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JPX GLOBAL, INC.
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Balance Sheets
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ASSETS
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September 30,
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December 31,
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2016
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2015
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(Unaudited)
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CURRENT ASSETS
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Cash and cash equivalents
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$
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80
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$
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83
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Total Current Assets
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80
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83
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TOTAL ASSETS
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$
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80
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$
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83
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LIABILITIES AND STOCKHOLDERS' DEFICIT
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CURRENT LIABILITIES
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Accounts payable and accrued liabilities
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$
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38,329
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$
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29,902
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Advances from related party
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1,000
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243,864
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Notes payable to related parties
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211,164
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18,000
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Notes payable
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92,409
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—
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Convertible loan payable - related party
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1,500
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1,500
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Derivative liability
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293,971
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—
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Total Current Liabilities
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638,373
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293,266
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TOTAL LIABILITIES
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638,373
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293,266
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STOCKHOLDERS' DEFICIT
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Preferred stock, $0.001 par value; 40,000,000 shares authorized:
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Series A Preferred Stock, $0.001 par value; 1,000 and
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1,000 shares issued and outstanding, respectively
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1
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1
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Series B Preferred Stock, $0.001 par value; 10,000,000 and
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10,000,000 shares issued and outstanding, respectively
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10,000
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10,000
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Common stock, $0.001 par value; 500,000,000 shares authorized,
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170,455,809 and 167,455,809 shares issued and outstanding, respectively
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170,456
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167,456
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Additional paid-in capital
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33,429,694
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32,832,694
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Accumulated deficit
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(34,248,444
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)
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(33,303,334
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)
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Total Stockholders' Deficit
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(638,293
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)
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(293,183
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)
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TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT
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$
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80
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$
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83
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The accompanying notes are an integral part of these financial statements
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JPX GLOBAL, INC.
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Statements of Operations
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(Unaudited)
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For the Three Months Ended
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For the Nine Months Ended
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September 30,
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September 30,
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2016
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2015
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2016
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2015
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NET REVENUES
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$
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—
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$
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—
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$
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—
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$
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—
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OPERATING EXPENSES
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Consulting fees (including stock-based compensation of
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$-0-, $-0-, $600,000 and $2,050,000, respectively)
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30,000
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—
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630,000
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2,050,000
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Professional and accounting fees
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90,105
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6,551
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113,313
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46,501
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Other general and administrative
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21,038
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218
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21,832
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1,376
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Total Operating Expenses
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141,143
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6,769
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765,145
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2,097,877
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LOSS FROM OPERATIONS
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(141,143
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(6,769
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(765,145
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(2,097,877
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OTHER INCOME (EXPENSES)
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Income (expense) from derivative liability
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(127,971
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—
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(127,971
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)
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—
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Interest expense (including the amortization of debt
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discounts of $42,409, $-0-, $42,409 and $-0-, repectively)
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(51,208
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(323
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(51,994
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(405
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Total Other Income (Expenses)
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(179,179
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)
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(323
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(179,965
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(405
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NET INCOME (LOSS)
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$
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(320,322
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)
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$
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(7,092
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$
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(945,110
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$
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(2,098,282
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Net income (loss) per common share - basic and diluted
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$
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(0.00
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$
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(0.00
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$
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(0.01
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$
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(0.01
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Weighted average common shares
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outstanding - basic and diluted
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170,455,809
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167,455,809
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168,733,181
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167,095,369
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The accompanying notes are an integral part of these financial statements
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JPX GLOBAL, INC.
