Item 1. Business.
Introduction
UMED Holdings, Inc. (the "Company") was originally incorporated as Dynalyst Manufacturing Corporation on March 13, 2002 and adopted a name change to Universal Media Corporation upon completion of a reverse acquisition of Dynalyst Manufacturing Corporation in August of 2009. In March 2011, we changed our name to UMED Holdings, Inc. ("UMED").
UMED is a diversified holding company that owns and operates businesses in a variety of industries including energy and mining. Our focus is to acquire businesses as wholly-owned subsidiaries that meet some key requirements: (1) solid management that will not have to be replaced in the near future, (2) the ability to grow with steady growth to follow, and (3) an emphasis on emerging core industry markets, such as energy, metals and agriculture. In this Form 10-K, we refer to ourselves as "UMED," "We," Us," "the Company," and "Our”.
Our executive offices are located at: UMED Holdings, Inc., 8851 Camp Bowie Blvd. West, Suite 240, Fort Worth, Texas 76116 tel. voice: 817-346-6900. Our Web site is www.umedholdings.com
Our growth is dependent on attaining profit from our operations and our raising capital through the sale of stock or debt. There is no assurance that we will be able to raise any equity financing or sell any of our products at a profit.
Our independent registered public accounting firm issued a going concern qualification in their report dated April 17, 2017, which raises substantial doubt about our ability to continue as a going concern.
Our stock is traded on the OTC QB and our trading symbol is "UMED."
Corporate History
UMED Holdings, Inc. ("UMED," or the "company") was incorporated in Texas on March 13, 2002. UMED owns technology for converting natural gas to liquids, primarily diesel and jet fuel ("GTL") and mining claims on federal Bureau of Land Management (BLM) in Southwest Arizona. The Company has constructed a small-scale unit at the University of Texas at Arlington (UTA), is in the process of seeking funding to build full-scale GTL units and begin the mining operations on the BLM land.
The Company staked the BLM placer mining claims on 1,440 acres in Arizona in September 2011, and, since then, has maintained the claims and plans to establish an exploration and development plan, when capital is available.
The Company purchased 100% of Mamaki of Hawaii, Inc. in 2012 and sold it in 2015 as discussed in Notes 3,4 and 12 in financial statements included in this Form 10-K filing.
In August of 2012, the Company acquired Greenway Innovative Energy, Inc. and has received two patents from the US Patent Office for its GTL technology. The Company has completed a small-scale GTL model at the University of Texas at Arlington (UTA) and now its emphasis is securing the funding to build the initial GTL field unit.
In August 2012, the Company acquired 50% of Rig Support Services, Inc. (nka Logistix Technology Systems, Inc.), which was created to develop a unique and valuable technology and asset management Tool for the Oil and Gas Industry. In February 2013, we acquired the remaining 50%. In June 2015, the Company wrote off its investment in Logistix.
As shown in the accompanying consolidated financial statement, the Company has incurred a cumulative deficit of $14,476,205 as of
December 31, 2016. The ability of the Company to continue as a going concern is in doubt and dependent upon on the ability of the Company to obtain necessary capital and financing to fund ongoing operations and achieving a profitable level of operations. UMED does not have the financial resources and does not have any commitments for funding from unrelated parties or any other firm agreements that will provide working capital to its business segments. We cannot give any assurance that UMED will locate any funding or enter into any agreements that will provide the required operating capital. UMED has been depended on the sale of equity and advances from shareholders to provide it with working capital to date.
UMED Strategy
UMED is a diversified holding company that owns and operates businesses in a variety of industries including energy and mining. Our focus is to acquire businesses as wholly-owned subsidiaries that meet some key requirements: (1) solid management that will not have to be replaced in the near future, (2) the ability to grow with steady growth to follow, and (3) an emphasis on emerging core industry markets, such as energy and metals.
Operationally, the Company has completed a small-scale model of its GTL Unit at UTA and is seeking financing for the initial GTL field production unit. The Company plans to drill test holes and test the samples on its Arizona placer mining claims to determine the potential value of the various metals that may be located on the claims.
Competition
Most of our competitors have greater financial and other resources than we have, and there is no assurance that we will be able to successfully compete.
Currently, there is significant competition for personnel and financial capital to be deployed in the oil and gas extraction industries and mining and mineral extraction industries. Therefore, it is difficult for smaller companies such as UMED to attract investment for its various business activities. We cannot give any assurances that we will be able to compete for capital funds, and without adequate financial resources management cannot assure that the company will be able to compete in our business activities.
Intellectual Property
As of December 31, 2015, the Company's wholly-owned subsidiary Greenway Innovative Energy, Inc. (GIE) owns US Patents 8,574,501 and 8,795,597 B2 covering its mobile Gas-to-Liquids ("GTL") conversion unit for the purpose of converting natural gas to clean synthetic fuels.
In the United States, a patent's term may be up to 21 years if the earliest claimed filing date is that of a provisional application. Other legal provisions may, however, shorten or lengthen a patent's term. In the United States, a patent's term may, in certain cases, be lengthened by patent term adjustment, which compensates a patentee for administrative delays by the U.S. Patent and Trademark Office in examining and granting a patent. Alternatively, a patent's term may be shortened if a patent is terminally disclaimed over a commonly owned patent or a patent naming a common inventor and having an earlier expiration date.
Employees
We currently employ Ransom Jones as President and Chief Financial Officer.
Greenway Innovative Energy, Inc. employees consist of Chief Executive Officer, Conrad Greer, President Ray Wright and Vice President Pat Six, who work under agreements with Greenway. Greenway plans to use outside consultants to perform the engineering and design work on the GTL Unit, until such time as capital funds are available to hire in-house staff.
We do not have any other employees at this time. In the future, when we need other persons for aspects of the exploratory work and other functions, we will hire persons under service agreements as consultants, part-time and full time employees as necessary. We do not have any arrangements for the hiring of any persons at this time.
The Company has Sponsored Research Agreements with UTA for catalyst and heat exchange research and has contracted with UTA to build a small-scale GTL unit at the university.
Available Information about Us
The public may read and copy any materials we file with the Securities and Exchange Commission ("SEC") at the SEC's Public Reference Room at 100 F Street, NE, Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. The public may obtain information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330. The Commission maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the Commission at (http://www.sec.gov). Our Internet site is www.umedholdings.com.
Item 1A.
Item 1A. Risk Factors.
Disclosure is not required as a result of our Company's status as a smaller reporting company.
Item 1B.
Item 1B. Unresolved Staff Comments
None.
Item 2.
Item 2. Properties.
The Company's principal office is at 8851 Camp Bowie Blvd. West, Suite 240, Fort Worth, Texas 76116, where it leases approximately 1,800 square feet of office space, at a rate of $2,417 per month.
The Company has staked 72 placer mining claims in Mohave County, Arizona on BLM land (BLM file no. AMC 403533) covering approximately 1,440 acres in Mohave County southeast of Kingman, Arizona.
Item 3.
Item 3. Legal Proceedings.
In the ordinary course of business, we may be subject to legal proceedings involving contractual and employment relationships, liability claims and a variety of other matters. Although the results of these other legal proceeding cannot be predicted with certainty, we do not believe that the final outcome of these matters should have a material adverse effect on our business, results of operations, cash flows or financial condition.
As of the date of this report, we are not aware of any other asserted or unasserted claims. Management will seek to minimize further disputes but recognizes the inevitability of legal action in today's business environment as an unfortunate price of conducting business.
Item 4.
Item 4. Mine Safety Disclosures.
Not applicable.
PART II
Item 5.
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.
Our stock is traded on the OTCQB and our trading symbol is "UMED." The following table sets forth the quarterly high and low bid price per share for our common stock. These bid and asked price quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission, and may not represent actual prices. Our fiscal year ends December 31.
Common Stock Price Range
Common Stock
On March 21, 2017, we had outstanding 239,168,967 shares of Common Stock, $0.0001 par value per share.
On March 21, 2017, the closing bid price of our stock was $0.11 per share.
On March 1, 2017, we had approximately 477 shareholders of record.
Our transfer agent is Transfer Online, Inc. located at 512 SE Salmon St., Portland, Oregon.
We have not paid any cash dividends and we do not expect to declare or pay any cash dividends in the foreseeable future. Payment of any cash dividends will depend upon our future earnings, if any, our financial condition, and other factors as deemed relevant by the Board of Directors.
Sale of Unregistered Securities
During the three months ended December 31, 2016, the Company issued 1,476,667 shares of restricted class A common stock to thirteen individuals through private placements for cash of $147,000 at average of $0.10 per share.
During the period from January 1, 2017 through March 21, 2017, the Company issued 12,217,500 shares of restricted class A common stock to 18 individuals for $977,400 at average price of $0.08 per share.
During the period from January 1, 2017 through March 21, 2017, the Company issued 1,750,000 shares of restricted class A common stock for consulting services at average price of $0.12 per share.
Securities Authorized for Issuance under Equity Compensation Plans
None
Employee Stock Option Plans
None
Item 6.
Item 6. Selected Financial Data.
