Notes
to the Consolidated Financial Statements
NOTE
1 – NATURE OF OPERATIONS AND GOING CONCERN
Organization
and Description of Business
CuraScientific
Corp (“Cura,” the “Company,” “we,” “us” and “our”), formerly known as Boon
Industries Inc., manufactures commercial chemical products with various applications in commercial
sterilization for agriculture, warehousing, hospitality and medical facilities. DiOx+, our flagship product, is a disinfectant
sterilizer that kills harmful pathogens without dangerous toxic exposure to the user or the environment. DiOx+ is an activated chlorine
dioxide (Cl02) broad spectrum disinfectant that protects the environment and human health from viruses, bacteria and harmful by-products
left by other cleaning sanitizers, without a harsh smell or skin irritation. DiOx+ is effective against aerobic and non-aerobic bacteria,
viruses, molds, fungi, algae, protozoa, and spores.
Our
proprietary chemical formulas and processes make DiOx+ ideal for sterilizing mission critical, high value medical equipment and disinfecting
air and surfaces in laboratory and hospital environments. DiOx+ helps protect agricultural crops from disease, can be used in water treatment
systems, and helps reduce operational costs in warehousing and distribution centers, and ecommerce support facilities.
We
manufacture DiOx+ in the U.S. at our production facility located in Grass Valley, California. We also manufacture customized “white
label” products for the food and beverage industry at the facility we lease in Grants Pass, Oregon.
Our
wholly owned subsidiary, Matrix of Life Tech Trust, works with the Company with applications in the beverage and nutritional supplement
industries, and water bottling operations in Grants Pass, Oregon, where it produces bottled water and a range of products for the health
and wellness industry.
On
October 1, 2022, the Company executed a share exchange agreement with Cal Care Group, Inc. (“Cal Care”), a California Corporation
with products and services in the cannabis retail, manufacturing, distribution, and delivery. Cal Care is a product and brand marketing
company investing in operations with disruptive or hyper growth potential. Headquartered in San Jacinto, California, Cal Care’s core
strategic business is its end-market access as a central player in the growing California cannabis delivery marketplace while developing
its in-house cannabis production capacity to verticalize operations in the space. The Company intends to acquire all of the issued and
outstanding shares of Cal Care in exchange for 500,000 Series A preferred shares of the Company. The transaction will only become effective
upon exchange of the agreed upon consideration, which has not occurred at March 31, 2023. Both parties can unilaterally terminate such
agreement until the agreed upon consideration is exchanged, which occurred during the second fiscal quarter of 2023 (see note 11).
Holding
Company Parent-subsidiary Formation
On
March 2, 2020, the Company became the parent and successor issuer of Leaf of Faith Beverage, Inc. (“LOFB”), pursuant to a
parent-subsidiary reorganization with LOFB, pursuant to Section 1081(g) of the Oklahoma Act, which was executed by Leaf of Faith Beverage,
Inc., Boon Industries, Inc., and Leaf of Faith Beverage Merger Sub, Inc. Boon Industries, Inc. was incorporated in Oklahoma on March
2, 2020.
Under
the Agreement and plan of merger, Leaf of Faith Beverage, Inc. merged into Leaf of Faith Beverage Merger Sub, Inc. and Leaf of Faith
Beverage, Inc. ceased to exist, wherein Leaf of Faith Beverage Merger Sub, Inc. became the survivor and successor, having acquired all
of Leaf of Faith Beverage, Inc. assets, rights financial statements, obligations, and liabilities as the constituent or resulting corporation.
Boon Industries, Inc. became the parent and the holding company of Leaf of Faith Beverage Merger Sub, Inc. under the Parent Subsidiary
formation which was in compliance with Section 1081(g) of the Oklahoma Act. Upon consummation of the Parent Subsidiary formation, each
issued and outstanding share of capital stock of the former Leaf of Faith Beverage, Inc. was transmuted into and represented the identical
equity structure of Boon Industries, Inc. (on a share-for-share basis) being of the same designations, rights, powers and preferences,
and qualifications, limitations, and restrictions. Boon Industries, Inc. was the issuer since the former Leaf of Faith Beverage, Inc.
equity structure was transmuted pursuant to Section 1081(g) as the current issued and outstanding equities of Boon Industries, Inc.
Change
of Control/ Asset Purchase
On
March 2, 2020, Boon Industries, Inc. completed an Asset Purchase Agreement with Matrix of Life Tech Trust, an Oregon Trust, a Trust with
ongoing operations (“Matrix’). The Asset Purchase was in compliance with Section 368(a)(l)(B) of the Internal Revenue Code
of 1986, as amended and resulted in a change in control of Boon Industries, Inc. Boon Industries, Inc., is an operating business with
ongoing operations since its date of incorporation on March 2, 2020, to present. From the date of incorporation, Boon Industries, Inc.,
has had ongoing operations and is therefore an “Issuer” that is not, and has never been a “Shell Company” or
ever was a “Former Shell Company” as defined in Rule 144(i) of the Act.
Matrix
of Life Tech Trust (the “Trust”) was established in October of 2011 by Justin Gonzalez, as trustee, for the benefit of his
children to develop proprietary technologies in emulsification with applications in the beverage and nutritional supplement industries.
The Trust was initially funded by cash from Mr. Gonzalez to engage in its business. Beginning in 2012 the Trust conducted water bottling
operations in Grants Pass, Oregon, where it produced bottled water and a range of products for the health and wellness industry, until
the sale of its assets to us in March 2020.
