NOTE 9 – INCOME TAXES
The effective income tax rate for the years ended June 30, 2023 and 2022 differs from the U.S. Federal statutory rate due to the following:
|
| June 2023
|
| June 2022
|
Federal statutory income tax rate
| $
| 508,880
| $
| (179,826)
|
Change in valuation allowance
|
| (508,880)
|
| 179,826
|
| $
| -
| $
| -
|
The components of the deferred tax assets and liabilities at June 30, 2023 and 2022 are as follows:
|
| June 2023
|
| June 2022
|
Long-term deferred tax assets:
|
|
|
|
|
Federal net operating loss carryforwards
|
| $508,880
|
| $179,826
|
Valuation allowance
|
| (508,880)
|
| (179,826)
|
Net long-term deferred tax assets
|
| $-
|
| $-
|
NOTE 10 – STOCKHOLDERS’ EQUITY
Authorized Stock
The Company originally authorized 75,000,000 common shares with a par value of $0.001 per share. Each common share entitles the holder to one vote on any matter on which action of the stockholders of the corporation is sought. During February 2017, the Company increased the authorized number of shares to 500,000,000. Also, the Company increased the authorized preferred stock to 75,000,000 shares and designated 25,000,000 shares of preferred stock to Series A Convertible Preferred Stock. During January 2018, the Company increased its authorized number of common shares to 1,000,000,000. During April 2018, the Company increased its authorized number of common shares to 2,500,000,000. The Board of Directors, in the future, has the authority to increase the authorized capital up to 4,000,000,000 shares based on shareholder approval.
The Company effectuated a reverse stock split of 1-for-250 as of July 23, 2018.
18
On October 16, 2017, the Company filed an Amended and Restated Certificate of Designation of the Rights, Preferences, Privileges and Restrictions of the Series A Convertible Preferred Stock (the “Amended Certificate”) with the Secretary of State of the State of Nevada. The Amended Certificate reduces the number of preferred shares designated as Series A Preferred Stock from 25,000,000 shares to 1,333,334 shares. The Amended Certificate also changes the conversion and voting rights of the Series A Preferred Stock. The Series A Preferred Stock is now convertible into the number of shares of our common stock equal to 0.00006% of our outstanding common stock upon conversion. The voting rights of the Series A Preferred Stock are now equal to the number of shares of common stock into which the Series A Preferred Stock may convert.
As of June 30, 2023, there are no outstanding shares of preferred stock. All the preferred stock was converted in common stock on February 4, 2019.
Common Share Issuances
During the three months ended March 31, 2023, the Company issued 320,000 shares of common stock for consulting fees at a per share price of $0.05. During the three months ended June 30, 2023, the Company did not issue any shares of common stock.
There were no shares issued during the fourth quarter 2022. During the third quarter 2022, the Company issued 340,000 shares of common stock for consulting fees along with issuing 340,621 shares of common stock to convert an outstanding note payable to a shareholder. On May 19, 2022, the Company issued 4,400,000 shares of common stock for broker and consulting fees. On April 22 and 25, 2022, the Company issued 2,000,000 shares of common stock for broker and funding fees. On February 4, 2022, the Company issued 507,917 shares of common stock in a direct security purchase agreement. On January 10, 2022, the Company cancelled 200,267 shares of common stock. Further, on March 4, 2022, the Company cancelled 600,000 shares of common stock.
Warrant Issuances
During the month ending March 31, 2022, the Company issued 7,421,544 warrants to 2 unrelated parties at a per share price of $0.04716. On February 2, 2022, the Company issued 2,000,000 warrants to an individual at a per share price of $0.05. As of June 30, 2023, there were 23,421,544 warrants outstanding, of which 16,000,000 warrants are fully vested.
|
|
| Weighted-
|
|
|
| Weighted-
| Average
|
|
|
| Average
| Remaining
| Aggregate
|
|
| Exercise
| Contractual
| Intrinsic
|
| Warrants
| Price
| Life (Years)
| Value
|
|
|
|
|
|
Outstanding at December 31, 2022
| 16,000,000
| $ 0.06
| 2.64
| $ -
|
Granted
| 7,421,544
| 0.05
| 4.56
| 35,178
|
Forfeited
| -
| -
| -
| -
|
Exercised
| -
| -
| -
| -
|
Outstanding at June 30, 2023
| 23,421,544
| $ 0.06
| 2.59
| $ 35,178
|
|
|
|
|
|
Vested and expected to vest at June 30, 2023
| 23,421,544
| $ 0.06
|
| $ 35,178
|
|
|
|
|
|
Exercisable at June 30, 2023
| 23,421,544
| $ 0.06
|
| $ 35,178
|
At June 30, 2023, the intrinsic value of these stock warrants was $0 as the exercise price of these stock warrants were greater than the market price.
