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YoY shift: Lean -
Year-over-year tone shift - average net-tone change across Risk Factors and MD&A vs the prior 10-K. This filing is -0.28pp more bearish than last year's.
Why YoY instead of absolute: the LM lexicon has ~6.6× more negative words than positive (legal/risk-disclosure language is heavy on hedging), so every 10-K reads bearish on raw tone. Year-over-year change strips that bias and surfaces the actual shift in management's framing.
Tone shift by section
The two components the gauge averages: how Risk Factors and MD&A each shifted in net tone versus last year's 10-K. The headline above is their average, so a green needle over a soft section just means the other section carried it.
Risk Factors
-
Not scored
Net-tone change vs last year's 10-K.
MD&A
-0.28pp
Flat
Net-tone change vs last year's 10-K.
Per-snippet highlights
Sentence-level sentiment highlighting with category and subcategory filters is coming once the snippet-scoring pipeline lands. For now, dig into the actual section text on the Sections tab.
No section text extracted for this filing. The 10-K may use a non-standard template that the parser doesn't recognize - the original doc is still linked in the Stats tab.
Language change vs prior 10-K
MD&A (Item 7) - words with the biggest YoY frequency increase
Negative rising
discontinued+7
Positive rising
advances+1
MD&A (Item 7)
1,929 words
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following table presents certain consolidated statements of operations information and presentation of that data as a percentage of change from year-to-year.
Income (Loss) from discontinued operations net of taxes
Gain on deconsolidation of discontinued operations
Net Profit (Loss) on discontinued operations
Net (loss)
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YEAR ENDED DECEMBER 31, 2022 COMPARED TO THE YEAR ENDED DECEMBER 31, 2021
Operating Expenses
Operating expenses for the year ended December 31, 2022 were $1,341,000 as compared to $1,383,000 for the year ended December 31, 2021. The primary reason for the decrease was compensation and related expenses.
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Other Expense
Other expenses for the year ended December 31, 2022, were $2,924,000 as compared to $4,122,000 for the year ended December 31, 2021. The other expense for the year ended December 31, 2022, included (i) change in fair value of the derivative liability of $1,348,000; (ii) interest expense of $1,964,000; (iii) gain on conversions of $205,000; and (iv) gain on debt forgiveness of $183,000. The change in derivative liability is the non-cash change in the fair value and relates to our derivative instruments. The decrease in non-cash interest related to accrued interest expense, write-off of original issue discount and the derivative liability calculated on our notes payable.
On April 5, 2021, we entered into a Warrant Settlement Agreement dated March 31, 2021, with St. George and Iliad to resolve a dispute related to the calculation of shares issuable under warrants issued in prior financings whereby we agreed that upon the exercise of the warrant of up 14,250,000 shares of our common stock that the balance of the warrant related to a 2018 financing agreement would be cancelled. We recorded a loss on debt settlement of $2,422,000 as of December 31, 2021. The 14,250,000 warrants were exercised during 2021. In 2021, the Company recognized a gain on extinguishment of $1,025,000 due to the change in the fair value of the shares.
The other expense for the year ended December 31, 2021 included (i) change in derivative liability of $973,000; (ii) interest expense of $3,243,000; and (iii) loss on debt conversions of $931,000; offset by (iv) gain on settlement of debt of $1,025,000. The change in derivative liability is the non-cash change in the fair value and relates to our derivative instruments. The non-cash interest related to accrued interest expense on our notes payable. The loss on debt conversions related to the conversion of our notes payable at prices below the market price.
Earnings (Loss) from Discontinued Operations
On December 29, 2022, we entered into a Settlement Agreement and Mutual General Release (“Settlement Agreement”) with EZ-CLONE Enterprises whereby our ownership percentage was reduced to 19.6%. As a result, EZ-CLONE results for the year ended December 31, 2022 are reflected as loss on discontinued operations of $1,931,00 as compared to a profit for the year ended December 31, 2021 of $32,000. Eliminating the various assets and liabilities relating to EZ-CLONE at December 31, 2022 resulted in a gain of $1,713,000.
Net Loss
Net loss for the year ended December 31, 2022 was $4,483,000 as compared to $5,473,000 for the for the year ended December 31, 2021 for the reasons discussed above.
We expect losses to continue as we implement our business plan.
LIQUIDITY AND CAPITAL RESOURCES
Financial Accounting Standards Board’s (“FASB”) Accounting Standard Codification (“ASC”) Topic 205-40, Presentation of Financial Statements – Going Concern, requires that management evaluate whether there are relevant conditions and events that, in the aggregate, raise substantial doubt about the entity’s ability to continue as a going concern and to meet its obligations as they become due within one year after the date that the financial statements are issued.
