ITEM 2.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
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This section of the report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
There is substantial doubt that we can continue as an on-going business for the next twelve months unless we obtain additional capital to pay out our bills. This is because we have not generated revenues from our operations during the last six years. We have been able to remain in business as a result of investments, in debt or equity securities, by our officers and directors and by other unrelated parties. We expect to incur operating losses in the foreseeable future and our ability to continue as a going concern is dependent upon our ability to raise additional money through investments by others and achieve profitable operations. There is no assurance that we will be able to raise additional money or that additional money or that additional financing will be available to us on satisfactory terms or that we will be able to achieve profitable operations. The consolidated financial statements were prepared under the assumption that the Company will continue as a going concern, however, there can be no assurance that such financial support shall be ongoing or available on terms or conditions acceptable to the Company. This raises substantial doubt about the Company's ability to continue as a going concern. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
For the last four fiscal years, starting January 2010, our management and board of directors have raised funds through a personal and professional network of investors. This has enabled product and business development, continued operations, and generation of customer interest. In order to maintain our current level of operations, management has contemplated several options to raise capital and sustain operations in the next 12 months. In the event we do not receive any funds from other sources, we will continue to borrow money from or sell restricted shares of our common stock to our officers and directors in order to maintain operations. Our officers and directors are under no legal duty to provide us with additional financing nor have our officers and directors committed to provide us with additional financing.
Analysis of our business acquisition and operations cost indicate a reasonable requirement of USD $2,000,000 or less. We have entered into an agreement with Kodiak Capital Group, LLC., a Delaware limited liability company ("Kodiak") whereby we have the right to "put" to Kodiak up to $2,000,000 in our shares of common stock. Our previous arrangement with Kodiak expired in April 2014, but, on July 15, 2014, the Company and Kodiak Capital Group, LLC amended the investment agreement to extend the agreement through December 31, 2015. Based upon the current price of our common stock, we believe that if Kodiak purchases all 50,000,000 shares of common stock, we will receive approximately $2,000,000. The reasonable funding requirement of US$2,000,000 is estimated to fund our operations and capital requirements over the next 12 months. Management believes that the Company can be generating revenue in the next 6 – 12 months, and therefore will not require additional funding.
On November 20, 2012, we signed a memorandum of understanding with the Ministry of Health of the Republic of Ghana for the supply and implementation of a National Mobile Care program with Mobile Clinics and Clinical Command Centers integrated with the existing healthcare system and improve the healthcare delivery services to the rural and remote population of Ghana.
On January 23, 2014, we announced the signing of a US$200,000,925 (Two Hundred million nine hundred and twenty-five US dollars) Supply Contract with the Ministry of Health and Public Hygiene of the Republic Of Guinea.
Under the Supply Contract, Kallo will implement customized healthcare delivery solutions for the Republic of Guinea. The components of the solutions include, MobileCare, RuralCare, Hospital Information Systems, Telehealth Systems, Pharmacy Information, disaster management, air and surface patient transportation systems and clinical training.
The Government of Guinea has been looking into securing funding for the Kallo MobileCare Project for US$ 200,000,925 and a financial institution has come to the stage of agreeing on the terms requested by the Government of Guinea based on their acceptable economic framework for such projects. We expect the final documentation between the financial institution and the Government of Guinea to be completed shortly, which would trigger the release of Kallo's down payment for the project initiation and production.
MobileCare™ supply contract includes:
2.
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Clinical Command Centre - (1)
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3.
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Administration Centre -
(1)
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4.
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Utility vehicles - (2)
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5.
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User training - (5 years)
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6.
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Professional and clinical training - (5 years)
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7.
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Hardware and software maintenance - (5years)
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8.
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Operations & management support - (5 years)
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9.
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Maintenance and continued educational support - (5 years)
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10.
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Supply chain management of medical equipment, consumables and spare parts - (5 years)
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11.
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Advanced and integrated software systems, including telehealth - (1 full system)
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12.
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Fixed Medical Hospital - (1)
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14.
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Medical Helicopter - (1)
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Plan of Operation
The following Plan of Operation contains forward-looking statements, which involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth elsewhere in this document.
Kallo mobile Care implementation plan for Guinea and Ghana is based on the timelines of the Mobiles Clinic's delivery and training provided by Kallo.
