Results
of Operations
Due
to insufficient progress in prior business operations, approximately three and one- half years ago the Company liquidated its
business assets and launched a new business plan. Its business assets had been comprised of software known as Silent Sword which
protected computers from viruses and spyware. The Company had not been successful in marketing the software at levels sufficient
to make further development of the software commercially viable. At the time of transfer on October 4, 2007, the software was
not being carried on the books of the Company. The software was transferred in exchange for the acquirer’s agreement to
invest $150,000 in the Company’s common stock.
To
launch its new business plan, the Company hired a new CEO with experience in its new direction. The industry in which the Company
is now engaged is described by the Company as technology transfer. The Company changed its name to Transfer Technology International
Corp. to reflect involvement in this industry.
The
Company commercializes new or underused technologies through the acquisition of licenses and through the design of effective commercialization
strategies in conjunction with business partners who can facilitate market penetration. During the first quarter of 2008, the
Company acquired patents relating to two technologies. The first is a patented process for preventing flash rust on low carbon
steel. The second patent is for a product that protects citrus groves from citrus canker, a disease that causes millions of dollars
of crop damage each year. The Company has to date realized no revenues from the first two patents and is not carrying any value
for the patents or any rights therein on its financial statements.
In
addition to the commercialization of our technologies, the Company has acquired the rights to be a reseller of certain organic
products and engage in pest control application services. These two activities have created revenue streams for the Company, albeit
in a minor way at this time. Management believes, however, that these business activities have significant potential for the Company.
During the fiscal year ended December 31, 2010, the Company had top line revenues from business operations in the amount of $69,760.
During the fiscal year ended December 31, 2011, the Company had top-line revenues from business operations in the amount of $59,994.
The decrease was due to economic hardship in the overall economy.
Capital
Resources
Current
business operations have been funded by financing activities including borrowing money and the sale of notes and equity capital.
During the fiscal year ended December 31, 2010, the Company realized net cash of $352,467 through financing activities and $76,734
during the fiscal year ended December 31, 2011. Even though management believes operating revenues may be generated soon through
the commercialization of acquired technologies and the sale of organic products and pest control services, management plans on
continuing meeting it cash obligations in the foreseeable future through the continued sale of its common stock in private placements.
Other sources of capital to the Company include bridge financings from shareholders.
Fiscal
years ended December 31, 2010 and 2011
During
the fiscal year ended December 31, 2010, the Company incurred $1,053,835 in general administrative expenses, down $1,806,426 from
the prior year. The net loss for the year was $1,532,141. Due to lack of business revenue and the ability to raise money through
the sale of equity capital, during 2010 the Company had to cut back business operations, lay off staff and economize in every
way possible to keep the Company operational, thereby resulting in the decreased expense. Of the expense amount, $383,373 was
in the form of non-cash adjustments, and changes in certain assets and liabilities were $786,528. Accordingly, net cash used in
operating activities was $352,240. Expenses were offset by top-line revenue of $69,760. Revenues came from the sale of organic
products and from the Company’s new termite control operation.
During
the fiscal year ended December 31, 2011, the Company incurred $906,298 in general administrative expenses and a net loss of $1,317,641.
Changes in certain assets and liabilities such as accounts payable and accrued expenses were $10,473. Accordingly, net cash used
in operating activities was $76,134 for the year ended December 31, 2011. The operations of the Company were sustained by proceeds
from the sale of our common stock, proceeds from notes and revenues from the Company’s termite control operation.
Management
estimates cash expenditures in the future will total approximately $35,000 per month. Accordingly, going forward, the Company
needs approximately $105,000 per quarter to stay solvent. As mentioned earlier, these cash needs will be met in the near term
through the sale of equity capital and eventually through revenues from its business operations.
Liquidity
During
the fiscal years ended December 31, 2010 and 2011, the Company funded its business operations through the sale of convertible
notes and equity capital. During the spring and summer of 2009, it became more difficult than it had been in the past to raise
operating capital in this manner as a result of the downturn in the nation’s capital markets generally. In addition, as
our stock price fell with the fall of the economy, it was more difficult to raise money through the sale of equity capital. Nevertheless,
the Company continues its efforts to raise money through the sale of convertible notes.
The
Company had also anticipated that it would be generating revenue by mid 2010 through the commercialization of technologies currently
owned or acquired by the Company, principally its Canker Kill product. However, label delays for the Canker Kill product at the
EPA has pushed back commercialization of this product approximately 18 months to the middle of 2011 or early 2012 and an inability
to raise large amounts of capital has delayed our ability to acquire and commercialize other technologies.
Our
current plans for addressing liquidity concerns is to continue raising money through the sale of convertible notes and to generate
revenue through marketing our organic products and operating our termite eradication unit. If we are not successful in raising
sufficient capital and achieving sufficient operating revenues, the Company will cease to exist as a going concern.
CONTINGENT
LIABILITIES
The
following is a discussion of various circumstances that could become material liabilities for the Company.
Stock Issuance to
shareholder
In
January, 2009, SB Investment Trust, a shareholder and related party to the Company transferred free trading shares to a third
party. Sometime after that, the Company issued restricted shares to SB Investment Trust to replace the transferred shares to induce
SB Investment Trust to transfer the free trading shares to three investor relation firms for services provided to the Company.
The Securities and Exchange Commission (“SEC”) takes the position that this type of transaction may violate Section
5 of the Securities Act of 1933.
At
the time of the transaction, Company management did not know the stock issuance violated any rule or regulation of the SEC. When
informed of the SEC’s position on such matters, management cancelled the stock that had been issued to the SB Investment
Trust in 2010. The shares transferred to the three investor relation firms have not been returned.
Purchase
of Company Shares
Beginning
in 2008 and from time to time, the Company became aware of certain shareholders who wanted to sell their stock. Rather than have
large sales in the market that could put downward pressure on the market price, the board of directors approved a plan whereby
the Company could purchase those shares if it determined to do so. The plan also allowed the Company to purchase its own shares
in the open market. The Company issued a press release on October 2, 2008, discussing the plan and its intent to purchase its
own stock from time to time. There were 20 non-market purchases of 1,725,351 common shares in the aggregate at a combined cost
of $288,552 in 2008 through 2009. Upon purchase by the Company, the shares were cancelled.
A
tender offer is a means of buying a substantial portion of the outstanding stock of a company by making an offer to purchase all
shares, up to a specified number, tendered by shareholders within a specified period at a fixed price. The Company believes the
relatively small number of shares it purchased at individually negotiated prices from a limited number of shareholders does not
come under the purpose or the intent of tender offer regulation nor subject it to that regulation.
