Expenses for the threesix month periodperiods ended March 31,June 30, 2015 and 2014 were as follows:
| | | | | | | | Six Months Ended June 30, | |
| | March 31, 2015 | | | March 31, 2014 | | | 2015 | | | 2014 | |
General & Administrative | | $ | 8,568 | | | $ | 8,642 | | |
Expense | | | | | | | |
General, Selling & Administrative | | | $ | 17,372 | | | $ | 16,306 | |
Depreciation | | | | 740 | | | | 830 | |
Impairment Expense | | | | 21,438 | | | | - | |
Intellectual Property | | | 2,690 | | | | 7,418 | | | | 3,690 | | | | 8,910 | |
Professional Services | | | 71,417 | | | | 16,686 | | | | 131,361 | | | | 162,917 | |
Research & Development | | | 12,750 | | | | 10,000 | | |
Impairment expense | | | 21,438 | | | | - | | |
Depreciation | | | 368 | | | | 415 | | |
Research and Development | | | | 24,250 | | | | 17,500 | |
Total Expense | | $ | 117,231 | | | $ | 43,161 | | | $ | 198,851 | | | $ | 206,463 | |
The increasedecrease in expenses during the threesix month period ended March 31,June 30, 2015 for Professional Services reflects expensesreduced expenditures following the completion of the registration process with the Securities and Exchange Commission (SEC), while continued activity related to the 1) seeking capital to fund on-going efforts related to in scientific, technical and commercial validation, business development and investigation into specific applications for our proprietary technology, and, 2) fulfillment of independent audit and reporting requirements of the SEC, 3) on-going intellectual property protection and 4) on-going research and development expenses.
Expenses for the three month periods ended June 30, 2015 and 2014 were as follows:
| | Three Months Ended June 30, | |
| | 2015 | | | 2014 | |
Expense | | | | | | |
General, Selling & Administrative | | $ | 8,804 | | | $ | 7,664 | |
Depreciation | | | 371 | | | | 415 | |
Impairment Expense | | | - | | | | - | |
Intellectual Property | | | 1,000 | | | | 1,493 | |
Professional Services | | | 59,945 | | | | 146,231 | |
Research and Development | | | 11,500 | | | | 7,500 | |
Total Expense | | $ | 81,620 | | | $ | 163,303 | |
The significant decrease in Professional Services expense during the three month period ended June 30, 2015 reflects the completion of the registration process with the Securities and Exchange Commission. Commission (SEC). Other expenses are related to on-going activities including 1) seeking capital to fund scientific, technical and commercial validation, business development and investigation into specific applications for our proprietary technology, 2) fulfillment of independent audit and reporting requirements of the SEC, 3) intellectual property protection and 4) increased research and development efforts targeting the brain health market.
Impairment expense related to impairment of investment in LLC.is discussed below under "Other Assets".
LIQUIDITY AND CAPITAL ASSETS
CURRENT ASSETS: As of March 31,June 30, 2015 and December 31, 2014, the Company had cash and cash equivalents of $4,125$14,809 and $37,177, respectively. These assets are used as working capital to execute the Company's business plan. The Company requirescontinues to require additional capital through debt or equity financing to fund operations.
PROPERTY AND EQUIPMENT, NET: Property and Equipment, net as of March 31,June 30, 2015 and December 31, 2014 were $4,665$4,330 and $4,730, respectively.
OTHER ASSETS: During the threesix month period ended March 31,June 30, 2015, it was determined that a long-term investment in an LLC was impaired for the entire carrying value.value as the entity discontinued operations. The change in fair value for the long-term investment resulted in an impairment loss of $21,438 during the threesix month period ended March 31,June 30, 2015.
LIABILITIES: Liabilities include a line of credit from its President which was $10,769 on December 31, 2014 and rose to $25,945 by March 31,$30,414 as of June 30, 2015.
SHAREHOLDERS' DEFICIT: Accumulated deficit totaled $5,170,060$5,276,610 on March 31,June 30, 2015, up from $5,052,829$5,077,759 on December 31, 2014. The shares issued and outstanding as of March 31,June 30, 2015 and December 31, 2014 were 10,305,07710,380,077 and 10,273,410, respectively.
OFF-BALANCE SHEET TRANSACTIONS: There are no off-balance sheet items, all transactions are in U.S. dollars, and SAI is not currently subject to currency fluctuations or similar market risks.
SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS: The Company considers highly liquid investments purchased with an original maturity of three months or less to be cash equivalents.
