This Quarterly Report
includes forward-looking statements within the meaning of the Securities Exchange Act of 1934 (the “Exchange Act”).
These statements are based on management’s beliefs and assumptions, and on information currently available to management.
Forward-looking statements include the information concerning our possible or assumed future results of operations set forth under
the heading: “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Forward-looking
statements also include statements in which words such as “expect,” “anticipate,” “intend,”
“plan,” “believe,” “estimate,” “consider” or similar expressions are used.
Forward-looking
statements are not guarantees of future performance. They involve risks, uncertainties and assumptions. Our future results and
shareholder values may differ materially from those expressed in these forward-looking statements. Readers are cautioned not to
put undue reliance on any forward-looking statements.
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ITEM 2
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M
a
nagement’s Discussion and Analysis
of Financial Condition and Results of Operations
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Our Management’s
Discussion and Analysis contains not only statements that are historical facts, but also statements that are forward-looking (within
the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934). Forward-looking
statements are, by their very nature, uncertain and risky. These risks and uncertainties include international, national and local
general economic and market conditions; demographic changes; our ability to sustain, manage, or forecast growth; our ability to
successfully make and integrate acquisitions; raw material costs and availability; new product development and introduction; existing
government regulations and changes in, or the failure to comply with, government regulations; adverse publicity; competition; the
loss of significant customers or suppliers; fluctuations and difficulty in forecasting operating results; changes in business strategy
or development plans; business disruptions; the ability to attract and retain qualified personnel; the ability to protect technology;
and other risks that might be detailed from time to time in our filings with the Securities and Exchange Commission.
Although the forward-looking
statements in this Quarterly Statement reflect the good faith judgment of our management, such statements can only be based on
facts and factors currently known by them. Consequently, and because forward-looking statements are inherently subject to risks
and uncertainties, the actual results and outcomes may differ materially from the results and outcomes discussed in the forward-looking
statements. You are urged to carefully review and consider the various disclosures made by us in this report and in our other reports
as we attempt to advise interested parties of the risks and factors that may affect our business, financial condition, and results
of operations and prospects.
The following discussion
and analysis of financial condition and results of operations of the Company is based upon, and should be read in conjunction with,
its unaudited financial statements and related notes elsewhere in this Form 10-Q, which have been prepared in accordance with accounting
principles generally accepted in the United States.
Summary Overview
We were formed in
December 2014 and, therefore, have a relatively short operating history. We had revenues of approximately $128,105 in the year
ended December 31, 2017, 94% of which was from a single customer. We had revenues of approximately $66,119 in the nine-month period
ended September 30, 2018, but no revenue from the same customer. In December 2017, we ended our relationship with this customer
and have shifted our focus from software services to medically-focused CBD hemp oil products.
Eqova Life Sciences
On October 17, 2017,
we acquired Eqova Life Sciences, a Nevada corporation (“Eqova”), through an exchange of shares of our Series A Convertible
Preferred Stock for all of the outstanding equity interest of Eqova.
Eqova is a medically-focused
CBD company that develops clinical grade full spectrum hemp oil products, sold exclusively via partnerships with licensed medical
practitioners to use with their patients. To date, we know of no other hemp oil company exclusively focused on the practitioner
market, leaving it largely underserved. According to The Hemp Business Journal, CBD products marketplace are projected to grow
by 700% by 2020 with annual sales reaching $2.1 billion. With a head start in a growing marketplace, we believe that Eqova provides
us with a prime growth opportunity with an established business. Initial revenues of our hemp oil products from the acquisition
of Eqova through December 31, 2017 and for the nine months ended September 30, 2018 were $7,605 and $66,119, respectively.
Acquisition of BergaMet NA, LLC
On February 4, 2019,
we issued and exchanged 97,409,678 shares of our common stock for all of the outstanding equity securities of BergaMet, NA, LLC
(“
BergaMet
”). Through this exchange of securities (the “
Exchange
”), BergaMet is now our wholly-owned
subsidiary. The shares of common stock issued in the Exchange are equal to 80.1% of our outstanding common stock immediately following
the Exchange.
