NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2021
(Unaudited)
Note 1. General Organization and Business
Angiosoma Inc. (the “Company”) was incorporated on April 29, 2016. The Company’s
year-end is September 30. On October 4, 2019, the Company filed Articles of Continuance with the Secretary of State of Wyoming to continue
its business in the state of Wyoming. As part of these Articles of Continuance, the Company effective October 4, 2019, the Company has
no limit on the authorized shares of common stock that can be issued. The Company filed its Certificate of Dissolution with the Secretary
of State of Nevada on October 21, 2019 since it is no longer a Nevada corporation.
The Company is a clinical stage pharmaceutical Company introducing a patented formulation
of previously approved drugs for the treatment of multiple sclerosis. Prior to the Company’s current business plan, the Company
was a wellness company dedicated to bringing innovative, effective and high-quality supplement products to the medical, wellness and adult-use
markets through our marketing subsidiary, SomaCeuticalsTM.
Note 2. Going Concern and Summary of Significant Accounting Policies
The accompanying financial statements have been prepared assuming that the Company will continue
as a going concern. For the six months ended March 31, 2021, the Company had a net loss of $1,020,226 and cash flow used in operating
activities of $192,054. As of March 31, 2021, the Company had negative working capital of $384,416. Management does not anticipate having
positive cash flow from operations in the near future. The Company has minimal revenue. Without additional capital, the Company will not
be able to remain in business.
These factors raise a substantial doubt about the Company’s ability to continue as a
going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability
and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company
to continue as a going concern.
Management has plans to address the Company’s financial situation as follows:
In the near term, management plans to continue to focus on raising the funds necessary to
implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet
the Company’s financial obligations. There is no assurance, however, that lenders will advance capital to the Company or that the
new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to
achieve profitability raise doubts about the Company’s ability to continue as a going concern.
In the long term, management believes that the Company’s projects and initiatives will
be successful and will provide cash flow to the Company, which will be used to finance the Company’s future growth. However, there
can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability.
The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments
and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows
from operations to sustain its operations.
Interim Financial Statements
The accompanying unaudited financial statements have been prepared in accordance with accounting
principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions
to Form 10-Q and Regulation S-X and should be read in conjunction with the audited financial statements and notes thereto for the year
ended September 30, 2020 which are included on our Form 10-K filed on December 3, 2020. In the opinion of management, all adjustments,
consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for
the interim periods presented have been reflected herein. The results of operations for the three and six months ended March 31, 2021
are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2021.
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Table of Contents
Consolidated Financial Statements
The consolidated financial statements of the Company include the accounts of the Company and
its wholly owned subsidiaries, SomaCeuticals, Inc., First Titan Energy, LLC and First Titan Technical, LLC from the date of their formations
or acquisition. Significant intercompany transactions have been eliminated in consolidation.
Recently Issued Accounting Pronouncements
We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting
pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company
has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that
any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the
near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under
consideration.
Note 3. Convertible Notes Payable
Convertible notes payable consisted of the following at March 31, 2021 and September 30, 2020:
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March 31,
2021
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September 30,
2020
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Convertible note dated April 13, 2017 in the original principal amount of $20,000, no stated
maturity date, bearing interest at 3% per year, convertible into common stock at a rate of $0.01 per share.
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$
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20,000
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$
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20,000
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Convertible note dated March 30, 2020 in the original principal amount of $28,000, maturing
January 15, 2021, bearing interest at 12% per year, convertible beginning September 26, 2020 into common stock at a rate of 65% of the
average of the two lowest bid prices during the 15 trading days prior to conversion. In October 2020, principal of $28,000 and accrued
interest of $1,680 were converted 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.
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—
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28,000
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Convertible note dated June 10, 2020 in the original principal amount of $33,000, maturing
April 15, 2021, bearing interest at 12% per year, convertible beginning December 8, 2020 into common stock at a rate of 65% of the average
of the two lowest bid prices during the 15 trading days prior to conversion. In December 2020, principal of $33,000 and accrued interest
of $1,980 were converted into 9,994,286 shares of common stock. There was no gain or loss recognized as the conversion occurred in accordance
with the original terms of the agreement.
