Note 3 – Summary of Significant Accounting Policies
Principles of Consolidation
The condensed consolidated financial statements include the accounts of the Group and its wholly owned subsidiary, Coretec. Intercompany transactions and balances have been eliminated in consolidation.
Use of Estimates
The preparation of condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, expenses and the disclosure of contingent assets and liabilities. Actual results could differ from the estimates and assumptions used.
Long-Lived Assets
Long-lived assets, such as property and equipment and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. If circumstances require a long-lived asset or asset group be tested for possible impairment, the Company first compares undiscounted cash flows expected to be generated by that asset or asset group to its carrying value. If the carrying value of the long-lived asset or asset group is not recoverable on an undiscounted cash flow basis, impairment is recognized to the extent that the carrying value exceeds its fair value. Fair value is determined through various valuation techniques including discounted cash flow models, quoted market values and third-party independent appraisals, as considered necessary.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of each class of financial instrument held by the Company:
Current assets and current liabilities - The carrying value approximates fair value due to the short maturity of these items.
Notes payable - The fair value of the Company’s notes payable has been estimated by the Company based upon the liability’s characteristics, including interest rates, embedded instruments and conversion discounts. The carrying value approximates fair value.
Beneficial Conversion Feature of Convertible Notes Payable
The Company accounts for convertible notes payable in accordance with the guidelines established by the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) Topic 470-20, Debt with Conversion and Other Options. The beneficial conversion feature of a convertible note is normally characterized as the convertible portion or feature of certain notes payable that provide a rate of conversion that is below market value or in-the-money when issued. The Company records a beneficial conversion feature related to the issuance of a convertible note when issued.
The beneficial conversion feature of a convertible note is credited to additional paid-in-capital. The intrinsic value is recorded in the condensed consolidated financial statements as a debt discount and such discount is amortized over the expected term of the convertible note and is charged to interest expense.
Earnings(Loss) Per Common Share
Basic earnings (loss) per common share is computed by dividing net income or loss by the weighted average number of vested common shares outstanding during the period. Diluted earnings per share reflects the potential dilution that could occur if securities or other instruments to issue common stock were exercised or converted into common stock.
Diluted loss per common share is calculated the same as basic loss per common share for all periods presented because the exercise or conversion of the securities and other instruments would be anti-dilutive due to the net loss.
The following securities and other instruments to issue common stock are excluded from the calculation of weighted average dilutive common shares:
|
|
|
June 30,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Options
|
|
|
20,212,174
|
|
|
|
216,557
|
|
|
Warrants
|
|
|
1,440,000
|
|
|
|
61
|
|
|
Series A convertible preferred stock
|
|
|
115,000
|
|
|
|
115,000
|
|
|
Convertible debt
|
|
|
27,355,623
|
|
|
|
224,284,663
|
|
|
Total potentially dilutive shares
|
|
|
49,122,797
|
|
|
|
224,616,281
|
|
Subsequent Events
The Company evaluates events that have occurred after the balance sheet date but before the condensed consolidated financial statements are issued. Based upon the evaluation, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the condensed consolidated financial statements, except as disclosed in Note 6.
Recent Accounting Pronouncements
The following is a summary of recent accounting pronouncements that are relevant to the Company:
In January 2017, the FASB issued ASU 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. This ASU simplifies the subsequent measurement of goodwill by eliminating Step 2 from the goodwill test. Under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. Instead, an entity should measure goodwill impairment and test by comparing the fair value of a reporting unity with its carrying amount. The Company adopted this standard effective January 1, 2020 and will apply the standard on a prospective basis. The adoption of this standard did not have a material impact on the Company's consolidated financial position and results of operations.
In August 2020, the FASB issued ASU 2020-06, Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40). This ASU simplifies the accounting for convertible instruments. The guidance removes certain accounting models which separate the embedded conversion features from the host contract for convertible instruments. ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted no earlier than the fiscal year beginning after December 15, 2020. The Company is currently evaluating the impact of the adoption of this standard on its consolidated financial statements.
