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 $50,916 in the six-month period
ended June 30, 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 six months ended June 30, 2018 were $7,605 and $50,916, 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 June 30, 2018, we have incurred accumulated
net losses of $8,147,487. 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 and Six Months Ended
June 30, 2018 and 2017
Introduction
We had revenues
of $31,060 for the three months ended June 30, 2018, compared to $37,500 for the three months ended June 30, 2017. Our operating
expenses were $160,814 for the three months ended June 30, 2018, compared to $171,379 for the three months ended June 30, 2017,
a decrease of $10,565, or approximately 6%.
We had revenues
of $50,916 for the six months ended June 30, 2018, compared to $79,500 for the six months ended June 30, 2017. Our operating expenses
were $392,878 for the six months ended June 30, 2018, compared to $559,649 for the six months ended June 30, 2017, a decrease of
$166,771, or approximately 30%.
Our operating expenses
consisted mostly of general and administrative expenses, including general and administrative expenses to a related party.
Revenues and Net Operating Loss
Our revenue, operating expenses, net
operating loss, and net loss for the three and six months ended June 30, 2018 and 2017 were as follows:
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Three Months
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Three Months
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Six Months
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Six Months
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June 30,
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June 30,
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Increase/
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June 30,
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June 30,
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Increase /
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2018
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2017
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(Decrease)
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2018
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2017
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(Decrease)
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Revenue
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$
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31,060
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$
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37,500
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$
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(6,440
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)
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$
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50,916
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$
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79,500
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$
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(28,584
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)
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Operating expenses:
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Direct cost of revenue
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10,888
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14,659
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(3,771
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)
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25,587
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17,659
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7,928
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General and administrative
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94,709
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118,879
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(24,170
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)
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208,382
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450,649
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(242,267
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)
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General and administrative - related party
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66,105
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52,500
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13,605
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184,496
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109,000
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75,496
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Total operating expenses
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160,814
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171,379
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(10,565
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)
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392,878
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559,649
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(166,771
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)
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Net operating loss
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(140,642
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)
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(148,538
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)
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(7,896
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)
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(367,549
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)
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(497,808
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)
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(130,259
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)
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Other income (expense)
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(259,077
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)
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17,059
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(276,136
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)
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(96,556
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)
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(131,834
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)
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(35,278
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)
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Net loss
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$
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(399,719
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)
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$
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(131,479
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)
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$
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(268,240
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)
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$
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(464,105
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)
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$
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(629,642
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)
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$
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(165,537
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)
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Revenues
Revenues were $31,060
for the three months ended June 30, 2018, compared to $37,500 for the three months ended June 30, 2017, a decrease of $6,440, or
about 17%.
Revenues were $50,916
for the six months ended June 30, 2018, compared to $79,500 for the six months ended June 30, 2017, a decrease of $28,584, or about
36%. For the six months ended June 30, 2017, nearly all of the total revenue came from a single customer. However, we received
no revenue from this customer during the six months ended June 30, 2018. The decrease reflects the loss of this customer and the
transition to our new business selling CBD products.
Direct Cost of Revenue
Direct cost of revenue
expenses was $10,888 for the three months ended June 30, 2018, compared to $14,659 for the three months ended June 30, 2017.
Direct cost of revenue
expenses was $25,587 for the six months ended June 30, 2018, compared to $17,659 for the six months ended June 30, 2017.
General and Administrative
General and administrative
expenses were $94,709 for the three months ended June 30, 2018, compared to $118,879 for the three months ended June 30, 2017,
a decrease of $24,170, or about 20%. General and administrative expenses – related party were $66,105 for the three months
ended June 30, 2018, compared to $52,500 for the three months ended June 30, 2017, an increase of $13,605, or about 26%.
General and administrative
expenses were $208,382 for the six months ended June 30, 2018, compared to $450,649 for the six months ended June 30, 2017, a decrease
of $242,267, or about 54%. General and administrative expenses – related party were $184,496 for the six months ended June
30, 2018, compared to $109,000 for the six months ended June 30, 2017, an increase of $75,496, or about 69%.
Operating Loss
Net operating loss
was $140,642 for the three months ended June 30, 2018, compared to $148,538 for the three months ended June 30, 2017, a decrease
of $7,896. Net operating loss decreased, as set forth above, primarily due to a decrease in general and administrative expenses.