AVAILABLE FOR SALE SECURITIES: The Company holds certain investments that are treated as available-for-sale securities and stated at their fair market values. All investments are available for current operations and are classified as other assets in the balance sheet. Realized gains and losses are determined by the specific identification method and are included in 'Other Income (Loss)' in the income statement. There are currently no such available for sale securities.
INVESTMENTS IN A LIMITED LIABILITY COMPANY: The Company holdsheld a minor (3%) investment in a Limited Liability Company (LLC). The equity method of accounting for investments in general partnerships is generally appropriate for accounting by limited partners for their investments in limited partnerships. The Company's interest is so minor as a limited partner that the Company has virtually no influence over the operating and financial policies of the LLC. As such, accounting for the investment using the cost method is appropriate. Under the cost method, income recognized by the investor is limited to distributions received, except that distributions that exceed the investor's share of earnings after the date of the investment are applied to reduce the carrying value of the investment.
The long-term investment was impaired for the full carrying value of $21,438 during the threesix month period ended March 31,June 30, 2015 as the LLC is currently dormant.
RESEARCH AND DEVELOPMENT: Research and development expenses are expensed as incurred until technological feasibility can be determined. Upfront and milestone payments made to third parties in connection with research and development collaborations are expensed as incurred up to the point of regulatory approval, marketability, licensing, lease, or sale when the net present value and useful life is able to be determined. Costs associated with intellectual property protection have been expensed until such time as the useful can be determined, at which time, amounts capitalized will be included in intangible property, less the net of accumulated amortization.
REVENUE RECOGNITION: Revenue is not be recognized until it is realized or realizable and earned. An extended discussion regarding the sources of revenue expected as well as how revenue from these sources will be recognized can be found under 'Revenue Recognition' in the Financial Statements.
PROPERTY AND EQUIPMENT: Property and equipment are carried at cost less accumulated depreciation. Depreciation is based on the estimated service lives of depreciable assets and is provided using the straight line method. In the case of disposals, assets and related depreciation are removed from the accounts, and the net amounts, less proceeds from disposal, are included in income.
INCOME TAXES: The Company takes an asset and liability approach to financial accounting and reporting for income taxes. Difference between the financial statement and tax basis of assets and liabilities is determined annually. Deferred income tax assets and liabilities are computed for those differences that have future tax consequences using the currently enacted tax laws and rates that apply to the periods in which they are expected to affect taxable income. Valuation allowances are established, if necessary, to reduce the deferred tax asset to the amount that will assure full realization. As of March 31,June 30, 2015, the Company recorded a valuation allowance that reduced its deferred tax assets to zero.
CONCENTRATIONS OF CREDIT RISK: Financial instruments which may subject the Company to significant concentrations of credit risk consist primarily of investment securities. Investment securities are exposed to various risks, such as interest rate, market and credit risks. Due to the level of risk associated with certain investment securities, it is reasonably possible that changes in the values of investment securities can occur in the near term and that such change could materially affect the amounts reported in the financial statements.
INTANGIBLE ASSETS OR LONG-LIVED ASSETS: The Company amortizes intangible assets over their estimated useful lives unless such lives are deemed indefinite. Amortized intangible assets are tested for impairment based on undiscounted cash flows, and, if impaired, written down to fair value based on either discounted cash flows or appraised values. Intangible assets with indefinite lives are tested annually for impairment and written down to fair value as required.
DEFERRED TAX ASSET: A valuation allowance was recognized for the full amount of the deferred tax asset because, based on the weight of available evidence, it is more likely than not that some portion or the entire deferred tax asset will not be realized.
NET LOSS PER SHARE: Basic loss per share is computed by dividing net income available to common shareholders by the weighted average number of common shares outstanding for the period.
PLAN OF OPERATION AND FUNDING
We anticipate that required working capital will continue to be funded through a combination of our existing funds and further issuances of securities. Working capital requirements will likely to increase in line with the business growth. Existing working capital, further advances, debt instruments, and firm commitments are expected to be adequate to fund our operations over the next three months. We have no lines of credit or other bank financing arrangements. Generally, we have financed operations to date through the proceeds of the private placement of equity and debt instruments. In connection with our business plan, management anticipates additional increases in operating expenses and capital expenditures relating to: i) technology development, ii) marketing and commercialization, and iii) intellectual property protection. We intend to finance these expenses with further issuances of securities, and debt issuances. Thereafter, we expect we will need to raise additional capital and generate revenues to meet long-term operating requirements.