Disclosure is not required as a result of our Company's status as a smaller reporting company.
Item 7.
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations.
The following discussion and analysis of the financial condition and results of operations of the Company should be read in conjunction with the financial statements and the related notes and the discussions under "Application of Critical Accounting Policies," which describes key estimates and assumptions we make in the preparation of our financial statements.
Overview
UMED Holdings, Inc. ("UMED") was originally incorporated as Dynalyst Manufacturing Corporation ("Dynalyst") under the laws of the State of Texas on March 13, 2002. On June 7, 2006, Dynalyst Manufacturing Corporation amended its Articles of Incorporation to increase its authorized number of common shares from Twenty Million (20,000,000) to Seventy-Five Million (75,000,000) shares and authorized Twenty-Five (25,000,000) shares of preferred stock.
In connection with the reorganization with Universal Media Corporation ("UMC"), a Nevada corporation, on August 17, 2009, Dynalyst changed its name to Universal Media Corporation. The transaction was accounted for as a reorganization, with UMC as the acquiring company on the basis that UMC's senior management became the entire senior management of the merged entity and there was a change of control of Dynalyst. The transaction is accounted for as recapitalization of Dyanlyst's capital structure. In connection with the reorganization, Dynalyst issued 57,500,000 restricted class A common shares to stockholders of Universal Media Corporation for 100% of UMC.
On August 18, 2009, Dynalyst approved the amendment of its Articles of Incorporation and filed with the Texas Secretary of State to change the Company's name to Universal Media Corporation and approved the increase in authorized shares to 300,000,000 shares of class A common stock, par value $.0001 and 20,000,000 shares of class B stock, par value $.0001.
On March 23, 2011, UMC approved the amendment of its Articles of Incorporation and filed with the Texas Secretary of State to change the Company's name to UMED Holdings, Inc.
UMED Holdings, Inc. a Texas corporation, (hereinafter "UMED" or "the Company") is a holding company with present interest in energy and mining. The Company has established its corporate offices at 8851 Camp Bowie Blvd. West, Suite 240, Fort Worth, Texas 76116 consisting of approximately 1,800 square feet.
Energy Interest
In August 2012, UMED acquired Greenway Innovative Energy, Inc. ("Greenway"), filed a patent application, and is conducting research on Gas-to-Liquid ("GTL") technology. The Technology is based upon the Fischer-Tropsch ("FT") conversion system that has been operational in various locations throughout the world since the early 1930s. Thousands of FT systems have operated during the last 80 years, being most notably responsible for driving energy economies of wartime Nazi Germany and Imperial Japan. More recently, and for a more sustained period, FT has been responsible for providing much of the motive energy required to meet the needs of the Republic of South Africa, a country recognized as having pushed FT technology much further than any other nation since the development of the process.
Greenway's research has been centered on developing a movable production-scale FT system ("the Portable Technology") to accommodate the needs of smaller gas plays that are increasingly beginning to characterize natural gas production within the US and elsewhere. Based on preliminary estimates with new, improved and more efficient technology than previously projected, the Company is currently seeking funding of $50 - $55 million to manufacture the initial (2,000 barrel per day) GTL unit near an existing pipeline to obtain the cleanest gas possible and not have to deal with desulfurization on the first unit. The GTL Unit will be composed of the front end to produce the syn-gas that will be processed by the FT section and the resulting liquid will be separated into diesel, jet fuel and other products in the fractionation tower.
The Company has completed a small-scale GTL unit at the University of Texas at Arlington in conjunction with a sponsored research agreement and is now seeking financing to construct the initial GTL field unit.
Mining Interest
In December 2010, UMED acquired the rights to approximately 1,440 acres of placer mining claims in Mohave County, Arizona for 5,066,000 shares of restricted common stock. Actual mining and processing will determine the ultimate value of the holdings. The Company's current expectations are that it will need approximately $2,000,000 to begin certified assaying ($500,000), develop a mining plan with the BLM ($500,000) and acquire exploration equipment ($1,000,000). The total requirement will not be known until reports from a consulting geologist are received. Due to the Company not producing any revenues from its BLM mining leases since its acquisition of the leases, achieving a position of producing cash flow levels to fund the development of its BLM mining leases and not having current resources for an appraisal, we recognized an impairment charge of $100,000 during the year ended December 31, 2014.
Going Concern
We remain dependent on outside sources of funding for continuation of our operations. Our independent registered public accounting firm issued a going concern qualification in their report dated April 17, 2017, which raises substantial doubt about our ability to continue as a going concern.
During the years ended December 31, 2016 and 2015, we have been unable to generate cash flows sufficient to support our operations and have been dependent on debt and equity raised from qualified individual investors and loans from a related party. We experienced negative financial results as follows:
These factors raise substantial doubt about our ability to continue as a going concern. The financial statements contained herein do not include any adjustments relating to the recoverability and classification of recorded asset amounts or amounts and classification of liabilities that might be necessary should we be unable to continue in existence. Our ability to continue as a going concern is dependent upon our ability to generate sufficient cash flows to meet our obligations on a timely basis, to obtain additional financing as may be required, and ultimately to attain profitable operations. However, there is no assurance that profitable operations or sufficient cash flows will occur in the future.
Our ability to achieve profitability will depend upon our ability to manufacture and operate GTL units. Our growth is dependent on attaining profit from our operations and our raising additional capital either through the sale of stock or borrowing. There is no assurance that we will be able to raise any equity financing or sell any of our products at a profit.
Results of Operations
Revenues for consolidated operations for the years ended December 2016 and 2015 were $0 and $0, respectively. We reported consolidated net losses during the years ended December 31, 2016 and 2015 of $2,018,704 and $4,028,702, respectively.
The following table summarizes consolidated operating expenses and other income and expenses for the year ended December 31, 2016 and 2015:
For the year ended December 31, 2016, consolidated general and administrative costs of $1,050,101 consisted primarily of consulting fees of $200,460, management fees of $420,500, legal fees of $236,771, rent expense of $45,191, auditing expense of $26,300, travel expenses of $23,153, transfer agent expenses of $9,421, and Arizona mining lease of $11,160.
For the year ended December 31, 2015, consolidated general and administrative costs of $3,829,466 consisted primarily of consulting fees of $193,250, management fees of $605,400, legal fees of $95,230, rent expense of $57,362, auditing expense of $28,500, travel expenses of $9,021, transfer agent expenses of $12,111, and stock based compensation of $2,991,677.
Consolidated net loss was $2,018,704 or $0.01 per basic and diluted earnings per share for the year ended December 31, 2016 compared to $4,028,475 or $0.02 per share for the year ended December 31, 2015. The weighted-average number of shares used in the earnings per share for the basic and dilutive computation was 202,062,054 for the year ended December 31, 2016 and 165,860,150 for the year ended December 31, 2015.
Liquidity and Capital Resources
We do not currently have sufficient working capital to fund our future operations. We cannot assure that we will be able to continue our operations without adequate funding. We had $67,964 in cash, total assets of $86,789 and total liabilities of $2,503,642 as of December 31, 2016. Total stockholder's deficit at December 31, 2016 was $14,476,205.
For the years ended December 31, 2016 and 2015, cash used by operating activities was $1,845,765 and $1,304,347, respectively.
Cash provided by financing activities for the years ended December 31, 2016 and 2015 was $1,913,729 and $1,270,852, respectively, primarily from the sale of common stock, issuance of convertible note payable and advances by shareholders.
We project that approximately $55 - $60 million of capital will be needed for all aspects of our business development. We project a need of $50 -$55 million to build the first portable GTL Unit, $2 million for our mining exploration plan, and $3 million for general and administrative expenses. Further, until there is a more complete assessment of the mining property, we cannot determine the necessary capital requirements and our operating budgets, if it is decided to pursue full exploration and development. We also will be subject to environmental expenses in connection with these activities. We will also have the expense of maintaining and defending any patents obtained, our claims, and seeking further patents and claims to be able to garner sufficient area to make our operations more viable, once we have shown appropriate mineral deposits present in our claims, if at all. After building the first GTL Unit and determining the commercial viability of the mining claims, we will need substantial capital or financial partners to build additional GTL Units, develop the mining claims, acquire plant and equipment and hire personnel.
We intend to seek debt, equity and revenue-sharing forms of capital. We have no firm arrangements for any capital at this time. Additionally, equity capital for small companies generally and small companies in the oil and gas and mining segments in particular, have a difficult time competing for investors and/or debt financing because of the high risk at this stage of development and the fact that the investment could be long term. The market for the transportation fuel and metals that the company believes may be derived from the GTL Units and from its mining claims also influences investment decisions, such that if there is strong demand, then funds may be relatively more available, but if market demand is not strong or the price of transportation fuels and the metals declines, funding may be unavailable. The failure to obtain the necessary working capital would have a material adverse effect on the business prospects and, depending upon the shortfall, the Company may have to curtail or cease its operations.
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. The general business strategy of the Company is to first develop the natural gas to liquid technology to maintain the Company's viability, while seeking capital and then explore and research its existing mining leases properties. As shown in the accompanying consolidated financial statement, the Company has incurred a cumulative deficit of $14,476,205 and $12,458,131 as of December 31, 2016 and 2015, respectively. The ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations and on the ability of the Company to obtain necessary financing to fund ongoing operations.
