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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Commission File Number:  000-54635

STEALTH TECHNOLOGIES, INC.

(formerly, Excelsis Investments, Inc.)

(Exact name of registrant as specified in its charter)

NEVADA

(State or other jurisdiction of incorporation or organization)

27-2758155

(I.R.S. Employer Identification No.)

801 West Bay Drive, Suite 470

Largo, Florida 33770

(Address of principal executive offices, including zip code.)

727-330-2731

(Registrant's telephone number, including area code)

Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 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 Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).     YES [X]     NO [   ]

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 the definitions of "large accelerated filer," "accelerated filer," "non-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 Exchange Act).     YES [   ]     NO [X]

State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date:

96,593,278 as of November 14, 2016.

 

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TABLE OF CONTENTS

PART I – FINANCIAL INFORMATION

STEALTH TECHNOLOGIES, INC.

(formerly Excelsis Investments, Inc.)

Consolidated Financial Statements

For the periods ended September 30, 2016 and December 31, 2015

Consolidated Financial Statement Index

STEALTH TECHNOLGIES, INC.

(formerly Excelsis Investments, Inc.)

Consolidated Balance Sheets

STEALTH TECHNOLGIES, INC.

(formerly Excelsis Investments, Inc.)

Consolidated Statements of Operations

(unaudited)

STEALTH TECHNOLGIES, INC.

(formerly Excelsis Investments, Inc.)

Consolidated Statements of Cashflows

(unaudited)

Stealth Technologies, Inc. (formerly Excelsis Investments, Inc.) (the "Company") was incorporated in the state of Nevada on May 27, 2010 under the name "Pub Crawl Holdings, Inc". On June 14, 2010, the Company entered into an Assignment Agreement (the "Acquisition") with PB PubCrawl.com LLC ("PubCrawl"), a California limited liability company, whereby the Company acquired a 100% interest in the member shares of PubCrawl in exchange for 500,000 common shares of the Company. The Acquisition was accounted for in accordance with ASC 805-50, Related Issues, as the companies were under common control prior to acquisition. On September 3, 2012, the Company sold their rights to PubCrawl to the former President and Director of the Company.

On November 28, 2012, the Company acquired 100% of the members shares of Stealth Card Inc. (formerly Mobile Dynamic Marketing, Inc.) ("Stealth Card"), a company incorporated in the state of Florida on November 6, 2012, in exchange for the issuance of 1,000,000 common shares.  As part of the acquisition, the Company cancelled 15,000,000 issued and outstanding common shares held by the former President and Director of the Company and the management and directors of Stealth Card acquired 7,500,000 common shares of the Company in a private transaction with the former President and Director of the Company. Effectively, Stealth Card held 73% of the issued and outstanding common shares of the Company and the transaction has been accounted for as a reverse merger, where Stealth Card is deemed to be the acquirer for accounting purposes.

On July 13, 2013, the Company entered into a share exchange agreement with Career Start, Inc. ("Career"), a private corporation formed under the state of Florida on February 4, 2013.  Under the terms of the agreement, the Company acquired the net assets of Career in exchange for 4,714,286 common shares of the Company. The acquisition was between two related parties and has been accounted on a cost basis. On October 24, 2013, the Company effected a corporation name change to Excelsis Investments Inc.

On March 11, 2014, the Company announced its name change from Pub Crawl Holdings to Excelsis Investments, Inc.

On September 1, 2014, the Company entered into a purchase agreement with a non-related party to purchase intangible assets by issuing 30% of the outstanding common shares of the Company as determined on an as-converted, fully-diluted basis, which shall not be subject to dilution by any future issuances for the purchase of 3,000 customer accounts The Company is recognizing the revenue generated from the intangible asset on a net basis.

On November 5, 2014, the Company entered into share exchange agreement with a former officer of the Company in regards to common shares in the Company's wholly-owned subsidiaries, Career Start, Inc ("CSI") and Career Start Management ("CSM"), private corporations incorporated in the state of Florida and New York, respectively. Under the terms of the agreement, the Company received 3,111,429 shares of the Company held by the former officer in exchange for 100% of the issued and outstanding common shares of CSI and CSM. Subsequent to the disposal of the subsidiaries, the Company has turned its focus on the development and retail of stealth cards, a product meant to block RFID (Radio Frequency Identifier Signal) chipped cards from being read when placed in the correct orientation to help users secure their personal information.

