# Blue Biofuels, Inc.: Form 10-K for the period ended Dec 31, 2017

- Company: [Blue Biofuels, Inc.](/companies/biof.md) (CIK 1549145)
- Form: 10-K
- Filed: 2018-04-18
- Accepted by EDGAR: Apr 18, 2018, 06:13 ET
- Period: 2017-12-31
- Accession: 0001493152-18-005383
- Inline XBRL: yes
- Main document: https://www.sec.gov/Archives/edgar/data/1549145/000149315218005383/form10-k.htm
- All documents and exhibits: https://www.sec.gov/Archives/edgar/data/1549145/000149315218005383/

## Figures reported in this filing

Standardized XBRL line items for the period ended 2017-12-31.

| Line item | Period | Value | XBRL concept |
| --- | --- | ---: | --- |
| Revenue | 12 months, 2017-01-01 to 2017-12-31 | $134.3k | us-gaap:SalesRevenueNet |
| Gross profit | 12 months, 2017-01-01 to 2017-12-31 | $134.3k | us-gaap:GrossProfit |
| Research and development | 12 months, 2017-01-01 to 2017-12-31 | $736.8k | us-gaap:ResearchAndDevelopmentExpense |
| Operating income | 12 months, 2017-01-01 to 2017-12-31 | −$4.9m | us-gaap:OperatingIncomeLoss |
| Net income | 12 months, 2017-01-01 to 2017-12-31 | −$10.3m | us-gaap:NetIncomeLoss |
| Diluted EPS | 12 months, 2017-01-01 to 2017-12-31 | −$0.13 | us-gaap:EarningsPerShareBasicAndDiluted |
| Operating cash flow | 12 months, 2017-01-01 to 2017-12-31 | −$1.8m | us-gaap:NetCashProvidedByUsedInOperatingActivities |
| Capital expenditure | 12 months, 2017-01-01 to 2017-12-31 | $8.0k | us-gaap:PaymentsToAcquirePropertyPlantAndEquipment |
| Cash and equivalents | at 2017-12-31 | $55.1k | us-gaap:CashAndCashEquivalentsAtCarryingValue |
| Current assets | at 2017-12-31 | $484.3k | us-gaap:AssetsCurrent |
| Total assets | at 2017-12-31 | $4.6m | us-gaap:Assets |
| Total liabilities | at 2017-12-31 | $3.8m | us-gaap:Liabilities |
| Shareholders' equity | at 2017-12-31 | $780.3k | us-gaap:StockholdersEquity |

## Business

As filed, 4,656 characters.

### Background

### Business Overview

Alliance Bioenergy Plus, Inc (the “Company”) is a technology company focused on emerging technologies in the renewable energy, biofuels, and new technologies sectors. From inception through December 5, 2014, the Company was known as Alliance Media Group Holdings, Inc. At inception (March 28, 2012), the Company was organized as a vehicle to engage in the commercial production, distribution and exploitation of Motion Pictures and other Entertainment products. However, in December 2013, a wholly owned subsidiary of the Company, AMG Renewables, LLC (“AMG Renewables”), acquired the controlling interest (51%) in AMG Energy Group, LLC (“AMG Energy”), which owns a fifty percent (50%) interest in Carbolosic, LLC (“Carbolosic”). Carbolosic holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.” The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The Company’s goal in acquiring the interest in AMG Energy was to develop the CTS technology to a commercial scale and then seek to license the technology to prospective licensees. In September 2014, the Company determined to focus all of the Company’s resources and personnel on the Company’s renewable energy holdings and future energy technologies and to divest the Company of its entertainment-related assets and subsidiaries. Effective December 5, 2014, amended the Company’s Articles of Incorporation to change the name of the Company to Alliance Bioenergy Plus, Inc., which more appropriately describes the Company’s new business direction.

In December 2014, AMG Energy formed EK Laboratories, Inc. (originally, Central Florida Institute of Science and Technology, Inc.) (“EK”), to serve as a demonstration and research facility to further develop the CTS process, its uses, and develop new technologies. EK remains a wholly-owned subsidiary of AMG Energy.

