ACNV Accelera Innovations Inc (CE)

Notes to Unaudited Condensed Consolidated Financial Statements

NOTE 1 – ORGANIZATION AND BASIS OF PRESENTATION

Accelera Innovations, Inc., formerly Accelerated Acquisitions IV, Inc. (“Accelera” or the “Company”) was incorporated in the State of Delaware on April 29, 2008 for the purpose of raising capital intended to be used in connection with its business plan which may include a possible merger, acquisition or other business combination with an operating business.

On June 13, 2011, Synergistic Holdings, LLC (“Purchaser”) agreed to acquire 17,000,000 shares of the Company’s common stock par value $0.0001 per share. At the same time, Accelerated Venture Partners, LLC agreed to tender 3,750,000 of their 5,000,000 shares of the Company’s common stock par value $0.0001 for cancellation. Following these transactions, Synergistic Holdings, LLC owned 93.15% of the Company’s 18,250,000 issued and outstanding shares of common stock par value $0.0001 and the interest of Accelerated Venture Partners, LLC was reduced to approximately 6.85% of the total issued and outstanding shares. Simultaneously with the share purchase, Timothy Neher resigned from the Company’s Board of Directors and John Wallin was simultaneously appointed to the Company’s Board of Directors. Such action represented a change of control of the Company.

On October 18, 2011, the Company filed a Certificate of Amendment to its Certificate of Incorporation with the Secretary of State of Delaware and changed its name from Accelerated Acquisition IV, Inc. to Accelera Innovations, Inc.

Accelera is a healthcare service company which is focused on acquiring companies primarily in the post-acute care patient services and information technology services industries. The Company has acquired Behavioral Health Care Associates, Ltd. (“BHCA”) (On March 31, 2016, the Company and BHCA entered into a Termination Agreement - See Note 5) and SCI Home Health, Inc. (d/b/a Advance Lifecare Home Health) (“SCI”) which offers personal care to patients in the Chicago, Illinois area.

The accompanying consolidated financial statements and have been prepared in conformity with accounting principles generally accepted in the United States of America.

The condensed consolidated financial statements include the accounts of Accelera and its 100% owned subsidiaries, Behavioral Health (through December 31, 2015 – See Note 5) and SCI Home Health. Significant intercompany accounts and transactions have been eliminated in consolidation.

The unaudited interim condensed consolidated financial statements have been prepared by us pursuant to the rules and regulations of the Securities and Exchange Commission. The information furnished herein reflects all adjustments (consisting of normal recurring accruals and adjustments) which are, in the opinion of management, necessary to fairly present the operating results for the respective periods. Certain information and footnote disclosures normally present in the annual consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been omitted pursuant to such rules and regulations. These unaudited condensed consolidated interim financial statements should be read in conjunction with the audited consolidated financial statements and notes for the year ended December 31, 2015. The results of the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the full year ending December 31, 2016.

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

USE OF ESTIMATES – The preparation of unaudited condensed consolidated interim financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Significant estimates in these financial statements include allowance for doubtful accounts, the valuation of intangibles, valuation allowance for deferred taxes, estimated useful life of property and equipment and the fair value of stock and options issues for services and interest.

CASH - All cash is maintained with a major financial institution in the United States. Deposits with this bank may exceed the amount of insurance provided on such deposits. Temporary cash investments with an original maturity of three months or less are considered to be cash equivalents. The Company had no cash equivalents as of September 30, 2016 and December 31, 2015, respectively. The Company has not suffered any credit issues when deposits have exceeded the amount of insurance provided for such deposits.

ACCOUNTS RECEIVABLE – Accounts receivable are recorded at estimated value, net of allowance for doubtful accounts. Accounts receivable are not interest bearing. The allowance for doubtful accounts is based upon management’s best estimate and past collection experience. For accounts greater than 180 days, the Company carries a 100% allowance. Uncollectible accounts are charged off when all reasonable efforts to collect the accounts have been exhausted.

PROPERTY AND EQUIPMENT– Property and equipment is stated at cost. Depreciation is provided on a straight line basis over the estimated useful lives of the assets. Maintenance and repairs are charged to expense as incurred; major renewals and betterments are capitalized. When items of property and equipment are sold or retired, the related cost and accumulated depreciation are removed from the accounts, and any gain or loss is included in income.

