ZENOSENSE, INC. - Quarter Report: 2015 September (Form 10-Q)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
x QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2015
Or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ______________________
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000-54936
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Commission file number
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Zenosense, Inc.
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(Exact name of small business issuer as specified in its charter)
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Nevada
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26-3257291
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(State or other jurisdiction of incorporation or organization)
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(IRS Employer Identification No.)
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Avda Cortes Valencianas 58, Planta 5, 46015 Valencia, Spain
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(Address of principal executive offices)
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001 (34) 960454202
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(Issuer’s telephone number)
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Not Applicable
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(Former name, former address and former fiscal year, if changed since last report)
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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 [ X ]
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Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes [] No [ X]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act
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Large accelerated filer
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Accelerated filer
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Non-accelerated filer
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Smaller reporting company
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[ X ]
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Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
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Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 49,615,297 common shares issued and outstanding as of May 10, 2016
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ZENOSENSE, INC.
TABLE OF CONTENTS
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Page
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PART I – FINANCIAL INFORMATION
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Financial Statements
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3
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Management’s Discussion and Analysis of Financial Condition and Results of Operations
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4
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Quantitative and Qualitative Disclosures About Market Risk
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8
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Controls and Procedures
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8
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PART II – OTHER INFORMATION
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Legal Proceedings
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9
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Risk Factors
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9
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Unregistered Sales of Equity Securities and Use of Proceeds
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9
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Defaults Upon Senior Securities
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9
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Mine Safety Disclosures
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9
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Other Information
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9
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Exhibits
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9
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10
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2
PART 1 - FINANCIAL INFORMATION
ITEM 1 FINANCIAL STATEMENTS
ZENOSENSE, INC.
For the Three and Nine Months Ended September 30, 2015 and 2014
TABLE OF CONTENTS
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Page
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F-1
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F-2
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F-3
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F-4 to F-7
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3
ZENOSENSE, INC.
(Unaudited)
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September 30, 2015
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December 31,
2014
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Assets
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Current Assets
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Cash
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$ | 1,953 | $ | 4,423 | ||||
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Prepaid expense
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6,667 | - | ||||||
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Total assets
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$ | 8,620 | $ | 4,423 | ||||
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Liabilities and Stockholders’ Deficit
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Current liabilities:
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Accounts payable and accrued expense
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$ | 36,795 | $ | 17,418 | ||||
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Accounts payable and accrued expense – related party
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35,040 | 5,445 | ||||||
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Loans payable
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110,000 | 20,000 | ||||||
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Stock payable
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67,500 | 67,500 | ||||||
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Total current liabilities
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249,335 | 110,363 | ||||||
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Stockholders’ Deficit
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Common stock 500,000,000 authorized, $0.001 par value,
Shares issued and outstanding 49,615,297
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49,615 | 49,615 | ||||||
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Additional paid in capital
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1,005,270 | 1,005,270 | ||||||
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Accumulated deficit
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(1,295,600 | ) | (1,160,825 | ) | ||||
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Total stockholders’ deficit
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(240,715 | ) | (105,490 | ) | ||||
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Total Liabilities and Stockholders’ deficit
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$ | 8,620 | $ | 4,423 | ||||
See accompanying notes to the unaudited financial statements.
F-1
ZENOSENSE, INC.
For the Three and Nine Months Ended September 30, 2015 and 2014
(Unaudited)
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Three Months ended September 30, 2015
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Three Months ended September 30, 2014
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Nine Months ended September 30, 2015
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Nine Months ended September 30,
2014
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Revenues
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$ | - | $ | - | $ | - | $ | - | ||||||||
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Expenses
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Research and development expense
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32,215 | $ | 52,681 | $ | 32,215 | $ | 282,778 | |||||||||
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General and administrative expense
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30,003 | 45,734 | 100,243 | 133,196 | ||||||||||||
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Total expenses
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62,218 | 98,415 | 132,458 | 415,974 | ||||||||||||
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Loss from operations
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(62,218 | ) | (98,415 | ) | (132,458 | ) | (415,974 | ) | ||||||||
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Other expense
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Interest expense
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(1,317 | ) | (73 | ) | (2,317 | ) | (163 | ) | ||||||||
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Total other expense
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(1,317 | ) | (73 | ) | (2,317 | ) | (163 | ) | ||||||||
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Net loss
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$ | (63,535 | ) | $ | (98,488 | ) | $ | ( 134,775 | ) | $ | (416,137 | ) | ||||
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Net loss per common share:
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Basic and diluted
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$ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | ||||
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Weighted average common shares outstanding:
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Basic and diluted
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49,615,297 | 48,814,474 | 49,615,297 | 48,544,011 | ||||||||||||
See accompanying notes to the unaudited financial statements.