On March 14, 2016, the Company incorporated a new wholly owned subsidiary, Safety Technologies Inc., a Nevada company. The Company's intention is to sell products other than the stealth cards, through the subsidiary. As at September 30, 2016, there has been no activity within the subsidiary.

On May 19, 2016, the Company's wholly-owned subsidiary, Mobile Dynamic Marketing, Inc. changed its name to Stealth Card Inc.

On May 26, 2016, the Company changed its name from Excelsis Investments Inc. to Stealth Technologies, Inc.

These consolidated interim financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As at September 30, 2016, the Company has a working capital deficit of $1,505,976 and an accumulated deficit of $3,884,843. The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing, and generating profitable operations from the Company's future operations. These factors raise substantial doubt regarding the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.

2.     Summary of Significant Accounting Policies

   a)     Basis of Presentation and Principles of Consolidation

The financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States ("US GAAP") and are expressed in U.S. dollars. These consolidated financial statements comprise the accounts of the Company and its wholly-owned subsidiary, Safety Technologies Inc., a Nevada company. All intercompany transactions have been eliminated on consolidation.  The Company's fiscal year end is December 31.

These interim unaudited consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's consolidated financial position, results of operations and cash flows for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. These unaudited condensed consolidated financial statements do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the financial statements and accompanying notes filed with the U.S. Securities and Exchange Commission in the Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2015.

Accounts receivable represents amounts owed from customers for the sale of product. Amounts are presented net of the allowance for doubtful accounts, which represents the Company's best estimate of the amount of probable credit losses in the existing accounts receivable balance. The Company determines allowance for doubtful accounts based upon historical experience and current economic conditions.  The Company reviews the adequacy of its allowance for doubtful accounts on a regular basis.  As of September 30, 2016, 2016 and December 31, 2015, the Company had no allowances for doubtful accounts.

Inventory is comprised of stealth cards purchased for resell, and is recorded at the lower of cost or net realizable value on a first-in first-out basis.  The Company establishes inventory reserves for estimated obsolete or unsaleable inventory equal to the difference between the cost of inventory and the estimated realizable value based upon assumptions about future and market conditions.

e)     Intangible Assets

Intangible assets are stated at cost less accumulated amortization and are comprised of customer accounts acquired with an useful life of three years and amortized straight line over three years and patent and trademark development costs, which are currently being developed and has not been placed in use. During the period ended September 30, 2016, the Company incurred $110,471 (2015 - $110,068) in amortization expense.

 

The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 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 loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period 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 shares if their effect is anti-dilutive. As at September 30, 2016, the Company had 15,211,557 (December 31, 2015 – 28,280,185) potentially dilutive common shares from potential shares issuable for outstanding convertible debentures.

g)     Revenue Recognition

 

The Company recognizes and accounts for revenue in accordance with ASC 605 as a principal on the sale of goods. Pursuant to ASC 605, Revenue Recognition, revenue is recognized when persuasive evidence of an arrangement exists, delivery has occurred, the amount is fixed and determinable, risk of ownership has passed to the customer and collection is reasonably assured. The Company considered ASC 605-45, Principal Agent Considerations, and determined that the Company acts as a principal in its revenue-earnings activities as they are responsible for the production of goods purchased by the customer, can determine the pricing costs, goods purchased are paid directly by the Company, and has a credit risk with respect to collection of amounts owed by its customers.

h)     Cost of Revenue

 

For the Company's product sales, cost of revenue consists of inventory sold in each transaction. For the Company's service sales, cost of revenue consists of engineering services provided by a related party.

i)      Financial Instruments

 

The following table represents assets and liabilities that are measured and recognized in fair value as of September 30, 2016, on a recurring basis:

The following table represents assets and liabilities that are measured and recognized in fair value as of December 31, 2015, on a recurring basis:

As of September 30, 2016, the Company had a derivative liability amount of $72,371 (December 31, 2015 – $491,249) which was classified as a Level 3 financial instrument, and a gain on change in fair value of derivative liabilities of $418,878 (December 31, 2015 – loss of $341,192).

