GlobeStar Therapeutics Corp - Quarter Report: 2019 June (Form 10-Q)

UNITED STATES

SECURITY AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549 

FORM 10-Q

(MARK ONE)

☒  QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2019 

or

☐  TRANSITION REPORT UNDER SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _________ to _________

Commission File Number: 333-170315

AngioSoma Inc.

(Exact name of registrant as specified in its charter)

Registrant’s telephone number, including area code: 832-781-8521

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)   Yes ☐ No ☒

Securities registered pursuant to Section 12(b) of the Act: None.

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. As of July 26,2019, 128,803,975 shares of common stock were issued and outstanding. 

TABLE OF CONTENTS

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING INFORMATION

Certain statements in this report contain or may contain forward-looking statements. These statements, identified by words such as “plan”, “anticipate”, “believe”, “estimate”, “should”, “expect” and similar expressions include our expectations and objectives regarding our future financial position, operating results and business strategy. These statements are subject to known and unknown risks, uncertainties and other factors, which may cause actual results, performance, or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward - looking statements. These forward-looking statements were based on various factors and were derived utilizing numerous assumptions and other factors that could cause our actual results to differ materially from those in the forward-looking statements. These factors include, but are not limited to, our ability to secure suitable financing to continue with our existing business or change our business and conclude a merger, acquisition or combination with a business prospect, economic, political and market conditions and fluctuations, government and industry regulation, interest rate risk, U.S. and global competition, and other factors. Most of these factors are difficult to predict accurately and are generally beyond our control. You should consider the areas of risk described in connection with any forward-looking statements that may be made herein. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this report. Readers should carefully review this report in its entirety, including but not limited to our financial statements and the notes thereto and the risks described in our Annual Report on Form 10-K for the fiscal year ended September 30, 2018. We advise you to carefully review the reports and documents we file from time to time with the Securities and Exchange Commission (the “SEC”), particularly our quarterly reports on Form 10-Q and our current reports on Form 8-K. Except for our ongoing obligations to disclose material information under the Federal securities laws, we undertake no obligation to release publicly any revisions to any forward-looking statements, to report events or to report the occurrence of unanticipated events.

OTHER PERTINENT INFORMATION

When used in this report, the terms, “we,” the “Company,” “our,” and “us” refers to AngioSoma Inc., a Nevada corporation and its subsidiaries unless the context specifically indicates otherwise.

PART I — FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

ANGIOSOMA INC.

CONSOLIDATED BALANCE SHEETS

JUNE 30, 2019 and SEPTEMBER 30, 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ANGIOSOMA INC.

CONSOLIDATED STATEMENT OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ANGIOSOMA INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS

FOR THE THREE AND NINE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ANGIOSOMA INC.

CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY

FOR THE NINE MONTHS ENDED JUNE 30, 2019 AND FROM

SEPTEMBER 30, 2017 TO SEPTEMBER 30, 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ANGIOSOMA INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE NINE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

The accompanying notes are an integral part of these unaudited consolidated financial statements.

ANGIOSOMA INC.

NOTES TO THE UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2019

Note 1. General Organization and Business

AngioSoma, Inc., a Nevada corporation (“AngioSoma” or the “Company”), dedicated to improving the mental and physical wellbeing of men and women. To Company created an e-commerce website to market the line of supplements under the SomaCeuticals™ common identity. Supplements cover three industry segments: nutraceuticals, cosmeceuticals, and pharmaceuticals. 

In addition, the Company is focused on improving the effectiveness of current standard-of-care treatments, especially related to endovascular interventions in the treatment of peripheral artery disease (PAD).

AngioSoma is developing its lead product, a drug candidate called Liprostin^TM for the treatment of peripheral artery disease, or PAD, which has completed FDA Phase I and three Phase II clinical trials. We are in discussions with several contract research organizations for completion of our FDA protocol for Phase III and submission of our new drug application for marketing in the US and its territories.

The Company was incorporated on April 29, 2016. The Company’s year-end is September 30.

Note 2. Going Concern

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. For the nine months ended June 30, 2019, the Company had a net loss of $519,046 and negative cash flow from operating activities of $195,814. As of June 30, 2019, the Company had negative working capital of $740,331. Management does not anticipate having positive cash flow from operations in the near future.

These factors raise a substantial doubt about the Company’s ability to continue as a going concern. The accompanying consolidated financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result from the possible inability of the Company to continue as a going concern.