Default
on Buy Back Agreements
In
February, 2009, the Company was contacted by three investors requesting the Company buy back their investments. The Company agreed
to do so. The combined investment price was $235,000 and was to be paid by the Company over time on monthly payments. The Company
was only able to make the first two payments and is now in default on the agreements. One of the investors who was to receive
$70,000 has now contacted the Company through his lawyer and is taking the position that he was not given all appropriate rights
when he made his investment and is demanding payment in full of the $70,000 plus interest. The Company is adamantly taking the
position that the investment was made properly. However, the Company is in default on the three Buy Back Agreements and is subject
to the liability as a result thereof. The Company has accrued for the settlements as of December 31, 2010 and December 31, 2009,
in the accompanying Consolidated Balance Sheet.
Claims
by two additional Shareholders
The
Company was contacted by an attorney representing two of the Company’s investors on April 30, 2010. The attorney demanded
the investments in the Company by the investors totaling $262,000 plus interest be paid by the Company immediately. The $262,000
in investments was comprised of $160,000 in purchases of stock and/or warrants to purchase stock and $102,000 in convertible notes.
The attorney maintains the investors were not given all of their rights at the time of the investments. The Company adamantly
denies any such claims but is nevertheless under the burden of settling the dispute or potentially defending litigation that may
be brought by the investors. However, due to the remote nature of the claims and the length of time since the Company was contacted
by the investors’ legal counsel, the Company has not accrued for potential liability in its financial statements for these
claims.
Payment
Demand by two Noteholders
On
August 21, 2010, a convertible note issued by the Company came due in favor of Mr. Michael Buckley in the amount of $200,000.
Interest was discounted at the inception of the note so the $200,000 is the full amount due. Mr. Buckley has opted to not convert
the note and is demanding payment in cash from the Company. The Company is unable to make payment. Mr. Buckley has hired legal
counsel who has contacted the Company. An agreement has been reached whereby Mr. Buckley will delay collection of his note in
exchange for a perfected security interest in favor of Mr. Buckley in all of the assets of the Company. The perfected security
interest was put in place by making UCC-1 filings with the states of Florida and Delaware on October 27, 2010, and October 29,
2010, respectively and by filing an assignment of patents with respect to the two patents owned by Company, with the United States
Patent and Trademark Office on November 4, 2010. If the Company is not successful in paying this obligation to the satisfaction
of Mr. Buckley, Mr. Buckley will be in a position to take over all of the assets of the Company potentially shutting down all
business operations. The Company is currently attempting to make arrangements for a third party to purchase this debt from Mr.
Buckley. An additional note in the amount of $100,000 payable to Michael Buckley has also recently come due so a combined amount
of $300,000 is now owed to Mr. Buckley by the Company.
In
July, 2010, a convertible note issued by the Company came due in favor of Mr. Louis Fiorica in the amount of $10,000. Mr. Fiorica
has decided to not convert the note and is demanding payment of $10,000 plus interest. The Company is not in a position to make
payment. To date, no legal action has been taken by Mr. Fiorica against the Company. The Company is currently making arrangements
for a third party to purchase this debt from Mr. Buckley.
Note
to John Cawood
Approximately
ninety days ago, a note payable by the Company to Mr. John Cawood in the amount of $100,000 became due and payable. At the present
time the Company does not have means to repay the note. The Company has not been contacted by Mr. Cawood or any party representing
Mr. Cawood regarding this note.
Forward-Looking
Statements
We
may have made forward-looking statements, within the meaning of Section 21E of the Securities and Exchange Act of 1934, as amended,
and Section 27A of the Securities Act of 1933, as amended, in this Annual Report on Form 10-K, including the section entitled
“Management’s Discussion and Analysis of Financial Condition and Results of Operations” that are based on our
management’s beliefs and assumptions and on information currently available to our management. Forward-looking statements
include the information concerning our possible or assumed future results of operations, business strategies, financing plans,
competitive position, industry environment, potential growth opportunities and the effects of future regulation and the effects
of competition. Forward-looking statements include all statements that are not historical facts and can be identified by the use
of forward-looking terminology such as the words “believe,” “expect,” “anticipate,” “intend,”
“plan,” “estimate” or similar expressions.
Forward-looking
statements involve risks, uncertainties and assumptions. Actual results may differ materially from those expressed in the forward-looking
statements. You should understand that many important factors, in addition to those discussed elsewhere in this Annual Report
on Form 10-K, could cause our results to differ materially from those expressed in the forward-looking statements. These factors
include, without limitation, the rapidly changing industry and regulatory environment, our limited operating history, our ability
to implement our growth strategy, our ability to integrate acquired companies and their assets and personnel into our business,
our fixed obligations, our dependence on new capital to fund our growth strategy, our ability to attract and retain quality personnel,
our competitive environment, economic and other conditions in markets in which we operate, increases in maintenance costs and
insurance premiums and cyclical and seasonal fluctuations in our operating results. TTIN, unless legally required, undertakes
no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.
Off-Balance
Sheet Arrangements
We
have not entered into any off-balance sheet arrangements and do not anticipate entering into any off-balance sheet arrangements
that would have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital expenditures or capital resources and would be considered material
to investors.
Item
7A. Quantitative and Qualitative Disclosures About Market Risk.
Not
Required.
Item
8. Financial Statements and Supplementary Data.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2011 AND 2010
Note
1 - Organization
Transfer
Technology International Corp. (the “Company”) was previously known as Inverted Paradigms Corporation (“Inverted
Paradigms” or the “Company”) was incorporated in the State of Nevada on December 18, 1997. On September 29,
2003, the Company completed a re- incorporation merger into a Delaware Corporation thus changing the state of incorporation from
Nevada to Delaware. The Company is in the process of seeking new technology.
On
March 17, 2009 the Company announced the creation of its wholly owned subsidiary Organic Products International Corp. (OPI). The
decision to launch OPI is based on the development of three market ready products, and licensing agreements that provide a base
of product offerings.
In
November, 2009, the Company formed a new subsidiary called Xterminate, Inc., a Florida corporation, which launched their eco-friendly
termite control business. The Company applies oil for termite control purposes.
Note
2 - Basis of Presentation - Going Concern
The
Company’s consolidated financial statements have been prepared assuming the Company will continue as a going concern. The
Company has experienced net losses since February 16, 1999 (date of inception), which losses have caused an accumulated deficit
of $47,933,557 as of December 31, 2010 and $46,401,416 as of December 31, 2009. This factor, among others, raises substantial
doubt about the Company’s ability to continue as a going concern.
Management
has been able, thus far, to finance the losses through a series of private placements and convertible notes payable. The Company
is continuing to seek other sources of financing and attempting to explore alternate ways of generating revenues through partnerships
with other businesses. Conversely, the seeking of new technology is expected to result in operating losses for the foreseeable
future. There are no assurances that the Company will be successful in achieving its goals.