For
financial reporting purposes, the Matrix acquisition represents a capital transaction of Matrix of Life Tech Trust or a Business combination
under common control accounted for under ASC 805-50, because the sellers of Matrix of Life Tech Trust controlled the Company before the
merger and immediately following the completion of the transaction. As such, Matrix of Life Tech Trust is deemed to the accounting acquirer
in the transaction and, consequently, the transaction is being treated as a recapitalization of Matrix of Life Tech Trust. Accordingly,
the assets and liabilities and the historical operations that will be reflected in the Company’s ongoing financial statements will
be those of Matrix of Life Tech Trust and will be recorded at the historical cost basis of Matrix of Life Tech Trust. The Company’s
assets, liabilities and results of operations will be consolidated with the assets, liabilities, and results of operations of Matrix
of Life Tech Trust after consummation of the merger. The Company’s historical capital accounts will be retroactively adjusted to
reflect the equivalent number of shares issued by the Company in the merger while Matrix of Life Trust’s historical retained earnings
will be carried forward. The historical financial statements of the Company before the Merger will be replaced with the historical statements
of Matrix of Life Tech Trust before the merger in all future filings with the Securities and Exchange Commission, or “SEC”.
Reincorporation
Merger
On
November 8, 2022, the Shareholders of the Company approved an agreement and plan of merger, pursuant to which the Company will merge
with and into CuraScientific Corporation, a newly formed Florida corporation and a wholly owned subsidiary of the Company, which will
result in the Company’s reincorporation from the State of Oklahoma to the State of Florida and change the Company’s name
to CuraScientific Corporation.
The
shareholders also approved the implementation of a reverse stock split of its common stock on the basis of the issuance one share of
CuraScientific Corporation’s common stock for each 500 shares of common stock of the Company issued and outstanding prior to the
reincorporation merger (“reverse stock split”). Each share of Series A preferred stock of the Company will convert into one
share of Series A preferred stock of CuraScientific Corporation and each share of Series B preferred stock of the Company will convert
into one share of Series B preferred stock of CuraScientific corporation.
The
reverse stock split and name change became effective with FINRA (the Financial Industry Regulatory Authority) on April 24, 2023, whereupon
the shares of CuraScientific common stock will begin trading on a split-adjusted basis.
On
April 24, 2023, the trading symbol for our common stock will change to “BNOWD” for a period of 20 business days, after which
our common stock will trade under our new trading symbol “CSTF”. All
share and per share related numbers in these consolidated financial statements give effect to the reverse stock split, which was effective
on April 24, 2023, before issuance of the consolidated financial statements.
The Reincorporation Merger did not result in any change in our headquarters, business, management, location of our any offices or facilities,
number of employees, federal tax identification number, assets or liabilities (other than as a result of the costs incident to the Reincorporation
Merger, which are not material). Management, including all directors and officers, remain the same immediately after the Reincorporation
Merger.
Liquidity
and Going Concern
The
accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As of March
31, 2023, the Company’s current liabilities exceeded its current assets by approximately $71.1 million. The Company has recorded
a net loss of $216,261 for the three months ended March 31, 2023, has positive cash flow from operations of approximately $372, has an
accumulated deficit of $16.7 million as of March 31, 2023, and has limited business operations, which raises substantial doubt about
the Company’s ability to continue as a going concern.
The
ability of the Company to meet its commitments as they become payable is dependent on the ability of the Company to obtain necessary
financing or to achieve a profitable level of operations.
The
Company has arranged financing through convertible debts and intends to utilize the cash received to fund its operations. The Company
plans to seek additional financing, if necessary, in private or public equity offering to secure future funding for operations. If the
Company is not able to secure additional funding, the implementation of the Company’s business plan will be impaired. There can
be no assurance that such additional financing will be available to the Company on acceptable terms or at all.
These
consolidated financial statements do not give effect to adjustments to the amounts and classification to assets and liabilities that
would be necessary should the Company be unable to continue as a going concern.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
Company maintains its accounting records on an accrual basis in accordance with GAAP. These consolidated financial statements are presented
in United States dollars. The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions
to Form 10-Q. All adjustments which are, in the opinion of management, necessary for a fair presentation of the results of operations
for the interim periods have been made and are of a recurring nature unless otherwise disclosed herein.
Use
of Estimates
The
preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period. Management regularly evaluates estimates and assumptions related
to the valuation of assets and liabilities. Management bases its estimates and assumptions on current facts, historical experience, and
various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments
about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources.
The actual results experienced by the Company may differ materially and adversely from management’s estimates. To the extent there
are material differences between the estimates and the actual results, future results of operations will be affected. Significant estimates
include:
| ■ | Liability
for legal contingencies. |
| ■ | Deferred
income taxes and related valuation allowance. |
| ■ | Impairment
of finite-life intangible. |
| ■ | Obsolescence
of inventory |
| ■ | Stock-based
compensation using the Black Scholes option pricing model. |
Segment
Reporting
The
Company operates as one reportable segment under ASC 280, Segment Reporting. The Chief operating decision maker regularly reviews the
financial information of the Company at a consolidated level in deciding how to allocate resources and in assessing performance.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with maturities of 90 days or less from the date of purchase to be cash equivalents.
The Company did not have any cash equivalents as of March 31, 2023, and December 31, 2022, respectively.
COVID-19
The
Company began seeing the impact of the COVID-19 pandemic on its business in early March 2020. The direct financial impact of the pandemic
has primarily shown in significantly reduced production. In addition to these direct financial impacts, COVID-19 related safety measures
resulted in a reduction of productivity. The Company will continue to assess and manage this situation and will provide a further update
in each quarterly earnings release, to the extent that the effects of the COVID-19 pandemic are then known more clearly.
Fair
value of Financial Instruments and Fair Value Measurements
Accounting
Standards Codification (“ASC”) 820 Fair Value Measurements and Disclosures, requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the
level of independent, objective evidence surrounding the inputs used to measure fair value.
Fair
value is defined as the price that would be received upon sale of an asset or paid upon transfer of a liability in an orderly transaction
between market participants at the measurement date and in the principal or most advantageous market for that asset or liability.
In
addition to defining fair value, the standard expands the disclosure requirements around the value and establishing a fair value hierarchy
for valuation inputs is expanded. The hierarchy prioritizes the inputs into three levels based on the extent to which inputs used in
measuring the value are observable in the market.