F-2
ZENOSENSE, INC.
For the Nine Months Ended September 30, 2015 and 2014
(Unaudited)
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September 30, 2015
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September 30, 2014
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Operating Activities
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Net loss
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$ | (134,775 | ) | $ | (416,137 | ) | ||
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Adjustments to reconcile net loss to net cash used in operating activities:
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Changes in operating assets and liabilities:
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Prepaid expense
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(6,667 | ) | 76,699 | |||||
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Accounts payable and accrued expense
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19,377 | (9,471 | ) | |||||
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Accounts payable and accrued expense – related party
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29,595 | 5,871 | ||||||
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Cash used in operating activities
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(92,470 | ) | (343,038 | ) | ||||
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Financing activities
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Proceeds from third party loan
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90,000 | - | ||||||
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Proceeds from sales of common stock
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- | 411,500 | ||||||
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Proceeds from note payable
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- | 13,000 | ||||||
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Cash provided by financing activities
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90,000 | 424,500 | ||||||
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Net decrease in cash
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(2,470 | ) | 81,462 | |||||
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Cash, beginning of period
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4,423 | 26,778 | ||||||
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Cash, end of period
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$ | 1,953 | $ | 108,240 | ||||
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Supplemental disclosure of cash flow information
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Cash paid for income taxes
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$ | - | $ | - | ||||
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Cash paid for interest
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$ | - | $ | - | ||||
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Non-cash investing and financing activities:
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Conversion of notes payable and accrued interest into common stock
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$ | - | $ | 13,100 | ||||
See accompanying notes to the condensed financial statements.
F-3
(Unaudited)
1. Nature of operations
Zenosense, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on August 11, 2008, for the purpose of acquiring and developing mineral properties. The Company's mineral rights agreement was terminated on May 15, 2013, and as a result, the Company was no longer a pre-exploration stage company.
On October 1, 2013, because the Company had abandoned its mineral properties development business plan, it accordingly reclassified the mineral development component of operations as discontinued operations.
On November 22, 2013, the Company filed a certificate of amendment with the State of Nevada and (1) changed its name from “Braeden Valley Mines, Inc.” to “Zenosense, Inc.” and (2) effected an increase in the Company’s authorized shares from 50,000,000 to 500,000,000, with par value of $0.001 per share.
Effective December 4, 2013, the Company entered into a development and exclusive license agreement (“License Agreement”) whereby the Company will provide a third party with capital for the development of the sensory technology for a methicillin resistant Staphylococcus aureus / Staphylococcus aureus (“MRSA/SA”) detection device and other improvements and variations to the products (the “Sgenia Products”) to be used in the hospital and health care environments, in exchange for a worldwide, exclusive license to manufacture, market and sell the resulting products, subject to certain limitations and a royalty arrangement on a revenue sharing basis. The License Agreement was modified in April 2014 and July 2014 to extend it to cancer sensory products and to modify and extend the development schedule and change the research funding budget to accommodate a lung cancer product as well as the MRSA/SA product.
2. Basis of presentation
The accompanying unaudited interim consolidated financial statements of Zenosense, Inc. have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission (“SEC”), and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s latest Annual Report on Form 10-K for the year ended December 31, 2014 filed with the SEC on April 14, 2015. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosure contained in the audited financial statements for the most recent fiscal year ended December 31, 2014, as reported on Form 10-K, have been omitted.
