During the year ended September 30, 2019, the Company also converted a note payable with a remaining principal of $0 into 3,300,001 shares of common stock with a fair value of $99,000; the Company recognized a loss in the amount of $99,000 on this conversion. This debt was originally settled in a previous year through conversions, but the Company honored a current year conversion notice resulting in a loss on conversion.
All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company.
During the year ended September 30, 2020, the Company recognized
$187,000 of new discount related to the beneficial conversion features of convertible notes payable, and recognized interest expense
of $12,778 and amortization of discount on convertible notes payable of $225,282. During the year ended September 30, 2019, the
Company recognized interest expense of $25,521 and amortization of discount on convertible notes payable of $334,842. As of September
30, 2020, and 2019, accrued interest was $227,372 and $227,734, respectively.
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Conversions to Common Stock
During the year ended September 30, 2020, the holders of the convertible notes payable elected to convert principal and accrued interest of $232,140 into 250,751,059 shares of common stock. There was no gain or loss recognized as the conversion occurred in accordance with the original terms of the agreement.
During the year ended September 30, 2019, the holders of the convertible notes payable elected to convert principal and accrued interest of $339,763 into 97,644,262 shares of common stock, resulting in a loss on conversion in the amount of $99,000.
Advances
As of September 30, 2020 and 2019, the Company owed non-interest bearing advances of $59,650, which are due on demand.
Note 6. Note Payable
The Company entered into a promissory note with its attorney to refinance accounts payable of $68,793 as of September 30, 2016 into a promissory note. The note can be issued up to the total principal amount of $100,000 and includes the prepayment of legal fees of $31,498 to be incurred during the period from October 1, 2016 through March 1, 2017. The note payable was recorded at $68,793 (the amount of refinanced accounts payable) as of September 30, 2017. There was no prepayment recognized as of September 30, 2017. During the year ended September 30, 2018, the company increased the amount of the note to $100,000 in connection with legal fees incurred. The note bears interest at the prime rate and requires monthly payments of principal and interest of $10,000 beginning July 1, 2017, the maturity date. During the year ended September 30, 2019, this note in the principal amount of $100,000 and accrued interest in the amount of $10,834 was forgiven by the lender; the Company recorded a gain in the amount of $110,834 in connection with the note forgiveness, and as of September 30, 2019, the balance of this note is $0.
Note 7. Stockholders’ deficit
The Company has unlimited authorized shares of common stock and 20,000,000 shares of preferred stock. As of September 30, 2020, there were 436,218,342 shares of common stock, 0 shares of Series A Preferred Stock, 509,988 shares of Series D Preferred Stock, 1,000,000 shares of Series E Preferred Stock and 386,975 shares of Series F Preferred Stock outstanding.
Conversions to Common Stock
During the year ended September 30, 2020, the holders of the convertible notes payable elected to convert principal and accrued interest of $232,140 into 250,751,059 shares of common stock. There was no gain or loss recognized as the conversion occurred in accordance with the original terms of the agreement.
During the year ended September 30, 2019, the holders of the convertible notes payable elected to convert principal and accrued interest of $339,763 into 97,644,262 shares of common stock, resulting in a loss on conversion in the amount of $99,000.
Common stock issued for services
During the year ended September 30, 2020, the Company issued 10,000,000 shares of
common stock with a fair value of $24,000 to the President of SomaCeuticals, based on the closing price of the
Company’s common stock of $0.0024 at the date of grant. The Company also issued 5,000,000 common shares to the
President and CEO of the Company in exchange for $500 cash. Due to the sale at a value below current market pricing, the
Company recognized stock-based compensation expense of $11,500 related to this issue, based on the closing price of the
Company’s common stock of $0.0024 at the date of grant. The Company recognized a total of $35,500 of stock-based
compensation expense for these awards.
During the year ended September 30, 2019, the Company issued 3,500,000 shares of common stock with a fair value of $68,250 to its President and CEO as a bonus. These shares were valued at $0.195 per share, which was the closing price of the Company’s common stock on the date of the grant.
Preferred Stock
Our authorized preferred stock consists of 20,000,000 shares of $0.001 par value preferred stock.