In July 2016, the Company determined to restructure its energy holdings under a single wholly-owned subsidiary (AMG Energy) such that AMG Energy would own (i) the Company’s fifty percent (50%) interest of Carbolosic (which includes certain licensing rights in North America and Africa) and (ii) the Company’s 100% interest in EK Laboratories, LLC. This restructuring was completed on September 19, 2016 when AMG Renewables merged into AMG Energy. Previously, the Company had completed transactions with certain related parties to acquire the remaining 49% of AMG Energy, which was not owned by the Company, in exchange for an aggregate of 10,240,094 shares of Company common stock and a restructuring of the balance due under a cash payable to the minority AMG Energy Shareholders.

The Company is now focused on the development and commercialization of the licensed technology it controls through its affiliate Carbolosic, LLC. Through its wholly-owned subsidiary, AMG Energy, the Company owns Ek Laboratories, Inc. and a 50% interest in Carbolosic (which includes certain licensing rights in North America and Africa).

The Company has a strategy that includes mergers and acquisitions of existing businesses in the renewable energy and sustainable products industries as well as sublicensing its patented technologies that it controls through a master license with the University of Central Florida under affiliate Carbolosic and start-up activities which are focused on development of an increasing revenue stream, secure market share and enhancement of shareholder value.

In February 2017, the Company formed Alliance Bio-Products, Inc., a Florida corporation (“ABIOP”), for the purpose of acquiring and operating a plant for the installation of the Company’s patented CTS process. The Company intends to raise money into ABIOP for this purpose.

The Company believes that its management and consultants have significant experience in the development of technologies from concept to commercialization as well as the bio-fuels, renewable energy, chemical manufacturing and engineering and industrial construction industries. As of this date, the Company has not generated any revenues from its business.

### Description of the Company’s Securities

The Company is currently authorized to issue 500,000,000 Shares of Common Stock par value $0.001 and 10,000,000 shares of Preferred Stock par value $0.001. Each share of Company Common Stock is entitled to one (1) vote per share.

### Employees

The company currently employs eight full-time employees, one part-time employee and two consultants.

## Properties

As filed, 1,359 characters.

### Offices

The Company maintains its corporate office at 400 N Congress Avenue, Suite 130, West Palm Beach Florida 33401. The Company’s telephone number is 888-607-3555. In August 2015, the Company renewed its lease for a period of thirty-six (36) months from August 5, 2015 through July 31, 2018. Annual rent commenced at approximately $48,925 per annum and increases on a year-to-year basis by three percent (3%) over the base year. In addition, the Company is obligated to pay an amount equal to 3.76% of the operating expenses of the building together with sales tax on all amounts.

EK Laboratories leased office and warehouse space in Longwood, FL, which served as the Company’s research and demonstration facility. The lease period was for thirty-six (36) months from February 1, 2015 through January 31, 2018. Annual rent commenced at approximately $70,620 per annum and increased on a year-to-year basis by five percent (5%) over the prior year. The lease was not renewed.

EK Laboratories leases office and warehouse space in Royal Palm Beach, FL, which serves as the Company’s research and demonstration facility. The lease period is for thirty-six (36) months from December 1, 2017 through January 31, 2020. Annual rent commences at approximately $32,400 per annum and increases on a year-to-year basis by three percent (3.0%) over the prior year.

## Legal proceedings

As filed, 265 characters.

The Company is subject, from time to time, to litigation, claims and suits arising in the ordinary course of business. As of the date of filing, there are no material claims or suits whose outcomes could have a material effect on the Company’s financial statements.

## Management's discussion and analysis

As filed, 24,603 characters.

The following discussion should be read in conjunction with the Company’s audited financial statements and the notes thereto.

Forward-Looking Statements

This annual report contains forward-looking statements and information relating to the Company that are based on the beliefs of its management as well as assumptions made by, and information currently available to, its management. When used in this report, the words “believe,” “anticipate,” “expect,” “estimate,” “intend”, “plan” and similar expressions, as they relate to the Company or its management, are intended to identify forward-looking statements. These statements reflect management’s current view of the Company concerning future events and are subject to certain risks, uncertainties and assumptions, including among many others: a general economic downturn; a downturn in the securities markets; federal or state laws or regulations having an adverse effect on proposed transactions that the Company desires to effect; Securities and Exchange Commission regulations which affect trading in the securities of “penny stocks”; and other risks and uncertainties. Should any of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially from those described in this report as anticipated, estimated or expected. The accompanying information contained in this registration statement, including, without limitation, the information set forth under the heading “Management’s Discussion and Analysis and Plan of Operation — Risk Factors” identifies important additional factors that could materially adversely affect actual results and performance. You are urged to carefully consider these factors. All forward-looking statements attributable to the Company are expressly qualified in their entirety by the foregoing cautionary statement.