3. Going Concern
The financial statements have been prepared in accordance with generally accepted accounting principles applicable to a going concern, which assumes that the Company will be able to meet its obligations and continue its operations for 12 months. Realization values may be substantially different from carrying values as shown and these financial statements do not give effect to adjustments that would be necessary to the carrying values and classification of assets and liabilities should the Company be unable to continue as a going concern. At September 30, 2015, the Company had not yet achieved profitable operations, had accumulated losses of $1,295,600 since its inception and expects to incur further losses in the development of its business, all of which raises substantial doubt about the Company’s ability to continue as a going concern. The Company’s ability to continue as a going concern is dependent upon its ability to generate future profitable operations and/or to obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due.
The Company expects to continue to incur substantial losses as it executes its business plan and does not expect to attain profitability in the near future. Since its inception, the Company has funded operations through short-term borrowings, advances, and equity investments in order to meet its strategic objectives. The Company's future operations are dependent upon external funding and its ability to execute its business plan, realize sales and control expenses. Management believes that sufficient funding will be available from additional borrowings and private placements to meet its business objectives including anticipated cash needs for working capital, for the next fiscal year. However, there can be no assurance that the Company will be able to obtain sufficient funds to continue the development of its business operation, or if obtained, upon terms favorable to the Company.
F-4
4. Summary of Significant Accounting Policies
Use of estimates
The preparation of financial statements in conformity with generally accepted accounting principles 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. Actual results could differ from those estimates.
Reclassifications
Certain reclassifications have been made to the prior year financial statements to conform with the current year presentation.
Cash and cash equivalents
Cash and cash equivalents are defined as cash on hand, demand deposits and short-term, highly liquid investments with an original maturity of ninety days or less. The Company has not experienced any losses on its deposits of cash and cash equivalents.
Research and development
Research and development costs are expensed as incurred.
Income taxes
Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between their financial statement carrying amounts 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.
Loss per common share
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 share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during each period.
Subsequent events
The Company evaluated all events or transactions that occurred after September 30, 2015, up through the date these financial statements were issued and no subsequent events occurred that required disclosure in the accompanying financial statements.
Recently Adopted Accounting Standards
The Company does not expect the adoption of any recent accounting pronouncements to have a material impact on its financial statements.
5. Loans Payable
On December 1, 2014, the Company received $20,000 pursuant to a promissory note issued to a third party. The note is unsecured, bears interest at 5% per annum and is due on demand. At September 30, 2015, the Company had accrued interest of $827 in connection with the promissory note.
On February 27, 2015, the Company received $20,000 pursuant to a promissory note issued to a third party. The note is unsecured, bears interest at 5% per annum and is due on demand. At September 30, 2015, the Company had accrued interest of $589 in connection with the promissory note.
On May 22, 2015, the Company received $10,000 pursuant to a promissory note issued to a third party. The note is unsecured, bears interest at 5% per annum and is due on demand. At September 30, 2015, the Company had accrued interest of $173 in connection with the promissory note.
On July 11, 2015, the Company received $60,000 pursuant to a promissory note issued to a third party. The note is unsecured, bears interest at 5% per annum and is due on demand. At September 30, 2015, the Company had accrued interest of $666 in connection with the promissory note.
F-5
6. Common Stock
Zenosense’s authorized capital consists of 500,000,000 shares of common stock, with par value of $0.001.
On July 28, 2014, the Company entered into a Securities Purchase Agreement under which the investor committed to purchase an aggregate of 1,370,000 shares of the Company’s common stock, for an aggregate purchase price of $274,000. The initial purchase of shares was made on July 28, 2014 for 357,000 shares for a purchase price of $71,500. Two additional purchase installments were made in August and September. Each installment was for 337,500 shares at a purchase price of $67,500 per installment. The shares when issued are pursuant to an exemption from registration under the federal securities laws. On November 11, 2014, the Company received the final installment due under the Securities Purchase Agreement of $67,500 for 337,500 shares of common stock, and as of September 30, 2015 the shares in connection with the final investment have not been issued.