Note 4 – Notes Payable
|
|
|
June 30,
|
|
|
December 31,
|
|
|
|
|
2020
|
|
|
2019
|
|
|
Notes payable:
|
|
|
|
|
|
|
|
|
|
6.3% Insurance premium finance agreement due July 2020
|
|
$
|
5,591
|
|
|
$
|
39,138
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Notes payable - related party:
|
|
|
|
|
|
|
|
|
|
10% Promissory note due January 2024
|
|
$
|
900,000
|
|
|
$
|
475,000
|
|
|
Less:
|
|
|
|
|
|
|
|
|
|
Beneficial conversion feature
|
|
|
(582,744
|
)
|
|
|
(273,422
|
)
|
|
Warrants issued
|
|
|
(99,254
|
)
|
|
|
(59,108
|
)
|
|
Debt issue costs
|
|
|
(31,749
|
)
|
|
|
(21,962
|
)
|
|
Total notes payable - related party
|
|
$
|
186,253
|
|
|
$
|
120,508
|
|
6.3% Insurance premium finance agreement, due July 2020
The Company entered into an insurance financing agreement in September 2019 totaling $61,503. The monthly payments under the agreement are due in eleven installments of $5,591 through July 2020. The Company made installment payments of $33,546 during the six months ended June 30, 2020.
10% Promissory note due January 2024, net
On October 4, 2019, the Company entered into a Credit Agreement and related Promissory Note with DAF, the Lender. DAF is managed by Carlton James, Ltd, a UK based company of which Simon Calton is the Chief Executive Officer. Mr. Calton is Co-Chairman of Coretec. The 10% Promissory Note, in a principal amount of $2,500,000, is due January 15, 2024 and has attached warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share. Under the terms of the Credit Agreement, DAF will fund the Promissory Note in sixteen (16) tranches in amounts of $125,000 and $175,000 per month beginning in October 2019. Interest is accrued monthly and paid in advance for the first 12 months and thereafter principal and interest payments shall be paid monthly in equal amounts, amortized over a 36-month period.
Under the terms of the Promissory Note, DAF has the right to elect to convert all or part of the Promissory Notes at a price equal to seventy percent (70%) of the average closing price of the Company’s common stock as reported on the over-the-counter quotation system on the OTC Markets during the fifteen (15) calendar days prior to the loan closing date of October 4, 2019, which calculates to $0.0329 per share.
The embedded conversion option was deemed to be a beneficial conversion feature because the active conversion price was less than the commitment date market price of the common stock. Given the terms and related-party nature of the agreement, the commitment date was determined to be the date the funds are advanced to the Company and is limited to the funding value less other debt discounts (see below). A debt discount of $502,141 and $281,837 was recorded, with a corresponding credit to additional paid-in capital for the beneficial conversion feature for the six months ended June 30, 2020 and the year ended December 31, 2019, respectively. The debt discount will be amortized over the life of the debt and $62,450 was amortized to interest expense during the six months ended June 30, 2020.
Under the terms of the DAF Credit Agreement, warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share are available to be issued to DAF. The warrants will be issued in amounts of 150,000 and 210,000 per month as the advance is received during the funding period. As of June 30, 2020, 1,440,000 warrants have been granted under the terms of the DAF Credit Agreement. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrants. The allocated cost of the warrants amounted to $77,140 and $60,593 during the six months ended June 30, 2020 and the year ended December 31, 2019, respectively, and is being amortized over the life of the debt. $11,471 was amortized during the six months ended June 30, 2020.
Additionally, under the terms of the Credit Agreement, the Company agreed to pay a commitment fee of 3% of each advance and reimburse DAF for certain expenses in connection with the preparation, interpretation, performance and enforcement of the Credit Agreement. Those costs amounted to $21,750 and $22,767 for the six months ended June 30, 2020 and the year ended December 31, 2019 and are being amortized over the life of the debt with $3,840 being amortized during the six months ended June 30, 2020.
On March 31, 2020, under the terms of the Credit Agreement, DAF converted $300,000 of the principle of the Promissory Note into 9,129,136 shares of common stock at $0.0329 per share. A related charge of $130,370 of the beneficial conversion feature was made to interest expense along with debt issue related charges of $25,523 for the warrants and $8,123 for the deferred cost at the time of the conversion.