Business Overview

Alliance Bioenergy Plus, Inc (the “Company”) is a technology company focused on emerging technologies in the renewable energy, biofuels and new technologies sectors. In December 2013, a wholly owned subsidiary of the Company, AMG Renewables, LLC (“AMG Renewables”), acquired the controlling interest (51%) in AMG Energy Group, LLC (“AMG Energy”) and the remaining 49% was then acquired in 2016. AMG Energy Group owns a 50% interest of Carbolosic, LLC (“Carbolosic”), which holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.” The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The Company’s goal in acquiring the interest in AMG Energy is to develop the CTS technology to a commercial scale and then seek to license the technology to prospective licensees.

Plan of Operation

The Company is focused on the development and commercialization of the licensed technology it controls through its affiliate Carbolosic, LLC. Through its wholly owned subsidiary, AMG Energy, the Company owns Ek Laboratories, Inc. and a 50% interest in Carbolosic (which includes certain licensing rights in North America and Africa). The Company has a strategy that includes mergers and acquisitions of existing businesses in the renewable energy and sustainable products industries as well as sublicensing its patented technologies that it controls through a master license with the University of Central Florida under affiliate Carbolosic and start-up activities which are focused on development of an increasing revenue stream, secure market share and enhancement of shareholder value.

AMG ENERGY GROUP, LLC

AMG Energy, a wholly owned subsidiary of the Company, was created for the purpose of holding, managing, and developing the Company’s renewable energy technology enterprises. These interests comprise ownership of: (i) 100% of EK Laboratories, Inc., a Florida corporation (“EK”) (formerly known as Central Florida Institute of Science and Technology, Inc.); and (ii) a 50% interest in Carbolosic, LLC, a Delaware limited liability company (“Carbolosic”), which holds an exclusive worldwide license to the University of Central Florida’s patented technology (U.S. Patent 8,062,428) known as “CTS™.” The CTS technology is a mechanical/chemical, dry process for converting cellulose material into sugar for use in the biofuels industry as well as other fine chemical manufacturing. The Company’s goal is to develop this CTS technology to a commercial scale and then seek to acquire existing bioenergy and ethanol plants to install the CTS technology as well as license the technology to prospective licensees. EK was formed to serve as a pilot plant and research facility to further develop the CTS process, its uses, and develop new technologies.

ALLIANCE BIO-PRODUCTS, INC.

Alliance Bio-Products, a wholly owned subsidiary of the Company, was created for the purpose of acquiring and operating a plant for the installation of the Company’s patented CTS process.

In March 2017, the subsidiary commenced a $10,000,000 equity raise through an offering of 1 million units valued at $10 per share. Each unit consists of one share of 8% convertible preferred stock, with a preferred minimum investment of $5,000. The purpose of the offering is to secure funds through accredited investors for the purchase of a bioethanol plant in Southeast Florida that would enable the Company to increase production capacity and profitability of its sustainable, environmentally-friendly alternative to petroleum-based fuels and other products through its patented Cellulose to Sugar (CTS) conversion process.

In July 2017, Alliance Bio-Products, Inc., and ArborOne, ACA (representing the United States Department of Agriculture) offered to purchase the former INEOS Bio-Ethanol plant in Vero Beach, Florida, at a purchase price of $8 million. The purchase offer provides for the purchase of: (i) the fully functional Plant; (ii) over 143 acres on which the plant resides; and (iii) all related equipment and vehicles. In connection with the purchase offer, the subsidiary tendered the first initial deposit of $250,000. The transaction is subject to due diligence and the negotiation and execution of a definitive purchase agreement and other transaction documents.

As of this date, no units have been sold through the offering and the first initial deposit, in the amount of $250,000, has been refunded to the subsidiary.

