You should read the following discussion and analysis of our financial condition
and plan of operations together with our accompanying consolidated financial
statements and the related notes appearing elsewhere in this Annual Report on
Form 10-K. In addition to historical information, this discussion and analysis
contains forward-looking statements that involve risks, uncertainties and
assumptions. Our actual results may differ materially from those discussed
below. Factors that could cause or contribute to such differences include, but
are not limited to, those identified below, and those discussed in the section
titled "Risk Factors" included elsewhere in this Annual Report on Form 10-K. All
amounts in this report are in U.S. dollars, unless otherwise noted.
Overview
The Company is dedicated to: (1) advancing access to clinical trial research;
and (2) improving and simplifying access to vaccines and pharmaceutical
products. Currently the Company provides these services through its portfolio
companies, Clinical Research Alliance, Inc. ("CRA"), and Worker's Health Rx
(d/b/a "Vitality Rx").
Our vision for the Company is to continue to grow by acquiring controlling
interests in healthcare-related businesses with strong leadership teams,
innovative products and services, and proven technologies or processes that
expand access to high quality healthcare and improve overall health outcomes and
physical well-being. Our goal at Optimus is to empower physicians and patients
with the information, guidance and tools needed to make informed health care
choices. The Company seeks synergies among its portfolio companies and
facilitates access to its management team which has extensive industry
experience and its network of financial and business partners to help finance
growth and accelerate business market trajectories.
Clinical Research Alliance
On December 28, 2020, the Company acquired 100% of the outstanding equity
interests in Optimus Healthcare Services, Inc., a Delaware corporation
("Optimus"), in exchange for 9,998,899 shares of its Series A convertible
preferred stock and 18,000,000 shares of its common stock. In connection with
the transaction all prior officers and directors of the Company resigned (except
for Michael Pruitt) and new officers and directors were appointed as officers
and directors of the Company. On November 25, 2020, Clinical Research Alliance
Acquisition Corp. ("CRAAC"), an entity 99% owned by Optimus, acquired 100% of
the outstanding equity interests in CRA in exchange for 70 shares of its common
stock.
CRA provides services to a world-class team of dedicated oncologists across the
Tri-State area that are united by a shared commitment to conduct clinical
research. CRA provides independent, community-based oncology practices and
hospitals in diverse communities with the necessary infrastructure and support
to enroll their patients in cutting edge clinical trials without the patients
having to leave their physicians' offices, hospitals or their local communities.
CRA currently supports a number of community-based oncology practices and has
signed an agreement with its first acute care hospital in Brooklyn, New York.
CRA's current focus is with oncologists in private practice, as well as rural
and small hospitals in diverse communities.
CRA contracts with pharmaceutical companies and Contract Research Organizations
("CRO") to conduct clinical trials (Phases I-IV) for investigational new drugs,
biologics and medical devices, and has worked with over 40 pharmaceutical
companies since inception. CRA's customers consist primarily of large and
mid-sized pharmaceutical and biotech companies. In the last 12 years, CRA has
conducted approximately 180 clinical trials. As CRA was the highest enroller in
many of these clinical trials, many of those clinical trials led to FDA approval
for the trial compounds used to treat various cancers. Depending on the clinical
trial design, CRA invoices the pharmaceutical manufacturer for some or all of
the following services: startup fees, diagnostic tests, laboratory tests,
patient stipends, pharmacy fees, patient visits, document storage and the
reporting of serious adverse events.
CRA also contracts with independent community-based oncology practices and
hospitals in diverse communities to assist in the conduct of the clinical
trials. CRA's services to the community-based practices and hospitals in diverse
communities include:
(1) maintaining the documentation necessary for the conduct of the clinical
trial;
(2) obtaining Internal Review Board ("IRB") approval;
(3) collecting data required by the trial protocol;
(4) filing regulatory and compliance related documentation; and
(5) dispensing drugs necessary to conduct the clinical trial.
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Our contracts with the community-based oncology practices and hospitals include
specific budgets for particular services rendered. The contracts may range in
duration from a few months to several years or longer depending on the nature of
the work performed. In some cases, a portion of the contract fee is paid at the
time the contract is executed with the balance of the contract fee payable
either monthly or in installments upon the achievement of milestones over the
study duration. Our contracts generally may be terminated or reduced in scope
either immediately or upon short notice. Our contracts with our community-based
oncology practices and hospitals result in the payment of fees for services
rendered to the principal investigator that is conducting a particular clinical
trial. The COVID-19 pandemic did not impact any open trials that were ongoing as
CRA was able to conduct business remotely instead of through on-site visits.