In
view of these conditions, the Company’s ability to continue as a going concern is dependent upon its ability to obtain additional
financing or capital sources, to meet its financing requirements, and ultimately to achieve profitable operations. Management
believes that its current and future plans to raise capital provide an opportunity to continue as a going concern.
Note
3 - Summary of Significant Accounting Policies
Principles
of Consolidation
The
consolidated financial statements include the accounts of Transfer Technology International, Corporation and its wholly owned
subsidiaries. All significant intercompany accounts and transactions are eliminated in the consolidated financial statements.
Use
of Estimates
The
preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure
of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Fair
Value of Financial Instruments
The
carrying amount of financial instruments, including cash and cash equivalents, accounts payable, and accrued expenses, debt and
other liabilities, approximate fair value due to their short maturities.
Revenue
Recognition
Revenue
is recognized when persuasive evidence of an arrangement exists, services are rendered, pricing is fixed or determinable and collectability
is reasonably assured.
Recent
Accounting Pronouncements
In
August 2010, the FASB issued ASU No 2010-22, Accounting for Various Topics. Technical Corrections to SEC Paragraphs- An
announcement made by the staff of US Securities and Exchange Commission. This Update makes changes to several of the SEC
guidance literature within the Codification. Some of the changes relate to (1) Oil and Gas Exchange Offers, (2) Accounting
for Divestiture of a Subsidiary or Other Business Operations, (3) Replaces “Push Down” basis accounting
references with “New” basis of accounting to be used in the acquired companies financial statements, (4) Fees
paid to an investment banker in connection with an acquisition or asset purchase, when the investment banker is also
providing interim financing or underwriting services must be allocated between the related service and debt issue costs. The
amendments in this Update are effective immediately. The Company doesn’t expect this guidance to have a significant
impact on its financials since there are no changes to accounting that were not already being applied by the
Company.
In
July 2010, the FASB issued ASU No 2010-20, Receivables (Topic 310) – Disclosures about the Credit Quality of Financing
Receivables and the Allowance for Credit Losses. This Update requires additional disclosures for financing receivables,
excluding short-term trade accounts receivables and or receivables measured at fair value. The new disclosures are designed
to allow a user to better evaluate a company’s credit risk in the portfolio of financing receivables, how the risk is
analyzed and in allowing for credit losses and the reason for the changes in the allowance for credit losses. Some of the
additional disclosures required are to provide a roll forward of allowance for credit losses by portfolio segment basis,
credit quality of indicators of financing receivables by class of financing receivables, the aging of financing receivables
by class of financing receivable, significant purchases and sales of financing receivables by portfolio segment, amongst
other requirements. The amendments in this Update are effective for reporting periods ending on or after December 15, 2010
for disclosures as of the end of the reporting period and disclosures related to activity are effective for reporting periods
beginning on or after December 15, 2010 for public entities. For nonpublic entities, the disclosures are effective for annual
reporting periods ending on or after December 15, 2011. Comparative disclosures for earlier reporting periods are encouraged,
but not required. The Company doesn’t expect this guidance to have a significant impact on its financials since it
doesn’t have any finance receivables. The receivables are short-term trade receivables.
In
February 2010, the FASB issued ASU No 2010-10, Consolidation (Topic 810) – Amendments for Certain Investment Funds. This
update provides for the deferral of the consolidation requirements under Topic 810 for a reporting entity’s interest in
an entity 1) that has all the attributes of an investment company or 2) for which it is industry practice to apply measurement
principles for financial reporting purposes that are consistent with those followed by investment companies. The amendments are
effective as of the first annual period that begins after November 15, 2009, and for interim periods within that period. The Company
will adopt this Update on January 1, 2010 and it didn’t have a significant impact on the financials since the Company has
no interest in investment type companies.
Recent
Accounting Pronouncements (Continued)
In
February 2010, the FASB issued ASU No 2010-08, Technical Corrections to Various Topic. This update provides clarifications, eliminates
inconsistencies and outdated provisions within the guidance. None of the provisions fundamentally change US GAAP, but certain
clarifications regarding hedging and derivatives may cause a change in the application of that Subtopic. The amendments are effective
for the first reporting beginning after issuance – March 31, 2010 for the Company. The amendments were reviewed and no items
of significance were noted. As such, this update is not expected to have a significant impact on the Company’s financial
statements.
In
January 2010, the FASB issued ASU No 2010-06, Fair Value Measurements and Disclosures (Topic 820) Improving Disclosures about
Fair Value Measurements. This update provides amendment to the codification regarding the disclosures required for fair value
measurements. The key additions area as follows: 1) Disclose transfer in and out of Level 1 and 2, 2) Activity in Level 3 should
show information about purchases, sales, settlements, etc on a gross basis rather than as net basis, and 3) Additional disclosures
about inputs and valuation techniques. The new disclosure requirements are effective for interim and annual periods beginning
after December 31, 2009, except for the gross disclosures of purchases, etc which is effective for periods beginning after December
15, 2010. The Company will adopt this Update on January 1, 2010 and doesn’t expect it will have a significant impact on
the financials since there aren’t many items recorded at fair value, but additional disclosures about inputs and valuation
techniques will be made.
In
January 2010, the FASB issued ASU No 2010-04, Accounting for Various Topics – Technical Corrections to SEC Paragraphs.
This update provides updates/corrections to various topics of the codification with regards to the SEC’s position on
various matters. There is no new guidance, but adjustments to the SEC’s position on already issued updates. Some of the
main topics covered are as follows: 1) Requirements for using push down accounting in an acquisition 2) appropriate balance
sheet presentation of unvested, forfeitable equity instruments are issued to non employees as consideration for future
services – these are to be treated as not issued and no entry recorded until the instruments are earned.
3)
intangible assets arising from insurance contracts acquired in a business combination. The corrections are applicable for 2009
since the updates relate to already issued guidance. The main issue that may impact the Company is the accounting for unvested,
forfeitable equity instruments. The Company will evaluate and determine if there are any contracts with non-employees for which
equity instruments are granted and ensure they are accounted for in accordance with the update.
Sales
Tax and Value Added Taxes
In
accordance with FASB ASC 605-45, formerly EITF Issue 06-3,
How Taxes Collected From Customers and Remitted to Government Authorities
Should be Presented in the Income Statement,
the Company accounts for sales taxes and value added taxes on its goods and services
on a gross basis in the statement of operations.
Income
Taxes
The
Company accounts for income taxes utilizing the asset and liability method. This approach requires the recognition of deferred
tax assets and liabilities for the expected future tax consequences attributable to temporary differences between the financial
statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit
carry forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and
liabilities of a change in tax rates is recognized in income in the period that includes the enacted date. Valuation allowances
are established when necessary to reduce deferred tax assets to the amount expected to be realized.