Commitments
Employment Contracts
In May 2011, the Company entered into employment agreements with Kevin Bentley, its chief executive officer, Richard Halden, its president and Randy Moseley, its chief financial officer. The Agreements were for a term of 5 years, ending May 31, 2106. The employment agreements also provide for the officers to receive 1,250,000 shares of restricted common stock annually for each year of the employment agreement. During the years ended December 31, 2016 and 2015, the Company accrued a total of $150,000 and $360,000, respectively, as management fees. Kevin Bentley resigned in April 2015 and relinquished his claim to receive $518,300 of deferred compensation. Richard Halden resigned as President in January 2016 and Randy Moseley resigned as Chief Financial officer in November 2016.
In August 2012, the Company entered into employment agreements with Raymond Wright, the president and Conrad Greer, the chairman of the board of Greenway for a term of 5 years with compensation of $90,000 per year. In June of 2014, the president's employment agreement was amended to increase his annual pay to $180,000. On March 1,2015, accrual on the Greenway chairman of the board agreement was ceased due to his absence from the company for more than a year. During the years ended December 31, 2016 and 2015, respectively, the Company accrued $180,000 and $191,250 towards the employment agreements.
Mining Leases
The Company's minimum commitment for 2017 is approximately $11,160 in annual maintenance fees, which are due September 1, 2017. Once the company enters the production phase, royalties owed to the BLM are equal to 10% of production.
Financing
The Company's financing has been provided by loans, advances from shareholders and by issuing shares of its common stock in various private placements to related parties and individuals.
Off-Balance Sheet Arrangements
We do not have any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
Significant Accounting Policies
Critical Accounting Policies and Estimates
Our discussion and analysis of our financial condition and results of operations are based upon financial statements which have been prepared in accordance with generally accepted accounting principles in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses, and related disclosure of contingent assets and liabilities. On an ongoing basis, we evaluate these estimates. We base our estimates on historical experience and on assumptions that are believed to be reasonable. These estimates and assumptions provide a basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions, and these differences may be material.
We believe that the following critical accounting policies affect our more significant judgments and estimates used in the preparation of our financial statements.
Revenue Recognition
The Company will recognize revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition ("ASC 605-10") which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arrangements ("ASC 605-25"). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing 605-25 on the Company's financial position and results of operations was not significant.
Stock-Based Compensation
Accounting Standard 718, "Accounting for Stock-Based Compensation" ("ASC 718") established financial accounting and reporting standards for stock-based employee compensation plans. It defines a fair value based method of accounting for an employee stock option or similar equity instrument. In January 2006, UMED implemented ASC 718, and accordingly, UMED accounts for compensation cost for stock option plans in accordance with ASC 718.
The Company accounts for share based payments to non-employees in accordance with ASC 505-50 "Accounting for Equity Instruments Issued to Non-Employees for Acquiring, or in Conjunction with Selling, Goods or Services".
Use of Estimates
The preparation of the consolidated 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 at the date of the financial statements and the reported amount of revenue and expenses during the reported period. Actual results could differ materially from the estimates.
Mine Exploration and Development Costs
The Company accounts for mine exploration costs in accordance with Accounting Standards Codification 932, Extractive Activities. All exploration expenditures are expensed as incurred. Mine development costs are capitalized until production, other than production incidental to the mine development process, commences and are amortized on a units of production method based on the estimated proven and probable reserves. Mine development costs represent costs incurred in establishing access to mineral reserves and include costs associated with sinking or driving shafts and underground drifts, permanent excavations, roads and tunnels. The end of the development phase and the beginning of the production phase takes place when construction of the mine for economic extraction is substantially complete. Amortization of capitalized mine development is computed based on the estimated life of the mine and commences when production, other than production incidental to the mine development process, begins. At December 31, 2016, the Company had not incurred any mine development costs.
Mining Properties
The Company accounts for mine properties in accordance with Accounting Standard Codification 930, Extractive Activities-Mining. Costs of acquiring mine properties are capitalized by project area upon purchase of the associated claims. Mine properties are periodically assessed for impairment of value and any diminution in value. Due the Company not achieving a position of producing cash flow levels to fund the development of its BLM mining leases and not having current resources for an appraisal, we recognized an impairment charge of $100,000 during the year ended December 31, 2014.
Income Taxes
The Company has adopted Accounting Standards Codification subtopic 740-10, ("ASC 740-10") which requires the recognition of deferred tax liabilities and assets for the expected future tax consequences of events that have been included in the financial statement or tax returns. Under this method, deferred tax liabilities and assets are determined based on the difference between financial statements and tax basis of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to reverse. Temporary differences between taxable income reported for financial reporting purposes and income tax purposes consist primarily of timing differences such as deferred officers' compensation and stock compensation accounting versus tax differences.
Net Loss Per Share, basic and diluted
The Company has adopted Accounting Standards Codification Subtopic 260-10, Earnings Per Share ("ASC 260-10), specifying the computation, presentation and disclosure requirements of earning per share information. Basic loss per share has been computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Shares issuable upon conversion of the notes payable and exercise of warrants has been excluded as a common stock equivalent in the diluted loss per share because their effect is anti-dilutive on the computation.
Derivative Financial Instruments
The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. UMED evaluates all of it financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income. For option-based derivative financial instruments, UMED uses the Black-Scholes option-pricing model to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
Concentration and Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash, cash equivalents and trade receivables. The Company places its cash and temporary cash investments with high credit quality institutions. At times, such investments may be in excess of the FDIC insurance limit.
Impact of New Accounting Standards
The Company has reviewed all other recently issued, but not yet adopted, accounting standards in order to determine their effects, if any, on its results of operation, financial position or cash flows. Based on that review, the Company believes that none of these pronouncements are expected to have a significant effect on its consolidated financial statements.
Item 7A.
Item 7A. Quantitative and Qualitative Disclosures about Market Risk
Pursuant to Item 305(e) of Regulation S-K (§ 229.305(e)), the Company is not required to provide the information required by this Item as it is a "smaller reporting company," as defined by Rule 229.10(f)(1).
Item 8.
Item 8. Financial Statements and Supplementary Data.
See Financial Statements beginning on page.
Item 9.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
None
Item 9A.
Item 9A. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of our Principal Executive Officer and Principal Financial Officer, evaluated the effectiveness of our disclosure controls and procedures (as defined in the Securities Exchange Act of 1934 Rules 13a-15(e) and 15d-15(e)) as of the end of the period covered by this Annual Report on Form 10-K. In designing and evaluating the disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives. In addition, the design of disclosure controls and procedures must reflect the fact that there are resource constraints and that management is required to apply its judgment in evaluating the benefits of possible controls and procedures relative to their costs.
Based on our evaluation, our Principal Executive Officer and Principal Financial Officer, after considering the existence of material weaknesses identified, determined that our internal control over financial reporting disclosure controls and procedures were not effective as of December 31, 2016.
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 Securities Exchange Act of 1934, as amended. 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 U.S. generally accepted accounting principles.
Our internal control over financial reporting includes those policies and procedures that: (i) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our 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, including our Principal Executive Officer and Principal Financial Officer, assessed the effectiveness of our internal control over financial reporting as of December 31, 2016. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSOII) in Internal Control over Financial Reporting - Guidance for Smaller Public Companies.
We identified the following deficiencies which together constitute a material weakness in our assessment of the effectiveness of internal control over financial reporting as of December 31, 2016;
O The Company has inadequate segregation of duties within its cash disbursement control design.
O During the year ended December 31, 2016, the Company internally performed all aspects of its financial reporting process, including, but not limited to the underlying accounting records and record journal entries and responsibility for the preparation of the financial statement due to the fact these duties were performed often times by the same people, a lack of review was created over the financial reporting process that might result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. These control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.
O The Company does not have a sufficient number of independent directors for its board and audit committee. We currently have two independent directors on our board, which is comprised of seven directors, and we do not have a functioning audit committee. As a publicly-traded company, we should strive to have a majority of our Board of Directors be independent.
The Company is continuing the process of remediating its control deficiencies. However, the material weakness in internal control over financial reporting that has been identified will not be remediated until numerous internal controls are implemented and operate for a period of time, are tested, and the Company is able to conclude that such internal controls are operating effectively. The Company cannot provide assurance that these procedures will be successful in identifying material errors that may exist in the financial statements. The Company cannot make assurances that it will not identify additional material weaknesses in its internal control over financial reporting in the future. Management plans, as capital becomes available to the Company, to increase the accounting and financial reporting staff and provide future investments in the continuing education and public company accounting training of our accounting and financial professionals.
It should be noted that any system of controls, however well designed and operated, can provide only reasonable, and not absolute, assurance that the objectives of the system are met. In addition, the design of any control system is based in part upon certain assumptions about the likelihood of future events. Because of these and other inherent limitations of control system, there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions, regardless of how remote.
