Annual report pursuant to Section 13 and 15(d)

RESTATEMENT

RESTATEMENT

12 Months Ended

Dec. 31, 2015

NOTE 15 – RESTATEMENT

The Company has restated its previously issued Statement of Operations and Balance Sheet for the year ended December 31, 2015. First, the Company has accounted for the subsequent return of products and has reduced its sales for the year from what was previously reported. Second, the Company has established a Product Returns and Allowances account for any possible future returns.

			December 31, 2015
Current Assets:		As Reported			Adjustment			As Restated
Cash	$	40,485		$	-		$	40,485
Accounts receivable		172,143			(13,661)	(2)		158,482
Inventory		503,946			-			503,946
Prepaid consulting		16,324			-			16,324
Prepaid and other assets		67,748			-			67,748
Total Current Assets		800,646			(13,661)			786,985
Deposit		10,161			-			10,161
Property and equipment, net		35,300			-			35,300
TOTAL ASSETS	$	846,107		$	(13,661)		$	832,446

LIABILITIES
Current Liabilities:
Accounts payable	$	558,941		$	(36,841)	(1)	$	522,100
Other payables and accruals		223,615			-			223,615
Product returns & allowances		-			609,770	(5)		609,770
Accrued compensation		226,556			-			226,556
Due to an officer		3,253			-			3,253
Notes payable		370,671						370,671
Total Liabilities		1,383,036			572,929			1,955,965

STOCKHOLDERS’ EQUITY (DEFICIT)
Common Stock		26,298			-			26,298
Additional paid-in capital		13,506,140			-			13,506,140
Retained deficit		(14,069,367)			(586,590)			(14,655,957)
Total Stockholders’ Equity (Deficit)		(536,929)			(586,590)			(1,123,519)
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)	$	846,107		$	-			832,446

			December 31, 2015
		As Reported			Adjustment			As Restated
Sales	$	2,069,285		$	17,324	(1)(2)	$	2,086,609
Sales returns and allowances		-			590,023	(1)(3)		590,023
Net Revenue		2,069,285			(572,699)			1,496,586
Costs of goods sold		1,118,378			-			1,118,378
Gross margin		950,907			(572,699)			378,208

Operating Expenses:
Compensation expense		253,272			-			253,272
Advertising and promotion		584,061			-			584,061
Professional fees		103,871			-			103,871
Licensing expense		6,501,715			-			6,501,715
General and administrative		902,732			13,891	(2)(4)		916,623
Total Operating Expenses		8,345,651			13,891			8,359,542
Loss from operations		(7,394,744)			(586,590)			(7,981,334)

Other Income (Expense):
Interest expense		(23,184)			-			(23,184)
Amortization of debt discount		(50,029)			-			(50,029)
Loss on disposal of assets		(17,034)			-			(17,034)
Loss on conversion of debt		(226,811)			-			(226,811)
Change in fair value of derivative liability		(3,042)			-			(3,042)
Gain on extinguishment of debt		62,859			-			62,859
Total other expense		(257,241)			-			(257,241)
Net Loss	$	(7,651,985)		$	(586,590)		$	(8,238,575)
Income Per Common Share:	$	(0.29)		$	(0.03)		$	(0.32)
Weighted Average Common Shares:
Basic		26,094,042			-			26,094,042

(1)

Reversal of subsequent return that was originally debited to sales. Return was reclassed to sales returns & allowance account

(2)

One of the Company’s customer does not satisfy all of the revenue recognition criteria, as they only pay for product sold to the end user. The Company has reversed the revenue and receivable previously recognized on product sold to the customer but not yet to their end user.

(3)

One of the Company’s customers made a large return subsequent to the year ended December 31, 2015. The total revenue previously recognized on the product returned was $209,988.

(4)

Return fee associated with processing the subsequent returns. Amount has been included in the “Customer returns & allowance” account until return is received.

(5)

Allowance for estimated Sales Returns & Allowances for revenue recognized where the right of return exists.

SALES RETURNS AND ALLOWANCES

The Company recorded an allowance for estimated sales returns of $590,023 for the year ended December 31, 2015. The allowance was based on multiple criteria, including type of store, history of returns, length of time since product was sold to the customer and inventory remaining with customer (if known). Use of these criteria resulted in different percentages being applied to different customers. In addition, the Company has had one subsequent return in 2016 for $209,988 and is in discussion with the customer regarding a possible second return. These amounts have been fully reserved. The allowance will be evaluated and adjusted accordingly on a quarterly basis.

		Amount to apply reserve against	Reserve %		Reserve
Pending return	$	N/A	N/A	$	342,972
Customer type 1		395,353	20%		79,071
Customer type 2		163,434	20%		32,687
Customer type 3		343,620	35%		120,267
Customer type 4		150,262	10%		15,026
	$	1,053,669		$	590,023

Customer concentrations

The Company had four customers whose revenue individually represented 31%, 19%, 17% and 14% of the Company sales for a total of 81% for the year ended December 31, 2015. The Company recognizes that there is some risk associated with these concentrations with regards to collection of accounts receivable and sales returns. The Company has made a change in the way it recognizes revenue when the right of return exists in order to mitigate this risk.