NOTE
2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY PLANS
As
of March 31, 2020, the Company had cash of $43,891 and a negative working capital of $1,837,150. As of March 31, 2020, the Company
has not yet generated any revenues, and has incurred cumulative net losses of $2,781,800. These conditions raise substantial doubt
about the Company’s ability to continue as a going concern.
The Company is
aware that its current cash on hand will not be sufficient to fund its projected operating requirements through the month of June
2020, and is pursuing alternative opportunities to funding.
The
Company intends to raise additional capital through private placements of debt and equity securities, but there can be no assurance
that these funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete
its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have
to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient
additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
The Company’s
management do not foresee that COVID-19 has any impact for the Company and its ability to carry out their plans.
Accordingly,
the accompanying consolidated financial statements have been
prepared in conformity with U.S. GAAP, which contemplates continuation of the Company as a going concern and the realization of
assets and satisfaction of liabilities in the normal course of business. The carrying amounts of assets and liabilities presented
in the consolidated financial statements do not necessarily purport to represent realizable or settlement values. The consolidated
financial statements do not include any adjustment that might result from the outcome of this uncertainty.
NOTE
3 – ACCOUNTS PAYABLES AND ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
On March 31, 2020, there was $116,000 in accounts
payable to related parties in form of payroll and accrued expenses. On December 31, 2019 there was $96,000 in Accounts payable
to related parties.
The
following table represents the major components of accounts payables and accrued expenses and other current liabilities at March
31, 2020 and December 31, 2019:
|
|
|
March 31,
2020
|
|
|
December 31,
2019
|
|
|
Accounts payable related party (1)
|
|
$
|
116,000
|
|
|
$
|
96,000
|
|
|
Professional fees
|
|
|
30,973
|
|
|
|
42,963
|
|
|
Interest
|
|
|
13,982
|
|
|
|
14,374
|
|
|
Payroll taxes
|
|
|
-
|
|
|
|
7,344
|
|
|
Other accounts payable
|
|
|
1,391
|
|
|
|
7,251
|
|
|
ASC 480 debt premium
|
|
|
856,560
|
|
|
|
24,121
|
|
|
Convertible notes payable
|
|
|
862,135
|
|
|
|
826,862
|
|
|
Total
|
|
$
|
1,881,041
|
|
|
$
|
1,018,915
|
|
|
(1)
|
$58,000
to each the CFO and the CEO for 11 months of salary for the
period ending March 31 2020, and $48,000 to each the CFO and the CEO for 8 months of salary for the period ending December 31, 2019.
|
NOTE
4 – CONVERTIBLE NOTES PAYABLE
As
long as the following convertible notes remain outstanding, the Company is restricted from incurring any indebtedness or liens,
except as permitted (as defined), and cannot amend its charter in any matter that materially effects rights of noteholders, repay
or repurchase more than de minimis number of shares of common stock other than conversion or warrant shares, repay or repurchase
all or any portion of any indebtedness, or pay cash dividends.
Auctus Note #1
On October 24, 2019 (the “Date
of Issuance”) the Company issued a convertible promissory note (the “Auctus Note #1”) with a face value
of $250,000, maturing on October 23, 2020, and a stated interest of 8% to a third-party investor. The Auctus Note #1 is convertible
into common stock of the Company, par value $.001 per share (the “Common Stock”) at any time after the earlier of:
(i) 180 days from the date of the Auctus Note #1, or (ii) upon effective date of a registration statement. The conversion price
of the Auctus Note #1 is equal to the lesser of : (i) the lowest trading price for the twenty-day period prior to the date of
the Auctus Note #1 or (ii) 65% of the average of the three lowest trading prices during the twenty days prior to a conversion
notice on the applicable trading market or the closing bid price on the applicable trading market. The Auctus Note #1 was funded
on October 29, 2019, when the Company received proceeds of $222,205, after disbursements for the lender’s transaction costs,
fees and expenses which in aggregate resulted in a total discount of $27,795 to be amortized to interest expense over the life
of the Auctus Note #1.
Additionally,
the variable conversion rate component requires that the Auctus Note #1 be valued at its stock redemption value (i.e., “if-converted” value)
pursuant to ASC 480, Distinguishing Liabilities from Equity, with the excess over the undiscounted face value being
deemed a premium to be added to the principal balance and amortized to additional paid-in capital over the life of the Auctus
Note #1. As such, the Company recorded a premium of $343,796 as a reduction to additional paid-in capital based on a discounted “if-converted” rate
of $0.21 per share (65% of the average of the three lowest trading prices during the 20 days preceding the note’s issuance),
which computed to 1,211,828 shares of ‘if-converted’ common stock with a redemption value of $593,796 due to $0.49
per share fair market value of the Company’s stock on the Auctus Note #1’s date of issuance. Debt discount amortization
is recorded as interest expense, while debt premium amortization is recorded as an increase to additional paid-in capital.
