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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended March 31, 2022

 

OR

 

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from to

 

Commission file number: 000-50912

 

Logo, company name Description automatically generated

 

AMERICAN INTERNATIONAL HOLDINGS CORP.

(Exact name of registrant as specified in its charter)

 

Nevada   88-0225318
(State or other jurisdiction of   (I.R.S. Employer
incorporation or organization)   Identification No.)

 

7950 Legacy Drive, Suite 400, Plano, Texas   75024
(Address of Principal Executive Offices)   (ZIP Code)

 

(469) 963-2644

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered pursuant to Section 12(b) of the Act: None.

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer ☐ Accelerated filer ☐
Non-accelerated filer ☒ Smaller reporting company ☒
  Emerging growth company ☐

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

 

The number of shares outstanding of each of the issuer’s classes of equity as of May 20, 2022, is 1,621,662 shares of common stock.

 

 

 

 
 

 

CONTENTS

 

Item   Description   Page
Cautionary Statement Regarding Forward-Looking Statements   1
         
    PART I — FINANCIAL INFORMATION    
Item 1.   Condensed Financial Statements   2
    Condensed Consolidated Balance Sheets — as of March 31, 2022 (unaudited) and December 31, 2021 (Audited)   2
    Condensed Consolidated Statements of Operations — Three Months Ended March 31, 2022 and 2021 (unaudited)   3
    Consolidated Statements of Changes in Stockholders’ Deficit — Three Months Ended March 31, 2022 and 2021 (unaudited)   4
    Condensed Consolidated Statements of Cash Flows — Three Months Ended March 31, 2022 and 2021 (unaudited)   6
    Notes to Condensed Consolidated Financial Statements (unaudited)   7
Item 2.   Management’s Discussion and Analysis of Financial Condition and Results of Operations   24
Item 3.   Quantitative and Qualitative Disclosures About Market Risk   30
Item 4.   Controls and Procedures   30
         
    PART II— OTHER INFORMATION    
Item 1.   Legal Proceedings   31
Item 1A.   Risk Factors   31
Item 2.   Unregistered Sales of Equity Securities and Use of Proceeds   32
Item 3.   Defaults Upon Senior Securities   33
Item 4.   Mine Safety Disclosures   33
Item 5.   Other Information   33
Item 6.   Exhibits   33

 

 

 

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

 

This Quarterly Report on Form 10-Q (this “Report”) contains forward-looking statements within the meaning of the federal securities laws, including the Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by the following words: “anticipate,” “believe,” “continue,” “could,” “estimate,” “expect,” “intend,” “may,” “ongoing,” “plan,” “potential,” “predict,” “project,” “should,” or the negative of these terms or other comparable terminology, although not all forward-looking statements contain these words. Forward-looking statements are not a guarantee of future performance or results, and will not necessarily be accurate indications of the times at, or by, which such performance or results will be achieved. Forward-looking statements are based on information available at the time the statements are made and involve known and unknown risks, uncertainties and other factors that may cause our results, levels of activity, performance or achievements to be materially different from the information expressed or implied by the forward-looking statements in this Report. These factors include:

 

  ● estimates of our expenses, future revenue, capital requirements and our needs for additional financing;
     
  ● our ability to develop, acquire, and advance services and products for our customer base;
     
  ● the implementation of our business model and strategic plans for our business;
     
  ● the terms of future licensing, operational or management arrangements, and whether we can enter into such arrangements at all;
     
  ● timing and receipt of revenues, if any;
     
  ● the scope of protection we are able to establish and maintain for intellectual property rights and our ability to operate our business without infringing on the intellectual property rights of others;
     
  ● regulatory developments in the United States;
     
  ● our ability to maintain and establish collaborations or obtain additional funding;
     
  ● our financial performance;
     
  ● the effects of COVID-19 and other epidemics and pandemics on our ability to operate, our ability to generate revenues, and the local, U.S. and global economies in general;
     
  ● risks associated with our telehealth platform;
     
  ● developments and projections relating to our competitors and our industry; and
     
  ● other risks described below under, and incorporated by reference in, “Item 1A. Risk Factors”, below.

 

You should read the matters described in, and incorporated by reference in, “Item 1A. Risk Factors” and the other cautionary statements made in this Report, and incorporated by reference herein, as being applicable to all related forward-looking statements wherever they appear in this Report. We cannot assure you that the forward-looking statements in this Report will prove to be accurate and therefore prospective investors are encouraged not to place undue reliance on forward-looking statements. These cautionary statements qualify all forward-looking statements attributable to us or persons acting on our behalf. Other than as required by law, we undertake no obligation to update or revise these forward-looking statements, even though our situation may change in the future.

 

1

 

PART I — FINANCIAL INFORMATION

 

ITEM 1. FINANCIAL STATEMENTS

 

American International Holdings Corp.

Condensed Consolidated Balance Sheets

 

      (Unaudited)       (Audited)  
    March 31, 2022     December 31, 2021  
             
ASSETS                
CURRENT ASSETS:                
Cash and equivalents   $ 365,774     $ 1,209,807  
Accounts Receivable     3,883       -  
Inventory     -       3,840  
TOTAL CURRENT ASSETS     369,657       1,213,647  
                 
NON-CURRENT ASSETS                
Property and equipment, net of accumulated depreciation of $440     25,948       -  
Right-of-use asset - operating lease     61,308       -  
Rent deposits     8,091       3,599  
Assets of discontinued operations     13,098       14,199  
NET NON-CURRENT ASSETS     108,445       17,798  
                 
TOTAL ASSETS   $ 478,102     $ 1,231,445  
                 
LIABILITIES AND STOCKHOLDERS’ DEFICIT                
                 
CURRENT LIABILITIES                
Accounts payable and accrued liabilities   $ 22,538     $ 54,918  
Accrued interest payable     144,269       93,776  
Accrued compensation - related parties     103,500       103,500  
Right-of-use liability - operating lease     61,308       -  
Convertible notes payable, net of debt discount of $1,771,620 and $2,479,023     923,825       396,419  
Loans payable to related parties     123,473       123,473  
Loans payable     75,000       75,000  
Derivative liabilities     3,653,079       4,141,272  
Net liabilities of discontinued operations     4,948       112,199  
TOTAL CURRENT LIABILITIES     5,111,940       5,100,557  
                 
TOTAL LIABILITIES     5,111,940       5,100,557  
                 
STOCKHOLDERS’ DEFICIT                
Preferred stock, (par value $0.0001, 5,000,000 shares authorized, of which 1,000,000 and 1,000,000 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively)     100       100  
Common stock (par value $.0001, 195,000,000 shares authorized, of which 1,604,782 and 1,407,419 shares issued and outstanding as of March 31, 2022 December 31, 2021, respectively)     161       141  
Treasury stock, at cost     (3,894 )     (3,894 )
Additional paid in capital     17,340,657       16,675,210  
Accumulated deficit     (21,970,862 )     (20,540,569 )
TOTAL STOCKHOLDERS’ DEFICIT     (4,633,738 )     (3,869,112 )
                 
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT   $ 478,102     $ 1,231,445  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

2

 

American International Holdings Corp.