Deferred
Income Taxes
Deferred
income taxes reflects the net tax effects of temporary differences between the carrying amounts of assets and liabilities for
financial reporting purposes and the amounts used for income tax purposes, as well as operating loss, capital loss and tax credit
carryforwards. Deferred tax assets and liabilities are classified as current or non-current based on the classification of the
related assets or liabilities for financial reporting, or according to the expected reversal dates of the specific temporary differences,
if not related to an asset or liability for financial reporting. Valuation allowances are established against deferred tax assets
if it is more likely than not that the assets will not be realized. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax rates or laws is recognized in operations in the
period that includes the enactment date.
Income Tax Uncertainties
The
calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations.
The Company recognizes liabilities for uncertain tax positions based on the two-step process prescribed by applicable accounting
principles. The first step is to evaluate the tax position for recognition by determining if the weight of available evidence
indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals
or litigation processes, if any. The second step requires the Company to estimate and measure the tax benefit as the largest amount
that is more than 50% likely of being realized upon ultimate settlement. It is inherently difficult and subjective to estimate
such amounts, as this requires the Company to determine the probability of various possible outcomes. The Company reevaluates
these uncertain tax positions on a quarterly basis. This evaluation is based on factors including, but not limited to, changes
in facts or circumstances, changes in tax law, effectively settled issues under audit, and new audit activity. Such a change in
recognition or measurement would result in the recognition of a tax benefit or an additional charge to the tax provision in the
period. The Company recognizes interest and penalties as incurred in finance income, (expense), net in the Consolidated Statements
of Operations.
In
2009 the Company issued stock to various persons as compensation for services without issuing forms 1099 to those persons. In
the event of an audit by the IRS it is possible the Company would be assessed penalties for improper tax treatment of those stock
issuances. The Company has not recognized any potential interest or penalties based upon the uncertainty noted because the effect
of the uncertainty has not resulted in any reduction of taxes owing. Therefore, the Comapny is not subject to any potential penalties
or interest.
Net
Loss Per Share Information
Basic
and diluted loss per share is calculated by dividing net loss by the weighted-average number of common shares outstanding during
the reporting period. The Company’s common stock warrants have been excluded from the diluted loss per share computation
since their effect is anti-dilutive.
The following is a reconciliation of the computation for basic and diluted EPS:
|
|
|
December
31,
|
|
December
31,
|
|
|
|
2011
|
|
2010
|
|
NET
LOSS
|
|
$
|
(
1,317,641
|
)
|
|
$
|
(
1,532,141
|
)
|
|
WEIGHTED
AVERAGE OUTSTANDING SHARES OF COMMON STOCK - BASIC AND DILUTED
|
|
|
161,597,814
|
|
|
|
42,038,284
|
|
For the years ended December 31, 2011 and
2010 options and warrants were not included in the computation of diluted EPS because inclusion would have been
anti-dilutive. Stock options were not included since none have been granted.
Note
4 - Equipment
Equipment is summarized as follows:
|
|
|
|
December
31,
|
|
|
|
December
31,
|
|
|
|
|
|
2011
|
|
|
|
2010
|
|
|
Computers
and equipment
|
|
$
|
2,819
|
|
|
$
|
2,819
|
|
|
Less:
accumulated depreciation
|
|
|
2,418
|
|
|
|
2,015
|
|
|
Computers
and equipment - Net
|
|
$
|
401
|
|
|
$
|
803
|
|
Depreciation expense for the year ended December 31, 2011 and December 31, 2010 was $2,418 and $2,015 respectively.
Note
5 - Commitments
Our
headquarters are based in our facility located at 2240 Twelve Oaks Way, Suite 101-1, Wesley Chapel, FL. Our rent for this location
is $535 per month. Our pest control operation is located at 5501 54 th Ave. N., St. Petersburg, Florida. Our rent at that location
is $1,500 per month. Both leases are on a month to month basis.
Note
6 - Convertible Notes and Notes Payable
Various
notes are in default and continue to accrue interest. The Company has the option, and it is managements’ intent to convert
all past due convertible notes to common stock in 2010 and 2011. The conversion price shall be based upon one half the average
closing share price of the stock for the 10 prior days before conversion or .25 cents, whichever is greater.
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
Various unsecured convertible note payables, with varying interest rates between 10% - 18%, due on demand and in default.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
Various unsecured convertible note payable, 10% interest rate, due on January 2011.
|
|
|
—
|
|
|
|
180,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Various unsecured promisory notes, with varying interest rates between 10% - 12.
|
|
|
78,467
|
|
|
|
60,000
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Convertible Notes and Notes Payable
|
|
$
|
546,800
|
|
|
$
|
468,333
|
|
During
the year ended December 31, 2010, the Company converted debt totaling $768,724, which included $126,224 of accrued interest into
55,389,090 shares of common stock. The debt was held by 32 convertible note holders. The debt was converted at the rate of $0.13
per share. The convertible notes originally established a conversion price of $0.25 per share. On August 26, 2010, the board of
directors repriced the conversion rate to $0.13 per share given the depressed value of the Company’s stock. In accordance
with generally accepted accounted principles, the Company recognized approximately $50,000 of debt inducement expense in connection
with this transaction.
Note 7 - Related Party Loans
|
|
|
December 31,
|
|
December 31,
|
|
|
|
2011
|
|
2010
|
|
|
|
|
|
|
|
May 2009 – Unsecured promissory note payable for $ 50,000, bearing interest at a fixed rate of 8%. The maturity date is past and all principal and interest is due on demand.
|
|
$
|
50,000
|
|
|
$
|
50,000
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2009 – Unsecured promissory note payable for $ 15,000, bearing interest at a fixed rate of 10%. The maturity date is past and all principal and interest is due on demand.
|
|
$
|
15,000
|
|
|
$
|
15,000
|
|
|
|
|
|
|
|
|
|
|
|
|
September 2009 – Unsecured promissory note payable for $ 5,000, bearing interest at a fixed rate of 10%. The maturity date is past and all principal and interest is due on demand.
|
|
$
|
5,000
|
|
|
$
|
5,000
|
|
|
|
|
|
|
|
|
|
|
|
|
November 2009 – Unsecured Promissory note payable for $ 1,200, bearing interest at a fixed rate of 10%. The maturity date is November 2010 at which time all principal and interest are due.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
December 2009 – Unsecured Promissory note payable for $ 4,000, bearing interest at a fixed rate of 10%. The maturity date is December 2010 at which time all principal and interest are due.