Stock Issued for Services
On March 6, 2023, the Company issued 320,000 shares of common stock for consulting fees at a per share price of $0.05.
On September 13, 2022, the Company issued 340,000 shares of common stock for consulting fees at a per share price of $0.05. During the period ending June 30, 2022, the Company issued 6,400,000 shares of common stock for broker, consulting, and funding fees at a per share price of $0.05.
19
Share Conversion Agreements
All of the holders of the Company’s Series A Convertible Preferred Stock (the “Preferred Holders”) entered into a Preferred Stock Conversion Agreement. Pursuant to the Conversion Agreements, the Preferred Holders converted their shares of preferred stock into common stock, effective as of the Exchange. As a result, no shares of the Company’s Series A Convertible Preferred Stock are outstanding. An aggregate of 15,592,986 shares of common stock were issued to the Preferred Holders. The Preferred Holders agreed to convert each share of Series A Convertible Preferred Stock into eighteen (18) shares of common stock and agreed to retire a total of 467,057 shares of Series A Convertible Preferred Stock. The Company cancelled the retired shares.
Omnibus Stock Grant and Option Plan
The following summary of options activity for the three months ended June 30, 2023 is presented below:
|
|
| Weighted-
|
|
|
| Weighted-
| Average
|
|
|
| Average
| Remaining
| Aggregate
|
|
| Exercise
| Contractual
| Intrinsic
|
| Options
| Price
| Life (Years)
| Value
|
|
|
|
|
|
Outstanding at December 31, 2022
| 4,600,000
| $ 0.05
| 2.84
| 8,740
|
Granted
| -
| -
| -
| -
|
Forfeited
| -
| -
| -
| -
|
Exercised
| -
| -
| -
| -
|
Outstanding at June 30, 2023
| 4,600,000
| $ 0.05
| 2.84
| $ 8,740
|
|
|
|
|
|
Vested and expected to vest at June 30, 2023
| 4,600,000
| $ 0.05
|
| $ 8,740
|
Exercisable at June 30, 2023
| 4,600,000
| $ 0.05
|
| $ 8,740
|
At June 30, 2023, the intrinsic value of these stock options was $8,740 as the exercise price of these stock options were less than the market price.
On December 26, 2022, the Company canceled 12,150,000 stock options with a strike price of $0.05.
The following summary of restricted stock units activity for the three months ended June 30, 2023 is presented below:
|
|
|
|
| Weighted-
|
|
|
|
|
|
| Weighted-
|
|
|
|
|
|
| Average
|
|
|
|
|
|
| Grant Date
|
|
|
| Shares
|
|
| Fair Value
|
|
|
|
|
|
|
|
|
Non-vested at December 31, 2022
|
|
| -
|
|
|
| -
|
|
Granted
|
|
| 15,975,000
|
|
|
| 0.05
|
|
Vested
|
|
| (8,900,000
| )
|
|
| 0.05
|
|
Forfeited
|
|
| -
|
|
|
| -
|
|
Non-vested at June 30, 2023
|
|
| 7,075,000
|
|
|
| 0.05
|
|
The total fair value of restricted stock units vested during the three months ended June 30, 2023 was $445,000 and is included in selling, general and administrative expenses in the accompanying consolidation statements of operations. As of June 30, 2023, the amount of unvested compensation related to issuances of restricted stock units fair value was $298,153 and $76,047 has been expensed and is included in selling, general and administrative expenses in the accompanying consolidation statements of operations.
