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PROMET THERAPEUTICS, LLC

FINANCIAL STATEMENTS

FOR THE YEAR ENDED

DECEMBER 31, 2016 AND THE PERIOD

FROM AUGUST 31, 2015 (INCEPTION)

THROUGH DECEMBER 31, 2015































TABLE OF CONTENTS


 

Page

 

 

INDEPENDENT AUDITORS’ REPORT

1

 

 

FINANCIAL STATEMENTS

 

Balance Sheets

2

Statements of Operations

3

Statement of Members’ Equity (Deficit)

4

Statements of Cash Flows

5

 

 

NOTES TO THE FINANCIAL STATEMENTS

6-9











































Independent Auditors’ Report


Promet Therapeutics, LLC

Hanover, MD


Report on Financial Statements


We have audited the accompanying balance sheets of Promet Therapeutics, LLC (“the Company”) as of December 31, 2016 and 2015, and the related statements of operations, members’ equity (deficit) and cash flows for the year ended December 31, 2016 and the period from August 31, 2015 (inception) through December 31, 2015, and the related notes to the financial statements.


Management’s Responsibility for the Financial Statements


Management is responsible for the preparation and fair presentation of these financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error.


Auditor’s Responsibility


Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free from material misstatement.


An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the financial statements.


We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.


Opinion


In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Promet Therapeutics, LLC as of December 31, 2016 and 2015, and the results of its operations and its cash flows for the year ended December 31, 2016 and the period from August 31, 2015 (inception) through December 31, 2015 in accordance with accounting principles generally accepted in the United States of America.


BD & Company, Inc.

Owings Mills, MD

September 15, 2017





1




Promet Therapeutics, LLC

Balance Sheets

December 31, 2016 and 2015



 

December 31,

 

December 31,

 

2016

 

2015

 

 

 

 

ASSETS

 

 

 

Current Assets

 

 

 

Cash

$

1,071,894

 

$

-

Certificates of deposit

 

1,019,294

 

 

-

Vendor deposit

 

227,657

 

 

-

Prepaid expenses

 

18,147

 

 

1,869

Total Current Assets

 

2,336,992

 

 

1,869

 

 

 

 

 

 

Property And Equipment

 

 

 

 

 

Equipment

 

8,445

 

 

-

Software

 

15,330

 

 

-

Total Cost

 

23,775

 

 

-

Less: accumulated depreciation

 

1,381

 

 

-

Property and equipment, net

 

22,394

 

 

-

 

 

 

 

 

 

Other Assets

 

 

 

 

 

Security deposit

 

5,535

 

 

-

Total Other Assets

 

5,535

 

 

-

Total Assets

$

2,364,921

 

$

1,869

 

 

 

 

 

 

LIABILITIES and MEMBERS’ EQUITY (DEFICIT)

 

 

 

 

 

Current Liabilities

 

 

 

 

 

Accounts payable

$

14,593

 

$

10,886

Due to related party

 

95

 

 

69,474

Accrued expenses

 

83,004

 

 

7,214

Total Current Liabilities

 

97,692

 

 

87,574

Total Liabilities

 

97,692

 

 

87,574

 

 

 

 

 

 

Members’ Equity (Deficit)

 

 

 

 

 

Class A member interests

 

3,000,000

 

 

-

Class B member interests

 

1,270,000

 

 

-

Accumulated deficit

 

(2,002,771)

 

 

(85,705)

Total Members' Equity (Deficit)

 

2,267,229

 

 

(85,705)

Total Liabilities and Members' Equity (Deficit)

$

2,364,921

 

$

1,869







The information in the notes is an integral part of these financial statements.



2




Promet Therapeutics, LLC

Statements of Operations

Year ended December 31, 2016 and the Period from

August 31, 2015 (Inception) through December 31, 2015



 

December 31,

 

August 31, 2015

through

December 31,

 

2016

 

2015

 

 

 

 

Operating Expenses

$

1,953,847

 

$

85,705

Operating Loss

 

(1,953,847)

 

 

(85,705)

 

 

 

 

 

 

Other Income

 

 

 

 

 

Administrative services

 

32,327

 

 

-

Interest income

 

4,454

 

 

-

Other Income

 

36,781

 

 

-

Net Loss

$

(1,917,066)

 

$

(85,705)






























The information in the notes is an integral part of these financial statements.



3




Promet Therapeutics, LLC

Statement of Members’ Equity (Deficit)

Year Ended December 31, 2016 and the Period from

August 31, 2015 (inception) through December 31, 2015



 

Members' Equity (Deficit)

 

Class A

Class B

Accumulated

Deficit

Total

 

 

 

 

 

 

 

 

 

Balance, August 31, 2015

$

-

$

-

$

-

$

-

Net Loss

 

-

 

-

 

(85,705)

 

(85,705)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2015

 

-

 

-

 

(85,705)

 

(85,705)

Members' Contributions - January 1, 2016

 

3,000,000

 

-

 

-

 

3,000,000

Members’ Contributions - July 1, 2016

 

-

 

1,270,000

 

-

 

1,270,000

Net Loss

 

-

 

-

 

(1,917,066)

 

(1,917,066)

 

 

 

 

 

 

 

 

 

Balance, December 31, 2016

$

3,000,000

$

1,270,000

$

(2,002,771)

$

2,267,229






























The information in the notes is an integral part of these financial statements.



