NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of March 31,
2019, the Company had cash of $118,931 and a negative working capital of $654,890. As of March 31, 2019, the Company has not yet
generated any revenues, and has incurred cumulative net losses of $574,239. These conditions raise substantial doubt about the
Company’s ability to continue as a going concern.
As of March 31,
2019, the Company has raised a net of $444,455 from issuance of debt in form of convertible notes, but no cash proceeds from the
issuance of common stock. The Company is aware that its current cash on hand will not be sufficient to fund its projected operating
requirements through the month of September 2019, and is pursuing alternative opportunities to funding.
The Company intends
to raise additional capital through private placements of debt and equity securities, but there can be no assurance that these
funds will be available on terms acceptable to the Company, or will be sufficient to enable the Company to fully complete its
development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop
and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional
capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Accordingly,
the accompanying financial statements have been prepared in conformity with U.S. GAAP, which contemplates continuation of the
Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business. The
carrying amounts of assets and liabilities presented in the financial statements do not necessarily purport to represent realizable
or settlement values. The financial statements do not include any adjustment that might result from the outcome of this uncertainty.
NOTE 3 – CONVERTIBLE NOTES PAYABLE
As long as the following convertible notes
remain outstanding, the Company is restricted from incurring any indebtedness or liens, except as permitted (as defined), and
cannot amend its charter in any matter that materially effects rights of noteholders, repay or repurchase more than de minimis
number of shares of common stock other than conversion or warrant shares, repay or repurchase all or any portion of any indebtedness,
or pay cash dividends.
Auctus Note #1
On October 24, 2018 (the ”Date
of Issuance”) the Company issued a convertible promissory note (the ”Auctus Note #1”) with a face value
of $250,000, maturing on October 23, 2019, and a stated interest of 8% to a third-party investor. The Auctus ote #1 is convertible
into common stock of the Company, par value $.001 per share (the “Common Stock”) at any time after the earlier of:
(i) 180 days from the date of the Auctus Note #1, or (ii) upon effective date of a registration statement. The conversion price
of the Auctus Note #1 is equal to the lesser of : (i) the lowest trading price for the twenty-day period prior to the date of
the Auctus Note #1 or (ii) 65% of the average of the three lowest trading prices during the twenty days prior to a conversion
notice on the applicable trading market or the closing bid price on the applicable trading market. The Auctus Note #1 was funded
on October 29, 2018, when the Company received proceeds of $222,205, after disbursements for the lender’s transaction costs,
fees and expenses which in aggregate resulted in a total discount of $27,795 to be amortized to interest expense over the life
of the Auctus Note #1.
Additionally, the variable conversion
rate component requires that the Auctus Note #1 be valued at its stock redemption value (i.e., ”if-converted” value)
pursuant to
ASC 480, Distinguishing Liabilities from Equity
, with the excess over the undiscounted face value being
deemed a premium to be added to the principal balance and amortized to additional paid-in capital over the life of the Auctus
Note #1. As such, the Company recorded a premium of $343,796 as a reduction to additional paid-in capital based on a discounted ”if-converted” rate
of $0.21 per share (65% of the average of the three lowest trading prices during the 20 days preceding the note’s issuance),
which computed to 1,211,828 shares of ‘if-converted’ common stock with a redemption value of $593,796 due to $0.49
per share fair market value of the Company’s stock on the Auctus Note #1’s date of issuance. Debt discount amortization
is recorded as interest expense, while debt premium amortization is recorded as an increase to additional paid-in capital. During
the three months ended March 31, 2019, the Company recorded $60,268 of premium amortization to additional paid-in capital, and
$6,951 in amortization of debt discount.
Along with the Auctus Note #1, on the
Date of Issuance the Company issued 208,333 Common Stock Purchase Warrants (the ”Warrants”), exercisable immediately
at a fixed exercise price of $0.60 with an expiration date of October 23, 2023. The Company has determined that the Warrants
are exempt from derivative accounting and were valued at $101,937 on the Date of Inception using the Black Scholes Options Pricing
Model. Assumptions used for the Black Scholes Options Pricing Model include (1) stock price of $0.49 per share, (2) exercise
price of $0.60 per share, (3) term of 5 years, (4) expected volatility of 251% and (5) risk free interest rate of 2.51%. The
note proceeds of $250,000 were then allocated between the fair value of the Auctus Note #1 ($250,000) and the Warrants ($101,937),
resulting in a debt discount of $72,412. As the warrants were exercisable immediately, this debt discount was amortized
in its entirety to interest expense on the Date of Issuance.