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—
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33,000
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Convertible note dated July 7, 2020 in the original principal amount of $38,000, maturing
May 15, 2021, bearing interest at 12% per year, convertible beginning January 3, 2020 into common stock at a rate of 65% of the average
of the two lowest bid prices during the 15 trading days prior to conversion. In January 2021, principal of $38,000 and accrued interest
of $2,280 was converted into 10,886,486 shares of common stock. There was no gain or loss recognized as the conversion occurred in accordance
with the original terms of the agreement.
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—
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38,000
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Convertible note dated July 30, 2020 in the original principal amount of $33,000, maturing
June 15 2021, bearing interest at 12% per year, convertible beginning February 20, 2021 into common stock at a rate of 65% of the average
of the two lowest bid prices during the 15 trading days prior to conversion. In February 2021, principal of $33,000 and accrued interest
of $1,980 was converted into 4,115,294 shares of common stock. There was no gain or loss recognized as the conversion occurred in accordance
with the original terms of the agreement.
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—
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33,000
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Table of Contents
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Convertible note dated August 24, 2020 in the original principal amount of $38,000, maturing
June 30, 2021, bearing interest at 12% per year, convertible beginning January 26, 2021 into common stock at a rate of 65% of the average
of the two lowest bid prices during the 15 trading days prior to conversion. In February 2021, principal of $38,000 and accrued interest
of $2,280 was converted into 2,549,367 shares of common stock. There was no gain or loss recognized as the conversion occurred in accordance
with the original terms of the agreement.
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—
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38,000
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Convertible note dated October 6, 2020 in the original principal amount of $33,000, maturing
July 30 2021, bearing interest at 12% per year, convertible beginning April 4, 2021 into common stock at a rate of 65% of the average
of the two lowest bid prices during the 15 trading days prior to conversion.
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33,000
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—
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Convertible note dated January 5, 2021 in the original principal amount of $38,500, maturing
January 5, 2022, bearing interest at 12% per year, convertible beginning July 4, 2021 into common stock at a rate of 65% of the average
of the two lowest bid prices during the 15 trading days prior to conversion.
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38,500
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—
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Convertible note dated February 4, 2021 in the original principal amount of $33,500, maturing
February 4, 2022, bearing interest at 12% per year, convertible beginning August 3, 2021 into common stock at a rate of 65% of the average
of the two lowest bid prices during the 15 trading days prior to conversion.
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33,500
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—
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Total current convertible notes payable
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125,000
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190,000
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Less: discount on convertible notes payable
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(6,011
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)
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(34,923
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)
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Total convertible notes payable, net of discount
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$
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118,989
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$
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155,077
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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 4.99% of the outstanding stock of the Company.
During the three months ended December 31, 2020, the Company recognized $3,000 of deferred
finance costs from its new convertible note payable and $30,000 of new discount related to the beneficial conversion features of convertible
notes payable. During the three months ended March 31, 2021, the Company recognized $7,000 of deferred finance costs from its new convertible
note payable and $100,000 of new discount related to the beneficial conversion features of convertible notes payable.
During the three and six months ended March 31, 2021, the Company recognized interest expense
on convertible notes of $5,942 and $8,796 and amortization of discount on convertible notes payable of $61,188 and $168,912, respectively.
During the three and six months ended March 31, 2020, the Company recognized interest expense on convertible notes of $596 and $5,579
and amortization of discount on convertible notes payable of $66,327 and $148,148, respectively
As of March 31, 2021 and September 30, 2020, accrued interest was $225,968 and $227,372, respectively.
Advances
As of March 31, 2021 and September 30, 2020, the Company had non-interest bearing advances
payable to third parties of $59,650. These advances are payable on demand.