4




Promet Therapeutics, LLC

Statements of Cash Flows

Year Ended December 31, 2016 and the period from

August 31, 2015 (inception) through December 31, 2015




 

December 31,

2016

 

August 31, 2015

through

December 31,

2015

 

 

 

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

Net Loss

$

(1,917,066)

 

$

(85,705)

Adjustments to reconcile net loss to

net cash used in operating activities:

 

 

 

 

 

Depreciation

 

1,381

 

 

-

Net changes in operating assets and liabilities:

 

 

 

 

 

Prepaid expenses

 

(16,278)

 

 

(1,869)

Vendor deposit

 

(227,657)

 

 

-

Security deposit

 

(5,535)

 

 

-

Accounts payable

 

3,707

 

 

10,886

Due to related parties

 

(69,379)

 

 

69,474

Accrued liabilities

 

75,790

 

 

7,214

Net cash used in operating activities

 

(2,155,037)

 

 

-

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES

 

 

 

 

 

Purchase of property and equipment

 

(23,775)

 

 

-

Certificates of deposit

 

(1,019,294)

 

 

-

Net cash used in investing activities

 

(1,043,069)

 

 

-

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Contributions from members

 

4,270,000

 

 

-

Net cash provided by financing activities

 

4,270,000

 

 

-

NET INCREASE IN CASH

 

1,071,894

 

 

-

CASH - BEGINNING OF YEAR

 

-

 

 

-

CASH - END OF YEAR

$

1,071,894

 

$

-












The information in the notes is an integral part of these financial statements



5




Promet Therapeutics, LLC

Notes to Financial Statements

December 31, 2016 and 2015



NOTE 1 - NATURE OF BUSINESS


Promet Therapeutics, LLC. (Promet or “the Company”) was formed on August 31, 2015 to develop medical products for patients with unmet medical needs.  The Company was organized under the laws of the state of Delaware.  The Company’s operations are performed in the state of Maryland.


As the Company was formed on August 31, 2015 and Promet is still in the organizational and research and development phase of Company operations, the Company has minimal activity during 2015 and did not have any sources of revenue during 2016.


NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES


Basis of Accounting


The company prepares its financial statements on the accrual basis of accounting.


Organization and Capitalization


The Company’s operating agreement provides for three classes of members: Class A, Class B and Profit Interest Members.  As of December 31, 2016, the Company has authorized 6,762,000 total member units to be issued, of which 4,200,000 Class A units and 762,000 Class B units have been issued.


Use of Estimates


The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Estimates also affect the reported amounts of expenses during the reporting period.  Actual events and results could differ from those assumptions and estimates.


Cash and Cash Equivalents


The Company considers all highly liquid investments with a maturity of three months or less to be cash equivalents.

Certificates of Deposit


The certificates of deposit were purchased through an investment company and are held at multiple banks.  The maturities of the certificates of deposit are typically six months or less.


Fair Market Value of Financial Instruments


The carrying amounts of cash and cash equivalents, accounts receivable and accounts payable approximate fair value because of the short-term maturity of these instruments.







6



Promet Therapeutics, LLC

Notes to Financial Statements

December 31, 2016 and 2015



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Related Party Administrative Fees


Administrative fees are collected from a related party, Corlyst, LLC (“Corlyst”), for shared costs and are due on demand at the beginning of each month.  Receivables are stated at the invoice amount.  The balances at December 31, 2016 and 2015 were $0.


Property and Depreciation


Property is stated at cost, less accumulated depreciation. Depreciation is computed under the straight-line method over the estimated useful lives of the assets. Expenditures for maintenance and routine repairs are charged to expense as incurred; expenditures for improvements and major repairs that materially extend the useful lives of assets are capitalized. Depreciation expense for the year ended December 31, 2016 and the period from August 31, 2015 (inception) through December 31, 2015 was $1,381 and $0, respectively. Following are the estimated useful lives for the various classifications of assets:


Software

 

3 years

Equipment

 

5 years


Valuation of Long-Lived Assets


The Company accounts for the valuation of long-lived assets under ASC 360 Property, Plant and Equipment.  This guidance requires that long-lived assets and certain identifiable intangible assets be reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.  Recoverability of the long-lived asset is measured by a comparison of the carrying amount of the asset to future undiscounted net cash flows expected to be generated by the asset.  If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the estimated fair value of the assets.  Assets to be disposed of are reportable at the lower of the carrying amount or fair value, less costs to sell.  As of December 31, 2016, management does not believe any long-lived assets are impaired.