The Company does not have the resources at this time to repay its credit and debt obligations, make any payments in the form of dividends to its shareholders or fully implement its business plan. Without additional capital, the Company will not be able to remain in business.

Management has plans to address the Company’s financial situation as follows:

In the near term, management plans to continue to focus on raising the funds necessary to implement the Company’s business plan. Management will continue to seek out debt financing to obtain the capital required to meet the Company’s financial obligations. There is no assurance, however, that lenders will continue to advance capital to the Company or that the new business operations will be profitable. The possibility of failure in obtaining additional funding and the potential inability to achieve profitability raise doubts about the Company’s ability to continue as a going concern.

In the long term, management believes that the Company’s projects and initiatives will be successful and will provide cash flow to the Company, which will be used to finance the Company’s future growth. However, there can be no assurances that the Company’s planned activities will be successful, or that the Company will ultimately attain profitability. The Company’s long-term viability depends on its ability to obtain adequate sources of debt or equity funding to meet current commitments and fund the continuation of its business operations, and the ability of the Company to achieve adequate profitability and cash flows from operations to sustain its operations.

Note 3. Summary of Significant Accounting Policies

Interim Financial Statements

The accompanying unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and with the instructions to Form 10-Q and Regulation S-X. The results of operations for the three and nine months ended June 30, 2019 are not necessarily indicative of the results to be expected for the full fiscal year ending September 30, 2019.

Consolidated Financial Statements

The consolidated financial statements of the Company include the accounts of the Company and its wholly owned subsidiaries, AngioSoma Research, LLC, First Titan Energy, LLC and First Titan Technical, LLC from the date of their formations or acquisition. Significant intercompany transactions have been eliminated in consolidation.

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 revenue and expenses during the reporting period. Actual results could differ from those estimates.

Fair Value of Financial Instruments

The Company’s balance sheet includes certain financial instruments. The carrying amounts of current assets and current liabilities approximate their fair value because of the relatively short period between the origination of these instruments and their expected realization.

FASB Accounting Standards Codification (ASC) 820 Fair Value Measurements and Disclosures (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy are described below:

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as of June 30, 2019. The respective carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar terms that is not significantly different from its stated value.

The following table presents assets that were measured and recognized at fair value as of June 30, 2019 and the period then ended on a recurring and nonrecurring basis:

The following table presents assets that were measured and recognized at fair value as of September 30, 2018 and the period then ended on a recurring and nonrecurring basis:

Inventory

The Company sells nutraceutical products online via its website www.angiosoma.com.  Inventory consists of finished goods and is stated at the lower of cost by the first-in, first-out method or net realizable value.

Revenue Recognition

Effective October 1, 2018, the Company adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied. For the comparative periods, revenue has not been adjusted and continues to be reported under ASC 605 — Revenue Recognition. Under ASC 605, revenue is recognized when the following criteria are met: (1) persuasive evidence of an arrangement exists; (2) the performance of service has been rendered to a customer or delivery has occurred; (3) the amount of fee to be paid by a customer is fixed and determinable; and (4) the collectability of the fee is reasonably assured.

There was no impact on the Company’s financial statements as a result of adopting Topic 606 for the three and nine months ended June 30, 2019.

Commitments and Contingencies

The Company follows subtopic 450-20 of the FASB Accounting Standards Codification to report accounting for contingencies. Certain conditions may exist as of the date the consolidated financial statements are issued, which may result in a loss to the Company but which will only be resolved when one or more future events occur or fail to occur. The Company assesses such contingent liabilities, and such assessment inherently involves an exercise of judgment. There are no known commitments or contingencies as of June 30, 2019.

Recently Issued Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”). Under the new guidance, lessees will be required to recognize the following for all leases (with the exception of short-term leases) at the commencement date:

Under the new guidance, lessor accounting is largely unchanged. Certain targeted improvements were made to align, where necessary, lessor accounting with the lessee accounting model and ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The new lease guidance simplified the accounting for sale and leaseback transactions primarily because lessees must recognize lease assets and lease liabilities. Lessees will no longer be provided with a source of off-balance sheet financing. Public business entities should apply the amendments in ASU 2016-02 for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years (i.e., January 1, 2019, for a calendar year entity). Early application is permitted for all public business entities upon issuance. Lessees (for capital and operating leases) and lessors (for sales-type, direct financing, and operating leases) must apply a modified retrospective transition approach for leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The modified retrospective approach would not require any transition accounting for leases that expired before the earliest comparative period presented. Lessees and lessors may not apply a full retrospective transition approach. We are currently evaluating the impact ASU 2016-02 will have on the Company’s condensed consolidated financial statements.

