Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Results of Operations
The following selected comparative financial information has been derived from and should be read in conjunction with the company’s financial statements for the three months ended March 31, 2016 and 2015.
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For the Three Months ended
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March 31
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2016
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2015
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Revenues
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$
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-
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$
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-
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Operating Expenses
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Professional fees
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2,636
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50,420
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Research & development
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138,641
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396,120
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General & administrative
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1,032,220
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1,054,275
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Marketing and selling
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70,281
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269,185
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Total operating expenses
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1,243,778
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1,770,000
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Loss from operations
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(1,243,778
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(1,770,000
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Interest expense
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(35,336
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(22,650
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Losses from impairment of Assets
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(184,402
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-
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Net loss
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$
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(1,463,516
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$
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(1,792,650
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March31
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December31
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2016
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2015
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Total assets
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103,843
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297,919
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Working Capital
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(3,158,895
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(2,615,097
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Results of Operations
During the three months ended March 31, 2016 the company recorded Zero revenue. During the three months ended March 31, 2016, our net loss was $1,463,516 compared to a net loss of $1,792,650 for the three months ended March 31, 2015. The decreased loss for 2016 of $329,134 was due to the fact the company was less active in the quarter ended March 31, 2016 due to lack of funding. The primary reasons for the decrease were decrease operating expenses including a decrease in professional fees of $47,784, a decrease in R&D expenses of $257,479, a decrease in marketing and selling of 198,904 and a decrease of general and administrative expense of 22,055.
Sales
The company deferred all it revenue of $1,085 in the first quarter ended March 31, 2016.
Operating Expenses
Professional fees
During the first quarter ended March 31, 2016, professional fees expenses were $2,636, a decrease of $47,784 from the first quarter of 2015 professional fees expense of $50,420.
Research and development
Research and development costs consist of fees paid to consultants for laboratory evaluation of product chemistry and formulation as well as tests and studies to assess the efficacy and potential safety of our products. Also included in research and development are laboratory consumables.
During the first quarter ended March 31, 2016, research and development expenses of $138,641 decreased by $257,479 from $396,120 for the first quarter of 2015.
General and administrative
During the first quarter of 2016, we incurred general and administrative expenses of $1,032,220 a decrease of $22,055 from $1,054,275 for the first quarter of 2015. The 2015 figure included non cash item from issuance of shares to management.
Marketing and selling
During the first quarter ended March 31, 2016, marketing and selling expenses of $70,281 decreased by $198,904 from $269,185 for the first quarter of 2015. The decrease is a result of lack of funding. The company continuing negotiations in various parts of the world for the sale of distribution licenses for the company’s pharmaceutical and nutraceutical products.
Interest expense
Interest expense of $35,336 for the first quarter ended March 31, 2016 an increase of $12,686 from $22,650 for the first quarter of 2015. The increase is attributed to an increase in loans from stockholders during the period.
Loss from Impairment of Assets,
During the six month ended June 30 2016 the company recognized losses from impairment of lab equipment of $184,402, previously company never recorded such losses. The equipment cost value were $271,040, accumulated amortization were $86,638.
Liquidity and Capital Resources
At March 31, 2016 we had a working capital deficit of $3,158,895 which is an increase of $543,798 from the December 31, 2015 deficit balance of $2,615,097. The increase in the deficit is primarily a result of the loss for the quarter of $1,463,516 netted by the $753,480 of this loss having been paid by issuing common stock for services.
Expenses incurred during 2016 have been paid for by related parties including our current CEO and current President as well as through issuing the company’s common stock. Because we have no cash reserves or generate sufficient revenue, we expect to continue to rely on the stockholders and equity raises to pay expenses until such time as we can generate sufficient cash flows to pay our ongoing operational costs. There is no assurance that the company will be able to obtain equity raises before the company develops revenue sources with sufficient cash flow to cover expenses.
During the three months ended March 31, 2016 the stockholders contributed a net amount of $93,466, made up of $94,077 advanced in cash less $611 of expenses paid by the company on behalf of the related party. At March 31, 2016 and December 31, 2015, we had cash on hand of $10,815 and $19,241, respectively. At March 31, 2016 we had accrued liabilities - related party of $1,172,936, compared to $732,125 at December 31, 2015. The increase represents the accrual of wages to company executive officers during the quarter ended March 31, 2016. At March 31, 2016 we had notes payable - related party of $1,402,051, compared to $1,308,585 at December 31, 2015. The increase represents additional contributions from stockholders during the three months ended March 31, 2016. Accrued interest – related party at March 31, 2016 was $324,687 compared to $292,769 at December 31, 2015, which reflects the added interest of $31,918 on the related party payable. Accounts payable and accrued liabilities increased by $1,105 from $361,094 at December 31, 2015, to $362,199 at March 31, 2016, primarily a result of the fact the company is in a fund raising situation.