Additional issuances of equity or convertible debt securities will result in dilution to our current shareholders. Also, such securities may have rights, preferences or privileges senior to our common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, we may not be able to take advantage of prospective new business endeavors or opportunities, which could significantly and materially restrict our business operations.
MATERIAL COMMITMENTS: The Company currently leases office space, from its president, on a month to month basis at a rate of $700 per month.
PURCHASE OF SIGNIFICANT EQUIPMENT: We do not intend to purchase any significant equipment during the next six months.
ITEM 3. Quantitative and Qualitative Disclosures about Market Risk
Not applicable to smaller reporting companies.
ITEM 4. Controls and Procedures
MANAGEMENT'S REPORT ON DISCLOSURE CONTROLS AND PROCEDURES: Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Exchange Act Rule 13a-15(f)). Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States of America. Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that compliance with the policies or procedures may deteriorate.
Management evaluated the effectiveness of the Company's internal control over financial reporting as of March 31,June 30, 2015, using the criteria established in 'Internal Control-Integrated Framework' issued by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO").
A material weakness is a deficiency, or combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis. In its assessment of the effectiveness of internal control over financial reporting as of March 31,June 30, 2015, based on the above referenced guidelines, the Company determined that there were control deficiencies that constituted material weaknesses, as described below.
1) We do not have an Audit Committee -– While not being legally obligated to have an audit committee is not required, it is the management's view that such a committee, including a financial expert member, is an important entity level control over the Company's financial statement. Currently the Board of Directors acts in the capacity of the Audit Committee, and doeswe do not includecurrently have a member that is considered to be independent of management to provide the necessary oversight over management's activities.
2) We did not maintain appropriate cash controls - As of March 31,June 30, 2015, the Company has not maintained sufficient internal controls over financial reporting for the cash process, including failure to segregate cash handling and accounting functions, and did not require dual signature on the Company's bank accounts. Alternatively, the effects of poor cash controls were mitigated by the fact that the Company had limited transactions in their bank accounts.
3) We did not implement appropriate information technology controls - As of March 31,June 30, 2015, the Company retains copies of all financial data and material agreements and periodically make backups of the Company's data; however there is no formal procedure or evidence of normal backup of the Company's data or off-site storage of data in the event of theft, misplacement, or loss due to unmitigated factors.
Accordingly, the Company concluded that these control deficiencies resulted in a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected on a timely basis by the company's internal controls. As a result of the material weaknesses described above, management has concluded that the Company did not maintain effective internal control over financial reporting as of March 31,June 30, 2015 based on criteria established in Internal Control - Integrated Framework issued by COSO.
CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING: There has been no change in our internal control over financial reporting identified in connection with our evaluation we conducted of the effectiveness of our internal control over financial reporting as of March 31,June 30, 2015, that occurred subsequent to the evaluation that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
This quarterly report does not include an attestation report of the Company's registered public accounting firm regarding internal control over financial reporting. Management's report was not subject to attestation by the Company's registered public accounting firm pursuant to rules of the SEC applicable to an Emerging Growth Company that permit the Company to provide only management's report in this quarterly report.
PART II
ITEM 1. Legal Proceedings
We know of no legal proceedings to which we are a party or to which any of our property is the subject which are pending, threatened or contemplated or any unsatisfied judgments against us.
Not applicable to smaller reporting companies.
ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
During the threesix months ended March 31,June 30, 2015, the Company made the following Common Stock issuances:
1) | 21,66746,667 shares of common stock valued at $32,500$70,000 to two consultants in exchange for services. |
2) | 10,000 shares of common stock valued at $15,000 to threeOfficers and members of the Board of Directors in exchange for services. |
Subsequent to March 31, 2015 the Company issued 25,000 shares of common stock valued at $25,000 to consultants in exchange for services.3) | 50,000 shares of common stock valued at $50,000 to partially repay line of credit-shareholder balance. |
These issuances of unregistered were exempt pursuant to Section 4(2) of the Securities Act as these were privately negotiated transactions in which there was no advertising and no commissions paid. Accordingly, the stock certificates representing these shares were issued with restrictive legends indicating that the shares have not been registered and may not be traded until registered or otherwise exempt from registration.
ITEM 3. Defaults Upon Senior Securities
Not Applicable
ITEM 4. Mine Safety Disclosures
Not Applicable
ITEM 5. Other Information
Not Applicable
The following exhibits are filed as part of this Quarterly Report.
* Furnished herewith. XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, and otherwise is not subject to liability under these sections.
In accordance with the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been signed by the following persons in the capacities and as of the dates indicated.