APPYEA, INC - Annual Report: 2015 (Form 10-K)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the last 90 days.
Yes [X]     No [   ]

 Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registration statement was required to submit and post such files).
Yes [X]     No [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.

 Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [  ]     No [X]

 

None.

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Currently we do not have sufficient capital to fund our overhead expenses or business development for the next 12 months.  

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During the year ended June 30, 2015, the Company received $78,250 net cash from financing activities, $23,250 from proceeds from the sale of common shares and $57,000 from the issuance of convertible loans and we repaid $2,000 in respect of the principal balance of convertible loans.  By comparison, during the year ended June 30, 2014,  we received net cash provided by financing activities of $43,150, $15,570 from the sale of shares of our common stock, $10,000 by from the issuance of convertible loans, $20,400 from the write off of deferred financing costs capitalized in prior periods and we repaid $3,000 in respect of the principal balance of convertible loans.

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Advertising costs were expensed as incurred. Advertising costs of $17,444  and $2,995 were incurred during the years ended June 30, 2015 and 2014, respectively.

 

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* Denotes a loss of less than $(0.01) per share

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1. NATURE OF OPERATIONS

AppYea, Inc. ("AppYea", "the Company", "we" or "us") was incorporated in the State of South Dakota on November 26, 2012 to engage in the acquisition, purchase, maintenance and creation of mobile software applications. The Company is in the development stage with no significant revenues and a limited operating history.

The Company's common stock is traded on the OTC Markets (www.otcmarkets.com) under the symbol "APYP".  The first day of trading on the OTC Markets was December 15, 2014.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

The financial statements of the Company have been prepared in accordance with generally accepted accounting principles in the United States of America and are presented in US dollars. The Company's year -end is June 30.

 

Use of Estimates and Assumptions

 

The preparation of financial statements in conformity with generally accepted accounting principles requires that management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates.

 

Cash and Cash Equivalents

 

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

 

Fixed Assets

 

The Company's fixed assets represent mobile applications that is has purchased and upgrades that it has made to these applications. These mobile applications and any upgrades are being amortized over their useful lives of 3 years. The Company also purchased a pre-owned vehicle.  Due to the age of the vehicle, it is being amortized over the useful life of 3 years.

 

Deferred Costs

 

Offering costs with respect to issue of common stock, warrants or options by the Company are initially deferred and ultimately offset against the proceeds from these equity transactions if successful or expensed if the proposed equity transaction is unsuccessful.

Financial Instruments 

 

Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability.  ASC 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. FASB ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:

 

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.

 

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

 

Level 3: Significant unobservable inputs that reflect a reporting entity's own assumptions about the assumptions that market participants would use in pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.

 

The carrying values of cash, accounts receivable, prepaid expenses, accounts payable, accruals and convertible notes payable approximate their fair value due to the short-term maturities of these instruments.

 

Derivative Financial Instruments

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risks. We evaluate all of our 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 in the statements of operations. For stock-based derivative financial instruments, the Company used a Black Scholes valuation model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement or conversion of the instrument could be required within 12 months of the balance sheet date.

Revenue Recognition

The Company generates it revenue from the sale of its mobile software applications through online mobile applications stores. Revenue is recognized in accordance with Staff Accounting Bulletin ("SAB") No. 104, "Revenue Recognition", when the following criteria are met: persuasive evidence of an arrangement exists, delivery of the product has occurred, the fee is fixed or determinable, and collectability is probable. The Company has no remaining obligation to customers after the date on which its customers purchase its mobile software applications.

 Research and Development Costs

 

Costs incurred in research and development activities are expensed as incurred.

 

Advertising cost

Advertising costs were expensed as incurred. Advertising costs of $17,444 and $2,995 were incurred during the year ended June 30, 2015 and 2014, respectively.

Comprehensive Income (Loss)

Income Taxes

 

The Company accounts for income taxes in accordance with FASB ASC 740 "Income Taxes". Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At June 30, 2015 and 2014, a full deferred tax asset valuation allowance has been provided and no deferred tax asset has been recorded.