Condensed Consolidated Statements of Operations

 

      (Unaudited)       (Unaudited)  
    For The Three     For The Three  
    Months Ended     Months Ended  
    March 31, 2022     March 31, 2021  
             
Revenues                
Revenues   $ 10,108     $ 9,133  
Cost of revenues     1,000       3,500  
Gross profit (loss)     9,108       5,633  
                 
Operating expenses                
General and administrative expenses     1,101,384       5,334,689  
Total operating expenses     1,101,384       5,334,689  
                 
Income (loss) from operations     (1,092,276 )     (5,329,056 )
                 
Other income (expenses)                
Amortization of debt discount     (707,403 )     (940,102 )
Change in derivative liabilities     398,555       (923,258 )
Interest expense     (75,300 )     (104,519 )
Settlement loss     47,232       (58,059 )
Total other expense     (336,916 )     (2,025,938 )
                 
Loss before income taxes     (1,429,192 )     (7,354,994 )
                 
Income taxes     -       -  
                 
Loss from continuing operations   $ (1,429,192 )   $ (7,354,994 )
                 
Discontinued operations:                
Loss from discontinued operations     (1,101 )     (17,612 )
Total discontinued operations     (1,101 )     (17,612 )
                 
Net loss   $ (1,430,293 )   $ (7,372,606 )
                 
Basic income (loss) per share                
Continuing operations   $ (0.91 )   $ (6.81 )
Discontinued operations   $ (0.00 )   $ (0.02 )
                 
Diluted income (loss) per share                
Continuing operations   $ (0.90 )   $ (6.81 )
Discontinued operations   $ (0.90 )   $ (0.02 )
                 
Weighted average number of shares outstanding                
Basic     1,576,627       1,079,706  
Diluted     1,582,392       1,079,706  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

3

 

American International Holdings Corp.

Consolidated Statement of Changes in Stockholders’ Deficit

(Unaudited)

 

                                                                                         
                      Additional     Common     Retained           Total  
    Preferred Stock A     Preferred Stock B     Common Stock     Paid-in     Stock     Earnings     Treasury     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Payable     (Deficit)     Stock     (Deficit)  
                                                                   
Balance, December 31, 2020     1,000,000     $ 100       -     $ -       917,781     $ 92     $ 9,172,453     $ -     $ (10,559,658 )   $ (3,894 )   $ (1,391,007 )
                                                                                         
Imputed interest     -       -       -       -       -       -       539       -       -       -       539  
                                                                                         
Reclassification of derivative liabilities due to note conversion     -       -       -       -       -       -       763,241       -       -       -       763,241  
                                                                                         
Issuance of Series B preferred shares for In Process Research and Development     -       -       500,000       50       -       -       601,802       -       -       -       601,852  
                                                                                         
Issuance of common shares for Series B preferred shares conversion     -       -       (500,000 )     (50 )     34,294       3       47       -       -       -       -  
                                                                                         
Issuance of common shares under private placement     -       -       -       -       3,333       0       100,000       -       -       -       100,000  
                                                                                         
Issuance of common shares for note settlement     -       -       -       -       45,509       5       502,045       -       -       -       502,050  
                                                                                         
Issuance of shares for services - related parties     -       -       -       -       108,333       11       2,510,639       -       -       -       2,510,650  
                                                                                         
Issuance of shares for services     -       -       -       -       88,333       9       1,712,731       -       -       -       1,712,740  
                                                                                         
Issuance of common shares for debt settlement     -       -       -       -       11,813       1       119,524       -       -       -       119,525  
                                                                                         
Net loss     -       -       -       -       -       -       -       -       (7,372,606 )     -       (7,372,606 )
                                                                                         
Balance, March 31, 2021     1,000,000     $ 100       -     $ -       1,209,396     $ 121     $ 15,483,021     $ -     $ (17,932,264 )   $ (3,894 )   $ (2,453,016 )

 

4

 

                                                                                         
                      Additional     Common     Retained           Total  
    Preferred Stock A     Preferred Stock B     Common Stock     Paid-in     Stock     Earnings     Treasury     Stockholders’  
    Shares     Amount     Shares     Amount     Shares     Amount     Capital     Payable     (Deficit)     Stock     (Deficit)  
                                                                   
Balance, December 31, 2021     1,000,000     $ 100       -     $ -       1,407,418     $ 141     $ 16,675,210     $ -     $ (20,540,569 )   $ (3,894 )   $ (3,869,112 )
                                                                                         
Reclassification of derivative liabilities due to note conversion     -       -       -       -       -       -       89,638       -       -       -       89,638  
                                                                                         
Issuance of common shares for note conversion and settlement     -       -       -       -       84,878       9       204,796       -       -       -       204,805  
                                                                                         
Issuance of shares for services – related parties     -       -       -       -       23,717       2       86,122       -       -       -       86,124  
                                                                                         
Issuance of shares for services     -       -       -       -       88,768       9       284,991       -       -       -       285,000  
                                                                                         
Net loss     -       -       -       -       -       -       -       -       (1,430,293 )     -       (1,430,293 )
                                                                                         
Balance, March 31, 2022     1,000,000     $ 100       -     $ -       1,604,782     $ 161     $ 17,340,657     $ -     $ (21,970,862 )   $ (3,894 )   $ (4,633,838 )

 

The accompanying notes are an integral part of these consolidated financial statements.

 

5

 

AMERICAN INTERNATIONAL HOLDINGS CORP.