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Statements of Cash Flows
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(Unaudited)
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For the Nine Months Ended
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September 30,
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2016
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2015
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CASH FLOWS FROM OPERATING ACTIVITIES:
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Net income (loss)
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$
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(945,110
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$
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(2,098,282
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Adjustments to reconcile net loss to net
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cash used by operating activities:
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Common stock issued for services
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600,000
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2,050,000
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Note payable issued for legal services
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50,000
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—
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Amortization of debt discount
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42,409
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—
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Expense (income) from derivative liability
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127,971
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—
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Changes in operating assets and liabilities:
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Accounts payable and accrued liabilities
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8,427
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12,161
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Net Cash Used by Operating Activities
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(116,303
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)
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(36,121
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)
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CASH FLOWS FROM INVESTING ACTIVITIES:
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—
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—
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CASH FLOWS FROM FINANCING ACTIVITIES:
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Proceeds from note payable
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166,000
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—
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Proceeds from notes payable to related party
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5,000
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16,000
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Proceeds from advances from related party
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11,500
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19,878
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Payments on note payable to related party
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(66,200
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)
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—
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Net Cash Provided by Financing Activities
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116,300
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35,878
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NET DECREASE IN CASH AND CASH EQUIVALENTS
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(3
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)
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(243
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)
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CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
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83
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342
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CASH AND CASH EQUIVALENTS, END OF PERIOD
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$
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80
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$
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99
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SUPPLEMENTAL CASH FLOW INFORMATION
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Cash Payments For:
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Interest
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$
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—
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$
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—
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Taxes
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$
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—
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$
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—
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Non-cash investing and financing activities:
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Issuance of note payable to related party in satisfaction of
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advances from related party liability
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$
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254,364
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$
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—
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The accompanying notes are an integral part of these financial statements
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NOTE 1 - ORGANIZATION
JPX Global, Inc. (the “Company”
or “JPX”) was incorporated under the laws of the state of Nevada on December 18, 2008, with 75,000,000 authorized common
shares with a par value of $0.001. On January 3, 2013, the Company approved the action to amend and restate the Articles of Incorporation
of the Company and increase the authorized common shares to 500,000,000 and create and authorize 40,000,000 shares of Preferred
Stock which was approved by written consent of the holders representing approximately 67% of the outstanding voting securities
of the Company. Series A Preferred Stock was created and designated with super-voting rights of 100,000 votes per share of Series
A Preferred Stock held, but no conversion, dividend and liquidation rights.
On February 5, 2014, the Company entered into
an agreement to acquire all the operating assets of Scorpex, Inc. (“Scorpex”) (an entity related by common control)
in exchange for 105,000,000 shares of common stock and 10,000,000 shares of Series B Preferred Stock of the Company. Scorpex is
majority owned and controlled by JPX Global, Inc.’s then controlling shareholder, Joseph Caywood. Each share of Series B
preferred stock is convertible into 10 shares of common stock and is entitled to vote ratably together with our common stockholders
on all matters upon which common stockholders may vote. With the acquisition of these assets, which consist primarily of a license
agreement, the Company has modified its business plan to include the development of waste management services including the storage,
recycling, and disposal of waste. The Company does not presently have any waste management operations.
The acquired assets consist primarily of a
license agreement between Scorpex and Tratamientos Ambientales Scorpion, S.A. de C.V. (a corporation formed under the laws of Mexico)
(“TAS”). This license agreement with TAS has been assigned to JPX. TAS is a wholly owned subsidiary of Scorpex, and
is, therefore, a common control entity. ASC 805-50-30-5 provides guidance on measuring assets and liabilities transferred between
entities under common control. As these entities are under common control and the license agreement had no basis on Scorpex’s
books they are being acquired at their carrying amounts (with no cost basis) on the date of transfer and, therefore, the transaction
value is $-0-.
The license agreement was dated July 30, 2011
and provided Scorpex with an exclusive worldwide license for the permits, property, and any and all of TAS’s other assets
necessary for the business of storing, recycling, disposing, and treating waste in Mexico for a term of 10 years. The agreement
also provided for Scorpex’s annual payment to TAS of 20% of its Net Revenues (gross cash receipts less cost of processing
and other expenses excluding general, administrative, interest, and taxes) from the license. Pursuant to the Assignment Consent
dated February 3, 2014, TAS agreed to extend the term of the agreement every 10 years if operations have commenced pursuant to
the license agreement.