In the opinion of management, inflation has not and will not have a material effect on our operations until such time as we raise funds or successfully complete an acquisition or merger. At that time, management will evaluate the possible effects of inflation related to our business and operations.
At March 31, 2016, we had a stockholders’ deficit of $3,206,740 compared to a stockholders’ deficit of $2,481,081 at December 31, 2016. The increase in stockholders’ deficit is primarily attributed to operating loss and issuance of common stock for service in the first quarter of 2016.
As of March 31, 2016, we had cash on hand of $10,815. We believe that our available cash combined with continued advances from related parties will be sufficient to carry on general corporate functions for the next nine months, although we will need to limit cash outlays for research and product development until we can secure additional funds. We are presently investigating possible funding opportunities to arrange for additional funds, although we do not have any definitive agreement or arrangement for such funds. We expect that additional funding to proceed with development of the intellectual property acquired in 2015 will most likely be from the sale of securities or from stockholder loans. We may not be successful in our efforts to obtain equity financing to carry out our business plan and there is doubt regarding our ability to complete our planned development program. We estimate that cash requirements for the next twelve months will be approximately $5,000,000. In the past year, we have relied on advances from related parties for financing our operations. We continue to explore potential funding opportunities, which may be in the form of debt or the sale of equity securities. In the event we are unsuccessful in arranging for outside funding, we will most likely continue to rely on related parties to provide funding, although there are no firm commitments or agreements with any related party to provide funds in the future.
Net Operating Loss
We have accumulated a net operating loss carryforward of approximately $11,653,520 as of December 31, 2015. This loss carry forward may be offset against future taxable income through the year 2033. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards that can be used. No tax benefit has been reported in the financial statements for the year ended December 31, 2015 or the three month period ended March 31, 2016 because it has been fully offset by a valuation reserve. The use of future tax benefit is undeterminable because we presently have no operations.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as “Development Stage Entities” (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity’s financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard and will not report inception to date financial information.
The company has evaluated other recent accounting pronouncements and their adoption has not had nor is expected to have a material impact on the company’s financial position or statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Plan of Operation
Following the closing of a patent acquisition agreement (the “Acquisition Agreement”) in 2012, we have become engaged in the development and ultimate formulation of other novel formulations of natural compounds and pharmaceutical products that have limitations in effective use for human consumption. We believe our self-emulsifying drug delivery technology can improve the efficacy of existing products and formulations based on natural or well-established compounds and known biologically active compounds. We intend to conduct our research and development through collaborative programs. We anticipate relying on arrangements with third party drug developers such as contract research organizations and clinical research sites for a significant portion of our product development efforts.
The Acquisition Agreement enabled us to acquire certain products, formulas, processes, proprietary technology and/or patents and patent applications related to pharmaceutical, nutraceutical, food supplements and consumer health products. We have not formulated any final products or receive approvals from any regulatory agencies or generated any revenues from product sales. We have not been profitable since our inception through the current date.
We expect to incur significant operating losses for the next several years and until we are able to formulate a commercially viable product. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we:
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Continue to undertake formulation of novel products and subsequent preclinical and clinical trials for our product candidates;
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Seek regulatory approvals for our product candidates;
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Develop, formulate, manufacture and commercialize our products;
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Implement additional internal systems and develop new infrastructure;
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Acquire or in-license additional products or technologies, or expand the use of our technology;
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Maintain, defend and expand the scope of our intellectual property; and
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Hire qualified personnel.
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Future product revenue will depend on our ability to develops, receive regulatory approvals for, and successfully market, our product candidates. In the event that our development efforts result in regulatory approval and successful commercialization of our product candidates, we will generate revenue from direct sales of our products and/or, if we license our products to future collaborators, from the receipt of license fees and royalties from licensed products.
Management estimates that our research and development expenses for the next 12 months will be approximately $3.0 million, primarily for research and pilot studies. We also estimate that other expenses, including personnel, general and administrative and miscellaneous expenses could be as much as $2.0 million during the same time period. Because we currently have no revenues, most likely the only source of funding these expenses will be through the private sale of our securities, either equity or debt. We are currently exploring possible funding sources, but we have not entered into any arrangements or agreements for funding as of this time. If we are unable to raise the necessary funding, our research and development plans will be delayed indefinitely. There can be no assurance that we will be able to raise the funds necessary to carry out our business plan on terms favorable to the company, or at all.
Forward-Looking and Cautionary Statements
Statements contained in this report which are not historical facts, may be considered “forward-looking statements,” which term is defined by the Private Securities Litigation Reform Act of 1995. Any “safe harbor under this Act does not apply to a “penny stock” issuer, which definition would include the company. Forward-looking statements are based on current expectations and the current economic environment. We caution readers that such forward-looking statements are not guarantees of future performance. Unknown risks and uncertainties as well as other uncontrollable or unknown factors could cause actual results to materially differ from the results, performance or expectations expressed or implied by such forward-looking statements.