The Company believes that its management and consultants have significant experience in the development of technologies from concept to commercialization as well as bio-fuels, renewable energy, chemical manufacturing, engineering and industrial construction industries. As of this date, the Company has generated $134,319 in revenue, however it has not generated any revenues from its core business.

Capital Formation

In April 2016, the Company entered into a 12-month convertible debenture with JMJ Financial. To obtain the note, the Company issued the holder 1,388,886 warrants with a five year term and a cashless exercise price equal to the lesser of $0.30 per share or the lowest trade price in the 10 preceding trading days. In the year ending December 31, 2016, JMJ Financial exercised its warrant agreement ratchet rights, thus rescinding 1,388,886 warrants and reissuing 3,067,668 warrants. SEE NOTE 5. There have been no ratchet right adjustments during the year ended December 31, 2017. As of December 31, 2017, and December 31, 2016, the holder had exercised all 3,056,625 and 11,043 warrants to acquire 1,340,201 and 11,043 shares of Company common stock, respectively. JMJ Financial’s warrant agreement has been fully exercised.

In October 2016, the Company commenced a new offering of units valued at $0.20 per share. Each unit consist of one share of common stock and a five year Series E warrant convertible to one common share at an exercise price of $0.45. From January 1, 2017, through the date of filing and at December 31, 2016, the Company has sold 4,687,500 and 2,200,050 units for aggregate proceeds of $987,500 and $390,010, respectively. The offering is ongoing.

In January 2018, The Company commenced a new offering of units valued at $0.03 per share. Each unit consist of one share of common stock. Through the date of filing, the Company has sold 10,000,000 units for aggregate proceeds of $300,000. The offering is ongoing.

From January 1, 2017 through the date of filing, the Company issued an aggregate of 7,666,632 shares of its common stock for services valued at $717,556.

From January 1, 2017 through the date of filing, the Company issued an aggregate of 1,700,000 warrants for services. Using a Black-Scholes asset-pricing model, these warrants were valued at $165,199. These warrant agreements have terms of five years with exercise prices ranging from $0.35 to $2.00 per share.

From January 1, 2017 through the date of filing, the Company issued options to its employees and independent directors to purchase an aggregate of 41,377,363 shares of common stock for a period of five years at an exercise price of $0.03, of which 35,377,363 are fully vested and the remaining 6,000,000 options vest over the next five years. Using a Black-Scholes asset-pricing model, these agreements were valued at $1,484,297. In addition, the Company rescinded 500,000 shares of common stock issued to a former employee under the Employee, Director Plan.

From January 1, 2017 through the date of filing, principal and interest in the amount of $915,160 was converted into 34,504,407 shares of common stock. The company assesses the value of the beneficial conversion feature of its convertible debt by determining the intrinsic value of such conversion, under ASC 470, at the time of issuance. At the time of issuance of the convertible debt instruments set out above, the fair value of the stock was greater than the conversion price, and therefore a total value of $1,075,192 was attributed to the beneficial conversion features.

Going Concern

The Company has incurred losses since inception, has a working capital deficiency, and may be unable to raise further equity. At December 31, 2017 the Company had a working capital deficiency of $3,325,275 and had incurred accumulated losses of $36,084,930 (of which approximately $26,345,921 is non-cash) since its inception. The Company expects to incur significant additional losses in connection with its continued start-up activities. As a result, the report of the Company’s independent registered public accounting firm on the Company’s financial statements for the period ended December 31, 2017 contains an emphasis of matter paragraph regarding the Company’s ability to continue as a going concern based upon recurring operating losses and its need to obtain additional financing to sustain operations. The Company’s ability to continue as a going concern is dependent upon its ability to obtain the necessary financing to meet its obligations and repay its liabilities when they become due and to generate sufficient revenues from its operations to pay its operating expenses. Furthermore, these financial statements do not include any adjustments related to the recoverability and classifications of recorded asset amounts, or amounts and classifications of liabilities that might result from this uncertainty.

Through its private offerings, the Company raised $3,079,004 for the year ended December 31, 2016 and an additional $1,007,501 in the year ended December 31, 2017. As of the date of filing, the company has received an additional $300,000 through its private offerings.