NOTE 2 - BASIS OF FINANCIAL STATEMENT PRESENTATION
The accompanying unaudited financial statements
have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in financial statements prepared in accordance with U.S. generally accepted accounting
principles have been condensed or omitted in accordance with such rules and regulations. The information furnished in the interim
financial statements includes normal recurring adjustments and reflects all adjustments, which, in the opinion of management, are
necessary for a fair presentation of such financial statements. Although management believes the disclosures and information presented
are adequate to make the information not misleading, it is suggested that these interim financial statements be
read in conjunction with the Company’s
audited financial statements and notes thereto included in its Form 10-K for the year ended December 31, 2015. Operating results
for the nine months ended September 30, 2016 are not necessarily indicative of the results to be expected for the year ending December
31, 2016.
NOTE 3 - GOING CONCERN
The accompanying financial statements have
been prepared assuming that the company will continue as a going concern. The company does not have sufficient working capital
for its planned activity, and to service its debt, which raises substantial doubt about its ability to continue as a going concern.
The Company has incurred accumulated losses of $34,248,444 from inception (December 18, 2008) through September 30, 2016.
Continuation of the company as a going concern
is dependent upon obtaining additional working capital and the management of the company has developed a strategy which it believes
will accomplish this objective through short term loans from related parties, and additional equity investments, which will enable
the company to continue operations for the coming year. These financial statements do not include any adjustments relating to the
recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from
this uncertainty.
NOTE 4 – NET INCOME (LOSS) PER COMMON
SHARE
The Company follows ASC Topic 260 to account
for the earnings per share. Basic earnings per common share (“EPS”) calculations are determined by dividing net income
by the weighted average number of shares of common stock outstanding during the period. Diluted earnings per common share calculations
are determined by dividing net income by the weighted average number of common shares and dilutive common share equivalents outstanding.
For the nine months ended September 30, 2016
and 2015, the common shares underlying the following dilutive securities were excluded from the calculation of diluted shares outstanding
as the effect of their inclusion would be anti-dilutive:
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Common Shares Issuable
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2016
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2015
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Convertible note payable
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6,036,364
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-
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Convertible loan payable – related party
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1,500,000
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1,500,000
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Series B Preferred Stock
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100,000,000
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100,000,000
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Total common shares issuable
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107,536,364
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101,500,000
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NOTE 5 – ADVANCES FROM RELATED PARTY
The advances from related party liability at
September 30, 2016 ($1,000) and December 31, 2015 ($243,864) is due to Joseph Caywood, significant stockholder of the Company.
The liability is non-interest bearing and there are no terms of repayment.
On July 1, 2016, the Company issued a $254,364
Promissory Note to Joseph Caywood in satisfaction of the then advances from related party liability of $254,364. See Note 6.
NOTE 6 – NOTES PAYABLE TO RELATED PARTIES
The notes payable to related parties at September
30, 2016 and December 31, 2015 consisted of the following:
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September 30, 2016
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December 31, 2015
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Promissory note dated May 20, 2015, interest at 8% per annum, interest and principal due November 20, 2015 (A)
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$
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8,000
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$
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8,000
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Promissory note dated June 24, 2015, interest at 8% per annum, interest and principal due December 24, 2015 (A)
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8,000
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8,000
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Promissory note dated November 15, 2015, interest at 8% per annum, interest and principal due May 15, 2016 (A)
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2,000
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2,000
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Promissory note dated April 15, 2016, interest at 8% per annum, interest and principal due October 12, 2016 (A)
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3,000
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|
|
|
—
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Promissory note dated May 21, 2016, interest at 8% per annum, interest and principal due November 17, 2016 (A)
|
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2,000
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|
|
|
—
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Promissory note dated July 1, 2016, interest at 8% per annum, interest and principal due on demand (B)
|
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188,164
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|
|
|
—
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Total
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$
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211,164
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|
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$
|
18,000
|
|
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(A)
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These notes are payable to Mitchell Dean Hovendick, owner of 500
shares of Series A Preferred Stock, 5,000,000 shares of Series B Preferred Stock, and 37,625,000 shares of common stock.