Along
with the Auctus Note #1, on the Date of Issuance the Company issued 208,333 Common Stock Purchase Warrants (the “Warrants”),
exercisable immediately at a fixed exercise price of $0.60 with an expiration date of October 23, 2023. The Company has
determined that the Warrants are exempt from derivative accounting and were valued at $101,937 on the Date of Inception using
the Black Scholes Options Pricing Model. Assumptions used for the Black Scholes Options Pricing Model include (1) stock
price of $0.49 per share, (2) exercise price of $0.60 per share, (3) term of 5 years, (4) expected volatility of 251% and (5)
risk free interest rate of 2.51%. The note proceeds of $250,000 were then allocated between the fair value of the Auctus
Note #1 ($250,000) and the Warrants ($101,937), resulting in a debt discount of $72,412. As the warrants were exercisable immediately,
this debt discount was amortized in its entirety to interest expense on the Date of Issuance. Upon cashless conversion
on March 12, 2020 an additional 166,667 warrants were issued for a market value of $66,363.
The
Auctus Note #1 was paid off on October 24, 2019, and the warrants were converted on March 12,2020
Auctus
Note #2
On
February 25, 2019, the Company entered into a $250,000 Senior Secured Promissory Note (“the Auctus Note #2”),
dated February 25, 2019 at an interest rate of 8% per annum, maturing on February 24, 2020 (the “Maturity Date”).
Issuance fees totaling $27,750 were recorded as a debt discount, resulting in net proceeds of $222,250. The Auctus Note #2 is
convertible into common stock of the Company, par value $.001 per share (the “Common Stock”) at any time after the
earlier of: (i) 180 days from the date of the Auctus Note #2 or (ii) upon effective date of a new registration statement. The
conversion price of the Auctus Note #2 is equal to the lesser of : (i) the lowest trading price for the twenty-day period prior
to the date of the Auctus Note #2 or (ii) 65% of the average of the three lowest trading prices during the twenty days prior to
a conversion notice on the applicable trading market or the closing bid price on the applicable trading market. The Company may
prepay the Auctus Note #2 at any time at a rate of 120% of outstanding principal and interest during the first 90 days it is outstanding
and 130% of outstanding principal and interest for the next 90 days thereafter. Thereafter the prepayment amount increases 5%
for each thirty-day period until 270 days from the issue date at which time it is fixed at 150% of the outstanding principal and
interest on the Auctus Note #2.
Additionally, the variable conversion rate component requires that the Auctus Note #2 be valued
at its stock redemption value (i.e., “if-converted” value) pursuant to ASC 480, Distinguishing Liabilities from Equity,
with the excess over the undiscounted face value being deemed a premium to be added to the principal balance and accreted to additional
paid-in capital over the life of the Auctus Note #2. As such, the Company recorded a premium of $82,500 as a reduction to additional
paid-in capital based on a discounted “if-converted” rate of $0.20 per share (lowest trading price during the 20 days
preceding the note’s issuance), which computed to 1,250,000 shares of ‘if-converted’ common stock with a redemption
value of $332,500 due to $0.266 per share fair market value of the Company’s stock on the Auctus Note #2’s date of
issuance. Debt discount amortization is recorded as interest expense, while debt premium accretion is recorded as an increase
to additional paid-in capital. For the three months ending at March 31, 2020, the Company amortized $4,647 debt discount to operations
as interest expense, and accreted $24,121 of premium to additional paid-in capital.
Along
with the the Auctus Note #2, on the Date of Issuance the Company issued 208,333 Common Stock Purchase Warrants (the “Warrants”),
exercisable immediately at a fixed exercise price of $0.60 with an expiration date of February 24, 2024. The Company has
determined that the Warrants are exempt from derivative accounting and were valued at $55,417 on the Date of Inception using the
Black Scholes Options Pricing Model. Assumptions used for the Black Scholes Options Pricing Model include (1) stock price
of $0.27 per share, (2) exercise price of $0.60 per share, (3) term of 5 years, (4) expected volatility of 323% and (5) risk free
interest rate of 2.56%. The Auctus Note #2 proceeds of $250,000 were then allocated between the fair value of the Auctus
Note #2 ($250,000) and the Warrants ($55,417), resulting in a debt discount of $45,361. As the warrants are exercisable immediately,
this debt discount was amortized in its entirety to interest expense on the Date of Issuance. Upon cashless conversion on March
12, 2020 an additional 166,667 warrants were issued for a market value of $66,364.
The Auctus Note #2 was paid off on
February 20, 2020, and the warrants were converted on March 12,2020.
Other
notes currently convertible
In
the period October 24, 2019 through February 18, 2020, the Company entered into three separate Secured Promissory Note Agreements
(“SPA”) with a face value of $300,000, and received net proceeds of $255,000. The Notes are convertible into common
stock of the Company, par value $.001 per share (the “Common Stock”) at any time after the earlier of: (i) 180 days
from the date of the Note or (ii) upon effective date of a registration statement. The conversion price of the Notes is equal
to 65% of the lowest trading price at close during the twenty days prior to a conversion notice. The debt discount of $37,100
is amortized over the duration of the loans. The Debentures permit the Company to pre-pay its obligations at a premium prior to
maturity. For the three months ended at March 31, 2020, the Company amortized $6,415 debt discount to operations as interest expense.
Additionally,
the variable conversion rate component requires that the three notes be valued at its stock redemption value (i.e., “if-converted”
value) pursuant to ASC 480, Distinguishing Liabilities from Equity, with the excess over the undiscounted face value being deemed
a premium to be added to the principal balance and amortized to additional paid-in capital over the life of the three notes. As
such, the Company recorded a premium of $937,007 as a reduction to additional paid-in capital based on a discounted “if-converted”
rate between $0.091- $0.12 per share (65% of the average of the three lowest trading prices during the 20 days preceding the note’s
issuance), which computed to 2,962,578 shares of ‘if-converted’ common stock with a redemption value of $1,237,007
due to in between $0.265- $0.50 per share fair market value of the Company’s stock on the three notes date of issuance.