3.     Convertible Debenture

a)    On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2016, accrued interest of $84,698 (December 31, 2015 - $36,416) has been recorded in accounts payable and accrued liabilities.

On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended September 30, 2016, the Company had amortized $nil (December 31, 2015 - $88,357) of the debt discount to interest expense. During the period ended September 30, 2016, the Company repaid $140,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As September 30, 2016, the carrying value of the debenture was $235,000 (December 31, 2015 - $375,000) and the fair value of the derivative liability was $62,309 (December 31, 2015 - $304,860).

b)   On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2016, accrued interest of $14,245 (December 31, 2015 - $10,267) has been recorded in accounts payable and accrued liabilities.

On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended September 30, 2016, the Company had amortized $nil (December 31, 2015 - $46,652) of the debt discount to interest expense. During the period ended September 30, 2016, the Company repaid $32,514 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. During the period ended September 30, 2016, $19,988 in principal and interest was forgiven. As at September 30, 2016, the carrying value of the debenture was $nil (December 31, 2015 - $38,258) and the fair value of the derivative liability was $nil (December 31, 2015 - $65,853). During the period ended September 30, 2016, the Company amortized $nil (December 31, 2015 - $285) in financing costs.

c)   On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2016, accrued interest of $23,872 (December 31, 2015 - $13,854) has been recorded in accounts payable and accrued liabilities.

On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan.  On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended September 30, 2016, the Company had amortized $nil (December 31, 2015 - $47,044) of the debt discount to interest expense. During the period ended September 30, 2016, the Company repaid $37,486 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at September 30, 2016, the carrying value of the debenture was $37,514 (December 31, 2015 - $75,000) and the fair value of the derivative liability was $10,062 (December 31, 2015 - $120,536). During the period ended September 30, 2016, the Company amortized $nil (December 31, 2015 - $288) in financing costs.

4.     Derivative Liabilities

The Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 3 in accordance with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model performed by an independent qualified business valuator. The fair value of the derivative liability is revalued on each balance sheet date with corresponding gains and losses recorded in the consolidated statement of operations. During the period September 30, 2016, the Company recorded a gain on the change in fair value of derivative liability of $418,878 (December 31, 2015 – loss of $341,192). As at September 30, 2016, the Company recorded a derivative liability of $72,371 (December 31, 2015 - $491,249).

The following inputs and assumptions were used to value the convertible debentures outstanding during the period ended September 30, 2016:

·	The range of stock prices for the valuation of the derivative instruments at September 30, 2016 ranged from $0.034 to $0.030 per share of common stock.

·	The debtholder would redeem (with penalties of 0% to 50% depending on the date and full-partial redemption) based on availability of alternative financing of 70%, 80%, and 90%.

·	The debtholder would automatically convert note at maturity if the registration was effective and the Company is not in default.

·	The projected annual volatility for each valuation period based on the historic volatility of the Company 351% - 306%

·	Capital raising events of $100,000 would occur in each quarter at 75% of market generating dilutive reset events at prices below $0.015 (rounded) for the convertible debentures.

A summary of the activity of the derivative liability is shown below:

 

a)     As at September 30, 2016, the Company was owed $316,944 (December 31, 2015 - $5,000) from product sales revenue from a significant shareholder which is non-interest bearing, unsecured, and due on demand. This amount has been included in accounts receivable – related party.

b)     As at September 30, 2016, the Company owed $67,079 (December 31, 2015 - $25,150) to the President of the Company, which is non-interest bearing, unsecured, and due on demand.

c)     As at September 30, 2016, the Company owed $64,864 (December 31, 2015 - $22,998) to the Chief Financial Officer of the Company, which is non-interest bearing, unsecured, and due on demand.

