This Quarterly Report
includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).
These statements are based on management’s beliefs and assumptions, and on information currently available to management.
Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under
the heading: “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking
statements also include statements in which words such as “expect,” “anticipate,” “intend,”
“plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking
statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and
shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to
put undue reliance on any forward-looking statements.
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ITEM 2
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M
a
nagement’s Discussion and Analysis
of Financial Condition and Results of Operations
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Our Management’s
Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking
statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local
general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to
successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing
government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the
loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy
or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology;
and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking
statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on
facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks
and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking
statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports
as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results
of operations and prospects.
The following discussion
and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with,
its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting
principles generally accepted in the United States.
Summary Overview
We were formed in
December 2014 and, therefore, have a relatively short operating history. We had revenues of approximately $128,105 in the year
ended December 31, 2017, 94% of which was from a single customer. We had revenues of approximately $19,856 in the three month period
ended March 31, 2018, but no revenue from the same customer. In December 2017, we ended our relationship with this customer and
have shifted our focus from software services to medically-focused CBD hemp oil products.
Eqova Life Sciences
On October 17, 2017,
we acquired Eqova Life Sciences, a Nevada corporation (“Eqova”), through an exchange of shares of our Series A Convertible
Preferred Stock for all of the outstanding equity interest of Eqova. As part of the Exchange, we have brought on Eqova’s
President and Director, Patrick Stiles, to serve as our President and Chief Executive Officer and as a Director on our Board of
Directors.
Eqova is a medically-focused
CBD company that develops clinical grade full spectrum hemp oil products, sold exclusively via partnerships with licensed medical
practitioners to use with their patients. To date, we know of no other hemp oil company exclusively focused on the practitioner
market, leaving it largely underserved. According to The Hemp Business Journal, CBD products marketplace are projected to grow
by 700% by 2020 with annual sales reaching $2.1 billion. With a head start in a growing marketplace, we believe that Eqova provides
us with a prime growth opportunity with an established business. Initial revenues of our hemp oil products from the acquisition
of Eqova through December 31, 2017 and for the three months ended March 31, 2018 were $7,605 and $19,856, respectively.
Going Concern
As a result of our
financial condition, we have received a report from our independent registered public accounting firm for our financial statements
for the years ended December 31, 2017 and 2016 that includes an explanatory paragraph describing the uncertainty as to our ability
to continue as a going concern. From inception (December 19, 2014) through the period ended March 31, 2018, we have incurred accumulated
net losses of $7,747,768. In order to continue as a going concern we must effectively balance many factors and begin to generate
revenue so that we can fund our operations from our sales and revenues. If we are not able to do this we may not be able to continue
as an operating company. At our current revenue and burn rate, our cash on hand will last less than one month, and thus we must
raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing cash flow will
be adequate to satisfy our existing operating expenses and capital requirements.
Results of Operations for the Three Months Ended March
31, 2018 and 2017
Introduction
We had revenues
of $19,856 for the three months ended March 31, 2018, compared to $42,000 for the three months ended March 31, 2017. Our cost of
revenue was $14,699 for the three months ended March 31, 2018 compared to $3,000 for the three months ended March 31, 2017, an
increase of $11,699, or approximately 390%. Our operating expenses were $232,064 for the three months ended March 31, 2018, compared
to $388,270 for the three months ended March 31, 2017, a decrease of $156,206, or approximately 40%.
Our operating expenses
consisted mostly of general and administrative expenses, including general and administrative expenses to a related party.
Revenues and Net Operating Loss
Our revenue, operating
expenses, net operating loss, and net loss for the three months ended March 31, 2018 and 2017 were as follows:
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Three Months
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Three Months
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March 31,
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March 31,
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Increase/
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2018
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2017
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(Decrease)
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Revenue
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$
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19,856
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$
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42,000
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$
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(22,144
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)
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Operating expenses:
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Cost of revenue
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14,699
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3,000
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11,699
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General and administrative
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113,673
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331,770
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(218,097
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)
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General and administrative - related party
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118,391
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56,500
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61,891
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Total operating expenses
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246,763
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391,270
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(144,507
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)
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Net operating loss
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(226,907
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)
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(349,270
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)
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(122,363
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)
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Other income (expense)
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162,521
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(148,893
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)
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311,414
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Net loss
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$
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(64,386
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)
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$
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(498,163
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)
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$
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433,777
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Revenues
Revenues were $19,856
for the three months ended March 31, 2018, compared to $42,000 for the three months ended March 31, 2017, a decrease of $22,144,
or approximately 53%. For the three months ended March 31, 2017, nearly all of the total revenue came from a single customer. However,
we received no revenue from this customer during the three months ended March 31, 2018. The decrease reflects the loss of this
customer and the transition to our new business selling CBD products.
Cost of Revenue
Cost of revenue
was $14,699 for the three months ended March 31, 2018, compared to $3,00 for the three months ended March 31, 2017, an increase
of $11,699, an increase of approximately 390%. The increase was due to the change of our business from a service-based business
to a product-based business. Gross profit will be much smaller going forward because of this shift in our business.