20
The fair value of share options, units, and warrants are estimated using the Black-Scholes option pricing method based on the following weighted-average assumptions:
|
| Three Months Ended June 30,
|
|
|
| 2023
|
|
| 2022
|
|
Risk-free interest rate
|
|
| 5.18
| %
|
|
| 2.75
| %
|
Average expected term (years)
|
|
| 4.7 years
|
|
|
| 4.75 years
|
|
Expected volatility
|
|
| 129.0
| %
|
|
| 194.8
| %
|
Expected dividend yield
|
|
| -
|
|
|
| -
|
|
Offering Circular
During the first part of the 2021, the Company filed a Regulation A Offering Circular with the U.S. Securities and Exchange Commission. The Offering Circular was qualified during August 2021.
NOTE 11 – BUSINESS SEGMENT INFORMATION
As of June 30, 2023, the Company operated in two reportable segments (Corporate and Health Supplements) supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the quarter June 30, 2023.
| CONSOLIDATED
| HEALTH SUPPLEMENTS
| CORPORATE
|
| | BergaMet
| UBN
| |
Revenue
| 1,203,427
| 1,203,427
| -
| -
|
Cost of Revenue
| 640,517
| 640,517
| -
| -
|
Long-lived Assets
| 732,030
| 229,304
| 502,727
| -
|
Gain (Loss) Before Income Tax
| (1,846,392)
| (366,435)
| (4,113)
| (1,475,843)
|
Identifiable Assets
| 1,654,206
| 1,654,206
| -
| -
|
Depreciation and Amortization
| 1,098
| 1,098
| -
| -
|
As of June 30, 2022, the Company operated in two reportable segments (Corporate and Health Supplements) supported by a corporate group which conducts activities that are non-segment specific. The following table presents selected financial information about the Company’s reportable segments for the quarter ended June 30, 2022.
| CONSOLIDATED
| HEALTH SUPPLEMENTS
| CORPORATE
|
| | BergaMet
| UBN
| |
Revenue
| 933,198
| 933,198
| -
| -
|
Cost of Revenue
| 495,178
| 495,178
| -
| -
|
Long-lived Assets
| 732,030
| 193,260
| 538,771
| -
|
Gain (Loss) Before Income Tax
| (856,315)
| (124,830)
| (663)
| (730,812)
|
Identifiable Assets
| 1,975,879
| 1,975,879
| -
| -
|
Depreciation and Amortization
| 219
| 219
| -
| -
|
Currently, all of our customers are located in the United States of American and Canada. Our revenues to our customers are not material to our overall total sales. Our largest customers, Natural Grocers and Emerson Ecologics, LLC, account for less than 1% of our total sales in the months ending 2023 and 2022.
NOTE 12 – SUBSEQUENT EVENTS
The key terms for the 15,975,000 RSU are as follows: the effective grant date for all RSU’s is April 28, 2023. Each of the RSU’s will have a purchase price of $0.01 (prior to the reverse split). 8,900,000 of the RSU’s had an expiration date of June 30, 2023 and are all immediately vested once granted. All of the 8,900,000 shares of common stock were issued on July 5, 2023. 7,075,000 of the RSU’s will have an expiration date of March 31, 2024 and will vest on January 1, 2024. Any of the RSU will be forfeited without any payment or consideration by the holder. The RSU’s comply with Section 409A.
The Company evaluated its June 30, 2023 financial statements for subsequent events through August 11, 2023, the date the financial statements were available to be issued.
21
ITEM 2Management’s Discussion and Analysis of Financial Condition and Results of Operations
Our Management’s Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology; and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results of operations and prospects.
The following discussion and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with, its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting principles generally accepted in the United States.
Overview
We are a platform for acquiring, developing, patenting, marketing, and distributing plant-based nutraceuticals. Our products have not been evaluated by the FDA or any similar regulatory body for safety and efficacy. Our proprietary and patented products target select high-growth categories within the multibillion-dollar nutraceuticals market, such as heart, brain and immune health. Our mission is to acquire or create products with health and performance benefits that have mass consumer appeal.
Guided by this mission, our first two acquisitions formed our current operating subsidiaries, Bergamet, which offers nutraceutical heart and immune health products, and UBN, which offers nutraceutical products for brain health. Based on published research from third-party sources, we believe our Bergamet products have been shown to support heart health, support immune response, and address metabolic syndrome.