However, it did impact the number of new trials that were initiated in 2020 and
2021. The number of oncology trials rebounded in 2022.
CRA employs experienced Clinical Research Coordinators that travel to the
community-based oncology practices and hospitals for required study visits.
Additionally, CRA's principal investigator for a specific clinical trial is in
contact with the oncology practices and hospitals to provide the necessary
oversight. Community-based oncology practices and hospitals choose CRA because
we provide the opportunity to conduct and conveniently enroll their patients in
important clinical trials often unavailable to those community-based oncology
practices and hospitals. In addition, CRA is committed to increasing clinical
trial access to patients from diverse and underserved communities that will
better represent the real-world population. Although CRA's historical focus has
been in the area of oncology, in the future we intend to expand our therapeutic
reach into other therapeutic areas, including possibly gastroenterology,
dermatology, cardiology, urology and ophthalmology. The National Institutes of
Health estimate that there are currently 126,164 active clinical studies in
these therapeutic areas.
The clinical research industry is fragmented, consisting of many small, niche
service providers, a number of medium-sized providers and a number of large CROs
that are differentiated by the scale of their global operations, breadth of
service portfolios and supporting technology infrastructure. Companies like CRA
generally compete on the basis of previous product experience, the ability to
recruit patients, the depth of therapeutic and scientific expertise, the
strength of project teams, price and increasingly on the ability to apply new
innovation that can drive significant time and cost savings throughout the
development process.
On May 1, 2020, CRA entered into a note agreement for an aggregate principal
amount of $146,250 with JPMorgan Chase Bank, N.A. ("JPMorgan Chase") under the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act") administered by
the U.S. Small Business Administration ("SBA") (the "2020 PPP Loan"). On
February 19, 2021, CRA entered into a note agreement for an aggregate principal
amount of $148,975 with JPMorgan Chase under the CARES Act administered by the
SBA (the "2021 PPP Loan" and together with the 2020 PPP Loan, the "PPP Loans").
CRA received total aggregate proceeds of $295,225 under the PPP Loans. In
accordance with the requirements of the CARES Act, CRA used proceeds from the
PPP Loans primarily for payroll costs. The 2020 PPP Loan was scheduled to mature
on May 1, 2021 and the 2021 PPP Loan was scheduled to mature on February 19,
2022, each with a 1% interest rate and subject to the terms and conditions
applicable to loans administered by the SBA under the CARES Act. $126,545.50 of
the 2020 PPP Loan was forgiven on March 26, 2021. The remaining balance of
$19,136.50 of the 2020 PPP Loan was not forgiven because an employee was
terminated during the period. This amount is due in five years and is being
repaid on a monthly basis. The 2021 PPP Loan was fully forgiven on November 3,
2021.
PainScript
On March 25, 2021, Optimus Health, a wholly owned subsidiary of the Company,
acquired 100% of the outstanding equity interests in AdhereRx Corporation (d/b/a
PainScript) ("PainScript") in exchange for an aggregate of 2,000,000 shares of
the Company's common stock, including shares issuable upon satisfaction of
certain milestones. On December 28, 2021, we entered into an amendment to the
stock acquisition agreement by and among the Company, Optimus Health, PainScript
and Daniel Cohen, pursuant to which we agreed to modify the commercial
milestones which needed to be achieved for the release of 400,000 shares of the
Company's common stock to be equal to: (i) the generation of at least $80,000 in
aggregate revenue between December 31, 2021 and March 31, 2022; or (ii) between
December 31, 2021 and March 31, 2022, the entry into one or more commercial
enterprise contracts that will generate revenue during their term not less than
$200,000 from commercial sales of the Chronic Care Management application (a
"Commercialization Success"). On April 13, 2022, we entered into a second
amendment to the stock acquisition agreement by and among the Company, Optimus
Health, PainScript Corporation and Daniel Cohen, pursuant to which we agreed
that upon a Commercialization Success and the Company's receipt of revenue in
excess of $200,000 from the commercial enterprise contracts entered into in
connection with such Commercialization Success or a Change of Control (as
defined therein), the Company shall release the 400,000 shares of Company common
stock to the PainScript shareholders.
