Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis of our financial condition and results of operations for the years ended December 31, 2023 and 2022 should be read in conjunction with the financial statements and the notes to those statements that are included elsewhere in this Annual Report on Form 10-K. Our discussion includes forward-looking statements based upon current expectations that involve risks and uncertainties, such as our plans, objectives, expectations and intentions. Actual results and the timing of events could differ materially from those anticipated in these forward-looking statements as a result of a number of factors. We use words such as “anticipate,” “estimate,” “plan,” “project,” “continuing,” “ongoing,” “expect,” “believe,” “intend,” “may,” “will,” “should,” “could,” and similar expressions to identify forward-looking statements.
Liquidity and Capital Resources
We are in our early stages of development and growth, without established records of sales or earnings. We will be subject to numerous risks inherent in the business and operations of financially unstable and early stage or emerging growth companies.
As of December 31, 2023, we had cash and cash equivalents of $156,457, working capital deficit of $(5,821,960), and an accumulated deficit of $72,184,858. We estimate our G&A expenses for 2024 to be approximately $3,500,000, which includes projected audit and accounting costs of $250,000. R&D expenses for 2024 will vary based on drug formulation and clinical trial project activity that the Company is engaged in, which in turn is determined by available capital. R&D expenditures in 2024 will depend on available cash flow and the extent of additional capital funding.
We can provide no assurance that the Company can continue to satisfy its cash requirements for at least the next twelve months.
We expect to obtain financing through shareholder loans, private placements and/or registered offerings of our securities. Shareholder loans may be without stated terms of repayment or interest. In addition, we may consider taking on long-term or short-term debt from financial institutions in the immediate future. Shareholders loans may be granted from time to time as required to meet current working capital needs. We have no formal agreement that ensures that we will receive such loans. We may exhaust this source of funding at any time.
We are dependent upon certain related parties to provide continued funding and capital resources. If continued funding and capital resources are unavailable at reasonable terms, we may not be able to implement our plan of operations. These loans may include terms that may be highly dilutive to existing shareholders.
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On September 14, 2017, our Registration Statement on Form S-3 was declared effective by the SEC. We issued 20,977,638 shares common stock pursuant to the Company’s Registration Statement on Form S-3 and S-1 during the year ending December 31, 2022. We issued 7,494,792 shares common stock pursuant to the Company’s Registration Statement on Form S-3 during the year ending December 31, 2020. No shares were issued in 2021 under the S-3.
On June 22, 2021, our Registration Statement on Form S-1 was declared effective by the SEC. We issued 1,000,000 shares of Company common stock pursuant to an equity purchase agreement, dated on May 14, 2021, and the Registration Statement on Form S-1 during the year ending December 31, 2021. Subsequent to the year ended December 31, 2022, the Company issued an additional 8,000,000 shares of its common stock for cash of $130,000 pursuant to the equity purchase agreement, which shares were also registered pursuant to the S-3 Registration Statement.
During January 2022, the Company issued 612,104 shares for cash of gross proceeds of $75,000 pursuant to various stock purchase agreements. The cash was received in the fourth quarter 2021 and first quarter 2022. The Company also issued warrants to purchase an aggregate of 612,104 shares of common stock at an average exercise price of $0.315 per share. The warrants are exercisable within a three-year period from issuance.
Effective February 10, 2022, the Company issued two short term notes, each having a face amount of $250,000, in exchange for a total of $500,000 in cash (the “Short Term Promissory Notes”). The Short Term Promissory Notes bear interest at the rate of 1.5% per annum and were due and payable on or before March 10, 2022, unless demand for payment is made prior to such date. One of the two notes was paid in full on February 14, 2022.
Effective February 10, 2022, the Company issued seven convertible notes to a series of investors having an aggregate face value of $1,325,000 in exchange for $1,325,000 in cash (the “Convertible Notes”). One of the Convertible Notes, face value $25,000, was purchased by Blake N. Schroeder who is a director of the Company.
Each of the Convertible Notes is (i) unsecured; (ii) bears interest at a rate of 3% per annum; (iii) matures on February 10, 2032; and (iv) is convertible, in whole or in part, at any time by the holder, into restricted shares of the Company’s common stock at a conversion price equal to the lesser of $0.08125 or 70% of the average of the two lowest closing prices of the Company’s common stock in the ten trading days preceding any particular conversion, provided, the holder is prohibited from converting the convertible note, or portion thereof, if such conversion would result in beneficial ownership by the holder and its affiliates of more than 4.99% of Company’s issued and outstanding common stock as of the date of the conversion.