d)     As at September 30, 2016, the Company recorded a liability for shares issuable of $1,126,513 (December 31, 2015 - $831,233) relating to 46,064,956 common shares to be issued to a significant shareholder pursuant to the acquisition agreement for the intangible assets. During the period ended September 30, 2016, the Company recorded $295,279 (December 31, 2015 – loss of $318,132) as a gain in the fair value of the shares issuable to the significant shareholder

e)     As at September 30, 2016, the Company owed $75,000 (December 31, 2015 - $75,000) to a significant shareholder for a loan payable. The loan is unsecured, non-interest bearing, and due on July 25, 2017.

f)      During the period ended September 30, 2016, the Company generated revenues from services of $354,444 (December 31, 2015 - $837,100) from a significant shareholder.

g)     During the period ended September 30, 2016, the Company incurred payroll expense of $394,510 (December 31, 2015 - $267,495) to management and officers of the Company.

h)   During the period ended September 30, 2016, the Company incurred bonuses on sales of stealth cards of $182,198 (December 31, 2015 - $nil) to management and officers of the Company which has been included in cost of sales. Bonuses accrue on total gross sales at a rate of 5% each to the Chief Executive Officer and the Chief Financial Officer of the Company.

i)      During the nine months ended September 30, 2016, the Company issued 23,166,555 (December 31, 2015 – nil) common shares with a fair value of $671,831 (December 31, 2015 - $nil) to management and officers of the Company which has been included in consulting expenses.

j)      During the nine months ended September 30, 2016, the Company incurred engineering expense of $7,025 (December 31, 2015 - $132,550), which was included in cost of goods sold, and research and development costs of $42,600 (December 31, 2015 - $nil) to a company owned by the mother of the President of the Company. As at September 30, 2016, the Company owed $51,366 (December 31, 2015 - $245,270) to the company owned by the mother of the President of the Company, which is non-interest bearing, unsecured, and due on demand. The amount owing has been recorded as accounts payable – related party.

 

a)    On July 25, 2014, the Company entered into a loan agreement with a related party for a loan of $175,000. Under the terms of the note, the amount is unsecured, non-interest bearing, and due on July 25, 2017. The unpaid principal is to be repaid in installments defined as the collected sum of 10% of the unadjusted gross sales revenue (net of returns and chargebacks) with the installments to begin once the Company has received the gross proceeds of $175,000. As at September 30, 2016, the Company had received loan proceeds of $75,000 (December 31, 2015 - $75,000). During the period ended September 30, 2016, the Company recorded imputed interest of $4,504 (December 31, 2015 - $6,000).

b)    At September 30, 2016, the Company owes $nil (December 31, 2015 - $19,491) pursuant to a future receivable sales agreement with a non-related party. Under the terms of the agreement, the amount is secured by $73,639 of the Company's accounts receivable, bears interest at 30%, and due in installments of $792 payable on each business day.

c)    At September 30, 2016, the Company owes $120,000 (December 31, 2015 - $120,000) in a note payable to a non-related party. Under the terms of the note, the amount is unsecured, bears interest at 10% per annum, and due on demand

a)     On January 1, 2016, the Company issued 500,000 common shares with a fair value of $14,250 to unrelated parties for consulting services.

b)     On January 8, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to unrelated parties for consulting services.

c)     On March 26, 2016, the Company issued 13,166,555 common shares with a fair value of $381,830 to the President of the Company for employee bonuses.

d)     On March 26, 2016, the Company issued 10,000,000 common shares with a fair value of $290,000 to the Chief Financial Officer of the Company for employee bonuses.

e)     On March 26, 2016, the Company issued 3,000,000 common shares with a fair value of $87,000 to a non-related party for consulting services.

f)      On at June 16, 2016, the Company issued 2,965,558 common shares with a fair value of $59,311 to unrelated parties for consulting services.