Debt discount amortization is recorded as interest expense, while debt premium amortization is recorded as an increase to additional
paid-in capital. For the three months ending at March 31, 2020, the Company amortized $4,376 debt discount to operations as interest
expense, and accreted $80,447 of premium to additional paid-in capital.
The Company also issued the noteholders
five-year warrants with cashless exercise provisions to purchase a total of 122,000 shares of Common Stock of the Company at an
exercise price of $2.00 per share with cashless exercise provisions to four of the Lenders. The Company has determined that the
Warrants are exempt from derivative accounting. The note proceeds of $300,000 were then allocated between the fair value of the
Notes ($300,000) and the Warrants ($55,061), resulting in a debt discount of resulting in a fully amortized debt discount of $34,317.
As the warrants were exercisable immediately, this debt discount was amortized in its entirety to interest expense on the Date
of Issuance. For the three months ending at March 31, 2020, the Company issued 72,000 warrants, resulting in an amortized debt
discount of $12,711.
Notes
not yet convertible
In
the period October 23, 2019 through March 18, 2020, the Company entered into seven separate Secured Promissory Note
Agreements (“SPA”) with a face value of $636,800, and received net proceeds of $563,500. The Notes are
convertible into common stock of the Company, par value $.001 per share (the “Common Stock”) at any time after
the earlier of: (i) 180 days from the date of the Note or (ii) upon effective date of a registration statement. The
conversion price of the Notes is equal to 65% of the lowest trading price at close during the twenty days prior to a
conversion notice. The debt discount of $73,300 is amortized over the duration of the loans. The Debentures permit the
Company to pre-pay its obligations at a premium prior to maturity. For the three months ended at March 31, 2020, the Company
amortized $12,261 debt discount to operations as interest expense.
The
Company also issued the noteholders five-year warrants with cashless exercise provisions to purchase a total of 150,000 shares
of Common Stock of the Company at an exercise price of $2.00 per share with cashless exercise provisions to four of the Lenders.
The Company has determined that the Warrants are exempt from derivative accounting. The note proceeds of $636,800 were then allocated
between the fair value of the Notes ($636,800) and the Warrants ($97,850), resulting in a debt discount of resulting in a fully
amortized debt discount of $68,910. As the warrants were exercisable immediately, this debt discount was amortized in its entirety
to interest expense on the Date of Issuance. For the three months ending at March 31, 2020, the Company did
not issue any warrants.
A
summary of the outstanding notes at March 31, 2020, are as follows:
|
Debtor
|
|
Date of
Issuance
|
|
Maturity
Date
|
|
Principal
Amount
|
|
|
Net
Received
|
|
|
Interest
|
|
|
Warrants
Issued
|
|
|
Term
|
|
|
Exercise
Price
|
|
|
Amortization
of Warrants
|
|
|
Debt
Discount
|
|
|
GS Capital
|
|
10/30/2019
|
|
10/30/2020
|
|
$
|
125,000
|
|
|
$
|
109,500
|
|
|
|
4
|
%
|
|
|
50,000
|
|
|
|
5
|
|
|
$
|
2.00
|
|
|
$
|
23,867
|
|
|
$
|
15,500
|
|
|
Power Up #1
|
|
10/24/2019
|
|
10/23/2020
|
|
|
106,000
|
|
|
|
100,000
|
|
|
|
8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
6,000
|
|
|
Peak One
|
|
10/23/2019
|
|
10/22/2022
|
|
|
120,000
|
|
|
|
103,000
|
|
|
|
0
|
%
|
|
|
50,000
|
|
|
|
5
|
|
|
|
2.00
|
|
|
|
21,606
|
|
|
|
17,000
|
|
|
Tangiers
|
|
10/23/2019
|
|
10/22/2020
|
|
|
106,300
|
|
|
|
100,000
|
|
|
|
8
|
%
|
|
|
50,000
|
|
|
|
5
|
|
|
|
2.00
|
|
|
|
21,116
|
|
|
|
6,300
|
|
|
FirstFire
|
|
11/20/2019
|
|
11/20/2020
|
|
|
125,000
|
|
|
|
109,500
|
|
|
|
4
|
%
|
|
|
50,000
|
|
|
|
5
|
|
|
|
2.00
|
|
|
|
17,979
|
|
|
|
15,500
|
|
|
Power Up #2
|
|
12/30/2019
|
|
12/30/2020
|
|
|
54,600
|
|
|
|
50,000
|
|
|
|
8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,600
|
|
|
EMA Financial
|
|
01/10/2020
|
|
01/10/2021
|
|
|
125,000
|
|
|
|
109,500
|
|
|
|
4
|
%
|
|
|
50,000
|
|
|
|
5
|
|
|
|
2.00
|
|
|
|
5,948
|
|
|
|
15,500
|
|
|
Crown Bridge
|
|
02/20/2020
|
|
02/20/2021
|
|
|
55,000
|
|
|
|
42,500
|
|
|
|
4
|
%
|
|
|
22,000
|
|
|
|
5
|
|
|
|
2.00
|
|
|
|
10,054
|
|
|
|
12,500
|
|
|
PowerUp #3
|
|
02/19/2020
|
|
02/19/2021
|
|
|
56,600
|
|
|
|
52,000
|
|
|
|
8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,600
|
|
|
PowerUp #4
|
|
03/18/2020
|
|
03/18/2021
|
|
|
64,900
|
|
|
|
60,000
|
|
|
|
8
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,900
|
|