In May 2014, the FASB issued ASU 2014-09 which will supersede virtually all existing revenue guidance. Under this update, an entity is required to recognize revenue upon transfer of promised goods or services to customers, in an amount that reflects the expected consideration received in exchange for those goods or services. As such, an entity will need to use more judgment and make more estimates than under the current guidance. ASU 2014-09 is to be applied retrospectively either to each prior reporting period presented in the financial statements, or only to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. The Company will elect to apply the impact (if any) of applying ASU 2014-09 to the most current reporting period presented in the financial statements with a cumulative effect adjustment to retained earnings. In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers (Topic 606): Deferral of the Effective Date (“ASU 2015-14”). ASU 2015-14 deferred the effective date of ASU 2014-09 for one year, making it effective for the year beginning December 31, 2017, with early adoption permitted as of January 1, 2017. We adopted ASU 2014-09 as of October 1, 2018. The Company does not believe the adoption of ASU 2014-09 had any material impact on its condensed consolidated financial statements.

We have reviewed the FASB issued Accounting Standards Update (“ASU”) accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and does not believe that any new or modified principles will have a material impact on the corporation’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of our financial management and certain standards are under consideration.

Subsequent events

The Company follows the guidance in Section 855-10-50 of the FASB Accounting Standards Codification for the disclosure of subsequent events. The Company will evaluate subsequent events through the date when the financial statements were issued. Pursuant to ASU 2010-09 of the FASB Accounting Standards Codification, the Company as an SEC filer considers its financial statements issued when they are widely distributed to users, such as through filing them on EDGAR.

Note 4. Advances

As of June 30, 2019 and September 30, 2018, the Company had non-interest bearing advances payable to third parties of $59,650. These advances are payable on demand.

Note 5. Convertible Notes Payable

Convertible notes payable consisted of the following at June 30, 2019 and September 30, 2018:

All principal along with accrued interest is payable on the maturity date. The notes are convertible into common stock at the option of the holder. The holder of the notes cannot convert the notes into shares of common stock if that conversion would result in the holder owning more than 4.9% of the outstanding stock of the Company. During the nine months ended June 30, 2019, the Company recorded discounts to notes payable in connection with beneficial conversion features in the aggregate amount of $232,828, and recorded amortization of discounts in the amount of $222,048.

As of June 30, 2019 and September 30, 2018, accrued interest on notes payable was $226,314 and $232,307, respectively.

During the three months ended June 30, 2019 and 2018, interest expense on the notes payable was $6,931 and $4,083, respectively; during the nine months ended June 30, 2019 and 2018, interest expense on the notes payable was $17,561 and $7,963, respectively

Conversions of Notes Payable to Common Stock

During the nine months ended June 30, 2019, the holders of the Convertible Note Payable dated May 14, 2018 elected to convert, in four separate transactions, principal of $58,000 and accrued interest of $3,480 into a total of 6,959,142 shares of common stock. A loss in the aggregate amount of $13,663 was recognized on the conversions.

Also during the nine months ended June 30, 2019, the Company issued 3,300,001 shares of common stock with a fair value of $98,670 for the conversion of a note payable with a basis of $0. A loss in the amount of $98,670 was recorded on this transaction.

Also during the nine months ended June 30, 2019, the holders of the Convertible Note Payable dated June 25, 2018, elected to convert principal of $12,000 into 2,006,689 shares of common stock. The Company recorded a loss of $4,840 on this transaction.

Also during the nine months ended June 30, 2019, the holders of the Convertible Note Payable dated June 25, 2018, elected to convert, in two separate transactions, principal of $31,000 and accrued interest of $2,580 into a total of 5,245,708 shares of common stock. A loss in the aggregate amount of $7,643 was recognized on the conversions.

Also during the nine months ended June 30, 2019, the holders of the Convertible Note Payable dated August 2, 2018 elected to convert, in two separate transactions, principal of $33,000 and accrued interest of $1,980 into a total of 2,608,527 shares of common stock. A loss in the aggregate amount of $2,008 was recognized on the conversions.