7. Commitments
In December 4, 2013, the Company entered into the License Agreement with Sgenia Industrial S.L. and its subsidiaries, Sgenia Soluciones S.L and ZENON Biosystem S.L (collectively, “Sgenia”) for the development of the Sgenia Products, to be based on the Sgenia sensory technology. Pursuant to the License Agreement, the Company will have a worldwide exclusive license to manufacture, market and sell the resulting products, subject to certain limitations and a royalty arrangement on a revenue sharing basis. The Company entered into three amendments (the “Amendments”) to the License Agreement to modify and extend the Sgenia Products to include a lung cancer product and change the product development schedule and the research funding budget to accommodate the additional lung cancer product as well as the continuation of the development of the MRSA product.
Additionally, the development stage objectives and milestones were modified to reflect the current state of development of each of the Sgenia Products.
Under the License Agreement, the Company is funding the development of the Sgenia Products pursuant to a research and development plan proposed by Sgenia and accepted by the Company. The funding will be provided on an advance basis, per month, based on agreed development stages. In return, the Company will have the exclusive right to manufacture, formulate, package, market and sell the Sgenia Products world-wide, for 40 years, subject to a limitation on the inclusion of Spain in the territory. All intellectual property developed by Sgenia at any time during the term related to manufacturing, formulating and/or packaging process shall be shared ownership and licensed to
the Company on a royalty-free basis. Sgenia will also supply to the Company, at a negotiated price based on quantity, all of the requirements for the integrated circuits on microchips that are necessary for the operation of the Sgenia Products. Sgenia and the Company will also work together to research and develop the Sgenia Products and establish written plans and reviewing committees for the management of the overall development project and commercialization of the Sgenia Products.
The Company’s funding of the MRSA product development was limited to an initial approved budget of $1,256,438, of which $526,846 was advanced by the Company. As a result of the Amendment of July 2014, at the date of this report, the revised and approved budget is approximately $1,142,143, of which $769,787 has been advanced (including the amount advanced under the prior budget) as of September 30, 2015. The Company is currently committed to advancing approximately EUR656,000, for research and development under the revised and approved budget, and subject to Sgenia meeting certain milestones. Some of the milestones have not been met as of September 30, 2015. The aggregate of the advances paid by the Company are recorded as research and development expenses. The budget may be changed by mutual agreement from time to time.
In addition to providing the development funding, the Company will also pay royalties for completed sales of the Sgenia Products, payable 60 days after each fiscal quarter of the Company (the “Royalties”). The Royalties will be 20% of net sales, which is calculated based on gross sales of the device and the installation and training for the Sgenia Products, less various expenses, including manufacturing, components acquired from Sgenia, commissions, refunds and discounts and sales taxes. If the Sgenia Products are sold by Sgenia in Spain for original use in Spain, then the Royalties on those sales will be reduced. The Company also has the right to sublicense to other parties throughout the world, except in Spain if and when, if at all, Sgenia seeks to act as the distributor in that territory.
The Company has the option to fund the development of future proposed products based on the Sgenia intellectual property, and if funded the Company will obtain the right to manufacture, market and sell the resulting devices.
8. Related Party Transactions
On December 5, 2013, the Company entered into a one-year service agreement with Mr. Carlos Jose Gil, through his consulting firm, Ksego Engineering S.L., under which the Company obtains his services as the Chief Executive Officer of the Company. The agreement is now on a month-to-month basis. Mr. Gil receives a base salary and additional compensation equal to 10% of the net sales generated from the License Agreement. During the nine months ended September 30, 2015, the Company recorded $44,493 of general and administrative expenses related to amounts paid/owed to Ksego Engineering S.L. for services rendered by Mr. Gil. As of September 30, 2015, the Company owes Mr. Gil $35,040. No additional compensation based on net sales has been earned to date.
F-6
9. Subsequent Events
On November 2, 2015, the four notes owed by the Company were assigned by the original investor to a new party, which notes (the “Notes”) represent a total of $110,000 plus accrued interest. The Notes bear interest of 5% and are due on demand. On March 29, 2016, the current note holder gave notice that it demanded repayment of all principal amounts and accrued interest outstanding, due within 90 days of the demand notice. The Company has not paid the amount due under the Notes, as of the date of the report.