Auctus Note #2
On February 25, 2019, the Company entered
into a $250,000 Senior Secured Promissory Note (“the Auctus Note #2”), dated February 25, 2019 at an interest rate
of 8% per annum, maturing on February 24, 2020 (the “Maturity Date”). Issuance fees totaling $27,750 were recorded
as a debt discount, resulting in net proceeds of $222,250. The Auctus Note #2 is convertible into common stock of the Company,
par value $.001 per share (the “Common Stock”) at any time after the earlier of: (i) 180 days from the date of the
Auctus Note #2 or (ii) upon effective date of a new registration statement. The conversion price of the Auctus Note #2 is equal
to the lesser of : (i) the lowest trading price for the twenty-day period prior to the date of the Auctus Note #2 or (ii) 65%
of the average of the three lowest trading prices during the twenty days prior to a conversion notice on the applicable trading
market or the closing bid price on the applicable trading market. The Company may prepay the Auctus Note #2 at any time at a rate
of 120% of outstanding principal and interest during the first 90 days it is outstanding and 130% of outstanding principal and
interest for the next 90 days thereafter. Thereafter the prepayment amount increases 5% for each thirty-day period until 270 days
from the issue date at which time it is fixed at 150% of the outstanding principal and interest on the Auctus Note #2.
Once the conversion feature is triggered,
the Company will apply the provisions of ASC 480,
Distinguishing Liabilities from Equity
, with the excess over the note’s
undiscounted face value being deemed a premium to be added to the principal balance and amortized to additional paid-in capital
over the life of the note. Based on the classification of the debt instrument, it was determined that derivative treatment is
not a factor due to the ASC 480 treatment.
Along with the the Auctus Note #2, on
the Date of Issuance the Company issued 208,333 Common Stock Purchase Warrants (the ”Warrants”), exercisable
immediately at a fixed exercise price of $0.60 with an expiration date of February 24, 2024. The Company has determined
that the Warrants are exempt from derivative accounting and were valued at $55,417 on the Date of Inception using the Black Scholes
Options Pricing Model. Assumptions used for the Black Scholes Options Pricing Model include (1) stock price of $0.27 per
share, (2) exercise price of $0.60 per share, (3) term of 5 years, (4) expected volatility of 323% and (5) risk free interest
rate of 2.56%. The Auctus Note #2 proceeds of $250,000 were then allocated between the fair value of the Auctus Note #2
($250,000) and the Warrants ($55,417), resulting in a debt discount of $45,361. As the warrants are exercisable immediately, this
debt discount was amortized in its entirety to interest expense on the Date of Issuance.
For the 3-months ended March 31, 2019,
the Company amortized $2,585 debt discount to operations as interest expense for the the Auctus Note #2.
Convertible notes
payable consists of the following at March 31, 2019 and December 31, 2018:
|
|
|
March 31, 2019
|
|
|
December 31, 2018
|
|
|
Principal balance
|
|
$
|
500,000
|
|
|
$
|
250,000
|
|
|
Unamortized debt discount
|
|
|
(40,836
|
)
|
|
|
(22,622
|
)
|
|
Unamortized debt premium
|
|
|
283,528
|
|
|
|
-
|
|
|
Outstanding, net of debt discount and premium
|
|
$
|
742,692
|
|
|
$
|
227,378
|
|
NOTE 4 – STOCKHOLDERS’ EQUITY
At a Board of Director’s Meeting
on July 30, 2018, the Company authorized a reverse split that resulted in a reduction of the number of outstanding and issued
shares of both common and preferred stock so that after the split became effective on August 13, 2018, the shares of both common
and preferred stock were reduced to 1 share for each 30 shares currently issued and outstanding. The effect on the Balance Sheet
is a transfer of value from stock value at par to Additional Paid-in Capital. As a result of the one (1) for thirty (30) reverse
stock split, the Company will continue to be authorized to issue 300,000,000 shares of Common Stock. The impact of the reverse
stock split has been retroactively applied to all periods presented, and all references to common and preferred stock in the footnotes
are assumed to be post-split unless otherwise indicated.
Preferred stock
As of July 30, 2018, and prior to the
reverse stock split, there were 440,500 outstanding shares of the Company’s Preferred Stock. After the reverse stock split
that was effective on August 13, 2018, the Company’s outstanding shares of preferred stock was 14,683 and the authorized
preferred stock of 50,000,000 shares remained unchanged.