On December 7, 2022, the Company entered into a stock acquisition agreement (the
"Dec 2022 Agreement") by and among the Company, Optimus Health, PainScript and
certain shareholders of the Company pursuant to which the Company agreed to
exchange 100% of the outstanding shares of PainScript for 1,600,000 shares of
the Company's common stock, which shares were then cancelled. The transactions
contemplated by the Dec 2022 Agreement closed on December 15, 2022. In
connection with the closing of the Dec 2022 Agreement, the 400,000 earnout
shares issued to the former shareholders of PainScript were also cancelled. In
addition, at closing, the Company provided a loan in the aggregate principal
amount of $200,000 to PainScript to cover employee liabilities and general
working capital. The loan bears interest at a rate of 8% per annum and matures
on the one-year anniversary of the original issuance date. To date, all interest
payments have been made. The loan is secured by a pledge of a majority of the
voting capital stock of PainScript held by certain PainScript shareholders. The
Company also contributed $100,000 to PainScript in order to cover outstanding
liabilities.
26
Vitality Rx
On January 28, 2022, the Company entered into a stock purchase agreement with
Worker's Health Rx, Inc., d/b/a Vitality Rx ("Vitality Rx") and Marc Wiener, the
sole shareholder, who is also our President, pursuant to which we acquired 100%
of the outstanding equity interests of Vitality Rx in exchange for the issuance
of 250,000 shares of our common stock and $350,000. The cash portion of the
purchase price has been paid in full.
Vitality Rx is an early-stage pharmacy dedicated to serving the pharmacy needs
of patients in the community and residing in Assisted Living and Independent
Living facilities throughout the tristate area. The pharmacy anticipates
maintaining an inventory of brand and generic medications needed to meet the
needs of this population. In addition, Vitality Rx is exploring the possibility
of providing IVIG to a number of physician offices in the community: including
but not limited to: neurologists, Ob/Gyn & infectious disease. This offering is
in a preliminary stage as a business plan is being constructed.
Recent Developments
On December 7, 2022, the Company entered into a stock acquisition agreement (the
"Dec 2022 Agreement") by and among the Company, Optimus Health, PainScript and
certain shareholders of the Company pursuant to which the Company agreed to
exchange 100% of the outstanding shares of PainScript for 1,600,000 shares of
the Company's common stock, which shares were then cancelled. The transactions
contemplated by the Dec 2022 Agreement closed on December 15, 2022. In
connection with the closing of the Dec 2022 Agreement, the 400,000 earnout
shares issued to the former shareholders of PainScript were also cancelled. In
addition, at closing, the Company provided a loan in the aggregate principal
amount of $200,000 to PainScript to cover employee liabilities and general
working capital. The loan bears interest at a rate of 8% per annum and matures
on the one-year anniversary of the original issuance date. To date, all interest
payments have been made. The loan is secured by a pledge of a majority of the
voting capital stock of PainScript held by certain PainScript shareholders. The
Company also contributed $100,000 to PainScript in order to cover outstanding
liabilities.
On June 7, 2022, we entered into a securities purchase agreement with certain
accredited investors pursuant to which we issued senior secured convertible
notes in an aggregate principal amount of $2.2 million for an aggregate purchase
price of $2.0 million (the "June 2022 Notes"). In connection with the issuance
of the June 2022 Notes, we issued to the investors warrants to purchase an
aggregate of 1,540,000 shares of common stock and 200,000 shares of common
stock.
The June 2022 Notes rank pari passu with the senior secured convertible notes
issued in a May 2021 financing (the "May 2021 Notes") and senior to all current
and future indebtedness of the Company and are secured by substantially all of
the assets of the Company. In addition, some of the Company's subsidiaries
entered into a subsidiary guaranty agreement and guaranteed the obligations owed
to investors under the Notes.
The May 2021 and June 2022 Notes each have a term of twenty-four months and
mature on May 25, 2024, and June 7, 2024, respectively, unless earlier
converted. The Notes accrue interest at a rate of 9% per annum, subject to
increase to 20% per annum upon and during the occurrence of an event of default.
Interest is payable in cash on a quarterly basis. The Notes are convertible at
any time, at the holder's option, into shares of our common stock at an initial
conversion price of $1.00 per share, subject to certain beneficial ownership
limitations (with a maximum ownership limit of 9.99%). The conversion price is
also subject to adjustment due to certain events, including stock dividends,
stock splits and in connection with the issuance by the Company of common stock
or common stock equivalents at an effective price per share lower than the
conversion price then in effect.
Each warrant is exercisable for a period of five years from the date of issuance
at an initial exercise price of $1.25 per share, subject to certain beneficial
ownership limitations (with a maximum ownership limit of 9.99%). The exercise
price is also subject to adjustment due to certain events, including stock
dividends, stock splits and in connection with the issuance by the Company of
common stock or common stock equivalents at an effective price per share lower
than the exercise price then in effect. The investors may exercise the warrants
on a cashless basis if the shares of common stock underlying the warrants are
not then registered pursuant to an effective registration statement. In the
event the investors exercise the warrants on a cashless basis, then we will not
receive any proceeds.