Also during the nine months ended June 30, 2019, the holders of the Convertible Note Payable dated September 7, 2018 elected to convert, in three separate transactions, principal of $40,000 and accrued interest of $2,400 into a total of 7,298,763 shares of common stock. A loss in the aggregate amount of $4,723 was recognized on the conversions.

Also during the nine months ended June 30, 2019, the holders of the Convertible Note Payable dated October 31, 2018 elected to convert, in three separate transactions, principal of $38,000 and accrued interest of $2,280 into a total of 8,597,234 shares of common stock. A loss in the aggregate amount of $6,274 was recognized on the conversions. 

Note 6. Note Payable

The Company entered into a promissory note with its attorney to refinance accounts payable of $68,793 as of September 30, 2016 into a promissory note. The note can be issued up to the total principal amount of $100,000 and includes the prepayment of legal fees of $31,498 to be incurred during the period from October 1, 2016 through March 1, 2017. The note payable was recorded at $68,793 (the amount of refinanced accounts payable) as of September 30, 2017. There was no prepayment recognized as of September 30, 2017. During the year ended September 30, 2018, the company increased the amount of the note to $100,000 in connection with legal fees incurred. The note bears interest at the prime rate and requires monthly payments of principal and interest of $10,000 beginning July 1, 2017, the maturity date. Effective as of June 30, 2019, this note in the principal amount of $100,000 and accrued interest in the amount of $10,834 was forgiven by the lender; the Company recorded a gain in the amount of $110,834 in connection with the note forgiveness, and as of June 30, 2019, the balance of this note is $0. During the three and nine months ended June 30, 2019, the Company accrued interest in the amount of $1,371 and $4,058, respectively, on this note. 

Note 7. Related Party Transactions

David Summers, a significant shareholder of the Company, formerly provided consulting services to the Company related to the development of our products. In addition, the Company had previously rented office space from Mr. Summers for $400 per month under a month to month lease. As of June 30, 2019, Summers claimed services, rent and other expense reimbursements in the amount of $112,804 was unpaid. We dispute this claim as being without merit or support.

The Company is also involved in a legal dispute with Mr. Summers to gather the funds due by Summers to the Company, as well as the written agreement for Summers to provide certain patents and formulas.  It is not anticipated that Summers will be paid any money.

Alex Blankenship is paid $5,000 per month under her employment agreement as Chief Executive Officer of the Company. As of June 30, 2019, the Company owed Ms. Blankenship $140,438 for unpaid compensation. 

During the nine months ended June 30, 2019, the Company issued 3,500,000 shares of common stock with a fair value of $68,250  to Ms. Blankenship as a bonus.

As of June 30, 2019, the Company owed Sydney Jim, our former CEO, $38,130 for accrued but unpaid compensation.

Note 8. Stockholders’ Equity (Deficit)

Common stock issued for conversion of convertible notes payable

During nine months ended June 30, 2019, the Company issued 1,098,901 shares of common stock upon the conversion of principal of $15,000. A loss in the amount of $3,616 was recognized on this transaction.

During nine months ended June 30, 2019, the Company issued 1,442,308 shares of common stock upon the conversion of principal of $15,000. A loss in the amount of $3,365 was recognized on this transaction.

During nine months ended June 30, 2019, the Company issued 1,224,490 shares of common stock upon the conversion of principal of $12,000. A loss in the amount of $1,531 was recognized on this transaction.

During nine months ended June 30, 2019, the Company issued 3,193,443 shares of common stock upon the conversion of principal of $16,000 and accrued interest in the amount of $3,480. A loss in the amount of $3,561 was recognized on this transaction.

During nine months ended June 30, 2019, the Company issued 2,006,689 shares of common stock upon the conversion of principal of $12,000. A loss in the amount of $4,840 was recognized on these transaction.

During nine months ended June 30, 2019, the Company issued 3,300,001 shares of common stock with a fair value of $98,670 for the conversion of a note payable with a basis of $0. A loss in the amount of $98,670 was recorded on this transaction.

During nine months ended June 30, 2019, the Company issued 5,245,708 shares of common stock upon the conversion of principal of $31,000 and accrued interest of $2,580. A loss in the amount of $7,643 was recognized on this transaction.

During nine months ended June 30, 2019, the Company issued 2,608,527 shares of common stock upon the conversion of principal of $33,000 and accrued interest of $1,980. A loss in the amount of $2,008 was recognized on this transaction.

During nine months ended June 30, 2019, the Company issued 7,298,763 shares of common stock upon the conversion of principal of $40,000 and accrued interest of $2,400. A loss in the amount of $4,723 was recognized on this transaction.