On September 20, 2018, 9,999 shares of
Preferred Stock were returned to treasury as a result of a Merger, (please see 8-K statement filed on September 24, 2018 and its
financial amendment 8-K/A filed on October 29, 2018, for more detailed information about the merger and asset purchase agreement).
The change of control of ownership resulted
in the mandatory conversion of all of the outstanding shares of the Company’s Class A 6% Cumulative Convertible Voting Preferred
Stock, par value $.001 per share (“Preferred Stock”), with 5 shares of common stock, par value $.001 per share (the
“Common Stock”) of the Company, being issued for each outstanding share of Preferred Stock, as well as combined accrued
interest.
As of March 31, 2019, no preferred shares
have been designated nor issued.
Common stock
As of July 30, 2018, and prior to the
reverse stock split, there were 111,336,350 shares of common stock outstanding. As a result of the reverse stock split that was
effective on August 13, 2018, there were approximately 3,711,204 shares of common stock outstanding. A total of 30,000 shares,
included in the above count, had on July 30, 2018 been issued as a settlement of accounts payable for a related party.
On September 21, 2018, the Company completed
a series of transactions as a result of a reverse merger (the “Merger”), (please see 8-K statement filed on September
24, 2018 and its financial amendment 8-K/A filed on October 29, 2018, for more detailed information about the merger and asset
purchase agreement).On September 21, as consideration for the Merger, the Company’s stockholders were issued 76,586,937
shares of common stock of the Company. The Merger was structured as a tax-free reorganization.
A 6% secured promissory note (the “Note”)
in the principal amount of $110,000, including all interest had been in default since August 23, 2013. The Note was secured by
substantially all of the assets of the Company. As consideration for the satisfaction of the obligation and as a condition to
settlement, the Company agreed to divest substantially all of its assets and remaining liabilities to an affiliate of the creditor
and former majority stockholder of the Company. The creditor agreed to release all liens upon the completion of the asset sale.
Included in the settlement, a former majority stockholder of the Company received on September 21, 2018, 4,455,858 shares of the
Company’s common stock, while the former Directors and Officers received 319,174 shares of common stock.
On September 21, 2018, an additional 23,405
shares of common stock were issued as a result of a mandatory conversion of 4,681 shares of preferred stock (convertible 5:1),
and 7,095 shares of common stock were issued in the form of accrued 6% annual combined interest on the preferred stock.
As of March 31, 2019, and after completion
of the above transactions, the Company has 85,103,673 shares of common stock issued and outstanding. No shares of common stock
have been issued since the Merger.
Common Stock Warrants
The following table summarizes the Company’s
common stock warrant activity for the 3-months ended March 31, 2019 and the year ended December 31, 2018 (see Note 3):
|
|
|
|
|
|
Weighted Average
|
|
|
Weighted-Average Remaining
|
|
|
|
|
Warrants
|
|
|
Exercise
Price
|
|
|
Expected
Term
|
|
|
Outstanding as of January 1, 2018
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
Granted
|
|
|
208,333
|
|
|
|
0.60
|
|
|
|
4.6
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of December 31, 2018
|
|
|
208,333
|
|
|
$
|
0.60
|
|
|
|
4.6
|
|
|
Granted
|
|
|
208,333
|
|
|
|
0.60
|
|
|
|
4.9
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Forfeited/Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding as of March 31, 2019
|
|
|
416,666
|
|
|
$
|
0.60
|
|
|
|
4.7
|
|
NOTE 5 – COMMITMENTS AND CONTINGENCIES
Employment contracts
The Company’s executive officers
have entered employment contracts and confidentiality, non-disclosure and assignment of invention agreements. The employment agreements
do not provide for the payment of any compensation to our executive officers but provide for the payment of $100,000 in severance
upon termination of employment without cause and make no provisions for any payment upon a change of control.
Litigation
In the normal course of business, the
Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. Such matters
are subject to many uncertainties, and outcomes are not predictable with assurance. Legal fees for such matters are expensed as
incurred and we accrue for adverse outcomes as they become probable and estimable.
NOTE 6 – SUBSEQUENT EVENTS
On April 4, 2019,
the Company and MDX Lifesciences, Inc. (“MDX”) entered into an exclusive, worldwide, royalty-free license (the “License
Agreement”) to the MDX Viewer and Flat Probe, (ii) the issued patents, and patents arising out of the patent applications,
(iii) all reissues, continuations, continuations-in-part, extensions, reexaminations, and foreign counterparts thereof, (vi) all
inventions, disclosures, trade secrets and know-how owned by MDX and (v) those improvements, enhancements and modifications
to be used in certain fields of use as measurement system for tissue health for the Company’s compounds.