Note 5 – Commitments and Contingencies
Warrants
Under the terms of the DAF Credit Agreement, warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share are available to be issued to DAF. The warrants are being issued in amounts of 150,000 and 210,000 per month during the funding period. As of June 30, 2020, 1,440,000 warrants have been granted under the terms of the DAF Credit Agreement. The estimated value of the warrants granted monthly, with each advance, is calculated using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The resulting estimated value of the warrant is used to proportionally allocate the fair value of the debt advance and the fair value of the warrant.
Warrants Summary
The following table summarizes the Company’s warrant activity during the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
|
Warrants
|
|
|
Price
|
|
|
In Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
|
570,000
|
|
|
$
|
0.052
|
|
|
|
4.36
|
|
|
$
|
-
|
|
|
Granted
|
|
|
870,000
|
|
|
|
0.052
|
|
|
|
4.72
|
|
|
|
-
|
|
|
Outstanding, June 30, 2020
|
|
|
1,440,000
|
|
|
$
|
0.052
|
|
|
|
4.59
|
|
|
$
|
-
|
|
Options
Stock options for employees, directors or consultants that vest immediately, are valued at the date of award, which does not precede the approval date, and compensation cost is recognized in the period the options are vested. For options subject to future service conditions, compensation cost is recognized over the vesting period on a straight-line basis. Stock options generally become exercisable on the date of grant and expire based on the terms of each grant.
The estimated fair value of options for common stock granted is determined using the Black-Scholes option pricing model. The expected dividend yield is based on the average annual dividend yield as of the grant date. Expected volatility is based on the historical volatility of our stock. The risk-free interest rate is based on the U.S. Treasury Constant Maturity rates as of the grant date. The expected life of the option is based on historical exercise behavior and expected future experience.
The following table summarizes the Company’s option activity during the six months ended June 30, 2020:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
Number of
|
|
|
Exercise
|
|
|
Life
|
|
|
Intrinsic
|
|
|
|
|
Options
|
|
|
Price
|
|
|
In Years
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2019
|
|
|
21,716,557
|
|
|
$
|
0.076
|
|
|
|
4.13
|
|
|
$
|
-
|
|
|
Expired
|
|
|
(4,383
|
)
|
|
|
52.50
|
|
|
|
-
|
|
|
|
-
|
|
|
Exchanged for common stock
|
|
|
(1,500,000
|
)
|
|
|
0.041
|
|
|
|
-
|
|
|
|
-
|
|
|
Outstanding, June 30, 2020
|
|
|
20,212,174
|
|
|
$
|
0.067
|
|
|
|
4.14
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable, June 30, 2020
|
|
|
20,212,174
|
|
|
$
|
0.067
|
|
|
|
4.14
|
|
|
$
|
-
|
|
On June 8, 2020, the Board of Directors consented to a share exchange agreement with holders of 21,500,000 options awarded on August 7, 2019. The agreement allows for holders to exchange their options for rule 144 common stock at an exchange rate of 0.6 shares per 1 option. The modification of these options did not result in any additional compensation because there was no change in the fair value. On June 24, 2020, 1,500,000 options were exchanged for 900,000 shares that were issued under the executed exchange agreement.
The following table summarizes the Company’s options as of June 30, 2020:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Outstanding
|
|
|
Average
|
|
|
Exercisable
|
|
|
Exercise
|
|
|
Number of
|
|
|
Remaining Life
|
|
|
Number of
|
|
|
Price
|
|
|
Options
|
|
|
In Years
|
|
|
Options
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
0.041
|
|
|
|
20,000,000
|
|
|
|
4.11
|
|
|
|
20,000,000
|
|
|
$
|
0.240
|
|
|
|
208,160
|
|
|
|
7.00
|
|
|
|
208,160
|
|
|
$
|
70.260
|
|
|
|
3,449
|
|
|
|
2.01
|
|
|
|
3,449
|
|
|
$
|
420.000
|
|
|
|
565
|
|
|
|
0.88
|
|
|
|
565
|
|
|
Total
|
|
|
|
20,212,174
|
|
|
|
4.14
|
|
|
|
20,212,174
|
|
Litigation, Claims, and Assessments
The Company may be involved in legal proceedings, claims and assessments arising in the ordinary course of business. In the opinion of management, such matters are currently not expected to have a material impact on the Company’s condensed consolidated financial statements. The Company records legal costs associated with loss contingencies as incurred and accrues for all probable and estimable settlements.