Our Financial Condition and Going Concern Issues
As a result of our financial condition, we have received a report from our independent registered public accounting firm for our financial statements for the years ended December 31, 2022 and 2021 that includes an explanatory paragraph describing the uncertainty as to our ability to continue as a going concern. From inception (December 19, 2014) through the end of December 31, 2022, we have incurred accumulated net losses of $15,926,742. In order to continue as a going concern we must effectively balance many factors and generate more revenue so that we can fund our operations from our sales and revenues. If we are not able to do this, we may not be able to continue as an operating company. At our current revenue and burn rate, we have an immediate cash need, and thus we must raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing cash flow will be adequate to satisfy our existing operating expenses and capital requirements.
Results of Operations for the Three and Six Months Ended June 30, 2023 and 2022
Introduction
We had revenues of $588,484 and $1,203,427 for the three and six months ended June 30, 2023, compared to $469,812 and $933,198 for the three and six months ended June 30, 2022. Our cost of revenue for the three and six months ended June 30, 2023 were $303,415 and $640,517, compared to $195,556 and $334,238 for the three and six months ended June 30, 2022.
Our operating expenses were $1,540,942 and $2,223,972 for the three and six months ended June 30, 2023, compared to $888,401 and $1,258,758 for the three and six months ended June 30, 2022. Our operating expenses consisted entirely of general and administrative expenses.
22
Our net loss was $1,267,235 and $1,846,392 for the three and six months ended June 30, 2023, compared to $859,326 and $856,315 for the three and six months ended June 30, 2022.
Revenues and Net Operating Loss
Our revenue, operating expenses, other income (expense), and net loss for the three and six months ended June 30, 2023 and 2022 were as follows:
|
| Three Months
Ended
|
| Three Months
Ended
|
| Six Months
Ended
|
| Six Months
Ended
|
|
| June 30,
|
| June 30,
|
| June 30,
|
| June 30,
|
|
| 2023
|
| 2022
|
| 2023
|
| 2022
|
|
|
|
|
|
|
|
|
|
Revenue
| $
| 588,484
| $
| 469,812
|
| 1,203,427
|
| 933,198
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
| 303,415
|
| 195,556
|
| 640,517
|
| 334,238
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
| 285,069
|
| 274,255
|
| 562,911
|
| 598,960
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
General and administrative
|
| 1,540,942
|
| 888,401
|
| 2,223,972
|
| 1,258,758
|
Total operating expenses
|
| 1,540,942
|
| 888,401
|
| 2,223,972
|
| 1,258,758
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
Interest expenses, net of interest income
|
| (25,212)
|
| (24,365)
|
| (114,272)
|
| (57,322)
|
Change in fair value on derivative
|
| 13,850
|
| (220,817)
|
| (71,058)
|
| (141,839)
|
Gain on sale of asset
|
| -
|
| -
|
| -
|
| 2,643
|
Total other income (expense)
|
| (11,362)
|
| (245,181)
|
| (185,331)
|
| (196,517)
|
|
|
|
|
|
|
|
|
|
Net income (loss)
| $
| (1,267,235)
| $
| (859,326)
|
| (1,846,392)
|
| (856,315)
|
Revenues
We had revenues of $588,484 and $1,203,427 for the three and six months ended June 30, 2023, compared to $469,812 and $933,198 for the three and six months ended June 30, 2022, an increase of $118,672, or 25%, and $270,230, or 29%, respectively. Revenues for the three months ended December 31, 2022 were $583,287. We expect strong growth to increase as our direct consumer sales and marketing efforts continue to perform.
Cost of Revenue
Our cost of revenue for the three and six months ended June 30, 2023 were $303,415 and $640,517, compared to $195,556 and $334,238 for the three and six months ended June 30, 2022, an increase of $107,859, or 55%, and $306,279, or 92%, respectively. Gross profit for the three and six months ended June 30, 2023 was $285,069 and $562,911, compared to $274,255 and $598,960 for the three and six months ended June, 30, 2022, an increase of $10,814, or 4%, and a decrease of $36,049, or 6%, respectively.
Cost of revenue as a percentage of revenues was 52% and 53% for the three and six months ended June 30, 2023, compared to 42% and 36% for the three and six months ended June 30, 2022. Cost of revenue was higher in 2023 compared to 2022 because of higher material and shipping costs.