The Company will
pay MDX on or about the time the Company raises $3,000,000, or at such time as otherwise agreed by MDX and the Company, a payment
of $500,000. The Company will also fund MDX development efforts to improve the MDX Viewer and Flat Probe for the Company’s
use at cost plus 20% and pay for reasonable associated expenses.
On April 22, 2019, the Company and Resources
Unlimited NW LLC (“RU”), entered investor relations agreement (the “IR Agreement”) where RU will assist
the Company with its investor relations efforts. The term of the agreement is for six months unless earlier terminated. The Company
agreed to pay RU a fee of $2,000 per month and issue RU 50,000 shares of its restricted common stock per month, prorated if earlier
terminated. The Company may, in its sole discretion, pay RU $7,500 per month instead of the issuance of common stock. In addition,
RU may be entitled to receive additional performance-based bonuses as determined by the Company. RU is subject to a limitation
on the sale of the common stock in any one trading day to no more than 5% of the volume weighted average number of shares traded
ten days prior to any sale. In March 2019, the Company and RU entered into a one-month agreement whereby RU was paid $2,000 and
100,000 shares of restricted common stock.
On May 6, 2019, the Company and Asclepius
LLC entered into a one-year Scientific Advisory Board Agreement, dated May 1, 2018 (the “Scientific Advisory Board Agreement”)
whereby Juan Carlos Lopez Talavera (“Advisor”) will serve as a member of the Company’s Scientific Advisory Board.
Advisor will provide assistance and advice to the Company in his field of expertise as a developer of pharmaceutical compounds,
and mentor the Company through the Food and Drug Administration’s regulatory submission and approval process. Advisor will
commit such time as possible without interfering with his existing duties with his current employer, but in no event more than
20 days per year. As compensation for his services, the Company will issue Advisor forty five thousand (45,000) options to purchase
the Company’s common stock, par value $.01 per share, under the Company’s 2010 Employee, Director and Consultant Stock
Plan, or any successor plan thereto, at the beginning of each successive quarter of service, exercisable at a price of market
price plus 10% at the time of issuance. In addition, the Company will pay for his expenses up to $500 per quarter. The Scientific
Advisory Agreement may be terminated by either party with 30 days prior written notice contains protection for the Company’s
intellectual property and for protection for the intellectual property of Advisor’s employer.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis
is based on, and should be read in conjunction with, the audited financial statements and the notes thereto for the period since
the inception of the Company through December 31, 2018 included in our Annual Report on Form 10-K as filed with the Securities
and Exchange Commission on March 13, 2019. This discussion contains forward-looking statements. These statements are often identified
by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,”
“intend,” “could,” “estimate,” or “continue,” and similar expressions or variations.
Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the
timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. The
forward-looking statements in this Quarterly Report on Form 10-Q represent our views as of the date of this Quarterly Report on
Form 10-Q. We anticipate that subsequent events and developments will cause our views to change. However, while we may elect to
update these forward-looking statements at some point in the future, we have no current intention of doing so, except to the extent
required by applicable law. You should, therefore, not rely on these forward-looking statements as representing our views as of
any date subsequent to the date of this Quarterly Report on Form 10-Q.
Overview
We do not currently
have sufficient capital resources to fund operations. To stay in business and to continue the development of our products, we
will need to raise additional capital through public or private sales of our securities, debt financing or short-term bank loans,
or a combination of the foregoing. We believe that if we can raise $2,700,000 in our currently effective public offering, we will
have sufficient working capital to repay the two Auctus Notes and develop our business over the next approximately 15 months.
At funding raised that is significantly less than $2,700,000, we can likely repay the Auctus Note and continue to develop our
business over the same 15-month period, but funding at that level will delay the development of our technology and business.
Bioxytran, Inc. is
headquartered in Newton, Massachusetts. The Company’s initial product pipeline is focused on developing and commercializing
therapeutic molecules for stroke and wound healing. BXT-25 will be designed to be an injectable anti-necrosis drug specifically
designed to treat a person immediately after that person suffers an ischemic stroke. The drug is designed to be injected intravenously
to travel to the lungs to pick up oxygen molecules to carry to the brain. Like a red blood cell, the drug will cross the blood
brain barrier, which is a protective semi-permeable membrane allowing some material to cross but preventing others from crossing.