Condensed Consolidated Statements of Cash Flows

 

      For the Year Ended       For the Year Ended  
    March 31, 2022     March 31, 2021  
             
CASH FLOWS FROM OPERATING ACTIVITIES:                
Net loss   $ (1,429,192 )   $ (7,354,994 )
Net loss from discontinued operations     (1,101 )     (17,612 )
Adjustments to reconcile net income (loss) to net cash (used in) operating activities:                
Amortization of debt discount     707,403       940,102  
Change in derivative liabilities     (398,555 )     (433,181 )
Depreciation     440       1,071  
Derivatives expenses     -       1,356,439  
Imputed interest expense     -       539  
Loss on loans settlement     -       58,059  
Stock issued for services rendered     371,126       4,223,390  
Stock issued for in process research and development     -       601,852  
(Increase) decrease in operating assets:                
Accounts receivable     (3,883 )     -  
Inventory     3,840       (3,840 )
Prepaid expenses     -       (2,032 )
Rent Deposit     (4,492 )     (567 )
(Decrease) increase in operating liabilities:                
Accounts payable     (32,380 )     (11,216 )
Accrued interest payable     75,300       998  
Accrued compensation - related parties     -       (3,000 )
NET CASH USED IN OPERATING ACTIVITIES OF CONTINUING OPERATIONS     (711,494 )     (643,992 )
NET CASH USED IN OPERATING ACTIVITIES OF DISCONTINUED OPERATIONS     (106,101 )     (11,077 )
NET CASH USED IN OPERATING ACTIVITIES     (817,595 )     (655,069 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES:                
                 
Capital expenditures for property and equipment     (26,388 )     -  
NET CASH USED IN INVESTING ACTIVITIES OF CONTINUING OPERATIONS     (26,388 )     -  
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS     -       -  
NET CASH USED IN INVESTING ACTIVITIES OF DISCONTINUED OPERATIONS     (26,388 )     -  
                 
CASH FLOWS FROM FINANCING ACTIVITIES:                
Proceeds from borrowings - related parties     -       9,820  
(Repayment) to borrowings - related parties     -       (15,486 )
Proceeds from borrowings     -       1,363,000  
(Repayment) to borrowings     -       (377,500 )
Proceeds from sales of stock     -       100,000  
NET CASH PROVIDED BY FINANCING ACTIVITIES OF CONTINUING OPERATIONS     -       1,079,834  
NET CASH USED IN FINANCING ACTIVITIES OF DISCONTINUED OPERATIONS     (50 )     (12,000 )
NET CASH PROVIDED BY FINANCING ACTIVITIES     (50 )     1,067,834  
                 
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS     (844,033 )     412,765  
                 
CASH AND CASH EQUIVALENTS:                
Beginning of period     1,209,807       25,144  
End of period   $ 365,774     $ 437,909  
                 
Supplemental disclosure of cash flow information:                
Cash paid for income taxes   $ -     $ -  
Cash paid for interest   $ -     $ 106,677  
                 
Non-cash transactions:                
Common shares issued for notes conversion   $ 204,805     $ 502,050  
Common shares issued for loan settlement   $ -     $ 111,466  
Discounts on convertible notes   $ -     $ 1,450,000  
Lease Inception   $ 69,439     $ -  
Settlement of derivative liabilities   $ 89,638     $ 763,241  

 

The accompanying notes are an integral part of these consolidated financial statements.

 

6

 

American International Holdings Corp.

Notes to Consolidated Financial Statements

Three Months Ended March 31, 2022

(Unaudited)

 

Note 1 - Basis of Presentation

 

The accompanying unaudited condensed financial statements of American International Holdings Corp. (“AMIH” or the “Company”) have been prepared in accordance with the generally accepted accounting principles in the United States of America (“GAAP”) for interim financial information and in accordance with the instructions to Form 10-Q and Article 10 of Regulation S-X. Certain information or footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted, pursuant to the applicable rules and regulations for interim financial reporting. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of financial position, results of operations, or cash flows. In the opinion of management, the accompanying unaudited condensed financial statements include all adjustments, consisting of a normal recurring nature, which are necessary for a fair presentation of the financial position, operating results and cash flows for the periods presented.

 

The accompanying unaudited condensed financial statements should be read in conjunction with the Annual Report on Form 10-K for the year ended December 31, 2021. The interim results for the three months ended March 31, 2022 are not necessarily indicative of the results to be expected for the year ending December 31, 2022 or for any future interim periods.

 

Impact of COVID-19 Pandemic on Consolidated Financial Statements. The outbreak of the 2019 novel coronavirus disease (“COVID-19”), which was declared a global pandemic by the World Health Organization on March 11, 2020, and the related responses by public health and governmental authorities to contain and combat its outbreak and spread has severely impacted the U.S. and world economies, the market for health spa services, nutrition supplements and our other business offerings during the end of the first quarter of 2020, and continuing through the end of 2020 and into 2021. Government mandated ‘stay-at-home’ and similar orders have to date, and may in the future, prevent us from operating. In late 2020, we made the decision to discontinue operations of our VISSIA Waterway, Inc. (“VISSIA Waterway”) and VISSIA McKinney (“VISSA McKinney”) MedSpa locations due to declines in customers and issues staffing such facilities, each as a result of the pandemic. Additionally, our Legend Nutrition store saw a deep decline in sales due to social distancing orders and decreases in customers who were willing to venture out to brick-and-mortar establishments during 2020. Legend Nutrition’s lease was up January 31, 2021, and the Company chose to not renew the lease, closed the store, and will not continue in this line of business moving forward. We also decided to cease offering construction services around July 2021.

 

As of the date of this Report, our operations are limited, and consist mainly of ZipDoctor, Inc., Life Guru, Inc., Mangoceuticals, Inc., EPIQ Scripts, LLC, and EPIQ MD, Inc.

 

Moving forward, economic recessions, including those brought on by the continued COVID-19 outbreak may have a negative effect on the demand for our services and our operating results. Any prolonged disruption to our operations or work force availability is likely to have a significant adverse effect on our results of operations, cash flows and ability to meet continuing debt service requirements. All of the above may be exacerbated in the future as the COVID-19 outbreak and the governmental responses thereto continues.

 

As discussed in greater detail under Note 16 – Subsequent Events, below, effective on May 12, 2022, the Company affected a 1-for-60 reverse stock split of its issued and outstanding common stock by the filing of a Certificate of Amendment to the Company’s Articles of Incorporation with the Secretary of State of Nevada (filed on May 6, 2022 and effective on May 12, 2022)(the “Reverse Stock Split”). The Reverse Stock Split has been retroactively reflected throughout this Report. Also on May 6, 2022, a Second Amended and Restated designation of the Company’s Series A Preferred Stock was filed and became effective with the Secretary of State of Nevada, whereby, among other things, a 1,000-for-1 forward stock split of the outstanding Series A Preferred Stock of the Company was effected, which has also been retroactively reflected throughout this Report.