 

Basic and Diluted Net Income (Loss) per Share

 

The Company computes net income (loss) per share in accordance with ASC 260, "Earnings per Share" which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. During the year ended June 30, 2015 and 2014, there were shares of convertible preferred stock outstanding and conversion privileges attached to convertible promissory notes payable.  The common share equivalents of these securities have not been included in the calculations of loss per share because such inclusions would have an anti-dilutive effect as the Company has incurred losses during the year ended June 30, 2015 and 2014.

 

Business Segments

 

The Company believes that its activities for the periods presented herein comprised a single segment.

 

Recent Accounting Pronouncements

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3. GOING CONCERN AND LIQUIDITY

 

At June 30, 2015, the Company had cash of $265 and current liabilities of $236,688 and has accumulated deficit of $1,140,222.

 

The Company anticipates future losses in its business.

 

In our financial statements for the year ended June 30, 2015, the Report of the Independent Registered Public Accounting Firm includes an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.

 

The Company's ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and/or obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. There is no assurance that this series of events will be satisfactorily completed.

 

As at June 30, 2015 and 2014, the balance of fixed assets represented a vehicle and mobile application software as follows:

 

		June 30, 2015				June 30, 2014
Mobile applications		$	179,870			$	128,175
Automobile			8,305				-
Fixed assets, gross			188,175				128,175
Accumulated depreciation			(111,603	)			(55,811	)
Fixed assets, net		$	76,572			$	72,364

During the year ended June 30, 2015, the Company purchased an automobile and certain mobile applications for $60,000, funded by way of loan on October 15, 2014 (Note 6).

 

Depreciation expense for the year ended June 30, 2015 and 2014 was $55,792 and $42,052, respectively.

 

6. CONVERTIBLE LOANS

At June 30, 2015 and 2014, convertible loans consisted of the following:

 

		June 30, 2015				June 30, 2014
April 2013 Notes:
Note 1		$	-			$	1,000
Note 2			14,000				15,000
January 2014 Note			10,000				10,000
October 2014 Note			30,000				-
February 2015 Note			15,000				-
March 2015 Note			10,000				-
April 2015 Note			10,000				-
Total notes payable			89,000				26,000
Accrued interest			10,762				4,037
Less: Debt discount			(43,697	)			-
Total convertible loans			56.065				30,037
Less: current portion of convertible loans			(56,065	)			(30,037	)
Long-term convertible loans		$	-			$	-

During the year ended June 30, 2015 and 2014, the Company recognized interest expense of $6,717 and $3,110 and amortization of discount of $69,270 and $0, respectively.

April 2013 Note - 1

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On April 2, 2013, the Company issued a $15,000 convertible promissory note payable. The unsecured convertible promissory note payable is due upon demand and carried an interest rate of 12% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 20 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed. On July 24, 2014, the Company repaid $1,000 in respect of this convertible note payable leaving an outstanding principle balance of $14,000 in respect of the promissory note.

Effective April 2, 2013, the Company recorded no beneficial conversion expense on the conversion feature as the specific conversion price was currently not determinable.  However, effective December 15, 2014 the Company's shares of common stock became publicly quoted and accordingly we evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.

The Company valued the conversion feature at the first day the shares were publicly quoted (December 15, 2014) at $21,736 using the Black Scholes valuation model. $17,020 included accrued interest of $3,020 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture. The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture.  The balance of $4,716 of the value assigned to the derivative liability was recognized as origination interest on the derivative liability and expensed on the first day the shares became publicly traded.

January 2014 Note 

On January 9, 2014, the Company issued a $10,000 convertible promissory note payable. The unsecured convertible promissory note payable has a 12-month term and carries an interest rate of 8% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 60 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed.

Effective January 9, 2014, the Company recorded no beneficial conversion expense on the conversion feature as the specific conversion price was currently not determinable.  However, effective December 15, 2014 the Company's shares of common stock became publicly quoted and accordingly we evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.

The Company valued the conversion feature at the first day the shares were publicly quoted (December 15, 2014) at $13,722 using the Black Scholes valuation model. $10,745 included accrued interest of $745 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture.  The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture.  The balance of $2,977 of the value assigned to the derivative liability was recognized as origination interest on the derivative liability and expensed on the first day the shares became publicly traded.