Registration Rights Agreements were executed in connection with the issuance of
the May 2021 and June 2022 Notes, the warrants and the common stock. If we fail
to have it filed with the SEC within 180 days following the date of the
financing, or if the Company fails to maintain the effectiveness of the
registration statement until all of such shares of common stock have been sold
or are otherwise able to be sold pursuant to Rule 144 under the Securities Act
of 1933, as amended, without any volume or manner of sale restrictions, then the
Company will be obligated to pay to the holders of the May 2021 and June 2022
Notes then, in addition to any other rights the holders may have hereunder or
under applicable law, until the applicable event of default is cured, liquidated
damages equal to an amount in cash, their pro rata portion of $20,000, on the
date of such event of default and on every thirtieth (30th) day (pro-rated for
periods totaling less than thirty days) thereafter. If the Company is not 144
eligible and if all the securities included by this Registration Statements and
the May 2021 Notes and June 2022 Notes are not subject to one or more
registration statements declared effective by the Commission within 180 days of
the date hereof, the following partial liquidated damages shall apply: (i) if
none of the registrable securities are so registered, $40,000 per month; and
(ii) if only the registrable securities covered by the May 2021 Registration
Rights Agreement are subject to a registration statement declared effective by
the Commission within the applicable time period, $20,000 per month, in each
case until cured.
27
On April 13, 2022, we entered into a second amendment to the stock acquisition
agreement by and among the Company, Optimus Health, PainScript and Daniel Cohen,
pursuant to which we agreed that upon a Commercialization Success and the
Company's receipt of revenue in excess of $200,000 from the commercial
enterprise contracts entered into in connection with such Commercialization
Success or a Change of Control (as defined therein), the Company shall release
the 400,000 shares of Company common stock to the PainScript shareholders.
On January 28, 2022, the Company entered into a stock purchase agreement with
Worker's Health Rx, Inc. (d/b/a "Vitality Rx") and Marc Wiener, the sole
shareholder, who is also our President, pursuant to which we acquired 100% of
the outstanding equity interests of Vitality Rx in exchange for the issuance of
250,000 shares of our common stock and $350,000. The cash portion of the
purchase price has been paid in full.
On December 17, 2021, the Company filed an amendment to its Amended and Restated
Articles of Incorporation amending the voting and conversion rights of the
Series A Preferred stock such that each share of Series A preferred stock now
converts into 1.25 shares of common stock and votes on an as converted basis.
On November 29, 2021, we entered into a non-binding Letter of Intent to acquire
all the outstanding capital stock of Worker's Health Rx., d/b/a Vitality Rx, for
250,000 shares of the Company's common stock and $350,000 cash.
We entered into a securities purchase agreement dated May 25, 2021, with funds
affiliated with Arena Investors LP ("Arena") pursuant to which we issued
convertible notes in an aggregate principal amount of $2.2 million for an
aggregate purchase price of $2.0 million (the "Notes"). In connection with the
issuance of the Notes, we issued Arena warrants to purchase an aggregate of
165,000 shares of common stock (the "May 2021 Warrants") and 1,727,859 shares of
common stock.
On March 25, 2021, Optimus Health, Inc., a wholly owned subsidiary of the
Company, acquired 100% of the outstanding equity interests in AdhereRx
Corporation (d/b/a PainScript) ("PainScript") in exchange for an aggregate of
2,000,000 shares of the Company's common stock, including shares issuable upon
satisfaction of certain milestones.
We filed a Certificate of Amendment with the Florida Secretary of State on
January 24, 2021, to reflect that we changed our name from Between Dandelions,
Inc. to Optimus Healthcare Services, Inc. In conjunction with the name change,
we received approval from the OTCIQ to change our company symbol from "HOPS" to
"OHCS."
On December 28, 2020, the Company acquired 100% of the outstanding equity
interests in Optimus Healthcare Services, Inc., a Delaware corporation
("Optimus") in exchange for 9,998,899 shares of its Series A convertible
preferred stock and 18,000,000 shares of its common stock. In connection with
the transaction all prior officers and directors of the Company (except Michael
Pruitt) resigned and new officers and directors were appointed as officers and
directors of the Company.
On November 25, 2020, Clinical Research Alliance Acquisition Corp. ("CRAAC"), an
entity majority owned by Optimus, acquired 100% of the outstanding equity
interests in Clinical Research Alliance, Inc. ("CRA") in exchange for 70 shares
of its common stock.