 

7

 

Note 2 - Organization, Ownership and Business

 

Prior to May 31, 2018, the Company was a 93.2% owned subsidiary of American International Industries, Inc. (“American” or “AMIN”) (OTCQB: AMIN). Effective May 31, 2018, the Company issued 168,333 shares of restricted common stock. As a result of the issuance of the common shares, a change in control occurred. American International Industries, Inc. ownership decreased from 93.2% to 6.4%. Effective April 12, 2019, the Company changed its business focus to the services of medical spas.

 

On April 12, 2019, the Company entered into a Share Exchange Agreement (the “Agreement”) with Novopelle Diamond, LLC (“Novopelle”) and all three members of Novopelle, pursuant to which the Company issued 300,000 shares of the Company common stock to the members (three individuals) of Novopelle Diamond, LLC (“Novopelle”), a Texas limited company, to acquire 100% of the membership interests of Novopelle. The issuance of these shares represents a change in control of the Company. Concurrent with the issuance, Jacob Cohen, Esteban Alexander and Alan Hernandez, representing the three former members of Novopelle, were elected to the board of directors and to the office of Chief Executive Officer, Chief Operating Officer and Chief Marketing officer of the Company, respectively (provided that Mr. Alexander and Mr. Hernandez no longer serve as officers or directors of the Company). Everett Bassie and Charles Zeller resigned as board members of the Company. This transaction was treated as a reverse acquisition for accounting purposes, with the Company remaining the parent company and Novopelle (which has since been renamed VISSIA McKinney, LLC) becoming a wholly-owned subsidiary of the Company.

 

On April 28, 2020, the Company incorporated a wholly-owned subsidiary, ZipDoctor, Inc. (“ZipDoctor”) in the State of Texas. ZipDoctor plans to provide its customers with unlimited, 24/7 access to board certified physicians and licensed mental and behavioral health counselors and therapists via a newly developed, monthly subscription based online telemedicine platform. ZipDoctor was launched in August 2020 and has generated nominal revenues through the quarter ended March 31, 2022.

 

On May 15, 2020, the Company entered into a Securities Purchase Agreement (the “SPA”) with Global Career Networks Inc, a Delaware corporation (the “GCN”), the sole owner of Life Guru, Inc., a Delaware corporation (“Life Guru”). Pursuant to the SPA, the Company acquired a 51% interest in Life Guru from GCN. As consideration for the purchase of the 51% ownership interest in Life Guru, the Company issued to GCN 500,000 shares of its then newly designated Series B Convertible Preferred Stock, which had an agreed upon value of $500,000 ($1.00 per share), and agreed to issue GCN up to an additional 1,500,000 shares of Series B Convertible Preferred Stock (with an agreed upon value of $1,500,000) upon reaching certain milestones, of which 500,000 shares of Series B Convertible Preferred Stock were issued and which other 1,000,000 shares of contingently issuable shares are no longer issuable.

 

On October 23, 2020, the Company incorporated a wholly-owned subsidiary, EPIQ MD, Inc. (“EPIQ MD”) in the state of Nevada. EPIQ MD is a direct-to-consumer, telemedicine and healthcare company targeting Americans who are uninsured or underinsured. The EPIQ MD service offering is a convergence of primary care telemedicine, preventative care services and wellness programs – under the EPIQ MD brand and on a single platform. EPIQ MD markets and sells its services direct to end-use consumers, as well as through business-to-business (B2B) efforts, by focusing on employers in the targeted industries.

 

On October 7, 2021, the Company incorporated a wholly-owned subsidiary, Mangoceuticals, Inc. (“Mangoceuticals”) in the state of Texas with the intent of focusing on developing, marketing and selling a variety of men’s wellness products and services via a telemedicine platform. To date, the Company has identified men’s wellness telemedicine services and products as a growing sector in the most recent years and especially related to the areas of erectile dysfunction and hair loss products. In this regard, Mangoceuticals is currently in the process of developing and preparing to market a new brand of erectile dysfunction (ED) products that delivers fast acting results through a proprietary combination of FDA approved ingredients.

 

On January 24, 2022, the Company formed EPIQ Scripts, LLC (“EPIQ Scripts”) in the state of Texas. EPIQ Scripts has been established with the intent of operating as a close-door online mail order pharmacy with a specific target and vision to obtain licenses in all 50 states across the U.S., of which no state licenses have been obtained as of the date of this Report. EPIQ Scripts also plans to seek to become accredited with the most respected and highly recognized authorities in the industry, such as Utilization Review Accreditation Commission (URAC), Legit Script, Accreditation Commission for Health Care (ACHC), and National Association of Boards of Pharmacy (NABP) Digital Pharmacy. EPIQ Scripts also intends to obtain in-network contracts with all major Pharmacy Benefit Managers (PBM) and insurance payors.

 

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries: VISSIA McKinney, LLC (f/k/a Novopelle Diamond, LLC), VISSIA Waterway, Inc. (f/k/a Novopelle Waterway, Inc.), Novopelle Tyler, Inc., Legend Nutrition, Inc., Capitol City Solutions USA, Inc. EPIQ MD, Inc., ZipDoctor, Inc., Mangoceuticals, Inc. and its majority-owned subsidiary, Life Guru, Inc and EPIQ Scripts, LLC. All significant intercompany transactions and balances have been eliminated in consolidation.

 

8

 

Note 3 - Recently Issued Accounting Pronouncements

 

From time to time, new accounting pronouncements are issued by the Financial Accounting Standard Board (“FASB”) or other standard setting bodies that are adopted by the Company as of the specified effective date. Unless otherwise discussed, the Company believes that the effect of recently issued standards that are not yet effective will not have a material effect on its consolidated financial position or results of operations upon adoption.

 

In August 2018, the FASB issued ASU No. 2018-13, “Fair Value Measurement (Topic 820).” This standard modifies disclosure requirements related to fair value measurement and is effective for all entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019. Early adoption is permitted. Implementation on a prospective or retrospective basis varies by specific disclosure requirement. The standard also allows for early adoption of any removed or modified disclosures upon issuance while delaying adoption of the additional disclosures until their effective date. The Company adopted ASU No. 2018-13 effective on January 1, 2020 and it did not have a material impact on the Company’s consolidated financial statements.

 

In December 2019, the FASB issued ASU No. 2019-12, “Simplifying the Accounting for Income Taxes (Topic 740)”. This standard simplifies the accounting for income taxes. This standard is effective for fiscal years beginning after December 15, 2020, including interim periods within those fiscal years. Early adoption is permitted for all entities. The Company adopted ASU 2019-12 effective on January 1, 2021, and it did not have an effect on the Company’s consolidated financial statements.