As of June 30, 2015, the outstanding principal balance of the note was $10,000, the note had accrued interest of $1,177 and an unamortized debt discount of $4,477. Debt discount of $6,268 was amortized for the year ended June 30, 2015.

October 2014 Note

On October 15, 2014, as part of its acquisition of a social networking mobile application and a vehicle, the Company agreed to pay $60,000 on a deferred basis in a convertible promissory note payable for a term of 12 months and carried an interest rate of 7% per annum. The unsecured note payable is convertible at the option of the holder at a 45% discount to the lowest closing bid price for the Company's common stock during the 20 trading days immediately preceding the conversion date.

Effective October 15, 2014, the Company recorded no beneficial conversion expense on the conversion feature as the specific conversion price is currently not determinable.  However, effective December 15, 2014 the Company's shares of common stock became publicly quoted and accordingly we evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.

The Company valued the conversion feature at the first day the shares were publicly quoted (December 15, 2014) at $62,415 using the Black Scholes valuation model. $60,702 included accrued interest of $702 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture.  The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture.  The balance of $1,713 of the value assigned to the derivative liability was recognized as origination interest on the derivative liability and expensed on the first day the shares became publicly traded.

On June 16, 2015, the convertible note of $30,000 was converted into 652,174 common shares and the Company decreased debt discount of $10,500 and derivative liability of $40,461 and recognized gain on extinguishment of debt of $1,265

As of June 30, 2015, the outstanding principal balance of the note was $30,000, the note had accrued interest of $2,906 and an unamortized debt discount of $9,211. Debt discount of $40,991 was amortized for the year ended June 30, 2015.

February 2015 Note

On February 9, 2015, the Company issued a $15,000 convertible promissory note payable. The unsecured convertible promissory note payable is due upon demand and carried an interest rate of 12% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 60 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed.

Effective February 9, 2015, the Company evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.

The Company valued the conversion feature at the issue date (February 9, 2015) at $21,817 using the Black Scholes valuation model. $15,000 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture.  The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture.  The balance of $6,817 of the value assigned to the derivative liability was recognized as origination interest on the derivative liability and expensed on the issue date of the convertible note payable.

As of June 30, 2015, the outstanding principal balance of the note was $15,000, the note had accrued interest of $695 and an unamortized debt discount of $8,750. Debt discount of $6,250 was amortized for the year ended June 30, 2015.

March 2015 Note

April 2015 Note

At June 30, 2015 and 2014, convertible loan – related party consisted of the following:

During the year ended June 30, 2015 and 2014, the Company recognized amortization of discount of $15,799 and $0, respectively.

On October 14, 2014, the Company issued a $22,000 convertible promissory note payable. The unsecured convertible promissory note payable is due upon demand and carried an interest rate of 15% per annum. The note payable is convertible at the option of the holder, at 50% of the lowest traded price for the 60 days preceding conversion as posted on the OTC Markets or on such US National Exchange upon which the Company may be listed.

Effective October 14, 2014, the Company recorded no beneficial conversion expense on the conversion feature as the specific conversion price was currently not determinable.  However, effective December 15, 2014 the Company's shares of common stock became publicly quoted and accordingly we evaluated the terms of the conversion features of the convertible debenture in accordance with ASC Topic No. 815 - 40, Derivatives and Hedging - Contracts in Entity's Own Stock and determined it is indexed to the Company's common stock and that the conversion features meet the definition of a liability and therefore bifurcated the conversion feature and accounted for it as a separate derivative liability.

The Company valued the conversion feature at the first day the shares were publicly quoted (December 15, 2014) at $26,782 using the Black Scholes valuation model. $22,570 included accrued interest of $570 of the value assigned to the derivative liability was recognized as a debt discount on the convertible debenture.  The debt discount was recorded as a reduction (contra-liability) to the convertible debenture and is being amortized over the life of the convertible debenture.  The balance of $4,212 of the value assigned to the derivative liability was recognized as origination interest on the derivative liability and expensed on the first day the shares became publicly traded.

