Results of Operations
We have not recorded any revenues since inception. During the three months ended March 31, 2015, our net loss was $1,792,650 compared to a net loss of $1,004,215 for the three months ended March 31, 2014. The increased loss for 2015 of $788,435 was due to the fact the company was more active in the quarter ended March 31, 2015. The primary reasons for the increase were increase in R&D expenses of $278,423, an increase in marketing and selling of 264,225 and an increase combined with a small decrease of general and administrative expense of 244,737.
Sales
We have not recorded any revenues since inception. The company has received sales orders and will record revenue in the second quarter of this year.
Operating Expenses
Professional fees
During the first quarter ended March 31, 2015, professional fees expenses were $50,420, an increase of $514 from the first quarter of 2014 professional fees expense of $49,906. The activities in the first quarter were of 2015 and 2014 were very similar.
Research and development
Research and development costs consist of fees paid to consultants for laboratory evaluation of product chemistry and formulation as well as tests and studies to assess the efficacy and potential safety of our products. Also included in research and development are laboratory consumables.
During the first quarter ended March 31, 2015, research and development expenses of $396,120 increased by $278,423 from $117,697 for the first quarter of 2014. The increase was a result of the company's increased focus on development work.
General and administrative
During the first quarter of 2015, we incurred general and administrative expenses of $1,054,275 an increase of $244,737 from $809,538 for the first quarter of 2014. The increase is a non cash item of shares issued to management in lieu of cash.
Marketing and selling
During the first quarter ended March 31, 2015, marketing and selling expenses of $269,185 increased by $264,225 from $4,960 for the first quarter of 2014. The increase is a result of the company preparation for the commencement of sales. The company has also started negotiations in various parts of the world for the sale of distribution licenses for the sale of the company's pharmaceuticals
Interest expense
Interest expense of $22,650 for the third quarter ended March 31, 2015 an increase of $536 from $22,114 for the first quarter of 2014. The increase is attributed to an increase in loans from stockholders during the period.
Liquidity and Capital Resources
At March 31, 2015 we had a working capital deficit of $1,853,458 which is an increase of $311,937 from the December 31, 2014 deficit balance of $1,541,521. The increase in the deficit is largely a result of the loss for the quarter of $1,792,650 netted by the $854,243 of this loss having been paid by issuing common stock for services and the conversion of accrued compensation of $325,849 to common stock.
Expenses incurred during 2015 have been paid for by related parties including our current CEO and current President as well as through several small equity raises. Because we have no cash reserves or revenue source, we expect to continue to rely on the stockholders and equity raises to pay expenses until such time as we can generate sufficient cash flows to pay our ongoing operational costs. There is no assurance that the company will continue to obtain equity raises before the company develops revenue sources with sufficient cash flow to pay expense.
During the three months ended March 31, 2015 the stockholders contributed a net amount of $26,580, made up of $33,000 advanced in cash less $883 of expenses paid by the company on behalf of the related party and $5,536 of cash paid back to the related party. At March 31, 2015 and December 31, 2014, we had cash on hand of $28,861 and $286,481, respectively. At March 31, 2015 we had notes payable - related party of $1,032,971, compared to $1,006,391 at December 31, 2014. The increase represents additional contributions from stockholders during the three months ended December 31, 2014. Accrued interest – related party at March 31, 2015 was $205,495 compared to $182,845 at December 31, 2014, which increase reflects the added interest of $22,650 on the related party payable. Accounts payable and accrued liabilities increased by $55,955 from $299,099 at December 31, 2014, to $355,054 at March 31, 2015, primarily a result of the fact the company is in a fund raising situation.
In the opinion of management, inflation has not and will not have a material effect on our operations until such time as we successfully complete an acquisition or merger. At that time, management will evaluate the possible effects of inflation related to our business and operations.
At March 31, 2015, we had a stockholders' deficit of $1,719,494 compared to a stockholders' deficit of $1,398,275 at December 31, 2014. The decrease in stockholders' deficit is primarily attributed to operating loss in the first quarter of 2015.
As of May 8, 2015, we had cash on hand of $11,234. We believe that our available cash combined with continued advances from related parties will be sufficient to carry on general corporate functions for the next nine months, although we will need to limit cash outlays for research and product development until we can secure additional funds. We are presently investigating possible funding opportunities to arrange for additional funds, although we do not have any definitive agreement or arrangement for such funds. We expect that additional funding to proceed with development of the intellectual property acquired in 2015 will most likely be from the sale of securities or from stockholder loans. We may not be successful in our efforts to obtain equity financing to carry out our business plan and there is doubt regarding our ability to complete our planned development program. We estimate that cash requirements for the next twelve months will be approximately $5,000,000. In the past year, we have relied on advances from related parties for financing our operations. We continue to explore potential funding opportunities, which may be in the form of debt or the sale of equity securities. In the event we are unsuccessful in arranging for outside funding, we will most likely continue to rely on related parties to provide funding, although there are no firm commitments or agreements with any related party to provide funds in the future.