DERIVATIVE FINANCIAL INSTRUMENTS — The Company evaluates all of its agreements to determine if such instruments have 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 uses the Black-Scholes-Merton option pricing 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 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. As of September 30, 2016 and December 31, 2015, the Company’s only derivative financial instrument was an embedded conversion feature associated with convertible notes due to the conversion price being a percentage of the market price of the Company’s common stock.

PREFERRED STOCK SUBSCRIPTION PAYABLE – During the years ended December 31, 2014 and 2013, an affiliate of the Company entered into subscription agreements with 13 investors. Pursuant to the terms of the subscription agreements, the affiliate agreed to issue shares of the Company’s 8% Convertible Preferred Stock that it was authorized to issue as of May 7, 2015. In exchange, the Company received aggregate proceeds from the investors of $652,462. Accordingly, the Company is obligated to issue an aggregate of 198,473 shares of 8% Convertible Preferred Stock to the investors with a stated value of $4.00 per share or an aggregate of $793,892. The net proceeds of $652,462 have been received by or on behalf of the Company and recorded as preferred stock subscription payable net of $141,430 of original issue discount related to such offering which amount was expensed. Upon obtaining the Certificate of Designation for the 8% Convertible Preferred Stock on May 7, 2015, the Company has included the aggregate amount of $793,892 of preferred stock as part of stockholders’ equity. Prior to May 7, 2015, the preferred stock subscription payable was included as a current liability.

COMMON STOCK - The Company records common stock issuances when all of the legal requirements for the issuance of such common stock have been satisfied.

REVENUE RECOGNITION - Revenue related to services and administrative support services is recognized ratably at the time services have been performed and pre-approved by payer. Gross service revenue is recorded in the accounting records on an accrual basis at the provider’s established rates, regardless of whether the health care entity expects to collect that amount. The Company will reserve a provision for contractual adjustment and discounts and deduct from gross service revenue. The Company believes that recognizing revenue at the time the services have been performed because the Company’s revenue policies meet the following four criteria in accordance with ASC 605-10-S25, Revenue Recognition : Overall, (i) persuasive evidence that arrangement exists, (ii) services has occurred, (iii) the price is fixed and determinable and (iv) collectability is reasonably assured. The Company reports revenues net of any sales, use and value added taxes.

COST OF REVENUES - Costs of revenues are comprised of fees paid to members of the Company’s medical staff, other direct costs including transcription, film and medical record obtainment and transportation; and other indirect costs including labor and overhead related to the generation of revenues.

ADVERTISING COSTS - The Company’s policy regarding advertising is to expense advertising when incurred.

INCOME TAXES - The Company accounts for income taxes in accordance with ASC Topic 740, Income Taxes . ASC 740 requires a company to use the asset and liability method of accounting for income taxes, whereby deferred tax assets are recognized for deductible temporary differences, and deferred tax liabilities are recognized for taxable temporary differences. Temporary differences are the differences between the reported amounts of assets and liabilities and their tax bases. Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion, or all of, the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.

Under ASC 740, a tax position is recognized as a benefit only if it is “more likely than not” that the tax position would be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded. The adoption had no effect on the Company’s consolidated financial statements.

STOCK BASED COMPENSATION - The Company has share-based compensation plans under which employees, consultants, suppliers and directors may be granted restricted stock, as well as options and warrants to purchase shares of Company common stock at the fair market value at the time of grant. Stock-based compensation cost to employees is measured by the Company at the grant date, based on the fair value of the award, over the requisite service period under ASC 718. For options issued to employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit. Grants of stock to non-employees and other parties are accounted for in accordance with the ASC 505 at measurement date. For awards with service or performance conditions, the Company generally recognize expense over the service period or when the performance condition is met.

LOSS PER SHARE - Basic loss per share is computed by dividing net loss attributable to common stockholders by the weighted average common shares outstanding for the period. Diluted loss per share is computed giving effect to all potentially dilutive common shares. Potentially dilutive common shares may consist of incremental shares issuable upon the exercise of stock options and warrants and the conversion of notes payable to common stock. In periods in which a net loss has been incurred, all potentially dilutive common shares are considered anti-dilutive and thus are excluded from the calculation.