A
financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant
to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:
Level
1 – Inputs are based upon unadjusted quoted prices for identical instruments traded in active markets.
Level
2 – Inputs are based upon quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments
in market that are not active, and model-based valuation techniques for which all significant assumptions are observable in the market
or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
Level
3 – Inputs are generally unobservable and typically reflect management’s estimates of assumptions that market participants
would use in pricing the asset or liability. The fair values are therefore determined using model-based techniques that include option
pricing models, discounted cash flow models and similar techniques.
The
reported fair values for financial instruments that use Level 2 and Level 3 inputs to determine fair value are based on a variety of
factors and assumptions. Accordingly, certain fair values may not represent actual values of the Company’s financial instruments
that could have been realized as of March 31, 2023, or that will be recognized in the future, and do not include expenses that could
be incurred in an actual settlement.
The
carrying amounts of the Company’s financial assets and liabilities, such as cash, accounts receivable. inventory, prepaid expenses
and other assets, accounts payable, accrued interest, related party liabilities and loans payable approximate fair value due to their
relatively short maturities.
The
Company’s convertible notes payable and loans payable approximates the fair value of such liabilities based upon management’s
best estimate of interest rates that would be available to the Company for similar financial arrangements and due to the short-term nature
of these instruments at March 31, 2023, and December 31, 2022.
The
fair value of the Company’s recorded derivative liability is determined based on unobservable inputs that are not corroborated
by market data, which require a Level 3 classification. A Black-Sholes option valuation model was used to determine the fair value. The
Company records derivative liability on the balance sheets at fair value with changes in fair value recorded in the statements of operation.
The
following table presents balances of the liabilities with significant unobservable inputs (Level 3) as of March 31, 2023 and December
31, 2022:
Schedule
of Fair Value Measurements
| | |
Fair Value Measurements at March 31, 2023, Using | |
| | |
Quoted
Prices in
Active
Markets for | | |
Significant
Other
Observable | | |
Significant
Unobservable | | |
| |
| | |
Identical Assets | | |
Inputs | | |
Inputs | | |
| |
| | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
| | |
| | |
| | |
| | |
| |
| Derivative liability | |
$ | — | | |
$ | — | | |
$ | 215,378 | | |
$ | 215,378 | |
| Total | |
$ | — | | |
$ | — | | |
$ | 215,378 | | |
$ | 215,378 | |
| | |
| | | |
| | | |
| | | |
| | |
| | |
Fair Value Measurements at December 31, 2022, Using | |
| | |
Quoted
Prices in
Active
Markets for | | |
Significant
Other
Observable | | |
Significant
Unobservable | | |
| |
| | |
Identical Assets | | |
Inputs | | |
Inputs | | |
| |
| | |
(Level 1) | | |
(Level 2) | | |
(Level 3) | | |
Total | |
| | |
| | |
| | |
| | |
| |
| Derivative liability | |
$ | — | | |
$ | — | | |
$ | 1,026,942 | | |
$ | 1,026,942 | |
| Total | |
$ | — | | |
$ | — | | |
$ | 1,026,942 | | |
$ | 1,026,942 | |
The
following table presents changes of the liabilities with significant unobservable inputs (Level 3) for the three months ended March 31,
2023:
Schedule
of Derivative Liabilities at Fair Value
| | |
Derivative | |
| | |
Liability | |
| Balance December 31, 2022 | |
$ | 1,026,942 | |
| | |
| | |
| Change in estimated fair value | |
| (811,564 | ) |
| | |
| | |
| Balance March 31, 2023 | |
$ | 215,378 | |
Derivative
Liability
The
Company measures the derivative liability using the Black-Scholes option valuation model using the following assumptions:
Schedule
of Fair Value Derivative Liability measured using Black-Scholes Valuation Model
| | |
|
| | |
March 31, 2023 |
| | |
|
| Expected term | |
1 month |
| Exercise price | |
$0.00008 |
| Expected volatility | |
342.01% |
| Expected dividends | |
None |
| Risk-free interest rate | |
4.74% |
| Forfeitures | |
None |
The
assumptions used in determining fair value represent management’s best estimates, but these estimates involve inherent uncertainties
and the application of management’s judgment. As a result, if factors change, including changes in the market value of the Company’s
common stock, managements’ assessment, or significant fluctuations in the volatility of the trading market for the Company’s
common stock, the Company’s fair value estimates could be materially different in the future.
The
Company computes the fair value of the derivative liability at each reporting period and the change in the fair value is recorded as
non-cash expense or non-cash income. The key component in the value of the derivative liability is the Company’s stock price, which
is subject to significant fluctuation and is not under its control, and the assessment of volatility. The resulting effect on net loss
is therefore subject to significant fluctuation and will continue to be so until the Company’s variable debentures, which the convertible
feature is associated with, are converted into common stock or paid in full with cash. Assuming all other fair value inputs remain constant,
the Company will record non-cash expense when its stock price increases and non-cash income when its stock price decreases.
Stock-Based
Compensation
The
Company accounts for employee stock-based compensation in accordance with the fair value recognition provisions of ASC Topic 718, Compensation
– Stock Compensation (“ASC 718”). Under this method, compensation expense includes compensation expense for all stock-based
payments based on the grant-date fair value. Such amounts have been reduced to reflect the Company’s estimate of forfeitures of
all unvested awards.
The
Company uses the Black-Scholes pricing model to determine the fair value of the stock- based compensation that it grants to employees
and non-employees. The Black-Scholes pricing model takes into consideration such factors as the estimated term of the securities, the
conversion or exercise price of the securities, the volatility of the price of the Company’s common stock, interest rates, and
the probability that the securities will be converted or exercised to determine the fair value of the securities. The selection of these
criteria requires management’s judgment and may impact the Company’s net income or loss. The computation of volatility is
intended to produce a volatility value that is representative of the Company’s expectations about the future volatility of the
price of its common stock over an expected term. The Company used its share price history to determine volatility and cannot predict
what the price of its shares of common stock will be in the future. As a result, the volatility value that the Company calculated may
differ from the actual volatility of the price of its shares of common stock in the future.