General and Administrative
Our general and administrative expenses were $1,540,942 and $2,223,972 for the three and six months ended June 30, 2023, compared to $888,401 and $1,258,758 for the three and six months ended June 30, 2022, an increase of $652,541, or 73%, and $965,214, or 77%, respectively. In the three months ended June 30, 2023, general and administrative expenses consisted mainly of consulting fees of $766,405, stock based compensation $432,047, advertising of $168,148, accounting and legal fees of $30,883, and salary and wages of $36,813. In the three months ended June 30, 2022, general and administrative expenses consisted mainly of advertising of $149,690, consulting fees of $133,200, professional fees of $28,123, and salary and wages of $36,388. During the three months ended June 30, 2023, part of the increase in costs were due to a catch up of stock compensation that occurred. Additionally, some of the incremental costs of the Company’s uplist have not been deferred and have been included.
23
Other Income (Expense)
Other income (expense) was $(11,362) and $(185,331) for the three and six months ended June 30, 2023, compared to $(245,181) and $(196,517) for the three and six months ended June 30, 2022, a decrease of $233,819, or 95%, and $11,186, or 6%, respectively. In the six months ended June 30, 2023, other income (expense) consisted of interest expenses, net of interest income of $(25,212) and change in fair value on derivative of $13,850. In the three months ended June 30, 2022, other income (expense) consisted of interest expense, net of interest income of $(24,365) and change in fair value on derivative of $(220,817). Change in fair value of derivative was related to the conversion of convertible debts into common stock shares.
Net Income (Loss)
Net income (loss) was $(1,267,235) and $(1,846,392), or $0.00 and $0.01 per share, for the three and six months ended June 30, 2023, compared to $(859,326) and $(856,315), or $0.00 and $0.00 per share, for the three and six months ended June 30, 2022.
Our net income (loss) varies from period to period primarily because of the change in fair value on derivative and our increase in general and administrative expenses.
Liquidity and Capital Resources
Introduction
During the three and six months ended June 30, 2023, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash on hand as of December 31, 2022 was $65,651, as of March 31, 2023 was $213,204, and as of June 30, 2023 was $92,501. The increase in cash on hand at March 31, 2023 was primarily from our net cash provided by financing activities. Our monthly cash flow burn rate for the six months ended June 30, 2023 was approximately $67,250. We have strong short and medium term cash needs. We anticipate that these needs will be satisfied through increased revenues and the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Our cash, current assets, total assets, current liabilities, and total liabilities as of June 30, 2023 and December 31, 2022, respectively, are as follows:
| June 30,
|
| December 31,
|
| Increase/
|
| 2023
|
| 2022
|
| (Decrease)
|
|
|
|
|
|
|
Cash
| $
| 92,501
|
| $
| 65,651
|
| $
| 26,850
|
Total Current Assets
| 1,925,780
|
|
| 2,043,587
|
| (117,807)
|
Total Assets
| 2,662,214
|
|
| 2,781,118
|
| (118,904)
|
Total Current and Total Liabilities
| 1,481,418
|
|
| 902,788
|
| 578,631
|
Our total current assets and total assets decreased slightly during the six months ended June 30, 2023 primarily as a result of our decrease in inventory of $354,503, offset in part by our increase in right of use asset and prepaid acquisition costs. Our accumulated deficit increased during the six months ended June 30, 2023 by $1,846,392 to $17,773,134.
In order to repay our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be successful in these efforts.
Cash Requirements
Our cash on hand as of June 30, 2023 was $92,501. Based on our current level of revenues and monthly burn rate of approximately $67,250 per month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings.
Sources and Uses of Cash
Operating Activities
We had net cash used in operating activities of $403,493 for the six months ended June 30, 2023, compared to $157,319 for the six months ended June 30, 2022. We use our cash for normal business operations. Our net cash used in
24
operating activities for the six months ended June 30, 2023 consisted of our net loss of $1,846,392, offset in part by our warrants issued for services of $1,148,857, and increase in inventory of $354,503. Our net cash used in operating activities for the three months ended June 30, 2022 consisted of our net loss of $856,315, offset in part by our warrants issued for services of $422,300, an increase in accounts payable of $76,874, and an increase in accounts receivable of $33,148.
Investing Activities
We had zero cash flows provided by investing activities for the six months ended June 30, 2023, compared to $(5,344) for the six months ended June 30, 2022.