a)   On December 22, 2015, the Company was served notice by an individual claiming that he had received electronic emails recommending the purchase of the Company's common stock. The plaintiff claims that during the period of December 3, 2012 to December 7, 2012, he had received eighteen unsolicited electronic mails in regards to the purchase of the Company's common stock and is seeking damages of $1,000 for each electronic mail he has received, plus $1,700 in attorney fees for a total claim of $19,700. Per the plaintiff's claim, he has served notice to the Company since 2013. However, the Company asserts that they have not received any notices in regards to these claims until September of 2015. The plaintiff presented his case in court on February 19, 2016 and the court ruled in favor of the plaintiff for the full amount of $19,700. As at September 30, 2016, the Company accrued the expense as other loss and has included the liability in accounts payables and accrued liabilities.

b)   On February 2, 2016, the Company and three debt holders entered into a settlement agreement, where the Company agrees to pay $30,000 to the debt holders on or before the third day of each subsequent month until the entire balance is repaid by the Company. Refer to Note 3(a), (b), and (c).

c)   On February 1, 2016, the Company received notice that a third party was seeking compensation for damages as a result of false advertisements made by the Company in regards to the Company's stealth cards. The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with the Company's stealth cards. The Company has filed an answer to the plaintiff's complaint, with denials and affirmative defenses, and is unable to estimate the likelihood of any outcome as at September 30, 2016.

d)   On February 22, 2016, the Company received notice that a consultant was seeking compensation for breach of agreement. Pursuant to the agreement, the parties agreed to equally split any net profits generated from the sale of Stealth cards made by the consultant. The Company asserts that historical sales generated from the sale of the Stealth Cards were not as a result of the consultant's services, and therefore the Company should not be liable for any compensation due to the consultant. The Company has filed its Answer and Affirmative Defenses on July 18, 2016 and has asserted counterclaims against the consultant. The Company is currently awaiting the response from the consultant and is unable to estimate the likelihood of any outcome as at September 30, 2016.

9.     Subsequent Events

a)     On October 1, 2016, the Company issued 4,650,000 common stock of the Company to an unrelated party to settle debt in the amount of $100,000.

ITEM 2.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

This Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) contains forward-looking statements that involve known and unknown risks, significant uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed, or implied, by those forward-looking statements.  You can identify forward-looking statements by the use of the words may, will, should, could, expects, plans, anticipates, believes, estimates, predicts, intends, potential, proposed, or continue or the negative of those terms.  These statements are only predictions. In evaluating these statements, you should consider various factors which may cause our actual results to differ materially from any forward-looking statements.  Although we believe that the exceptions reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements.  Therefore, actual results may differ materially and adversely from those expressed in any forward-looking statements.  We undertake no obligation to revise or update publicly any forward-looking statements for any reason.

RESULTS OF OPERATIONS

Working Capital

Cash Flows

Operating Revenues

During the three months ended September 30, 2016, the Company earned revenue from operations of $1,310,345 compared with revenue of $384,173 during the three months ended September 30, 2015. The increase in revenue and gross profit margin is due to the fact that the Company earned increased revenue from the sale of Stealth cards, and also earned revenue from a new product introduced in the first quarter of fiscal 2015, which in an emergency two way voice system that connects the user to 911. The increase in total revenue is net of a decrease in revenue from services of $73,500 during the three month period ended September 30, 2016 compared to the same period in 2015. For the three month period ended September 30, 2016, the Company recorded a gross margin of $761,769 or 58.13% compared to $343,188 or 89.33% during the period ended September 30, 2015. During the three month period ended September 30, 2016, the Company incurred higher cost of goods relating to the new product sold which was not available in the prior year.

During the nine months ended September 30, 2016, the Company earned revenue from operations of $3,300,713 compared with revenue of $893,625 during the nine months ended September 30, 2015. The increase in revenue is due to the fact that the Company earned increased revenue from the sale of Stealth cards, and also earned revenue from a new product introduced in the first quarter of fiscal 2015, which is an emergency two way voice system that connects the user to 911. During the nine months period ended September 30, 2016, the Company incurred cost of goods sold of $1,347,806 compared to $176,079 during the nine months ended September 30, 2015. For the nine month period ended September 30, 2016, the Company recorded a gross margin of $1,952,907 or 59.17% compared to $717,546 or 80.30% during the period ended September 30, 2015. During the three month period ended September 30, 2016, the Company incurred higher cost of goods relating to the new product sold which was not available in the prior year.