|
|
|
|
|
|
|
$
|
938,400
|
|
|
$
|
836,000
|
|
|
|
|
|
|
|
272,000
|
|
|
|
|
|
|
|
|
|
|
$
|
100,570
|
|
|
$
|
102,400
|
|
Convertible
notes payable consists of the following at March 31, 2020 and December 31, 2019:
|
|
|
March 31, 2020
|
|
|
December 31, 2019
|
|
|
Principal balance
|
|
$
|
938,400
|
|
|
$
|
886,900
|
|
|
Unamortized debt discount
|
|
|
(76,265
|
)
|
|
|
(60,038
|
)
|
|
Unamortized debt premium
|
|
|
856,560
|
|
|
|
24,121
|
|
|
Outstanding, net of debt discount and premium
|
|
$
|
1,718,695
|
|
|
$
|
850,983
|
|
NOTE
5 – STOCKHOLDERS’ EQUITY
At
a Board of Director’s Meeting on July 30, 2019, the Company authorized a reverse split that resulted in a reduction of the
number of outstanding and issued shares of both common and preferred stock so that after the split became effective on August
13, 2019, the shares of both common and preferred stock were reduced to 1 share for each 30 shares currently issued and outstanding.
The effect on the Balance Sheet is a transfer of value from stock value at par to Additional Paid-in Capital. As a result of the
one (1) for thirty (30) reverse stock split, the Company will continue to be authorized to issue 300,000,000 shares of Common
Stock, and 50,000,000 shares of Preferred Stock. The reverse split has been retroactively applied to all periods presented.
Preferred
stock
As
of March 31, 2020, no preferred shares have been designated nor issued.
Common
stock
On
January 3, 2020, 100,000 shares of common stock were issued as a result of conversion of accrued interest and principal on the
Auctus Note #2 for a total of $12,000.
On February 18, 2020, 250,000 shares of common
stock were issued as a result of conversion of accrued interest and principal on the Auctus Note #2 for a total of $22,132.
On March 12, 2020, 750,000 of common stock
were issued in exchange for 416,666 warrants with cashless exercise, originating from Auctus Notes #1 and #2.
For the 3 months ending March 31, 2020,
656,000 shares were awarded with an average cost per share of $0.22, under the 2010 Stock Plan for a total value of $150,497.
For details, see Shares Awarded and Issued under Note 6.
As
of March 31, 2020, the Company has 88,231,673 shares of common stock issued and outstanding. At December 31, 2019 there were 86,475,673
shares of common stock issued and outstanding.
Common
Stock Warrants
During the three months ending March 31, 2020
the Company awarded 405,334 warrants, valued at $145,438, and 750,000 warrants were converted in a cashless exercise. During the
3 months ending March 31, 2019 the Company awarded 208,333 warrants valued at $45,361.
The following table summarizes the Company’s
common stock warrant activity for the 3-months ended March 31, 2020 and March 31, 2019:
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted-
Average Remaining
|
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Expected
Term
|
|
|
Outstanding as of January 1, 2019
|
|
|
208,333
|
|
|
$
|
0.60
|
|
|
|
4.6
|
|
|
Granted
|
|
|
208,333
|
|
|
|
0.60
|
|
|
|
4.9
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of March 31, 2019
|
|
|
416,666
|
|
|
$
|
0.60
|
|
|
|
4.7
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of January 1, 2020
|
|
|
616,666
|
|
|
$
|
1.05
|
|
|
|
4.0
|
|
|
Granted
|
|
|
405,334
|
|
|
|
0.36
|
|
|
|
0.9
|
|
|
Exercised
|
|
|
(750,000
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of March 31, 2020
|
|
|
272,000
|
|
|
$
|
2.00
|
|
|
|
4.7
|
|
During the three months ending March 31, 2020,
the Company awarded 48,000 options under the 2010 Stock Plan, with a fair market value of $5,004. There were no options awarded
during the 3 months ending March 31, 2019.
The following table summarizes the Company’s
common stock option activity for the 3 months ended at March 31, 2020. There were no stock options issued at March 31, 2019:
|
|
|
|
|
|
Weighted
Average
|
|
|
Weighted-
Average Remaining
|
|
|
|
|
Number of Options
|
|
|
Exercise
Price
|
|
|
Expected
Term
|
|
|
Outstanding as of January 1, 2020
|
|
|
341,000
|
|
|
$
|
0.96
|
|
|
|
2.4
|
|
|
Granted
|
|
|
48,000
|
|
|
|
0.16
|
|
|
|
2.8
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of March 31, 2020
|
|
|
389,000
|
|
|
$
|
0.86
|
|
|
|
2.5
|
|
NOTE
6 – STOCK OPTION PLAN AND STOCK-BASED COMPENSATION
During
the year ended December 31, 2010, the Company adopted a stock option plan entitled “The 2010 Stock Plan” (2010 Plan)
under which the Company may grant Options to Purchase Stock, Stock Awards or Stock Appreciation Rights up to 15% of common stock,
automatically adjusted on January 1 each year. As of December 31, 2018, there were no outstanding awards under the 2010 Plan.