Through the Exchange,
we were able to secure funds in BergaMet to pay off some debt and provide capital for operations. We paid an aggregate of $353,908
and will pay another $164,578 in approximately one (1) year to retire convertible debt. Prior to the exchange, we also entered
into agreements with other holders of convertible debt to convert their notes for an aggregate of 806,015 shares of common stock.
We also entered into conversion agreements with the holders of our Series A Convertible Preferred Stock whereby all of the outstanding
preferred stock was converted for an aggregate of 15,592,986 shares of common stock. The conversion and repayment of the preferred
stock and convertible debt have greatly improved our capitalization structure.
The acquisition
of BergaMet has been extremely beneficial to the Company. In addition to paying off our convertible debt, we are now able to better
position ourselves in the market. BergaMet is an established company that was already generating revenues when we acquired it.
BergaMet also has unique products that will fit nicely with our existing business. We will continue to operate our CBD line, but
we now plan on expanding our product line to other nutraceuticals. We expect that the revenues from BergaMet will greatly improve
our future financial position.
In addition, we
expanded our management team by bringing in Sanjeev Javia as our new Chief Executive Officer and Director. He has over three decades
of knowledge in the nutraceutical market and established relationships that we believe will prove valuable in growing the Company.
Going Concern
As a result of our
financial condition, we have received a report from our independent registered public accounting firm for our financial statements
for the years ended December 31, 2017 and 2016 that includes an explanatory paragraph describing the uncertainty as to our ability
to continue as a going concern. From inception (December 19, 2014) through the period ended September 30, 2018, we have incurred
accumulated net losses of $8,904,527. In order to continue as a going concern we must effectively balance many factors and begin
to generate revenue so that we can fund our operations from our sales and revenues. If we are not able to do this we may not be
able to continue as an operating company. At our current revenue and burn rate, our cash on hand will last less than one month,
and thus we must raise capital by issuing debt or through the sale of our stock. However, there is no assurance that our existing
cash flow will be adequate to satisfy our existing operating expenses and capital requirements.
Results of Operations for the Three and Nine Months Ended
September 30, 2018 and 2017
Introduction
We had revenues
of $15,203 for the three months ended September 30, 2018, compared to $34,500 for the three months ended September 30, 2017. Our
operating expenses were $112,053 for the three months ended September 30, 2018, compared to $96,425 for the three months ended
September 30, 2017, an increase of $15,628, or approximately 16%.
We had revenues
of $66,119 for the nine months ended September 30, 2018, compared to $114,000 for the nine months ended September 30, 2017. Our
operating expenses were $504,931 for the nine months ended September 30, 2018, compared to $656,074 for the nine months ended September
30, 2017, a decrease of $151,143, or approximately 23%.
Our operating expenses
consisted mostly of general and administrative expenses, including general and administrative expenses to a related party.
Revenues and Net Operating Loss
Our revenue, operating
expenses, net operating loss, and net loss for the three and nine months ended September 30, 2018 and 2017 were as follows:
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Three Months
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Three Months
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Nine Months
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Nine Months
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Sept. 30,
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Sept. 30,
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Increase/
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Sept. 30,
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Sept. 30,
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Increase /
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2018
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2017
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(Decrease)
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2018
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2017
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(Decrease)
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Revenue
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$
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15,203
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$
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34,500
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$
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(19,297
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)
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$
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66,119
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$
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114,000
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$
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(47,881
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)
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Operating expenses:
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Direct cost of revenue
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(839
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)
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12,000
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(12,839
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)
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24,748
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29,659
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(4,911
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)
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General and administrative
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62,053
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47,925
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14,128
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270,435
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498,574
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(228,139
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)
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General and administrative - related party
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50,000
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48,500
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1,500
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234,496
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157,500
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76,996
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Total operating expenses
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112,053
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96,425
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15,628
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504,931
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656,074
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(151,143
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Net operating loss
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(96,011
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(73,925
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(22,086
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(463,560
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(571,733
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108,173
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Other income (expense)
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(661,029
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(1,445,555
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784,526
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(757,585
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(1,577,389
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819,804
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Net loss
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$
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(757,040
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$
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(1,519,480
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$
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762,440
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$
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(1,221,145
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$
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(2,149,122
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$
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927,977
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Revenues
Revenues were $15,203
for the three months ended September 30, 2018, compared to $34,500 for the three months ended September 30, 2017, a decrease of
$19,297, or about 56%.