Convertible
Instruments
The
Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with ASC 815 “Derivatives
and Hedging”. ASC 815 generally provides three criteria that, if met, require companies to bifurcate conversion options from their
host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in
which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic
characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the
host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair
value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would
be considered a derivative instrument. Professional standards also provide an exception to this rule when the host instrument is deemed
to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
ASC
815-40 “Derivatives and Hedging - Contracts in Entity’s Own Equity” provides that, among other things, generally, if
an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset
or a liability.
Debt
issuance costs and debt discounts
Debt
issuance costs and debt discounts are being amortized over the lives of the related financings on a basis that approximates the effective
interest method. Costs and discounts are presented as a reduction of the related debt in the accompanying consolidated balance sheets.
Revenue
Recognition
The
Company recognizes revenue in accordance with ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606).
Under
ASU 2014-9, the Company recognizes revenue when its customers obtain control of the promised good or services, in an amount that reflects
the consideration which the Company expects to receive in exchange for those goods or services. The Company applies the following five-step:
(i) identify the contract(s) with a customer; (ii) identify the performance obligation(s) in the contract; (iii) determine the transaction
price; (iv) allocate the transaction price to the performance obligation(s) in the contract; and (v) recognize revenue when (or as) the
Company satisfies a performance obligation.
At
contract inception, once the contract is determined to be within the scope of ASU 2014-09, the Company identifies the performance obligation(s)
in the contract by assessing whether the goods or services promised within each contract are distinct. The Company then recognizes revenue
for the amount of the transaction price that is allocated to the respective performance obligation when (or as) the performance obligation
is satisfied.
The
Company’s performance obligations are established when a customer submits a purchase order notification (in writing, electronically
or verbally) for goods, and the Company accepts the order. The Company identifies the performance obligation as the delivery of the requested
product in appropriate quantities and to the location specified in the customer’s contract and/or purchase order. The Company generally
recognizes revenue when the product or service has been transferred to the customer, at which time the Company has an unconditional right
to receive payment. The Company’s sales and sale prices are final, and the selling prices are not affected by contingent events
that could impact the transaction price. Revenue is typically recognized at the time the product is delivered to our customer, at which
time the title passes to the customer, and there are no further performance obligations.
The
Company records a liability when receiving cash in advance of delivering goods or services to the customer. This liability is reversed
against the receivable recognized when those goods or services are delivered.
During
the three months ended March 31, 2023 and 2022, the Company recognized $0 and $25,451 of revenue, respectively.
Concentration
of Credit Risk
The
Company maintains its cash in bank and financial institution deposits that at times may exceed federally insured limits. The Company
has not experienced any losses in such accounts through March 31, 2023.
Capitalized
licensing fees
The
Company records its intangible assets at cost in accordance with ASC 350, Intangibles – Goodwill and Other. The Company reviews
the intangible assets for impairment on an annual basis or if events or changes in circumstances indicate it is more likely than not
that they are impaired. These events could include a significant change in the business climate, legal factors, a decline in operating
performance, competition, sale, or disposition of a significant portion of the business, or other factors. If the review indicates the
impairment, an impairment loss would be recorded for the difference of the value recorded and the new value. For the three months ended
March 31, 2023 and 2022, there were no impairment losses recognized for intangible assets. The Company amortizes the capitalized licensing
fees over the five-year term of the underlying licensing agreement.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets, including definite-lived intangible assets, for impairment whenever events or changes in circumstances
indicate that the carrying amount of such assets may not be recoverable. Recoverability of these assets is determined by comparing the
forecasted undiscounted net cash flows of the operation to which the assets relate to the carrying amount. If the operation is determined
to be unable to recover the carrying amount of its assets, then these assets are written down first, followed by other long-lived assets
of the operation to fair value. Fair value is determined based on discounted cash flows or appraised values, depending on the nature
of the assets. For the three months ended March 31, 2023 and 2022, there were no impairment losses recognized for long-lived assets.
Inventories
Inventories
are stated at the lower of cost, computed using the first-in, first-out method (“FIFO”), and net realizable value. Any adjustments
to reduce the cost of inventories to their net realizable value are recognized in earnings in the current period.
Accounts Receivable
Accounts receivable are
stated at net realizable value, and as such, earnings are charged with a provision for doubtful accounts based on our best estimate of
the amount of probable credit losses in our existing accounts receivable. We determine an allowance based on historical write-off
experience and specific account information available. Accounts receivable are reflected in the accompanying consolidated
balance sheets net of a valuation allowance of $0 as of March 31, 2023, and December 31, 2022. When internal collection efforts
on accounts have been exhausted, the accounts are written off by reducing the allowance for doubtful accounts and the related customer
receivable. The Company did not recognize any bad debt expense during the three months ended March 31, 2023.
Accounts
Payable and Accrued Expenses
Accounts
payable and accrued expenses are carried at amortized cost and represent liabilities for goods and services provided to the Company prior
to the end of the fiscal year that are unpaid and arise when the Company becomes obliged to make future payments in respect of the purchase
of these goods and services.
Basic
and Diluted Loss Per Share
In
accordance with ASC Topic 280 – “Earnings Per Share”, the basic loss per common share is computed by dividing net loss
available to common stockholders by the weighted average number of common shares outstanding. Diluted loss per common share is computed
similar to basic loss per common share except that the denominator is increased to include the number of additional common shares that
would have been outstanding if the potential common shares had been issued and if the additional common shares were dilutive.
Income
Taxes
The
Company records deferred taxes in accordance with FASB ASC No. 740, Income Taxes. Deferred tax assets and liabilities are recognized
for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets
and liabilities and loss carry forwards and their respective tax bases. Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled.
The effect of a change in tax rules on deferred tax assets and liabilities is recognized in operations in the year of change. A valuation
allowance is recorded when it is “more likely-than-not” that a deferred tax asset will not be realized.