 

In August 2020, the FASB issued ASU 2020-06, “Debt – Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging – Contracts in Entity’s Own Equity (Subtopic 815 – 40)” (“ASU 2020-06”). ASU 2020-06 simplifies the accounting for certain financial instruments with characteristics of liabilities and equity, including convertible instruments and contracts on an entity’s own equity. The ASU is part of the FASB’s simplification initiative, which aims to reduce unnecessary complexity in U.S. GAAP. The ASU’s amendments are effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. The Company is currently evaluating the impact of ASU 2020-06 on its financial statements.

 

Note 4 – Property and Equipment

 

Property and equipment from continuing operations were as follows on March 31, 2022, and December 31, 2021:

 

      March 31, 2022       December 31, 2021  
Leasehold improvements     -       -  
Furniture & fixtures     26,388       -  
Gross property and equipment     26,388       -  
Less accumulated depreciation and amortization     (440 )     -  
Net property and equipment   $ 25,948     $ -  

 

Property and equipment from discontinued operations were as follows on March 31, 2022, and December 31, 2021:

 

      March 31, 2022       December 31, 2021  
Leasehold improvement     4,262       4,262  
Furniture & fixtures     18,830       18,830  
Equipment     -       -  
Gross property and equipment     23,092       23,092  
Less accumulated depreciation and amortization     (9,993 )     (8,823 )
Net property and equipment   $ 13,099     $ 14,269  

 

Depreciation and amortization expense from continuing operations for the three months ended March 31, 2022, and 2021 was $440 and $1,071, respectively. Depreciation and amortization expense from discontinued operations for the three months ended March 31, 2022, and 2021 was $1,171 and $4,294, respectively.

 

9

 

Note 5 – Goodwill

 

As of March 31, 2021, the goodwill in connection with the acquisition of the assets in October 2019 associated with and related to a retail vitamin, supplements and nutrition store located in McKinney, Texas was $0.

 

Goodwill is not amortized but is evaluated for impairment annually or when indicators of a potential impairment are present. The annual evaluation for impairment of goodwill is based on valuation models that incorporate assumptions and internal projections of expected future cash flows and operating plans. The Company believes such assumptions are also comparable to those that would be used by other marketplace participants. The Company determined impairment adjustment was necessary for the year ended December 31, 2020, since the goodwill was not substantiating a future cash flow. Hence, goodwill of $29,689 was impaired in full during the fourth quarter of 2020.

 

Note 6 – Licensing Agreement

 

On June 27, 2019, the Company executed an exclusive license agreement with Novo MedSpa Addison Corp (“Novo Medspa”) providing the Company with the exclusive rights to the Novopelle brand and to establish new Novopelle branded MedSpa locations on a worldwide basis (the “Exclusive License”). In consideration for the Exclusive License, the Company paid Novo MedSpa a one-time cash payment of $40,000 and issued to Novo MedSpa 4,167 shares of the Company’s common stock. The 4,167 post-reversestock split shares of the Company’s common stock were valued at $6.00 per share or $25,000.

 

During the fourth quarter of 2019, the Company opened a new MedSpa location and paid Novo MedSpa a one-time cash payment of $30,000 as a new location fee pursuant to the exclusive license agreement.

 

On May 13, 2020, the Company provided Novo Medspa with notice to terminate the June 27, 2019 License Agreement in pursuit of the Company’s then desire to establish and develop its own brand and have the flexibility to offer additional products and services that were not then available at Novopelle branded locations, which was effective immediately. Accordingly, the license of $95,000 was impaired in full during the second quarter of 2020.

 

Note 7 – Other assets

 

On May 15, 2020, the Company executed a securities purchase agreement with Global Career Networks Inc, a Delaware corporation (the “Seller”), the sole owner of Life Guru, pursuant to which the Company purchased from the Seller, a 51% interest in the capital stock of Life Guru, representing an aggregate of 2,040 shares of Life Guru’s common stock. Life Guru owns and operates the LifeGuru.me website which is currently in development and is anticipated to be fully launched in the fourth quarter of 2020. In consideration for the purchase, the Company agreed to issue the Seller 500,000 shares of the Company’s Series B Preferred Stock at closing, which occurred on May 15, 2020. Up to an additional 1,500,000 Series B Preferred Stock shares will were to be issuable to the Seller upon Life Guru meeting certain milestones, provided that such milestones are met prior to the earlier of (i) one (1) year after closing; and (ii) thirty (30) days after the Company has provided the Seller written notice of a breach by the Seller of any provision of the SPA, which breach has not been reasonably cured within such thirty (30) day period (such earlier date of (i) and (ii), the “Milestone Termination Date”):

 

(a) 500,000 Series B Preferred Stock shares upon completion of the fully operational LifeGuru.me website;

 

(b) 500,000 Series B Preferred Stock shares upon such time as 300 coaches have signed up at LifeGuru.me; and

 

(c) 500,000 Series B Preferred Stock shares upon such time as 1,000 coaches have signed up at LifeGuru.me.

 

10

 

The fair value of 500,000 shares of the Company’s Series B Preferred Stock issued at closing, valued on such grant date was $605,488, which equaled the market price per common share on the grant multiplied by the equivalent number of common shares which would be issuable upon conversion of Series B Preferred Stock.

 

The Company did not recognize any liabilities related to the milestone shares due to the uncertainty surrounding such milestones.

 

The 51% owned subsidiary is a consolidated entity which requires the presentation of noncontrolling interest in the consolidated statements of operations for the three months ended March 31, 2022. As there was minimal activity for the entity as of March 31, 2022, minimal assets and liabilities and, no noncontrolling interest were presented at the period ended March 31, 2022. Since the asset is not substantiating a future cash flow, the Company determined an impairment adjustment was necessary for the periods presented. Investment in Life Guru of $605,488 was impaired in full during the fourth quarter of 2020.

 

During the first quarter of 2021, the Company issued 500,000 Series B Preferred Stock shares for reaching the first milestone (milestone (a)). The fair value of 500,000 shares of the Company’s Series B Preferred Stock issued at closing, valued on such grant date was $601,852, which equaled the market price per common share on the grant multiplied by the equivalent number of common shares which would be issuable upon conversion of Series B Preferred Stock. This amount was expensed as in process research and development.

 

Since more than one year has elapsed since closing, the right of the Seller to earn the milestone shares set forth in (b) and (c) above has expired.