FINANCIAL INSTRUMENTS - FASB Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date.. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of September 30, 2016 and December 31, 2015.

The Company uses Level 2 inputs for its valuation methodology for its derivative liability as its fair value was determined by using the Black-Scholes-Merton pricing model based on various assumptions. The Company’s derivative liability is adjusted to reflect fair value at each period end, with any increase or decrease in the fair value being recorded in results of operations as adjustments to fair value of derivatives.

At September 30, 2016 and December 31, 2015, the Company identified the following liability that is required to be presented on the balance sheet at fair value (see Note 8):

RECENT ACCOUNTING PRONOUNCEMENTS

In January 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-01 (Subtopic 225-20) - Income Statement - Extraordinary and Unusual Items . ASU 2015-01 eliminates the concept of an extraordinary item from GAAP. As a result, an entity will no longer be required to segregate extraordinary items from the results of ordinary operations, to separately present an extraordinary item on its income statement, net of tax, after income from continuing operations or to disclose income taxes and earnings-per-share data applicable to an extraordinary item. However, ASU 2015-01 will still retain the presentation and disclosure guidance for items that are unusual in nature and occur infrequently. ASU 2015-01 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-01 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

In February, 2015, the FASB issued Accounting Standards Update (ASU) No. 2015-02, Consolidation (Topic 810): Amendments to the Consolidation Analysis. ASU 2015-02 provides guidance on the consolidation evaluation for reporting organizations that are required to evaluate whether they should consolidate certain legal entities such as limited partnerships, limited liability corporations, and securitization structures (collateralized debt obligations, collateralized loan obligations, and mortgage-backed security transactions). ASU 2015-02 is effective for periods beginning after December 15, 2015. The adoption of ASU 2015-02 is not expected to have a material effect on the Company’s consolidated financial statements. Early adoption is permitted.

In September, 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805). Topic 805 requires that an acquirer retrospectively adjust provisional amounts recognized in a business combination, during the measurement period. To simplify the accounting for adjustments made to provisional amounts, the amendments in the Update require that the acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustment amount is determined. The acquirer is required to also record, in the same period’s financial statements, the effect on earnings of changes in depreciation, amortization, or other income effects, if any, as a result of the change to the provisional amounts, calculated as if the accounting had been completed at the acquisition date. In addition an entity is required to present separately on the face of the income statement or disclose in the notes to the financial statements the portion of the amount recorded in current-period earnings by line item that would have been recorded in previous reporting periods if the adjustment to the provisional amounts had been recognized as of the acquisition date. ASU 2015-16 is effective for fiscal years beginning December 15, 2015. The adoption of ASU 2015-016 is not expected to have a material effect on the Company’s consolidated financial statements.

In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . The new guidance requires that all deferred tax assets and liabilities, along with any related valuation allowance, be classified as noncurrent on the balance sheet. This update is effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. The Company does not anticipate the adoption of this ASU will have a significant impact on its consolidated financial position, results of operations, or cash flows.

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) . The guidance in ASU No. 2016-02 supersedes the lease recognition requirements in ASC Topic 840, Leases (FAS 13) . ASU 2016-02 requires an entity to recognize assets and liabilities arising from a lease for both financing and operating leases, along with additional qualitative and quantitative disclosures. ASU 2016-02 is effective for fiscal years beginning after December 15, 2018, with early adoption permitted. The Company is currently evaluating the effect this standard will have on its consolidated financial statements.

In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share Based Payment Accounting , to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance will be effective for annual periods beginning after December 15, 2016 and interim periods within those annual periods. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of the adoption of this newly issued guidance to its consolidated financial statements.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants, and the United States Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future consolidated financial statements.

RECLASSIFICATIONS - Certain prior year amounts have been reclassified to conform to the current period presentation. These reclassifications had no impact on net earnings, financial position or cash flows.

Depreciation expense for the nine months ended September 30, 2016 and 2015 was $1,500 and $944, respectively.