Based on the delivery of our plan, there is a lead-time of six months for production and delivery of the first two mobile clinics in Guinea and Ghana from the time of confirmed purchase order along with payments through bank.
In this period of six months from the date of purchase order confirmation to us the following will be completed to go live of the Mobile Clinics.
1.
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Establish geographical coverage for Mobile Clinics based on hospitals to population ratio in specific rural areas of Guinea and Ghana
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2.
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Establish the specialists support from teaching hospitals
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3.
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Establish leadership for operational and administrative support
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4.
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Establish governance councils for operations, education and training
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Our mobile care program with mobile clinics, clinical and administrative command centers deployed in an integrated model with the current healthcare delivery services will produce demonstrable impact in the community in terms of improved healthcare delivery within 12 months of implementation that would contribute to the flagship achievement by the current government to its merit.
For the Ghana Project, as of the date of this report, the Kallo Mobile Care Program project-scope has been elevated to national discussions to include key stakeholders in healthcare delivery, National Disaster Management Organization (NADMO), National Security Agency (NSA), Ministry of Defence, Ministry of Health, Ghana Health Services (GHS), National Development Planning Commission (NDPC) and the local governments.
New Business Developments in Ghana
As a result of the recent prioritization of Ministry Of Health Short and Medium-Long-Term Programmes of Work and Performance Targets and Agreements on Key Health Indicators from the Office of the President, on April 23, 2013, the Minister Of Health of Ghana Hon. Sherry Ayittey wrote to the Minister of Finance of Ghana that the Ministry of Health had received, considered and approved an unsolicited Offer/Proposal from Kallo Inc. for the provision of Fixed Facilities with funding from the Export-Import (EXIM) Bank of the USA. She stated in the letter that this Project deliverables are in line with policy and strategy guidelines and do reflect the aspirations of the Ministry.
A value for money (VFM) assessment conducted by the Ministry Of Health on our case development and deliverability has determined that the logic of the project, for the level of investment involved is clear and supported by evidence. She further states that the anticipated project solution represents a best value for money option.
The total value of this approved project is US$174,350,000 as confirmed by the Minister of Health in the approval letter.
In the letter the Minister of Health has requested the Minister of Finance to negotiate and conclude the funding arrangement and the respective financing terms and conditions ahead of a joint submission to the Cabinet for consideration and approval.
The Ministry has identified project sites for this project as follows:
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Polyclinic Urban-Urban
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Polyclinic Rural Rural
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Total
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CHIPS CPD
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Greater Accra
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3
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1
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4
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0
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Ashanti Region
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2
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1
|
3
|
0
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Central Region
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2
|
1
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3
|
2
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Northern Region
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2
|
2
|
4
|
2
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Upper East Region
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1
|
2
|
3
|
2
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Upper West Region
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0
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0
|
0
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1
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Western Region
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2
|
3
|
5
|
0
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Volta Region
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1
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1
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2
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2
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Eastern Region
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1
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1
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2
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0
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Brong-Ahafo Region
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1
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0
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1
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1
|
|
15
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12
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27
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10
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Our plan and focus during the next twelve months include both, selling our existing product as well as developing and possibly selling new products. Since changing to our current business, we have not generated any revenues.
Costs Associated with the Plan of Operations
Currently under the Plan of Operations, we have expenses towards six full time resources, including engineers, applications specialist, and project and operations managers. We have completed the product development phase for Electronic Medical Records system, Mobile Clinics, and Clinical Command Centers. Our efforts are focused in commercializing these technologies and generating revenue. The current capital requirement caters only to the resources, infrastructure, and business development expenses for these technologies. Management analysis of our business acquisition and operations cost indicate a reasonable requirement of USD $2,000,000 or less for the next 12-18 months of operations. We anticipates that this infusion of capital will generate revenue from sales of the above-mentioned technologies. This will in turn sustain our company and enable further development of our other owned copyrighted technologies.
Our Sales and Marketing Strategy for existing developed products
KALLO EMCURx (EMR)
As of the date of this report, we have achieved an EMR milestone for Specialists, by securing an accepted and signed installation order. Our specialist EMR product, EMCURx, is customized to satisfy the needs of specialists, regardless of their specialty. The software is being installed and an advance payment of $24,990 has been received as of June 30, 2014. Revenue from this installation will be $30,000 with an anticipated gross profit of $20,000. An updated and more powerful version of the software will be available in 2014 and installation will be completed then. Clinical user and administrative training will be completed afterwards to ensure seamless transition to a paperless digital medical clinic.
