to the best of our knowledge, we believe that all of our officers, directors, and owners of 10% or more of our common stock filed all required Forms 3, 4, and 5 with the exception of Hubert Elrington and Peter Kramer who never filed any Forms 3, 4 or 5 and have no intention to do so.

ITEM 11. EXECUTIVE COMPENSATION.

The following table sets forth the compensation paid by us for the last two years ended December 31, 2017 and 2016, to our officers. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid to our named executive officers.

- 37 -




Summary Compensation Table
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
(i)
(j)
Name and Principal
Position [1]
Year
Salary
($)
Bonus
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Change in
Pension Value
& Nonqualified
Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Totals
($)
 
 
 
 
 
 
 
 
 
 
Brian McFadden
2017
174,350
0
0
0
0
0
0
174,350
President
2016
273,340
97,397
381,830
0
0
0
0
752,567
 
 
 
 
 
 
 
 
 
 
Michelle Pannoni - resigned 12-28-2017
2017
175,210
0
0
0
0
0
0
175,210
Former Secretary & Treasurer
2016
273,340
97,397
290,000
0
0
0
0
660,737

The following table sets forth the compensation paid by us to our directors for the year ending December 31, 2017. This information includes the dollar value of base salaries, bonus awards and number of stock options granted, and certain other compensation, if any. The compensation discussed addresses all compensation awarded to, earned by, or paid to our named director.

Director Compensation Table
(a)
(b)
(c)
(d)
(e)
(f)
(g)
(h)
Name
Fees
Earned or
Paid in
Cash
($)
Stock
Awards
($)
Option
Awards
($)
Non-Equity
Incentive Plan
Compensation
($)
Change in Pension
Value and
Nonqualified Deferred
Compensation
Earnings
($)
All Other
Compensation
($)
Total
($)
 
 
 
 
 
 
 
 
Brian McFadden
0
0
0
0
0
0
0
Michelle Pannoni - resigned 12-28-2017
0
0
0
0
0
0
0

All compensation received by our officers and directors has been disclosed.
There are no stock option, retirement, pension, or profit sharing plans for the benefit of our officers and directors.
Director Independence
None of directors are deemed independent as a matter of law.
Long-Term Incentive Plan Awards
We do not have any long-term incentive plans that provide compensation intended to serve as incentive for performance at this time.

- 38 -


 
 
Indemnification
 
  Under our Articles of Incorporation and Bylaws of the corporation, we may indemnify an officer or director who is made a party to any proceeding, including a law suit, because of his position, if he acted in good faith and in a manner he reasonably believed to be in our best interest. We may advance expenses incurred in defending a proceeding. To the extent that the officer or director is successful on the merits in a proceeding as to which he is to be indemnified, we must indemnify him against all expenses incurred, including attorney's fees. With respect to a derivative action, indemnity may be made only for expenses actually and reasonably incurred in defending the proceeding, and if the officer or director is judged liable, only by a court order. The indemnification is intended to be to the fullest extent permitted by the laws of the State of Nevada.
 
Regarding indemnification for liabilities arising under the Securities Act of 1933, which may be permitted to directors or officers under Nevada law, we are informed that, in the opinion of the Securities and Exchange Commission, indemnification is against policy, as expressed in the Act and is, therefore, unenforceable.
ITEM 12.   SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The following table sets forth, as of December 31, 2017, the beneficial ownership of the outstanding common stock and preferred stock: (i) any holder of more than five (5%) percent; (ii) each of our executive officers and directors; and (iii) our directors and executive officers as a group. Unless otherwise indicated, each of the stockholders named in the table below has sole voting and dispositive power with respect to such shares of common stock. As of December 31, 2017, there were 7,123,521 shares of common stock issued and outstanding.
Name and Address of
Beneficial Owner
Amount and
Nature of Beneficial
Ownership of
Common Stock
Percentage of
Beneficial
Ownership of
Common Stock
Amount and
Nature of Beneficial
Ownership of
Preferred Stock
Percentage of
Beneficial
Ownership of
Preferred Stock
Directors and Officers:
 