Office Leases
The Company had an amended office lease in Tulsa, Oklahoma that expired on July 31, 2018. The Company was on a month to month basis at $1,980 per month under the terms of the Tulsa lease. The Company gave notice of termination of the Tulsa office lease and vacated the property on June 23, 2020.
Additionally, on December 3, 2019, the Company signed a one-year office lease in Ann Arbor, Michigan commencing January 1, 2020. The remaining rent obligation on the Ann Arbor office is $7,560 ($1,260 per month) as of June 30, 2020. Rent expense for the operating leases was $17,982 and $11,880 for the six months ended June 30, 2020 and 2019, respectively.
Supply Agreement
During June 2020, the Company entered into a supply agreement with Evonik Operations GmbH to purchase cyclohexasilane, Si6H12 (CHS) for $185,000 per 500 grams. The supply agreement is valid until March 31, 2021.
Note 6 – Subsequent Events
Common stock
Subsequent to June 30, 2020, the Company issued 600,486 shares of common stock in payment of $33,902 of consulting services and accrued expenses.
Purchase Commitment
The Company paid Evonik Operations GmbH $92,500 on July 20, 2020, to initiate production of CHS, in accordance with the supply agreement entered into during June 2020.
Awarded Options
On July 1, 2020, the Company granted 1,000,000 options to purchase common stock with an exercise price of $0.065 and vesting schedule of four equal time periods over two years.
Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
The information in this report contains forward-looking statements. All statements other than statements of historical fact made in this report are forward looking. In particular, the statements herein regarding industry prospects and future results of operations or financial position are forward-looking statements. These forward-looking statements can be identified by the use of words such as “believes,” “estimates,” “could,” “possibly,” “probably,” “anticipates,” “projects,” “expects,” “may,” “will,” or “should” or other variations or similar words. No assurances can be given that the future results anticipated by the forward-looking statements will be achieved. Forward-looking statements reflect management’s current expectations and are inherently uncertain. Our actual results may differ significantly from management’s expectations.
This Quarterly Report on Form 10-Q includes the accounts of The Coretec Group Inc., an Oklahoma corporation, together with its wholly owned subsidiary, Coretec Industries LLC, a North Dakota limited liability corporation formed in North Dakota (individually referred to as “Coretec”). References in this Report to “we,” “our,” “us” or the “Group” refer to The Coretec Group Inc. and its consolidated subsidiary unless context dictates otherwise. The following discussion and analysis should be read in conjunction with our unaudited condensed consolidated financial statements, included herewith. This discussion should not be construed to imply that the results discussed herein will necessarily continue, or that any conclusion reached herein will necessarily be indicative of actual operating results in the future. Such discussion represents only the best present assessment of our management.
Plan of Operation
Background:
On June 22, 2017, The Coretec Group Inc. (the “Group”) filed an Amended Certificate of Incorporation with the Secretary of State of the State of Oklahoma to change its name from “3DIcon Corporation” to “The Coretec Group Inc.”, which became effective on June 29, 2017.
The Group, formerly known as 3DIcon Corporation, was incorporated on August 11, 1995, under the laws of the State of Oklahoma. The Group’s primary activity has been the raising of capital in order to pursue its goal of becoming a significant participant in the development, commercialization and marketing of next generation 3D display technologies.
On September 30, 2016 (the “Closing Date”), we closed a transaction contemplated by a Share Exchange Agreement dated May 31, 2016 (the “Share Exchange Agreement”) with Coretec. Pursuant to the Share Exchange Agreement, Coretec became a wholly owned subsidiary of the Group (collectively, the “Company”). Coretec was organized on June 2, 2015 in the state of North Dakota. It is currently developing, testing, and providing new and/or improved technologies, products, and service solutions for medical, electronic, photonic, display, and lighting markets among others.