On April 20, 2016 (the “Issue Date”), the investor holding the Notes agreed to a further loan of $40,000 to assist the Company to meet its immediate liabilities, to carry out compliance work to become current in its filing obligations under the Securities Act of 1934 and to continue to seek funding for its operations in an amount that would allow the Company’s business to continue, including funding the product development under the license with Sgenia, and make repayment of the loans listed in Note 5. The notice given on March 29, 2016 remains in place. The further loan was made under a Securities Purchase Agreement (the “Agreement”) which closed on April 26, 2016 (the “Closing”). Pursuant to the Agreement and upon the Closing, the Company issued a convertible note (the “Note”) in a principal amount of $40,000. The Note bears a 5% interest per annum and is due on April 19, 2018. The Note may be prepaid at any time beginning at the date of the Note was issued and ending 90 days after the Issue Date.
Starting from September 20, 2016, the Note can be convertible into shares of common stock of the Company, at the discretion of the holder, at a price of $0.001 per share. The Company has reserved 40,000,000 shares of Common Stock issuable upon the Conversion.
F-7
Forward-Looking Statements
This section of this quarterly report includes a number of forward-looking statements that reflect our current views with respect to future events and financial performance. Forward-looking statements are often identified by words like: believe, expect, estimate, anticipate, intend, project and similar expressions, or words which, by their nature, refer to future events. You should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or our predictions.
As used in this quarterly report, the terms “we,” “us,” “our,” “our company” and “Zenosense” mean Zenosense, Inc., unless otherwise indicated. We have no subsidiaries.
General Overview
Zenosense, Inc. was incorporated on August 11, 2008 in the State of Nevada. Our authorized common stock currently consists of 500,000,000 authorized shares of common stock, with par value of $0.001.
The original purpose of the company was to acquire and to develop mineral properties and to engage in the exploration for gold and other mineral properties. On May 15, 2013, our mining lease expired and we lost our right to explore the mining property. We then became a shell company, as defined under the Securities and Exchange Act of 1934, as amended, until December 4, 2013, when we entered into the transaction with Sgenia described below.
In the summer of 2013, we started to look for other business opportunities. We became interested in sensory technology devices for use in hospitals and health care environments. During the latter part of the year, we began to negotiate a license agreement with the developers of such technology (the “Sgenia Technology”), and in December 2013, we entered into a Development and Exclusive License Agreement (the “License Agreement”) with Sgenia Industrial, S.L. (“Sgenia”) and its subsidiaries Sgenia Soluciones, S.L. (“Sgenia Subsidiary”) and ZENON Biosystem, S.L. (“Zenon”), all of which were formed under the laws of Spain. The products currently being developed under the License Agreement include one to be used in the detection of methicillin resistant Staphylococcus aureus/Staphylococcus aureus (“MRSA/SA”) in the healthcare environment and another to be used to detect lung cancer in patients. Under the terms of the License Agreement, we will provide Zenon with capital for the development of the devices that utilizes the Sgenia Technology (the “Sgenia Products”), in exchange for a worldwide, exclusive license to manufacture, formulate, market and sell the resulting products, subject to certain limitations and a royalty arrangement on a revenue sharing basis. The License Agreement gives us additional rights to improvements and developments to the Sgenia Products and future products using the Sgenia Technology.
In December 2013, we filed an amendment to our charter to change our name from “Braeden Valley Mines, Inc.” to “Zenosense, Inc.” and to increase the number of our authorized shares of Common Stock from 50,000,000 shares to 500,000,000 shares. The amendments were approved by our stockholders on November 23, 2013 at the annual meeting of the stockholders. We also entered into capital contribution agreements to reduce the number of outstanding shares held by our prior management, converted some outstanding debt and raised initial working capital, in part to be able to finalize the License Agreement and make the initial development payment.
To fund our obligations under the License Agreement, we have sold shares of common stock on a private placement basis and converted funds advanced to the Company into common shares of the Company.
As a result of the change of our corporate name to Zenosense, Inc., the trading symbol of the company changed to “ZENO.”
Plan of Operation
Our business plan is to develop devices to be used in hospitals and other medical care centers to detect MRSA/SA and the signs of lung cancer, and to fund the medical trials of those medical devices. Our principal activity since December 2013 has been funding the development of the Sgenia Products. At September 30, 2015, we had working capital deficit of $171,181. Our current cash assets are not sufficient to cover our current and expected expenses, including the funding obligation under the License Agreement, and therefore, we will need to obtain further financing, without which we will not be able to execute our business plan.