Revenues were $66,119
for the nine months ended September 30, 2018, compared to $114,000 for the nine months ended September 30, 2017, a decrease of
$47,881, or about 42%. For the nine months ended September 30, 2017, nearly all of the total revenue came from a single customer.
However, we received no revenue from this customer during the nine months ended September 30, 2018. The decrease reflects the loss
of this customer and the transition to our new business selling CBD products.
Direct Cost of Revenue
Direct cost of revenue
expenses was ($839) for the three months ended September 30, 2018, compared to $12,000 for the three months ended September 30,
2017.
Direct cost of revenue
expenses was $24,748 for the nine months ended September 30, 2018, compared to $29,659 for the nine months ended September 30,
2017.
General and Administrative
General and administrative
expenses were $62,053 for the three months ended September 30, 2018, compared to $47,925 for the three months ended September 30,
2017, an increase of $14,128, or about 30%. General and administrative expenses – related
party were $50,000 for the three months ended September 30, 2018, compared to $48,500 for the three months ended September 30,
2017, an increase of $1,500, or about 3%.
General and administrative
expenses were $270,435 for the nine months ended September 30, 2018, compared to $498,574 for the nine months ended September 30,
2017, a decrease of $228,139, or about 46%. General and administrative expenses – related party were $234,496 for the nine
months ended September 30, 2018, compared to $157,500 for the nine months ended September 30, 2017, an increase of $76,996, or
about 49%.
Operating Loss
Net operating loss
was $96,011 for the three months ended September 30, 2018, compared to $73,925 for the three months ended September 30, 2017, an
increase of $22,086. Net operating loss increased, as set forth above, primarily due to a decrease in revenues and an increase
in general and administrative expenses. The Company had a decline in revenue during the three months ended due to natural fluctuations
in the business, as this is still a relatively new business. The increase in general and administrative expenses is mainly for
the costs associated with being a public company.
Net operating loss
was $463,560 for the nine months ended September 30, 2018, compared to $571,733 for the nine months ended September 30, 2017, a
decrease of $108,173. Net operating loss increased, as set forth above, primarily due to a decrease in general and administrative
expenses, offset by a decline in revenues.
Other Income (Expense)
Other expense was
$(661,029) for the three months ended September 30, 2018, compared to other expense of ($1,445,555) for the three months ended
September 30, 2017, an increase of $784,526.
Other expense was
$(757,585) for the nine months ended September 30, 2018, compared to other expense of $(1,577,389) for the nine months ended September
30, 2017, a decrease of $819,804.
Other expense consisted
of interest expense, net of interest income. Other income (expense) for both periods consisted primarily of a change in fair value
on derivative and loss on extinguishment of debt offset by interest expense, net of interest income.
The increase in
interest expense for the three months ended September 30, 2018, compared to the three months ended September 30, 2017, is attributable
primarily to new debt issuances. The decrease in interest expense for the nine months ended September 30, 2018, compared to the
nine months ended September 30, 2017, is attributable to debt conversions and reduction in debt. The change in the fair value of
the Company’s derivative liabilities from period to period is the primary factor in the changes of other income (expense)
from period to period. Fair value of derivative liabilities changes from period to period primarily due to natural fluctuations
in the assumptions used for the calculation.
Net Loss
Net loss was $(757,040)
for the three months ended September 30, 2018, or $(0.40) per share, compared to $(1,519,480) for the three months ended September
30, 2017, or $(11.63) per share, a decrease of $762,440. Net loss decreased, as set forth above, primarily due to a decrease in
the loss from changes in the fair value of derivative liabilities and a decrease in revenues, offset by an increase in interest
expense and a slight increase in general and administrative expenses.