Impact of COVID-19
On January 30, 2020, the World Health Organization ("WHO") announced a global
health emergency because of a new strain of coronavirus originating in Wuhan,
China (the "COVID-19 outbreak") and the risks to the international community as
the virus spread globally beyond its point of origin. In March 2020, the WHO
classified the COVID-19 outbreak as a pandemic, based on the rapid increase in
exposure globally.
The full impact of the COVID-19 outbreak continues to evolve as of the date of
this Annual Report on Form 10-K. As such, it is uncertain as to the full
magnitude that the pandemic will have on our financial condition, liquidity, and
future results of operations. Management is actively monitoring the global
situation and its impact on our financial condition, liquidity, operations,
suppliers, industry, and workforce.
The ultimate impact of the COVID-19 pandemic is highly uncertain and subject to
change, and we do not yet know the full extent of potential delays or impacts on
our business, financing or clinical trial activities or on healthcare systems or
the global economy as a whole. The COVID-19 pandemic did not impact any open
trials that were ongoing as CRA able to conduct business remotely instead of
through on-site visits. However, it did impact the number of new trials that
were initiated in 2020 and 2021. Although we cannot estimate the length or
gravity of the impact of the COVID-19 outbreak nor estimate the potential impact
to our financial statements at this time, if the pandemic continues, it could
have a material adverse effect on our results of future operations, financial
position, liquidity, and capital resources, and those of the third parties on
which we rely.
28
OPTIMUS HEALTHCARE SERVICES, INC.
(FORMERLY BETWEEN DANDELIONS, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED DECEMBER 31, 2022 AND 2021
2022 2021
Net revenue $ 1,218,882 $ 827,266
Cost of sales 262,689 108,702
Gross profit 956,193 718,564
Operating expenses:
Stock based compensation 3,315,895 4,700,222
Personnel expenses 2,699,958 1,581,716
General and administrative expenses 2,330,568 1,499,791
Professional fees 675,943 676,613
Total operating expenses 9,022,364 8,458,342
Loss from operations (8,066,171 ) (7,739,778 )
Other income (expense):
Amortization of debt discount (1,131,629 ) (663,014 )
Forgiveness of PPP loan - 148,975
Interest expense (324,385 ) (157,330 )
Loss on extinguishment of debt & accounts payable (218,238 ) -
Loss on disposition of subsidiary (127,927 ) -
Net loss from investments (183,241 ) (22,560 )
Interest income 700 15,000
Total other income (expense) (1,984,720 ) (678,929 )
Loss before income tax (expense) benefit (10,050,891 ) (8,418,707 )
Income tax (expense) benefit (674,292 ) 666,616
Net loss $ (10,725,183 ) $ (7,752,091 )
Results of Operations
Comparison of the Years Ended December 31, 2022 and 2021
Net Revenues
Net Revenues were $1,218,882 for the year ended December 31, 2022 and $827,266
for the year ended December 31, 2021, an increase of $391,616. Revenues consist
primarily of services to pharmaceutical companies for the execution of oncology
clinical trials. The increase in revenues was a result of a rebound to normal
operations in 2022 versus the prior period where the lower revenues were
impacted by COVID-19 and reducing the number of oncology trials offered as many
pharmaceuticals companies changed their focus to vaccine development and
treatment for COVID-19.
Cost of Sales
Cost of Sales were $262,689 for the year ended December 31, 2022 and $108,702
for the year ended December 31, 2021, an increase of $153,987. Cost of Sales
consist primarily of outside physician services. The increase in cost of sales
was a result of a rebound to normal operations in 2022 versus the prior period
where the lower sales were impacted by COVID-19 and reducing the number of
oncology trials offered as many pharmaceuticals companies changed their focus to
vaccine development and treatment for COVID-19.
29
Gross Profit
Gross profit was $956,193 for the year ended December 31, 2022 and $718,564 for
the year ended December 31, 2021, an increase of $237,629. The increase in gross
profit was a result of a rebound to normal operations in 2022, in which sales
increased $391,616 to $1,218,882, versus the prior period where the lower sales
were impacted by COVID-19 and thus reduced the number of oncology trials offered
as many pharmaceuticals companies changed their focus to vaccine development and
treatment for COVID-19.
Stock-Based Compensation
Stock based compensation was $3,315,895 for the year ended December 31, 2022 and
$4,700,222 for the year ended December 31, 2021, a decrease of $1,384,327. Stock
based compensation consists of stock options and RSU's issued to employees and
consultants. During the year ended December 31, 2022, the Company incurred new
stock-based compensation expense of $6,247,005, which was offset by a reversal
of $2,931,110 due to previously recorded stock compensation reversed for stock
cancellation that did not yet vest.