On February 10, 2022, the Company paid in full the remaining balance due on that certain convertible note issued to GS Capital Partners, LLC, face value $1,110,000 (as amended, the “GS Note”). In connection with the repayment, the Company was required to pay accrued interest in the amount of $21,875, by issuing 173,390 restricted shares of the Company’s common stock pursuant to the formula set forth in the GS Note.
During 2022, the Company issued 14,837,874 of its shares of common stock pursuant to a stock purchase agreement for cash gross proceeds of $455,000.
In January 2022 the company issued 7,000,000 of its shares in completion of its agreement with Advanced Tear Diagnostics regarding the purchase of various patents.
During 2023 the Company issued 23,000,000 shares of its stock pursuant to its S-1 which generated cash of $514,931.
During 2023 the company issued 22,207,486 shares of its stock to convert various notes payable valued at $688,432.
In December 2023 the company issued 7,280,000 shares of its stock in exchange for equipment valued at $152,800.
In December 2019, a novel strain of coronavirus (“COVID-19”) was reported in Wuhan, China. The COVID-19 pandemic, as it was declared by the World Health Organization, has continued to spread and has already caused severe global disruptions. The extent of COVID-19’s effect on our operational and financial performance will depend on future developments, including the duration, spread and intensity of the pandemic, all of which are uncertain and difficult to predict considering the rapidly evolving landscape.
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We expect COVID-19, along with the resulting government-imposed restrictions on businesses, to negatively impact our operations due to decreased consumer demand as well as potential production and warehouse limitations which results in an event or condition, before consideration of management’s plans, that could impact our ability to meet future obligations. We believe that our cash and cash equivalents on hand and these cost reduction measures, as needed, will provide sufficient liquidity to fund our operations for the next 12 months from the issuance of the consolidated financial statements.
Sources of Capital
We expect to sustain our working capital needs through shareholder loans, private placements and/or registered offerings of our securities. Shareholder loans may be without stated terms of repayment or interest. We may consider taking on any long-term or short-term debt from financial institutions in the immediate future. Shareholders loans may be granted from time to time as required to meet current working capital needs. We have no formal agreement that ensures that we will receive such loans. We may exhaust this source of funding at any time.
During the next twelve months, we anticipate incurring costs related to:
filing Exchange Act reports;
contractual obligations;
(iii)
building inventory of our approved devices;
(iii)
clinical trials; and
continued research and development of our diagnostic tests.
We believe we will be able to meet these costs through use of funds in our treasury, deferral of fees by certain service providers and additional amounts, as necessary, to be loaned to or invested in us by our shareholders, management or other investors. As of the date of the period covered by this report, we have limited cash. There are no assurances that we will be able to secure any additional funding as needed. Currently, however our ability to continue as a going concern is dependent upon our ability to generate future profitable operations and/or to obtain the necessary financing to meet our obligations and repay our liabilities arising from normal business operations when they come due. Management’s plan includes obtaining additional funds by equity financing and/or related party advances; however, there is no assurance of additional funding being available.
Known Trends or Uncertainties
We have seen some consolidation in the pharmaceutical and biotechnology industries during economic downturns. These consolidations have not had a negative effect on us to date; however, should consolidations and downsizing in the industry continue to occur, those events could adversely impact our financial results and business operations going forward.
The potential for growth in new markets is uncertain. We will continue to explore these opportunities until such time as we either generate sales or determine that resources would be more efficiently used elsewhere.
As discussed in this Annual Report, the world has been affected due to the COVID-19 pandemic. The pandemic has negatively impacted our business in various ways over the last two years, including, more recently, as a result of global supply chain constraints at least partially attributable to the pandemic. Until the pandemic has passed, there remains uncertainty as to the effect of COVID-19 on our business in both the short and long-term.