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Series A Preferred Stock – Our board of directors has
designated up to 6,000,000 shares of Series A Preferred Stock. The Series A Preferred Stock has a liquidation value of $2.00
per share. The initial number issued is 5,000,000 with additional shares to be issued as a dividend not to exceed a total of
6,000,000 shares. The rank of the Series A is prior to all common and preferred shares. In addition, the Series A Preferred
Stock retains protective provisions to maintain their seniority with respect to liquidation or dissolution. The Series A
Preferred Stock holds no voting rights and earns an 8% per annum dividend, payable in additional shares of Series A Preferred
Stock. During the year ended September 30, 2019, the Company issued 800,000 shares of Series A Preferred Stock with a
liquidation value of $1,600,000 as a dividend. During the three months ended December 31, 2019, the Company entered into a
settlement agreement with David Summers, the Company’s former CEO and a common stockholder. As part of this settlement,
David Summers returned 5,800,000 Series A preferred shares with a book value of $4,590,535, to the Company which were
cancelled. See Note 8 for additional information. At September 30, 2020 and 2019, there were 0 and 5,800,000 shares of our
Series A Preferred Stock outstanding, respectively.
Series B Preferred Stock – Our board of directors has designated up to 1,000,000 shares of Series B Preferred Stock. The Series B Preferred Stock has a liquidation value of $1.00 per share. The holders of the Series B Preferred Stock are entitled to dividends of 8% per year payable quarterly in cash or in shares of common stock at the option of the Company. The holders of the Series B Preferred Stock have no voting rights. The Series B Preferred Stock is redeemable at the option of the Company at a price of $1.00 per share.
During the year ended September 30, 2018, the Company issued 500,000 shares of common stock upon conversion of the Series B Preferred Stock. At September 30, 2020 and 2019, there were no shares of our Series B Preferred Stock outstanding.
Series C Preferred Stock – On September 12, 2017, our board of directors designated up to 1,200,000 shares of Series C Preferred Stock with a liquidation value of $0.50 per share. The holders of the Series C Preferred Stock have no voting rights. The Series C Preferred Stock is convertible at the option of the holder into shares of common stock at a rate of one share of common stock for each share of Series C Preferred Stock. The Series C Preferred Stock is redeemable at the option of the Company at a price of $0.50 per share. The Series C Preferred Stock has been canceled, and there are no shares of Series C Preferred Stock outstanding as of September 30, 2020 and 2019.
Series D Preferred Stock – On September 21, 2017, our board of directors designated up to 539,988 shares of Series D Preferred Stock with a liquidation value of $1.00 per share. The holders of the Series D Preferred Stock have no voting rights. The Series D Preferred Stock is convertible at the option of the holder into shares of common stock at a rate of $0.01 per share of common stock. The Series D Preferred Stock is not redeemable. During the year ended September 30, 2019, the holders of 60,000 shares of the Series D Preferred stock returned these shares to the Company for cancellation. There was no gain or loss recognized on this transaction. At September 30, 2020 and 2019, there were 509,988 shares of Series D Preferred Stock outstanding.
Series E Preferred Stock – On August 3, 2015, our board of directors designated 1,000,000 shares of Series E Preferred stock. The Series E Preferred stock is subordinate to our common stock. It does not receive dividends and does not participate in equity distributions. The Series E Preferred stock retained 2/3 of the voting rights in the Company.
At September 30, 2020 and 2019, there were 1,000,000 shares of Series E Preferred stock outstanding. Dividends, when, as and if declared by the Board of Directors, shall be paid out of funds at the time legally available for such purposes.
Series F Preferred Stock – On September 21, 2017, our board of directors designated up to 501,975 shares of Series F Preferred Stock with a liquidation value of $1.00 per share. The holders of the Series F Preferred Stock have no voting rights. The Series F Preferred Stock is convertible at the option of the holder into shares of common stock at a rate of $0.01 per share of common stock. The Series F Preferred Stock is not redeemable. During the year ended September 30, 2019, 60,000 shares of the Series F Preferred Stock were returned for cancellation. At September 30, 2020 and 2019, 386,975 shares of the Series F Preferred Stock were issued and outstanding.
Beneficial conversion discount
During the year ended September 30, 2020, we recorded a beneficial conversion discount of $187,000 as a result of discounts on convertible notes payable issued during the period.
During the year ended September 30, 2019, we recorded a beneficial conversion discount of $354,326 as a result of discounts on convertible notes payable issued during the period.
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Note 8. Commitments and Contingent Liabilities
Litigation
The Company was involved in a legal dispute with Mr. David Summers,
a significant shareholder, regarding the settlement of claims on certain patents and formulas. In October 2019, the Company
entered into a settlement agreement with David Summers whereby all claims, disputes and litigation were dismissed. Mr. Summers
returned 5,800,000 shares of Series A Preferred stock with a book value of $4,590,535 to the Company, which were cancelled. The
Company was relieved of the previously recognized liability for compensation amounts due to Mr. Summers of $112,804. The Company
assigned three patents that it previously held to David Summers, which had no book value as of the date of the settlement. The
settlement was recorded as a capital transaction due to the related party nature and as such no gain or loss was recorded.