As of December 31, 2019, there were 341,000 outstanding stock options with a fair market value of $257,143 and 1,127,000 shares
issued with a fair market value of $864,551 at the time of award. At December 31, 2018, there were no outstanding stock options,
nor any shares awarded.
Under
the terms of the stock plans, the Board of Directors shall specify the exercise price and vesting period of each stock option
on the grant date. Vesting of the options is typically immediate and the options typically expire in five years. Stock Awards
may be directly issued under the Plan (without any intervening options). Stock Awards may be issued which are fully and immediately
vested upon issuance.
Shares
Awarded and Issued:
On
January 1, 2020 the Company granted 250,000 shares with a fair market value of $0.285/share at the time of award, to a consultant
for assistance with the Companies PR work, for a total of $71,250.
On
January 31, 2020 the Company granted two subcontractors a total of 200,000 shares with a fair market value of $0.14/share at the
time of award, as compensation for their work with the Company’s marketing efforts, for a total of $28,000.
On
March 18, 2020 the Company granted 200,000 shares with a fair market value of $0.245/share at the time of award, to a consultant
for assistance with the Companies PR work, for a total of $49,000.
On
February 21, 2020 the Company granted 3,000 shares with a fair market value of $0.439/share to three members of the Audit Committee
as compensation for their contribution in the Audit Committee, for a total of $1,317.
On
March 25, 2019, the Company granted 3,000 shares with a fair market value of $0.31/share to three members of the Company Board
as compensation for their contribution in the Company’s Board of Directors, for a total of $930.
|
|
|
Number of
Shares
|
|
|
Fair Value
per Share
|
|
|
Weighted
Average
Market
Value
per Share
|
|
|
Shares Issued as of December 31, 2019
|
|
|
471,000
|
|
|
$
|
0.27 - 1.49
|
|
|
$
|
0.77
|
|
|
Shares Issued
|
|
|
656,000
|
|
|
|
0.14 – 0.44
|
|
|
|
0.22
|
|
|
Shares Issued as of March 31, 2020
|
|
|
1,127,000
|
|
|
$
|
0.14 - 1.49
|
|
|
$
|
0.57
|
|
For the three months ended March 31, 2020,
the Company recorded stock-based compensation expense of $150,497 in connection with share-based payment awards. The Company did
not record any recorded stock-based compensation expense in the three first months of 2019.
Stock
options granted and vested:
On
January 1, 2020 the Company granted 3,000 three-year options at an exercise price of $0.31 a Medical Advisory Board Member for
his contribution in the Company’s Advisory Board. The options total fair value at the time of award was $603.
On
February 1, 2020 the Company granted 45,000 three-year options at an exercise price of $0.15 a Medical Advisory Board Member for
his contribution in the Company’s Advisory Board. The options total fair value at the time of award was $4,401.
The
fair value of stock options granted and revaluation of non-employee consultant options for the three months ended March 31, 2020
was calculated with the following assumptions:
|
|
|
2020
|
|
|
Risk-free interest rate
|
|
|
1.32 – 1.69
|
%
|
|
Expected dividend yield
|
|
|
0
|
%
|
|
Volatility factor (weekly)
|
|
|
126.37
|
%
|
|
Expected life of option
|
|
|
3 years
|
|
For
the three months ended March 31, 2020, the Company recorded compensation expense of $5,004 in connection with awarded stock options.
The Company did not record any awarded option valuation as compensation expense during the three months ended March 31, 2019.
As at March 31, 2020, there was no unrecognized compensation expense related to non-vested stock option awards.