Recent
Accounting Pronouncements
The
Company has evaluated all the recent accounting pronouncements and determined that there are no accounting pronouncements that will have
a material effect on the Company’s financial statements.
NOTE
3 – PROPERTY AND EQUIPMENT
Property
and equipment consisted of the following at March 31, 2023, and December 31, 2022:
Schedule
of Property and Equipment
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| Emulsification equipment | |
$ | 163,651 | | |
$ | 163,651 | |
| Leasehold improvements | |
| 6,877 | | |
| 6,877 | |
| Truck | |
| 10,000 | | |
| 10,000 | |
| Property and Equipment, Gross | |
| 180,528 | | |
| 180,528 | |
| Less accumulated depreciation | |
| (97,364 | ) | |
| (93,611 | ) |
| Property and Equipment, Net | |
$ | 83,164 | | |
$ | 86,917 | |
Depreciation
expense was approximately $3,754 and $3,519 for the three months ended March 31, 2023 and 2022, respectively.
NOTE
4 – INTANGIBLE, NET
On
May 13, 2020, we entered into an exclusive distribution and licensing agreement with C Group LLC, also a convertible notes holder, under
which we intend to sell indoor agricultural growing pods utilizing C-Group’s proprietary technology to our existing and future
customers. The growing pods are a self-contained 800 sq ft steel container consisting of computerized climate and irrigation control.
Pursuant to this agreement, we issued 300,000 shares of our Series A Preferred Stock to Anthony Super, the President of C Group LLC.
Intangible
consisted of the following at March 31, 2023, and December 31, 2022:
Schedule of Capitalized Licensing fees
| | |
March 31, | | |
December 31, | |
| | |
2023 | | |
2022 | |
| C-Group LLC Capitalized Licensing fees | |
$ | 3,000,000 | | |
$ | 3,000,000 | |
| | |
| | | |
| | |
| Gross Amount Capitalized Licensing fees | |
| 3,000,000 | | |
| 3,000,000 | |
| Less accumulated depreciation | |
| (1,725,000 | ) | |
| (1,575,000 | ) |
| Net Amount Capitalized Licensing fees | |
$ | 1,275,000 | | |
$ | 1,425,000 | |
The
Company is amortizing the capitalized licensing fees over the five-year term of the exclusive distribution and licensing agreement. Amortization
expense was $150,000 for the three months ended March 31, 2023 and 2022.
NOTE
5 – CONVERTIBLE NOTES PAYABLE
As
of March 31, 2023, and December 31, 2022, notes payable are comprised of the following:
Schedule
of Convertible Notes Payable
| |
|
Original |
|
|
|
Original |
|
|
|
Due |
|
|
Interest |
|
Conversion |
|
March
31, |
|
|
December
31, |
|
| |
|
Note
Amount |
|
|
|
Note Date |
|
|
|
Date |
|
|
Rate |
|
Rate |
|
2023 |
|
|
2022 |
|
| V
Group (past maturity) |
|
|
150,000 |
|
|
|
12/12/2019 |
|
|
|
12/12/2020 |
|
|
12% |
|
Variable |
|
|
150,000 |
|
|
|
150,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
| Debt
discount |
|
|
|
|
|
|
— |
|
|
|
— |
|
| Notes
payable, net of discount |
|
|
|
|
|
$ |
150,000 |
|
|
$ |
150,000 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Accrued
interest |
|
|
|
|
|
$ |
53,409 |
|
|
$ |
48,970 |
|
During
the three months ended March 31, 2023, the Company recognized approximately $4,438 of interest on the existing promissory notes.
NOTE
6 – SHORT TERM LIABILITIES
As
of March 31, 2023, and December 31, 2022, short term debt was comprised of the following:
Schedule
of Short Term Debt
| |
|
Original |
|
Original |
|
Due |
|
Interest |
|
March
31, |
|
|
December
31, |
|
| |
|
Note
Amount |
|
Note
Date |
|
Date |
|
Rate |
|
2023 |
|
|
2022 |
|
| Carolyn
Hamburger (past maturity) |
|
100,000 |
|
12/12/2014 |
|
12/12/2019 |
|
10% |
|
|
100,000 |
|
|
|
100,000 |
|
| Doris
Notter (past maturity) |
|
10,000 |
|
12/31/2014 |
|
12/31/2019 |
|
15% |
|
|
10,000 |
|
|
|
10,000 |
|
| Maguire
& Associate |
|
1,008,919 |
|
9/30/2022 |
|
12/31/2022 |
|
0% |
|
|
13,543 |
|
|
|
1,008,920 |
|
| Maguire
& Associate |
|
1,368,394 |
|
9/30/2022 |
|
12/31/2022 |
|
0% |
|
|
— |
|
|
|
1,368,394 |
|
| Total
short-term liabilities |
|
|
|
|
|
|
|
|
|
$ |
123,543 |
|
|
$ |
2,487,314 |
|
| Accrued
interest |
|
|
|
|
|
|
|
|
|
$ |
40,682 |
|
|
$ |
37,846 |
|
Carolyn
Hamburger
On
December 12, 2014, the Company’s predecessor Matrix received a $100,000 loan from Carolyn Hamburger at 10% interest evidenced by
a note for $100,000 issued by Matrix. The note matured on December 12, 2019. The note is secured by the Company’s emulsification
equipment acquired in the Matrix Acquisition. This Note does not convert into securities of the Company. As of March 31, 2023, and December
31, 2022, the note had a principal balance of $100,000. Accrued interest totaled $28,307 and $25,841, as of March 31, 2023, and December
31, 2022, respectively.
During
the three months ended March 31, 2023, the Company paid $0 of interest in cast and incurred $2,466 of interest. This note is currently
past maturity, but no notice of default has been received by the Company as of March 31, 2023
Doris
Notter
On
December 31, 2014, Matrix received a $10,000 unsecured loan from Doris Notter at 15% interest and a maturity date of December 31, 2019.