Operating Expenses and Net Loss

During the three months ended September 30, 2016, the Company incurred operating expenses from operations of $695,692 compared with $316,133 during the three months ended September 30, 2015.  The increase is due to an increase of $232,085 in general and administrative expense due to an increase in overall office costs, $77,998 in payroll expense as increased salaries and benefits were incurred to the President and Chief Financial Officer of the Company in comparison to prior year, $30,735 in professional fees for legal services relating to legal disputes which only arose since the beginning of the current fiscal year, and $41,054 for engineering fee $55,236 relating to the development of Stealth cards. The increase is net of a decrease in $54,878 for consulting fee as less business and financial consulting services were received in the current year.

During the nine months ended September 30, 2016, the Company incurred operating expenses from operations of $2,951,193 compared with $831,645 during the nine months ended September 30, 2015.  The increase is due to an increase of $858,825 in consulting fees incurred to new consultants for business and financial consulting services as per new consulting agreements, as well as share-based compensation to the President and Chief Financial Officer of the Company for business consulting services which were not incurred in the prior year, $200,984 in payroll costs as the Company increased salaries and benefits incurred to the President and Chief Financial Officer of the Company in comparison to prior year, and $73,731 in professional fees for legal services relating to legal disputes which only arose during fiscal 2016, $43,654 in research and development costs relating to the development of new products and $941,951 of general and administrative fees due to increased overall office costs as compared to prior year.

For the three months ended September 30, 2016, the Company had net loss of $198,323 and basic and diluted net loss per share of $0.00. In addition to operating expenses from operations, the Company also incurred a gain of $19,413 for the change in fair value of derivative liabilities relating to the floating conversion price of its convertible debenture, gain of $19,988 in forgiveness of convertible debentures, offset by $281,254 in make whole expense and $22,547 in interest expense relating to interest charges incurred on its convertible debentures. For the three months ended September 30, 2015, the Company had a net income of $305,853 and basic and diluted net loss per share of $0.01. In addition to operating expenses from operations, the Company also incurred make whole income of $232,428, gain of $88,554 in forgiveness of debt relating to outstanding convertible debentures, offset by a loss of $11,297 for the change in fair value of derivative liabilities relating to the floating conversion price of its' convertible debenture and interest expense of $30,887 relating to interest charges incurred on its' convertible debentures.

For the nine months ended September 30, 2016, the Company had a net loss of $930,470 and basic and diluted net loss per share of $0.01. In addition to operating expenses from operations, the Company also incurred a gain of $418,878 for the change in fair value of derivative liabilities relating to the floating conversion price of its convertible debenture, gain of $19,988 in forgiveness of convertible debentures, offset by a make whole expense of $295,280 and interest expense of $75,770 relating to interest charges incurred on its convertible debentures. For the nine months ended September 30, 2015, the Company had a net loss of $413,559 and basic and diluted net loss per share of $0.01. In addition to operating expenses from operations, the Company also incurred a gain related to the forgiveness of debt of $91,615 and make whole income of $472,111, offset by a loss of $289,859 for the change in fair value of derivative liabilities relating to the floating conversion price of its' convertible debenture and interest expense of $573,327 relating to interest charges incurred on its' convertible debentures.  

Liquidity and Capital Resources

As at September 30, 2016, the Company had cash of $917,535 and total current assets of $1,611,631 compared with cash of $388,183 and total current assets of $1,193,612 at December 31, 2015. The increase in cash is attributed to revenue earned from operations and delaying payments on outstanding accounts payable balances, net of amounts paid for cost of goods sold and operating expenses. The overall increase in total current assets is due to increase of $529,352 in cash, $311,944 in receivable - related party, $159,860 in prepaid expense, $45,612 in inventory, net of a decrease in $331,444 in accounts receivable, and $297,305 in prepaid inventory.

The overall working capital deficit decreased from $1,607,626 at December 31, 2015 to $1,505,976 at September 30, 2016 due in part to decreases in accounts payable – related party, loans payable, convertible debentures, and derivative liability relating to the fair value of the floating conversion price of the convertible debenture. These decreases were offset by increases in accounts payable and accrued liabilities due to delaying payments on outstanding accounts payable balances, deferred revenue, amounts due to related parties, and liability for shares issuable – related party.