The
following table summarizes the Company’s stock option activity for the three months ended March 31, 2020:
|
|
|
Number of Options
|
|
|
Exercise
Price per
Share
|
|
|
Weighted
Average
Exercise
Price
per Share
|
|
|
Outstanding as of December 31, 2019
|
|
|
341,000
|
|
|
$
|
0.61 - 1.21
|
|
|
$
|
0.96
|
|
|
Granted
|
|
|
48,000
|
|
|
|
0.15 - 0.31
|
|
|
|
0.16
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Options forfeited/cancelled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of March 31, 2020
|
|
|
389,000
|
|
|
$
|
0.15 - 1.21
|
|
|
$
|
0.76
|
|
The
following table summarizes information about stock options that are vested or expected to vest at March 31, 2020:
|
|
|
|
|
|
Options Outstanding
|
|
|
|
|
|
|
|
|
Exercisable Options
|
|
|
|
|
Exercise
Price
|
|
Number of Options
|
|
|
Weighted Average
Exercise Price
Per Share
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic
Value
|
|
|
Number of Options
|
|
|
Weighted Average Exercise Price
Per Share
|
|
|
Weighted Average Remaining Contractual Life (Years)
|
|
|
Aggregate Intrinsic
Value
|
|
|
$
|
0.15
|
|
|
|
45,000
|
|
|
$
|
0.15
|
|
|
|
2.84
|
|
|
$
|
-
|
|
|
|
45,000
|
|
|
$
|
0.15
|
|
|
|
2.84
|
|
|
$
|
-
|
|
|
|
0.31
|
|
|
|
3,000
|
|
|
|
0.31
|
|
|
|
2.75
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
0.31
|
|
|
|
2.75
|
|
|
|
-
|
|
|
|
0.61
|
|
|
|
45,000
|
|
|
|
0.61
|
|
|
|
2.59
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
0.61
|
|
|
|
2.59
|
|
|
|
-
|
|
|
|
0.73
|
|
|
|
3,000
|
|
|
|
0.73
|
|
|
|
2.50
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
0.73
|
|
|
|
2.50
|
|
|
|
-
|
|
|
|
0.95
|
|
|
|
200,000
|
|
|
|
0.95
|
|
|
|
2.45
|
|
|
|
-
|
|
|
|
200,000
|
|
|
|
0.95
|
|
|
|
2.45
|
|
|
|
-
|
|
|
|
1.09
|
|
|
|
3,000
|
|
|
|
1.09
|
|
|
|
2.25
|
|
|
|
-
|
|
|
|
3,000
|
|
|
|
1.09
|
|
|
|
2.25
|
|
|
|
-
|
|
|
|
1.10
|
|
|
|
45,000
|
|
|
|
1.10
|
|
|
|
2.33
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
1.10
|
|
|
|
2.33
|
|
|
|
-
|
|
|
|
1.21
|
|
|
|
45,000
|
|
|
|
1.21
|
|
|
|
2.08
|
|
|
|
-
|
|
|
|
45,000
|
|
|
|
1.21
|
|
|
|
2.08
|
|
|
|
-
|
|
|
$
|
0.15-1.21
|
|
|
|
389,000
|
|
|
$
|
0.86
|
|
|
|
2.46
|
|
|
$
|
-
|
|
|
|
389,000
|
|
|
$
|
0.86
|
|
|
|
2.46
|
|
|
$
|
-
|
|
The
following table sets forth the status of the Company’s non-vested stock options as of March 31, 2020 and December 31, 2019:
|
|
|
Number of
Options
|
|
|
Weighted-
Average
Grant-Date
Fair Value
|
|
|
Non-vested as of December 31, 2019
|
|
|
-
|
|
|
$
|
-
|
|
|
Granted
|
|
|
48,000
|
|
|
|
0.16
|
|
|
Forfeited
|
|
|
-
|
|
|
|
-
|
|
|
Vested
|
|
|
48,000
|
|
|
|
0.16
|
|
|
Non-vested as of March 31, 2020
|
|
|
-
|
|
|
$
|
-
|
|
The weighted-average remaining
estimated life for options exercisable at March 31, 2020 is 2.46 years.
The
aggregate intrinsic value for fully vested, exercisable options was $0 at March 31, 2020. The aggregate intrinsic value of options
exercised for the three months ended at March 31, 2020 was $0 as no options were exercised. The actual tax benefit realized from
stock option exercises for the three months ended at December 31, 2019 was no options available for exercise.
At
March 31, 2020 the Company has 10,799,351 options or stock awards available for grant under the 2010 Plan.
NOTE
7 – COMMITMENTS AND CONTINGENCIES
Employment
contracts
The
Company’s executive officers have entered employment contracts and confidentiality, non-disclosure and assignment of invention
agreements. The employment agreements do not provide for the payment of any compensation to our executive officers but provide
for the payment of $100,000 in severance upon termination of employment without cause and make no provisions for any payment upon
a change of control.
Litigation
In
the normal course of business, the Company may be involved in legal proceedings, claims and assessments arising in the ordinary
course of business. Such matters are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees
for such matters are expensed as incurred and we accrue for adverse outcomes as they become probable and estimable.
NOTE
8 – SUBSEQUENT EVENTS
On April 16, 2020 SEC ordered, pursuant
to Section 12(k) of the Securities Exchange Act of 1934, that trading of BIXT is suspended for the period April 16, through April
29, 2020.
As
a result of the SEC ordered suspension the Company defaulted on outstanding Convertible Notes; resulting in an increase of the
interest to 21% and the principal to increase to 168% of principal loan amount. The convertible debt increased to approximately
$1,604,856 and the interest accrual to approximately $28,960/month.
The
variable conversion rate component requires that the Defaulted Notes be valued at its stock redemption value (i.e., “if-converted” value)
pursuant to ASC 480, Distinguishing Liabilities from Equity, with the excess over the undiscounted face value being
deemed a premium to be added to the principal balance and amortized to additional paid-in capital over the life of the Notes.
As such, the Company recorded a premium of $475,598 as a reduction to additional paid-in capital based on a discounted “if-converted” rate
of $0.14 per share (65% of the lowest trading price during the 20 days preceding the note’s issuance), which computed to
4,454,213 shares of ‘if-converted’ common stock. The debt premium amortization is recorded as an increase to additional
paid-in capital.
The Company’s management is taking all
reasonable steps to get the Company traded on the OTCQB exchange again, in accordance with regulations as outlined by the SEC,
see further:
https://www.sec.gov/oiea/investor-alerts-and-bulletins/ib_tradingsuspensions
https://www.sec.gov/investor/alerts/tradingsuspensions.pdf
Stock
options and shares granted under the 2010 Stock Plan:
On
April 1, 2020 the Company granted 3,000 three-year options at an exercise price of $0.32 a Medical Advisory Board Member for his
contribution in the Company’s Advisory Board. The options total fair value at the time of the award was $646.