As of March 31, 2023, and December 31, 2022, the note had a principal balance of $10,000 and accrued interest of $12,374 and 12,004,
respectively. No payment was made during the three months ended March 31, 2023. This note is currently past maturity, but no notice of
default has been received by the Company as March 31, 2023.
Maguire
and Associates Inc. #1
On
September 30, 2022, Maguire and Associates Inc. converted all of the outstanding convertible notes from Optempus Investments LLC, Direct
Capital Group, Inc., and C Group LLC for a total principal balance of $834,000 with the issuance of a non-interest promissory note in
the amount of $1,008,920 with a maturity date of December 31, 2022. The note is secured with $1,100,000 of Preferred Series A with a
stated value of $10 per share or 110,000 shares of Preferred Series A. Pursuant to the default provision, the Company issued 110,000
Series A preferred stock with a stated value of $1,100,000 for full settlement of the principal amount, which resulted in the recognition
of $91,081 loss from debt extinguishment.
Maguire
and Associates Inc. #2
On
September 30, 2022, the Company executed a debt settlement agreement with Maguire & Associates, LLC, a holder of convertible notes
in the aggregate principal amount of $1,368,394. Maguire accepted to cancel all of the convertible notes, inclusive of the principal
and all accumulated interest and penalties in exchange for an interest free promissory note in the amount of $1,368,394. The principal
is due on December 31, 2022 (“Due date”). The promissory note will be secured by 200,000 Shares of Preferred Series A with
a stated value of $2,000,000. The secured Series A preferred stock will be fully earned if the Company fails to repay the promissory
note at its due date. The Company may prepay the promissory note without any penalties. Pursuant to the default provision, the Company
issued 200,000 Series A preferred stock with a stated value of $2,000,000 for full settlement of the principal amount, which resulted
in the recognition of $631,606 loss from debt extinguishment.
NOTE
7 – RELATED PARTY TRANSACTIONS
Mr.
William Reed, Chairman, Chief Executive Officer, President, Secretary, Treasurer, and Director
On
September 7, 2022, the Company appointed William Reed as Chairman, Chief Executive Officer, President, Secretary, Treasurer, and Director
of the Company. The Company and Mr. Reed entered into an employee agreement that includes an annual salary of $200,000 and 15,000 shares
of the Company’s Series A Preferred Stock with a stated value of $150,000.
During
the three months ended March 31, 2023, the Company accrued wages of $50,000 and paid $0 of accrued compensation. The balance of accrued
wages was $116,667 and $66,667 as of March 31, 2023 and December 31, 2022, respectively.
Mr.
Justin Gonzalez, Former Chief Executive Officer and Newly Chief Operating Officer and a Director
On
March 2, 2020, the Company appointed Justin Gonzalez as Chief Executive Officer of the Company. The Company and Mr. Gonzalez entered
into an employment agreement that includes an annual salary of $200,000 and $100,000 to be issued in common stock. Unpaid wages will
accrue interest at 6% per annum and may be converted to restricted common stock at fair market value at the time of conversion.
On
September 7, 2022, Justin Gonzalez resigned from his position of Chief Executive Officer. Justin Gonzalez will continue to serve as a
director and Chief Operating Officer of the Company. The Company entered into a resignation and
settlement agreement with Justin Gonzalez under which all prior agreements were terminated, and the Company agreed to pay Justin Gonzalez
$250,000 on or prior to August 29, 2024, to satisfy all accrued obligations owed in the aggregated amount of $492,777. In the event,
the Company fails to the settlement amount when due, such amount will increase by 200% and will begin to accrue interest at a rate of
ten percent (10%) per annum.
The
balance of accrued compensation pursuant to the terms of the resignation and settlement agreement is $250,000 and is presented in the
related party liabilities (non-current) in the consolidated balance sheet as of March 31, 2023 and December 31, 2022.
On
September 7, 2022, the Company entered into an employment agreement with Justin Gonzalez as Chief Operating Officer. Pursuant to the
employment agreement, Justin Gonzalez will receive an annual salary of $100,000, which may be paid by the issuance of shares of the Company’s
Series A preferred stock.
During
the three months ended March 31, 2023, the Company incurred a total of $25,000 of compensation. The
balance of accrued wages was $58,333 and $33,333 as of March 31, 2023 and December 31, 2022, respectively.
Mr.
Eric Watson, former Chief Operating Officer, and Director
On
March 2, 2020, the Company appointed Eric Watson as Chief Operating Officer and a Director of the Company. The Company and Mr. Watson
entered into an employee agreement that includes an annual salary of $162,000 and $50,000 to be issued in common stock. Unpaid wages
will accrue interest at 6% per annum and may be converted to restricted common stock at fair market value at the time of conversion.
On
September 7, 2022, Eric Watson resigned from his position of Chief Operating Officer. The Company
entered into a resignation and settlement agreement with Eric Watson under which all prior agreements were terminated, and under which,
the Company agreed to pay Eric Watson $125,150 of shares of the Company Series A to satisfy all accrued obligations owed in the aggregated
amount of $250,290. The Company has agreed to repurchase the shares of Series A Preferred Stock by August 29, 2024. In the event, the
Company fails to the settlement amount when due, such amount will increase by 200% and will begin to accrue interest at a rate of ten
percent (10%) per annum.
Johann
Loewen, former Director
On
September 21, 2021, the Company appointed Johann Loewen as director of the Company for an initial one-year term. As director of the Company,
Johann Loewen is entitled to 5,000 shares of Series A at a stated value of $10.00 per share. No shares have been issued as of March 31,
2023 and December 31, 2022 but the $50,000 liability related to the 5,000 shares of Series A was previously recorded as stock payable
in the Company’s consolidated balance sheet as of December 31, 2021, which was fully reversed upon the execution of the settlement
agreement in September 2022.