Inflation
Inflation has increased during the periods covered by this Annual Report, and is expected to continue to increase for the near future. Inflationary factors, such as increases in the cost of our products (and components thereof), interest rates, overhead costs and transportation costs may adversely affect our operating results. Although we do not believe that inflation has had a material impact on our financial position or results of operations to date, we may experience some effect in the near future (especially if inflation rates continue to rise) due to supply chain constraints, consequences associated with COVID-19 and the ongoing conflicts between Russia and Ukraine, and Israel/Hamas, employee availability and wage increases, trade tariffs imposed on certain products from China and increased product pricing due to semiconductor product shortages.
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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.
Going Concern
The Company’s financial statements have been presented assuming that the Company will continue as a going concern. As shown in the financial statements, the Company has negative working capital of $5,821,960, has an accumulated deficit of $72,184,858 has cash used in operating activities of $1,030,500 and presently does not have the resources to accomplish its objectives during the next twelve months. These conditions raise substantial doubt about the ability of the Company to continue as a going concern. The financial statements do not include any adjustments related to the recoverability of assets and classification of liabilities that might be necessary should the Company be unable to continue in operation.
The Company may not be able to meet its contractual obligations to Arizona State University regarding ongoing research and maintain its staff at current levels required by various employment agreements.
The Company intends to raise additional capital through private placements and/or registered offerings of debt and equity securities, but there can be no assurance that these funds will be available on terms acceptable to the Company or will be sufficient to enable the Company to fully complete its development activities or sustain operations. If the Company is unable to raise sufficient additional funds, it will have to develop and implement a plan to further extend payables, reduce overhead, or scale back its current business plan until sufficient additional capital is raised to support further operations. There can be no assurance that such a plan will be successful.
Results of Operations
Comparison of the year ended December 31, 2023 and 2022.
December 31,
December 31,
Change
Change
Revenues
Gross margin percentage
Operating expenses
Loss from operations
Other expenses (income)
Net loss
Revenue
Revenues from operations recognized for twelve months ended December 31, 2023 and 2022 amounted to $39,518 and $8,875, respectively.
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Cost of Revenue
Cost of Revenue from operations recognized for twelve months ended December 31, 2023, and 2022 amounted to $-0- and $-0-, respectively. The lack of COGS is due to lack of sales of products to customers in 2023.
Operating Expenses
Research and Development Expenses
For the twelve months ended December 31, 2023 and 2022 the Company incurred research and development expenses of $125,496 and $153,697 from operations, respectively The decrease is primarily due to discontinued research and clinical activities because of lack of cash resources.
Selling, General and Administrative Expenses
Our Selling, General and Administrative expenses for the years ending in 2023 and 2022 were $2,308,569 and $4,081,824, respectively.
Depreciation Expenses
For the year ended December 31, 2023 our depreciation expenses were $32,573 as compared to $31,680 for the year ended December 31, 2022. The increase is primarily due to recognizing the property and equipment as a result of the acquisition of Laboratory equipment for the Eye Care division.
Amortization Expenses
For the year ended December 31, 2023 our amortization expenses were $394,446 as compared to $394,446 for the year ended December 31, 2022. The amortization is primarily due to recognizing the write off intangible assets as a result of the acquisition of Sapphire Biotech.
Impairment Loss
For the year ended December 31, 2023 we recorded an impairment loss of $-0- as compared to $-0- for the year ended December 31, 2022.
Other Income and Expenses
Our interest expenses for the years ending 2023 and 2022 were $1,028,336 and $1,697,455, respectively. Loss on extinguishment of debt for the years ending in 2023 and 2022 were $(162,811) and $479,573 respectively, variance was result of debt exchange Amortization of debt discount was $176,428 and $178,962 respectively. Loss on settlement of Litigation 955,000 in 2023 and zero in 2022. The company settled a patent infringement suit. during 2023 we purchased equipment by issuing shares at a discount resulting in a loss of $80,080.