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Fair Value Assumptions Used in Accounting for Derivative Liabilities.

At June 30, 2015, the estimated fair values of the liabilities measured on a recurring basis are as follows:

 

The following table summarizes the derivative liabilities included in the balance sheet at June 30, 2015 and 2014:

 

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9. COMMITMENTS AND CONTINGENCIES

Leases and Long term Contracts

The Company has not entered into any long term leases, contracts or commitments.

Legal

To the best of the Company's knowledge and belief, no legal proceedings are currently pending or threatened.

 Rent

 

As of January 30, 2013, the Company leases office space at $200 per month with three-month terms, which shall be automatically extended for successive three-month periods unless there is the notice to cancel. The lease can be cancelled at any time by either party with 30 days’ notice prior to expiration of an applicable term.  For the years ended June 30 2015 and 2014, the Company incurred $2,274 and $2,680, respectively.

Consulting Agreements

On March 9, 2015, the Company entered into a consulting agreement with the Cicero Consulting Group, LLC for the term of 12 months, and automatically renew for an additional 12 months unless terminated by the Company.  The Company valued this agreement in accordance with ASC505-50 as an Equity-Based Payment to Non-Employees at the current market price of the common stock.  The Company paid the consultant a commencement fee in the form of 1,723,329 shares of restricted common stock at the current market price, as of March 9, 2015, of $1.02. As at June 30, 2015, the Company had recognized a prepaid expense of $1,171,864 to be expensed over the period from July 1, 2015 to March 8, 2016. In October of 2015, the Company and Cicero Consulting Group, LLC agreed to terminate the agreement, and Cicero Consulting Group, LLC agreed to return and cancel the shares. 

On May 6, 2015, the Company entered into a consulting agreement with the Alex Consulting, Inc. for the term of one year or until the terms of this Agreement has been satisfied, whichever comes first.  The Company valued this agreement in accordance with ASC505-50 as an Equity-Based Payment to Non-Employees at the current market price of the common stock.  The Company paid the consultant a commencement fee in the form of 700,000 shares of restricted common stock at the current market price, as of May 6, 2015, of $0.51. As at June 30, 2015, the Company had recognized a prepaid expense of $314,942 to be expensed over the period from July 1, 2015 to May 5, 2016.

On May 18, 2015, the Company entered into a consulting agreement with the SmallCapVoice.com, Inc. for the term of three months commencing on August 18, 2015.  The Company valued this agreement in accordance with ASC505-50 as an Equity-Based Payment to Non-Employees at the current market price of the common stock.  The Company paid a monthly fee of $2,500 and a onetime issuance of 28,000 shares of restricted common stock at the current market price, as of May 18, 2015, of $0.51. As at June 30, 2015, the Company had recognized a prepaid expense of $9,177 to be expensed over the period from July 1, 2015 to August 18, 2015.

On May 27, 2015, the Company entered into a consulting agreement with the KJS Investment.  The Company valued this agreement in accordance with ASC505-50 as an Equity-Based Payment to Non-Employees at the current market price of the common stock.  The Company paid the consultant a commencement fee in the form of 200,000 shares of restricted common stock at the current market price, as of May 27, 2015, of $0.51. The cost associated with this issuance was expensed on full during the year ended June 30, 2015.

Convertible Preferred Stock

 

The Company is authorized to issue 5,000,000 shares of convertible preferred stock at a par value of $0.0001.

 

A convertible preferred share is convertible into 100 shares of common stock and has the voting rights of 1,000 share of common stock.

 

As at June 30, 2015 and 2014, 5,000,000 shares of the Company's convertible preferred stock were issued and outstanding.

Common Stock

In September 2014, the Company issued 20,000 shares of common stock, at $0.75 per share, to one investor, for cash consideration of $15,000; and 3,000 shares of common stock, at $0.75 per share, to a second investor, for cash consideration of $2,250.

In March 2015, the Company issued 4,000 shares of common stock, at $0.75 per share, to an investor, for cash consideration of $3,000; and 4,000 shares of common stock, at $0.75 per share, to another investor, for cash consideration of $3,000.