### Results of Operations

### Comparison of the year ended December 31, 2017 to December 31, 2016

For the year ended December 31, 2017, the Company recognized $134,319 in revenue as opposed to zero in all prior years. This revenue was the result of the sale of a bolt-on engineering package to a potential licensee, however this is not part of the Company’s core business. Throughout 2016, the Company capitalized $260,497 in connection with the engineering design and plans package for the bolt-on unit. With the nonrefundable sale of this first package, the Company has placed this capital expenditure into service and is amortizing the costs over three years. Therefore, as of December 31, 2017 and December 31, 2016, $7,236 and $0 have been expensed respectively.

For the year ended December 31, 2017 the Company’s general and administrative expenses increased by $710,791 to $4,311,499 from $3,600,708 for the year ended December 31, 2016. This increase is primarily the result of a $993,237 increase in payroll as consultants were hired as employees. This is reflected in a reduction in professional and consulting expenses of $56,511 from $1,965,767 to $1,909,526 of which $1,437,810 is non-cash stock compensation. Simultaneously, the Company recognized a $201,713 decrease in marketing expenses from $37,553 to $15,234.

Interest expense decreased in the year ended December 31, 2017 by approximately $372,683 to $902,918 from $1,275,601. This decrease was primarily the result of several debentures reaching maturity and also converting to common stock. Approximately $692,085 of principal and interest in short-term debt notes converted during the year.

For the year ended December 31, 2017 the Company’s equity loss in an unconsolidated affiliate increased by approximately $35,570 to $194,688 from $159,118 in 2016. This increase can be attributed to the Company’s maintenance of its patent portfolio and its worldwide patent protection. In addition, during the years ended December 31, 2017 and December 31, 2016, the Company recorded non-cash impairments of $4,069,995 and $3,207,701 respectively.

For the year ended December 31, 2017, the Company’s extinguishment of debt decreased by approximately $1,204,034 to a gain of $675,524 from an expense of $528,510 at December 31, 2016. During the same period, the Company’s change in fair value of its derivative instruments increased by approximately $846,695 to $854,008 at December 31, 2017 from $7,313 at December 31, 2016.

For the year ended December 31, 2017, the Company’s discontinued operations showed a loss of $2,400, as opposed to a $1,160,484 gain during the year ended December 31, 2016. This loss is primarily the result of legal fees, whereas the gain in 2016 was the result of the disposal of a subsidiary. These amounts are the result of the Company’s decision to divest the Company of its entertainment-related assets and subsidiaries and to focus all of the Company’s resources and personnel on the Company’s renewable energy holdings and future energy technologies.

Research and development (R&D) costs for the year ended December 31, 2017 were $736,750 an increase of $37,957 from $698,793 for the year ended December 31, 2016. The increase in R&D expenses is the result of the opening of Alliance BioProducts and its pursuit of developing the commercialization of the CTS process either through a stand alone facility or a portable bolt on unit.

### Liquidity and Capital Resources

#### Liquidity

As of December 31, 2017 the Company had $55,076 in cash and total stockholders’ equity at December 31, 2017 was $780,265. Total debt from continuing operations, including advances, accounts payable and other notes payable at December 31, 2017, together with interest payable thereon, was $3,773,445 an increase of $132,453 from $3,640,992 at December 31, 2016. This increase is attributable to the addition of approximately $460,554 in convertible debt and a $141,432 increase in accrued liabilities.

During the fiscal year ended December 31, 2017, the Company’s continuing operating activities decreased $399,881 to $1,841,827 from $2,241,708 at December 31, 2016. This change can primarily be attributed to $793,921 used in payroll, $132,862 in legal, accounting and consulting fees, $56,054 in rent fees and $1,102,858 used in research and development .

During the fiscal year ended December 31, 2017, the Company’s investing activities used $167,128 in cash. This use can be attributed to $8,000 used to purchase machinery and equipment and $160,964 advanced to Carbolosic, LLC for operational costs. In addition, $250,000 was deposited in connection with the purchase of the Vero Beach plant purchase; however these funds were returned to the Company in September 2017.

During the fiscal year ended December 31, 2017, the Company generated an aggregate of $2,016,751 through its financing activities. This decrease of $421,280 from the prior year can primarily be attributed to a $2,071,504 decrease in the sale of common stock through the Company’s private offerings, while simultaneously securing $1,302,750 in short-term convertible debt notes during the year. During the same period, the Company repaid $323,500 principal of its short-term debt.