BXT-25 will be designed to diffuse oxygen into the brain tissues. We expect the BXT-25 molecule to be 5,000 times smaller than
a red blood cell.
Our second product,
BXT-252, will be designed to be an injectable anti-necrosis drug specifically designed to treat a wound that does not heal because
limited amount of oxygen reaching the wound. As is the case with BXT-25, we believe that BXT-252 will enable the delivery of oxygen
to tissue in conditions in which red blood cells do not, enabling wound healing by addressing the necrosis problem.
The accompanying financial
statements have been prepared assuming the Company will continue as a going concern. The Company has limited resources and operating
history. As described in Note 3 of the financial statements, on October 24, 2018, we issued the first of a two-tranche 8% convertible
promissory note of $250,000 in gross proceeds (The Auctus Note #1). On February 25, 2019, we issued the second tranche 8% convertible
promissory note of $250,000 in gross proceeds (the Auctus Note #2), in order to finance the Company until we start raising equity.
As shown in the accompanying financial statements, the Company had an accumulated deficit of $574,239 as of March 31, 2019. The
accumulated deficit as of December 31, 2018 was $382,830.
The future of the
Company is dependent upon its ability to obtain financing to develop its new business opportunities and support the cost of the
drug development including clinical trials and regulatory submission to the FDA.
Management plans to
seek additional capital through private placements and public offerings of its common stock. There can be no assurance that the
Company will be successful in accomplishing its objectives. Without such additional capital or the establishment of strategic
relationships with established pharmaceutical companies, the Company may be required to cease operations. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. The financial statements do not include any
adjustments relating to the recoverability and classification of recorded assets, or the amounts of and classification of liabilities
that might be necessary in the event the Company cannot continue operations.
Results of Operations
We are a development-stage
company. Historically, Bioxytran was engaged in formation, fund raising and identifying and consulting with the scientific community
regarding the development, formulation and testing of its products.
General and Administrative
General and administrative
(G&A) expenses for the three months ended March 31, 2019 were $129,625, while for the three months ended March 31, 2018, they
were $670. The Company only started its activities in October 2018. The components of G&A expenses are as follows:
|
|
-
|
Payroll and related expenses for
the three months ended March 31, 2019 were $50,508, while there were no expenses for
payroll for the three months ended March 31, 2018.
|
|
|
-
|
Costs for legal, accounting and
other professional services for the three months ended March 31, 2019 were $40,811, while
there were no expenses for professional services for the three months ended March 31,
2018.
|
|
|
-
|
Sales and marketing expense for
the three months ended March 31, 2019 were $17,050, while there were no expenses for
professional services for the three months ended March 31, 2018.
|
|
|
-
|
The remaining miscellaneous G&A
expenses totaled $21,256 for the three months ended March 31, 2019, as compared to $670
for the three months ended March 31, 2019.
|
Interest Expense and Amortization of
Debt Discount and Premium
During the three months
ended March 31, 2019, the Company recorded $60,268 of premium accretion to additional paid-in capital, and $9,536 in amortization
of debt discount to interest expense. The interest for the two convertible notes outstanding amounted to $6,887. There were no
expenses for debt discount and interest for the three months ended March 31, 2018. The Company only started its activities in
October 2018.
Net Loss
The Company generated
a net loss for the three months ended March 31, 2019 of $191,409. In comparison, for the three months ended March 31, 2018, the
Company generated a net loss of $670. The increased loss is mainly linked to current quarter costs for legal, accounting and other
professional services for the S/1 application and subsequent amendments that were filed with the SEC, as well as the amortization
of debt discounts applied to warrants issued in connection with convertible debt and the related loan fees.
Cash-Flows
Net cash used in operating
activities was $139,730 and $80 for the three months ended March 31, 2019 and 2018, respectively. The Company only started its
activities in October 2018.
The Company did not
engage in any investing activities during the three months ended March 31, 2019 or 2018.
Cash flows from financing
activities were $222,250 and $0 for the three months ended March 31, 2019 and 2018. The Company only started its activities
in October 2018.
LIQUIDITY AND
CAPITAL RESOURCES
As of March 31, 2019,
our only asset was $118,931 in cash. We had total liabilities of $773,821, which were all current liabilities, and which consisted
of $31,129 in accounts payable and accrued expenses, and $742,692 in the form of a convertible loan of $250,000, maturing on October
23, 2019, and a second convertible loan of $250,000, maturing on February 24, 2020 (which includes unamortized debt premium of
$283,528, and which has been netted with unamortized debt discounts totaling $40,836). The equivalent numbers at December 31,
2018, were $36,411 in cash and total liabilities of $261,725, which were all current liabilities, and which consisted of $23,447
in accounts payable and accrued expenses, $10,900 in accounts payable to related parties, and $227,378 (net of $22,622 in unamortized
debt discounts) in the form of a convertible loan, maturing on October 23, 2019.