Net Operating Loss
We have accumulated a net operating loss carryforward of approximately $2,875,099 as of December 31, 2014. This loss carry forward may be offset against future taxable income through the year 2033. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards that can be used. No tax benefit has been reported in the financial statements for the year ended December 31, 2014 or the three month period ended March 31, 2015 because it has been fully offset by a valuation reserve. The use of future tax benefit is undeterminable because we presently have no operations.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as "Development Stage Entities" (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard and will not report inception to date financial information.
The company has evaluated other recent accounting pronouncements and their adoption has not had nor is expected to have a material impact on the company's financial position or statements.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Plan of Operation
Following the closing of a patent acquisition agreement (the "Acquisition Agreement") in 2012, we have become engaged in the development and ultimate formulation of other novel formulations of natural compounds and pharmaceutical products that have limitations in effective use for human consumption. We believe our self-emulsifying drug delivery technology can improve the efficacy of existing products and formulations based on natural or well-established compounds and known biologically active compounds. We intend to conduct our research and development through collaborative programs. We anticipate relying on arrangements with third party drug developers such as contract research organizations and clinical research sites for a significant portion of our product development efforts.
The Acquisition Agreement enabled us to acquire certain products, formulas, processes, proprietary technology and/or patents and patent applications related to pharmaceutical, nutraceutical, food supplements and consumer health products. We have not formulated any final products or receive approvals from any regulatory agencies or generated any revenues from product sales. We have not been profitable since our inception through the current date.
We expect to incur significant operating losses for the next several years and until we are able to formulate a commercially viable product. We also expect to continue to incur significant operating and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we:
● Continue to undertake formulation of novel products and subsequent preclinical and clinical trials for our product candidates;
● Seek regulatory approvals for our product candidates;
● Develop, formulate, manufacture and commercialize our products;
● Implement additional internal systems and develop new infrastructure;
● Acquire or in-license additional products or technologies, or expand the use of our technology;
● Maintain, defend and expand the scope of our intellectual property; and
● Hire qualified personnel.
Future product revenue will depend on our ability to develops, receive regulatory approvals for, and successfully market, our product candidates. In the event that our development efforts result in regulatory approval and successful commercialization of our product candidates, we will generate revenue from direct sales of our products and/or, if we license our products to future collaborators, from the receipt of license fees and royalties from licensed products.
Management estimates that our research and development expenses for the next 12 months will be approximately $3.0 million, primarily for research and pilot studies. We also estimate that other expenses, including personnel, general and administrative and miscellaneous expenses could be as much as $2.0 million during the same time period. Because we currently have no revenues, most likely the only source of funding these expenses will be through the private sale of our securities, either equity or debt. We are currently exploring possible funding sources, but we have not entered into any arrangements or agreements for funding as of this time. If we are unable to raise the necessary funding, our research and development plans will be delayed indefinitely. There can be no assurance that we will be able to raise the funds necessary to carry out our business plan on terms favorable to the company, or at all.
Forward-Looking and Cautionary Statements
Statements contained in this report which are not historical facts, may be considered "forward-looking statements," which term is defined by the Private Securities Litigation Reform Act of 1995. Any "safe harbor under this Act does not apply to a "penny stock" issuer, which definition would include the company. Forward-looking statements are based on current expectations and the current economic environment. We caution readers that such forward-looking statements are not guarantees of future performance. Unknown risks and uncertainties as well as other uncontrollable or unknown factors could cause actual results to materially differ from the results, performance or expectations expressed or implied by such forward-looking statements.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
This item is not required for a smaller reporting company.
Item 4. Controls and Procedures.
Evaluation of Disclosure Controls and Procedures. Disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) are designed to ensure that information required to be disclosed in reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our management, including our chief executive officer and chief financial officer, concluded that, as of March 31, 2015, our disclosure controls and procedures were not effective due to a lack of adequate segregation of duties and the absence of an audit committee.
Changes in Internal Control Over Financial Reporting. Management has evaluated whether any change in our internal control over financial reporting occurred during the quarter ended March 31, 2015. Based on its evaluation, management, including the chief executive officer and chief financial officer, has concluded that there has been no change in our internal control over financial reporting during the quarter ended March 31, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
PART II — OTHER INFORMATION
Item 1. Legal Proceedings
There are no material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.
This item is not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
On January 5, 2015, we issued 8,146,225 Units consisting of one share of common stock and a warrant to purchase one share of common stock to management and directors in satisfaction of accrued liabilities at the price of $0.04 per unit. Each warrant has a term of 5 years and an excercise price of $0.04. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering
On January 27, 2015, we issued 250,000 shares of common to consultants for services rendered at the price of $0.0348 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On January 28, 2015, we issued 1,450,000 shares of common stock to consultants for services rendered at the price of $0.0355 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On January 30, 2015, we issued 2,000,000 shares of common stock to consultants for services rendered at the price of $0.0339 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On February 12, 2015, we issued 15,250,000 shares of common stock to consultants for services rendered at the price of $0.0286 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On March 9, 2015, we issued 3,333,333 shares of common stock to a consultant for services rendered at the price of $0.0334 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
On March 13, 2015, we issued 2,000,000 shares of common stock to a consultant for services rendered at the price of $0.0335 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.
Item 3. Defaults Upon Senior Securities
This Item is not applicable.
Item 4. Mine Safety Disclosures
This Item is not applicable.
Item 5. Other Information
This Item is not applicable.