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 the Company's registered public accounting firm pursuant to rules of the Securities and Exchange Commission that permit us to provide only management's report in this annual report.
Changes in Internal Controls over Financial Reporting
We regularly review our system of internal control over financial reporting to ensure we continue to work towards an effective internal control environment. There were no changes that occurred during the fourth quarter of the fiscal year covered by the Annual Report on Form 10-K that have materially affected, or are reasonably likely to materially affect, the Company's internal control over financial reporting.
Item 9B.
Item 9B. Other Information.
None.
PART III
Item 10.
Item 10. Directors, Executive Officers and Corporate Governance.
Executive Officers and Directors
Set forth below are our present directors and executive officers. Note that there are no other persons who have been nominated or chosen to become directors nor are there any other persons who have been chosen to become executive officers. There are no arrangements or understandings between any of the directors, officers and other persons pursuant to which such person was selected as a director or an officer. Directors are elected to serve until the next annual meeting of stockholders and until their successors have been elected and have qualified. Officers serve at the discretion of the Board of Directors.
Present Position
Name
Age
and Offices
Ransom Jones
Director, President and Chief Financial Officer
Craig Takacs
Director
Kevin Jones
Director
Raymond Wright
Director
D. Patrick Six
Chairman of the Board of Directors
Kent J. Harer
Director
Set forth below are brief accounts of the business experience during the past five years of each director and executive officer of the Company.
RANSOM JONES was appointed interim chief executive officer on January 14, 2016, director on March 7, 2016 and President on August 4, 2016. Mr. Jones has over 40 years of diverse business experience. He is a retired partner of KPMG Peat Marwick and former Chief Financial Officer of two publicly traded corporations, Western Preferred Corporation and El Paso Refining, Inc. He has also served as an officer of some of the largest and most prestigious global financial institutions including Goldman Sachs, Citicorp, ABN-AMRO Bank and AIG. After resigning from AIG, Mr. Jones created a very successful small business for life insurance lending. He graduated from the University of Texas at El Paso in 1971 with a BBA, Accounting. Ransom and Kevin Jones are brothers.
CRAIG TAKACS has served as a Director of the Company since its incorporation in March 2002. Mr. Takacs served as president and chief executive officer of the Company's predecessor, Dynalyst Manufacturing Corporation, from March 2002 until his resignation in August 2009. Prior to Dynalyst, Mr. Takacs worked for Institutional Capital Management, where he served as the firm's technology analyst. Mr. Takacs received his BBA in Business Management in 1984 from Texas A&M University.
KEVIN JONES was elected as a director of the Company on March 7, 2016. Kevin founded All Commercial Floors in 1999 and is responsible for its overall operation. Under his leadership ACF has grown from a two-person business in the corner of his garage to one of the largest and, we feel, one of the most respected commercial flooring companies in the country with offices throughout the United States, and with annual sales exceeding $40 million. Today, ACF may well be considered the premier healthcare flooring contractor in the country, serving customers from Alaska to Florida, Maine to California and beyond. ACF has also spread beyond the healthcare sector with expansion into the general commercial flooring sector with offices in key U.S. markets. This has led to landmark projects at venues such as the Gaylord Texan, American Airlines Center, the University of Alabama and Cowboys Stadium. We believe that no other flooring contractor in the country has the ability to reach any corner of North American continent with the skill and success of ACF. He attended Texas Tech University in Lubbock, Texas. Kevin Jones and Ransom B. Jones are brothers.
RAYMOND WRIGHT was elected as a director of the Company on March 7, 2016. Ray has served as the President of Greenway Innovative Energy, Inc. (a wholly-owned subsidiary of the registrant) since August 2012. Mr. Wright was a co-founder of DFW Genesis in 2009, where he began working on the natural gas to liquid (GTL) process and worked through 2012, when he and Conrad Greer formed Greenway Innovative Energy, Inc. to continue working on the GTL process. Previously, Mr. Wright worked with Dallas based Texas Instruments (TI) operations he managed and opened up new markets for (TI) in England. He developed and built a materials manufacturing facility for TI's European operation and introduced TI's Light Sensor technology in Europe.
D. PATRICK SIX was elected as a director of the Company on March 7, 2016. Patrick has served as a Vice-President of Greenway Innovative Energy, Inc. since 2013. He has also provided consulting serves to the registrant, since May 2011. He has been in the oil and gas industry for 37 years as an independent operator of oil and gas properties both as an owner and consultant. He received a BBA in marketing from Texas Tech University in Lubbock, Texas.
KENT J. HARER was elected as a director of the Company on February 3, 2017. Since 1996, he has served as Senior Account Manager for Air Liquide Industries US LP, an affiliate of Air Liquide, S.A., a large French multinational industrial gas company.
Ransom Jones and Kevin Jones are brothers. Otherwise, none of the other directors and officers is related to any other director or officer of the Company.
Significant Employees
We have no employees who are not executive officers, but who are expected to make a significant contribution to our business. We intend in the future to hire independent geologists, engineers and excavation subcontractors on an as needed basis.
Involvement in Certain Legal Proceedings
To the knowledge of the Company, there have been no events under any bankruptcy act, no criminal proceedings and no judgments, injunctions, orders or decrees as listed in Section 401(f) of Regulation S-K within the past ten-years material to the evaluation of the ability and integrity of any director and executive officer of the Company.
Code of Ethics
We have a Code of Ethics that applies to our principal executive officers and our principal financial officers, principal accounting officer or controller, or persons performing similar functions. We undertake to provide to any person, without charge, upon request, a copy of our Code of Ethics. You may request a copy of our Code of Ethics by mailing your written request to us. Your written request must contain the phrase "Request for a Copy of the Code of Ethics of UMED Holdings, Inc." A copy of our Code of Ethics is also posted on our website, www.UMED.com. Our address is: UMED Holdings, Inc., 8851 Camp Bowie West Blvd., Suite 240, Fort Worth, Texas 76116.
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act requires our officers, directors and persons who beneficially own more than 10% of our common stock to file reports of ownership and changes in ownership with the SEC. These reporting persons also are required to furnish us with copies of all Section 16(a) forms they file. Based solely on the reports received by us, the transaction report of Company transactions supplied by our transfer agent and our shareholders list as of March 21,2017, to the best of our knowledge all required directors, officers and greater than 9.99% percent shareholders complied with applicable filing requirements during the fiscal year ended December 31, 2016.
DIRECTOR INDEPENDENCE.
We currently have seven members of our Board of Directors, who were elected and hold office until their successors are elected and qualified. Executive officers are appointed by the Board of Directors and serve until their successors have been duly elected and qualified. Ransom Jones and Kevin Jones are brothers. Otherwise, there is no family relationship between any of our directors and executive officers.
BOARD OF DIRECTORS MEETINGS.
During the fiscal year ended December 31, 2016, the Board of Directors held three meetings which were attended by all members.
NOMINATING COMMITTEE.
We do not have any nominating committee of the Board, or committee performing a similar function. Shareholders may recommend nominees for Director by sending written communications to the company's Board of Directors to the attention of the Chairman of the Board, Pat Six at UMED Holdings, Inc., 8851 Camp Bowie West Blvd., Suite 240, Fort Worth, Texas 76116. Every director will participate in the consideration of director nominees.
AUDIT COMMITTEE.
We do not have an audit committee of the Board. Our Board of Directors serves as the audit committee.
Members of the Board of Directors acting in the capacity of the Audit Committee have (1) reviewed and discussed the audited financial statements with management; (2) discussed with the independent auditors the matters required to be discussed by the statement on Auditing Standards No. 61, as amended, as adopted by the Public Accounting Oversight Board in Rule 3200T; (3) have received the written disclosures and the letter from the independent accountant required by applicable requirements of the Public Company Accounting Oversight Board regarding the independent accountant's communications with the audit committee concerning independence, and (4) have discussed with the independent accountant the independent accountant's independence; and based on the review and discussions referred to above, the audit committee recommended to the board of directors that the audited financial statements be included in the company's annual report on Form 10-K for the last fiscal year for filing with the Commission. The entire Board of Directors is currently acting in the capacity of the Audit Committee.
COMPENSATION COMMITTEE.
We do not have a compensation committee. Our Board of Directors serves as the compensation committee
SHAREHOLDER COMMUNICATIONS.
Shareholders may send written communications to the company's Board of Directors to the attention of the Chairman of the Board, Pat Six. Persons wishing to write to the Board or to a specified director or committee of the Board should send correspondence to the Corporate Secretary at UMED Holdings, Inc., 8851 Camp Bowie West Blvd., Suite 240, Fort Worth, Texas 76116. Electronic submissions of shareholder correspondence will not be accepted.
Item 11.
Item 11. Executive Compensation.
The following table sets forth the aggregate compensation paid for services rendered to the Company during the last three fiscal years by the Named Executive Officers:
Summary of Compensation of Executive Officers
The following summary compensation table sets forth information concerning the compensation paid during the fiscal years ended December 31, 2016, 2015 and 2014 to our principal executive officers and principal financial officers. No other officer or person received total annual compensation in excess of $100,000 since in our date of incorporation.