Financing Activities
Our net cash provided by financing activities for the six months ended June 30, 2023 was $430,342, compared to $99,970 for the six months ended June 30, 2022. Our net cash provided by financing activities consisted of proceeds from the issuance of notes payable of $431,000, proceeds from the issuance of convertible debt of $350,000, and loan origination fees of $68,888, offset by repayment of notes payable of $309,011 and repayment of convertible debt of $110,535.
ITEM 3Quantitative and Qualitative Disclosures About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 4Controls and Procedures
(a)Disclosure Controls and Procedures
We conducted an evaluation, with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or the Exchange Act, as of June 30, 2023, to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Securities Exchange Commission’s rules and forms, including to ensure that information required to be disclosed by us in the reports filed or submitted by us under the Exchange Act is accumulated and communicated to our management, including our principal executive and principal financial officer, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that as of June 30, 2023, our disclosure controls and procedures were not effective at the reasonable assurance level due to the material weaknesses identified and described in our Annual Report on Internal Control Over Financial Reporting filed in our Annual Report on Form 10-K.
Our principal executive officers do not expect that our disclosure controls or internal controls will prevent all errors and all fraud. Although our disclosure controls and procedures were designed to provide reasonable assurance of achieving their objectives and our principal executive officers have determined that our disclosure controls and procedures are effective at doing so, a control system, no matter how well conceived and operated, can provide only reasonable, not absolute assurance that the objectives of the system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented if there exists in an individual a desire to do so. There can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.
(b)Changes in Internal Control over Financial Reporting
No change in our system of internal control over financial reporting occurred during the period covered by this report, the three month period ended June 30, 2023, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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PART II – OTHER INFORMATION
ITEM 1Legal Proceedings
There are no updates to the disclosure of legal proceedings in our Annual Report on Form 10-K.
In the ordinary course of business, we are from time to time involved in various pending or threatened legal actions. The litigation process is inherently uncertain and it is possible that the resolution of such matters might have a material adverse effect upon our financial condition and/or results of operations. However, in the opinion of our management, other than as set forth herein, matters currently pending or threatened against us are not expected to have a material adverse effect on our financial position or results of operations.
ITEM 1ARisk Factors
As a smaller reporting company, we are not required to provide the information required by this Item.
ITEM 2Unregistered Sales of Equity Securities and Use of Proceeds
On March 6, 2023, we issued 320,000 shares of our common stock, restricted in accordance with Rule 144, to two consultants for services.
On January 24, 2023, we entered into a Securities Purchase Agreement for the sale of convertible notes in the aggregate principal amount of $388,888, and warrants to acquire 7,421,544 shares of our common stock at an exercise price of $0.04716 per share, to two investors. The Notes contained an original issue discount of 10%, and thus the proceeds to us was $350,000. The Notes do not bear interest unless we are in default, have a maturity date of October 24, 2023, and all amounts are payable on the maturity date. The Notes are convertible into our common stock at the election of the holder at means ninety percent (90%) of the lowest VWAP of our common stock for the five (5) consecutive Trading Days immediately preceding the date of the issuance of a Conversion Election.
On March 20, 2023, we entered into a Promissory Note and a Common Stock Purchase Warrant with a single investor. The note is in the principal amount of Three Hundred Thirty Thousand Dollars ($330,000), had an original issue discount of 10% (or $30,000) and bears interest at a rate of ten percent (10%) per annum. Fifteen (15) monthly payments of $23,359.15 are due between the issue date and the maturity date of September 17, 2024. The warrants are to acquire three million three hundred thousand (3,300,000) shares of our common stock, are exercisable for three (3) years at an exercise price of $0.05 per share, and contain a cashless exercise option for the holder. The proceeds from the note were used to pay off and consolidate other outstanding debt obligations, significantly reducing our monthly cash payments.
The issuances were exempt from registration pursuant to Section 4(a)(2) of the Securities Act of 1933, there was no solicitation involved in the offerings, and the parties were either sophisticated or accredited.
ITEM 3Defaults Upon Senior Securities
There have been no events which are required to be reported under this Item.
ITEM 4Mine Safety Disclosures
Not applicable.
ITEM 5Other Information
None.
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ITEM 6Exhibits
(a)Exhibits