Forward-Looking Statements
Certain statements, other than purely historical information, including
estimates, projections, statements relating to our business plans, objectives,
and expected operating results, and the assumptions upon which those statements
are based, are "forward-looking statements." These forward-looking statements
generally are identified by the words "believes," "project," "expects,"
"anticipates," "estimates," "intends," "strategy," "plan," "may," "will,"
"would," "will be," "will continue," "will likely result," and similar
expressions. Forward-looking statements are based on current expectations and
assumptions that are subject to risks and uncertainties which may cause actual
results to differ materially from the forward-looking statements. Our ability to
predict results or the actual effect of future plans or strategies is inherently
uncertain. Factors which could have a material adverse affect on our operations
and future prospects on a consolidated basis include, but are not limited to:
changes in economic conditions, legislative/regulatory changes, availability of
capital, interest rates, competition, and generally accepted accounting
principles. These risks and uncertainties should also be considered in
evaluating forward-looking statements and undue reliance should not be placed on
such statements.
COVID-19
The full extent of the impact of the COVID-19 pandemic on our business,
operations and financial results will depend on numerous evolving factors that
we may not be able to accurately predict at the present time. In an effort to
contain COVID-19 or slow its spread, governments around the world have enacted
various measures, including orders to close all businesses not deemed
"essential," isolate residents to their homes or places of residence, and
practice social distancing when engaging in essential activities. We anticipate
that these actions and the global health crisis caused by COVID-19 will
negatively impact business activity across the globe. While we have not observed
any noticeable impact on our revenue related to these conditions in the past
fiscal year, or through the date of this filing, we cannot estimate the impact
COVID-19 will have in the future as business and consumer activity decelerates
across the globe.
We will continue to actively monitor the situation and may take further actions
that alter our business operations as may be required by federal, state, local
or foreign authorities, or that we determine are in the best interests of our
employees, customers, partners and stockholders. It is not clear what the
potential effects any such alterations or modifications may have on our
business, including the effects on our customers, partners, or vendors, or on
our financial results.
Results of Operations for the Years Ended December 31, 2021 and 2020
Revenues
Our revenue, which we combine from product sales, royalties on patent licenses
and license fees (product development fees), was $663,426 for the year ended
December 31, 2021, an increase from $275,566 for the same period ended December
31, 2020.
The revenue for 2021 was mainly from license fees with Quoin and the revenue for
2020 was mainly from license fees with Ovation. We hope to generate more
revenues from our licenses with Quoin and Ovation for the rest of 2022.
Gross Profit
We had $3,300 in cost of revenues for the year ended December 31, 2021, as
compared with no cost of revenues for the year ended December 31, 2020, so our
gross profit was $660,126, or 99% of sales for 2021 and $275,556, or 100% of
sales for 2020, respectively.
We had some product sales resulting in a increased gross profit for 2021 as
compared with 2020. Our gross profit increased in 2021 due to more revenues from
our licenses with Quoin and Ovation, and we hope to generate more revenues from
our licenses with Quoin and Ovation for the rest of 2022, which do not have a
cost of revenue component.
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Operating Expenses
Operating expenses decreased to $472,046 for the year ended December 31, 2021
from $529,221 for the same period ended December 31, 2020.
Our operating expenses for the year ended December 31, 2021 consisted of
selling, general and administrative expenses of $454,107 and depreciation and
amortization of $17,939. In comparison, our operating expenses for the year
ended December 31, 2020 consisted mainly of selling, general and administrative
expenses of $497,199 and depreciation and amortization of $32,022.
Other Expenses
We had other expenses of $1,260,833 for the year ended December 31, 2021, as
compared with other expenses of $1,193,947 for the year ended December 31, 2020.
Our other expenses for the year ended December 31, 2021 consisted of interest
expense and a loss on the changes in derivative liability, offset by a gain on
the settlement of debt. Our other expenses for the year ended December 31, 2020
consisted of interest expense.
Net Loss
We recorded a net loss of $1,072,753 for the year ended December 31, 2021, as
compared with a net loss of $1,447,612 for the year ended December 31, 2020.