In May 2015, the Company issued 700,000 shares of common stock, at$0.51 per share, to Alex Consulting, Inc., 28,000 shares of common stock, at$0.51 per share, to KJS Investment Corporation and 200,000 shares of common stock, at$0.51 per share, to SmallCapVoice.co, Inc. in exchange for a consulting agreement.

11. RELATED PARTY TRANSACTIONS

The President of the Company provides management and office premises to the Company for no compensation.

 

12. INCOME TAXES

The provision for refundable federal income tax at 34% consists of the following for the periods ending:

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Subsequent to June 30, 2015, the Company issued and cancelled the following common stock:

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pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;

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provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with U.S. generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of our management and directors; and

·

provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company's assets that could have a material effect on the financial statements.

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·

Because of the Company’s limited resources, there are limited controls over information processing.

·

There is an inadequate segregation of duties consistent with control objectives. Our Company’s management is composed of only one person, resulting in a situation where limitations on segregation of duties exist. In order to remedy this situation we would need to hire additional staff to provide greater segregation of duties. Currently, it is not feasible to hire additional staff to obtain optimal segregation of duties. Management will reassess this matter in the following year to determine whether improvement in segregation of duty is feasible.

 

·

The Company does not have a formal audit committee with a financial expert, and thus the Company lacks the board oversight role within the financial reporting process.

·

There is a lack of formal policies and procedures necessary to adequately review significant accounting transactions. The Company utilizes a third party independent contractor for the preparation of its financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.

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1.

A petition under the Federal bankruptcy laws or any state insolvency law was filed by or against, or a receiver, fiscal agent or similar officer was appointed by a court for the business or property of such person, or any partnership in which he was a general partner at or within two years before the time of such filing, or any corporation or business association of which he was an executive officer at or within two years before the time of such filing;

2.

Such person was convicted in a criminal proceeding or is a named subject of a pending criminal proceeding (excluding traffic violations and other minor offenses);

3.

Such person was the subject of any order, judgment, or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction, permanently or temporarily enjoining him from, or otherwise limiting, the following activities:

4.

Such person was the subject of any order, judgment or decree, not subsequently reversed, suspended or vacated, of any Federal or State authority barring, suspending or otherwise limiting for more than 60 days the right of such person to engage in any activity described in paragraph (f)(3)(i) of this section, or to be associated with persons engaged in any such activity;

5.

Such person was found by a court of competent jurisdiction in a civil action or by the Commission to have violated any Federal or State securities law, and the judgment in such civil action or finding by the Commission has not been subsequently reversed, suspended, or vacated;

6.

Such person was found by a court of competent jurisdiction in a civil action or by the Commodity Futures Trading Commission to have violated any Federal commodities law, and the judgment in such civil action or finding by the Commodity Futures Trading Commission has not been subsequently reversed, suspended or vacated;

7.

Such person was the subject of, or a party to, any Federal or State judicial or administrative order, judgment, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of:

8.

Such person was the subject of, or a party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

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●

This structure creates efficiency in the preparation of the meeting agendas and related Board materials as the Company’s Chief Executive Officer works directly with those individuals preparing the necessary Board materials and is more connected to the overall daily operations of the Company. Agendas are also prepared with the permitted input of the full Board of Directors allowing for any concerns or risks of any individual director to be discussed as deemed appropriate. The Board believes that the Company has benefited from this structure, and Mr. Williams's continuation in the combined role of the Chairman and Chief Executive Officer is in the best interest of the stockholders.

●	The Company believes that the combined structure is necessary and allows for efficient and effective oversight, given the Company’s relatively small size, its corporate strategy and focus.

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(1)

Audit fees consist of fees incurred for professional services rendered for the audit of our financial statements, for reviews of our interim financial statements included in our quarterly reports on Form 10-Q and for services that are normally provided in connection with statutory or regulatory filings or engagements.

(2)

Audit-related fees consist of fees billed for professional services that are reasonably related to the performance of the audit or review of our financial statements, but are not reported under “Audit fees.”

(3)

Tax fees consist of fees billed for professional services relating to tax compliance, tax planning, and tax advice.

(4)

All other fees consist of fees billed for all other services.

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