 
 
 
Brian McFadden (1)
936,922
13.15%
500,000
100.00%
801 West Bay Drive, Suite 470
 
 
 
 
Largo, Florida 33770
 
 
 
 
 
 
 
 
 
All executive officers and directors
as a group (1 person)
936,922
13.15%
500,000
100.00%
         
Michelle Pannoni - resigned 12-28-2017(2)
936,922
13.15%
0
0.00%
801 West Bay Drive, Suite 470        
Largo, Florida 33770        
         
May 2013 Trust
372,137
5.22%
0
0
1347 Pond Lane
 
 
 
 
Hewlet Harbor, NY 11557
 
 
 
 

(1)
1,000,000 shares of our capital stock is designated as Series A Preferred Stock. 500,000 shares are owned by Brian McFadden our president, principal executive officer and a director. Each share of Series A Preferred Stock has 1,000 votes. Accordingly, the combined voting power of the Series A Preferred Stock is 1,000,000,000 votes. Our Series A Preferred Stock is not registered under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended. Accordingly, Mr. McFadden have sufficient votes to out vote all of the common stock shareholders on any matter coming before our shareholders for a vote.
 
 (2) On December 28, 2017, Ms. Pannoni returned 500,000 shares of Series A Preferred stock to the Company's treasury in exchange for a convertible promissory note in the amount of $100,000.
 
 
 

- 39 -


 
 
Future sales by existing stockholders

Rule 144 of the Securities Act of 1933, as amended, (the "Act") is available for the resale of our shares of common stock because we are no longer categorized as a "shell company" as that term is defined in Reg. 405 of the Act. A "shell company" is a corporation with no or nominal assets or its assets consist solely of cash, and no or nominal operations.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.

As at December 31, 2017, the Company was owed $nil (2016 - $59,926) in trade accounts receivable, net of allowance for doubtful accounts of $59,926 (2016 - $nil) from a significant shareholder, which is non-interest bearing, unsecured, and due on demand.

As at December 31, 2017, the Company owed $36,888 (2016 - $75,964) to the President of the Company, which is non-interest bearing, unsecured, and due on demand.

As at December 31, 2017, the Company owed $nil (2016 –$87,834) to the former Chief Financial Officer of the Company, which is non-interest bearing, unsecured, and due on demand.

As at December 31, 2017, the Company recorded a liability for shares issuable of $479,516 (2016 - $843,616) relating to 4,359,241 common shares to be issued to a significant shareholder pursuant to the acquisition agreement for the intangible assets. During the year ended December 31, 2017, the Company recorded a gain of $364,100 (2016 – loss of $12,383) in the fair value of the shares issuable to the significant shareholder.
 
During the year ended December 31, 2016, the Company entered into a settlement agreement where an outstanding loan payable owed to a significant shareholder was to offset the balance receivable from the significant shareholder for service revenue.

During the year ended December 31, 2017, the Company generated net service revenues of $nil (2016 - $461,315) from a significant shareholder.

During the year ended December 31, 2017, the Company incurred payroll expense of $393,551 (2016 - $546,680) to management and officers of the Company.

During the year ended December 31, 2017, the Company incurred bonuses on sales of stealth cards of $nil (2016 - $194,793) to management and officers of the Company which has been included in cost of sales. Bonuses accrue on total gross sales at a rate of 5% each to the Chief Executive Officer and the former Chief Financial Officer of the Company.

During the year ended December 31, 2017, the Company issued nil (2016 – 1,544,437) common shares with a fair value of $nil (2016 - $671,831) to management and officers of the Company which has been included in consulting expenses.
 