The combination of the two companies provides a significant number of opportunities to increase shareholder value by:
|
|
●
|
Providing technological support to advance the refinement of CSpace image material;
|
|
|
|
|
|
|
●
|
Adding recognized expertise to the team;
|
|
|
|
|
|
|
●
|
Creating the opportunity for near-term revenue; and
|
|
|
|
|
|
|
●
|
Adding a significant portfolio of Intellectual Property.
|
Recent Developments
On October 4, 2019, the Company entered into a Credit Agreement and related Promissory Note with DAF, the Lender. DAF is managed by Carlton James, Ltd, a UK based company of which Simon Calton is the Chief Executive Officer. Mr. Calton is Co-Chairman of Coretec. The 10% Promissory Note, in a principal amount of $2,500,000, is due January 15, 2024 and has attached warrants to subscribe for and purchase 3,000,000 shares of common stock at an exercise price of $0.052 per share. Under the terms of the Credit Agreement, DAF will fund the Promissory Note in sixteen (16) tranches in amounts of $125,000 and $175,000 per month beginning in October 2019. Interest is accrued monthly and paid in advance for the first 12 months and thereafter principal and interest payments shall be paid monthly in equal amounts, amortized over a 36-month period. On March 31, 2020, under the terms of the Credit Agreement, DAF converted $300,000 of the principle of the Promissory Note into 9,129,136 shares of common stock at $0.0329 per share. See Note 4 of notes to the unaudited condensed consolidated financial statements.
On June 30, 2020, the Company accepted the retirement and resignations of Ron Robinson, Chief Financial Officer (CFO) and Judith Keating, Corporate Secretary of the Company. Matthew Hoffman, who joined the Company in May of 2020, was appointed CFO and Corporate Secretary effective June 30, 2020. Hoffman was also granted 1,000,000 options on July 1, 2020 with an exercise price of $0.065 and vesting schedule of four equal time periods over two years.
On June 8, 2020, the Board of Directors consented to a share exchange agreement with holders of 21,500,000 options awarded on August 7, 2019. The agreement allows for holders to exchange their options for rule 144 common stock at an exchange rate of 0.6 shares per 1 option. On June 24, 2020, 1,500,000 options were exchanged for 900,000 shares that were issued under the executed exchange agreement.
Results of Operations
RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED JUNE 30, 2020 COMPARED TO THE THREE MONTHS ENDED JUNE 30, 2019.
Revenue
The Company did not have revenue for the three-month periods ended June 30, 2020 and 2019.
Research and Development Expenses
The research and development expenses were $20,057 for both the three months ended June 30, 2020, and for the three months ended June 30, 2019, which represents the amortization of the patent cost.
General and Administrative Expenses
The Company's general and administrative expenses were $212,930 for the three months ended June 30, 2020, as compared to $170,359 for the three months ended June 30, 2019. The approximately $43,000 increase results primarily from increases in consultant fees of approximately $19,000 and marketing expenses of approximately $19,000. Marketing expenses primarily increased due to the public relation firm fees increase of $14,000 and Directors’ and officers’ insurance premiums increased by approximately $3,000.
Interest Expense
Interest expense for the three months ended June 30, 2020 was $56,645 as compared to $95,433 for the three months ended June 30, 2019.
The approximately $39,000 net decrease was a result of approximately $95,000 decrease in the amount of interest on the previously outstanding notes and debentures converted to common stock in November 2019 offset by the approximately $56,000 increase in interest costs from the DAF promissory note executed in October 2019.
RESULTS OF OPERATIONS FOR THE SIX MONTHS ENDED JUNE 30, 2020 COMPARED TO THE SIX MONTHS ENDED JUNE 30, 2019.
Revenue
The Company did not have revenue for the six-month periods ended June 30, 2020 and 2019.
Research and Development Expenses
The research and development expenses were $40,115 for both the six months ended June 30, 2020, and for the six months ended June 30, 2019, which represents the amortization of the patent cost.