NOTE 4 - GOING CONCERN

The accompanying unaudited condensed consolidated interim financial statements have been prepared assuming that the Company will continue as a going concern. The Company has had minimal revenue since inception and had an accumulated deficit of $61,188,771 as of September 30, 2016. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to add profitable operating companies and to achieve a level of profitability. The Company intends on financing its future development activities and its working capital needs largely from the sale of public equity securities with some additional funding from other traditional financing sources, including term notes until such time that funds provided by operations are sufficient to fund working capital requirements.

As a result of the Termination Agreement with BHCA (See Note 5) the Company’s only operating facility is SCI. Revenues from SCI have significantly decreased primarily due to the sudden departure of the administrator of SCI. The Company has transitioned this position to a new administrator and filed these changes with IDPH (Illinois Department of Public Health). There are claims to be processed and invoiced when IDPH approves, through the uniform process, the new administrator, the Company expects this to be resolved in the near future.

The unaudited condensed consolidated interim financial statements of the Company do not include any adjustments relating to the recoverability and classification of recorded assets, or the amounts and classifications of liabilities that might be necessary should the Company be unable to continue as a going concern.

NOTE 5 - DISCONTINUED OPERATION

On November 20, 2013, Accelera executed a Stock Purchase Agreement (the “SPA”) and its wholly owned subsidiary, Accelera Healthcare Management Service Organization LLC (“Accelera HMSO”), executed an Operating Agreement with Blaise J. Wolfrum, M.D. and Behavioral Health Care Associates, Ltd. (“BHCA”). Accelera acquired 100% of the 100,000 issued and outstanding shares of BHCA from Dr. Wolfrum. Accelera HMSO as a wholly owned subsidiary of Accelera will operate BHCA in accordance with the Operating Agreement.

Pursuant the SPA, the Company agreed to pay to Dr. Wolfrum a purchase price of $4,550,000 for his shares of BHCA, of which $1,000,000 was payable on September 30, 2015, $750,000 is payable on November 30, 2015, and $2,800,000 is payable on December 31, 2015. The payment due on September 30, 2015, November 30, 2015 and December 31, 2015 were not paid.

On September 30, 2016, the Company, Blaise J. Wolfrum, M.D., and BHCA executed a Termination Agreement by which the SPA was terminated effect as of January 1, 2016. BHCA is accounted for as a discontinued operation as of January 1, 2016. The historical financial results of BHCA are reflected in the Company’s unaudited condensed consolidated interim financial statements and footnotes as discontinued operations for all periods presented.

The following table displays summarized activity in the Company’s unaudited condensed consolidated statements of operations for discontinued operations during the three and nine months ended September 30, 2015.

For the nine months ended September 30, 2016, there was no activity in the Company’s unaudited condensed consolidated statement of operations as a result of the Termination Agreement.

As a result of the Termination Agreement, the Company recognized a gain from the disposal of BHCA of $4,239,585, principally a result of the cancelation of the $4,550,000 subordinated unsecured note payable which is the consideration the Company received for entering into the Termination Agreement.

(1) The Company entered into a $344,507 promissory note (the “Trust Note”) with the Rose. M Gallagher Revocable Trust (“Trust”) in conjunction with the Settlement Agreement (see Note 7). The Trust Note bears interest at 11.0% per annum. The first payment of $25,000 is due on March 1, 2015. The final principal and interest payment is due on June 1, 2015. The entire outstanding principal balance of Trust Note may be prepaid at any time, in whole or in part, without premium or penalty, and the interest accrued on the remaining principal balance shall be adjusted accordingly. The Company is in default of the Trust Note and has a 90 day cure period. The Company paid $5,000 on April 8, 2015.

If an event of default under the Trust Note occurs the Trust may accelerate the Trust Note’s maturity date so that the unpaid principal amount, together with accrued interest, is immediately due in its entirety. In addition, the Company promises to pay one thousand dollars as consideration for costs of collection of the Trust Note, including but not limited to attorneys’ fees, paid or incurred on account of such collection, whether or not suit is filed with respect thereto and whether such cost or expense is paid or incurred, or to be paid or incurred, prior to or after the entry of judgment. Pursuant to the terms of the Trust Note, an event of default occurs if (i) the Company fails to make any payment required by the Trust Note when due, (ii) the Company fails to observe or perform any covenant, condition or agreement under the Trust Note, (iii) a proceeding with respect to the Company is commenced for the benefit of creditors, including but not limited to any bankruptcy or insolvency law; or (iv) the Company becomes insolvent.