Our milestones during the next twelve months are:
1 – Developing our sales organization and marketing the third party products along with our software that brings the data from these products into an EMR system in the major metropolitan areas of Canada. We expect the cost to be $300,000 and 12 months to complete this milestone.
2 – Simultaneously with the build-up of our sales organization, we will build a product support team that will provide installation, training and customer support. We expect the cost to be $500,000 and 12 months to complete this milestone.
3 – Expanding our market from the larger metropolitan areas to the smaller rural and more distant medical facilities. We expect the cost to be $250,000 and 12 months to complete this Milestone.
4 – Developing our Mobile Care business globally. We expect the cost to be $ 700,000 and 12 months to complete the Milestone
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Within Canada, we will focus on having a direct sales force to market and sell EMR to walk-in clinics/doctor's offices, independent diagnostic centers /independent health facilities and hospitals. The revenue generation from EMR consists of product sales, implementation, integration, training, on-going maintenance, and professional services.
Outside Canada, we may establish commercial partnerships for all of our product candidates in order to accelerate development and marketing in those countries and further broaden our products' commercial potential.
KALLO MOBILE CARE
We have successfully launched one of our copyrighted technologies "MOBILE CARE" - mobile clinics in November 2011, and have since then received several enquiries for this product from countries in Africa, Southeast Asia, North West Territories and Northern Ontario in Canada, USA, and the Middle East. We have not been contacted by Sudan, Syria, or Iran. If we were contacted by Sudan, Syria, or Iran, we would not do business with them or with any entity located within their geographical boundaries since they are designated by the U.S. Department of State as sponsors of terrorism and are subject to U.S. economic sanctions and export controls. Based on the levels of interest from the local Ministries of Health, we have selected companies with business and technical strengths as our local representatives for sales and support in the region. MOBILE CARE is a state of the art clinical setup in a vehicle equipped with the latest technology in healthcare. More than just a facility, MOBILE CARE can instantly connect the onboard physician with specialists for on-demand consultation via satellite through its Telehealth system. This is truly a holistic approach to delivering healthcare to the remotely located. For many rural communities, the nearest hospital, doctor or nurse may be hundreds of kilometers away. In many cases, this gap can be bridged using Telehealth technology that allows patients, nurses and doctors to talk as if they were in the same room. MOBILE CARE is not the same thing as EMR referred to herein.
We expect to see sales revenues from Kallo's Mobile Care business unit in the next twelve months. Our MOBILE CLINIC is equipped with necessary medical equipment as per regional healthcare requirements. We also install our copyrighted software and third party software as required. Revenue is generated by charging for medical equipment, software licenses, installation implementation and training. This generates an ongoing revenue stream for service, maintenance, spare-parts, and consumables.
Our Development and Commercialization Strategy for new products
We intend to initiate sales of our products in our target commercial areas. Our target commercial areas are hospitals, clinics and doctors' offices. We expect to focus on marketing our current offering as well as completing product development for our product candidates in order to increase our possibilities for current and future revenue generation.
Our forward-looking plan envisions applying our copyrighted design and technology to develop three additional products, to bring to market integrated computer systems that address today's critical health management needs in epidemic control, medical information flow across borders and provision of heath care in rural and remote areas.
In addition to our EMR, which is ready for production, we have prioritized the following products for completion of development and are listing them in order of priority.
A.
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M.C. Telehealth
– Mobile Clinic Telehealth System – Developed and launched in November 2011.
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B.
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EMR Integration Engine
– Electronic Medical Record Integration Engine - Under development.
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C.
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C&ID-IMS
– Communicable and Infectious Disease Information Management System - Under Development
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D.
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CCG Technology
– Clinical-Care Globalization technology – Under Development
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We do not at this time have a definitive timetable as to when we will complete these intense development efforts.
The development and marketing of new medical software technology is capital intensive. We have funded operations to date either through the sale of our common stock or through advances made by our key shareholders.
We have utilized funds obtained to date for organizational purposes and to commence certain financial transactions. We require additional funding to complete these transactions (including the acquisition of a service-based, valued-business enterprise and related expenses), expand our marketing and sales efforts and increase the Company's revenue base.