Advertising Costs


Advertising costs are recognized as expenses in the year incurred.  Total advertising expense for the year ended December 31, 2016 and the period from August 31, 2015 (inception) through December 31, 2015 was $3,850 and $0, respectively.


Research and Development Expenses


Research and development expenditures, which are expensed as incurred, totaled $606,769 and $1,000 for 2016 and the period from August 31, 2015 (inception) through December 31, 2015, respectively.









7



Promet Therapeutics, LLC

Notes to Financial Statements

December 31, 2016 and 2015



NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)


Income Taxes


The Company is treated as a partnership for federal income tax purposes and does not incur income taxes.  In lieu of company income taxes, the partners are taxed separately on their proportionate share of the Company’s income, deductions, losses and credits.  Therefore, no provision or liability for income taxes has been included in these financial statements.


The Company determined that it was not required to record a liability related to uncertain tax positions as a result of implementing the requirements of ASC 740 Income Taxes.


Equity


Member units are comprised of three types: Class A Units, Class B Units and Profit Interest Units.  Class A and Class B units are designated based on the date of share issuance - Class A units were issued on January 1, 2016, while Class B units were issued on July 1, 2016.  All Units are non-transferable.  As of December 31, 2016, 4,200,000 Class A Units and 762,000 Class B Units have been authorized and issued, and an additional 1,800,000 Profit Interest Units have been authorized for possible future grants to employees, board members and consultants. Profit Interest Units may be awarded to the aforementioned parties based on the Company’s officers’ discretion.


Recent Accounting Pronouncements


In May 2014, the FASB issued ASU 2014-09, “Revenue from Contracts with Customers (Topic 606)”. The topic of revenue recognition had become broad with several other regulatory agencies issuing standards, which lacked cohesion. The new guidance established a “comprehensive framework” and “reduces the number of requirements to which an entity must consider in recognizing revenue” and yet provides improved disclosures to assist stakeholders reviewing financial statements. The amendments in this update are effective for annual reporting periods beginning after December 15, 2018 for privately-held companies. The Company is currently in the pre-revenue stages of operations and will adopt the methodologies prescribed by this ASU by the date required. Adoption of the ASU is not expected to have a significant effect on the Company’s financial statements.


In February 2016, FASB issued ASU-2016-02, "Leases (Topic 842)." The guidance requires that a lessee recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right of use asset representing its right to use the underlying asset for the lease term. For finance leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; interest on the lease liability will be recognized separately from amortization of the right-of-use asset in the statement of comprehensive income; and repayments of the principal portion of the lease liability will be classified within financing activities and payments of interest on the lease liability and variable lease payments within operating activities in the statement of cash flows. For operating leases: the right-of-use asset and a lease liability will be initially measured at the present value of the lease payments, in the statement of financial position; a single lease cost will be recognized, calculated so that the cost of the lease is allocated over the lease term on a generally straight-line basis; and all cash payments will be classified within operating activities in the statement of cash flows. Under Topic 842 the accounting applied by a lessor is largely unchanged from that applied under previous GAAP. The amendments in Topic 842 are effective for the Company beginning January 1, 2020.  Management is currently evaluating the impact of adopting the new guidance on the Company’s financial statements.




8



Promet Therapeutics, LLC

Notes to Financial Statements

December 31, 2016 and 2015



NOTE 3 - RELATED PARTY TRANSACTIONS


The Company’s largest member, Corlyst, LLC, pays Promet for administrative services performed by the Company.  These administrative fees are included in other income on the Company’s statement of operations. These fees were charged beginning in October 2016 and totaled $32,327 for the year ended December 31, 2016.


During 2015 and through January 2016, Corlyst paid expenses on behalf of the Company and Promet reimbursed Corlyst at later dates.  The outstanding balance the Company owed Corylst as of December 31, 2016 and 2015 was $95 and $69,474, respectively.


NOTE 4 - INCOME TAXES


The Company files income tax returns in the U.S. federal jurisdiction, Delaware and Maryland.  The Company is a pass-through entity for income tax purposes whereby any income tax liabilities or benefits are attributable to its members.  Any amounts paid by the Company for income taxes are treated as distributions to its members.


The Company’s federal and state income tax returns for 2015 and 2016 are subject to examination by the Internal Revenue Service and state taxing authorities, generally for three years after they were filed.