On
September 7, 2022, Johann Loewen resigned from his position as director of the Company. The Company
entered into a resignation and settlement agreement with Johann Loewen under which all prior agreements were terminated, and under which,
the Company agreed to pay Johann Loewen $3,140 on or prior to March 1, 2023, to satisfy all accrued obligations owed in the aggregated
amount of $53,140. In the event, the Company fails to the settlement amount when due, such amount will increase by 200% and will begin
to accrue interest at a rate of ten percent (10%) per annum.
There
was no activity during the three months ended March 31, 2023.
Edouard
Beaudette, former Director
On
October 15, 2021, the Company appointed Edouard Beaudette as director of the Company for an initial one-year term. As director of the
Company, Edouard Beaudette is entitled to one-time 5,000 shares of Series A at a stated value of $10.00 per share. Under the director’s
agreement, no shares have been issued as of March 31, 2023 and December 31, 2022, but the liability is recorded as stock payable in the
Company’s consolidated balance sheet for a total amount of $50,000 as of March 31, 2023.
Edouard
Beaudette also executed a consulting agreement with the Company under which he is entitled to monthly compensation of 1,000 shares of
Series A preferred stock per month and $2,500 in cash. Edouard Beaudette is to implement and manage the Company’s strategy, plan
and executed product launch. Under this consulting agreement, no shares have been issued and no cash has been paid during the three months
ended March 31, 2023, but the liability is recorded as stock payable in the Company’s consolidated balance sheet for a total amount
of $100,000 as of March 31, 2023
There
was no activity during the three months ended March 31, 2023.
Paul
Goyette, Director
On
September 29, 2022, the Board of Directors of the Company appointed Paul Goyette to serve as a director of the Company.
Pursuant
to his director’s agreement, Paul Goyette will be paid a cash fee of $2,000 per meeting and be issued 10,000 shares of the Company’s
Series A Preferred Stock for a stated
value of $100,000. No shares of Series A were issued as of March 31, 2023 and December 31, 2022. The Company accrued $100,000 of stock
payable as of March 31, 2023 and December 31, 2022, which is presented under stock payable in the Company shareholders’ deficit.
NOTE
8 – PREFERRED STOCK
The
Company’s authorized preferred stock at March 31, 2023 was 25,000,000 shares of preferred, consisting of 20,000,000 authorized
Series A preferred shares, and 2,500 Series B preferred shares, all with a par value of $0.0001 per share.
As
of March 31, 2023, and December 31, 2022, 7,000,757 and 6,662,422 shares of Series A Preferred Stock were issued and outstanding and
2,000 of Series B Preferred Stock were issued and outstanding, respectively.
Series
A
The
Series A preferred stock (“Series A”) have no voting rights and have no dividends and in the event of a voluntary or involuntary
liquidation, dissolution or winding-up of the Company, each share of Series A has a stated value of $10 per share. Each share of Series
A is convertible to common stock at the closing price of common on the date of conversion.
The
Company follows ASC 480-10, “Distinguishing Liabilities from Equity” in its evaluation of the accounting for the Series A
Preferred Stock. ASC 480-10-25-14 requires liability accounting for certain financial instruments, including shares that embody an unconditional
obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly
on one of the following three characteristics:
| |
■ |
A
fixed monetary amount known at inception. |
| |
■ |
Variations
in something other than the fair value of the issuer’s equity shares; or |
| |
■ |
Variations
in the fair value of the issuer’s equity shares, but the monetary value to the counterparty moves in the opposite direction
as the value of the issuer’s shares. |
The
number of shares delivered is determined on the basis of (1) the fixed monetary amount determined as the stated value and (2) the current
stock price at settlement, so that the aggregate fair value of the shares delivered equals the monetary value of the obligation, which
is fixed or predominantly fixed. Accordingly, the holder is not significantly exposed to gains and losses attributable to changes in
the fair value of the Company’s equity shares. Instead, the Company is using its own equity shares as currency to settle a monetary
obligation.
The
Series A Preferred Stock has been classified as a liability in accordance with ASC 480-10 and the Company has elected to record the Series
A Preferred Stock at fair value with changes in fair value recorded through earnings.
For
the three months ended March 31, 2023
During
the three months ended March 31, 2023, 1,665 shares of Series A Preferred stock were converted to 333,000 (166,500,000 pre reverse split)
shares of common stock in accordance with the conversion terms.
During
the three months ended March 31, 2023, the Company 310,000 Series A Preferred Stock with a stated value of $3,100,000 ($10 stated value
per share) for the extinguishment of $2,377,313 of principal related to the promissory notes.
For
the three months ended March 31, 2022
During
the three months ended March 31, 2022, 164,197 shares of Series A Preferred stock were converted to 2,075,350 (1,037,674,922 pre
reverse split) shares of common stock in accordance with the conversion terms.
Series
B
On
November 16, 2022, the Company approved to increase the number of shares authorized from 1,000 to 2,500.
Each
share of Series B preferred stock (“Series B”) is equal to and counted as four (4) times the votes of all of the shares of
the Company’s common stock. The stated value of Series B is $0.0001. Series B have no conversion rights, are not entitled to dividends
and have no value in the event of any voluntary or involuntary liquidation, dissolution or winding up of the Company.
On
March 2, 2020, Justin Gonzalez, the Company’s former Chief Executive Officer, was issued 1,000 Preferred Series B Shares, pursuant
to the Asset Purchase Agreement dated March 2, 2020.
There
was no activity during the three months ended March 31, 2023.
NOTE
9 – COMMON STOCK
The
Company’s common stock at March 31, 2023, consisted of 2,000,000,000 authorized common shares, 20,000,000 authorized Series A preferred
shares, and 2,500 authorized Series B preferred shares, all with a par value of $0.0001 per share.
As
of March 31, 2023, and December 31, 2022, there were 6,992,375 (3,496,187,693 pre reverse split) and 6,659,375 (3,329,687,693 pre reverse
split) shares of common stock issued and outstanding, respectively.