#### Capital Resources

At this time, the Company has limited liquidity and capital resources. To continue funding its operations, the Company will need to generate revenue or obtain additional fincancing for current and future operations. As of the date of filing, the Company has raised $300,000, in addition to $7,816,894 raised through December 31, 2017, for a total of $8,116,894 through its private placement offerings. However, there is no guarantee that the company will be able to raise any additional capital on terms acceptable to the Company.

The inability to obtain this funding either in the near term and/or longer term will materially affect the ability of the Company to implement its business plan of operations and jeopardize the viability of the Company. In that case, the Company may need to reevaluate and revise its operations.

### Critical Accounting Policies

#### Basis of Presentation

The accompanying consolidated financial statements of the Company were prepared in accordance with generally accepted accounting principles in the U.S. (“U.S. GAAP”) and include the assets, liabilities, revenues and expenses of the Company’s majority-owned subsidiaries over which the Company exercises control. Intercompany transactions and balances were eliminated in consolidation.

#### Principles of Consolidation

The Company’s consolidated financial statements include the accounts of the Company and its subsidiaries, after elimination of intercompany accounts and transactions. Investments in business entities in which the Company lacks control but has the ability to exercise significant influence over operating and financial policies are accounted for using the equity method. The Company’s proportionate share of net income or loss of the entity is recorded in the Consolidated Statements of Earnings.

#### Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the dates presented and reported amounts of revenues and expenses during the reporting periods presented. Significant estimates inherent in the preparation of the accompanying Consolidated Financial Statements include estimates of impairment assessment of identifiable intangible assets and valuation allowance for deferred tax assets. Estimates are based on past experience and other considerations reasonable under the circumstances. Actual results may differ from these estimates.

#### Stock Compensation

The Company recognizes the cost of all share-based payments under the relevant authoritative accounting guidance. Share-based payments include any remuneration paid by the Company in shares of the Company’s common stock or financial instruments that grant the recipient the right to acquire shares of the Company’s common stock. For share-based payments to employees, which consist only of awards made under the stock option plan described below, the Company accounts for the payments in accordance with the provisions of ASC Topic 718, “Stock Compensation” (formerly referred to as SFAS No. 123(R)). Share-based payments to consultants, service providers and other non-employees are accounted for under in accordance with ASC Topic 718, ASC Topic 505, “Equity Payments to Non-Employees” or other applicable authoritative guidance

#### Convertible Instruments

The Company evaluates and accounts for conversion options embedded in convertible instruments in accordance with ASC 815 “Derivatives and Hedging Activities”.

Applicable GAAP requires companies to bifurcate conversion options from their host instruments and account for them as free standing derivative financial instruments according to certain criteria. The criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under other GAAP with changes in fair value reported in earnings as they occur and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument.

The Company accounts for convertible instruments (when we have determined that the embedded conversion options should not be bifurcated from their host instruments) as follows: The Company records when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Debt discounts under these arrangements are amortized over the term of the related debt to their stated date of redemption.

#### Accounting for Derivative Instruments

The Company issues debentures where the number of shares into which a debenture can be converted is not fixed. For example, when a debenture converts at a discount to market based on the stock price on the date of conversion. In such instances, the embedded conversion option of the convertible debentures is bifurcated from the host contract and recorded at their fair value. In accounting for derivatives, the Company records a liability representing the estimated present value of the conversion feature considering the historic volatility of the Company’s stock, and a discount representing the imputed interest associated with the beneficial conversion feature. The discount is then amortized over the life of the debenture and the derivative liability is adjusted periodically according to stock price fluctuations. At the time of conversion, any remaining derivative liability is charged to additional paid-in capital. For purposes of determining derivative liability, the Company uses Black-Scholes modeling for computing historic volatility.

### Research and Development

The Company expenses all research and development costs as incurred. For the years ended December 31, 2017 and 2016, the amounts charged to research and development expenses were $736,750 and $698,793 respectively

#### Recent Accounting Pronouncements

From time to time, new accounting pronouncements are issued by the Financial Accounting Standards Board or other standard setting bodies that may have an impact on the Company’s accounting and reporting. The Company believes that such recently issued accounting pronouncements and other authoritative guidance for which the effective date is in the future either will not have an impact on its accounting or reporting or that such impact will not be material to its financial position, results of operations, and cash flows when implemented.