NOTE 5 - OPERATING LEASE OBLIGATIONS


The Company leases office space and equipment under non-cancelable operating leases.  Rent expense under the current lease for the year ended December 31, 2016 was $50,997. Future annual minimum rental payments under the lease as of December 31, 2016, are as follows:


2017

$

73,843

2018

 

90,057

2019

 

76,773

2020

 

2,930

 

 

 

Total future minimum lease payments

$

243,603



NOTE 6 - CONCENTRATION OF CREDIT RISK


The Company maintains its operating cash in one commercial bank.  Balances on deposit are insured by the Federal Deposit Insurance Corporation (FDIC) up to specified limits. Balances in excess of FDIC limits are insured.  Total cash held by the bank was $1,068,221 and $0 at December 31, 2016 and 2015, respectively.  The Company also maintains cash in a financial institution, which is not insured by the FDIC.  Cash held by the financial institution was $4,860 and $0 at December 31, 2016 and 2015, respectively.


NOTE 7 - SUBSEQUENT EVENTS


In preparing these financial statements, the Company has evaluated events and transactions for potential recognition or disclosure through September 15, 2017, the date the financial statements were available to be issued. During the period from January 1, 2017 through September 15, 2017, the Company did not have any material recognizable subsequent events.





9





Index to Financial Statements for the years ended December 31, 2015 and 2014


Heatwurx, Inc.


Reports of Independent Registered Public Accounting Firms

1

 

 

Consolidated Balance Sheets at December 31, 2015 and 2014

2

 

 

Consolidated Statements of Operations for the years ended December 31, 2015 and 2014

3

 

 

Consolidated Statements of Stockholders’ Equity (Deficit) for the period from January 1, 2014 through December 31, 2015

4

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2015 and 2014

5











































HEATWURX, INC.

CONSOLIDATED BALANCE SHEETS


 

December 31,

 

2015

 

2014

ASSETS

 

 

 

CURRENT ASSETS:

 

 

 

Cash and cash equivalents

$

2,090

 

$

-

Accounts receivable

 

-

 

 

1,310

Prepaid expenses and other current assets

 

47,722

 

 

107,858

Assets held for sale

 

42,000

 

 

-

Inventory

 

-

 

 

219,203

Current assets from discontinued operations

 

12,350

 

 

54,648

Total current assets

 

104,162

 

 

383,019

EQUIPMENT, net of depreciation

 

159

 

 

358,956

INTANGIBLE ASSETS, net of amortization

 

-

 

 

1,696,430

OTHER ASSETS, from discontinued operations

 

-

 

 

107,457

TOTAL ASSETS

$

104,321

 

$

2,545,862

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

$

159,249

 

$

153,931

Accrued liabilities

 

95,339

 

 

94,167

Deferred revenue

 

-

 

 

58,165

Interest payable

 

161,608

 

 

7,821

Income taxes payable

 

200

 

 

100

Loan payable

 

-

 

 

56,486

Current portion of senior secured notes payable

 

947,361

 

 

-

Current portion of unsecured notes payable, net of discount of $967 at

December 31, 2015

 

419,033

 

 

20,000

Current liabilities from discontinued operations

 

300,338

 

 

453,193

Total current liabilities

 

2,083,128

 

 

843,863

LONG-TERM LIABILITIES:

 

 

 

 

 

Loan payable

 

-

 

 

133,834

Unsecured notes payable, net of discount of $59,768 at December 31, 2014

 

-

 

 

360,232

Total long-term liabilities

 

-

 

 

494,066

TOTAL LIABILITIES

 

2,083,128

 

 

1,337,929

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES (NOTE 12)

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

Series D preferred stock, $0.0001 par value, 178,924 shares issued and outstanding

at December 31, 2015 and 2014; liquidation preference of $821,683 at December 31

2015 and $810,216 at December 31, 2014

 

18

 

 

18

Common stock, $0.0001 par value, 20,000,000 shares authorized; 11,017,388 issued

and 11,061,414 outstanding at December 31, 2015 and 9,495,045 shares issued and

10,952,356 outstanding at December 31, 2014

 

1,102

 

 

1,095

Additional paid-in capital

 

14,322,366

 

 

14,111,944

Accumulated deficit

 

(14,874,680)

 

 

(11,848,818)

Stockholders’ equity (deficit) from discontinued operations

 

(1,427,613)

 

 

(1,056,306)

Total stockholders’ equity (deficit)

 

(1,978,807)

 

 

1,207,933

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$

104,321

 

$

2,545,862




1



HEATWURX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS


 

For the year ended

December 31, 2015

 

For the year ended

December 31, 2014

REVENUE:

 

 

 

Equipment sales

$

74,599

 

$

101,119

Other revenue

 

38,826

 

 

6,120

Total revenues

 

113,425

 

 

107,239

 

 

 

 

 

 

COST OF GOODS SOLD

 

125,876

 

 

66,833

GROSS PROFIT

 

(12,451)

 

 

40,406

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

945,460

 

 

2,019,809

Research and development

 

29,246

 

 

178,085

Loss on extinguishment of debt

 

-

 

 

822,205

Impairment on goodwill

 

-

 

 

390,659

Impairment of intangible asset

 