Name and Position
Year
Salary ($)
Bonus($)
Other
Compensation
Total($)
Ransom Jones, Interim Chief Executive Officer, effective January 14, 2016, President, effective August 4, 2016
20,000
20,000
20,400
37,500 (1)
57,900
Kevin Bentley, Chief Executive Officer, resigned April 6, 2105
32,800 (2)
743,750 (3)
775,750
140,500 (4)
140,500
Richard Halden, President
48,985 (5)
48,985
resigned on January 14, 2016
158,152 (6)
603,750 (7)
761,902
132,000 (8)
132,000
Randy Moseley, Chief Financial Officer, resigned November 21, 2016
60,000 (9)
60,000
166,500 (10)
603,750 (11)
770,250
141,500 (12)
141,500
Stock Options/SAR Grants
No grants of stock options or stock appreciation rights have been made since our inception.
Compensation of Directors
No cash compensation was paid to our directors for their services as directors since our inception. We have no standard arrangement pursuant to which our directors are to be compensated for their services in their capacity as directors except for the granting from time to time of incentive stock options. The board of directors may award special remuneration to any director undertaking any special services on behalf of our company other than services ordinarily required of a director. Other than indicated below, no director received and/or accrued any compensation for his services as a director, including committee participation and/or special assignments.
Item 12.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.
The following table sets forth as of information concerning the number of shares of common stock owned beneficially as of March 21, 2017
by: (i) each person (including any group) known by us to own more than five (5%) of any class of our voting securities, (ii) each of our directors and executive officers, and (iii) our officers and directors as a group. Unless otherwise indicated, the shareholders listed possess sole voting and investment power with respect to the shares shown.
(1) Unless otherwise indicated, the address for each of these stockholders is c/o UMED Holdings, Inc., at 8851 Camp Bowie Blvd. West, Suite 240, Fort Worth, Texas 76116. Also, unless otherwise indicated, each person named in the table above has the sole voting and investment power with respect to our shares of common stock which he own’s a Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission.
(2)
Percentage of beneficial ownership is based on the 239,168,967 shares of class A common stock outstanding as of March 15, 2017, and the 126,938 class B common shares outstanding at March 21, 2017 for a total of 239,295,905 shares used to determine percent of ownership.
(3) Includes 18,280,809 shares of class A common held directly by Mr. Moseley, 2,726,000 shares of class A common held by Mr. Moseley's spouse, 1,183,164 shares of class A common held by Capital Equity Partners, LLC of which Mr. Moseley is a member, 5,000,000 shares of class A common held by Media Advertising Partners Partnership of which Mr. Moseley is a partner, 3,500,000 shares of class A common held by Arkansas Partners Partnership of which Mr. Moseley is a partner, and 2,148,183 shares of class A common held by BioEnergy LLC of which Mr. Moseley is a member.
(4) Includes 21,041,139 shares of class A common held directly by Mr. Halden, 4,500,000 shares of class A common held by Mr. Halden's spouse, 1,183,164 shares of class A common held by Capital Equity Partners, LLC of which Mr. Halden is a member, 5,000,000 shares of class A common held by Media Advertising Partners Partnership of which Mr. Halden is a partner and 3,500,000 shares of class A common held by Arkansas Partners Partnership of which Mr. Halden is a partner.
(5) Includes 3,250,000 shares of class A common held directly by Mr. Jones and 12,750,000 shares of class A common held by Mabert LLC.
(6) Includes 1,000,000 shares of class A common held directly by Mr. Six and 4,500,000 shares of class A common held by Jabeez LLC.
Change in Control
There are no present arrangements known to the Company, including any pledge by any person of the Company's securities, the operation of which may at a subsequent date result in a change in control of the Company.
Item 13.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
Shareholders have made advances to the Company in the amounts of $141,040 and $373,878 during the years ended December 31, 2016 and 2015, respectively. The shareholders have elected to convert advances of $51,500 and $314,517 to shares of class A common stock at market value ($0.0775 and $.173 per share) and received repayments of $151,000 and $122,976 during the years ended December 31, 2016 and 2015, respectively. Shareholders forgave $30,077 of advances due from shareholders in 2016.
In April 2015, the Company's then Chief Executive Officer resigned and in his settlement agreement gave up claims to receive deferred compensation, which amounted to $518,300 as discussed in Note 12 above.
In May 2015, the Company issued 13,125,000 shares of restricted class A common stock to its former CEO, its President and Chief Financial Officer per their employment agreements. The shares were valued at $0.15 per share based on market value.
In July 2015, the Company issued a total of 9,179,340 shares of restricted class A common stock to its President and Chief Financial Officer for the conversion of 611,956 shares of class B stock at the rate of fifteen shares of restricted common stock for each share of Class B stock, on terms set by the Company's predecessor, Dynalyst Manufacturing Corporation.
Item 14.
Item 14. Principal Accountant Fees and Services.
UMED Holdings, Inc. Independent Public Accountant's Fees
The following table presents fees for professional services rendered by its independent auditors for the audit of the Company's financial statements for the years ended December 31, 2016 and 2015:
Audit Fees were for professional services for auditing and reviewing the Company's financial statements, as well as for consents and assistance with and review of documents filed with the Securities and Exchange Commission.
Pre-Approval Policy for Services of UMED Holdings Independent Auditors
The Board of Directors reviews the Form 10-Q and Form 10-K filings before their filing. In addition, the Board of Directors reviews the audit plans and anticipated fees for audit and tax work prior to the commencement of that work. All fees paid to the independent auditors are pre-approved by the Board of Directors. These services may include audit services, audit-related services, tax services and other services.
There were no services performed by our independent registered public accounting firm of the type described in Item 9(e)(2) of Schedule 14A.
PART IV
Item 15.
Item 15. Exhibits and Financial Statement Schedules.
(b) Exhibits.
Exhibit No. Name of Exhibit
3.1** Articles of Incorporation filed March 13, 2002
3.2** Amended Articles of Incorporation filed June 7, 2006
3.3** Amended Articles of Incorporation filed August 18, 2009
3.4** Amended Articles of Incorporation filed March 23, 2011
3.5** Bylaws
10.1* Code of Ethics
10.2* Agreement and Plan of Merger by end between Dynalyst Manufacturing Corporation and Universal Media Corporation dated August 18, 2009
10.3* Purchase Agreement between UMED and Mamaki Tea & Extract, Inc. dated May 1, 2012
10.4* Addendum and Modification to Purchase Agreement between UMED and Mamaki Tea & Extract, Inc. dated December 31, 2012
10.5* Second Addendum and Modification to Purchase Agreement between UMED and Mamaki Tea & Extract, Inc. dated December 31, 2012
10.6* Purchase Agreement between UMED and Greenway Innovative Energy, Inc. dated August 29, 2012
10.7* Purchase Agreement between UMED and Rig Support Services, Inc. dated February 23, 2012
10.8* Asset Agreement between UMED and JetTech LLC dated October 2, 2011
10.9* Employment agreement with Kevin Bentley dated May 27, 2011
10.10* Employment agreement with Randy Moseley dated May 27, 2011
10.11* Employment agreement with Richard Halden dated May 27, 2011
10.12* Employment agreement with Raymond Wright dated August 29, 2012
10.13* Employment with Conrad Greer dated August 29, 2012
10.14* Consulting agreement with Jabez Capital Group LLC dated May 27, 2011
10.15** Mamaki of Hawaii, Inc. Promissory Note with Southwest Capital Funding Ltd dated August 17, 2012
10.16* Modification of Note and Lien between Mamaki of Hawaii, Inc. and Southwest Capital Funding Ltd dated October1, 2012
10.17* Second Modification of Note and Lien between Mamaki of Hawaii, Inc. and Southwest Capital Funding Ltd dated December 20, 2012
10.18* Mamaki of Hawaii, Inc. Promissory Note to Robert R. Romer dated August 17, 2012
10.19** Rig Support Services, Inc. Addendum & Modification to Purchase Agreement
21*** List of Subsidiaries
31.1*** Certification pursuant to Section 13a-14 of CEO
31.2*** Certification pursuant to Section 13a-14 of CFO
32.1*** Certification pursuant to Section 1350 of CEO
32.2*** Certification pursuant to Section 1350 of CFO
Interactive data files pursuant to Rule 405 of Regulation S-T
* Filed in Form 10 filed on August 28, 2013.
** Filed in Form 10 filed on November 12, 2013
*** Filed herewith
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized in Houston, Texas.
In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
April 14, 2017 By: / s/ Ransom Jones
Ransom Jones
President and Principle Financial Officer and Director
April 14, 2017 By: / s/ Craig Takacs
Craig Takacs
Director
April 14, 2017 By: / s/ Kevin Jones
Kevin Jones
Director
April 14, 2017 By: / s/ Raymond Wright
Raymond Wright
Director
April 14, 2017 By: / s/ D. Patrick Six
D. Patrick Six
Director
April 14, 2017 By: / s/ Kent J. Harer
Kent Harer
Director
UMED Holdings, Inc.
Financial Statements
Years Ended December 31, 2016 and 2015
Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and shareholders of
UMED Holdings, Inc.