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(B)
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This note is payable to Joseph Caywood, owner of 500 shares of Series
A Preferred Stock, 5,000,000 shares of Series B Preferred Stock, and 37,625,000 shares of common stock. The original note was in
the amount of $254,364 and arose from the Company’s satisfaction of the then advances from related party liability of $254,364
(See Note 5). From July 1, 2016 to September 30, 2016, the Company repaid $66,200 of the note.
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NOTE 7 – NOTES PAYABLE
The notes payable at September 30, 2016 consisted
of the following:
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Convertible note payable dated July 22, 2016, interest at 10% due on April 22,2017 – net of discount of $123,591(A)
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$ 42,409
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Promissory note dated July 1, 2016, interest at 8% per annum, interest and principal due on demand (B)
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50,000
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Total
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$ 92,409
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(A) On July 22, 2016, the Company issued a $166,000 Convertible Promissory Note to Auctus Fund, LLC (“Auctus”) for
net loan proceeds of $150,000. The note bears interest at a rate of 10% per annum (24% per annum default rate), is due April 22,
2017, and is convertible at the option of Auctus into shares of the Company common stock at a Conversion Price equal to the lesser
of (a) 55% of the lowest Trading Price during the 25 Trading Day period prior to July 22, 2016 or (b) 55% of the lowest Trading
Price during the 25 Trading Day period prior to the Conversion Date. (See Note 9 - Derivative Liability).
(B) This note is payable to the Company’s
law firm for legal services rendered.
NOTE 8 - CONVERTIBLE LOAN PAYABLE - RELATED
PARTY
On December 18, 2008, the company entered into
a Promissory Note agreement with the former CEO of the Company. The note is for a sum of $1,500, is non interest bearing, and was
due and payable on December 31, 2010. The note provides that if the note was not paid on December 31, 2010, the note can be converted
to shares of common stock of the Company for $.001 per share. On January 3, 2013, this note was assigned to Joseph Caywood, the
then controlling shareholder of JPX. The Company and Joseph Caywood have verbally agreed that the Company will pay the loan off
as it is able to without penalty, and Joseph Caywood will not convert the debt into shares of common stock. As of September 30,
2016 and December 31, 2015, the balance of the loan is $1,500.
NOTE 9 – DERIVATIVE LIABILITY
The derivative liability at September 30, 2016
consisted of the following:
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Face Value
|
|
Derivative Liability
|
|
Convertible note payable issued July 22, 2016, due April 22, 2017
|
|
$ 166,000
|
|
$ 293,971
|
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Totals
|
|
$ 166,000
|
|
$ 293,971
|
The above convertible note contains
a variable conversion feature based on the future trading price of the Company common stock. Therefore, the number of shares
of commons stock issuable upon conversion of the note is indeterminate. Accordingly, we have recorded the $730,400 fair value
of the embedded conversion feature as a derivative liability at the July 22,2016 issuance date and charged $166,000 to
debt discounts and the remaining $564,400 to expense from derivative liability. The $436,429 decrease in the fair value of
the derivative liability from $730,400 at July 22, 2016 to $293,971 at September 30, 2016 was credited to expense from
derivative liability. The fair value of the derivative liability is measured at the respective issuance date and quarterly
thereafter using the Black Scholes option pricing model. Assumptions used for the calculation of the derivative liability of
the note at September 30, 2016 include (1) stock price of $0.05 per share, (2) exercise price of $0.0275 per share, (3) term
of 204 days, (4) expected volatility of 563% and (5) risk free interest rate of 0.45%.
NOTE 10 - CAPITAL STOCK
On January 6, 2014, the Company issued 1,000
shares of Series A preferred stock as security for outstanding debts of the Company owed to Joseph Caywood. Although the preferred
stock carries no dividend, distribution, liquidation or conversion rights, each share of Series A preferred stock carries one hundred
thousand (100,000) votes, and holders of our Series A preferred stock are able to vote together with our common stockholders on
all matters upon which common stockholders may vote.