Personnel Expenses
Personnel expenses were $2,699,958 for the year ended December 31, 2022 and
$1,581,716 for the year ended December 31, 2021, an increase of $1,118,242.
Personnel expenses consist primarily of executive employment agreements, and
employee salaries and payroll taxes related to CRA and Vitality Rx due to
increased operating activities leading to increased sales during the year.
General and Administrative Expenses
General and administrative expenses were $2,330,568 for the year ended December
31, 2022 and $1,499,791 for the year ended December 31, 2021, an increase of
$830,777. General and administrative expenses consist primarily of insurance,
rent, study expenses and other corporate expenses to generally support the
current and future anticipated operations. The increase was a result of
increased operating activities and general support leading to increased sales
during the year, as well as supporting the Company's reverse merger and the
filing requirements with the Securities and Exchange Commission related to its
quarterly Form 10-Q, annual Form 10-K, and other reporting and filing
requirements.
Professional Fees
Professional Fees were $675,943 for the year ended December 31, 2022 and
$676,613 for the year ended December 31, 2021, a decrease of $670. Professional
Fees consist primarily of legal and accounting fees related to services
performed by outside vendors supporting the Company's reverse merger and the
filing requirements with the Securities and Exchange Commission related to its
quarterly Form 10-Q, annual Form 10-K, and other reporting and filing
requirements.
Loss from Operations
The Company had a loss from operations of $8,066,171 for the year ended December
31, 2022 and $7,739,778 for the year ended December 31, 2021, an increase of
$326,393 as a result of the foregoing factors.
Amortization of Debt Discount
Amortization of Debt Discount was $1,131,629 for the year ended December 31,
2022 and $663,014 for the year ended December 31, 2021, an increase of $468,615.
The increase was a result of new convertible debt issued in 2022.
Forgiveness of PPP Loan
Forgiveness of a payroll protection loan was $0 for the year ended December 31,
2022 and $148,975 for the year ended December 31, 2021, a decrease of $148,975.
Interest Expense
Interest expense was $324,385 for the year ended December 31, 2022 and $157,330
for the year ended December 31, 2021, an increase of $167,055. Interest expense
consists primarily of interest on convertible debt. The increase was a result of
new convertible debt issued in 2022 and the resultant interest expense.
30
Loss on extinguishment of debt & accounts payable
Loss on extinguishment of debt and accounts payable was $218,238 for the year
ended December 31, 2022 and $0 for the year ended December 31, 2021, an increase
of $218,238. During the year ended December 31, 2022, the Company issued 362,000
shares of common stock valued at $561,100 in satisfaction of $342,862 in
accounts payable resulting in a loss on extinguishment of debt and accounts
payable in the amount of $218,238.
Loss on disposition of subsidiary
Loss on disposition of subsidiary was $127,927 for the year ended December 31,
2022 and $0 for the year ended December 31, 2021, an increase of $127,927.
During the year ended December 31, 2022, the Company disposed of its subsidiary,
PainScript, resulting in a loss on disposition of subsidiary in the amount of
$127,927.
Net Loss from Investments
Net loss from investments was $183,241 for the year ended December 31, 2022 and
$22,560 for the year ended December 31, 2021, an increase of $160,681. Net loss
from investments consists of realized and unrealized gains from marketable
securities purchased in 2021. For the year ended December 31, 2022, the net loss
from investments consisted of $203,371 in unrealized loss and $20,130 of
realized gain. For the year ended December 31, 2021, the net loss from
investments consisted of $69,269 in unrealized loss and $46,709 of realized
gain.
Interest Income
Interest income was $700 for the year ended December 31, 2022 and $15,000 for
the year ended December 31, 2021, a decrease of $14,300. Interest income
consists primarily of interest on a short-term loan receivable.
Income Taxes
The income tax expense was $674,292 for the year ended December 31, 2022 and the
income tax benefit was $666,616 for the year ended December 31, 2021. As of
December 31, 2022, we have provided a full valuation allowance against all of
the net deferred tax assets. This was based on management's assessment,
including its cumulative operating losses, that it is more likely than not that
the net deferred tax assets may not be realized in the future. We continue to
evaluate for potential utilization of our deferred tax asset, which has been
fully reserved for, on a quarterly basis, reviewing our economic models,
including projections and timing of orders, cost containment measures and other
factors.