Limited operating history; need for additional capital
There is limited historical financial information about us upon which to base an evaluation of our performance. We cannot guarantee we will be successful in our business operations. Our business is subject to risks inherent in the establishment of a business enterprise, including limited capital resources and possible cost overruns due to price increases in services and products.
To become profitable and competitive, we have to sell our products and services.
We have no assurance that future financing will be available to us on acceptable terms. If financing is not available on satisfactory terms, we may be unable to continue, develop, or expand our operations. Equity financing could result in additional dilution to existing shareholders.
Results of operations
Revenues
We did not generate any revenues during the six months ended June 30, 2014 or 2013. We are in the process of completing the user training for our first installation of EMR for specialists and we expect to start generating revenues in 2014 or 2015.
Expenses
During the three months ended June 30, 2014 we incurred total expenses of $432,173, including $158,697 in salaries and compensation, $11,374 in depreciation, $164,802 in professional fees, $18,299 in selling and marketing expenses and $79,001 as other expenses whereas during the three months ended June 30, 2013 we incurred total expenses of $192,785, including $155,557 in salaries and compensation, $22,142 in depreciation, $180,200 in professional fees, $124,056 in selling and marketing expenses and $91,109 in other expenses net of $333,612 gain in change in fair value on convertible promissory note and $46,667 gain on extinguishment of convertible promissory note. Our professional fees consist of legal, consulting, accounting and auditing fees. The increase in our total expenses for the three months ended June 30, 2014 from the comparative period is mainly due to the unrealized gain of $380,279 on fair value changes and extinguishment in convertible promissory note in the previous quarter which was not present in the current quarter. Otherwise, there is a decrease of $10,768 in depreciation, $15,398 in professional fees, $105,757 in selling and marketing expenses and $12,108 in other expenses as the Company did not have to do as much work for getting the new contracts in the Republic of Ghana and Guinea.
During the six months ended June 30, 2014 we incurred total expenses of $1,077,167, including $519,900 in salaries and compensation, $22,747 in depreciation, $285,514 in professional fees, $142,435 in selling and marketing expenses and $106,571 as other expenses whereas during the six months ended June 30, 2013 we incurred total expenses of $1,027,757, including $330,342 in salaries and compensation, $44,284 in depreciation, $390,481 in professional fees, $174,068 in selling and marketing expenses and $88,582 in other expenses net of $34,003 gain in change in fair value of convertible promissory note and $46,667 gain on extinguishment of convertible promissory note. Our professional fees consist of legal, consulting, accounting and auditing fees. Total expenses for the six months ended June 30, 2014 are generally in line with the comparative period. There is an increase of $189,558 in salaries and compensation due to non-cash stock based compensation of $230,400 in 2014 to employees and professional fees decreased by $104,967.
Net Loss
During the three months ended June 30, 2014 we did not generate any revenues and incurred a net loss of $432,173 compared to a net loss of $192,785 during the same period in 2013. The main reason is mainly due to the unrealized gain of $380,279 on fair value changes and extinguishment in convertible promissory note in the previous quarter.
During the six months ended June 30, 2014 we did not generate any revenues and we incurred a net loss of $1,077,167 in line with a net loss of $1,027,757 during the same period in 2013.
Liquidity
and capital resources
As at June 30, 2014, the Company had current assets of $139,147 and current liabilities of $1,076,912, indicating working capital deficiency of $937,765. As of June 30, 2014, our total assets were $1,082,887 in cash, prepaid expenses, copyrights, equipment and our total liabilities were $1,076,912 comprised of $920,780 in accounts payable and accrued liabilities, $20,000 in accrued officer salaries, short term loans of $50,135, deferred revenue of $24,990 and loan of $61,007
Cash used in operating activities amounted to $1,102,781 during the six months ended June 30, 2014, primarily as a result of the net loss adjusted for non-cash items and various changes in operating assets and liabilities.
There were no cash used in investing activities during the current six months period ended June 30, 2014.
Cash provided by financing activities during the six months ended June 30, 2014 amounted to $1,112,470 and represented proceeds from sale of common stock.
The Company issued 17,440,940 shares of common stock for cash consideration of $872,047 and obtained $249,983 from the exercise of a put with Kodiak during the six months period ended June 30, 2014.