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2010 – Unsecured Promissory note payable for $ 3,600, non interest bearing note. The maturity date is March 2011 at which time all principal and interest are due.
|
|
$
|
3,200
|
|
|
$
|
3,600
|
|
|
|
|
|
|
|
|
|
|
|
|
March 2010 – Unsecured convertible note payable for $30,000 bearing interest at a fixed rate of 10%. The maturity date is March 2011 at which time all principal and interest are due.
|
|
$
|
28,000
|
|
|
$
|
28,000
|
|
|
|
|
|
|
|
|
|
|
|
|
May 2010 – Unsecured Promissory note payable for $ 1,000, non
interest bearing note. The maturity date is May 2011 at which time all principal and interest are due.
|
|
$
|
—
|
|
|
$
|
1,000
|
|
|
Total Related Party Loans
|
|
$
|
101,200
|
|
|
$
|
102,600
|
|
Note
8 - Contingent Liabilities
Lawsuit
by Gary Harrison
In
the first quarter of 2009 a dispute arose with Gary Harrison regarding his consulting responsibilities with the Company. In a
settlement of the matter, the Company agreed to pay Mr. Harrison $67,857 together with interest that accrues at 8% per annum.
The payment came due on January 25, 2010. The Company was unable to make the payment and the parties agreed upon a six month extension
of the payment due date to July 25, 2010. The Company was unable to make payment on July 25, 2010. This amount has been accrued
in the accompanying condensed consolidated balance sheet in settlement liabilities.
On
September 28, 2010, Mr. Harrison filed a lawsuit against the Company in the Circuit Court of the Thirteenth Judicial Circuit in
and for Hillsborough County Florida, Civil Division, Division J, Case Number 10019528. The suit seeks to collect $67,857 pursuant
to the settlement agreement together with post default interest at the rate of 18% per annum. The suit was served upon the Company
on November 11, 2010. The Company had until December 1, 2010, to answer the complaint. Due to a lack of funding, the Company was
not able to retain legal counsel for the purpose of answering the complaint within the allotted time. On April 5, 2011, the court
entered a default judgment against the Company in the amount of $88,949.80.
Default
Judgment in favor of Marilyn Simmons
On
January 27, 2010, TTIN was sued by Marilyn Simmons who had invested $90,000 with the Company. The suit claimed the investment
was not suitable for her and was fraudulent. TTIN disagreed with the claims and believes the suit could have been successfully
defended. However, TTIN did not have the money to retain legal counsel to defend the suit and in March, 2010, Simmons obtained
a default judgment against TTIN in the amount of $97,786.
On
April 9, 2010, TTIN entered into an agreement with Simmons (the “Stay Agreement”) wherein Simmons would stay any execution
of the judgment if TTIN would pay her a total of $120,000. TTIN must pay 7% of any money it raises for working capital purposes
toward this obligation until paid in full. During any calendar quarter that working capital is not raised, TTIN must pay at least
$5,000 from other sources on this obligation. No interest will accrue on the $120,000 and no fees will be added to the $120,000.
If TTIN defaults on the agreement, the stay will be lifted and Simmons will be able to execute on the judgment against the assets
of TTIN. As of the date this report on Form 10-K was filed, $25,000 has come due pursuant to the stay agreement of which only
$12,800 has been paid. However, no legal action has been taken as of yet to lift the stay of execution. Mrs. Simmons recently
passed away and the Company is now dealing with her estate. These amounts have been accrued in the accompanying condensed consolidated
balance sheet in settlement liabilities.
Lawsuit
by Brown and Goldfarb, LLC
Effective
January 1, 2010, the Company entered into an agreement with Brown and Goldfarb, LLC, wherein the Company was granted an exclusive
license to sell a therapeutic device for thermally assisted urinary function. On April 28, 2010, the Company was sued by Brown
and Goldfarb, LLC in the Circuit Court of the Thirteenth Judicial Circuit, in and for Hillsborough County, Florida, Division K,
Case Number 10008285, for failure to pay cash advance fees of $40,000 and issue 250,000 shares of Company common stock required
by the Agreement. The parties settled the lawsuit by the Company agreeing to pay $10,000 on September 30, 2010 and $15,000 on
July 30, 2010. The Company was unable to make the first payment and as a result, default judgment was entered against the Company
in the amount of $50,000 on July 13, 2010. Brown and Goldfarb has agreed to not execute on their judgment if they receive payment
of $25,000. So far the Company has only been able to pay $5,000. The Company has accrued $50,000 to reflect the liability to the
Company as a result of the default judgment.
Stock
Issuance to shareholder
In
January, 2009, SB Investment Trust, a shareholder and related party to the Company transferred free trading shares to a third
party. Sometime after that, the Company issued restricted shares to SB Investment Trust to replace the transferred shares to induce
SB Investment Trust to transfer the free trading shares to three investor relation firms for services provided to the Company.
The Securities and Exchange Commission (“SEC”) takes the position that this type of transaction may violate Section
5 of the Securities Act of 1933.
At
the time of the transaction, Company management did not know the stock issuance violated any rule or regulation of the SEC. When
informed of the SEC’s position on such matters, management cancelled the stock that had been issued to the SB Investment
Trust in 2010. The shares transferred to the three investor relation firms have not been returned.
Purchase
of Company Shares
Beginning
in 2008 and from time to time, the Company became aware of certain shareholders who wanted to sell their stock. Rather than have
large sales in the market that could put downward pressure on the market price, the board of directors approved a plan whereby
the Company could purchase those shares if it determined to do so. The plan also allowed the Company to purchase its own shares
in the open market. The Company issued a press release on October 2, 2008, discussing the plan and its intent to purchase its
own stock from time to time. There were 20 non-market purchases of 1,725,351 common shares in the aggregate at a combined cost
of $288,552 in 2008 through 2009.
A
tender offer is a means of buying a substantial portion of the outstanding stock of a company by making an offer to purchase all
shares, up to a specified number, tendered by shareholders within a specified period at a fixed price. The Company believes the
relatively small number of shares it purchased at individually negotiated prices from a limited number of shareholders does not
come under the purpose or the intent of tender offer regulation nor subject it to that regulation.
Default
on Buy Back Agreements
In
February, 2009, the Company was contacted by three investors requesting the Company buy back their investments. The Company agreed
to do so. The combined investment price was $235,000 and was to be paid by the Company over time on monthly payments. The Company
was only able to make the first two payments and is now in default on the agreements. One of the investors who was to receive
$70,000 has now contacted the Company through his lawyer and is taking the position that he was not given all appropriate rights
when he made his investment and is demanding payment in full of the $70,000 plus interest. The Company is adamantly taking the
position that the investment was made properly. However, the Company is in default on the three Buy Back Agreements and is subject
to the liability as a result thereof. The Company has accrued for the settlement as of September 30, 2010 and December 31, 2009,
in the accompanying Condensed Consolidated Balance Sheet.