Net Loss
As a result of the foregoing factors, net loss was $10,725,183 for the year
ended December 31, 2022 and $7,752,091 for the year ended December 31, 2021, an
increase of $2,973,092.
Liquidity and Capital Resources
The Company's current operations have been focused on business planning and
raising capital. The Company has sustained operating losses since inception and
expects such losses to continue over the foreseeable future. In May 2021, the
Company issued approximately $2.2 million aggregate principal amount of
convertible notes and in June 2022, the Company issued an additional $2.2
million aggregate principal amount of convertible notes on the same terms as the
Notes issued in May 2021. Any outstanding amounts of these convertible notes
mature on May 25, 2024 and June 7, 2024, respectively. Substantial additional
financing will be needed by the Company to fund its operations and to
commercially develop its services. Management is currently evaluating different
strategies to obtain the required funding for future operations. These
strategies may include but are not limited to: private offerings of Common
Stock, public offerings of equity and/or debt securities, payments from
potential strategic research and development and licensing and/or marketing
arrangements. Management believes that these ongoing and planned financing
endeavors, if successful, will provide adequate financial resources to continue
as a going concern for at least the next six months from the date the financial
statements are issued; however, there can be no assurance in this regard. If the
Company is unable to secure adequate additional funding, its business, operating
results, financial condition and cash flows may be materially and adversely
affected.
The independent auditors' report accompanying our December 31, 2022 and 2021
financial statements contains an explanatory paragraph expressing substantial
doubt about our ability to continue as a going concern. The financial statements
of the Company have been prepared on a going-concern basis, which contemplates
the realization of assets and the satisfaction of liabilities in the normal
course of business. Accordingly, the financial statements do not include any
adjustments that might be necessary should the Company be unable to continue in
existence. The Company has incurred substantial losses and negative cash flows
from operations since its inception and has an accumulated deficit of
approximately $19,032,561 for the year ended December 31, 2022. The Company
anticipates incurring additional losses until such time, if ever, that it can
generate significant sales or revenue from its services. These factors raise
substantial doubt about the Company's ability to continue as a going concern.
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As of December 31, 2022, we had cash of $751,017 and working capital of
$193,033. We will, however, in the future require additional cash resources to
fund operating losses, due to changing business conditions, implementation of
our strategy to expand our business, or other investments or acquisitions we may
decide to pursue. If our own financial resources are insufficient to satisfy our
capital requirements, we may seek to sell additional equity or debt securities.
The sale of additional equity securities could result in dilution to our
stockholders. The incurrence of indebtedness would result in increased debt
service obligations and could require us to agree to operating and financial
covenants that would restrict our operations. Financing may not be available in
amounts or on terms acceptable to us, if at all. Any failure by us to raise
additional funds on terms favorable to us, or at all, could limit our ability to
expand our business operations and could harm our overall business prospects.
The ability of the Company to continue as a going concern is dependent on the
Company's ability to raise additional capital and implement its business plan.
The financial statements do not include any adjustments that may be necessary if
the Company is unable to continue as a going concern. Management believes that
actions presently being taken to obtain additional funding and implement its
strategic plans for the Company's operating businesses provide the opportunity
for the Company to continue as a going concern.
On January 10, 2023, the Company sold 675,000 shares of common stock for $1.00
per share, or $675,000.
During the year ended December 31, 2022, we had net cash flow used in operating
activities of $4,037,342. The cash flow used in operating activities resulted
primarily from the net loss for the period, as partially offset by non-cash
charges for stock-based compensation and stock issuance costs amortization of
debt discounts, income tax provision for valuation allowance and depreciation
expense.
We had net cash flow provided by investing activities of $651,460 for the year
ended December 31, 2022. The cash provided by investing activities was primarily
the result of net sales and purchases of marketable securities.
We had net cash flow provided by financing activities of $3,876,061 for the year
ended December 31, 2022. The cash provided by financing activities was primarily
the result of proceeds from sales of the Company's Common Stock and convertible
securities financings.
As a result of the foregoing, the Company had a net increase in cash of $490,179
during the year ended December 31, 2022.
On May 1, 2020, the Company entered into a note agreement for an aggregate
principal amount of $146,250 with JPMorgan Chase Bank, N.A. ("JPMorgan Chase")
under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act")
administered by the U.S. Small Business Administration ("SBA") (the "2020
PPP Loan"). On February 19, 2021 the Company entered into a note agreement for
an aggregate principal amount of $148,975 with JPMorgan Chase under the CARES
Act administered by the SBA (the "2021 PPP Loan"). The Company received total
aggregate proceeds of $295,225 under the PPP Loan. In accordance with the
requirements of the CARES Act, the Company used proceeds from
the PPP Loan primarily for payroll costs. The 2020 PPP Loan was scheduled to
mature on May 1, 2021 and the 2021 PPP Loan was scheduled to mature on February
19, 2022, each with a 1% interest rate and is subject to the terms and
conditions applicable to loans administered by the SBA under the CARES Act.