(2) On October 1, 2014, AOK Property Investments LLC (“AOK”), a third party lender, lent the Company and its subsidiary, SCI, an aggregate of $500,000. In consideration of AOK’s delivery of an aggregate of $500,000 to the Company and ALM, the Company and ALM executed and delivered a promissory note (the “AOK Note”) in favor of AOK in the aggregate principal amount of $500,000. The AOK Note is due on January 15, 2015 and bears interest in the amount of 500,000 shares of the Company’s common stock, which interest is due and payable on or before January 15, 2015. If the Company and ALM fail to pay any portion of principal or interest when due, interest will continue to accrue and be payable to AOK at the rate of 1,667 shares of Company common stock per day until all principal and accrued interest is fully paid. On July 10, 2015, the Company and AOK entered in an amended note agreement whereby AOK loaned the Company an additional $25,000 and extended the due date of the note to December 31, 2015, and the Company agreed to issue an additional 500,000 shares of common stock for failing to pay the principal and interest on the loan when originally due. The Company recorded the issuance of 500,000 shares of common stock to AOK at a value of $1,360,907. The loan was not repaid on its extended due date and is currently in default.

If an event of default under the AOK Note occurs AOK may accelerate the AOK Note’s maturity date so that the unpaid principal amount, together with accrued interest, is immediately due in its entirety. Pursuant to the terms of the AOK Note, an event of default occurs if (i) the Company or ALM fails to make any payment required by the AOK Note when due, (ii) the Company or SCI voluntarily dissolves or ceases to exist, or any final and non-appealable order or judgment is entered against the Company or SCI ordering its dissolution, (iii) the Company or ALM fails to pay, becomes insolvent or unable to pay, or admits in writing an inability to pay its debts as they become due, or makes a general assignment for the benefit of creditors; or (iv) a proceeding with respect to the Company or ALM is commenced for the benefit of creditors, including but not limited to any bankruptcy or insolvency law.

During the nine months ended September 30, 2016, the Company issued two convertible notes totaling $110,250 (includes $5,250 of original issue discounts) to one investor for which the Company received $52,500 in cash and a note receivable from the same investor totaling $52,500. Since the note receivable was issued to the Company as payment for a convertible note, the Company has not presented this note receivable as an asset, but as an offset to the convertible note balance. In addition to the above two convertible note, during the nine months ended September 30, 2016, the Company issued one additional convertible note to another investors for gross proceeds of $25,000 ($27,778 less $2,778 of original issue discount).

Due to the variable conversion price associated with these convertible notes, the Company has determined that the conversion feature is considered derivative liabilities. The embedded conversion feature at inception is recorded as a derivative liability as of the date of issuance. The derivative liability was recorded as a debt discount up to the face amount of the convertible notes with the remaining amount being charge as a financing cost. The debt discount is being amortized over the term of the convertible notes. The Company recognized additional interest expense of $203,231 during the nine months ended September 30, 2016 related to the amortization of the debt discount.

A rollfoward of the convertible note from December 31, 2015 to September 30, 2016 is below:

NOTE 8 - DERIVATIVE LIABILITY

The convertible note discussed in Note 7 has a variable conversion price which results in the conversion feature being recorded as a derivative liability.

The fair value of the derivative liability is recorded and shown separately under current liabilities. Changes in the fair value of the derivative liability is recorded in the statement of operations under other income (expense).

The Company uses the Black-Scholes-Merton option pricing model with the following assumptions to measure the fair value of derivative liability at September 30, 2016:

The following table represents the Company’s derivative liability activity for the period ended September 30, 2016:

NOTE 9 - STOCKHOLDERS’ DEFICIT

The Company has two classes of stock, preferred stock and common stock. There are 10,000,000 shares of $.0001 par value preferred shares authorized, 500,000 of which have been designated as 8% Convertible Preferred Stock as of May 7, 2015.