Claims
by two additional Shareholders
The
Company was contacted by an attorney representing two of the Company’s investors on April 30, 2010. The attorney demanded
the investments in the Company by the investors totaling $262,000 plus interest be paid by the Company immediately. The $262,000
in investments was comprised of $160,000 in purchases of stock and/or warrants to purchase stock and $102,000 in convertible notes.
The attorney maintains the investors were not given all of their rights at the time of the investments. The Company adamantly
denies any such claims but is nevertheless under the burden of settling the dispute or potentially defending litigation that may
be brought by the investors. However, due to the remote nature of the claims and the length of time since the Company was contacted
by the investors’ legal counsel, the Company has not accrued for potential liability in its financial statements for these
claims.
Note
to John Cawood
Ninety
days ago, a note payable by the Company to Mr. John Cawood in the amount of $100,000 became due and payable. At the present time
the Company does not have means to repay the note. The Company has not been contacted by Mr. Cawood or any party representing
Mr. Cawood regarding this note.
Lawsuit
by Margaret Wisniewski
On
December 4, 2008, Margaret Wisniewski purchased from the Company a One-year Convertible Promissory Note in the amount of $50,000.
Mrs. Wisniewski has now filed suit in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, State
of Florida seeking a return of her investment. The complaint alleges the investment constituted exploitation of a vulnerable adult.
The Company did not have the funding necessary to defend the suit and the Company’s default has been entered with the court
but no default judgment has been entered. Opposing counsel has agreed to not enter default judgment at this time but rather negotiate
an agreement whereby the Company will pay the amounts owed. These amounts have been accrued in the accompanying condensed consolidated
balance sheet in settlement liabilities.
Payment
Demand by two Noteholders
On
August 21, 2010, a convertible note issued by the Company came due in favor of Mr. Michael Buckley in the amount of $200,000.
Interest was discounted at the inception of the note so the $200,000 is the full amount due. Mr. Buckley has opted to not convert
the note and is demanding payment in cash from the Company. The Company is unable to make payment. Mr. Buckley has hired legal
counsel who has contacted the Company. An agreement has been reached whereby Mr. Buckley will delay collection of his note in
exchange for a perfected security interest in favor of Mr. Buckley in all of the assets of the Company. The perfected security
interest was put in place by making UCC-1 filings with the states of Florida and Delaware on October 27, 2010, and October 29,
2010, respectively and by filing an assignment of patents with respect to the two patents owned by Company, with the United States
Patent and Trademark Office on November 4, 2010. If the Company is not successful in paying this obligation to the satisfaction
of Mr. Buckley, Mr. Buckley will be in a position to take over all of the assets of the Company potentially shutting down all
business operations. An additional note in the amount of $100,000 payable to Michael Buckley has also recently come due so a combined
amount of $300,000 is now owed to Mr. Buckley by the Company. The Company is currently making arrangements for a third party to
purchase this debt from Mr. Buckley.
In
July, 2010, a convertible note issued by the Company came due in favor of Mr. Louis Fiorica in the amount of $10,000. Mr. Fiorica
has decided to not convert the note and is demanding payment of $10,000 plus interest. The Company is not in a position to make
payment. To date, no legal action has been taken by Mr. Fiorica against the Company.
The
following table sets forth the accrual for settlement liability as of December 31, 2010:
|
|
|
|
2010
|
|
|
Lanterman
|
|
$
|
169,000
|
|
|
Siebert
|
|
|
35,500
|
|
|
Ear
|
|
|
49,000
|
|
|
Harrison
|
|
|
80,071
|
|
|
Simmons
|
|
|
115,450
|
|
|
Brown and Goldfarb
|
|
|
50,000
|
|
|
Wisniewski
|
|
|
50,000
|
|
|
Total:
|
|
$
|
549,021
|
|
The following table sets forth the accrual for settlement
liability as of December 31, 2009:
|
|
|
2009
|
|
Lanterman
|
|
|
$
|
153,400
|
|
|
Siebert
|
|
|
|
32,020
|
|
|
Ear
|
|
|
|
44,200
|
|
|
Harrison
|
|
|
|
71,928
|
|
|
Total:
|
|
|
$
|
301,548
|
|
Income
Taxes are provided for the tax effects of transactions reported in the financial statements and consist of taxes currently due.
Deferred taxes related to differences between the basis of assets and liabilities for financial and income tax reporting will
either be taxable or deductible when the assets or liabilities are recovered or settled. The difference between the basis of assets
and liabilities for financial and income tax reporting are not material therefore, the provision for income taxes from operations
consist of income taxes currently payable.
There
was no provision for income tax for the years ended December 31, 2011 and 2010. At December 31, 2011 and 2010 the Company had
an accumulated deficit approximating $44,751,303 and $46,401,416, respectively.
The
Company has recorded full valuation allowance on its deferred tax assets as of December 31, 2011 and December 31, 2010. These
assets were primarily derived from net operating losses, which The Company will more than likely than not be able to utilize.
Deferred
taxes are provided on a liability method whereby deferred tax assets are recognized for deductible temporary differences and operating
loss and tax credit carryforwards and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences
are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced
by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred
tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
At
December 31, 2011, the Company had net operating loss carryforwards of approximately that may be offset against future taxable
income from the year 2010 through 2030. No tax benefit has been reported in the December 31, 2010 consolidated financial statements
since the potential tax benefit is offset by a valuation allowance of the same amount.
Due
to the change in ownership provisions of the Tax Reform Act of 1986, net operating loss carryforwards for Federal income tax
reporting purposes are subject to annual limitations. Should a change in ownership occur, net operating loss carryforwards
may be limited as to use in future years.
Note
10 - Stockholders’ Deficit
The
Company had 250,000,000 authorized shares of common stock as of December 31, 2011 and December 31, 2010. The Company had 249,963,747
and 111,910,376 shares of common stock issued and outstanding as of December 31, 2011 and December 31, 2010 respectively.
2011
During
the quarter ended December 31, 2011, the Company issued 138,053,371 shares of common stock for services. The common stock were
issued at a price of $.001 per share.
2010
During
the quarter ended March 31, 2010, the Company issued 350,000 shares of common stock for executive compensation. The common stocks
were issued at a price of $.03 per share.
During
the quarter ended March 31, 2010, the Company issued 170,000 shares of common stock for directors compensation. The common stocks
were issued at a price of $.03 per share.
During
the quarter ended March 31, 2010, the Company issued 50,000 shares of common stock for employees compensation. The common stocks
were issued at a price of $.03 per share.