At March 31, 2019,
we had total working capital of negative $654,890 and an accumulated deficit of $574,239. Comparatively, on December 31, 2018,
we had total working capital of negative $225,314 and an accumulated deficit of $382,830. We believe that we must raise not less
than $2,700,000 in our currently effective public offering in addition to current cash on hand to be able to continue our business
operations for approximately the next 15 months and repay the two Auctus Notes.
Net cash used in operating
activities was $139,730 and $80 for the three months ended March 31, 2019 and 2018, respectively. We did not engage in any investing
activities during the three months ended March 31, 2019 or 2018. Cash flows from financing activities were $222,250 and $0
for the three months ended March 31, 2019 and 2018. The net increase in cash was $82,520 for the three months ended March 31,
2019, while there was a decrease of $80 for the three months ended March 31, 2018. The Company only started its activities in
October 2018.
We have no current
commitment from our officers and directors or any of our shareholders, to supplement our operations or provide us with financing
in the future. If we are unable to raise additional capital from conventional sources and/or additional sales of stock in the
future, we may be forced to curtail or cease our operations. Even if we are able to continue our operations, the failure to obtain
financing could have a substantial adverse effect on our business and financial results. In the future, we may be required to
seek additional capital by selling debt or equity securities, selling assets, or otherwise be required to bring cash flows in
balance when we approach a condition of cash insufficiency. The sale of additional equity or debt securities, if accomplished,
may result in dilution to our then shareholders. We provide no assurance that financing will be available in amounts or on terms
acceptable to us, or at all.
Contractual Obligations
Our contractual obligations
include two convertible notes, each of $250,000, described under Note 3 to the Financial Statements.
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 material effect on our consolidated
financial condition, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING
POLICIES
In presenting our
financial statements in conformity with generally accepted accounting principles, we are required to make estimates and assumptions
that affect the amounts reported therein. Several of the estimates and assumptions we are required to make relate to matters that
are inherently uncertain as they pertain to future events. However, events that are outside of our control cannot be predicted
and, as such, they cannot be contemplated in evaluating such estimates and assumptions. If there is a significant unfavorable
change to current conditions, it could result in a material adverse impact to our results of operations, financial position and
liquidity. We believe that the estimates and assumptions we used when preparing our financial statements were the most appropriate
at that time. Presented below are those accounting policies that we believe require subjective and complex judgments that could
potentially affect reported results. However, the majority of our businesses operate in environments where we pay a fee for a
service performed, and therefore the results of the majority of our recurring operations are recorded in our financial statements
using accounting policies that are not particularly subjective, nor complex.
Revenue Recognition
Effective January
1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company intends to recognize
revenue from product sales by applying the following steps: (1) identify the contract with a customer; (2) identify the performance
obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation
in the contract; and (5) recognize revenue when each performance obligation is satisfied. No revenues were earned in comparative
periods presented, during which time they would have been reported under ASC 605 — Revenue Recognition.
There was no impact
on the Company’s financial statements as a result of adopting ASC 606 for the three months ended March 31, 2019.
Stock Based Compensation
The Company has share-based
compensation plans under which non-employees, consultants and suppliers may be granted restricted stock, as well as options to
purchase shares of Company common stock at the fair market value at the time of grant. Stock-based compensation cost is measured
by the Company at the grant date, based on the fair value of the award over the requisite service period. For options issued to
employees, the Company recognizes stock compensation costs utilizing the fair value methodology over the related period of benefit.
Grants of stock options and stock to non-employees and other parties are accounted for in accordance with ASC 505.
The Company applies
ASC 718 for options, common stock and other equity-based grants to its employees and directors. ASC 718 requires measurement of
all employee equity-based payment awards using a fair-value method and recording of such expense in the consolidated financial
statements over the requisite service period. The fair value concepts have not changed significantly in ASC 718; however, in adopting
this standard, companies must choose among alternative valuation models and amortization assumptions. After assessing alternative
valuation models and amortization assumptions, the Company will continue using both the Black-Scholes valuation model and straight-line
amortization of compensation expense over the requisite service period for each separately vesting portion of the grant.