1,517,859

 

 

-

Impairment of assets held for sale

 

186,068

 

 

-

Total expenses

 

2,678,633

 

 

3,410,758

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS, before taxes

 

(2,691,084)

 

 

(3,370,352)

 

 

 

 

 

 

OTHER INCOME AND EXPENSE

 

 

 

 

 

Loss on disposal of assets

 

(60,743)

 

 

-

Interest income

 

4,651

 

 

155

Interest expense, including amortization of debt discount

 

(235,644)

 

 

(315,304)

Total other income and expense

 

(291,736)

 

 

(315,149)

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(2,982,820)

 

 

(3,685,501)

Income taxes

 

(100)

 

 

(100)

LOSS FROM CONTINUED OPERATIONS, net of tax

 

(2,982,920)

 

 

(3,685,601)

LOSS FROM DISCONTINUED OPERATIONS, net of tax

 

(371,307)

 

 

(840,649)

     NET LOSS

$

(3,354,227)

 

$

(4,526,250)

 

 

 

 

 

 

Preferred Stock Cumulative Dividend

and Deemed Dividend

$

42,942

 

$

1,502,891

Net loss applicable to common stockholders

$

(3,397,169)

 

$

(6,029,141)

Net loss per common share basic and diluted

from continuing operations

 

(0.27)

 

 

(0.59)

Net loss per common share basic and diluted

from discontinued operations

 

(0.03)

 

 

(0.09)

Net loss per common share basic and diluted

$

(0.31)

 

$

(0.68)

Weighted average shares outstanding used in

calculating net loss per common share

 

11,012,565

 

 

8,857,815










2



HEATWURX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE YEAR’S ENDED DECEMBER 31, 2015 AND 2014


 

Series B

Preferred

Stock

Series C

Preferred

Stock

Series D

Preferred

Stock

Common

Stock

Additional

Paid-In

Capital

Accumu-

lated

Deficit

Total

 

Shares

$

Shares

$

Shares

$

Shares

$

$

$

$

Balance at

December 31, 2013

177,000

18

101,000

10

727,648

73

8,082,000

808

8,483,727

(6,813,758)

1,670,878

Preferred stock conversion to common shares

(177,000)

(18)

(101,000)

(10)

(16,332)

(2)

294,332

29

-

-

-

Issued pursuant to private placement dated June 22, 2013

-

-

-

-

171,987

17

-

-

515,946

-

515,963

Share issuance costs

-

-

-

-

-

-

-

-

(6,000)

-

(6,000)

Shares issued in the Acquisition of Dr. Pave, LLC

-

-

-

-

-

-

58,333

6

174,994

-

175,000

Preferred stock conversion to common shares issued in private placement dated October 1, 2014

-

-

-

-

(704,379)

(70)

1,207,491

121

(50)

-

-

Inducement premium on preferred stock conversion to common

-

-

-

-

-

-

-

-

1,332,376

(1,332,376)

-

Debt conversion in private placement dated October 1, 2014

-

-

-

-

-

-

1,100,876

110

2,506,872

-

2,506,982

Issuance of commons stock and warrants

-

-

-

-

-

-

209,324

21

366,303

-

366,324

Stock-based compensation

-

-

-

-

-

-

-

-

231,524

-

231,524

Dividends accrued on Series C shares

-

-

-

-

-

-

-

-

-

(2,200)

(2,200)

Beneficial conversion feature on Series D

-

-

-

-

-

-

-

-

51,110

(51,110)

-

Dividends paid or accrued on Series D shares

-

-

-

-

-

-

-

-

-

(179,430)

(179,430)

Warrants issued in connection with debt offering

-

-

-

-

-

-

-

-

455,142

-

455,142

Net loss from continuing operations

-

-

-

-

-

-

-

-

-

(3,685,601)

(3,685,601)

Net loss from discontinued operations

-

-

-

-

-

-

-

-

-

(840,649)

(840,649)

Balance at

December 31, 2014

-

-

-

-

178,924

18

10,952,356

1,095

14,111,944

(12,905,124)

1,207,933

Shares and warrants issued pursuant to private placement dated October 1, 2014

-

-

-

-

-

-

50,285

5

87,995

-

88,000

Adjustment for shares issued pursuant to private placement dated October 1, 2014

-

-

-

-

-

-

(253)

-

-

-

-

Stock issued for consulting services

-

-

-

-

-

-

15,000

2

25,498

-

25,500

Stock-based compensation (options)

-

-

-

-

-

-

-

-

96,929

-

96,929

Dividends accrued on Series D shares

-

-

-

-

-

-

-

-

-

(42,942)

(42,942)

Net loss from continuing operations

-

-

-

-

-

-

-

-

-

(2,982,920)

(2,982,920)

Net loss from discontinued operations

-

-

-

-

-

-

-

-

-

(371,307)

(371,307)