Note 9. License Agreement
Effective August 23, 2020 the Company’s wholly-owned subsidiary, SomaCeuticals, Inc. entered into an exclusive global license agreement with 7 to Stand, Inc. for the rights to U.S. patent 10,610,592 issued to Fabrizio de Silvestri, Terni, Italy, as inventor, April 7, 2020 for treatment of Multiple Sclerosis. In consideration for the license agreement, SomaCeuticals agreed to pay 7 to Stand a royalty of 7.1% of the net sales of any product developed under the patent on a worldwide basis. Additionally, the Company will issue shares of common stock to 7 to Stand upon completion of the following milestones:
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●
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Common shares representing 5% of total number of outstanding common shares of the Company immediately following any change of control of the Company;
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●
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Common shares representing 5% of total number of outstanding common shares of the Company immediately following the first round of funding under a private offer of equity or debt securities;
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|
|
●
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Common shares representing 5% of total number of outstanding common shares of the Company immediately following the first round of funding under a private offer of equity or debt securities;
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●
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Common shares representing 5% of total number of outstanding common shares of the Company immediately following the commencement of clinical trials for Federal Drug Administration clearance of the product; and
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●
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Common shares representing an adjustment to increase 7 to Stand’s total ownership to 19.99% of total number of outstanding common shares of the Company immediately following FDA clearance of the product for sale.
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No shares have been earned under the agreement to date, and no royalties have been earned or paid to 7 to Stand. The license agreement may be terminated by 7 to Stand if 1) SomaCeuticals does not begin clinical trials within one year of the agreement; 2) if SomaCeuticals terminates the continuation of the clinical trials; or 3) shall not commence marketing the product within reasonable time after obtaining FDA approval.
Note 10. Income Taxes
There is no current or deferred income tax expense or benefit for the period ended September 30, 2020. The Company currently has net operating loss carryforwards aggregating approximately $2,251,000 which expire beginning in 2033. The deferred tax asset related to the net operating loss carryforwards has been fully reserved.
The provision for income taxes is different from that which would be obtained by applying the statutory federal income tax rate to income before income taxes. The items causing this difference for the period from April 29, 2016 (date of inception) through September 30, 2020 and 2019 is the valuation allowance as follows.
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September 30, 2020
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September 30, 2019
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Net operating loss carryforward at statutory tax rate
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$
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475,000
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$
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424,000
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Valuation allowance
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|
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(475,000
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)
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(424,000
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)
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Deferred tax benefit, net
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$
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—
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|
$
|
—
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The Company has not recognized an income tax benefit for the period based on uncertainties concerning its ability to generate taxable income in future periods. The tax benefit for the current period presented is offset by a valuation allowance (100%) established against deferred tax assets arising from operating losses and other temporary differences, the realization of which could not be considered more likely than not. In future periods, tax benefits and related deferred tax assets will be recognized when management considers realization of such amounts to be more likely than not.
The tax returns for fiscal year 2017 and forward are still open for review by the Internal Revenue Service.
Note 11. Available-for-Sale Securities
The Company owns a non-controlling interest in certain marketable equity securities. This investment is accounted for as available-for-sale. During the year ended September 30, 2019, the Company determined that the loss in value of the available-for-sale securities was considered other than temporary due to the fact that these shares are no longer trading on public markets. As a result, the loss of $10,673 was recognized as an impairment loss in the consolidated statement of operations. Available-for-sale securities is comprised of the following as of September 30, 2020 and 2019
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September 30, 2020
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September 30, 2019
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Common stock of Biofuels Power Corp. (Initial Cost)
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$
|
—
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|
$
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35,000
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Cumulative realized loss on available-for-sale securities
|
|
|
(—
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)
|
|
(35,000
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)
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Unrealized loss on available-for-sale securities
|
|
|
—
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|
|
—
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Available-for-sale securities
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$
|
—
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|
$
|
—
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Note 12. Subsequent Events
In October 2020, a lender converted all $28,000 principal and accrued interest of $16,80 of the March 30, 2020 convertible note payable into 9,275,000 shares of common stock. There was no gain or loss recognized as the conversion occurred in accordance with the original terms of the agreement.
On October 6, 2020, the Company entered into a convertible promissory note of $33,000, which matures on July 31, 2021 and bears interest at 12%. The promissory note is convertible beginning January 31, 2021 into common stock at a rate of 65% of the average of the two lowest trading prices during the 15 trading days prior to conversion. The Company received cash proceeds of $30,000 after deferred financing fees.
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