Note 4. Related Party Transactions
In January 2021, the Company’s former Chief Executive Officer Sydney Jim agreed to forgive
all accrued but unpaid compensation of $38,130, resulting in a gain on settlement of liabilities to the Company that was recorded to additional
paid in capital.
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In March 2021, the Company entered into severance agreement with its former CEO Alex Blankenship.
The Company owed Ms. Blankenship unpaid compensation of $135,438 and agreed to issue 8,600,000 shares of common stock in full settlement
of this amount and release from the employment agreement with her. The shares had a fair value of $447,200 based on the stock price at
the date of the agreement. The Company recognized a loss on settlement of $311,762 in connection with this agreement. As of March 31,
2021, 2,600,000 of the shares were issued to Ms. Blankenship. Concurrently with the severance agreement, the Company agreed to purchase
the 1,000,000 shares Series E Preferred Stock held by Ms. Blankenship for $325,000 in cash. The Company reissued those Series E preferred
Shares to the Company’s new CEO James Katzaroff. The Company recognized stock-based compensation of $325,000 related to this reissuance.
David Summers, a significant shareholder of the Company, formerly provided consulting services
to the Company related to the development of our products. In addition, the Company had previously rented office space from Mr. Summers
for $400 per month under a month to month lease. As part of the legal settlement discussed in Note 6 in October 2019, the Company was
relieved of these outstanding claims, and the unpaid liability balance of $112,804 was retired as contributed capital, and Mr. Summers
returned 5,800,000 shares of Series A Preferred stock with a book value of $4,590,535, which were cancelled.
Note 5. Stockholders’ Equity (Deficit)
Preferred Series A
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 to the Company which were cancelled. See Note 6 for additional information regarding the settlement.
Preferred Series E
On March 31, 2021, The Company agreed to repurchase 1,000,000 shares of Series E Preferred
Stock from Alex Blankenship, the Company’s former CEO, for $325,000. The Company then reissued those shares to James Katzaroff,
the Company’s new CEO, and recognized stock-based compensation expense of $325,000. The Series E Preferred stock has voting rights
on the basis of two votes for every outstanding share of common stock meaning that the holders of the Series E Preferred Stock have 2/3
of the voting rights in the Company.
Common Stock Units
During the three months ended March 31, 2021, the Company sold common stock units to investors.
Each unit consist of 400,000 shares of common stock and 600,000 warrants to purchase common stock for three years at an exercise price
of $0.03 per share. The Company received cash proceeds of $499,500 related to the issuance of 19,980,000 shares of common stock and 29,970,000
warrants. No shares of common stock were issued as of March 31, 2021. The warrants has a relative fair value of $350,462 based on a Black-Scholes
pricing model with estimated volatility ranging from 261.3% to 261.8%, dividend yield of 0%, expected term of three years and a risk free
rate ranging from 0.19% to 0.24%.
Common stock issued for conversion of convertible notes payable
During the three months ended December 31, 2020, the Company issued 19,269,286 shares of common
stock upon the conversion of principal of $61,000 and accrued interest of $3,660. There was no gain or loss recognized as the conversion
occurred in accordance with the original terms of the agreement.
During the three months ended March 31, 2021, the Company issued 17,551,147 shares of common
stock upon the conversion of principal of $109,000 and accrued interest of $6,540. The Company recognized a loss of $13,994 on these conversions.
During the three months ended December 31, 2019, the Company issued 39,833,749 shares of common
stock upon the conversion of principal of $80,000 and accrued interest of $4,800. There was no gain or loss recognized as the conversion
occurred in accordance with the original terms of the agreement.
During the three months ended March 31, 2020, the Company issued 93,977,186 shares of common
stock upon the conversion of principal of $66,000 and accrued interest of $3,960. There was no gain or loss recognized as the conversion
occurred in accordance with the original terms of the agreement.
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Beneficial conversion feature
During the six months ended March 31, 2021, the Company charged to additional paid-in capital
the aggregate amount of $130,000 on connection with the beneficial conversion feature of notes payable.