Balance at

December 31, 2015

-

-

-

-

178,924

18

11,017,388

1,102

14,322,366

(16,302,293)

(1,978,807)





3



HEATWURX, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS


 

For the year ended

December 31, 2015

 

For the year ended

December 31, 2014

OPERATING ACTIVITIES:

 

 

 

Net loss

$

(3,354,227)

 

$

(4,526,250)

Less: Loss from discontinued operations, net of tax

 

371,307

 

 

840,649

Loss from continuing operations

 

(2,982,920)

 

 

(3,685,601)

Adjustments to reconcile net loss from continuing operations to net cash used in

operating activities:

 

 

 

 

 

  Depreciation expense

 

60,251

 

 

71,029

  Amortization of intangible assets

 

178,571

 

 

357,142

  Amortization of discount on note payable

 

58,801

 

 

153,617

  Loss on extinguishment of debt

 

-

 

 

822,205

  Impairment of assets held for sale

 

186,068

 

 

-

  Impairment of intangible asset

 

1,517,859

 

 

-

  Loss on disposal of equipment

 

60,743

 

 

-

  Bad debt expense

 

5,148

 

 

-

  Impairment of goodwill

 

-

 

 

390,659

  Stock-based compensation

 

96,929

 

 

231,524

  Shares exchanged for services

 

25,500

 

 

-

Changes in current assets and liabilities:

 

 

 

 

 

  Decrease in receivables

 

(3,838)

 

 

17,890

  Decrease (increase) in prepaid expenses and other current assets

 

105,136

 

 

(27,472)

  Increase in inventory

 

(7,065)

 

 

(73,085)

  Increase in income taxes payable

 

100

 

 

-

  Increase in accounts payable

 

5,318

 

 

76,904

  Decrease in accrued liabilities

 

(41,774)

 

 

(311,025)

  (Decrease) increase in deferred revenue

 

(58,165)

 

 

58,165

  Increase in interest payable

 

153,788

 

 

6,009

Net cash used in operating activities from continuing operations

 

(639,500)

 

 

(1,912,039)

Net cash used in operating activities from discontinued operations

 

(231,356)

 

 

(779,599)

Net cash used in operating activities

 

(871,906)

 

 

(2,691,638)

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

Purchases of property and equipment

 

(1,399)

 

 

(11,007)

Proceeds from sale of property and equipment

 

31,100

 

 

-

Net cash used in investing activities from continuing operations

 

29,701

 

 

(11,007)

Net cash used in investing activities from discontinued operations

 

10,503

 

 

(33,937)

Net cash used in investing activities

 

40,204

 

 

(44,944)

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

Proceeds from issuance of unsecured notes payable

 

-

 

 

2,244,003

Proceeds from issuance of senior secured notes payable

 

753,000

 

 

-

Repayment of senior subordinated note payable

 

-

 

 

(500,000)

Proceeds from issuance of common shares with warrants

 

88,000

 

 

366,324

Proceeds from issuance of Series D preferred shares

 

-

 

 

509,963

Repayment on equipment loan payable

 

(19,902)

 

 

(45,528)

Net cash provided by financing activities from continuing operations

 

821,098

 

 

2,574,762

Net cash provided by financing activities from discontinued operations

 

-

 

 

-

Net cash provided by financing activities

 

821,098

 

 

2,574,762

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(10,604)

 

 

(161,820)

CASH AND CASH EQUIVALENTS,

beginning of period, including discontinued operations

 

25,044

 

 

186,864

CASH AND CASH EQUIVALENTS, Continuing Operations, end of period

 

2,090

 

 

-

CASH AND CASH EQUIVALENTS, Discontinued Operations, end of period

$

12,350

 

$

25,044





4




Index to Financial Statements for the years ended December 31, 2016 and 2015


Heatwurx, Inc.


Consolidated Balance Sheets at December 31, 2016 and 2015

1

 

 

Consolidated Statements of Operations for the years ended December 31, 2016 and 2015

2

 

 

Consolidated Statements of Stockholders’ Equity (Deficit) for the period from January 1, 2015  through December 31, 2016

3

 

 

Consolidated Statements of Cash Flows for the years ended December 31, 2016 and 2015

4















































HEATWURX, INC.