 

Note 8 – Capital lease

 

On June 17, 2020, the Company entered into an agreement with a vendor to purchase equipment used in its spa operations. Pursuant to the agreement, the Company agreed to pay a total amount of $44,722 in 24 installments, or $1,819 per month plus tax. The outstanding balance of this capital lease was $34,987 as of December 31, 2020. Due to the discontinued operation, the Company returned equipment in the first quarter of 2021. The Company impaired $1,455 to bring the asset down to the value of the liability. As of December 31, 2021, the Company was released from the capital lease with outstanding balance of $0.

 

On July 14, 2020, the Company entered into an agreement with a vendor to purchase equipment used in its spa operations. Pursuant to the agreement, the Company agreed to pay a total amount of $44,722 in 24 installments, or $1,819 per month plus tax. The outstanding balance of this capital lease was $31,457 as of December 31, 2020. Due to the discontinued operation, the Company returned equipment in the first quarter of 2021. The Company impaired $5,991 to bring the asset down to the value of the liability. As of December 31, 2021, the Company was released from the capital lease with outstanding balance of $0.

 

Note 9 – Operating Right-of-Use Lease Liability

 

On January 1, 2019, the Company adopted Accounting Standards Update No. 2016-2, Leases (Topic 842), as amended, which supersedes the lease accounting guidance under Topic 840, and generally requires lessees to recognize operating and financing lease liabilities and corresponding right-of-use (ROU) assets on the balance sheet and to provide enhanced disclosure surrounding the amount, timing and uncertainty of cash flows arising from leasing arrangements.

 

As of March 30, 2021, the Company had one leasing agreement subject to Accounting Standards Codification (ASC) 842.

 

Location 1 – EPIQ Scripts, LLC

 

On February 15, 2022, the Company recognized an operating right-of-use asset in the amount of $113,794 and an operating lease liability in the amount of $69,439 in connection with Location 1. The lease term is seventeen (17) months and expires in July 2023.

 

11

 

The following is a schedule, by year, of maturities of lease liabilities as of March 31, 2022:

 

         
2022     36,960  
2023     28,747  
Total undiscounted cash flow     65,707  
Less imputed interest (8%)     (4,399 )
Present value of lease liabilities   $ 61,308  

 

The operating lease right-of-use asset net balance at March 31, 2022 related to this location was $61,308.

 

Note 10 – Accrued Compensation for Related Parties

 

At March 31, 2022, accrued compensation was $103,500, representing $53,500 as owed to Jacob Cohen, the Company’s CEO and $25,000 owed to each of Alan Hernandez and Esteban Alexander, the Company’s former officers and directors.

 

Note 11 – Notes Payable

 

Notes payable represents the following at March 31, 2022: 

 

         
       
Note payable to an individual dated July 8, 2019 for $40,000, with interest at 8% per annum and due on July 8, 2020. The Note is currently past due.     40,000  
         
Note payable dated July 7, 2020 for $50,000, with interest at 5% per annum and due on July 7, 2021. The Note is unsecured.   $ 50,000  
         
Note payable of $53,000 dated August 5, 2020 for cash of $53,000, with interest at 8% per annum and due on November 5, 2021. The annual interest rate will increase to 22% if in default. The Note is a convertible promissory note. The conversion price equals 61% of the lowest daily volume weighted average price (VWAP) for the common stock during the ten (10) trading day period prior to the conversion date, representing a discount rate of 39%. The note, accrued interest and early payment penalty totaling $70,736 was paid during the three months ended March 31, 2021.     53,000  
Less: Repayment     (53,000 )
      -  
         
Note payable of $105,000 dated August 11, 2020 for cash of $100,000, net of original issue discount of $5,000, with one-time interest charge of 8% payable and due on May 11, 2021. The outstanding balance of the Note will be increase by 135% if in default. The Note is a convertible promissory note. The conversion price equals the lower of $30 per share (as adjusted for the reverse stock split) or 60% of the lowest daily volume weighted average price (VWAP) for the common stock during the ten (10) trading day period prior to the conversion date, representing a discount rate of 40%. The note and accrued interest totaling $111,466 was settled by the issuance of 11,813 post-reverse split common shares of the Company and $50,000 in cash. The note and accrued interest were converted at $9.68 per share (as adjusted for the reverse stock split) and settled with additional shares valued at $27 (as adjusted for the reverse stock split) per share. Accordingly, the Company recorded a loss on loan settlement of $58,059 during the three months ended March 31, 2021.   $ 105,000  
Less: Repayment     (105,000 )
      -  

 

12

 

         
Note payable of $53,000 dated September 14, 2020 for cash of $53,000, with interest at 8% per annum and due on December 14, 2021. The annual interest rate will increase to 22% if in default. The Note is a convertible promissory note. The conversion price equals 61% of the lowest daily volume weighted average price (VWAP) for the common stock during the ten (10) trading day period prior to the conversion date, representing a discount rate of 39%. The note, accrued interest and early payment penalty totaling $70,736 was paid during the three months ended March 31, 2021.   $ 53,000  
Less: Repayment     (53,000 )
      -  
         
Note payable to an unrelated party dated September 11, 2020 for $4,000, with no interest and due on demand.   $ 4,000  
         
Note payable to an unrelated party dated September 16, 2020 for $5,000, with no interest and due on demand.   $ 5,000  
         
Note payable of $56,750 dated October 12, 2020, for cash of $52,750, with interest at 8% per annum and due on October 12, 2021. The annual interest rate will increase to 24% if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $3.00 per share or 60% of the lowest daily volume weighted average price (VWAP) for the common stock during the ten (10) trading day period prior to the conversion date, representing a discount rate of 40%. The Note and accrued interest totaling $56,750 was converted into 12,682 post-reverse split common shares of the Company within the terms of the note during the quarter ended June 30, 2021.   $ 56,750  
Less: Repayment     (56,750 )
      -  

 

         
Note payable of $138,00 dated November 13, 2020 for cash of $138,000, with interest at 8% per annum and due on November 13, 2021. The annual interest rate will increase to 18% if in default. The Note is a convertible promissory note. The conversion price equals 61% of the lowest daily volume weighted average price (VWAP) for the common stock during the ten (10) trading day period prior to the conversion date, representing a discount rate of 39%. The note, accrued interest and early payment penalty totaling $183,483 was paid during the three months ended March 31, 2021.   $ 138,000  
Less: Repayment     (138,000 )
      -  
         
Note payable of $83,500 dated December 2, 2020 for cash of $83,500, with interest at 8% per annum and due on March 2, 2022. The annual interest rate will increase to 22% if in default. The Note is a convertible promissory note. The conversion price equals 61% of the lowest daily volume weighted average price (VWAP) for the common stock during the ten (10) trading day period prior to the conversion date, representing a discount rate of 39%. The note, accrued interest and early payment penalty totaling $104,527 was paid during the three months ended March 31, 2021.   $ 83,500  
Less: Repayment     (83,500 )
      -  