The 500,000 shares of 8% Convertible Preferred Stock have the following the designations, rights, and preferences:

There were 198,473 shares of 8% Convertible Preferred Stock issued and outstanding as of September 30, 2016.

There are 100,000,000 shares of $.0001 par value common shares authorized. The Company has 48,261,216 and 45,011,216 issued and outstanding shares as of September 30, 2016 and December 31, 2015, respectively.

During the nine months ended September 30, 2016, the Company issued 3,250,000 shares for the conversion of $41,244 of convertible notes payable.

NOTE 10 - STOCK-BASED COMPENSATION

The Company recognizes stock-based compensation expense in its statement of operations based on the fair value of employee stock options and stock grant awards as measured on the grant date. For stock options, the Company uses the Black-Scholes option pricing model to determine the value of the awards granted. The Company amortizes the estimated value of the options as of the grant date over the stock options’ vesting period, which is generally four years.

The Company has estimated the value of common stock into which the options are exercisable at $4 per share for financial reporting purposes. This amount was determined based on the price our stock was sold for in past private placements, the minimum stock price required for listing on any Nasdaq market, and the amount also approximates a $85 million valuation for the entire Company, which is considered “micro-cap” by most equity analysts. The stock based compensation expense is an estimate and significant judgment was involved in attempting to determine the value of common stock. When a majority of the stock options were issued, the Company’s common stock has not traded publicly, and no stock was traded in private markets either, except for privately negotiated sales to the founder and other private investors of the company and the founder of the technology from which the company subsequently licensed rights. The Company does not have any offers for purchase of its common stock in any stage, and no stock is registered for resale with the Securities and Exchange Commission.

The Company believes the only material estimate used in estimating the value stock options was the estimated fair value of the common stock, and that assumed volatility, term, interest rate and dividend yield changes would not result in material differences in stock option valuations. The Company recognized stock-based compensation expense of $921,144 and $3,038,649 for the nine months ended September 30, 2016 and 2015, respectively, which were included in general and administrative expenses. As of September 30, 2016, there was $747,500 of total unrecognized compensation cost related to unvested stock-based compensation awards, which is expected to be recognized over the weighted average remaining vested period of approximately 1.0 years.

The following is a summary of the outstanding options, as of September 30, 2016:

NOTE 11 - RELATED PARTY TRANSACTIONS

The Company and Synergistic Holdings, LLC (“Synergistic”), a controlling shareholder of the Company, agreed to cancel 796,671 shares of the Company’s common stock owned by Synergistic and forgive certain indebtedness owed by the Company to Synergistic in the amount of $1,018,618. In addition, the Company entered into an oral agreement to amend the license agreement entered into between the Company and Synergistic to reduce the total amount of reimbursable distribution and commercialization expenses due under the license agreement by $585,181 to $29,414,819 and defer the commencement date of the agreement until the payment dates for the following amounts:

Tec Explorer is a related party through common ownership. Tec Explorer supplied working capital to the Company to fund primarily software acquisition costs, accounting services, commissions and subcontract costs during 2010 through 2013. Synergistic Holdings, LLC assumed all obligations to Tec Explorer during 2014 and 2013 on behalf of the Company. This verbal agreement was agreed to by all three companies.

On May 7, 2015, the Company and Synergistic agreed to amend the Synergistic Licensing Agreement to eliminate the Company’s $29,414,819 funding requirements under Article 3 and replace it with a requirement to pay a license fee in the amount of 10,000 common shares upon completion and acceptance of each installation of the software at a location for each affiliate or subsidiary of the Company and the sum of $10,000 on each anniversary after each such installation during the period of time in which the Software is used at such location. In addition, the Company will be responsible for the reasonable installation costs incurred by Synergistic in connection with the installation and setup of the software as required by the Company. The license fee may be paid in cash or the Company’s common stock. In addition, the Synergistic Licensing Agreement was amended to delete the Company’s exclusive rights under such agreement.

At September 30, 2016 and December 31, 2015, advances from related party was $403,092 and $243,799, respectively. These advances are non-interest bearing and payable upon demand.