Liquidity and Capital Resources
Going concern - The accompanying financial statements have been prepared on a
going concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. The Company has
incurred cumulative net losses of $35,773,161 since its inception and requires
capital for its contemplated operational and marketing activities to take place.
The Company's ability to generate the necessary funds through licensing of its
core products or the ability to raise additional capital through the future
issuances of common stock or debt is unknown. The obtainment of additional
financing, the successful development of the Company's contemplated plan of
operations, and its transition, ultimately, to the attainment of profitable
operations are necessary for the Company to continue operations. These factors,
among others, raises substantial doubt about the Company's ability to continue
as a going concern. The consolidated financial statements of the Company do not
include any adjustments that may result from the outcome of these aforementioned
uncertainties.
As of December 31, 2021, we had total current assets of $74,244 and total assets
in the amount of $227,299. Our total current liabilities as of December 31, 2021
were $3,061,293. We had a working capital deficit of $2,987,049 as of December
31, 2021, compared with a working capital deficit of $2,668,871 as of December
31, 2020.
Operating activities provided $374,605 in cash for the year ended December 31,
2021, as compared with $45,765 used for the year ended December 31, 2020. Our
positive operating cash flow for 2021 was largely the result of the amortization
of debt discount, loss on derivative liabilities, and an increase in accrued
interest, offset mainly by our net loss for the year. For 2020, our net loss was
the main component of our negative operating cash flow, offset mainly by an
increase in accrued interest, amortization of debt discount and an increase in
accounts payable and accrued liabilities.
We used cash of $20,864 and $16,767 in investing activities for the year ended
December 31, 2021 and 2020, respectively, for the purchase of fixed and
intangible assets.
Cash flows used by financing activities during the year ended December 31, 2021
used $323,600, as compared with cash provided of $5,600 for the year ended
December 31, 2020. Our negative financing cash flow for the year ended December
31, 2021 resulted from the repayments of debt. Cash flows for the year ended
December 31, 2020 consisted of $26,900 in proceeds from related party debt
offset by $21,300 paid on notes payable.
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The features of the debt instruments and payables concerning our financing
activities are detailed in the footnotes to our financial statements.
Based upon our current financial condition, we do not have sufficient cash to
operate our business at the current level for the next twelve months. We intend
to fund operations through increased sales and debt and/or equity financing
arrangements, which may be insufficient to fund expenditures or other cash
requirements. We plan to seek additional financing in a private equity offering
to secure funding for operations. There can be no assurance that we will be
successful in raising additional funding. If we are not able to secure
additional funding, the implementation of our business plan will be impaired.
There can be no assurance that such additional financing will be available to us
on acceptable terms or at all.
Off Balance Sheet Arrangements
As of December 31, 2021, there were no off balance sheet arrangements.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations
is based upon the accompanying financial statements, which have been prepared in
accordance with the accounting principles generally accepted in the United
States of America and are expressed in United States dollars. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses. These
estimates and assumptions are affected by management's application of accounting
policies. We believe that understanding the basis and nature of the estimates
and assumptions involved with the following aspects of our financial statements
is critical to an understanding of our financial statements.
Recently Issued Accounting Pronouncements
In August 2020, FASB issued ASU 2020-06, Accounting for Convertible Instruments
and Contracts in an Entity; Own Equity ("ASU 2020-06"), as part of its overall
simplification initiative to reduce costs and complexity of applying accounting
standards while maintaining or improving the usefulness of the information
provided to users of financial statements. Among other changes, the new guidance
removes from GAAP separation models for convertible debt that require the
convertible debt to be separated into a debt and equity component, unless the
conversion feature is required to be bifurcated and accounted for as a
derivative or the debt is issued at a substantial premium. As a result, after
adopting the guidance, entities will no longer separately present such embedded
conversion features in equity, and will instead account for the convertible debt
wholly as debt. The new guidance also requires use of the "if-converted" method
when calculating the dilutive impact of convertible debt on earnings per share,
which is consistent with the Company's current accounting treatment under the
current guidance. The guidance is effective for financial statements issued
for fiscal years beginning after December 15, 2021, and interim
periods within those fiscal years, with early adoption permitted, but
only at the beginning of the fiscal year. The Company is currently evaluating
the impact the adoption of ASU 2020-06 will have on the Company's financial
statements.
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