Cashflow from Operating Activities

During the nine months ended September 30, 2016, the Company earned $761,090 of cash from operating activities, which is reflective of the cash earned from operating activities, net of cash used for day-to-day business operations.   Comparatively, the Company used cash of $132,983 during the nine months ended September 30, 2015. The decrease of cash used by operating activities is largely due to the Company earning higher revenue from the sale of its Stealth products and a new product in comparison to its prior period and due to delaying payments on outstanding accounts payable balances.

Cashflow from Investing Activities

During the nine months ended September 30, 2016 the Company used $2,247 for investing activities to acquire intangible assets compared to the Company using $nil for investing activities during the nine months ended September 30, 2015.

Cashflow from Financing Activities

During the nine months ended September 30, 2016, the Company used $229,491 of cash for financing activities, compared with $56,645 in cash being provided from financing activities during the nine months ended September 30, 2015. The increase in cash used for financing activities relate to repayments made towards loans payable and convertible debentures outstanding.

Convertible Promissory Note

On June 20, 2014, the Company entered into a consulting agreement for consulting services. Pursuant to the agreement, the Company is to pay the consultant a commencement fee of $250,000. On June 23, 2014, the Company issued a $250,000 convertible note which is unsecured, non-bearing interest and due on June 22, 2015. The note is convertible into shares of common stock 180 days after the date of issuance (December 17, 2014) at a conversion rate of 90% of the lowest closing bid prices of the Company's common stock for the ten trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2016, accrued interest of $84,698 (December 31, 2015 - $36,416) has been recorded in accounts payable and accrued liabilities.

On December 17, 2014, the note became convertible resulting in the Company recording a derivative liability of $94,188 with a corresponding adjustment to loss on change in fair value of derivative liabilities of $1,050 as accretion expense. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $125,000 in interest expense for the additional amount payable due to defaulting on the loan. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $20,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended September 30, 2016, the Company had amortized $nil (December 31, 2015 - $88,357) of the debt discount to interest expense. During the period ended September 30, 2016, the Company repaid $140,000 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As September 30, 2016, the carrying value of the debenture was $235,000 (December 31, 2015 - $375,000) and the fair value of the derivative liability was $62,309 (December 31, 2015 - $304,860).

On June 23, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 22, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 20, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2016, accrued interest of $14,245 (December 31, 2015 - $10,267) has been recorded in accounts payable and accrued liabilities.

On December 20, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,618 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 22, 2015 and 150% of the remaining balance in principal and interest is payable. During year ended December 31, 2015, the Company included a penalty of $12,753 in interest expense for the additional amount payable due to defaulting on the loan. During the year ended December 31, 2015, the Company issued 2,001,225 common shares for the conversion of $24,495. On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended September 30, 2016, the Company had amortized $nil (December 31, 2015 - $46,652) of the debt discount to interest expense. During the period ended September 30, 2016, the Company repaid $32,514 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. During the period ended September 30, 2016, $19,988 in principal and interest was forgiven. As at September 30, 2016, the carrying value of the debenture was $nil (December 31, 2015 - $38,258) and the fair value of the derivative liability was $nil (December 31, 2015 - $65,853). During the period ended September 30, 2016, the Company amortized $nil (December 31, 2015 - $285) in financing costs.

On June 25, 2014, the Company issued a $50,000 convertible note which is unsecured, bears interest at 8% per annum and due on June 24, 2015. The Company received $49,400, net of issuance fee of $600. The note is convertible into shares of common stock 180 days after the date of issuance (December 22, 2014) at a conversion rate of 60% of the lowest closing bid prices of the Company's common stock for the five trading days ending one trading day prior to the date the conversion notice is sent by the holder to the Company. As at September 30, 2016, accrued interest of $23,872 (December 31, 2015 - $13,854) has been recorded in accounts payable and accrued liabilities.