During
the quarter ended March 31, 2010, the Company issued 635,000 shares of common stock for consultants compensation. The common stocks
were issued at a price of $.03 per share.
During
the quarter ended March 31, 2010, the Company was returned and cancelled 430,000 shares of common stock issued in 2009 for consultants
compensation.
There
were no transactions of the common stock during the quarter ended June 30, 2010.
During
the quarter ended September 30, 2010, the Company issued 6,700,000 shares for cash of $84,000. During the quarter ended September
30, 2010, the Company issued 5,389,090 shares to convert debt.
During
the quarter ended September 30, 2010, the Company issued 275,000 shares of common stock for directors compensation. The common
stocks were issued at a price of $.01 per share.
During
the quarter ended September 30, 2010, the Company issued 125,000 shares of common stock for employees compensation. The common
stocks were issued at a price of $.01 per share.
During
the quarter ended September 30, 2010, the Company issued 4,430,000 shares of common stock for consultants compensation. The common
stocks were issued at a price of $.01 per share.
During
the quarter ended September 30, 2010, the Company issued an additional 830,000 shares of common stock for consultants compensation.
The common stocks were issued at a price of $.02 per share.
During
the quarter ended September 30, 2010, the Company issued 2,500,000 shares of common stock for executive compensation. The common
stocks were issued at a price of $.02 per share.
During
the quarter ended December 31, 2010, the Company issued 50,000,000 shares to convert debt. During the quarter ended December 31,
2010, the Company issued 11,250,000 shares for cash of $15,000.
During
the quarter ended December 31, 2010, the Company issued 750,000 shares of S-8 common stock for consultant compensation. The common
stocks were issued at a price of $.001 per share.
Note
10 - Stockholders’ Deficit (CONTINUED)
2010
(CONTINUED)
During
the quarter ended December 31, 2010, the Company issued 1,598,000 shares of common stock for executive compensation. The common
stocks were issued at a price of $.01 per share.
During
the quarter ended December 31, 2010, the Company issued 1,005,371 shares of common stock for consultants compensation. The common
stocks were issued at a price of $.01 per share.
During
the quarter ended December 31, 2010, the Company issued 100,000 shares of common stock for employees compensation. The common
stocks were issued at a price of $.01 per share.
The
following table summarizes our warrants as of December 31, 2010:
|
Y
ear
of Issuance
|
|
Warrant Type
|
|
Warrant Shares
|
|
Exercise Price
|
|
Expiration Date
|
|
2009
|
|
|
Class B warrants
|
|
|
386,500
|
|
|
|
(B)
|
|
|
Various 2011
|
|
2010
|
|
|
Class A warrants
|
|
|
250,000
|
|
|
|
0.02
|
|
|
24-Apr-11
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
0.02
|
|
|
Oct. 14, 2011
|
|
|
|
|
|
|
|
1,250,000
|
|
|
|
0.02
|
|
|
24-Apr-12
|
|
|
|
|
|
|
|
1,000,000
|
|
|
|
0.03
|
|
|
Sep. 29, 2012
|
|
|
|
|
Class B warrants
|
|
|
1,000,000
|
|
|
|
0.06
|
|
|
Sep. 29, 2013
|
|
Total warrants outstanding
|
|
|
|
|
|
4,886,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(B)
5 day average prior to exercise, discounted at 20%, or $1.25 per share, whichever is greater.
The following table summarizes our warrants as of December 31, 2009:
|
Year Of Issuance
|
|
Warrant Type
|
|
Warrant Shares
|
|
Exercise Price
|
|
Expiration Date
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
Class B warrants
|
|
|
4,446,750
|
|
|
|
(B)
|
|
|
Various 2010
|
|
2009
|
|
|
Class A warrants
|
|
|
386,500
|
|
|
|
(A)
|
|
|
Various 2010
|
|
2009
|
|
|
Class B warrants
|
|
|
386,500
|
|
|
|
(B)
|
|
|
Various 2011
|
|
Total warrants outstanding
|
|
|
|
|
|
5,219,750
|
|
|
|
|
|
|
|
(A) 5 day average prior to exercise, discounted at 25%, or $0.50 per share, whichever is greater.
(B)
5 day average prior to exercise, discounted at 20%, or $1.25 per share, whichever is greater.
The following table summarizes warrant activity
during the years ended December 31, 2010 and 2009.
|
|
|
Warrants Outstanding
|
|
Exercise Price
|
|
Outstanding at December 31, 2008
|
|
|
8,893,500
|
|
|
One half at (A) and one half at (B)
|
|
Warrants granted
|
|
|
773,000
|
|
|
One half at (A) and one half at (B)
|
|
Expired
|
|
|
4,446,750
|
|
|
(A)
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2009
|
|
|
5,219,750
|
|
|
386,500 at (A) and balance at (B)
|
|
Warrants granted
|
|
|
4,500,000
|
|
|
2,500,000 at 0.02; 1,000,000 at 0.03; 1,000,000 at 0.06
|
|
Expired
|
|
|
4,833,250
|
|
|
386,500 at (A) and balance at (B)
|
(A) 5 day average prior to exercise,
discounted at 25%, or $0.50 per share, whichever is greater.
(B) 5 day average prior to exercise, discounted at 20%, or $1.25 per share, whichever is greater.
|
OTHER INCOME (LOSS)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
$
|
(104,681.00
|
)
|
|
$
|
(3.00
|
)
|
|
$
|
(104,684.00
|
)
|
|
Legal settlement
|
|
|
(302,857.00
|
)
|
|
|
302,857.00
|
|
|
|
—
|
|
|
Change in Anti-Dilution Shares Payable
|
|
|
—
|
|
|
|
500,727.00
|
|
|
|
500,727.00
|
|
|
Other
|
|
|
(62,024.00
|
)
|
|
|
6,817.00
|
|
|
|
(55,207.00
|
)
|
|
Total other income (loss)
|
|
$
|
(469,562.00
|
)
|
|
$
|
810,398.00
|
|
|
$
|
340,836.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(LOSS) BEFORE PROVISION FOR INCOME TAX
|
|
$
|
(2,795,408.00
|
)
|
|
$
|
371,009.00
|
|
|
$
|
(2,424,399.00
|
)
|
|
|
|
|
|
|
|
|
—
|
|
|
|
|
|
|
PROVISION FOR INCOME TAX
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
NET LOSS
|
|
$
|
(2,795,408.00
|
)
|
|
$
|
371,009.00
|
|
|
$
|
(2,424,399.00
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NET LOSS PER COMMON SHARE - BASIC AND DILUTED
|
|
|
(0.10
|
)
|
|
|
(0.01
|
)
|
|
|
(0.09
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
WEIGHTED AVERAGE OUTSTANDING SHARES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
OF COMMON STOCK - BASIC AND DILUTED
|
|
|
27,245,536.00
|
|
|
|
(67,527.00
|
)
|
|
|
27,178,009.00
|
|
Note
12 - Subsequent Events
On
September 28, 2010, Mr. Harrison filed a lawsuit against the Company in the Circuit Court of the Thirteenth Judicial Circuit in
and for Hillsborough County Florida, Civil Division, Division J, Case Number 10019528. The suit seeks to collect $67,857 pursuant
to the settlement agreement together with post default interest at the rate of 18% per annum. The suit was served upon the Company
on November 11, 2010. The Company had until December 1, 2010, to answer the complaint. Due to a lack of funding, the Company was
not able to retain legal counsel for the purpose of answering the complaint within the allotted time. On April 5, 2011, the court
entered a default judgment against the Company in the amount of $88,949.80.