During nine months ended June 30, 2019, the Company issued 8,597,234 shares of common stock upon the conversion of principal of $38,000 and accrued interest of $2,280. A loss in the amount of $6,274 was recognized on this transaction.

Shares issued for services to CEO

During the nine months ended June 30, 2019, the Company issued 3,500,000 shares of common stock with a fair value of $68,250  to its Chief Executive Officer as a bonus.

Beneficial conversion feature

During the nine months ended June 30, 2019, the Company charged to additional paid-in capital the aggregate amount of $232,828 on connection with the beneficial conversion feature of notes payable.

Note 9. Commitments and Contingent Liabilities

Litigation

The Company is involved in a legal dispute with Mr. David Summers, a significant shareholder, regarding the settlement of claims on certain patents and formulas.  There is no significant exchange of monies or ownership anticipated, and the Company has not accrued a liability with regard to this dispute.

Note 10.  Subsequent Events

On July 3, 2019, the Company issued 4,285,714 shares of common stock in connection with the conversion of a note payable in the amount of $12,000.

On July 8, 2019, the Company issued 4,800,000 shares of common stock in connection with the conversion of a note payable in the amount of $9,000. 

On July 10, 2019, the Company issued 4,773,913 shares of common stock in connection with the conversion of principal and accrued interest in the amounts of $9,000 and $1,980, respectively.

On July 24, 2019, the Company issued 6,105,263 shares of common stock in connection with the conversion of a note payable in the amount of $11,600.

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

AngioSoma is a clinical stage biotechnology company focused on improving the effectiveness of current standard-of-care treatments, especially related to endovascular interventions in the treatment of peripheral artery disease (PAD).

AngioSoma is developing its lead product, a drug candidate called Liprostin^TM for the treatment of peripheral artery disease, or PAD, which has completed FDA Phase I and three Phase II clinical trials. We are in discussions with several contract research organizations for completion of our FDA protocol for Phase III and submission of our new drug application for marketing in the US and its territories.

Critical Accounting Policies

We prepare our consolidated financial statements in conformity with GAAP, which requires management to make certain estimates and apply judgments. We base our estimates and judgments on historical experience, current trends, and other factors that management believes to be important at the time the condensed consolidated financial statements are prepared. We regularly review our accounting policies, and how they are applied and disclosed in our condensed consolidated financial statements.

While we believe that the historical experience, current trends and other factors considered support the preparation of our condensed consolidated financial statements in conformity with GAAP, actual results could differ from our estimates and such differences could be material.

Results of Operations

Three Months Ended June 30, 2019 Compared to the Three Months Ended June 30, 2018

Revenue.  We had revenue of $25 for the three months ended June 30, 2019 compared to $242 for the three months ended June 30, 2018.  

Cost of goods sold.  We had cost of goods sold of $9 for the three months ended June 30, 2019 compared to $170 for the three months ended June 30, 2018.

General and administrative expense.  We recognized general and administrative expense of $53,875 for the three months ended June 30, 2019 compared to $69,792 for the comparable period of 2018. The decrease in general and administrative expense was related primarily to decreases in consulting fees and computer/internet expenses. 

Loss on conversion of debt.  We recognized a loss on the conversion of debt in the amount of $4,684 during the three months ended June 30, 2019 compared to $8,046 during the three months ended June 30, 2018. The decrease was due to the loss on conversion of convertible notes payable.

Gain on forgiveness of debt.  We recognized a gain on the forgiveness of debt in the amount of $110,834 during the three months ended June 30, 2019 compared to $0 during the three months ended June 30, 2018. The increase was due to the forgiveness of debt and accrued interest in connection with a note payable held by the Company’s attorney.

Interest expense.  We recognized interest expense of $52,831 for the three months ended June 30, 2019 compared to $13,219 for the comparable period of 2018. The increase was due primarily to the amortization of the discount on convertible notes payable during the current period in the amount of $45,900 compared to $6,344 during the comparable period of the prior year.

Net loss.  For the reasons above, we recognized a net loss of $540 for the three months ended June 30, 2019 compared to $90,985 for the three months ended June 30, 2018.

Nine Months Ended June 30, 2019 Compared to the Nine Months Ended June 30, 2018

Revenue.  We had revenue of $300 for the nine months ended June 30, 2019 compared to $242 for the nine months ended June 30, 2018.  