Fort Worth, Texas
We have audited the accompanying consolidated balance sheet of UMED Holdings, Inc. and its subsidiaries (the "Company") as of December 31, 2016 and 2015 and the related consolidated statements of operations, stockholders' deficit and cash flows for the years ended December 31, 2016 and 2015. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audits provide a reasonable basis for my opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of the Company as of December 31, 2016 and 2015 and the consolidated results of its operations and its cash flows for the years ended December 31, 2016 and 2015, in conformity with accounting principles generally accepted in the United States of America.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 of the accompanying consolidated financial statements, the Company has minimal revenues, has incurred losses since inception, and has a negative working capital balance at December 31, 2016, which raises substantial doubt about its ability to continue as a going concern. Management's plans in regard to this matter are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ Soles, Heyn & Company LLC
West Palm Beach, Florida
April 17, 2017
UMED HOLDINGS, INC.
Consolidated Balance Sheet
See accompanying notes to consolidated financial statements
UMED HOLDINGS, INC.
Statements of Operations
For the years ended December 31, 2016 and 2015
See accompanying notes to consolidated financial statements
UMED Holdings, Inc.
Consolidated Statement of Stockholders' Deficit
For the years ended December 31, 2016 and 2015
See accompanying notes to consolidated financial statements
UMED HOLDINGS, INC.
Consolidated Statements of Cash Flows
For the years ended December 31, 2016 and 2015
The accompanying notes are an integral part of these financial statements
UMED HOLDINGS, INC.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2016
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of Operations
UMED Holdings, Inc. ("UMED" or the "Company") was organized on March 13, 2002 under the laws of the State of Texas as Dynalyst Manufacturing Corporation. On August 18, 2009, in connection with a merger with Universal Media Corporation, a privately held Nevada company, the Company changed its name to Universal Media Corporation ("UMC"). The company changed its name to UMED Holdings, Inc. on March 23, 2011.
UMED's mission is to operate as a holding company through the acquisition of businesses as wholly-owned subsidiaries that meet some key requirements: (1) solid management that will not have to be replaced in the near future (2) the ability to grow with steady growth to follow and (3) an emphasis on emerging core industry markets, such as energy and metals. It is the Company's intention to add experienced personnel and select strategic partners to manage and operate the acquired business units.
In May 2012, the Company acquired 80% of Mamaki Tea & Extract of Hawaii, Inc. (nka Mamaki of Hawaii, Inc.) which owns and operates Wood Valley Plantation a 25 acre Mamaki Tea plantation located in the Kau district of the Island of Hawaii and lies at the foot of Mauna Loa, the Earth's largest volcano. On December 31, 2012, the Company acquired the remaining 20% for 500,000 shares of restricted common stock and $127,800 of cash. Mamaki of Hawaii, Inc. was sold in October 2015 as discussed further in Notes 3, 4 and 12.
In August 2012, the Company acquired 100% of Greenway Innovative Energy, Inc., which owns patents and proprietary technology that is capable of converting natural gas to diesel and jet fuels.
NOTE 2 - BASIS OF PRESENTATION AND GOING CONCERN UNCERTAINTIES
Principles of Consolidation
The accompanying consolidated financial statements include the financial statements of UMED and its wholly-owned subsidiaries. The Company's investment in Jet Regulators is accounted for at cost due to its lack of significant influence. All significant inter-company accounts and transactions were eliminated in consolidation.
The accompanying consolidated financial statements include the accounts of the following entities:
Going Concern Uncertainties
The accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates realization of assets and the satisfaction of liabilities in the normal course of business. As shown in the accompanying consolidated financial statements, the Company sustained a loss of $2 million for the year ended December 31, 2016 and has a deficit of $14.5 million at December 31, 2016. The ability of the Company to continue as a going concern is in doubt and dependent upon achieving a profitable level of operations or on the ability of the Company to obtain necessary financing to fund ongoing operations. Management believes that its current and future plans enable it to continue as a going concern for the next twelve months.
To meet these objectives, the Company continues to seek other sources of financing in order to support existing operations and expand the range and scope of its business. However, there are no assurances that any such financing can be obtained on acceptable terms and timely manner, if at all. The failure to obtain the necessary working capital would have a material adverse effect on the business prospects and, depending upon the shortfall, the Company may have to curtail or cease its operations.
The accompanying consolidated financial statements do not include any adjustment to the recorded assets or liabilities that might be necessary should the Company have to curtail operations or be unable to continue in existence.
NOTE 3 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
A summary of significant accounting policies applied in the presentation of the consolidated financial statements are as follows:
Property & Equipment
Property and equipment is recorded at cost. Major additions and improvements are capitalized. The cost and related accumulated depreciation of equipment retired or sold are removed from the accounts and any differences between the undepreciated amount and the proceeds from the sale are recorded as a gain or loss on sale of equipment. Depreciation is computed using the straight-line method over the estimated useful life of the assets as follows.
Equipment 5 to 7 years
Impairment of Long-Lived Assets
The Company assesses the impairment of long-lived assets whenever events or changes in circumstances indicate that the carrying amount may not be recoverable, in accordance with ASC Topic 360, "Property, Plant and Equipment." An asset or asset group is considered impaired if its carrying amount exceeds the undiscounted future net cash flow the asset or asset group is expected to generate. If an asset or asset group is considered impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds its fair value. If estimated fair value is less than the book value, the asset is written down to the estimated fair value and an impairment loss is recognized.
Discontinued Operations
On November 2, 2015, the Company consummated the sale of its wholly owned subsidiary, Mamaki of Hawaii, Inc. ("Mamaki") to Hawaiian Beverages, Inc. ("HBI"). Under the agreement, HBI acquired 100% of the common stock of Mamaki in exchange for seven hundred thousand dollars ($700,000) and the assumption of eighty-four thousand two hundred seventy-five thousand dollars ($84,275) of UMED debts. HBI has paid so far two hundred forty-five thousand five hundred dollars ($245,400) of the two hundred fifty thousand dollars ($250,000) due at closing and pay three installments of one hundred fifty thousand dollars ($150,000) on each of thirty, sixty and ninety-day from the closing date. The Company has not received any payment on the $454,600 and has determined that the account is doubtful and wrote it off, as of December 31, 2015, as a deduction from the gain calculated on the sale.
The results of Mamaki are presented as a separate line item in the consolidated statements of operations and the consolidated balance sheets entitled "Assets/Liabilities sold relating to discontinued operations" and "Assets/Liabilities related to discontinued operations". In accordance with EITF 87-24, "Allocation of Interest to Discontinued Operations", the Company elected to not allocate consolidated interest expense to discontinued operations where the debt is not directly attributable to or related to discontinued operations. All of the financial information in the consolidated financial statements and notes to the consolidated financial statements has been revised to reflect only the results of continued operations. (See Note 11).
Revenue Recognition
The Company has not, to date, generated significant revenues. The Company plans to recognize revenue in accordance with Accounting Standards Codification subtopic 605-10, Revenue Recognition ("ASC 605-10") which requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts. Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded.
ASC 605-10 incorporates Accounting Standards Codification subtopic 605-25, Multiple-Element Arraignments ("ASC 605-25"). ASC 605-25 addresses accounting for arrangements that may involve the delivery or performance of multiple products, services and/or rights to use assets. The effect of implementing 605-25 on the Company's financial position and results of operations was not significant.
Use of Estimates
The preparation of the 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 at the date of the financial statements and the reported amount of revenue and expenses during the reported period. Actual results could differ materially from the estimates.
Cash and Cash Equivalent
The Company considers all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. There were no cash equivalents at December 31, 2016 and 2015, respectively.
Segment Information
ASC 280, " Segment Reporting " requires use of the " management approach " model for segment reporting. The management approach model is based on the way a company's management organizes segments within the company for making operating decisions and assessing performance. During 2015, the Company had one operating segment, Mamaki of Hawaii, Inc., in addition to its corporate activities, which is presented as discontinued operations.
Mine Exploration and Development Costs
The Company plans to account for mine exploration costs in accordance with Accounting Standards Codification 932, Extractive Activities. All exploration expenditures are expensed as incurred. Mine development costs are capitalized until production, other than production incidental to the mine development process, commences and are amortized on a units of production method based on the estimated proven and probable reserves. Mine development costs represent costs incurred in establishing access to mineral reserves and include costs associated with sinking or driving shafts and underground drifts, permanent excavations, roads and tunnels. The end of the development phase and the beginning of the production phase takes place when construction of the mine for economic extraction is substantially complete. Coal extracted during the development phase is incidental to the mine's production capacity and is not considered to shift the mine into the production phase. Amortization of capitalized mine development is computed based on the estimated life of the mine and commences when production, other than production incidental to the mine development process, begins. Due to the Company not producing any revenues from its BLM mining leases since its acquisition of the leases, achieving a position of producing cash flow levels to fund the development of its BLM mining leases in December of 2010 and not having current resources for an appraisal, we recognized an impairment charge of $100,000 during the year ended December 31, 2014. During the year ended 2016, the Company did not incur any mine development costs. During the year ended December 31, 2015, the Company incurred $9,166 in costs of obtaining surface samples.