On
December 4, 2008, Margaret Wisniewski purchased from the Company a One-year Convertible Promissory Note in the amount of $50,000.
Mrs. Wisniewski has now filed suit in the Circuit Court of the Thirteenth Judicial Circuit in and for Hillsborough County, State
of Florida seeking a return of her investment. The complaint alleges the investment constituted exploitation of a vulnerable adult.
The Company did not have the funding necessary to defend the suit and the Company’s default has been entered with the court
but no default judgment has been entered. Opposing counsel has agreed to not enter default judgment at this time but rather negotiate
an agreement whereby the Company will pay the amounts owed. These amounts have been accrued in the accompanying condensed consolidated
balance sheet in settlement liabilities.
On
February 1, 2011, the Company issued an aggregate of 3,953,371 Rule 144 restricted shares of common stock of the Company to a
total of 7 persons. The shares were issued as compensation to employees and directors for services rendered to the Company and
to investors in exchange for investment proceeds. The valuation of the consideration received by the Company ranged from $0.001
to $0.004 per share depending upon the transaction. The issuance of the shares was exempt from the registration requirements of
Section 5 of the Securities Act of 1933 (the “Act”) pursuant to Section 4(2) of the Act since the shares were issued
by the Company and did not involve any public offering.
In
the first quarter of the fiscal year beginning January 1, 2011, the Company raised $100,800 in investment capital by issuing convertible
notes to a total of six persons.
The
Company has evaluated subsequent events pursuant to ASC 855 and has determined that there are no additional events to disclose.
Item
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
On
February 24, 2011, the Company dismissed Friedman, LLP from its position as the Company’s independent registered public
accounting firm. The Company’s Board of Directors approved the dismissal.
The
Company engaged Friedman, LLP to serve as its independent registered public accounting firm in January 2010. The audit report
of Friedman, LLP on the Company’s financial statements for the year ended December 31, 2009 did not contain an adverse opinion
or disclaimer of opinion, however it did contain a qualification describing a going concern uncertainty as well as a restatement
of the 2008 financial statements. Friedman, LLP did not, during the applicable periods, advise the Company of any of the enumerated
items described in Item 304(a) (1)(iv) of Regulation S-K.
During
the two most recent fiscal years, there were no (i) disagreements between the Company and Friedman LLP on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or procedure, which disagreements, if not resolved
to its satisfaction, would have caused Friedman LLP to make reference to the subject matter of such disagreements in connection
with its report, or (ii) “reportable events,” as described in Item 304(a)(1)(v) of Regulation S-K, except as set forth
in Item 9A in the Form 10-K filed by the Company on June 24, 2010, regarding lack of internal controls over controls and procedures.
The
Company engaged HJ & Associates, LLC, Certified Public Accountants ("HJ") as its new independent accountants on
February 28, 2011. Prior to February 28, 2011, the Company had not consulted with HJ regarding (i) the application of accounting
principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the
Company's consolidated financial statements, and no written report or oral advice was provided to the Company by HJ concluding
there was an important factor to be considered by the Company in reaching a decision as to an accounting, auditing or financial
reporting issue; or (ii) any matter that was either the subject of a disagreement, as that term is defined in Item 304(a)(1)(iv)
of Regulation S-K and the related instructions to Item 304 of Regulation S-K, or a reportable event, as that term is defined in
Item 304(a)(1)(v) of Regulation S-K.
Item
9A. Controls and Procedures.
Evaluation
of Disclosure Controls and Procedures
We
conducted an evaluation under the supervision and with the participation of our management, including our Chief Executive Officer
and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. The term
“disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange
Act of 1934, as amended (“Exchange Act”), means controls and other procedures of a company that are designed to ensure
that information required to be disclosed by the company in the reports it files or submits under the Exchange Act is recorded,
processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission's rules and forms.
Disclosure controls and procedures also include, without limitation, controls and procedures designed to ensure that information
required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated
to the company's management, including its principal executive and principal financial officers, or persons performing similar
functions, as appropriate, to allow timely decisions regarding required disclosure. Based on this evaluation, our Chief Executive
Officer and Chief Financial Officer concluded that, as discussed below, the Company’s disclosure controls and procedures
had not been effective at the reasonable assurance level to allow timely decisions regarding required disclosure.
Management’s
Annual Report on Internal Control over Financial Reporting.
Our
management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Our internal control over financial reporting is designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles. Our evaluation of internal control over financial reporting includes
using the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring
Organizations of the Treadway Commission, to identify the risks and control objectives related to the evaluation of our control
environment. The internal controls for the Company are provided by executive management’s review and approval of all transactions.
Our internal control over financial reporting also includes those policies and procedures that:
(1)
pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions
of our assets;
(2)
provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with U.S. GAAP, and that our receipts and expenditures are being made only in accordance with the authorization of our management;
and
(3)
provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets
that could have a material effect on the financial statements.
Because
of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management
assessed the effectiveness of our internal control over financial reporting as of December 31, 2010. 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 rules of the Securities and Exchange
Commission that permits us to provide only management's report in this annual report.
Material
Weaknesses
A
material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood
that a material misstatement of the financial statements will not be prevented or detected. Management has identified two material
weaknesses.
First,
our CEO Mr. Chris Trina is the sole signer on our bank accounts and has sole decisional authority to payout money pursuant to
operating the day to day business functions of the Company. Accordingly, there is not proper segregation of duties over our financial
transactions. Due to budgetary constraints, the Company is not in a position to hire additional accounting staff and is therefore
not able to remedy this material weakness at this time.
Second,
with existing personnel the Company lacks the accounting expertise to prepare its quarterly and year end financial statements
in conformity with Generally Accepted Accounting Principles. The Company intends to remedy this material weakness through additional
training of its existing personnel.
Item
9(B). Other Information
.
None.
PART
III