Net operating loss
was $367,549 for the six months ended June 30, 2018, compared to $497,808 for the six months ended June 30, 2017, a decrease of
$130,259. Net operating loss decreased, as set forth above, primarily due to an increase in general and administrative expenses.
Other Income (Expense)
Other expense was
$(259,077) for the three months ended June 30, 2018, compared to other income of $17,059 for the three months ended June 30, 2017,
a decrease of $276,136.
Other expense was
$(96,556) for the six months ended June 30, 2018, compared to other expense of $(131,834) for the six months ended June 30, 2017,
a decrease of $35,278.
Other expense consisted
of interest expense, net of interest income. Other income (expense) for both periods consisted primarily of a change in fair value
on derivative and loss on extinguishment of debt offset by interest expense, net of interest income. The increase in interest expense
is attributable to new debt issuances. The Company had derivative liabilities which was part of the loss for the period.
Net Loss
Net loss was $(399,719)
for the three months ended June 30, 2018, or $(0.21) per share, compared to $(131,479) for the three months ended June 30, 2017,
or $(1.38) per share, an increase of $268,240. Net loss increased, as set forth above, primarily due to a change in the fair value
on derivative offset by an increase in interest expense from new debt issuances and an increase in general and administrative expenses.
Net loss was $(464,105)
for the six months ended June 30, 2018, or $(0.28) per share, compared to $(629,642) for the six months ended June 30, 2017, or
$(7.37) per share, a decrease of $165,537. Net loss increased, as set forth above, primarily due to an increase in general and
administrative expenses and interest expense from new debt issuances, offset by a change in the fair value on derivative.
Liquidity and Capital Resources
Introduction
During the three
months ended June 30, 2018, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash on hand
as of June 30, 2018 was $24,019, which was derived from the sale of convertible promissory notes to investors. Our monthly cash
flow burn rate for 2017 was approximately $63,000. Although we have moderate short term cash needs, as our operating expenses increase
we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through the issuance of debt
or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow needs.
Our cash, current
assets, total assets, current liabilities, and total liabilities as of June 30, 2018 and December 31, 2017, respectively, are as
follows:
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June 30
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December 31,
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Increase/
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2018
|
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2017
|
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(Decrease)
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|
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Cash
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$
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24,019
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$
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81,653
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$
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(57,634)
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Total Current Assets
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140,395
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227,004
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(86,609)
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Total Assets
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986,715
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1,122,743
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(136,028)
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Total Current and Total Liabilities
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1,753,976
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2,301,870
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(547,894)
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Our cash decreased
because we had no debt or equity financing for the three months ended June 30, 2018. Our total current assets decreased primarily
because of lower cash, inventory and accounts receivable as of June 30, 2018. Our total current liabilities decreased during the
six months ended June 30, 2018 primarily because of changes to the value of our derivative liabilities as of June 30, 2018. Our
accumulated deficit increased during the six months ended June 30, 2018 by $464,105 to ($8,147,487) while our total stockholders’
deficit increased by $411,866 to $(767,261), 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 June 30, 2018 was $24,019. 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 $(302,217) for the six months ended June 30, 2018, compared to $(355,325) for the six months ended
June 30, 2017. For the six months ended June 30, 2018, the net cash used in operating activities consisted primarily of our net
loss of $(464,105), the increase in the fair value of our derivative liabilities of $1,034,997 and a decrease in accounts payable
of $22,113, offset primarily by non-cash amortization of debt discount of $592,385 and increases in accrued liabilities, notes
payable and convertible notes. For the six months ended June 30, 2017, the net cash used in operating activities consisted primarily
of our net loss of $(629,642) and an increase in the fair value of our derivative liabilities of $1,603,288, offset by non-cash
fees and decreases in accounts payable and accrued liabilities.
Investing Activities
We had $50,000 net
cash provided by investing activities for the six months ended June 30, 2018, and $(34,189) net cash used in investing activities
for the six months ended June 30, 2017.
Financing Activities
Our net cash provided
by financing activities for the six months ended June 30, 2018 was $194,583, all of which was proceeds from convertible notes payable,
compared to $399,000 for the six months ended June 30, 2017, all of which was proceeds from convertible notes payable, offset by
payments for repayment of convertible notes and notes payable and the exercise of warrants.