The accompanying financial statements have been prepared assuming that we will continue as a going concern. However, since inception, we have sustained significant operating losses and such losses are expected to continue for the foreseeable future. As of December 31, 2022, we had an accumulated deficit of $164 million, cash and cash equivalents of $94,000 and a working capital deficit of $3,400,000 excluding convertible debt and the derivative liability. Additionally, we used cash in operating activities of $1,537,000 and $3,656,000 for the years ended December 31, 2022 and 2021, respectively, excluding discontinued operations. We will require additional cash funding to fund operations beyond June 15, 2023. Accordingly, management has concluded that we do not have sufficient funds to support operations within one year after the date the financial statements are issued and, therefore, we concluded there was substantial doubt about the Company’s ability to continue as a going concern.
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To fund further operations, we will need to raise additional capital. We may obtain additional financing in the future through the issuance of its common stock, or through other equity or debt financings. Our ability to continue as a going concern or meet the minimum liquidity requirements in the future is dependent on its ability to raise significant additional capital, of which there can be no assurance. If the necessary financing is not obtained or achieved, we will likely be required to reduce its planned expenditures, which could have an adverse impact on the results of operations, financial condition and our ability to achieve its strategic objective. Historically, the Company has been successful in its ability to raise the financing necessary to continue operations without interruption. There can be no assurance that financing will be available on acceptable terms, or at all. The financial statements contain no adjustments for the outcome of these uncertainties. These factors raise substantial doubt about our ability to continue as a going concern and have a material adverse effect on our future financial results, financial position and cash flows.
Operating Activities
Net cash used in operating activities from continuing operations for the year ended December 31, 2022 was $1,537,000. This amount was primarily related to a net loss of $4,265,000 from continuing operations, reduced by non-cash expenses of $2,560,000 including; (i) non-cash interest expense of $1,882,000; (ii) change in derivative liability of $1,348,000; (iii) net working capital increase of $77,000 and offset by; (iv) gain on debt conversions of $205,000; and (v) gain on debt forgiveness of $183,000.
Investing Activities
Cash used in investing activities for the year ended December 31, 2022, excluding discontinued operations, represent advances on the purchase of Bridgetown assets of $160,000.
Financing Activities
Net cash provided by financing activities from continuing operations for the year ended December 31, 2022 was $1,594,000. The amount related to proceeds from note payable of 1,727,000, offset by repayment of debt of $123,000 and purchase of shares from the reverse stock split.
OFF-BALANCE SHEET ARRANGEMENTS
We do not have any off-balance sheet arrangements (as that term is defined in Item 303 of Regulation S-K) that are reasonably likely to have a current or future material effect on our financial condition, revenue or expenses, results of operations, liquidity, capital expenditures or capital resources.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
The application of GAAP involves the exercise of varying degrees of judgment. On an ongoing basis, we evaluate our estimates and judgments based on historical experience and various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates under different assumptions or conditions. We believe that of our significant accounting policies (see summary of significant accounting policies more fully described in Note 3 to Form 10-K for the year ended December 31, 2022), the following policies involve a higher degree of judgment and/or complexity:
Fair Value Measurements and Financial Instruments – ASC Topic 820, Fair Value Measurement and Disclosures , 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. This topic also establishes a fair value hierarchy, which requires classification based on observable and unobservable inputs when measuring fair value. The fair value hierarchy distinguishes between assumptions based on market data (observable inputs) and an entity’s own assumptions (unobservable inputs). The hierarchy consists of three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities;
Level 2 – Inputs other than level one inputs that are either directly or indirectly observable; and.
Level 3 - Inputs to the valuation methodology are unobservable and significant to the fair value measurement.
The recorded value of other financial assets and liabilities, which consist primarily of cash and cash equivalents, accounts receivable, other current assets, and accounts payable and accrued expenses approximate the fair value of the respective assets and liabilities as of December 31, 2022 and 2021 are based upon the short-term nature of the assets and liabilities.
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Derivative financial instruments - We evaluate all of its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the consolidated statements of operations. For stock-based derivative financial instruments, the Company uses a Binomial pricing model to value the derivative instruments at inception and on subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within twelve months of the balance sheet date.
Stock Based Compensation – We have share-based compensation plans under which employees, consultants, suppliers and directors may be granted restricted stock, as well as options to purchase shares of our common stock at the fair market value at the time of grant. Stock-based compensation cost is measured by us at the grant date, based on the fair value of the award, over the requisite service period using an estimated forfeiture rate. For options issued to employees, we recognize stock compensation costs utilizing the fair value methodology over the related period of benefit. Grants of stock options and stock to non-employees and other parties are accounted for in accordance with the ASC 718.
Convertible Securities – Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities issued subsequent to December 31, 2015. We will evaluate our contracts based upon the earliest issuance date.