General and Administrative Expenses
Our general and administrative expenses were $502,740 for the six months ended June 30, 2020, as compared to $355,256 for the six months ended June 30, 2019. The approximately $147,000 increase is due primarily to the increase in consultants’ fees of approximately $74,000 with an offset related to a decrease of approximately $20,000 in costs incurred for a feasibility study in 2019. Marketing related expense increased by approximately $40,000 including a $31,500 increase in expenses to a public relations firm. Legal fees increased during the period by approximately $38,000 which includes $13,000 for patent related expenses and $25,000 in legal fees incurred in search of possible merger candidates. Other increased expenses include approximately $8,000 for directors’ and officers’ insurance premiums, $6,000 of rent expense for Ann Arbor office, and approximately $4,000 in shareholder transfer agent costs.
Interest Expense
Interest expense for the six months ended June 30, 2020 was $277,084 as compared to $188,802 for the six months ended June 30, 2019. The approximately $88,000 net increase was a result of the approximately $189,000 decrease in the amount of our interest on the previously outstanding notes and debentures converted to common stock in November 2019 offset by the approximately $277,000 increase in interest costs on our DAF promissory note executed in October 2019 including a charge of $130,370 for the write-off of the discount from the beneficial conversion feature, a charge of $25,523 to write-off warrant costs and a charge of $8,123 to write-off deferred costs, upon the conversion of $300,000 of principal into common stock.
Financial Condition, Liquidity and Capital Resources
Management remains focused on controlling cash expenses. We recognize our limited cash resources and plan our expenses accordingly. We intend to leverage stock-for-services whenever possible. The operating budget consists of the following expenses:
|
●
|
General and administrative expenses: salaries, insurance, investor related expenses, rent, travel, website, etc.
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Hiring executive officers for technology, operations and finance.
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Purchase research and development quantities of CHS for customer validation.
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Professional fees for accounting and audit; legal services for securities and financing; patent research and protection.
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Our independent registered public accountants, in their audit report accompanying our consolidated financial statements for the year ended December 31, 2019, expressed substantial doubt about our ability to continue as a going concern due to our organization having insufficient revenues to fund development and operating expenses.
We had net cash of $107,777 at June 30, 2020.
We had negative working capital of $342,655 at June 30, 2020.
During the six months ended June 30, 2020, we used $620,075 of cash in operating activities, a net increase of $431,562 or 229% compared to the six months ended June 30, 2019. The net increase in the use of cash in operating activities was a result of an increase in the net loss of $235,766, and a decrease in accounts payable and accrued liabilities of $417,680 offset by an increase in the amortization of debt discount of $196,642, and an increase in prepaid expenses of $55,185.
During the six months ended June 30, 2020 and 2019, there were no investing activities.
During the six months ended June 30, 2020, there was $669,703 of net cash provided by financing activities, an increase of $451,351 or 207% compared to the six months ended June 30, 2019.
The increase was primarily a result of $703,249 in net proceeds from debt and warrants issued compared with $245,000 during the six months ended June 30, 2019.
We expect to fund ongoing operations through the existing financing in place and through raising additional funds as permitted by the terms of new financing.
Our ability to fund the operations of the Company is highly dependent on the underlying stock price of the Company.
There is no assurance that we will be successful in raising additional funds on reasonable terms or that the funding will be sufficient to enable us to fully complete our development activities or attain profitable operations. If we are unable to obtain such additional financing on a timely basis or, notwithstanding any request we may make, our debt holders do not agree to convert their notes into equity or extend the maturity dates of their notes, we may have to curtail development, marketing and promotional activities, which would have a material adverse effect on our business, financial condition and results of operations, and ultimately, we could be forced to discontinue our operations and liquidate.
Off Balance Sheet Arrangements
We do not engage in any off-balance sheet arrangements that are reasonably likely to have a current or future effect on our financial condition, revenues, and results of operations, liquidity or capital expenditures.
Significant Accounting Policies
There has been no change in the significant accounting policies summarized in our Form 10-K for the year ended December 31, 2019, which was filed on April 2, 2020.