For
the three months ended March 31, 2023
During
the three months ended March 31, 2023, 1,665 shares of Series A Preferred stock were converted to 333,000 (166,500,000 pre reverse split)
shares of common stock in accordance with the conversion terms.
For
the three months ended March 31, 2022
During
the three months ended March 31, 2022, 164,197 shares of Series A Preferred stock were converted to 2,075,350 (1,037,674,922
pre reverse split) shares of common stock in accordance with the conversion terms.
NOTE
10 – COMMITMENTS AND CONTINGENCIES
Licensing
& Distributions Agreements
On
April 1, 2020, the Company entered into an Exclusive Licensing Agreement with Aqueous Precision, LLC., an Oregon Corporation. The Agreement
provides exclusive rights to The Proprietary Formula, developed and owned by Aqueous Precision LLC, who exclusively maintains all rights
and privileges. The H+© ingredient at the center of this Agreement is an all-natural whole plant concentrate with suspended cannabinoids
in an aqueous solution made from hemp. This ingredient is purposeful as a single product or in combination with other ingredients. The
rights are valued at $3,300,000, based upon a five-year term.
On
December 30, 2020, the Exclusive Licensing Agreement dated April 1, 2020, between the Company and Aqueous Precision was terminated by
Aqueous Precision. On December 30, 2020, in connection with such termination, the 330,000 shares of Series A Preferred Stock that had
been issued to Pamala Wilson, the President of Aqueous Precision, were returned to treasury.
On
May 13, 2020, the Company issued 300,000 shares of Series A Preferred Stock, valued at $3,000,000 to Anthony Super, the President of
C Group, Inc., pursuant to the terms of a five year exclusive distribution agreement entered into between the Company and C Group, Inc.
Employment
Agreements with Management
William
Reed, newly appointed Chief Executive Officer, President, Secretary and Chairman of the Board
On
September 7, 2022, the Board of Directors of the Company appointed William J. Reed to serve as the Chairman of the Board of the Company
and as its Chief Executive Officer, President, and Secretary. In connection with his appointment as Chairman and Chief Executive Officer,
Mr. Reed entered into an employment agreement with the Company with a one-year term, pursuant to which Mr. Reed will be paid an annual
salary of $200,000, which may be paid by the issuance of shares of the Company’s Series A Preferred Stock, and issued $150,000
of shares of the Company’s Series A Preferred Stock. The Company issued 15,000 Series A preferred stock for a total fair value
of $150,000 during the year ended December 31, 2022.
Mr.
Justin Gonzalez, Former Chief Executive Officer, President, Secretary, Treasurer, and Director
On
September 7, 2022, March 2, 2020, the Company also entered into a resignation and
settlement agreement under which the Company will pay Mr. Gonzalez $250,000 on or prior to August 29, 2024, to satisfy accrued obligations
owed to him in the aggregate amount of $492,777, consisting primarily of unpaid wages. In the event the Company fails to pay the settlement
amount when due, the amount will increase by 200% and begin to accrue interest at the rate of 10% per annum.
Mr.
Eric Watson, former Chief Operating Officer, and Director
The
Company also entered into a resignation and settlement agreement with Mr. Watson, under which all prior agreement between Mr. Watson
and the Company was terminated, and under which the Company issue Mr. Watson 12,515 shares of the Company’s Series A preferred
stock worth $125,150, to satisfy accrued obligations owed to him in the aggregate amount of $250,290 for unpaid wages. The Company has
agreed to repurchase the shares of Series A Preferred Stock by August 29, 2024. In the event of a default by the Company to Mr. Watson,
the settlement amount will increase by 200% and begin to accrue interest at the rate of 10% per annum.
Lease
On
January 1, 2020, the Company entered into a commercial lease for approximately 7,800 square feet of space, located in the Wolf Creek
Industrial Building in Grass Valley, California. The lease has a term of five years, from January 1, 2020, through December 31, 2025,
with a monthly rent of $4,000. The Company also leases a product production and water bottling facility in Grants Pass, Oregon on a month-to-month
basis at a cost of $2,000 per month.
On
September 29, 2021, the Company terminated its commercial lease which began on January 1, 2020, entered into a new lease agreement with
Badger One, LLC.
On
December 13, 2022, the company entered into a commercial lease for approximately 2,400 square feet of space, located at 175 Joerschke
Drive, Suite R-2, Grass Valley, California. The lease has a term of one year, from January 1, 2023, through December 31, 2023, with a
monthly rent of $395.
NOTE
11 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events for adjustment to or disclosure in its consolidated financial statements through the date of
this report, and has not identified any recordable or disclosable events, not otherwise reported in these consolidated financial statements
or the notes thereto, except for the following:
On
October 1, 2022, the Company entered into a share exchange agreement, with Cal Care Group, Inc. (“Cal Care”), and William
Reed, as the sole shareholder of Cal Care (the “Share Agreement”). Cal Care is a licensed delivery and distribution company
with locations in southern and northern California. The Share Agreement provides for the acquisition by the Company of all of the outstanding
shares of Cal Care from Mr. Reed, who is also the Company’s Chairman and Chief Executive Officer, in consideration of the issuance
to Mr. Reed of 500,000 shares of the Company’s Series A Preferred Stock. The consideration exchanged on April 5, 2023. Cal Care
will become a wholly owned subsidiary of CuraScientific Corp.
On
April 25, 2023, the Company’s subsidiary, Cal Care will acquire Cannabis License(s) C9-0000183 (Retail), C11-0000327 (Distribution),
and CDPH-10003817 (Manufacturing) in the State of California for a total consideration of $600,000. The new property lease is located
at 75080 St. Charles Place, Suite B, Palm Desert, California. The Property Lease Agreement is a 5-year commitment at a cost of $ 3,000
per month plus utilities.
Subsequent
to March 31, 2023, the Company issued 1,000 Series B to its Chief Executive Officer and 1,000 Series B shares to Justin Gonzalez, director
and Chief Operating Officer for no consideration.