 

         
Note payable of $425,000 dated January 6, 2021 for cash of $400,000, with interest at 6% per annum and due on January 7, 2022. The annual interest rate will increase to 15% if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $3.00 or 75% of the lowest daily volume weighted average price (VWAP) for the common stock during the seven (7) trading day period prior to the conversion date, representing a discount rate of 25%. The note and accrued interest totaling $437,359 was converted into 42,500 post-reverse stock split common shares of the Company within the terms of the note during the quarter ended June 30, 2021.   $ 425,000  
Less: Conversion     (425,000 )
      -  

 

13

 

         
Note payable of $425,000 dated January 6, 2021 for cash of $400,000, with interest at 6% per annum and due on January 7, 2022. The annual interest rate will increase to 15% if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $3.00 or 75% of the lowest daily volume weighted average price (VWAP) for the common stock during the seven (7) trading day period prior to the conversion date, representing a discount rate of 25%. The note and accrued interest totaling $437,297 was converted into 53,675 post-reverse stock split common shares of the Company within the terms of the note during the quarter ended June 30, 2021.   $ 425,000  
Less: Conversion     (425,000 )
      -  
         
Note payable of $300,000 dated March 30, 2021 for cash of $282,000, with interest at 6% per annum and due on March 30, 2022. The annual interest rate will increase to 15% if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $14.62 (as adjusted for the reverse stock split) or 75% of the lowest daily volume weighted average price (VWAP) for the common stock during the seven (7) trading day period prior to the conversion date, representing a discount rate of 25%.   $ 300,000  
         
Note payable of $300,000 dated March 30, 2021 for cash of $282,000, with interest at 6% per annum and due on March 30, 2022. The annual interest rate will increase to 15% if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $14.62 (as adjusted for the reverse stock split) or 75% of the lowest daily volume weighted average price (VWAP) for the common stock during the seven (7) trading day period prior to the conversion date, representing a discount rate of 25%. A partial conversion of the Note and accrued interest totaling $175,233 was converted into 53,041 post-reverse stock split common shares of the Company within the terms of the note as of the quarter ended March 31, 2022.   $ 300,000  
Less: Conversion     (150,000 )
      150,000  
         
Note payable of $265,958 dated June 24, 2021 for cash of $250,000, with interest at 6% per annum and due on June 24, 2022. The annual interest rate will increase to 15% if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $14.62 (based on post-reverse stock split) or 75% of the lowest daily volume weighted average price (VWAP) for the common stock during the seven (7) trading day period prior to the conversion date, representing a discount rate of 25%. A partial conversion of note totaling $169,356 was converted into 59,833 post-reverse stock split common shares of the Company within the terms of the note as of the quarter ended March 31, 2022.   $ 265,958  
Less: Conversion     (169,356 )
      96,602  

 

Note payable of $271,958 dated June 24, 2021 for cash of $256,000, with interest at 6% per annum and due on June 24, 2022. The annual interest rate will increase to 15% if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $14.62 (as adjusted for the reverse stock split) or 75% of the lowest daily volume weighted average price (VWAP) for the common stock during the seven (7) trading day period prior to the conversion date, representing a discount rate of 25%. A partial conversion of the note and accrued interest totaling $170,000 was converted into 57,544 post-reverse stock split shares of the Company within the terms of the note as of quarter ended March 31, 2022.   $ 271,958  
Less: Conversion     (163,115 )
      108,843  
         
The Company had a short-term advance payable in amount of $50,000 to an unrelated party, with no interest and due on demand. As of March 31, 2022, the short term advance was repaid in full.   $ 50,000  
Less: Repayment   $ (50,000 ) 
      -  

 

14

 

Note payable of $750,000 dated November 22, 2021 for cash of $750,000, with interest at 10% per annum and due on June 24, 2022. The annual interest rate will increase to 16% or the maximum amount permitted by law if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $4,50 (as adjusted for the reverse stock split) or 80% of the offering price per share of Common Stock at which the Company offers shares of Common Stock in a public offering which results in the Common Stock being uplisted on a national stock exchange or Nasdaq, that occurs within 220 days from the date the Notes are issued (an “Uplist Offering”).   $ 750,000  
         
Note payable of $500,000 dated November 30, 2021 for cash of $500,000, with interest at 10% per annum and due on November 30, 2022. The annual interest rate will increase to 16% or the maximum amount permitted by law if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $4.50 (as adjusted for the reverse stock split) or 80% of the offering price per share of Common Stock at which the Uplist Offering is made.   $ 500,000  
         
Note payable of $250,000 dated December 1, 2021 for cash of $250,000, with interest at 10% per annum and due on December 1, 2022. The annual interest rate will increase to 16% or the maximum amount permitted by law if in default. The Note is a convertible promissory note. The conversion price equals the lessor of 4.50 (as adjusted for the reverse stock split) or 80% of the offering price per share of Common Stock at which the Uplist Offering is made.   $ 250,000  
         
Note payable of $500,000 dated December 2, 2021 for cash of $500,000, with interest at 10% per annum and due on December 2, 2022. The annual interest rate will increase to 16% or the maximum amount permitted by law if in default. The Note is a convertible promissory note. The conversion price equals the lessor of $4.50 (as adjusted for the reverse stock split) or 80% of the offering price per share of Common Stock at which the Uplist Offering is made.   $ 500,000  
         
As of March 31, 2022 the Company had a short-term Advance payable in amount of $20,000 to a unrelated party, with no interest and due on demand.   $ 20,000  
         
Notes payable, gross   $ 2,774,445  
Less: unamortized discount     (1,771,620 )
Total   $ 1,002,825  
Short term convertible notes, net of discount of $1,771,620   $ 923,825  
Long-term convertible notes, net of discount of $0   $ -  
Short-term non-convertible notes – continuing operations   $ 75,000  
Short-term non-convertible notes – discontinued operations   $ 4,000  
Long-term non-convertible notes   $ 0  

 

Note 12 – Loans from Related Parties

 