Note 6. 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 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 7. 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 a total of 116,520,667 shares of common stock to 7 to Stand upon completion of the following milestones:
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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; the Company will issue 29,130,167 shares of common stock as a result of the
change of control discussed in Note 5. These shares have not yet been issued.
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•
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29,130,167 Common shares immediately following the first round of funding under a private
offer of equity or debt securities;
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•
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29,130,167 Common shares 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. The Company
expects to issue 29,130,166 shares of common stock related to this provision if met.
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•
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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.
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Note 8. Subsequent Events
On April 27, 2021, the Board of Directors of the Company elected Brooke Greenwald as Chief
Marketing Officer of the corporation.
On April 27, 2021, the Board of Directors of the Company elected Steven F. Penderghast as
Director of the corporation. On April 28, 2021, the Company awarded Mr Penderghast stock options to purchase 5,000,000 shares of common
stock at an exercise price of $0.003 per share. The stock option is exercisable through the latter of two years from the effective date
or two years after certain liquidity events.
On May 6, 2021, the Board of Directors of the Company elected David Croom as Executive Vice
President of the corporation. and elected Dr. Leonard Wisneski, MD, FACP as the Medical Advisory Board Chairman.
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Table of Contents
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Overview
Angiosoma Inc. (the “Company”) was incorporated on April 29, 2016. The Company’s
year-end is September 30. On October 4, 2019, the Company filed Articles of Continuance with the Secretary of State of Wyoming to continue
its business in the state of Wyoming. As part of these Articles of Continuance, the Company effective October 4, 2019, the Company has
no limit on the authorized shares of common stock that can be issued. The Company filed its Certificate of Dissolution with the Secretary
of State of Nevada on October 21, 2019 since it is no longer a Nevada corporation.
The Company is a clinical stage pharmaceutical Company introducing a patented formulation
of previously approved drugs for the treatment of multiple sclerosis. Prior to the Company’s current business plan, the Company
was a wellness company dedicated to bringing innovative, effective and high-quality supplement products to the medical, wellness and adult-use
markets through our marketing subsidiary, SomaCeuticalsTM.
Critical Accounting Policies
We prepare our consolidated financial statements in conformity with GAAP, which requires management
to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other
factors that management believes to be important at the time the condensed consolidated financial statements are prepared. We regularly
review our accounting policies, and how they are applied and disclosed in our condensed consolidated financial statements.
While we believe that the historical experience, current trends and other factors considered
support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our
estimates and such differences could be material.
Results of Operations
Three Months Ended March 31, 2021 Compared to the Three Months Ended March 31, 2020
Revenue. We had no revenue for the three months ended March 31, 2021 and
2020.
Cost of goods sold. We had $2,412 and $0 cost of goods sold for the three
months ended March 31, 2021 and 2020, respectively related to the write down of inventory kept by the Company’s former CEO as part
of the severance agreement.
General and administrative expense. We recognized general and administrative
expense of $467,991 for the three months ended March 31, 2021 compared to $51,389 for the comparable period of 2020. The increase in general
and administrative expense was related primarily to stock-based compensation of $325,000 related to the Series E Preferred stock issued
to the new CEO, and increased officer compensation of $45,438 primarily due to a bonus and increased legal fees of $38,100.
Loss on settlement of liabilities. We recognized $311,762 and $0 loss
on the settlement of liabilities during the three months ended March 31, 2021 and 2020. The loss was related to the severance agreement
with Alex Blankenship, our former CEO, resulting in a $311,762 loss.
Interest expense. We recognized interest expense of $113,666 for the three
months ended March 31, 2021 compared to $66,923 for the comparable period of 2020, including amortization of the discount on convertible
notes payable of $107,726 and $66,237 during the three months ended March 31, 2021 and 2020, respectively.
Net loss. For the reasons above, we recognized a net loss of $895,831
for the three months ended March 31, 2021 compared to $118,312 for the three months ended March 31, 2020.