#### Off-Balance Sheet Arrangements

The Company does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on its financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

#### Seasonality

The Company’s operating results are not affected by seasonality.

#### Inflation

The Company’s business and operating results are not affected in any material way by inflation.

#### Contractual Obligations

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide this information.

## Market risk

As filed, 147 characters.

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

## Controls and procedures

As filed, 7,924 characters.

### (a) Disclosure Controls and Procedures

The Company is required to maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in its reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its chief executive officer (also its principal executive officer) and its chief financial officer (also its principal financial and accounting officer) to allow for timely decisions regarding required disclosure.

Pursuant to Rule 13a-15(b) under the Securities Exchange Act of 1934 (“Exchange Act”), the Company’s management, including the Company’s President (“President”), the Company’s principal executive officer (“CEO”) and Chief Financial Officer (“CFO”) (the Company’s principal financial and accounting officer), have evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined under Rule 13a-15(e) under the Exchange Act) as of the end of the period covered by this report. Based upon that evaluation the Company’s CEO, President and CFO concluded that the Company’s disclosure controls and procedures were not effective as of December 31, 2017 to a reasonable assurance level to enable the Company to record, process, summarize and report information required under the Securities and Exchange Commission’s rules in a timely fashion. This conclusion resulted from the lack of separation of duties within the Company.

### (b) Management’s Report on Internal Control over Financial Reporting

The Company’s management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, the company’s principal executive and principal financial officers and effected by the company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America and includes those policies and procedures that:

- Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;
- Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with accounting principles generally accepted in the United States of America and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and
- Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s 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. 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. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of the inherent limitations of internal control, there is a risk that material misstatements may not be prevented or detected on a timely basis by internal control over financial reporting. However, these inherent limitations are known features of the financial reporting process. Therefore, it is possible to design into the process safeguards to reduce, though not eliminate, this risk.

As of December 31, 2017, management assessed the effectiveness of the Company’s internal control over financial reporting using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework (2013) and SEC guidance on conducting such assessments. Based on that evaluation, the Company concluded that, during the period covered by this report, such internal controls and procedures were not effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies that existed in the design or operation of its internal controls over financial reporting that adversely affected its internal controls and that may be considered to be material weaknesses.

The matters involving internal controls and procedures that the Company’s management considered to be material weaknesses under the standards of the Public Company Accounting Oversight Board was (a) the lack of a functioning audit committee, (b) there are insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of US GAAP and SEC disclosure requirements, (c) there is a lack of expertise with US generally accepted accounting principles and SEC rules and regulations for review of critical accounting areas and disclosures and material non-standard transactions and (d) lack of effective oversight during the financial close process resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures. The aforementioned material weaknesses were identified by the Company’s management in connection with the review of its financial statements for the year ended December 31, 2017.

Management believes that the material weakness set forth above did not have an effect on its financial results. However, management believes that the lack of a functioning audit committee, coupled with not having individuals on staff or retainer with a thorough knowledge of US GAAP and SEC rules and regulations and lack of effective oversight on the financial close process results in ineffective oversight in the establishment and monitoring of required internal controls and procedures, which could result in a material misstatement in its financial statements in future periods.

This annual report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by its registered public accounting firm pursuant to temporary rules of the SEC that permit the Company to provide only management’s report in this annual report.

#### Remediation Plan

Management is sensitive to the issues presented and intends to take appropriate action when the Company’s financial resources permit. Management intends to hire additional support staff when its financial resources permit and it will continue to review and make necessary changes to the overall design of its internal control environment.

### (c) Reclassification of prior Period Financial Statements

Certain items previously reported have been reclassified to conform with the current year’s presentation.

### (d) Changes in Internal Control over Financial Reporting

There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) under the Exchange Act) during the fiscal period to which this report relates that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

Filed Apr 18, 2018.
Source: SEC EDGAR, the filing index for accession 0001493152-18-005383. Last ingested by Listed: Oct 30, 2026, 17:19 ET. No prices; not investment advice.