On
May 1, 2020 the Company granted 45,000 three-year options at an exercise price of $0.001 a Medical Advisory Board Member for his
contribution in the Company’s Advisory Board. The options total fair value at the time of the award was $45.
On
May 1, 2020 the Company appointed Mr. Mike Sheikh as EVP of Business Development.
Mr. Sheikh is committed on a full-time basis.
He currently has a compensation of $6,000 per month. The employment agreement provides for the payment of $100,000 in severance
upon termination of employment without cause and make no provisions for any payment upon a change of control. Mr. Sheikh was issued
8,800,000 shares to be equally vested over a period of 3 years, but fully vested upon a change of control. The shares total fair
value at the time of the award was $8,800.
The Company’s management has evaluated
events occurring after the date of the accompanying balance sheets through the date the financial statements were available to
be issued and did not identify any further subsequent events requiring disclosure.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion
and analysis is based on, and should be read in conjunction with, the audited financial statements and the notes thereto for the
two years ended December 31, 2019 included in our Annual Report on Form 10-K as filed with the Securities and Exchange Commission
on March 18, 2020. This discussion contains forward-looking statements. These statements are often identified by the use of words
such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,”
“could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking
statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events
to differ materially from future results expressed or implied by such forward-looking statements. The forward-looking statements
in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on Form 10-Q. We anticipate
that subsequent events and developments will cause our views to change. However, while we may elect to update these forward-looking
statements at some point in the future, we have no current intention of doing so, except to the extent required by applicable
law. You should, therefore, not rely on these forward-looking statements as representing our views as of any date subsequent to
the date of this Quarterly Report on Form 10-Q.
Overview
We
do not currently have sufficient capital resources to fund operations. To stay in business and to continue the development of
our products, we will need to raise additional capital through public or private sales of our securities, debt financing or short-term
bank loans, or a combination of the foregoing. We believe that if we can raise $3,700,000 in our currently effective public offering,
we will have sufficient working capital to repay the ten convertible notes and develop our business over the next approximately
15 months. At funding raised that is significantly less than $3,700,000, we can likely repay the ten convertible notes and continue
to develop our business over the same 15-month period, but funding at that level will delay the development of our technology
and business.
Bioxytran,
Inc. is headquartered in Newton, Massachusetts. The Company’s initial product pipeline is focused on developing and commercializing
therapeutic molecules for stroke. BXT-25 will be designed to be an injectable anti-necrosis drug specifically designed to treat
a person immediately after that person suffers an ischemic stroke. The drug is designed to be injected intravenously to travel
to the lungs to pick up oxygen molecules to carry to the brain. Like a red blood cell, the drug will cross the blood brain barrier,
which is a protective semi-permeable membrane allowing some material to cross but preventing others from crossing. BXT-25 will
be designed to diffuse oxygen into the brain tissues. We expect the BXT-25 molecule to be 5,000 times smaller than a red blood
cell.
The accompanying consolidated
financial statements have been prepared assuming the Company will continue as a going concern. The Company has limited resources
and operating history. As described in Note 4 of the financial statements, the Company has taken up ten convertible loans at a
total value of $938,400 maturing between 10/22/2020 and 3/18/2021, in order to finance the Company until we start raising equity.
As shown in the accompanying consolidated financial statements, the Company had an accumulated deficit of $2,781,800 as of March
31, 2020. The accumulated deficit as of December 31, 2019 was $2,241,305.
The
future of the Company is dependent upon its ability to obtain financing to develop its new business opportunities and support
the cost of the drug development including clinical trials and regulatory submission to the FDA.
The Company’s management
do not foresee that COVID-19 has any impact for the Company and its ability to carry out their plans.
Management
plans to seek additional capital through private placements and public offerings of its common stock. There can be no assurance
that the Company will be successful in accomplishing its objectives. Without such additional capital or the establishment of strategic
relationships with established pharmaceutical companies, the Company may be required to cease operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities
that might be necessary in the event the Company cannot continue operations.
Results
of Operations
We are a start-up company.
Historically, Bioxytran was engaged in formation, fund raising and identifying and consulting with the scientific community regarding
the development, formulation and testing of its products.
General
and Administrative
General and administrative
(G&A) expenses for the three months ended March 31, 2020 were $266,043, while for the three months ended March 31, 2019, they
were $129,625. The Company only started its activities in October 2018. The components of G&A expenses are as follows:
|
|
-
|
Payroll and related expenses for the three months ended March 31, 2020 were $36,000, as compared to $36,000 for the three months ended March 31, 2019.
|
|
|
-
|
Costs for legal, accounting and other professional services for the three months ended March 31, 2020 were $22,574, as compared to $40,811 for the three months ended March 31, 2019. The decrease was due to reduced use of external corporate counsel.
|
|
|
-
|
Sales and marketing expense for the three months ended March 31, 2020 were $9,489, as compared to $17,050 for the three months ended March 31, 2019. The decrease was due to the web-site build-up in the first quarter of 2019.
|
|
|
-
|
Stock compensation mounted to $155,501
for the three months ended March 31, 2020. There was no stock compensation for the three months ended March 31, 2019. The increase
was due to increased P.R. activities with up-front payment in order to better position the company in upcoming activities.