Cost of goods sold.  We had cost of goods sold of $56 for the nine months ended June 30, 2019 compared to $170 for the nine months ended June 30, 2018.

General and administrative expense.  We recognized general and administrative expense of $254,284 for the nine months ended June 30, 2019 compared to $240,211 for the comparable period of 2018. The increase in general and administrative expense was related primarily to an increase in non-cash compensation during the period.

Oil Lease Income. The Company had other income related to an oil lease $0 for the nine months ended June 30, 2019, compared to $5,531 for the nine months ended June 30, 2018.

Loss on conversion of preferred stock.  We recognized loss on the conversion of preferred stock in the amount of $0 for the nine months ended June 30, 2019 compared to $7,250 for the comparable period of 2018.

Loss on conversion of debt.   We recognized a loss on the conversion of debt in the amount of $136,231 during the nine months ended June 30, 2019 compared to $336,246 during the nine months ended June 30, 2018.

Gain on forgiveness of debt.   We recognized a gain on the forgiveness of debt in the amount of $110,834 during the nine months ended June 30, 2019 compared to $0 during the nine months ended June 30, 2018. The increase was due to the forgiveness of debt and accrued interest in connection with a note payable held by the Company’s attorney.

Interest expense.  We recognized interest expense of $239,609 for the nine months ended June 30, 2019 compared to $18,443 for the comparable period of 2018. The increase was due primarily to the amortization of the discount on convertible notes payable during the current period in the amount of $209,549 compared to $10,840 during the comparable period of the prior year.

Net loss.  For the reasons above, we recognized a net loss of $519,046 for the nine months ended June 30, 2019 compared to $596,547 for the nine months ended June 30, 2018.

Liquidity and Capital Resources

At June 30, 2019, we had cash on hand of $104,783. The Company has negative working capital of $740,331. Net cash used in operating activities for the nine months ended June 30, 2019 was $195,814. Cash on hand is adequate to fund our operations for less than twelve months. We do not expect to achieve positive cash flow from operating activities in the near future. We will require additional cash in order to implement our business plan. There is no guarantee that we will be able to attain fund when we need them or that funds will be available on terms that are acceptable to the Company. We have no material commitments for capital expenditures as of June 30, 2019.

During the nine months ended June 30, 2019, the Company used cash in operating activities in the amount of $195,814. This consisted of the net loss of $519,046 and a non-cash gain on forgiveness of debt in the amount of $110,834, partially offset by the following non-cash operating expenses: depreciation in the amount of $354; amortization of the discount on notes payable in the amount of $222,048; loss on conversion of debt in the amount of $136,231; and stock-based compensation in the amount of $68,250. The Company had cash flows from financing activities of $209,000 from the proceeds of convertible notes payable.

Additional Financing

Additional financing is required to continue operations. Although actively searching for available capital, the Company does not have any current arrangements for additional outside sources of financing and cannot provide any assurance that such financing will be available.

Off Balance Sheet Arrangements

We do not have any 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 investors.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable to a smaller reporting company.

ITEM 4. CONTROLS AND PROCEDURES

Management’s Report on Internal Control over Financial Reporting

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2019. Based upon that evaluation, our principal executive officer and principal financial officer concluded that, as of June 30, 2019, our disclosure controls and procedures were not effective to ensure that information required to be disclosed in reports filed by us under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the required time periods and is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.

Our management, including our principal executive officer and principal financial officer, who is the same person, does not expect that our disclosure controls and procedures or our internal controls will prevent all error or fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Due to the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

Change in Internal Controls Over Financial Reporting

There was no change in our internal controls over financial reporting that occurred during the period covered by this report, which has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II — OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

We know of no material, active or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceedings or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered beneficial shareholder are an adverse party or has a material interest adverse to us.

The Company is involved in a legal dispute with Mr. David Summers, a significant shareholder, regarding the settlement of claims on certain patents and formulas.  There is no significant exchange of monies or ownership anticipated, and the Company has not accrued a liability with regard to this dispute.

ITEM 1A. RISK FACTORS

Not applicable to a smaller reporting company.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Set forth below is information regarding the securities sold during the quarter ended June 30, 2019 that were not registered under the Securities Act:

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

The Company has not defaulted upon senior securities.

ITEM 4. MINE SAFETY DISCLOSURES

This item is not applicable to smaller reporting companies.

ITEM 5. OTHER INFORMATION

None.

ITEM 6. EXHIBITS

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.