         
On April 12, 2019, the Company entered into individual share exchange agreements and promissory notes with each of Daniel Dror, Winfred Fields and former Directors Everett Bassie and Charles Zeller (the “AMIH Shareholders”), whereby the AMIH Shareholders agreed to cancel and exchange a total of 98,334 post-reverse stock split shares of their AMIH common stock. The Company issued individual promissory notes with an aggregate principal amount of $350,000 (the “Promissory Notes”) for cancellation of the 98,334 post-reverse stock split common shares. The Promissory Notes have a term of two years and accrue interest at the rate of 10% per annum until paid in full by the Company. The Company recorded interest of $7,506 on these notes during the year ended December 31, 2020. The accrued interest on these notes was $18,982 as of December 31, 2020. The Note and accrued interest totaling $ 280,108 was settled by the issuance of 57,942 post-reverse stock split common shares of the Company. The shares were valued at $18.60 and $16.20 (as adjusted for the reverse stock split) per share based on the market price at the settlement date. Accordingly, the Company recorded a loss on loan settlement of $758,601 during the year ended December 31, 2020.   $ 350,000  
Less: Conversion     (240,000 )
Loans from related parties, gross     110,000  

 

15

 

As of March 31, 2022, the Company had a short-term note payable in the amount of $13,473 to Kemah Development Texas, LP, a company owned by Dror Family Trust, a related party.     13,473  
         
As of March 31, 2022, outstanding loan balances payable to the Company’s CEO and board member, Jacob Cohen, were $0 with no interest and due on demand     50  
Less: payment     (50 )
Loans from related parties, gross     -  
         
Loans from related parties, gross   $ 123,473  
Less: unamortized discount     0  
Total   $ 123,473  
Long-term loan from related parties   $ -  
Short-term loan from related parties – continuing operations   $ 123,473  
Short-term loan from related parties – discontinued operations   $ -  

 

Note 13 – Derivative Liabilities

 

Notes that are convertible at a discount to market are considered embedded derivatives.

 

Under Financial Accounting Standard Board (“FASB”), U.S. GAAP, Accounting Standards Codification, “Derivatives and Hedging”, ASC Topic 815 (“ASC 815”) requires that all derivative financial instruments be recorded on the balance sheet at fair value. Fair values for exchange traded securities and derivatives are based on quoted market prices. Where market prices are not readily available, fair values are determined using market-based pricing models incorporating readily observable market data and requiring judgment and estimates.

 

The Company’s convertible note has been evaluated with respect to the terms and conditions of the conversion features contained in the note to determine whether they represent embedded or freestanding derivative instruments under the provisions of ASC 815. The Company determined that the conversion features contained in the notes totaled $1,575,083 and represent a freestanding derivative instrument that meets the requirements for liability classification under ASC 815. As a result, the fair value of the derivative financial instrument in the note is reflected in the Company’s balance sheet as a liability. The fair value of the derivative financial instrument of the convertible note was measured using the Lattice Model at the inception date of the note and will do so again on each subsequent balance sheet date. Any changes in the fair value of the derivative financial instruments are recorded as non-operating, non-cash income or expense at each balance sheet date. The derivative liabilities will be reclassified into additional paid in capital upon conversion.

 

The Convertible Note derivatives were valued as of December 31, 2021, at issuance, at conversion and at March 31, 2022, as set forth in the table below. 

 

         
Derivative liabilities as of December 31, 2021   $ 4,141,272  
Initial derivative liabilities at new note issuance     -  
Initial loss     -  
Conversion     (89,638 )
Mark to market changes     (398,555 )
Derivatives liabilities as of March 31, 2022   $ 3,653,079  

 

16

 

As of March 31, 2022, the Company had derivative liabilities of $3,653,079, and recorded changes in derivative liabilities in the amount of $398,555 during the three months ended March 31, 2022.

 

The following assumptions were used for the valuation of the derivative liability related to the Notes:

 

  - The stock price would fluctuate with the Company’s projected volatility;
  - The projected volatility curve from an annualized analysis for each valuation period was based on the historical volatility of the Company and the term remaining for each note ranged from 116% through 206% at issuance, conversion, and quarters ends;
  - The Company would not redeem the notes;
  - An event of default adjusting the interest rate would occur initially 0% of the time for all notes with increases 1% per month to a maximum of 10% with the corresponding penalty;
  - The Company would raise capital quarterly at market, which could trigger a reset event; and
  - The Holder would convert the note monthly if the Company was not in default.

 

The following assumptions were used for the valuation of the warrant derivative liability related to the Notes:

 

  - The stock price would fluctuate with the Company’s projected volatility;
  - The projected volatility curve from an annualized analysis for each valuation period was based on the historical volatility of the Company and the term remaining for each note ranged from 166% through 166.9% at issuance, conversion, and quarters ends.
  - The Warrants with the fixed $12.00, $21.00, and $30.00 exercise prices are subject to full ratchet reset provisions;
  - The Company would raise capital quarterly at market, which could trigger a reset event;
  - The cash flows are discounted to net present values using risk free rates; discount rates were based on risk free rates in effect based on the remaining term;
  - The occurrence of a fundamental transaction by a public company was estimated at 2.5% after 2.5 years and 5% prior to maturity; and
  - The Holder would hold the warrant to maturity (5-year terms) at which point it could exercise the warrant if the warrant were in the money.

 

Note 14 – Capital Stock

 

Preferred Stock

 

The Company is authorized to issue up to 5,000,000 shares of preferred stock, $0.0001 par value, of which 1,000,000 shares were designated as Series A Preferred Stock and 2,000,000 were designated as Series B Preferred stock, the balance of 2,000,000 shares of preferred stock were undesignated as of March 31, 2022.

 

The holders of Series A Preferred Stock have no dividend rights, liquidation preference and conversion rights. As long as any shares of Series A Preferred Stock remain issued and outstanding, the holders of Series A Preferred Stock have the right to vote on all shareholder matters equal to sixty percent (60%) of the total vote. At the option of the Company, Series A Preferred Stock is redeemable at $1.00 per share.

 

The holders of Series B Preferred Stock have the same dividend rights as common stockholders on a fully converted basis, are entitled to receive pari passu with any distribution of any of the assets of the Company to the holders of the Company’s common stock, but not prior to any holders of senior securities. Each share of Series B Preferred Stock may be converted, at the option of the holder thereof, into that number of shares of common stock of the Company as equals $1.00 divided by 90% of the average of the volume weighted average prices (“VWAP”) of the Company’s common stock, for the five trading days immediately preceding the date the notice of conversion is received, subject to the limit of 4.999% of the Company’s outstanding shares of common stock. The holders of Series B Preferred Stock have no voting rights.

 

17

 

In the first quarter of 2021, the Company issued 500,000 shares of Series B Preferred Shares to a third party for services related to research and development. The shares were subsequently converted into 572 post-reversestock split shares of common stock. The shares were valued at $