General and Administrative
General and administrative
expenses were $113,673 for the three months ended March 31, 2018, compared to $331,770 for the three months ended March 31, 2017,
a decrease of $218,097, or 66%. The decrease was due to decrease in financing and loan fees, marketing fees, commissions and consulting
fees. In the three months ended March 31, 2018, general and administrative expense consisted mainly of legal and professional fees
totaling $29,514, consulting $3,893, salaries, wages and payroll costs of $15,703, advertising and marketing of $9,024, computer
and programming of $6,033, travel expenses of $3,800, selling expenses of $1,777, commissions of $2,965, transfer agent and filing
fees of $1,529, and accounting fees of $2,970. In the three months ended March 31, 2017, general and administrative expense consisted
mainly of consulting $76,700, selling expenses of $895, commissions of $13,500, transfer agent and filing fees of $4,245, and accounting
fees of $0.
General and administrative
expenses – related party were $118,391 for the three months ended March 31, 2018, compared to $56,500 for the three months
ended March 31, 2017, an increase of $61,891, or approximately 110%. The increase was mainly due to increase in compensation to
Patrick Stiles.
Net Operating Loss
Net operating loss
was $226,907 for the three months ended March 31, 2018, compared to $349,270 for the three months ended March 31, 2017, a decrease
of $122,363, or approximately 35%. Net operating loss decreased, as set forth above, primarily due to a decrease in general and
administrative expenses, offset by a decrease in revenues.
Other Income (Expense)
Other income was
$162,521 for the three months ended March 31, 2018, compared to other expense of $148,893 for the three months ended March 31,
2017, an increase of $311,414. The increase of other income (expense) was due to a decrease in interest expense, net of interest
income, from $1,272,493 during the three months ended March 31, 2017 to $408,097 for the three months ended March 31, 2018. This
change in interest expense was due to amortization of the debt discount and the derivatives on the convertible debt.
Other income for
the three months ended March 31, 2018 consisted primarily of a change in the fair value of derivatives, offset by interest expense
and loss on extinguishment of debt. Other expense for the three months ended March 31, 2017 consisted primarily of interest expense
and loss on extinguishment of debt, offset by a change in fair value of derivatives.
Net Loss
Net loss was $64,386
for the three months ended March 31, 2018, or $0.00 per share, compared to $498,163 for the three months ended March 31, 2017,
or $0.03 per share, a decrease of $433,777. Net loss decreased, as set forth above, primarily due to a decrease in interest expense
from new debt issuances, and a decrease in general and administrative expenses, offset by an increase in loss on extinguishment
of debt.
Liquidity and Capital Resources
Introduction
During the three
months ended March 31, 2018, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash on
hand as of March 31, 2018 was $88,052, which was derived from the sale of convertible promissory notes to investors. Our monthly
cash flow burn rate for 2017 was approximately $63,000. Although we have moderate short term cash needs, as our operating expenses
increase we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the issuance
of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Our cash, current
assets, total assets, current liabilities, and total liabilities as of March 31, 2018 and December 31, 2017, respectively, are
as follows:
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March 31
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December 31,
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Increase/
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2018
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2017
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(Decrease)
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Cash
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$
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88,052
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$
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81,653
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$
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6,399
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Total Current Assets
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212,169
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227,004
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(14,835
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Total Assets
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1,104,639
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1,122,743
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(18,104
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Total Current and total Liabilities
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1,472,181
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2,301,870
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(829,689
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)
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Our cash increased
slightly because we were able to raise capital from the sale of warrants, notes and convertible notes. Our total current assets
decreased primarily because of lower inventory and accounts receivable as of March 31, 2018. Our total current liabilities decreased
during the three months ended March 31, 2018 primarily because of changes to the value of our derivative liabilities as of March
31, 2018. Our accumulated deficit increased during the three months ended March 31, 2018 by $64,386 to ($7,747,768) while our total
stockholders’ deficit decreased by $811,585 to $367,542, primarily due to issuances of stock upon conversion of our convertible
notes.
In order to repay
our obligations in full or in part when due, we will be required to raise significant capital from other sources. There is no assurance,
however, that we will be successful in these efforts.
Cash Requirements
Our cash on hand
as of March 31, 2018 was $88,052. Based on our current level of revenues and monthly burn rate of approximately $63,000 per month,
we will need to continue to fund operations by raising capital from the sale of our stock and debt financings.
Sources and Uses of Cash
Operating Activities
We had net cash
used in operating activities of $188,184 for the three months ended March 31, 2018, compared to $225,234 for the three months ended
March 31, 2017. We use our cash for normal business operations.
Investing Activities
We had zero net
cash from/used in investing activities for the three months ended March 31, 2018, and $20,000 net cash used in investing activities
for the three months ended March 31, 2017. The primary reason for the difference between these periods are payments made for notes
receivable during the three months ended March 31, 2017 while we made no such payments during the three months ended March 31,
2018.
Financing Activities
Our net cash provided
by financing activities for the three months ended March 31, 2018 was $194,583, all of which was proceeds from convertible notes
payable, compared to $252,750 for the three months ended March 31, 2017, all of which was proceeds from notes payable, convertible
notes payable, warrants and the exercise of warrants.