$126,545.50 of the 2020 PPP Loan was forgiven on March 26, 2021. The remaining
balance of $19,136.50 of the 2020 PPP Loan was not forgiven because an employee
was terminated during the period. This amount is due in five years and is being
repaid on a monthly basis. The 2021 PPP Loan was fully forgiven on November 3,
2021.
The impact of COVID-19 on our business has been considered in these assumptions;
however, it is too early to know the full impact of COVID-19 or its timing on a
return to more normal operations.
Critical Accounting Policies
We consider the following accounting policies to be critical given that they
involve estimates and judgments made by management and are important for our
investors' understanding of our operating results and financial condition. For
more information see Note 2 to our audited financial statements beginning on
page F-11 of this Annual Report on Form 10-K.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires
management to make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and liabilities at
the date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. The most significant assumptions and
estimates relate to the valuation of equity issued for services, valuation of
equity associated with convertible debt, the valuation of derivative
liabilities, and the valuation of deferred tax assets. Actual results could
differ from these estimates.
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Revenue Recognition
The Company recognizes revenue in accordance with Accounting Standards Update
("ASU") 2014-09, "Revenue from contracts with customers,"(Topic 606). Revenue is
recognized when a customer obtains control of promised goods or services. In
addition, the standard requires disclosure of the nature, amount, timing, and
uncertainty of revenue and cash flows arising from contracts with customers. The
amount of revenue that is recorded reflects the consideration that the Company
expects to receive in exchange for those goods or services. The Company applies
the following five-step model in order to determine this amount: (i)
identification of the promised goods in the contract; (ii) determination of
whether the promised goods are performance obligations, including whether they
are distinct in the context of the contract; (iii) measurement of the
transaction price, including the constraint on variable consideration; (iv)
allocation of the transaction price to the performance obligations; and (v)
recognition of revenue when (or as) the Company satisfies each performance
obligation. The Company recognizes as revenues the amount of the transaction
price that is allocated to the respective performance obligation when the
performance obligation is satisfied or as it is satisfied. The Company's main
revenue stream is from services. Generally, the Company's performance
obligations are transferred to customers at a point in time, typically upon
delivery. For services performed by CRA, the Company's performance obligations
are generally met at the point in time the services are rendered.
Derivative Liability
The Company evaluates convertible instruments, options, warrants or other
contracts to determine if those contracts or embedded components of those
contracts qualify as derivatives to be separately accounted for under ASC Topic
815, "Derivatives and Hedging". The result of this accounting treatment is that
the fair value of the derivative is marked-to-market each balance sheet date and
recorded as a liability. In the event that the fair value is recorded as a
liability, the change in fair value is recorded in the statement of operations
as other income (expense). Upon conversion or exercise of a derivative
instrument, the instrument is marked to fair value at the conversion date and
then that fair value is reclassified to equity. Equity instruments that are
initially classified as equity that become subject to reclassification under ASC
Topic 815 are reclassified to liabilities at the fair value of the instrument on
the reclassification date. The Company currently has no derivative liability
instruments.
Goodwill
We assess goodwill for impairment annually, or more frequently if events or
changes in circumstances indicate that it might be impaired, by comparing its
carrying value to the reporting unit's fair value. For the years ended December
31, 2022 and 2021, we determined that there was no goodwill impairment.
Stock Based Compensation
The Company records stock-based compensation in accordance with the provisions
of FASB ASC Topic 718, "Accounting for Stock Compensation," which establishes
accounting standards for transactions in which an entity exchanges its equity
instruments for goods or services. In accordance with guidance provided under
ASC Topic 718, the Company recognizes an expense for the fair value of its stock
awards at the time of grant and the fair value of its outstanding stock options
as they vest, whether held by employees or others. The Company uses the
Black-Scholes option-pricing model to compute the estimated fair value of option
awards and includes assumptions regarding expected volatility, expected option
term, dividend yields and risk-free interest rates. For the years ended December
31, 2022 and 2021, the Company recorded $3,315,895 and $4,700,222 in stock-based
compensation expense, respectively.
Inflation
We believe that inflation has not had a material adverse impact on our business
or operating results during the periods presented.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements as of the date of this Annual Report
on Form 10-K.
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