4
Assuming that we are able to obtain operational funding, in addition to any funding necessary to maintain our status as a public company, subject to regular review and additional assessment of requirements, currently we anticipate that we will incur the following expenses over the twelve (12) month period following funding in connection with the development of the Sgenia Products: (1) we will have to fund the future development expenses of Sgenia in the approximate amount of 656,000 euros, (2) payment of compensation to our officers, employees, and consultants of approximately $100,000, (3) legal, audit and reporting expenses of approximately $50,000, and (4) general working capital. Additional unknown expenses may arise from time to time, which we cannot currently identify or determine a possible expense. We will need additional funding to cover our anticipated expenses mentioned above, and for future development and implementation of our business plan.
In light of our current inability to fund our operations and fund the Sgenia license and the fact that the Sgenia research is delayed, we reviewed with Sgenia the development schedule and funding requirements for the initial products and requirements to develop the cancer sensory devices, and have agreed in principle to an alternative development schedule which would result in the lengthening of the developmental schedule for these products and an increase of the budget requirements. The schedule and funding will be finalized once we have obtained sufficient funding, for which we cannot give any assurance that we will be able to obtain. We have been attempting to secure the necessary funding to continue either the existing development schedule and corresponding budget or the alternative development schedule. We have engaged with a number of interested parties, however, to date, we have not been successful in securing the requisite funding.
Liquidity and Capital Resources
As of September 2015 and December 31, 2014, our total assets were $8,620 and $4,423, respectively, and our total current liabilities were $249,335 and $110,363, respectively. As of September 30, 2015, we had a working capital deficit of $240,715. Our financial statements report a net loss of $134,775 for the nine months ended September 30, 2015.
We have had recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed. Our financial statements reflect that there is a going concern qualification.
Currently, we have only limited cash and similar assets, which do not allow us to continue with the funding obligations of the license with Sgenia. The license agreement has not been declared in default. Further funding of the development project is not yet due as Sgenia has not completed the current stage of development terms.
As noted in our financial statements, we have received notice of default on a note for $110,000 in principle amount, plus interest. Currently we do not have the ability to repay this note. We have, however, received an additional $40,000 from the investor holding the Notes as of April 26, 2016, which was invested after the investor declared the default. Under the notice and default provision we have until the end of June to make payment on the Notes declared in default. We have been in negotiations with the holder of the Notes concerning the default to reach an agreement other than payment at this time. If however we fail to reach an agreement and the default is enforced, we may have to cease operations, seek bankruptcy protection or enter into negotiations for a solution that would resolve the default. Any negotiated resolution of the default could be disadvantageous to the Company.
Results of Operations
Overview
The following discussion of the results of operations, cash flows and changes in our financial position should be read in conjunction with our audited financial statements and notes for the year ended December 31, 2014, which are included in our Form 10-K, filed on April 14, 2015.
Three Months Ended September 30, 2015 and 2014
Our operating results for the three months ended September 30, 2015 and for the three months ended September 30, 2014 are summarized as follows:
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Three Months Ended
September 30
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2015
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2014
|
|||||||
|
Revenue
|
-
|
-
|
||||||
|
Operating Expenses
|
$
|
62,218
|
$
|
98,415
|
||||
|
Net (Loss)
|
$
|
(63,535)
|
$
|
(98,488)
|
||||
5
Operating Expenses
Our operating expenses for the three months ended September 30, 2015 and 2014 are outlined in the table below:
|
Three Months Ended
|
||||||||
|
September 30
|
||||||||
|
2015
|
2014
|
|||||||
|
Research and development expenses
|
$
|
32,215
|
$
|
52,681
|
||||
|
General and administrative expenses
|
$
|
30,003
|
$
|
45,734
|
||||
The decrease in research and development expenses is due to the Company having to minimize the development funding made available to Sgenia under the Company’s License Agreement with Sgenia signed in December 2013, as amended, due to lack of available funds and delays in the product development. Monies provided to Sgenia in the three months ended September 30, 2015 were provided to maintain the development project, assist Sgenia in continuing to complete Stage One and to begin work on Stage Two, in the expectation that the development project would progress in full once funds were available, the Company focusing its efforts on trying to raise those funds. The Company provided the funds agreed as required to fund Stage One in 2014. This Stage is ongoing and has not yet been completed.