 

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During the year ended December 31, 2017, the Company incurred engineering expense of $nil (2016 - $7,025), which was included in cost of goods sold, and research and development costs of $38,002 (2016 - $96,877) to a company owned by the mother of the President of the Company. As at December 31, 2017, the Company was owed $413 (2016 - $nil) from the company owned by the mother of the President of the Company, which is non-interest bearing, unsecured, and due on demand. The amount owing has been recorded as prepaid expense. As at December 31, 2017, the Company owed $nil (2016 - $9,587) to the company owned by the mother of the President of the Company, which has been recorded as accounts payable – related party.

Other than the foregoing, none of our directors or executive officers, nor any person who owned of record or was known to own beneficially more than 5% of our outstanding shares of common stock, nor any associate or affiliate of such persons or companies, has any material interest, direct or indirect, in any transaction that has occurred during the past fiscal year, or in any proposed transaction, which has materially affected or will affect us.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES.

(1)
Audit Fees

The aggregate fees billed for each of the last two fiscal years for professional services rendered by the principal accountant for our audit of annual financial statements and review of financial statements included in our Form 10-Qs or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years was:

2017
$
45,500
MaloneBailey, LLP
2016
$
50,000
MaloneBailey, LLP

(2)
Audit-Related Fees

The aggregate fees billed in each of the last two fiscal years for assurance and related services by the principal accountants that are reasonably related to the performance of the audit or review of our financial statements and are not reported in the preceding paragraph:

2017
$
0
MaloneBailey, LLP
2016
$
0
MaloneBailey, LLP

(3)
Tax Fees

The aggregate fees billed in each of the last two fiscal years for professional services rendered by the principal accountant for tax compliance, tax advice, and tax planning was:

2017
$
0
MaloneBailey, LLP
2016
$
0
MaloneBailey, LLP


(4)
All Other Fees

The aggregate fees billed in each of the last two fiscal years for the products and services provided by the principal accountant, other than the services reported in paragraphs (1), (2), and (3) was:

2017
$
0
MaloneBailey, LLP
2016
$
0
MaloneBailey, LLP

(5)
Our audit committee's pre-approval policies and procedures described in paragraph (c)(7)(i) of Rule 2-01 of Regulation S-X were that the audit committee pre-approve all accounting related activities prior to the performance of any services by any accountant or auditor.

(6)
The percentage of hours expended on the principal accountant's engagement to audit our financial statements for the most recent fiscal year that were attributed to work performed by persons other than the principal accountant's full-time, permanent employees was 0%.



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
Exhibit
 
Incorporated by reference
Filed
Number
Document Description
Form
Date
Number
Herewith
 
 
 
 
 
 
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile Damic Marketing, Inc.
8-K
01/31/13
2.1
 
Exchange Agreement between Pub Crawl Holdings, Inc. and CareerStart, Inc.
10-Q
11/19/13
2.2
 
Articles of Incorporation - Pub Crawl.
S-1
10/07/10
3.1
 
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
10-K/A
04/16/13
3.2
 
Articles of Incorporation – Career Start, Inc.
10-K
04/15/14
3.3
 
Bylaws - Pub Crawl Holdings, Inc.
S-1
10/07/10
3.2
 
Bylaws - Mobile Dynamic Marketing, Inc.
S-1
06/14/13
3.4
 
Bylaws – Career Start, Inc.
10-K
04/15/14
3.6
 
Amended Articles of Incorporation – March 26, 2013.
10-K
04/15/14
3.7
 
Amended Articles of Incorporation – October 24, 2013.
10-K
04/15/14
3.8
 
Amended Articles of Incorporation – May 26, 2016.
8-K
06/02/16
3.1
 
Correction to Amended Articles of Incorporation – June 2, 2016.
8-K
06/02/16
3.2
 
Promissory Note between the Company and Deville Enterprises, Inc.
dated June 1, 2012.
8-K
08/11/12
10.2
 
Debt Forgiveness Agreement with Hermaytar SA.
10-K/A-2
07/21/14
10.7
 
Consulting Agreement with Still Goin Inc. dated March 17, 2016.
10-Q
08/22/16
10.1
 
Consulting Agreement with Type A Partners Inc. dated March 17, 2016.
10-Q
08/22/16
10.2
 
Code of Ethics.
S-1
10/07/10
14.1
 
List of Subsidiaries.
10-K
04/15/14
21.1
 
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
 
 
 
X
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 
 
 
X
101.INS
XBRL Instance Document.
 