On February 5, 2014 (see Note 1 above), the
Company entered into an agreement to acquire all the operating assets of Scorpex, Inc. (“Scorpex”) (an entity related
by common control) in exchange for 105,000,000 shares of common stock and 10,000,000 shares of Series B preferred stock of the
Company. Scorpex is majority owned and controlled by JPX Global, Inc.’s significant shareholder, Joseph Caywood. The Series
B preferred stock is convertible into 10 shares of common stock and is entitled to vote ratably together with our common stockholders
on all matters upon which common stockholders may vote.
On February 17, 2015, pursuant to a Consulting
Agreement with Joseph Caywood dated January 1, 2015 (term ended March 31, 2015), the Company issued a total of 2,050,000 shares
of common stock to 18 individuals/entities for services rendered to the Company. The stock was valued at $2,050,000 and was expensed
as consulting fees in the three months ended March 31, 2015.
On July 1, 2016, pursuant to a Consulting Services
Agreement with an individual consultant dated June 1, 2016 (term ending November 30, 2016), the Company issued 2,000,000 shares
of common stock to such individual for certain marketing consulting services to be rendered to the Company. The stock was valued
at $400,000 and was expensed as consulting fees in the three months ended June 30, 2016.
On June 17, 2016, pursuant to a Consulting
and Representation Agreement with an entity consultant dated June 14, 2016 (extended term ending June 14, 2017), the Company issued
1,000,000 shares of common stock to such entity for certain investor relations services to be rendered to the Company. The stock
was valued at $200,000 and was expensed as consulting fees in the three months ended June 30, 2016.
NOTE 11 – SUBSEQUENT EVENTS
On October 17, 2016, the Company issued 1,333,333
shares of common stock for cash in the amount of $40,000.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion
of the financial condition and results of operations of JPX Global, Inc. (hereafter, “JPEX”, the “Company,”
“we,” “our,” or “us”) should be read in conjunction with the Unaudited Financial Statements
and related Notes thereto included herein.This discussion may contain forward-looking statements within the meaning of Section
27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements
regarding the Company’s expectations, beliefs, intentions, or future strategies that are signified by the words "expects,"
"anticipates," "intends," "believes," or similar language. Actual results could differ materially
from those projected in the forward looking statements. Prospective investors should carefully consider the information set forth
herein, and the Company cautions investors that its business and financial performance is subject to substantial risks and uncertainties.
Overview
On February 5, 2014, the
Company entered into an agreement to acquire all of the operating assets of Scorpex, Inc., (“Scorpex”) (an entity related
by common control) a Nevada corporation, in exchange for 105,000,000 shares of Common Stock and 10,000,000 shares of Series B Preferred
Stock. Scorpex is majority owned and controlled by JPX Global, Inc.’s then controlling shareholder, Joseph Caywood. Each
share of Series B preferred stock is convertible into 10 shares of common stock and is entitled to vote ratably together with our
common stockholders on all matters upon which common stockholders may vote. The acquired assets consist primarily of a license
agreement. We are now exploring the expansion of our business to further develop our operations to capitalize on the opportunities
available primarily in Mexico, in the integrated waste, and waste management service operations, including the receiving, storage,
transfer and disposal of waste in an environmental manner. In providing these services, we intend to actively pursue projects and
initiatives that we believe make a positive difference for our environment which will be focused on gasification of waste in an
environmental manner. It is expected that our customer base will include commercial, industrial, municipal and residential customers,
other waste management companies, electric utilities, and governmental entity properties. We have not realized any revenues to
date. We do not have sufficient capital to enable us to commence and complete our planned program. We will require additional financing
in order to conduct the planned program described herein.Our auditors have issued a going concern opinion, raising substantial
doubt about the Company's financial prospects, and the Company’s ability to continue as a going concern. As a waste management
company, our principal sources of revenue will result from waste management contracts, but will also include revenue from ancillary
services related to the handling and conversion of waste. Expenses which comprise the costs of goods sold will include the operational
and staffing costs of the trucks and other vehicles used for transporting and special licensing where required. General and administrative
expenses will include administrative wages and benefits; occupancy and office expenses; outside legal, accounting and other professional
fees; travel and other miscellaneous office and administrative expenses. Selling and marketing expenses will include selling/marketing
wages and benefits, advertising and promotional expenses, as well as travel and other miscellaneous related expenses.