General and administrative expenses have decreased as a result of decreased consulting services and a decrease in our legal and accounting fees.
The Company has suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed.
Nine Months Ended September 30, 2015 and 2014
Our operating results for the nine months ended September 30, 2015 and for the nine months ended September 30, 2014 are summarized as follows:
|
Nine Months Ended
September 30
|
||||||||
|
2015
|
2014
|
|||||||
|
Revenue
|
-
|
-
|
||||||
|
Operating Expenses
|
$
|
132,458
|
$
|
415,974
|
||||
|
Net (Loss)
|
$
|
(134,775)
|
$
|
(416,137
|
)
|
|||
Operating Expenses
Our operating expenses for the nine months ended September 30, 2015 and 2014, are outlined in the table below:
|
Nine Months Ended
|
||||||||
|
September 30
|
||||||||
|
2015
|
2014
|
|||||||
|
Research and development expenses
|
$
|
32,215
|
$
|
282,778
|
||||
|
General and administrative expenses
|
$
|
100,243
|
$
|
133,916
|
||||
6
The decrease in research and development expenses is due to the Company having to minimize the development funding made available to Sgenia under the Company’s License Agreement with Sgenia signed in December 2013, as amended, due to lack of available funds and delays in product development. Monies provided to Sgenia in the three months ended September 30, 2015 were provided to maintain the development project, assist Sgenia in continuing to complete Stage One and to begin work on Stage Two, in the expectation that the development project would progress in full once funds were available, the Company focusing its efforts on trying to raise those funds. The Company provided the funds agreed as required to fund Stage One in 2014. This Stage is ongoing and has not yet been completed.
General and administrative expenses have decreased as a result of decreased consulting services and a decrease in our legal and accounting fees.
The Company has suffered recurring losses from operations. The continuation of our company is dependent upon our company attaining and maintaining profitable operations and raising additional capital as needed.
|
Nine Months Ended
|
Nine Months Ended
|
|||||||
|
Cash Flows
|
September 30,
2015
|
September 30,
2014
|
||||||
|
Net Cash Used in Operating Activities
|
$
|
(92,470)
|
$
|
(343,038)
|
||||
|
Net Cash Provided by Financing Activities
|
$
|
90,000
|
$
|
424,000
|
||||
|
Cash increase (decrease) during the period
|
$
|
(2,470)
|
$
|
80,962
|
||||
We had cash of $1,953 and $4,423 as of September 30, 2015 and December 31, 2014, respectively. We had a working capital deficit of $240,715 as of September 30, 2015, compared to working capital deficit of $105,490 as of December 31, 2014.
We used cash in operations of $92,470 during the nine months ended September 30, 2015, for funding our corporate obligations and SEC reporting and providing Sgenia with limited funding to continue the development project during that period. We have not funded the Sgenia licence during this period due to the fact that Sgenia and Zenon have not completed the preconditions for the next phase of funding.
During the nine months ended September 30, 2014, cash used in operations of $343,038, mainly due to payments to Sgenia to conduct research and development activities on behalf of the Company.
We received $60,000 of cash proceeds from a loan during the three months ended September 30, 2015. During the nine months ended September 30, 2014, we received cash advances of $13,000 from a third party and $411,500 of cash proceeds from the sale of the Company’s common stock.
Based on our current operating plan, we will not generate revenue that is sufficient to cover our expenses for at least the next twelve (12) months. In addition, we do not have sufficient cash and cash equivalents to execute our operations for at least the next twelve (12) months. We will need to obtain additional financing to operate our business for the next twelve (12) months. We expect to raise the capital necessary to fund our company through advances or a private placement and public offering of our common stock. Additional financing, whether through public or private equity or debt financing, arrangements with stockholders or other sources to fund operations, may not be available, or if available, may be on terms unacceptable to us. Our ability to maintain sufficient liquidity is dependent on our ability to raise additional capital. If we issue additional equity securities to raise funds, the ownership percentage of our existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock. Debt incurred by us would be senior to equity in the ability of debt holders to make claims on our assets. The terms of any debt issued could impose restrictions on our operations. If adequate funds are not available to satisfy either short or long-term capital requirements, our operations and liquidity could be materially adversely affected and we could be forced to cease operations.