CONSOLIDATED BALANCE SHEETS



 

December 31,

 

2016

 

2015

 

 

 

 

 

 

ASSETS

 

 

 

 

 

CURRENT ASSETS:

 

 

 

 

 

Cash and cash equivalents

$

3,237

 

$

2,090

Prepaid expenses and other current assets

 

-

 

 

47,722

Assets held for sale

 

-

 

 

42,000

Current assets from discontinued operations

 

-

 

 

12,350

Total current assets

 

3,237

 

 

104,162

EQUIPMENT, net of depreciation

 

-

 

 

159

TOTAL ASSETS

$

3,237

 

$

104,321

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

 

 

 

 

 

CURRENT LIABILITIES:

 

 

 

 

 

Accounts payable

$

166,165

 

$

159,249

Accrued liabilities

 

134,513

 

 

95,339

Interest payable

 

108,608

 

 

41,990

Interest payable, related party

 

332,566

 

 

119,618

Income taxes payable

 

200

 

 

200

Current portion of senior secured notes payable, related party

 

962,361

 

 

947,361

Current portion of unsecured notes payable, net of discount of $0 and

$967 at December 31, 2016 and 2015, respectively

 

420,000

 

 

419,033

Revolving line of credit

 

91,980

 

 

-

Revolving line of credit, related party

 

138,000

 

 

-

Current liabilities from discontinued operations

 

-

 

 

300,338

Total current liabilities

 

2,354,393

 

 

2,083,128

TOTAL LIABILITIES

 

2,354,393

 

 

2,083,128

 

 

 

 

 

 

STOCKHOLDERS’ EQUITY (DEFICIT):

 

 

 

 

 

Series D preferred stock, $0.0001 par value, 178,924 shares issued

and outstanding at December 31, 2016 and 2015; liquidation preference

of $864,743 at December 31, 2016 and $821,683 at December 31, 2015

 

18

 

 

18

Common stock, $0.0001 par value, 20,000,000 shares authorized;

11,017,388 issued and outstanding at December 31, 2016 and 2015

 

1,102

 

 

1,102

Additional paid-in capital

 

14,329,057

 

 

14,322,366

Accumulated deficit

 

(15,254,917)

 

 

(14,874,680)

Stockholders’ equity (deficit) from discontinued operations

 

(1,426,416)

 

 

(1,427,613)

Total stockholders’ equity (deficit)

 

(2,351,156)

 

 

(1,978,807)

TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)

$

3,237

 

$

104,321










1



HEATWURX, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS



 

For the year ended

December 31,

 

2016

 

2015

 

 

 

 

REVENUE:

 

 

 

Equipment sales

$

5,000

 

$

74,599

Other revenue

 

-

 

 

38,826

Total revenues

 

5,000

 

 

113,425

 

 

 

 

 

 

COST OF GOODS SOLD

 

-

 

 

125,876

GROSS PROFIT

 

5,000

 

 

(12,451)

 

 

 

 

 

 

EXPENSES:

 

 

 

 

 

Selling, general and administrative

 

69,968

 

 

945,460

Research and development

 

6,558

 

 

29,246

Impairment of intangible asset

 

-

 

 

1,517,859

Impairment of assets held for sale

 

-

 

 

186,068

Total expenses

 

76,526

 

 

2,678,633

 

 

 

 

 

 

LOSS FROM CONTINUING OPERATIONS, before taxes

 

(71,526)

 

 

(2,691,084)

 

 

 

 

 

 

OTHER INCOME AND EXPENSE

 

 

 

 

 

Gain from debt forgiveness

 

4,731

 

 

-

Loss on disposal of assets

 

(25,000)

 

 

(60,743)

Interest income

 

-

 

 

4,651

Interest expense, including amortization of debt discount

 

(245,384)

 

 

(235,644)

Total other income and expense

 

(265,653)

 

 

(291,736)

 

 

 

 

 

 

LOSS BEFORE INCOME TAXES

 

(337,179)

 

 

(2,982,820)

Income taxes

 

-

 

 

(100)

LOSS FROM CONTINUED OPERATIONS, net of tax

 

(337,179)

 

 

(2,982,920)

LOSS FROM DISCONTINUED OPERATIONS, net of tax

 

1,197

 

 

(371,307)

   NET LOSS

$

(335,982)

 

$

(3,354,227)

 

 

 

 

 

 

Preferred Stock Cumulative Dividend and Deemed Dividend

$

(43,058)

 

$

(42,942)

Net loss applicable to common stockholders

$

(379,040)

 

$

(3,397,169)

Net loss per common share basic and diluted from continuing operations

 

(0.03)

 

 

(0.27)

Net loss per common share basic and diluted from discontinued operations

 

0.00

 

 

(0.03)

Net loss per common share basic and diluted

$

(0.03)

 

$

(0.31)

Weighted average shares outstanding used in calculating net loss per common share

 

11,017,388

 

 

11,012,565







2




HEATWURX, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY (DEFICIT)



 

Series D

Preferred

Stock

Common Stock

Additional

Paid-In

Capital

Accumulated deficit Disc-

ontinued

Operations

Accumu-

lated

Deficit

Total

 

Shares

$

Shares

$

$

$

$

$

 

 

 

 

 

 

 

 

 

Balance at December 31, 2014

178,924

$18

10,952,356

1,095

14,111,944

(1,056,306)

(11,848,818)