 
 
 X
101.SCH
XBRL Taxonomy Extension – Schema.
 
 
 
 X
101.CAL
XBRL Taxonomy Extension – Calculations.
 
 
 
 X
101.DEF
XBRL Taxonomy Extension – Definitions.
 
 
 
 X
101.LAB
XBRL Taxonomy Extension – Labels.
 
 
 
 X
101.PRE
XBRL Taxonomy Extension – Presentation.
 
 
 
 X


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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities and Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on this 2nd day of August, 2018.

 
STEALTH TECHNOLOGIES, INC.
 
(the "Registrant")
 
 
 
 
BY:
BRIAN McFADDEN
 
 
Brian McFadden
 
 
Principal Executive Officer, Principal Financial Officer, Principal Accounting Officer, Treasurer and Director


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

Signature
Title
Date
 
 
 
BRIAN McFADDEN  Member of the Board  August 2, 2018
Brian McFadden
of Directors
 










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EXHIBIT INDEX
Exhibit
 
Incorporated by reference
Filed
Number
Document Description
Form
Date
Number
Herewith
 
 
 
 
 
 
Exchange Agreement between Pub Crawl Holdings, Inc. and Mobile Damic Marketing, Inc.
8-K
01/31/13
2.1
 
Exchange Agreement between Pub Crawl Holdings, Inc. and CareerStart, Inc.
10-Q
11/19/13
2.2
 
Articles of Incorporation - Pub Crawl.
S-1
10/07/10
3.1
 
Articles of Incorporation - Mobile Dynamic Marketing, Inc.
10-K/A
04/16/13
3.2
 
Articles of Incorporation – Career Start, Inc.
10-K
04/15/14
3.3
 
Bylaws - Pub Crawl Holdings, Inc.
S-1
10/07/10
3.2
 
Bylaws - Mobile Dynamic Marketing, Inc.
S-1
06/14/13
3.4
 
Bylaws – Career Start, Inc.
10-K
04/15/14
3.6
 
Amended Articles of Incorporation – March 26, 2013.
10-K
04/15/14
3.7
 
Amended Articles of Incorporation – October 24, 2013.
10-K
04/15/14
3.8
 
Amended Articles of Incorporation – May 26, 2016.
8-K
06/02/16
3.1
 
Correction to Amended Articles of Incorporation – June 2, 2016.
8-K
06/02/16
3.2
 
Promissory Note between the Company and Deville Enterprises, Inc.
dated June 1, 2012.
8-K
08/11/12
10.2
 
Debt Forgiveness Agreement with Hermaytar SA.
10-K/A-2
07/21/14
10.7
 
Consulting Agreement with Still Goin Inc. dated March 17, 2016.
10-Q
08/22/16
10.1
 
Consulting Agreement with Type A Partners Inc. dated March 17, 2016.
10-Q
08/22/16
10.2
 
Code of Ethics.
S-1
10/07/10
14.1
 
List of Subsidiaries.
10-K
04/15/14
21.1
 
Certification of Principal Executive Officer pursuant to Section 302 of
the Sarbanes-Oxley Act of 2002.
 
 
 
X
Certification of Chief Executive Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.
 
 
 
X
101.INS
XBRL Instance Document.
 
 
 
 X
101.SCH
XBRL Taxonomy Extension – Schema.
 
 
 
 X
101.CAL
XBRL Taxonomy Extension – Calculations.
 
 
 
 X
101.DEF
XBRL Taxonomy Extension – Definitions.
 
 
 
 X
101.LAB
XBRL Taxonomy Extension – Labels.
 
 
 
 X
101.PRE
XBRL Taxonomy Extension – Presentation.


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