The acquired assets consist
primarily of a license agreement between Scorpex and Tratamientos Ambientales Scorpion, S.A. de C.V. (a corporation formed under
the laws of Mexico) (“TAS”). This license agreement with TAS has been assigned to JPX. TAS is a wholly owned subsidiary
of Scorpex, and is, therefore, a common control entity. ASC 805-50-30-5 provides guidance on measuring assets and liabilities transferred
between entities under common control. As these entities were under common control and the license agreement had no basis on Scorpex’s
books they were acquired at their carrying amounts (with no cost basis) on the date of transfer and, therefore, the transaction
value was $-0-.
The future goal of the Company will be to develop a
waste services division. The Company has modified its business plan to include the development of waste management services including
the storage, recycling, and disposal of waste.
Our ability to
generate revenues during the year 2016 and beyond depends substantially upon the Company’s resources available in order
to develop and grow the integrated waste and waste management businesses. Such efforts require significant systems
development, marketing and personnel costs, which, in turn, require substantial funding. If we are unable to obtain such
funding, its ability to generate revenues will be significantly impaired and we may be unable to continue operations.
Because the Company has
incurred losses, income tax expenses are immaterial. No tax benefits have been booked related to operating loss carryforwards,
given the uncertainty of the Company being able to utilize such loss carryforwards in future years. We anticipate incurring additional
losses during the coming year.
Results of Operations
Following is management’s
discussion of the relevant items affecting results of operations for the three and nine month periods ended September 30, 2016
and 2015.
Revenues.
For
the three and nine months ended September 30, 2016 and 2015, net revenues were $-0-. The Company expects to generate revenues with
the acquisition of the waste management assets previously described. The Company hopes to commence operations during 2017.
Consulting Fees.
Consulting
fees for the three months ended September 30, 2016 were $30,000 compared to $-0- for the three months ended September 30, 2015.
Consulting fees for the nine months ended September 30, 2016 were $630,000 compared to $2,050,000 for the nine months ended September
30, 2015. During the nine months ended September 30, 2016 and 2015 the Company issued 3,000,000 and 2,050,000 shares, respectively,
of common stock for services rendered to the Company. The shares were valued at $600,000 and $2,050,000, respectively, which represented
the market price on the date of issuance.
Professional Fees.
Professional fees for the three months ended September 30, 2016 were $90,105 compared to $6,551 for the three months ended
September 30, 2015. For the nine months ended September 30, 2016, professional fees were $113,313 compared to $46,501 for the nine
months ended September 30, 2015. During the three months ended September 30, 2016, the Company issued a promissory note for $50,000
in exchange for legal fees. Professional fees consist mainly of the fees for the audits and reviews of the Company’s financial
statements as well as the filings with the SEC. The Company anticipates that professional fees will increase commensurate with
an increase in our operations.
Other General and
Administrative Expenses.
Other general and administrative expenses for the three months ended September 30, 2016 were $21,038
compared to $218 for the three months ended September 30, 2015. For the nine months ended September 30, 2016, other general and
administrative expenses were $21,832 compared to $1,376 for the nine months ended September 30, 2015. We expect that salaries and
consulting expenses, that are cash- instead of share-based, will increase as we add personnel to build our waste management business.
Other Income (Expense)
.
The Company had net other expenses of $179,179 for the three months ended September 30, 2016 compared to $323 for the three months
ended September 30, 2015. For the nine months ended September 30, 2016, net other expenses were $179,965 compared to $405 for the
nine months ended September 30, 2015. Other expenses consist of interest expense on promissory notes issued by the company including
the amortization of debt discounts. The Company also recorded income from derivative liability.