1,207,933

Shares and warrants issued pursuant to private placement dated October 1, 2014

-

-

50,285

5

87,995

-

-

88,000

Adjustment for shares issued pursuant to private placement dated October 1, 2014

-

-

(253)

-

-

-

-

-

Stock issued for consulting services

-

-

15,000

2

25,498

-

-

25,500

Stock-based compensation (options)

-

-

-

-

96,929

-

-

96,929

Dividends accrued on Series D shares

-

-

-

-

-

-

(42,942)

(42,942)

Net loss from continuing operations

-

-

-

-

-

-

(2,982,920)

(2,982,920)

Net loss from discontinued operations

-

-

-

-

-

(371,307)

-

(371,307)

Balance at December 31, 2015

178,924

18

11,017,388

1,102

14,322,366

(1,427,613)

(14,874,680)

(1,978,807)

Stock-based compensation (options)

-

-

-

-

6,691

-

-

6,691

Dividends accrued on Series D shares

-

-

-

-

-

-

(43,058)

(43,058)

Net loss from continuing operations

-

-

-

-

-

-

(337,179)

(337,179)

Net income from discontinued operations

-

-

-

-

-

1,197

-

1,197

Balance at December 31, 2016

178,924

18

11,017,388

1,102

14,329,057

(1,426,416)

(15,254,917)

(2,351,156)

















3



HEATWURX, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS


 

For the year ended

December 31,

 

2016

 

2015

 

 

 

 

OPERATING ACTIVITIES:

 

 

 

Net loss

$

(335,982)

 

$

(3,354,227)

Less: (Income) loss from discontinued operations, net of tax

 

(1,197)

 

 

371,307

Loss from continuing operations

 

(337,179)

 

 

(2,982,920)

Adjustments to reconcile net loss from continuing operations to net cash used in

operating activities:

 

 

 

 

 

  Depreciation expense

 

159

 

 

60,251

  Gain on debt forgiveness

 

(4,731)

 

 

-

  Amortization of intangible assets

 

-

 

 

178,571

  Amortization of discount on note payable

 

967

 

 

58,801

  Impairment of assets held for sale

 

-

 

 

186,068

  Impairment of intangible asset

 

-

 

 

1,517,859

  Loss on disposal of equipment

 

25,000

 

 

60,743

  Bad debt expense

 

-

 

 

5,148

  Stock-based compensation

 

6,691

 

 

96,929

  Shares exchanged for services

 

-

 

 

25,500

Changes in current assets and liabilities:

 

 

 

 

 

  Decrease in receivables

 

-

 

 

(3,838)

  Decrease (increase) in prepaid expenses and other current assets

 

47,722

 

 

105,136

  Increase in inventory

 

-

 

 

(7,065)

  Increase in income taxes payable

 

-

 

 

100

  (Decrease) increase in accounts payable

 

(10,343)

 

 

5,318

  (Decrease) increase in accrued liabilities

 

686

 

 

(41,774)

  (Decrease) increase in deferred revenue

 

-

 

 

(58,165)

  Increase in interest payable

 

54,613

 

 

31,595

  Increase in interest payable, related party

 

185,562

 

 

122,193

Net cash used in operating activities from continuing operations

 

(30,853)

 

 

(639,550)

Net cash used in operating activities from discontinued operations

 

(12,350)

 

 

(232,356)

Net cash used in operating activities

 

(43,203)

 

 

(871,906)

 

 

 

 

 

 

INVESTING ACTIVITIES:

 

 

 

 

 

  Purchases of property and equipment

 

-

 

 

(1,399)

  Proceeds from the sale of assets held for sale

 

17,000

 

 

-

  Proceeds from the sale of property and equipment

 

-

 

 

31,100

Net cash provided by investing activities from continuing operations

 

17,000

 

 

29,701

Net cash provided by investing activities from discontinued operations

 

-

 

 

10,503

Net cash provided by investing activities

 

17,000

 

 

40,204

 

 

 

 

 

 

FINANCING ACTIVITIES:

 

 

 

 

 

  Proceeds from issuance of senior secured notes payable

 

15,000

 

 

753,000

  Proceeds from issuance of common shares with warrants

 

-

 

 

88,000

  Repayment on equipment loan payable

 

-

 

 

(19,902)

Net cash provided by financing activities from continuing operations

 

15,000

 

 

821,098

Net cash provided by financing activities from discontinued operations

 

-

 

 

-

Net cash provided by financing activities

 

15,000

 

 

821,098

 

 

 

 

 

 

NET CHANGE IN CASH AND CASH EQUIVALENTS

 

(11,203)

 

 

(10,604)

CASH AND CASH EQUIVALENTS, beginning of period, including discontinued operations

 

14,440

 

 

25,044

CASH AND CASH EQUIVALENTS, Continuing Operations, end of period

 

3,237

 

 

2,090

CASH AND CASH EQUIVALENTS, Discontinued Operations, end of period

$

-

 

$

12,350






4