Mine Properties
The Company will account for mine properties in accordance with Accounting Standard Codification 930, Extractive Activities-Mining. Costs of acquiring mine properties are capitalized by project area upon purchase of the associated claims. Mine properties are periodically assessed for impairment of value and any diminution in value. The Company had 1,440 acres of placer mining claims at December 31, 2015, which were acquired in December 2010 in exchange for 5,066,000 shares of common stock valued at $100,000. During 2014, we recognized an impairment charge of $100,000.
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740, "Income Taxes," which requires that the Company recognize deferred tax liabilities and assets based on the differences between the financial statement carrying amounts and the tax bases of assets and liabilities, using enacted tax rates in effect in the years the differences are expected to reverse. Deferred income tax benefit (expense) results from the change in net deferred tax assets or deferred tax liabilities. A valuation allowance is recorded when it is more likely than not that some or all deferred tax assets will not be realized.
The Company has adopted the provisions of FASB ASC 740-10-05 Accounting for Uncertainty in Income Taxes. The ASC clarifies the accounting for uncertainty in income taxes recognized in an enterprise's financial statements. The ASC prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. The ASC provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. Open tax-years subject to IRS examination include 2010 - 2015.
Net Loss Per Share, basic and diluted
Basic loss per share has been computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Shares issuable upon the exercise of warrants (520,487) have been excluded as a common stock equivalent in the diluted loss per share because their effect is anti-dilutive.
Derivative Instruments
The Company accounts for derivative instruments in accordance with Accounting Standards Codification 815, Derivatives and Hedging ("ASC 815"), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. They require that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.
If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.
See Note7 below for discussion regarding convertible notes payable and a warrant agreement.
Fair Value of Financial Instruments
Effective January 1, 2008, fair value measurements are determined by the Company's adoption of authoritative guidance issued by the FASB, with the exception of the application of the statement to non-recurring, non-financial assets and liabilities, as permitted. Fair value is defined in the authoritative guidance as the price that would be received to sell an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants at the measurement date. A fair value hierarchy was established, which prioritizes the inputs used in measuring fair value into three broad levels as follows:
Level 1 - Valuation based on unadjusted quoted market prices in active markets for identical assets or liabilities.
Level 2 - Valuation based on, observable inputs (other than level one prices), quoted market prices for similar assets such as at the measurement date; quoted prices in the market that are not active; or other inputs that are observable, either directly or indirectly.
Level 3 - Valuation based on unobservable inputs that are supported by little or no market activity, therefore requiring management's best estimate of what market participants would use as fair value.
Original Issue Discount
For certain convertible debt issued, the Company provides the debt holder with an original issue discount ("OID"). An OID is the difference between the original cash proceeds and the amount of the note upon maturity. The Note is originally recorded for the total amount payable. The OID is amortized into interest expense pro-rata over the term of the Note.
In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company's assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability. The valuation of the Company's notes recorded at fair value is determined using Level 3 inputs, which consider (i) time value, (ii) current market and (iii) contractual prices.
The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, receivables, accounts payable, notes payable and other payables, approximate their fair values because of the short maturity of these instruments.
The following table represents the Company's assets and liabilities by level measured at fair value on a recurring basis at December 31, 2016:
The following assets and liabilities are measured on the balance sheets at fair value on a recurring basis utilizing significant unobservable inputs or Level 3 assumptions in their valuation. The following tables provide a reconciliation of the beginning and ending balances of the liabilities:
The change in the notes payable at fair value for the nine-month period ended December 31, 2016 is as follows:
All gains and losses on assets and liabilities measured at fair value on a recurring basis and classified as Level 3 within the fair value hierarchy are recognized in other interest income and expense in the accompanying financial statements.
The significant unobservable inputs used in the fair value measurement of the liabilities described above are as follows;
Stock Based Compensation
The Company follows Accounting Standards Codification subtopic 718-10, Compensation ("ASC 718-10") which requires that all share-based payments to both employees and non-employees be recognized in the income statement based on their fair values.
At December 31, 2016, the Company did not have any issued or outstanding stock options.
Concentration and Credit Risk
Financial instruments and related items, which potentially subject the Company to concentrations of credit risk, consist primarily of cash. The Company places its cash with high credit quality institutions. At times, such deposits may be in excess of the FDIC insurance limit.
Research and Development
The Company accounts for research and development costs in accordance with Accounting Standards Codification subtopic 730-10, Research and Development ("ASC 730-10"). Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved as defined under the applicable agreement. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred. The Company incurred research and development expenses of $967,348 and $766,726 during the years ended December 31, 2016 and 2015, respectively.
Issuance of Common Stock
The issuance of common stock for other than cash is recorded by the Company at market values.
Impact of New Accounting Standards
Management does not believe that any other recently issued, but not yet effective accounting pronouncements, if adopted, would have a material effect on the accompanying consolidated financial statements.
NOTE 4 - CONTRACT RECEIVABLE
In November 2015, the Company completed the sale (entered into on October 1, 2015) of its wholly owned subsidiary, Mamaki of Hawaii, Inc., ("Mamaki") to Hawaiian Beverages, Inc. ("HBI"). Under the agreement, HBI acquired 100% of the common stock of Mamaki in exchange for seven hundred thousand dollars ($700,000) and the assumption of eighty-four thousand two hundred seventy- five thousand dollars ($84,275) of UMED debts. HBI paid two hundred forty-five thousand five hundred dollars ($245,400) at closing towards the first installment due of two hundred fifty thousand ($250,000), resulting in a receivable of $454,600 at December 31, 2015. The Company has not received any payment on the $454,600 and has determined that collection is doubtful and wrote the account off at December 31, 2015 as a reduction to the gain calculated on the sale.
NOTE 5 - PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment, their estimated useful lives, and related accumulated depreciation at December 31, 2016 and 2015, respectively, are summarized as follows:
During the year ended December 31, 2015, the Company wrote-off the balance of its Logistix software and $11,188
of fully depreciated assets.
NOTE 6 - TERM NOTES PAYABLE
Term notes payable consisted of the following at December 31, 2016:
The Company negotiated a $15,500 reduction of the note in November 2016 for 200,000 shares of common stock valued at $0.12 per share of $24,000. The Company recognized a $8,500 loss on the settlement.
NOTE 7 - CONVERTIBLE PROMISSORY NOTE
At December 31, 2016, the Company had convertible debentures outstanding as follows;
May 2016 Convertible Note
The Company issued a $224,000 convertible promissory note bearing interest at 10.0% per annum to an accredited investor, payable beginning November 10, 2016, in monthly installments of $44,800 plus accrued interest and a cash premium equal to 10.0% of the installment amount. The holder has the right under certain circumstances to convert the note into common stock of the Company at a conversion price equal to 70% of the average of the 3 lowest volume weighted average trading prices during the 20-day period ending on the latest complete trading day prior to the conversion date.
The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity's Own Equity, and concluded that the Convertible Note resulted in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock. The discount related to the beneficial conversion feature on the note was valued at $224,000 based on the Black Scholes Model. The discount related to the beneficial conversion feature ($51,826) is being amortized over the term of the debt (10 months). For the year ended December 31, 2016, the Company recognized interest expense of $42,499 related to the amortization of the discount.
In connection with the issuance of the $224,000 note, the Company recorded debt issue cost and discount as follows:
September 2014 Convertible Note
On September 18, 2014, the Company issued a $158,000 convertible promissory note bearing interest at 10.0% per annum to an accredited investor, payable July 23, 2015, in monthly installments of $31,600 plus accrued interest beginning 6 months after the date of the promissory note. The note was paid in full on July 22, 2015. The holder had the right under certain circumstances to convert the note into common stock of the Company at a conversion price equal to 70% of the average of the 3 lowest volume weighted average trading prices during the 20-day period ending on the latest complete trading day prior to the conversion date.
The Company evaluated the terms of the convertible note in accordance with ASC 815-40, Contracts in Entity's Own Equity, and concluded that the Convertible Note did result in a derivative. The Company evaluated the terms of the convertible note and concluded that there was a beneficial conversion feature since the convertible note was convertible into shares of common stock at a discount to the market value of the common stock.
In connection with the issuance of the $158,000 note, the Company recorded warrants as follows:
● Warrants - recorded at fair value ($79,537) upon issuance, and marked -to-market on the balance sheet at $20,820 as of December 31, 2016 and $60,164 at December 31, 2015, which was computed as follows;
NOTE 8 - ACCRUED EXPENSES
Accrued expenses consisted of the following at December 31, 2016 and 2015;
NOTE 9- CAPITAL STRUCTURE
The Company is authorized to issue 300,000,000 shares of class A common stock with a par value of $.0001 per share and 20,000,000 shares of class B stock with a par value of $.0001 per share. Each common stock share has one voting right and the right to dividends, if and when declared by the Board of Directors.
Class A Common Stock
At December 31, 2016, there were 231,118,372 shares of class A common stock issued and outstanding.