On December 22, 2014, the note became convertible resulting in the Company recording a derivative liability of $49,464 with a corresponding adjustment to loss on change in fair value of derivative liabilities. Pursuant to the agreement, the convertible note matured on June 24, 2015 and 150% of the remaining balance in principal and interest is payable. During the year ended December 31, 2015, the Company included a penalty of $25,000 in interest expense for the additional amount payable due to defaulting on the loan.  On February 2, 2016, the Company entered into a settlement agreement whereby the Company would pay $5,000 on or before the third day of each subsequent month until the entire balance is repaid. During the period ended September 30, 2016, the Company had amortized $nil (December 31, 2015 - $47,044) of the debt discount to interest expense. During the period ended September 30, 2016, the Company repaid $37,486 (December 31, 2015 - $nil) of the outstanding loan pursuant to a settlement agreement. As at September 30, 2016, the carrying value of the debenture was $37,514 (December 31, 2015 - $75,000) and the fair value of the derivative liability was $10,062 (December 31, 2015 - $120,536). During the period ended September 30, 2016, the Company amortized $nil (December 31, 2015 - $288) in financing costs.

We prepared our financial statements and the accompanying notes in conformity with accounting principles generally accepted in the United States of America, which require management to make estimates and assumptions about future events that affect the reported amounts in the financial statements and the accompanying notes. We identified certain accounting policies as critical based on, among other things, their impact on the portrayal of our financial condition, results of operations, or liquidity and the degree of difficulty, subjectivity, and complexity in their deployment. Critical accounting policies cover accounting matters that are inherently uncertain because the future resolution of such matters is unknown. Management routinely discusses the development, selection, and disclosure of each of the critical accounting policies. The following is a discussion of our most critical accounting policies:

The preparation of financial statements in conformity with US GAAP 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 financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

Level 1

Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

Level 2

Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

Level 3

Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

The Company's financial instruments consist principally of cash, accounts receivable, accounts receivable – related party, accounts payable and accrued liabilities, accounts payable – related party, loans payable, amount due to related parties, convertible debenture, and loan payable – related party. Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

Under the supervision and with the participation of our management, including the Principal Executive Officer and Principal Financial Officer, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that these disclosure controls and procedures are not effective.

Management's assessment identified several material weaknesses in our internal control over financial reporting. These material weaknesses include the following:

-	Insufficient number of qualified accounting personnel governing the financial close and reporting process

-	Lack of proper segregation of duties

There was no change in our internal control over financial reporting during the three months ended September 30, 2016 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION.

a)

On February 19, 2016, unbeknownst to us, a $19,700 default judgment was rendered against us in the case of George Sharp v. Xumanii et al., Case No. 37-2013-00048310, pending in the Superior Court of the State of California.  We have filed a motion in that case to vacate the judgment alleging that we were never served with process and the Superior Court never had jurisdiction of the matter.  The motion is currently pending and the Court has not ruled upon the same.

b)

An action was initiated against us in Scanner Guard Corporation v. Excelsis Investments, Inc., et al., Case No. 16-516, pending in the United States District Court for the Eastern District of Pennsylvania wherein Scanner Guard alleges that we made false statements about our stealth card.  The plaintiff is a manufacturer and distributor of radio frequency identification (RFID) chip protection cards which are in competition with our stealth cards. We filed an answer to Scanner's complaint, denying the allegations in Scanner's complaint and have asserted certain affirmative defenses.  We intend to vigorously defend this matter.

c)

An action was initiated against us in The Marketing Source, Inc. v. Mobile Dynamic Marketing, Inc., a Florida corporation, et al, Case No. 2016-000823-CI, pending in the Circuit Court of the Sixth Judicial Circuit in and for Pinellas County, Florida wherein The Marketing Source alleges that we breached the terms a Marketing Agreement and as a result The Marketing Source is entitled to an unspecified amount of damages, an accounting, and an injunction.  We deny The Marketing Source's allegations and intend to vigorously defend this action.

We are a smaller reporting company as defined by Rule 12b-2 of the Securities Exchange Act of 1934 and are not required to provide the information under this item.

None.

None.

None.

None

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