Liquidity and Capital Resources
As of September 30, 2016,
our primary source of liquidity consisted of $80 in cash and cash equivalents. Since inception, we have financed our operations
through a combination of short term loans from related parties and through the private placement of our common stock. For the nine
months ended September 30, 2016, we used $166,303 cash in operating activities and were provided $166,300 cash from financing activities.
We have sustained significant
net losses which have resulted in an accumulated deficit at September 30, 2016 of $34,248,444 and are currently experiencing a
substantial shortfall in operating capital which raises doubt about our ability to continue as a going concern. Historically, we
have funded operating expenses through advances from related parties. We anticipate a net loss for the year ended December 31,
2016 and with the expected cash requirements for the coming months, without additional cash inflows from an increase in revenues
combined with continued cost-cutting or a receipt of cash from working capital loans or capital investment, there is substantial
doubt as to the Company’s ability to continue operations.
There is presently no agreement
in place with any source of additional financing for the Company and we cannot assure you that the Company will be able to raise
any additional funds, or that such funds will be available on acceptable terms. Funds raised through future equity financing will
likely be substantially dilutive to current shareholders. Lack of additional funds will materially affect the Company and its business,
and may cause us to cease operations. Consequently, shareholders could incur a loss of their entire investment in the Company.
ITEM 4.CONTROLS
AND PROCEDURES
Management’s Report on Disclosure
Controls and Procedures
We maintain disclosure
controls and procedures that are designed to ensure that information required to be disclosed in our reports filed under the
Securities
Exchange Act of 1934
, as amended, is recorded, processed, summarized and reported within the time periods specified in the
Securities and Exchange Commission's rules and forms, and that such information is accumulated and communicated to our management,
to allow for timely decisions regarding required disclosure.
As of September 30, 2016,
the end of our quarter covered by this report, we carried out an evaluation, under the supervision of our Chief Executive Officer
and Principal Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based
on the foregoing, we concluded that our disclosure controls and procedures were effective as of the end of the period covered by
this quarterly report.
Management’s Report on Internal Control
over Financial Reporting
Our management is responsible
for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Securities
Exchange Act, as amended). In fulfilling this responsibility, estimates and judgments by management are required to assess the
expected benefits and related costs of control procedures. The objectives of internal control include providing management with
reasonable, but not absolute, assurance that assets are safeguarded against loss from unauthorized use or disposition, and that
transactions are executed in accordance with management’s authorization and recorded properly to permit the preparation of
financial statements in conformity with accounting principles generally accepted in the United States. Our management assessed
the effectiveness of our internal control over financial reporting as of September 30, 2016. In making this assessment, our management
used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in
Internal
Control-Integrated Framework
. Our management has concluded that, as of September 30, 2016, our internal control over financial
reporting is effective in providing reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with US generally accepted accounting principles. This quarterly report
does not include an attestation report of the Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting
firm pursuant to temporary rules of the Securities and Exchange Commission that permit the Company to provide only management’s
report in this quarterly report.
Inherent limitations on effectiveness of
controls
Internal control over financial
reporting has inherent limitations which include but is not limited to the use of independent professionals for advice and guidance,
interpretation of existing and/or changing rules and principles, segregation of management duties, scale of organization, and personnel
factors. Internal control over financial reporting is a process which involves human diligence and compliance and is subject to
lapses in judgment and breakdowns resulting from human failures. Internal control over financial reporting also can be circumvented
by collusion or improper management override. Because of its inherent limitations, internal control over financial reporting may
not prevent or detect misstatementson a timely basis, however these inherent limitations are known features of the financial reporting
process and it is possible to design into the process safeguards to reduce, though not eliminate, this risk. Therefore, even those
systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because
of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Changes in Internal Control over Financial
Reporting
There have been no significant
changes in our internal controls over financial reporting that occurred during the quarter ended September 30, 2016 that have materially
or are reasonably likely to materially affect, our internal controls over financial reporting.