For the Year Ended December 31, 2023 and 2022
Net Cash Provided by/Used in Operating Activities
Net cash used in operating activities $1,030,500, respectively, for the twelve months ended December 31, 2023, as compared to net cash used of $2,044,326 for the twelve months ended December 31, 2022. The cash used in operating activities is primarily attributable to our net loss from operations of $8,059,682 and offset by net changes in the balances of operating assets and liabilities and non-cash expenses. For the twelve months ended December 31, 2023, stock-based compensation was $197,727 and amortization of debt discount was $176,428. For the twelve months ended December 31, 2022 these non-cash expenses were stock-based compensation of $1,107,494 and amortization of $178,962. For the twelve months ended December 31, 2023 and 2022 the Company recorded increase to accounts payable and accrued expenses of $769,030 and $659,400, respectively, of operating activities. The Company recorded for the twelve months ended December 31, 2023 and 2022 a loss on extinguishment of debt of $(162,811) and $266,111, respectively. The Company recorded amortization of prepaid expenses for the twelve months ended December 31, 2023 and 2022 of $42,858 and $210,094 respectively. The Company recorded stock issued for services for the twelve months ended December 31, 2023 and 2022 of $-0- and $79,500 respectively.
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The company recorded common stock issued for settlement of obligation for the twelve months ended December 31, 2023 and 2022 of $-0- and $226,172 respectively. The Company recorded non cash interest expense for the twelve months ended December 31, 2023 and 2022 of $790,000 and $1,316,846 respectively. The Company recorded change in fair value of derivative liabilities for the twelve months ended December 31, 2023 and 2022 of $6,619 and $765,556 respectively. The Company recorded an increase in deferred revenue for the twelve months ended December 31, 2023 and 2022 of $(29,998) and $333,125 respectively. The Company recorded an increase in prepaid expenses for the twelve months ended December 31, 2023 and 2022 of $-0- and $103,230 respectively.
Net Cash provided by Investing Activities
Net cash used in (provided by) investing activities during the period ended December 31, 2023 was $-0- compared to $8,710 for the same period in 2022
Net Cash Provided by Financing Activities
Net cash provided by financing activities during the twelve months’ period ended December 31, 2023, was $1,139,675 compared to $1,647,355 for the same period in 2022. The Company has successfully raised significant capital in exchange for its common stock for the twelve months ended December 31, 2023. The company recorded proceeds from convertible note of $675,000 in 2023 and $1,325,000 in 2022. The Company repaid a convertible note at $1,243,200 in 2022.
Critical Accounting Policies
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amount of assets and liabilities, the disclosure of contingent assets and liabilities and the reported amounts of revenue and expenses during the reported periods. The more critical accounting estimates include estimates related to revenue recognition and accounts receivable allowances. We also have other key accounting policies, which involve the use of estimates, judgments and assumptions that are significant to understanding our results, which are described in Note 5 to our consolidated financial statements.
Our management’s discussion and analysis of financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States, or GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities in our consolidated financial statements during the reporting periods. These items are monitored and analyzed by us for changes in facts and circumstances, and material changes in these estimates could occur in the future. We base our estimates on historical experience, known trends and events, and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Changes in estimates are reflected in reported results for the period in which they become known. Actual results may differ materially from these estimates under different assumptions or conditions.
Fair Value of Financial Instruments
Fair value is defined as the price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants. A fair value hierarchy has been established for valuation inputs that gives the highest priority to quoted prices in active markets for identical assets or liabilities and the lowest priority to unobservable inputs.
Research and Development Costs
Research and development costs are expensed as incurred. Research and development reimbursements and grants are recorded by us as a reduction of research and development cost.
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Share-Based Payments
We estimate the fair value of each stock option award at the grant date by using the Black-Scholes option pricing model. The fair value determined represents the cost for the award and is recognized over the vesting period during which an employee is required to provide service in exchange for the award. We account for forfeitures of stock options as they occur.
Income Taxes
We use the asset and liability method to calculate deferred taxes. Deferred taxes are recognized based on the differences between the financial reporting and income tax bases of assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. We review deferred tax assets for a valuation allowance based upon whether it is more likely than not that the deferred tax asset will be fully realized. A valuation allowance, if necessary, is provided against deferred tax assets, based upon our assessment as to their realization.
We recognize tax when the positions meet a “more-likely-than-not” recognition threshold. There were no tax positions for which it is considered reasonably possible that the total amounts of unrecognized tax benefits will significantly increase or decrease within the next year. We recognize interest related to unrecognized tax benefits in interest expense and penalties in operating expenses.
Recently Issued Accounting Standards
Note 5 to consolidated financial statements appearing elsewhere in this report includes Recently Issued Accounting Standards.
Foreign Currency Transactions
Foreign exchange gain (loss) in the year ended December 31, 2023, was $-0- compared to $-0- for the same period in 2022.