During the year ended December 31, 2016, the Company issued 31,055,955 shares of restricted class A common stock to forty-two individuals through private placements for cash of $1,770,393 at average of $0.057 per share.
During the year ended December 31, 2016, the Company issued 400,000 shares of restricted common stock for consulting services of $32,800 at average of $.082 per share.
During the year ended December 31, 2016, the Company issued 106,000 shares of restricted common stock to a creditor for rent expense of $8,480 at average of $.08 per share.
During the year ended December 31, 2016, the Company issued 664,285 shares of restricted common stock for conversion of $51,500 in advances by shareholder at average of $.0775 per share.
During the year ended December 31, 2016, the Company issued 200,000 shares of restricted common stock in partial settlement of a note payable.
During the year ended December 31, 2016, the Company issued 15,000,000 shares of class A stock in exchange for 15,000,000 class B shares.
During the year ended December 31, 2015, the Company issued 10,915,101 shares of restricted class A common stock to eighteen individuals through private placements for cash of $1,082,593 at average of $0.099 per share.
During the year ended December 31, 2015, the Company issued 3,035,110 shares of restricted common stock for consulting services of $399,837 at average of $.132 per share.
During the year ended December 31, 2015, the Company issued 1,817,746 shares of restricted common stock for conversion of $314,517 in advances by shareholder at average of $.173 per share.
During the year ended December 31, 2015, the Company issued 9,179,340 shares of class A stock in exchange for 611,956 class B shares on terms set by the Company's predecessor, Dynalyst Manufacturing Corporation.
During the year ended December 31, 2015, the Company issued a total of 13,125,000 shares of restricted class A common stock to its former CEO, its President and Chief Financial Officer per their employment agreements. The shares were valued at an average of $0.15 per share based on market value.
During the year ended December 31, 2015, the Company issued 250,000 shares of restricted class A common stock to its former CEO as set out in his separation agreement. The shares were valued at $0.138 per share based on market value.
Class B Stock
At December 31, 2016, there were 126,938 shares of class B stock issued and outstanding. Each class B share is convertible, at the option of the shareholder, into common stock on a one for one basis.
During the year ended December 31, 2016, 15,000,000 the Company issued 15,000,000 shares of class A shares in exchange for 15,000,000 class B shares.
During the year ended December 31, 2015, the Company issued 9,179,340 shares of class A stock in exchange for 611,956 class B shares on terms set by the Company's predecessor, Dynalyst Manufacturing Corporation.
Stock options, warrants and other rights
At December 31, 2016, the Company has not adopted any employee stock option plans.
On October 1, 2015, the Company issued 4,000,000 warrants for legal work. The warrants are exercisable at $.20 per share for a period of five years from the date of issue. The Company valued the warrants as of December 31, 2015 at $386,549 using the Black-Scholes Model with expected dividend rate of 0%, expected volatility rate of 189%, expected conversion term of 4.75 years and risk free interest rate of 1.75%.
NOTE 10 - RELATED PARTY TRANSACTIONS
Shareholders have made advances to the Company in the amounts of $141,040 and $383,878 during the years ended December 31, 2016 and 2015, respectively. The shareholders have elected to convert advances of $51,500 and $314,517 to shares of class A, common stock at an average value of $0.0775 and $0.173 per share and received repayments of $151,000 and $79,058 during the years ended December 31, 2016 and 2015, respectively. Shareholders forgave $30,077 of advances.
In April 2015, the Company's then Chief Executive Officer resigned and in his settlement agreement gave up claims to receive deferred compensation, which amounted to $518,300 and treated as debt forgiveness.
In May 2015, the Company issued 13,125,000 shares of restricted class A common stock to its former CEO, its President and Chief Financial Officer per their employment agreements. The shares were valued at an average of $0.15 per share based on market value.
In July 2015, the Company issued a total of 9,179,340 shares of restricted class A common stock to its President and Chief Financial Officer for the conversion of 611,956 shares of class B stock at the rate of fifteen shares of restricted common stock for each share of Class B stock, on terms set by the Company's predecessor, Dynalyst Manufacturing Corporation.
NOTE 11 - INCOME TAXES
At December 31, 2016 and 2015, the Company had approximately $5.5 million and $4.0 million, respectively, of net operating losses ("NOL") carry forwards for federal and state income tax purposes. These losses are available for future years and expire through 2034. Utilization of these losses may be severely or completely limited if the Company undergoes an ownership change pursuant to Internal Revenue Code Section 382.
The provision for income taxes for continuing operations consists of the following components for the years ended December 31, 2016 and 2015:
A comparison of the provision for income tax expense at the federal statutory rate of 34% for the years ended December 31, 2015 and 2014 the Company's effective rate is as follows:
The net deferred tax assets and liabilities included in the financial statements consist of the following amounts at December 31, 2016 and December 31, 2015:
The change in the valuation allowance was $1,935,510 and $4,028,702 for the years ended December 31, 2016 and 2015, respectively. The Company has recorded a 100% valuation allowance related to the deferred tax asset for the loss from operations, interest expense, interest income and other income subsequent to the change in ownership, which amounted to $14,393,641 and $12,458,131 at December 31, 2016 and 2015, respectively.
The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, historical taxable income including available net operating loss carry forwards to offset taxable income, and projected future taxable income in making this assessment.
NOTE 12 - DISCONTINUED OPERATIONS
In November 2015, the Company completed the sale (entered into on October 1, 2015) of its wholly owned subsidiary, Mamaki of Hawaii, Inc., ("Mamaki") to Hawaiian Beverages, Inc. ("HBI"). Under the agreement, HBI acquired 100% of the common stock of Mamaki in exchange for seven hundred thousand dollars ($700,000) and the assumption of eighty-four thousand two hundred seventy- five thousand
dollars ($84,275) of UMED debts. HBI paid two hundred forty-five thousand five hundred dollars ($245,400) at closing towards the first installment due of two hundred fifty thousand ($250,000) and with three installments of one hundred fifty thousand dollars ($150,000) on each due thirty, sixty and ninety days from the closing date. The Company has not received any payment on the $454,600 and has determined that the collection is doubtful and wrote the receivable off at December 31, 2015 against the gain calculated on the sale.
The following is a summary of the calculation of the gain from the sale of Mamaki of Hawaii, Inc.:
The following statements of the discontinued operations (Mamaki of Hawaii, Inc.) for the year ended December 31, 2015:
NOTE 13 - COMMITMENTS
Employment Agreements
In May 2011, the Company entered into employment agreements with its chief executive officer, president and chief financial officer. The Agreements were for a term of 5 years, ending on May 31, 2106. The employment agreements also provide for the officers to receive 1,250,000 shares of restricted common stock annually for each year of the employment agreement. During the years ended December 31, 2016 and 2015, the Company accrued a total of $150,000 and $405,000, respectively, as management fees in accordance with the terms of these agreements. Kevin Bentley resigned as Chief Executive Officer in April 2015 and relinquished his claim to receive $518,300 of deferred compensation, which the Company treated as debt forgiveness. Richard Halden resigned as President in January 2016 and Randy Moseley resigned as Chief Financial Officer in November 2016.
In August 2012, the Company entered into employment agreements with the president and chairman of the board of Greenway Innovative Energy, Inc. for a term of 5 years with compensation of $90,000 per year. In June of 2014, the president's employment agreement was amended to increase his annual pay to $180,000. On March 1,2015, accrual on the Greenway chairman of the board agreement was ceased due to his absence from the company for more than a year. During the years ended December 31, 2016 and 2015, respectively, the Company accrued $180,000 and $191,250 towards the employment agreements.
Leases
In July 2015, the Company reduced its office lease space from 3,500 to 1,800 square feet on a month-to-month basis at $3,200 per month. In October 2015, the Company signed a new two-year lease for new office space of approximately 1,800 square feet at the rate of $2,417 for the first twelve months and $2,495 for the second twelve months. During the years ended December 31, 2016 and 2015, the Company expensed $33,512 and $55,836, respectively, in rent expense.
The Company pays approximately $11,600 in annual maintenance fees on its Arizona BLM mining leases, in addition to 10% royalties based on production.
Legal
From time to time, the Company may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company currently is not aware of any such legal proceedings that we believe will have, individually or in the aggregate, a material adverse effect on its business, financial condition or operating results.
NOTE 14-SUBSEQUENT EVENTS
During the period from January 1, 2017 through April 17, 2017, the Company issued 12,217,500 shares of restricted class A common stock to 18 individuals for $977,400 at average price of $0.08 per share.
During the period from January 1, 2017 through April 17, 2017, the Company issued 1,750,000 shares of restricted class A common stock for consulting services at average price of $0.12 per share.
During the period from January 1, 2017 through April 17, 2017, the Company canceled 15,000,000 of common stock that had been reserved against a convertible note payable that was paid March 10, 2017.
During the period from January 1, 2017 through April 17, 2017, the Company canceled 5,205,000 of common stock that had been returned to the Company by its previous Chief Financial Officer in conjunction with his separation agreement.
During the period from January 1, 2017 through April 17, 2017, the Company canceled 300,000 of common stock that had been returned to the Company.