Since inception, we have issued 49,615,297 shares of our common stock.
Limited Operating History: Need for Additional Capital
Based on our current operating plan, we do not expect to generate any revenue for at least the next twelve months. In addition, we do not have sufficient cash and cash equivalents to fund our operations for at least the next twelve months. We will need to obtain additional financing to operate our business for the next twelve months. We hope to obtain the capital necessary to fund our business through private placements and public offerings of our common stock. Additional financing, whether through public or private equity or debt financing, arrangements with stockholders or other sources to fund operations, may not be available, or if available, may be on terms unacceptable to us. Our ability to maintain sufficient liquidity is dependent on our ability to raise additional capital. If we issue additional equity securities to raise funds, the ownership percentage of our existing stockholders would be reduced. New investors may demand rights, preferences or privileges senior to those of existing holders of our common stock.
Debt incurred by us would be senior to equity in the ability of debt holders to make claims on our assets. The terms of any debt issued could impose restrictions on our operations. If adequate funds are not available to satisfy either short or long-term capital requirements, our operations and liquidity could be materially adversely affected and we could be forced to cease operations.
7
Off-Balance Sheet Arrangements
We do not have any significant off-balance sheet arrangements that have, or are reasonably likely to have, a current or future material effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Not Applicable.
Disclosure Controls and Procedures
Under the supervision and the participation of our management, consists of our principal executive officer (who is also our principal financial officer), we conducted an evaluation as of September 30, 2015, of the effectiveness of the design and operation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our principal executive officer, who is also our principal financial officer, concluded that our disclosure controls and procedures were not effective as of September 30, 2015, because (1) the Company lacks a functioning audit committee and there is a lack of independent directors on the board of directors, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures; (2) the Company has inadequate segregation of duties consistent with control objectives; and (3) the Company has ineffective controls over its period end financial disclosure and reporting processes. The Company operations are also ineffective due to the lack of operating funding.
Changes in internal controls over financial reporting
There has been no change in our internal control over financial reporting that occurred during the fiscal quarter ended September 30, 2015 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
8
None.
There have been no material changes to the risk factors previously disclosed in the Company’s annual report on Form 10-K, which was filed with the Securities and Exchange Commission on April 14, 2014. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
None.
None.
N/A.
None.
The following documents are included herein:
| Exhibit No. | Document Description | |
|
31.1
|
Certification of Principal Executive Officer who is also the Principal Financial Officer pursuant Section 302 of the Sarbanes-Oxley Act of 2002.
|
Filed herewith
|
|
32.1
|
Certification of Chief Executive Officer who is also the Chief Financial Officer pursuant Section 906 of the Sarbanes-Oxley Act of 2002.
|
Filed herewith
|
|
101.INS
|
XBRL Instance Document
|
Filed herewith.
|
|
101.SCH
|
XBRL Taxonomy Extension Schema Document
|
Filed herewith.
|
|
101.CAL
|
XBRL Taxonomy Extension Calculation Linkbase Document
|
Filed herewith.
|
|
101.LAB
|
XBRL Taxonomy Extension Labels Linkbase Document
|
Filed herewith.
|
|
101.PRE
|
XBRL Taxonomy Extension Presentation Linkbase Document
|
Filed herewith.
|
|
101.DEF
|
XBRL Taxonomy Extension Definition Linkbase Document
|
Filed herewith.
|
9
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the Registrant.
|
ZENOSENSE, INC.
|
||
|
Date: May 13, 2016
|
By:
|
/s/ Carlos Jose Gil
|
|
Name:
|
Carlos Jose Gil
|
|
|
Title:
|
Chief Executive Officer (Principal Executive Officer and Principal Financial Officer)
|
10