Net loss was $(1,221,145)
for the nine months ended September 30, 2018, or $(0.73) per share, compared to $(2,149,122) for the nine months ended September
30, 2017, or $(21.28) per share, a decrease of $927,977. Net loss decreased, as set forth above, primarily due to a decrease in
the loss from changes in the fair value of derivative liabilities, a decrease in operating expenses and a decrease interest expense,
offset by a decrease in revenues.
Liquidity and Capital Resources
Introduction
During the three
months ended September 30, 2018, we were unable to generate sufficient revenues and had negative operating cash flows. Our cash
on hand as of September 30, 2018 was $4,995, which was derived from the sale of convertible promissory notes to investors. Our
monthly cash flow burn rate for 2018 was approximately $63,000. Although we have moderate short term cash needs, as our operating
expenses increase we will face strong medium to long term cash needs. We anticipate that these needs will be satisfied through
the issuance of debt or the sale of our securities until such time as our cash flows from operations will satisfy our cash flow
needs.
Our cash, current
assets, total assets, current liabilities, and total liabilities as of September 30, 2018 and December 31, 2017, respectively,
are as follows:
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September 30
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December 31,
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Increase/
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2018
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2017
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(Decrease)
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Cash
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$
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4,995
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$
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81,653
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$
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(76,658)
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Total Current Assets
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122,458
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227,004
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(104,546)
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Total Assets
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968,547
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1,122,743
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(154,196)
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Total Current and Total Liabilities
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2,444,569
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2,301,870
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142,699
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Our cash decreased
because we had some debt or equity financing for the three months ended September 30, 2018. Our total current assets decreased
primarily because of lower cash, inventory and accounts receivable as of September 30, 2018. Our total current liabilities increased
during the nine months ended September 30, 2018 primarily because of additional convertible debt and notes payable at the end of
the period, offset by a decrease in the value of our derivative liabilities as of September 30, 2018. Our accumulated deficit increased
during the nine months ended September 30, 2018 by $1,221,145 to ($8,904,527) while our total stockholders’ deficit increased
by $296,895 to $(1,476,022), primarily due to issuances of stock upon conversion of our convertible notes.
Following the Exchange,
BergaMet had sufficient funds to pay off $353,908 of our convertible debt. With BergaMet, we have additional funds that will help
us sustain operations for the next few months.
Nevertheless, in order to maintain
operations, we will be required to raise significant capital from other sources. There is no assurance, however, that we will be
successful in these efforts.
Cash Requirements
Our cash on hand
as of September 30, 2018 was $4,995. Based on our current level of revenues and monthly burn rate of approximately $63,000 per
month, we will need to continue to fund operations by raising capital from the sale of our stock and debt financings.
Sources and Uses of Cash
Operating Activities
We had net cash
used in operating activities of $(324,241) for the nine months ended September 30, 2018, compared to $(417,935) for the nine months
ended September 30, 2017. For the nine months ended September 30, 2018, the net cash used in operating activities consisted of
$324,241.For the nine months ended September 30, 2017, the net cash used in operating activities consisted primarily of 417,935.
For the nine months ended September 30, 2018, the Company had non-cash fees including penalties of $724,143 which was an increase
of $626,679 from the same period in 2017. The loss on extinguishment of debt was $526,481 for the nine months ended September 30,
2018 as compared to $211,525 for the same period in 2017.
Investing Activities
We had $50,000 net
cash provided by investing activities for the nine months ended September 30, 2018, and $(34,189) net cash used in investing activities
for the nine months ended September 30, 2017. The $50,000 consisted of cash received upon the sale of the Company’s website,
CBD.co.
Financing Activities
Our net cash provided
by financing activities for the nine months ended September 30, 2018 was $197,583, which consisted primarily of proceeds from convertible
notes payable of $194,583, compared to $491,500 for the nine months ended September 30, 2017, all of which was proceeds from convertible
notes payable, offset by payments for repayment of convertible notes and notes payable.