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Table of Contents
Six Months Ended March 31, 2021 Compared to the Six Months Ended March 31, 2020
Revenue. We had revenue of $0 for the six months ended March 31, 2021
compared to $77 for the six months ended March 31, 2020.
Cost of goods sold. We had cost of goods sold of $2,412 for the six months
ended March 31, 2021 compared to $14 for the six months ended March 31, 2020 related to the write down of inventory kept by the Company’s
former CEO as part of the severance agreement.
General and administrative expense. We recognized general and administrative
expense of $528,344 for the six months ended March 31, 2021 compared to $125,685 for the comparable period of 2020. The increase in general
and administrative expense was related primarily to stock-based compensation of $325,000 related to the Series E Preferred stock issued
to the new CEO, and increased officer compensation of $45,438 primarily due to a bonus and increased legal fees of $38,100.
Loss on settlement of liabilities. We recognized $311,762 and $0 loss
on the settlement of liabilities during the six months ended March 31, 2021 and 2020. The loss was related to the severance agreement
with Alex Blankenship, our former CEO, resulting in a $311,762 loss.
Interest expense. We recognized interest expense of $177,708 for the six
months ended March 31, 2021 compared to $153,727 for the comparable period of 2020. The increase was due primarily to the amortization
of the discount on convertible notes payable during the current period in the amount of $168,912 compared to $148,148 during the comparable
period of the prior year.
Net loss. For the reasons above, we recognized a net loss of $1,020,226
for the six months ended March 31, 2021 compared to $279,349 for the six months ended March 31, 2020.
Liquidity and Capital Resources
At March 31, 2021, we had cash on hand of $158,888. The Company has negative working capital
of $384,416. Net cash used in operating activities for the six months ended March 31, 2021 was $192,054. Cash on hand is adequate to fund
our operations for less than twelve months. We do not expect to achieve positive cash flow from operating activities in the near future.
We will require additional cash in order to implement our business plan. There is no guarantee that we will be able to attain fund when
we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital
expenditures as of March 31, 2021.
During the six months ended March 31, 2021, the Company used cash in operating activities
in the amount of $192,054. This consisted of the net loss of $1,020,226, partially offset by the following non-cash operating expenses:
stock-based compensation of $325,000, amortization of discount of $168,912, and the loss on settlement of liabilities of 311,762. The
Company had cash flows from financing activities of $269,500 from the proceeds of sale of common stock units resulting in cash proceeds
of $499,500, the repurchase of Series E preferred stock for $325,000, and proceeds from convertible notes payable of $95,000.
Additional Financing
Additional financing is required to continue operations. Although actively searching for available
capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance
that such financing will be available.
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 effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity,
capital expenditures or capital resources that is material to investors.
ITEM 4. CONTROLS AND PROCEDURES
Management’s Report on Internal Control over Financial Reporting
We carried out an evaluation, under the supervision and with the participation of our management,
including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of March 31, 2021. Based upon that evaluation, our principal executive officer
and principal financial officer concluded that, as of March 31, 2021, our disclosure controls and procedures were not effective to ensure
that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized
and reported within the required time periods and is accumulated and communicated to our management, including our principal executive
officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
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1.
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As of March 31, 2021, we did not maintain effective controls over the control environment.
Specifically, we have not developed and effectively communicated to our employees our accounting policies and procedures. This has resulted
in inconsistent practices. Since these entity level programs have a pervasive effect across the organization, management has determined
that these circumstances constitute a material weakness.
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2.
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As of March 31, 2021, we did not maintain effective controls over financial statement disclosure.
Specifically, controls were not designed and in place to ensure that all disclosures required were originally addressed in our financial
statements. Accordingly, management has determined that this control deficiency constitutes a material weakness.
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Our management, including our principal executive officer and principal financial officer,
who is the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives
of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation
of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.
Change in Internal Controls Over Financial Reporting
There was no change in our internal controls over financial reporting that occurred during
the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls
over financial reporting.