|
|
|
-
|
The remaining miscellaneous G&A expenses totaled $42,479 for the three months ended March 31, 2020, as compared to $35,764 for the three months ended March 31, 2019. The increase was due to attendance at JPM Conference in January 2020.
|
Interest
Expense and Amortization of Debt Discount and Premium
During
the three months ended March 31, 2020, the Company recorded $104,568 of premium accretion to additional paid-in capital, and $21,284
in amortization of debt discount and $145,438 in warrant amortization to interest expense, as compared to, $60,268 of premium
accretion and a debt discount amortization of $9,536 and warrant amortization of $45,361 for the three months ended March 31,
2019. The interest for the ten convertible notes outstanding amounted to $107,730, including a pre-pay fee of $91,362 for the
early payment of a convertible note, as compared to $6,887 for the three months ended March 31, 2019.
Net
Loss
The
Company generated a net loss for the three months ended March 31, 2020 of $540,495. In comparison, for the three months ended
March 31, 2019, the Company generated a net loss of $191,409. The increased loss is mainly linked to current quarter costs for
legal, accounting and other professional services, as well as the amortization of debt discounts applied to warrants issued in
connection with convertible debt and the related loan fees.
Cash-Flows
Net cash used in operating
activities was $156,789 and $139,730 for the three months ended March 31, 2020 and 2019, respectively. The increase was due to
attendance at JPM Conference in January 2020 and increased operational activities.
The Company did not
engage in any investing activities during the three months ended March 31, 2020 or 2019.
Cash flows from financing activities were $31,052 and $222,250 for
the three months ended March 31, 2020 and 2019, respectively. The significant change was due to repayment of an outstanding convertible
note on February 20, 2020.
LIQUIDITY
AND CAPITAL RESOURCES
As of March 31, 2020,
our only asset was $43,891 in cash. We had total liabilities of $1,881,041, which were all current liabilities, and which consisted
of $162,346 in accounts payable and accrued expenses (of which $116,000 was payable to related parties), and $1,718,695 in the
form of ten convertible loans of $938,400, maturing between October 22, 2020 and March 18, 2021 (which includes unamortized debt
premium of $856,560, and which has been netted with unamortized debt discounts totaling $76,265). The equivalent numbers at December
31, 2019, were $169,628 in cash and total liabilities of $1,018,915, which were all current liabilities, and which consisted of
$167,932 in accounts payable and accrued expenses (of which $96,000 was payable to related parties), and $850,983 (which includes
unamortized debt premium of $24,121, and which has been netted with unamortized debt discounts totaling $60,038) in the form of
seven convertible loans, maturing between February 25, 2020 and 12/30/2020.
At March 31, 2020, we had
total working capital of negative $1,837,150 and an accumulated deficit of $2,781,800. Comparatively, on December 31, 2019, we
had total working capital of negative $799,287 and an accumulated deficit of $2,241,305. We believe that we must raise not less
than $3,700,000 in our currently effective public offering in addition to current cash on hand to be able to continue our business
operations for approximately the next 15 months and repay the ten convertible notes.
We
have no current commitment from our officers and directors or any of our shareholders, to supplement our operations or provide
us with financing in the future. If we are unable to raise additional capital from conventional sources and/or additional sales
of stock in the future, we may be forced to curtail or cease our operations. Even if we are able to continue our operations, the
failure to obtain financing could have a substantial adverse effect on our business and financial results. In the future, we may
be required to seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring
cash flows in balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if
accomplished, may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts
or on terms acceptable to us, or at all.
Contractual
Obligations
Our
contractual obligations include ten convertible notes, for a total of $938,400, described under Note 4 to the Financial Statements.
Off-Balance
Sheet Arrangements
We
do not have any off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect
on our consolidated financial condition, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL
ACCOUNTING POLICIES
In
presenting our financial statements in conformity with generally accepted accounting principles, we are required to make estimates
and assumptions that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate
to matters that are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot
be predicted and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant
unfavorable change to current conditions, it could result in a material adverse impact to our results of operations, financial
position and liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the
most appropriate at that time. Presented below are those accounting policies that we believe require subjective and complex judgments
that could potentially affect reported results. However, the majority of our businesses operate in environments where we pay a
fee for a service performed, and therefore the results of the majority of our recurring operations are recorded in our financial
statements using accounting policies that are not particularly subjective, nor complex.
Stock
Based Compensation
The
Company has share-based compensation plans under which non-employees, consultants and suppliers may be granted restricted stock,
as well as options to purchase shares of Company common stock at the fair market value at the time of grant. Stock-based compensation
cost is measured by the Company at the grant date, based on the fair value of the award over the requisite service period.
The
Company applies ASC 718 for options, common stock and other equity-based grants to its employees and directors. ASC 718 requires
measurement of all employee equity-based payment awards using a fair-value method and recording of such expense in the consolidated
financial statements over the requisite service period. The fair value concepts have not changed significantly in ASC 718; however,
in adopting this standard, companies must choose among alternative valuation models and amortization assumptions. After assessing
alternative valuation models and amortization assumptions, the Company will continue using both the Black-Scholes valuation model
and straight-line amortization of compensation expense over the requisite service period for each separately vesting portion of
the grant.